credit analysis arab petroleum investments corporation ...end 2014) and extends debt financing to...

CREDIT ANALYSIS

RATINGS

APICORP Rating Outlook

Long-term Issuer Aa3 Stable Short-term Issuer P-1 -- Senior Unsecured Aa3 Stable

Table of Contents:

OVERVIEW AND OUTLOOK 1Organizational Structure and Strategy 2

RATING RATIONALE 5Capital Adequacy: High 5Liquidity: High 10Strength of Member Support: High 13Rating Range 15Comparatives 16

APPENDICES 17Rating History 17Annual Statistics 18

MOODY’S RELATED RESEARCH 22RELATED WEBSITE 22

Analyst Contacts:

FRANKFURT +49.69.7073.0700

Steffen Dyck +49.69.7073.0942 Vice President - Senior Analyst [email protected]

DIFC +971.4.401.9536

Aurelien Mali +971.4.237.9537 Vice President - Senior Analyst [email protected]

Mathias Angonin +971.4.237.9548 Analyst [email protected]

» contacts continued on the last page

Arab Petroleum Investments Corporation (APICORP) Supranational

Overview and Outlook

The Arab Petroleum Investments Corporation (APICORP) is a multilateral development bank (MDB), wholly owned by the ten member states of the Organization of Arab Petroleum Exporting Countries (OAPEC). Its Aa3 long-term and Prime-1 short-term debt ratings balance strong capital adequacy, a high-quality investment asset portfolio, de facto preferred creditor status and strong shareholder support against high geographic and sector concentration relative to peers. The rating outlook is stable.

APICORP has maintained a high level of equity relative to its risk assets, and its corresponding capital adequacy ratios exceed regulatory guidelines, specifically those of the Central Bank of Bahrain, where the Corporation maintains a wholesale banking branch. Relatively low leverage also contributes to APICORP’s high intrinsic financial strength.

APICORP continues to diversify its investments in line with its five-year business plan which runs from 2014 to 2018. In 2014, it further expanded its footprint in the midstream and downstream sectors of its member countries’ energy industry by acquiring a 28.3% stake in Dubai-headquartered National Petroleum Services (NPS, unrated). It also made its first investment in the power sector via a co-investment with Saudi Arabia (Aa3 stable)-based ACWA Power (unrated), and contributed to Powervest Fund (unrated), a Shariah-compliant specialized infrastructure fund, also located in Saudi Arabia.

APICORP has a strong track record of profitability that has bolstered the capital base over time. A rise in impairments and lower net interest income led to a 6.3% decline in net income in 2014, ending four successive years of record profits. However, APICORP’s total income continued to climb for the 3rd year in a row. While efforts to diversify its funding sources are ongoing, 2014 has witnessed a sharp increase in the short-term maturity gap. The degree to which the Corporation continues to be reliant on wholesale deposits adversely affects our assessment of its liquidity.

The sharp drop in global oil prices since mid-2014 poses a credit challenge, given the Corporation’s concentration on the oil and gas sector. Although asset quality or capital adequacy have not been materially impacted, an improvement in the operating environment would be credit positive. Since 2011, APICORP has faced a challenging operating environment given political turmoil in a number of member countries. In addition, geopolitical risks—notably those related to armed conflict—have become more prominent and currently constrain our assessment of the overall rating.

This Credit Analysis elaborates on APICORP’s credit profile in terms of Capital Adequacy, Liquidity and Strength of Member Support, which are the three main analytic factors in Moody’s Supranational Rating Methodology.

This Credit Analysis provides an in-depth discussion of credit rating(s) for APICORP and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody's website.

& SUPRANATIONAL SOVEREIGN SEPTEMBER 23, 2015

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Organizational Structure and Strategy

APICORP is an OAPEC company APICORP was established as an MDB on 23 November 1975 in accordance with an international agreement (“Establishing Agreement of APICORP”) signed and ratified by the ten member states of the OAPEC.1 Exhibit 1 shows the distribution of fully paid-in capital, with the largest shareholders being the governments of Saudi Arabia, the United Arab Emirates (Aa2 stable) and Kuwait (Aa2 stable). APICORP’s headquarters are located in Dammam, Saudi Arabia, and it has a wholesale banking branch in Manama, Bahrain.

EXHIBIT 1

APICORP’s shareholding structure Fully paid-in capital shares (as of 31 December 2014)

Note: Sovereign ratings in brackets are as of XX September 2015 Sources: APICORP, Moody’s Investors Service

APICORP is independent in its administration and in the performance of its activities. Unlike other MDBs, it carries out its operations on a commercial basis, in accordance with its statutes. APICORP allocates 10% of annual net income to its statutory reserve and has the option of distributing the remainder as dividends to its shareholders. There is no dividend policy in place and dividend distribution is mainly driven by surplus liquidity considerations. The Corporation has not paid out dividends in six out of seven years since 2008. Dividends were only paid in 2012 for the financial year 2011.

The Establishing Agreement of APICORP explicitly grants the Corporation privileges throughout OAPEC member countries. These privileges include (1) the pledge and undertaking to support APICORP, jointly and severally; (2) the granting of rights and privileges of nationality within any member country of OAPEC; (3) support for APICORP’s personnel in entry and residency throughout OAPEC; (4) exemption from payment of duties and all public and financial costs within OAPEC; (5) protection of assets against appropriation; (6) immunity from political risks; and (7) exemption from currency controls, including from convertibility and transfer restrictions. Membership in APICORP is explicitly limited to member countries of OAPEC, and any country that withdraws its membership from OAPEC is obliged to withdraw from APICORP.

Fulfils mandate through lending and equity investment operations APICORP’s mandate is to assist in financing petroleum projects and industries, and associated fields of activity of OAPEC members in order to strengthen member states’ economic and financial potential. In order to achieve its purpose, APICORP makes direct equity investments in (15% of total assets as of year-end 2014) and extends debt financing to (“Corporate Finance” loans, 46% of assets) local, regional, and international entities in the energy and petrochemical sectors, as well as the trading activities of first-tier

1 The principal objective of the OAPEC Agreement is the development of regional cooperation in the petroleum industry. In pursuit of this objective, OAPEC sponsored the creation of four companies: APICORP, the Arab Maritime Petroleum Transport Company, the Arab Shipbuilding and Repair Yard Company, and the Arab Petroleum Services Company.

UAE (Aa2)17%

Saudi Arabia (Aa3)17%

Kuwait (Aa2)17%

Libya (NR)15%

Iraq (NR)10%

Qatar (Aa2)10%

Algeria (NR)5%

Bahrain (Baa3)3%

Syria (NR)3%

Egypt (B3)3%

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

2 SEPTEMBER 23, 2015 CREDIT ANALYSIS: ARAB PETROLEUM INVESTMENTS CORPORATION (APICORP)

SOVEREIGN & SUPRANATIONAL

http://www.moodys.com/

Arab exporters and global traders with creditworthy importing countries. APICORP may conduct investments or financing proposals located outside the Arab region if it sees potential association with the interest and development of the wider energy industry in the Arab region. The rest of the assets consist of cash and cash equivalents, bank deposits, property and equipment, and are invested in liquid instruments. APICORP also provides advisory related to oil and gas finance and project development, and publishes macro-economic research with a focus on the oil and gas sector.

APICORP’s development mandate and its multilateral shareholding structure are typical of most MDBs. But it differs from other highly rated MDBs in that it fulfils its mandate by investing in the private sector, although a significant portion of its assets is indirectly associated with governments, through government-owned entities. We therefore consider APICORP’s business model slightly more vulnerable compared to most other MDBs, whose assets are largely characterized by direct sovereign exposure. The high concentration of assets in the oil and gas sector is also a difference between APICORP and some other MDBs.

In the context of heightened country risk in the Middle East, the Corporation’s strategy for its Project & Trade Finance loans is to maintain the current volume and contain the average maturity of its loan portfolio, while shifting focus to advisory services and trade/commodity finance. APICORP will focus trade/commodity finance activity on the Gulf Cooperation Council (GCC) countries.

According to its five-year business plan, loan growth will be moderate. Some of this growth will be done in partnership with other large MDBs. APICORP has well-established co-financing relationships with the European Investment Bank (EIB), International Finance Corporation (IFC), and the Islamic Development Bank (IsDB) and is working towards broadening its relationships with the European Bank for Reconstruction and Development (EBRD) and the African Development Bank (all rated Aaa).

Regarding its equity operations, APICORP’s strategy is to grow and diversify investments. Compared to its 2012 level of $318 million, equity investments have more than doubled in 2013, to $822 million, although most of this increase was the result of portfolio revaluation. Equity investments continued to rise further in 2014, hitting $866 million and now account for 32% of total loan operations. Consequently, the Corporation has added to its personnel to handle the increased volume. It also usually partners with public institutions and aims at occupying at least one seat on the Board of the investee, although with a planned exit strategy.

In 2012, APICORP established its Petroleum Shipping Fund as part of its diversification strategy.2 In 2013, it acquired a 5.86% stake in the Industrialization & Energy Services Company (TAQA), a Saudi-based holding company that expands APICORP’s footprint in the region’s midstream and downstream petroleum sectors. In 2014, it expanded its footprint in the midstream and downstream sectors of its member countries’ energy industry by acquiring a 28.3% stake in Dubai-headquartered National Petroleum Services (NPS, unrated). It also made its first investment in the power sector via a co-investment agreement with Saudi-based ACWA Power (unrated), and contributed to Powervest Fund (unrated), a Shariah-compliant specialized infrastructure fund, also located in Saudi Arabia.

As of 2014, APICORP’s largest equity holding is Saudi European Petrochemical Company (Ibn Zahr), a polypropylene manufacturer majority-owned by Saudi Basic Industries Corporation (SABIC, A1 stable), at a book value of $464 million, or 53.6% of all the Corporation’s equity investments (see Exhibit 2).

2 See APICORP Diversifies its Investment Activities, a Credit Positive, February 2013.




EXHIBIT 2

APICORP’s direct equity investments, as of 31 December 2014

Company Name Domiciled in Value (US$

Millions)

Saudi European Petrochemical Company (Ibn Zahr) Saudi Arabia 464.5

Egyptian Methanex Methanol Co. Egypt 107.6

NPS Holdings Limited UAE 105.4

Yanbu National Petrochemical Company (Yansab) Saudi Arabia 95.2

The Industrialization and Energy Services Company (TAQA) Saudi Arabia 46.8

Misr Oil Processing Company SAE Egypt 33.9

Arab Drilling and Workover Co. (Adwoc) Libya 5.8

Egyptian Bahraini Gas Derivative Co. Egypt 5.0

Tankage Mediterranee (Tankmed) Tunisia 1.1

Arab Geophysical Exploration Services Co. (Agesco) Libya 0.6

Notes: Yansab is the only listed company. Direct equity investments are measured at fair value, except in case of certain unlisted companies where reliable fair value measures are not available; those are carried at cost less impairment allowances (if any).

Source: APICORP

Wholesale deposit operations position APICORP as a unique MDB APICORP, unlike most MDBs, accepts wholesale deposits. The few other Moody’s-rated MDBs that take deposits – Corporacion Andina de Fomento (CAF, Aa3 stable), Central American Bank for Economic Integration (CABEI, A1 stable), Fondo Latinoamericano de Reservas (FLAR, Aa2 stable) – take the deposits primarily from shareholders, and they do not use the deposits as a source of funding for their banking operations.

APICORP’s business model differs from other MDBs, while sharing some characteristics with commercial banks in that it uses wholesale deposits to fund: i) primarily, treasury operations for profit and liquidity purposes and ii) a small portion of investment operations (around 10%). From the period 1998-2005, deposits from banks were the Corporation’s primary funding source – accounting for 65% of borrowings on average, with term financing loans comprising the remainder.

In 2006, APICORP started diversifying its deposit client base with the opening of its conventional wholesale bank branch in Bahrain, operating under a Conventional Wholesale Bank License granted by the Central Bank of Bahrain (CBB). The branch is governed by the regulations of the CBB, but like other offshore banks operating in Bahrain, it does not have access to central bank liquidity facilities. The purpose of the branch is to complement the treasury and capital market activities of the Corporation and provide banking facilities – predominantly letter-of-credit – to clients. As a result, deposits from corporates accounted for 38% of APICORP’s liabilities at year-end 2014 from 12% at year-end 2007, while deposits from banks amounted to 5% at year-end 2014, down from more than 50% before 2009.



Rating Rationale

Our determination of a supranational’s rating is based on three rating factors: Capital Adequacy, Liquidity and Strength of Member Support. For Multilateral Development Banks, the first two factors combine to form the assessment of Intrinsic Financial Strength, which provides a preliminary rating range. The Strength of Member Support can provide uplift to the preliminary rating range. For more information please see our Supranational Rating Methodology.

Capital Adequacy: High

Strong capital position and very low leverage offset moderate asset performance

Factor 1

Scale Very High High Medium Low Very Low

+ -

Capital adequacy assesses the solvency of an institution. The capital adequacy assessment considers the availability of capital to cover assets in light of their inherent credit risks, the degree to which the institution is leveraged and the risk that these assets could result in capital losses.

Our assessment of capital adequacy measures an MDB’s capacity to absorb credit or market losses stemming from its operations, and thus preserve its ability to repay debt holders. MDBs hold capital as a buffer against potential credit losses as a consequence of their lending and investment operations in sectors or regions that are naturally risky, in line with their mandates. In addition, most MDBs (including APICORP) do not have access to central bank liquidity facilities, given their supranational status. Hence, MDBs typically have significantly higher levels of capital adequacy than similarly rated commercial banks.

High levels of usable equity and relatively low leverage support capital adequacy APICORP calculates its capital adequacy ratio (Tier 1 + Tier 2 Capital/Total Risk-Weighted Exposure) at 28.8% at year-end 2014, up slightly from 28.7% at year-end 2013. This ratio exceeds the Basel II and Central Bank of Bahrain guidelines of 8% and 12%, respectively. According to APICORP’s minimum capital adequacy guideline, the ratio should not fall below 15%.

The capital adequacy ratio we use in our analysis of MDBs is the asset coverage ratio (ACR), which is the ratio of usable equity3 to the sum of loans, equity operations, and risk-weighted treasury assets. As of 2014, APICORP is in line with its peer group4 median, with an asset coverage ratio of 51%. Since 2009, APICORP’s ACR has trended upwards, which is the result of large capital increases that have outpaced the expansion of APICORP’s loan operations over time (see Exhibit 3). At the same time, its leverage ratio is at the lower end when compared to its peer group, as debt-to-usable equity stood at 114% in 2014 (see Exhibit 4), in line with its average since 2009, and below the 2017 target of 117%. Nevertheless, this ratio excludes deposits, which constitute a large source of funding for APICORP.

3 Paid-in capital + reserves + retained earnings. 4 Caribbean Development Bank (CDB, Aa1); Corporacion Andina de Fomento (CAF, Aa3); Inter-American Investment Corporation (IIC, Aa2) and Central American

Bank for Economic Integration (CABEI, A1).




EXHIBIT 3

ACR is in line with peers, leverage is lower

Source: Moody’s Investors Service

EXHIBIT 4

ACR has improved significantly since 2009

Source: Moody’s Investors Service

APICORP’S capital position is also supported by the strong quality of its asset portfolio, reflected in comparatively high and stable weighted average credit ratings for different asset classes. Based on the Corporation’s internal calculations, the weighted average credit rating of its total asset portfolio is estimated to be Aa, which is analogous to the weighted average borrower rating that we use to rate other MDBs. This breaks down into Project & Trade Finance loans showing a weighted average rating of Aa, Project Direct Equity averaging A, and treasury assets5 averaging A as well.6

In addition, around 28% of APICORP’s gross loans are guaranteed. As of end-2014, almost 62% of the guarantees are provided by government-related entities, while 28% are provided by private sector third-party entities – in many cases parent companies, and 10% by governments. Compared to 2013, the combined share of guarantees from governments and government related entities has slightly increased to 72% of all guarantees from 68%.

Asset performance is moderate The relatively high quality of APICORP’s asset portfolio mirrors our assessment of asset performance, which we regard as moderate given the Corporation’s mild—and falling—non-performing loans (NPL) ratio. At year-end 2014, gross NPLs represented 2.4% of gross project & trade finance loans, for which collateral and provisioning exists. This ratio is only slightly higher than the 2.3% reported in 20137 and down8 from 3.3% in 2011 due to no loans entering non-performing status during 2012 to 2014 and the restructuring of a Libyan-based loan during 2012. Current NPLs include loans granted to companies in Iraq and Sudan. Exhibit 5 shows a comparison of APICORP’s problem loans with its peers. However, while APICORP’s point-in-time and seven-year average NPL ratio is higher than for its peer group, it is worth mentioning that the seven-year average NPL ratio has been continuously declining, reaching 2.7% in 2014, down from 3.0% in 2013.

5 Loans account for 52% of APICORP’s assets, direct equity 14%, and treasury 31%. 6 Treasury investment policy does not allow for investments in securities rated below Baa3. Current treasury exposure to member governments are to GCC countries

only. 7 The increase in the NPL ratio results from the decline in outstanding gross loans. 8 The Corporation’s practice is to remove a loan from NPL status once all late payments have been paid.

0%

50%

100%

150%

200%

250%

APICORP (Aa3)

CDB (Aa1) IIC (Aa2) CAF (Aa3) CABEI (A1)

Usable Equity / (Gross Loans + Equity Investments)Debt / Usable Equity

0%

20%

40%

60%

80%

100%

120%

140%

160%

2009 2010 2011 2012 2013 2014

Usable Equity / (Gross Loans + Equity Investments)Debt / Usable Equity



EXHIBIT 5

APICORP has higher NPL ratios than its peers NPL, % of gross loans

Sources: Respective financial statements, Moody’s Investors Service

Despite having an asset base generally regarded as less creditworthy than that of APICORP, CAF has a strong track-record of maintaining low levels of NPLs. CABEI makes loans and guarantees primarily to governments and governmental entities with a sovereign guarantee. The CDB lends to the public sector and therefore preferred creditor status can have significant positive impact on asset performance. The IIC, on the other hand, lends only to the private sector and therefore receives very limited benefit from preferred creditor status, which is also reflected in the rise in its NPL ratio in 2014.

APICORP’s relatively weaker asset performance reflects, in part, the challenging geopolitical environment in which it operates. However, while APICORP’s relative position is weak, the absolute size of NPLs remains fairly small and stable, and is fully provisioned (see Exhibit 6), mitigating any corresponding credit concern. Specific provisions were increased in 2014, in order to cover geopolitical uncertainties in Iraq and Libya.

EXHIBIT 6

APICORP’s NPLs are more than fully provisioned US$ Million, as of end-2014

Sources: APICORP, Moody’s Investors Service

APICORP’s de facto preferred creditor status on its public-sector backed lending helps to keeps NPLs at a moderate and manageable level, although it does not eliminate poor asset performance. Given that 74% of loans as of end-2014 are to governments or government-related entities – up from 68% in 2013, preferred creditor status has the potential to boost the performance of a significant portion of its exposures. However,

0.0 0.5 1.0 1.5 2.0 2.5 3.0

CAF (Aa3)

CDB (Aa1)

IIC (Aa2)

CABEI (A1)

APICORP (Aa3)

Average 2008-14 2014

$68.4 MillionCash Collateral, $41.5

Million

-$29.1 Million

Specific Impairment Provisions, $42.4 Million

Collective Impairment Provision, $13.6 Million

-40

-20

0

20

40

60

80

100

Gross NPLs Provisioning Net NPLs



preferred creditor status is not incorporated into any loan documentation, which is common practice among MDBs. Indeed, the current stock of NPLs in Sudan and Iraq are loans to government-related entities.

According to Articles 6 & 12 of the Establishing Agreement, the Corporation must “preserve and protect APICORP’s assets, rights and privileges of nationality, as well as its interests [held] internationally by its members.” Article 15 grants APICORP preferential access to foreign exchange in the event of a country’s foreign-exchange crisis.

Consistent with these preferences, APICORP’s loans are exempt from country risk provisioning when applicable, and its loans have never been included in general country debt rescheduling. APICORP has only once been involved in a Paris Club rescheduling9 (Algeria in 1995) and it subsequently recovered 100% of its outstanding loan balance. Similarly, APICORP has never been subject to mandatory new money obligations under any country debt rescheduling. Examples of this include Paris Club rescheduling and debt-forgiveness of Iraqi sovereign obligations in 2003: APICORP’s outstanding loans to government-related entities were not included in any of its provisions.

Concentration of assets indicates potential for sizeable impact on capital adequacy Given its mandate to finance energy-related projects in OAPEC member states, APICORP’s asset portfolio is inevitably concentrated in the energy sector and in the Middle East region. This concentration is not atypical for regional MDBs. APICORP’s concentration based on the top five country exposures is high, but not inconsistent with its peers, with the exception of the IIC which has a larger regional scope than the others. However, APICORP’s assets are concentrated even within the country and sectorial buckets, with a particularly high geographic concentration in Saudi Arabia and Qatar (68% of loans) and in hydrocarbon-related10 projects (over 70% of loans).

We also note that APICORP’s portfolio of treasury investments at end-2014 had significant exposure to members, either directly through government bonds or indirectly through state-owned entities, with more than 80% of fixed income investments in GCC countries. While these instruments tend to be highly rated, investing treasury assets in members further compounds the geographic concentration of assets.

Track record of profitability directly supports capital adequacy Despite having a development mandate, APICORP, unlike other MDBs, operates on a commercial basis, and, at times, pays dividends to shareholders (the Nordic Investment Bank also pays dividends). We typically assess the profitability of an MDB in terms of the contribution that it makes to building or depleting the institution’s capital base. This analysis is particularly relevant in the case of APICORP, where the board decided to forgo dividend distributions in six out of the past seven years to strengthen the Corporation’s balance sheet.

APICORP has a strong track record of profitability that has bolstered the capital base over time. However, net income in 2014 was lower than in 2013, ending four successive years of record profits. 2014 net income reached $105.0 million, down from $112.1 million in 2013. Total income rose by 4.3% in 2014, to $156.3 million, as dividend income increased strongly to $92.4 million from $73.4 million in 2013, counterbalancing a reduction in interest income and fee income. Following a sharp rise in 2013, general administrative expenses declined slightly to $37.8 million in 2014 from $38.6 million the year before.

Return on assets for 2014 was 1.8%, down from 2.0% in 2013 and slightly lower than the average of 1.9% since 2006. Return on equity has been very strong, with an average of 6.6% since 2006 and year-end 2014 results of 5.7%. APICORP has a proven track record of positive results that are contributing to the build-up of capital.

9 Debt rescheduling by official/bilateral creditors. 10 Includes petrochemical, petroleum refineries, production and storage, gas processing, and other petroleum-related loans.



Operating environment faces political challenges, but no material impact on asset quality, capital adequacy In the recent past, APICORP has faced new challenges in its operating environment given political unrest in a number of member countries and the subsequent deterioration in their respective sovereign risk profiles. However, the Corporation does not have any exposure to Syria (unrated), while its activities in Libya (unrated), Iraq (unrated) and Egypt (B3 stable) represent an aggregate 4.8% of total country exposure. For its investments in these countries, APICORP has fully provisioned for expected losses where applicable, pre-empting a significant deterioration on the Corporation’s financial performance.

Nevertheless, geopolitical risks—notably related to armed conflict—have become more prominent, and currently act as a constraint on our assessment of capital adequacy and the overall rating.

Developments in global energy markets, which have been characterized by falling global benchmark oil prices pose a potential threat to APICORP’s credit profile given the sectorial concentration of its assets in petroleum-related projects. Low energy prices will predominantly affect dividend payments from direct equity investments, which accounted for 59% of gross income in 2014. APICORP has taken into consideration these developments by lowering the direct equity investment portfolio budget for 2015. According to the Corporation, an environment of prolonged low oil prices will clearly be detrimental to prospects of investee companies. As such, the ongoing diversification of the investment portfolio is a positive.

From a lending perspective, lower oil and gas prices could potentially affect the debt service capacity of projects, But APICORP maintains that current oil prices are still above the historically calculated project-specific breakeven prices. The Corporation sees potential positive impact from low oil prices on trade financing for net oil importers, and advisory and financing opportunities related to debt restructuring and refinancing.

Sustained low oil prices could put pressure on funding and liquidity conditions in the region where APICORP is operating in, particularly for oil exporters. As bottom line, APICORP expects net income for 2015 to be slightly lower than in 2014.



Liquidity: High

Maturity mismatch improving, but funding still reliant on deposits

Factor 2


+ -

A financial institution’s liquidity is important in determining its shock absorption capacity. We evaluate the extent to which liquid assets cover debt service requirements and the stability of the institution’s access to funding.

Use of short-term wholesale deposit funding leads to balance sheet maturity mismatch… The degree to which APICORP’s funding is reliant on wholesale deposits is unusual for an MDB. APICORP uses short-term wholesale deposits to fund its sizeable treasury operations for the purposes of profit generation and liquidity. In addition, it uses them as a source of funding for a portion of its loan operations. At end-2014, 45.9% of its total liabilities were short-term deposits from banks, corporates and member states. While this share is lower than the 54.4% reported in 2013, within the small group of deposit-taking MDBs, APICORP remains amongst the most reliant on short-term funding (see Exhibit 7).

EXHIBIT 7

APICORP is among a small group of MDBs that take deposits

Deposits / Total Liabilities, end-

2014

Central American Bank for Economic Integration (CABEI, A1 stable) 8.9%

Corporacion Andina de Fomento (CAF, Aa3 stable) 17.0%

Arab Petroleum Investments Corporation (APICORP, Aa3 stable) 45.9%

African Export-Import Bank (Afrexim, Baa2 stable) 52.7%

Fondo Latinoamericano de Reservas (FLAR, Aa2 stable) 99.2%

Sources: Respective financial statements, Moody’s Investors Service

We view wholesale deposits to be a source of funding that is vulnerable to market confidence, owing to their greater concentration and correlation to economic cycles relative to retail deposits. Moreover, because MDBs tend to engage in medium- to long-term lending activity, relying on deposit funding can lead to a balance sheet maturity mismatch.

However, we have acknowledged that APICORP’s deposits exhibit some stability based on the Corporation’s own definition of three consecutive months of renewal. Nevertheless, we view retail deposits or debt to be, in most instances, a more stable funding source than wholesale deposits. As such, APICORP’s overall funding profile compares negatively to its peers.

As of end-2014, 80.8% of APICORP’s total liabilities were short term (including deposits, repo securities with remaining maturity of up to one year, and other short-term liabilities), up from 55.6% the previous year. By contrast, 70.5% of APICORP’s assets were long term (remaining maturity over one year), with 34.6% of assets having a remaining maturity of five years or more, down from 78.1% and 44.8%, respectively in 2013. This balance sheet maturity mismatch is a credit challenge for the Corporation and constrains its rating. Balance sheet maturity mismatches of this magnitude are uncommon in the MDB sector.



…which is only partly mitigated by stability of deposits and term financing programThere are some mitigating factors to this mismatch: deposits from corporates (which accounted for 82.6% of the deposit base in 2014) are relatively stable because they are mainly deposited by companies owned by member states through their state-owned oil companies. In addition, a significant portion of these companies also have a loan or direct equity investment client relationship with APICORP, which presumably makes them somewhat more stable than typical wholesale deposits, based on existing loan or equity relationships in place or a history of regular renewal. Deposits from corporates have increased since the opening of the Bahrain branch in 2006, when they comprised only 18% of total deposits.

Another mitigating factor is that deposits from members, which amounted to $106.4 million and accounted for 5.8% of the deposit base at year-end 2014, are considered stable and have been stable over the past three years. Indeed, despite significant transition and stress starting in 2011, Libya and Syria have not withdrawn their deposits.

These deposits represent the drawn portion of the $1.0 billion line of credit which the shareholders extended to APICORP in 2008 to offset the effects of the global financial crisis, one of which was a limited withdrawal of bank deposits (in 2009, financial institutions withdrew $460 million, followed by a more moderate $160 million withdrawal in 2010). The remaining $894.5 million of the shareholder’s line of credit is significantly larger than the amount of wholesale bank deposits, which has further fallen in 2014 to $214.9 million from $440.6 million in 2013. APICORP views this line of credit as a measure of last resort and does not intend to activate it as a regular liquidity practice.

Recent efforts have focused on lengthening the average maturity of debt to mitigate the mismatches resulting from the short-term nature of deposits. As of end-2014, long-term funding – equity, term financing, bonds and shareholder deposits – made up 71.9% of the Corporation’s “net” stable funding requirements (for Project & Trade Finance loans and equity investments), down from 92% in 2013.11 Achieving a higher ratio in 2013 was helped by the 2012 closing of three Islamic term financings with maturities of three to five years. In addition to contributing to a maturity lengthening, the three facilities also helped diversify APICORP’s creditor base, facilitating access to Islamic pools of liquidity. Although it did not issue long-term debt in 2013, APICORP transacted its first term repo of US$173 million with a 15-month maturity. In March 2014, it also engaged in a SAR1 billion ($267 million) five-year bilateral long term financing. This was followed by another SAR3 billion five-year Islamic Club Term Facility in December, which included refinancing and additional borrowing. Also, in December, APICORP raised $150 million through a three-year Islamic Club Term Facility. Finally, in June 2015, APICORP established a $3 billion medium-term sukuk program (rated (P)Aa3), with the aim of further lengthening its debt maturity, and the Corporation aims at tapping this program during 2015.

Liquidity management consistent with business model, different from most MDBs APICORP manages liquidity by grouping maturing assets and liabilities into four time buckets: up to three months, three months to one year, one to five years, and over five years. The associated cash inflows and outflows are matched (Exhibit 8) and the cumulative gap between the cash flows as a percentage of liabilities is the relevant ratio that is managed by APICORP. As a result of the Corporation’s willingness to reduce the short-term maturity mismatch, the cash flow gap up to one year was down to 34.4% as of end-2013 from 45.9% the year before. However, as of end-2014, the cumulative mismatch had increased again, to 46.6%, before declining to slightly below 40% in mid-2015. This means that about 2/5 of APICORP’s total liabilities are maturing within one year and do not have corresponding short duration assets. Adjusting this calculation to account for stable corporate and shareholder deposits improves the mismatch, albeit not

11 The net stable funding ratio (NSFR) is calculated by APICORP as the available amount of stable funding over the required amount of stable funding. The NSFR should be equal to or exceed 100% and will become a minimum standard by 1 January 2018.



significantly. APICORP has set thresholds for the ratio in each time bucket12 and at end-2013 was within the applicable thresholds for all but the ‘up to three months’ bucket.

EXHIBIT 8

Maturity Profile of Assets and Liabilities as of 31 December 2014

% of Total Up to 3 months

3 months to 1 year

1 year to 5 years

5 years and over

Assets 13.8 15.7 35.8 35.4

Liabilities & Equity 33.5 21.8 12.8 31.9

Maturity Gap (US$ million) (1,158) (359) 1,353 164

Sources: APICORP and Moody’s Investors Service

Most MDBs do not have a maturity mismatch, and manage liquidity primarily through a policy dictating the holding of a minimum level of liquid assets, such that a certain number of forthcoming months’ net cash outflow demands are covered. While APICORP management does have such a policy, the methodology used for the calculations differs from other MDBs and as a result it is not meaningful to make comparisons with its peers.

As shown in Exhibit 9, APICORP’s liquidity position is the weakest in its direct peer group, particularly when its deposits are incorporated into the analysis. The exhibit further illustrates that in the extremely unlikely event that APICORP loses market access for refinancing—and is simultaneously challenged by a run on deposits—APICORP would not be able to fulfil its entire debt service requirements over the course of a full year. In contrast, higher-rated MDBs, such as IIC or CDB, could theoretically stave off default under similar circumstances for two years or more.

EXHIBIT 9

APICORP has the weakest debt service coverage ratio in its peer group (Short-term debt + currently maturing long-term debt) / discounted liquid assets (end-2014)

Sources: Respective financial statements and Moody’s Investors Service

APICORP’s portfolio of treasury investments are entirely funded by short-term deposits. We do not consider the quality of these investments to offset the risks to liquidity from the wholesale and short-term nature of the funding. APICORP currently has no investments in G-713 government paper, which remain highly liquid even during times of financial market turmoil. As such, while the Corporation’s treasury investments tend to

12 Thresholds are as follows: -30%,-40%, -40%, and -75% in the ‘up to three months’, ‘three months to one year’, ‘one to five years’, and ‘over five years’ buckets, respectively.

13 United States (Aaa stable), United Kingdom (Aa1 stable), France (Aa1 negative), Germany (Aaa stable), Italy (Baa2 stable), Canada (Aaa stable), and Japan (A1 stable).

0%

20%

40%

60%

80%

100%

120%

140%

160%

CDB (Aa1) IIC (Aa2) CABEI (A1) CAF (Aa3) APICORP (Aa3)

Base Ratio Incl. Short-Term Deposits in Numerator



be highly rated, they are not necessarily as liquid as G-7 sovereign debt, and thus do not completely compensate for the less stable nature of the funding.

Strength of Member Support: High

Very strong shareholder base, reinforced by incremental capitalization from retained earnings

Factor 3


+ -

Contractual support primarily manifests itself in the callable capital pledge, which is a form of emergency support. Extraordinary support is a function of shareholders’ ability and willingness to support the institution in ways other than callable capital. Strength of member support can increase the preliminary rating range determined by combining factors 1 and 2 by as many as three scores.

Decreasing callable capital due to scheduled pay-up from general reserves In May 2011, APICORP’s shareholders agreed to change the capital structure by introducing callable capital in the amount of $750 million. Callable capital is an unconditional and full-faith obligation of each member country to provide additional capital when called. Along with sustained strong financial performance, this led to the upgrade of APICORP’s rating to Aa3 from A1 previously.14 The introduction of callable capital demonstrates stronger support than the line of credit made available by shareholders in 2008.

However, due to decreasing callable capital—the reasons for which are described below--the callable capital coverage of the debt stock has declined as well, putting contractual support at ‘Low’ in our methodological scorecard, with debt representing 6.7 times the amount of discounted callable capital, lower than CAF, but slightly higher than CABEI.

This drop in the callable capital coverage was, however, due to scheduled increase in issued & paid up capital from general reserves, which reduced nominal callable capital to $500 million from $750 million.

APICORP’s deposit-taking structure enables it to receive member support outside of the usual capital increases. In 2008, shareholders pledged a $1 billion line of credit in the form of deposits. At end-2014, $106.4 million had been deposited, and the balance of $895.5 million is currently available as contingent liquidity support.

Likelihood of extraordinary support demonstrated by high shareholder ratings, capital increase The weighted median rating of APICORP’s shareholders was approximately Aa3 as of end-2014, reflecting a strong ability to provide extraordinary support. In comparison, the corresponding indicators for peers were much lower, with CABEI at Ba1, CAF at Baa3, CDB at Baa1, and the IIC at A3.

Of APICORP’s 10 member countries, six are rated by Moody’s (Saudi Arabia – Aa3 stable, United Arab Emirates – Aa2 stable, Kuwait – Aa2 stable, Qatar – Aa2 stable, Bahrain – Baa3 negative, Egypt – B3 stable).15 The capital base is held primarily by investment-grade countries (64%) – although none are Aaa-rated – with the remainder held by speculative-grade (3%) or non-rated countries (33%).

APICORP’s track record of receiving capital increases demonstrates a strong propensity for shareholders to provide support. At the time callable capital was introduced in 2011, the amount of paid in capital was also increased by $200 million, all of which was funded by the capitalization of dividends and reallocation from

14 See Moody’s upgrades APICORP to Aa3, outlook stable, 25 September 2012. 15 Ratings as of 15 September 2015.



https://www.moodys.com/research/Moodys-upgrades-APICORP-to-Aa3-outlook-stable--PR_255879

reserves. Similarly, the previous capital increase exercises in 1981, 1996, and 2003 were funded by reallocation from reserves and capitalization of dividends rather than by new funds from shareholders.

In line with the decision to again forego dividend distributions for 2014, APICORP’s shareholders further demonstrated their support for the Corporation by allowing for the use of reserves to gradually fulfill each shareholder’s capital subscription. As such, in the absence of further capital increases, APICORP’s capital structure will gradually shift as paid in capital increases, while callable capital decreases.

Moreover, the strategic importance of the energy sector to the OAPEC economies backs our view that APICORP benefits from a high priority of support.

Very liberal terms in relation to callable capital, which is pledged on a joint and several basis APICORP’s shareholders have explicitly committed to support the institution on a “joint and several” basis. Article 6 of the Articles of Agreement states: “The Member States undertake, jointly and severally, to support the Corporation, protect it and embrace its causes in every way that ensures the protection of its rights and interests internationally and otherwise and undertake to facilitate all the activities related to its objectives and to adopt all possible measures to that end.”

Although we do not regard the wording of this pledge as a full financial guarantee for creditors, it does indicate a stronger willingness to support as compared to the pro rata wording of support pledges of other MDBs. Typically, each member’s fulfillment of the callable capital obligation is independent of the action of the other shareholders.

While it is rare for an MDB to have shareholder support in this more collective form, the language in the Articles of Agreement is open to interpretation and is not explicitly linked to callable capital. Hence, we will examine the capital adequacy ratios amended for consideration of joint and several callable capital (i.e., including all callable capital because the highest-rated shareholder is rated Aa2). At the same time, the key ratio we use in our analysis of contractual support—the callable capital coverage ratio—will continue to include only the callable capital provided by those members rated Baa3 or higher.

Another unique feature of APICORP’s callable capital is that the conditions under which APICORP can request callable capital is not restricted to debt service. Management can request callable capital in order to service debt, to expand development operations (while maintaining capital adequacy ratios), or to absorb losses from treasury or development-related assets. These very liberal callable capital guidelines differ from other MDBs, which can only request callable capital to service debt. Once requested, APICORP’s callable capital is expected to be paid in by members within two months.



Rating Range

Combining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporate expectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical, meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicative rating range. For more information please see our Supranational Rating Methodology.

Supranational Rating Metrics: Arab Petroleum Investment Corporation (APICORP)

+ -

+ -

+ -

+ -Aa3

Aaa-Aa2

Very High High Medium Low Very Low

Very High High Medium Low Very Low

High Medium Low Very LowVery High

Very LowVery High High Medium Low

Capital Adequacy How strong is the capital buffer?

How strong is the institutions' shock absorption capacity?

Sub-Factors: Position, Funding

Assigned Rating:

Strength of Member Support

intrinsic Financial Strength

Sub-Factors: Capital Position, Leverage, Asset Performance

How strong is members' support of the institution?

Sub-Factors: Contractual Support, Extraordinary Support

Rating Range:

Liquidity

I




Comparatives

This section compares credit relevant information regarding APICORP with other supranationals rated by Moody’s Investors Service. It focuses on a comparison with supranationals within the same rating range and shows selected credit metrics and factor scores.

APICORP benefits from a solid capital position and relatively low leverage, placing the Corporation’s capital adequacy in the same category as CAF and higher than CABEI, although CDB and IIC have stronger equity and asset quality. APICORP’s liquidity position is hampered by a relatively large level of short-term debt due to its reliance on deposits, which is partially offset by a lower cost of funding than CDB or CAF. Finally, shareholder support is a key credit strength that places APICORP in a favorable position relative to peers, with a very high median shareholder rating of Aa3 and the existence of callable capital.

Year APICORP CDB CAF IIC CABEI Aa Median

Rating/Outlook Aa3/STA Aa1/STA Aa3/STA Aa2/POS A1/STA --

Total Assets (US$ million) 2014 5,884 1,379 30,495 1,989 8,044 6,216

Factor 1 High Very High High Very High Medium --

Usable Equity/Gross Loans Outstanding + Equity Operations (%)[1]

2014 50.7 83.1 45.1 80.3 41.9 65.1

Debt/Usable Equity (%)[1] 2014 113.9 64.5 196.6 130.1 200.0 89.2

Gross NPLs/Gross Loans Outstanding (%)[2] 2014 2.4 0.5 0.0 2.0 0.6 0.0

Factor 2 High High High Very High High --

ST Debt + CMLTD/Liquid Assets (%)[3] 2014 63.5 9.4 48.0 55.5 54.9 48.0

Bond-Implied Ratings (Average) 2014 -- Baa1 A3 -- A1 Aa2

Intrinsic Financial Strength (F1+F2) High Very High High Very High High --

Factor 3 High Very High Low Medium Medium --

Total Debt/Discounted Callable Capital (%)[4] 2014 674.1 68.4 2044.2 -- 557.2 68.4

Weighted Median Shareholder Rating (Year-End) 2014 Aa3 Baa1 Baa2 A3 Ba1 Aa3

Rating Range (F1+F2+F3) Aaa-Aa2 Aaa-Aa2 Aa2-A1 Aaa-Aa2 Aa1-Aa3 --

Notes:

[1] Usable equity is total shareholder's equity and excludes callable capital

[2] Non performing loans

[3] Short-term debt and currently-maturing long-term debt

[4] Callable capital pledge by members rated Baa3 or higher, discounted by Moody's 30-year expected loss rates associated with ratings.

Source: Moody’s



Appendices

Rating History

EXHIBIT 10

Arab Petroleum Investment Corporation

Issuer Rating

Long-term Short-term Outlook Senior Unsecured Date

Rating Upgraded Aa3 -- -- Aa3 Sept-2012

Rating Changed -- -- -- A1 Oct-2010

Rating Assigned -- -- -- (P)A1 Oct-2010

Rating Assigned A1 P-1 Stable -- June-2010



Annual Statistics

EXHIBIT 11


2007 2008 2009 2010 2011 2012 2013 2014

Balance Sheet (US$ Thousands)

ASSETS

Cash and cash equivalents 15,510 9,391 28,860 15,392 18,104 17,326 24,904 65,008

Deposits with banks 391,575 227,618 464,918 439,873 643,613 792,147 545,872 917,904

Trading securities 50,822 98 63 61 53 41 0 0

Available-for-sale securities 817,648 616,940 622,383 903,292 794,438 952,129 1,183,464 1,181,092

Available-for-sale direct equity investments 343,266 282,848 338,854 365,634 324,284 318,002 822,607 865,957

Syndicated and direct loans (net) 1,892,499 2,371,196 2,621,330 2,541,968 2,803,489 2,897,046 2,923,135 2,690,803

Property and equipment 36,518 34,174 32,070 29,263 26,832 71,470 135,375 128,618

Other assets 25,519 27,963 10,622 16,140 18,691 29,414 39,806 34,619

TOTAL ASSETS 3,573,357 3,570,228 4,119,100 4,311,623 4,629,504 5,077,575 5,675,163 5,884,001

LIABILITIES

Deposits from banks 1,342,906 1,388,641 930,749 770,385 663,515 692,819 440,576 214,867

Deposits from corporates 294,730 432,334 757,091 804,261 1,214,068 1,057,429 1,561,201 1,529,042

Deposits from shareholders 0 15,000 370,438 222,276 103,426 104,476 105,476 106,443

Securities sold under agreement to repurchase 225,557 159,558 385,368 408,289 437,777 354,603 171,983 177,460

Term financing 648,033 648,590 649,148 399,547 399,867 946,274 993,916 1,404,400

Bonds 0 0 0 531,018 531,498 532,010 532,514 533,018

Other liabilities 41,728 31,355 24,671 34,869 60,568 80,732 62,765 59,551

Non-controlling interest 0 0 0 0 0 1,193 2,157 2,237

Total Liabilities 2,552,954 2,675,478 3,117,465 3,170,645 3,410,719 3,769,536 3,870,588 4,027,018

EQUITY

Share capital 550,000 550,000 550,000 550,000 750,000 750,000 750,000 1,000,000

Legal reserve 111,300 114,100 120,000 129,600 140,100 151,100 162,500 173,500

General reserve 66,539 66,539 108,425 161,061 46,641 96,495 194,426 45,031

Available-for-sale fair value reserve 255,488 122,225 170,574 214,737 187,190 212,513 597,044 544,499

Retained earnings 37,076 41,886 52,636 85,580 94,854 97,931 100,605 93,953

Total Equity 1,020,403 894,750 1,001,635 1,140,978 1,218,785 1,308,039 1,804,575 1,856,983

TOTAL LIABILITIES AND EQUITY 3,573,357 3,570,228 4,119,100 4,311,623 4,629,504 5,077,575 5,675,163 5,884,001

Off-Balance Sheet Exposures 1,051,857 1,008,317 356,818 371,366 409,966 536,089 675,870 733,593

Income Statement (US$ Thousands)

Interest income 153,703 134,763 69,667 60,580 77,500 104,729 109,084 106,701

Interest expense -112,935 -104,488 -55,771 -43,731 -50,298 -64,523 -66,221 -66,587

Net interest income 40,768 30,275 13,896 16,849 27,202 40,206 42,863 40,114

Fee income 3,625 6,659 1,540 2,002 1,421 1,409 3,294 1,771

Fee expense -180 -114 -128 -200 -197 -333 -359 -311

Net fee income 3,445 6,545 1,412 1,802 1,224 1,076 2,935 1,460

Dividend income 31,649 57,988 59,501 67,048 100,453 74,474 73,368 92,364

(Loss) gain on trading securities 6,686 -3,893 -35 -2 -8 -12 -1 0

Gain on available-for-sale securities 6,039 2,982 104 32,743 26,886 11,372 10,308 4,150

Gain on available-for-sale direct equity investments 5,433 0 0 0 0 0 0 0

Impairments losses/reversals 7,982 -45,368 -1,542 1,746 -21,737 8,512 838 -13,477



EXHIBIT 11


2007 2008 2009 2010 2011 2012 2013 2014

General administrative expenses -22,296 -23,553 -21,958 -25,849 -31,514 -30,857 -38,603 -37,773

Other income 33 2,634 7,158 843 2,848 4,120 20,349 18,195

Other operating expenses 0 0 0 0 0 0 0 0

NET INCOME 79,739 27,610 58,536 95,180 105,354 108,891 112,057 105,033

Financial Ratios

Capital Adequacy (%)

Usable Equity/Total Assets [1] 28.6 25.1 24.3 26.5 26.3 25.8 31.8 31.6

Qualifying Capital Adequacy [2] 26.0 22.0 25.7 29.2 28.5 27.2 28.7 28.8

Coverage of all Development-Related Assets:

Usable Equity/Gross Loans + Direct Equity Investments [1]

43.9 32.6 32.9 38.1 37.6 39.1 46.9 50.7

Usable Equity + CC of Aaa/Aa Members/Gross Loans + Direct Equity Investments [1][3]

43.9 32.6 32.9 38.1 51.7 52.8 58.8 50.7

Coverage of Risk Assets (a subset of Development-Related Assets):

Usable Equity/Risk Assets [1] [4] -- -- -- 210.5 266.9 262.2 183.5 190.5

Usable Equity + CC of Aaa/Aa Members/Risk Assets [1][3][4]

-- -- -- 210.5 367.2 353.9 230.0 190.5

Coverage of Funding:

Usable Equity/Borrowings [1] 116.8 110.7 96.8 85.2 89.0 71.4 106.3 87.8

Usable Equity/Borrowings + Deposits [1] 40.6 33.8 32.4 36.4 36.4 35.5 47.4 46.8

Usable Equity/Borrowings + Deposits (excl Shareholder’s) [1]

40.6 34.0 36.8 39.2 37.5 36.5 48.8 48.1

Asset Quality

Gross NPL/Gross Loans (%) 4.9 2.8 3.1 2.6 3.3 2.3 2.3 2.4

Total Reserves/Gross NPL (X) 1.8 2.6 2.7 4.2 1.9 3.6 5.2 3.2

Total Reserves/Gross Loans (%) 9.0 7.3 8.4 11.1 6.4 8.2 11.8 7.8

Profitability (%)

Return on Assets (ROA) 2.2 0.8 1.4 2.2 2.3 2.1 2.0 1.8

Return on Equity (ROE) 7.8 3.1 5.8 8.3 8.6 8.3 6.2 5.7

Interest Coverage Ratio (Bonds) (X) 3.2 2.2 8.3 19.1 9.2 4.9 4.5 3.9

Interest Coverage Ratio (Bonds and Deposits) (X) 1.7 1.3 2.1 3.2 3.1 2.7 2.7 2.6

Liquidity (%)

Liquid Assets/Total Assets 35.7 23.9 27.1 31.5 31.5 34.7 30.9 36.8

Liquid Assets/Total Liabilities 50.0 31.9 35.8 42.8 42.7 46.7 45.3 53.7

Liquid Assets/Total Liabilities + Off Balance Sheet Exposure

35.4 23.2 32.1 38.4 38.1 40.9 38.6 45.5

Liquid Assets/Borrowings 146.0 105.7 107.9 101.5 106.4 96.1 103.3 102.3

Liquid Assets/Borrowings + Deposits 50.8 32.3 36.1 43.3 43.5 47.8 46.1 54.6

Loans/Deposits 121.1 134.0 131.5 146.2 147.4 163.2 143.7 151.3

[1] Usable equity = Share Capital + Reserve Funds + Retained Earnings

[2] APICORP’s calculation in line with Basel II/Central Bank of Bahrain guidelines. Tier 1 + Tier 2 Capital/Total Risk Weighted Exposure.

[3] CC = Callable capital

[4] Risk Assets = Loans to non-investment grade entities + total direct equity investments



EXHIBIT 12

Capital Subscriptions and Voting Power as of Year-End 2014

(US$ Thousands) Paid In Callable Subscribed Authorized

Capital Fully Paid

Percentage

United Arab Emirates 170,000 85,000 255,000 408,000 17.0

Saudi Arabia 170,000 85,000 255,000 408,000 17.0

Kuwait 170,000 85,000 255,000 408,000 17.0

Libya 150,000 75,000 225,000 360,000 15.0

Iraq 100,000 50,000 150,000 240,000 10.0

Qatar 100,000 50,000 150,000 240,000 10.0

Algeria 50,000 25,000 75,000 120,000 5.0

Bahrain 30,000 15,000 45,000 72,000 3.0

Syria 30,000 15,000 45,000 72,000 3.0

Egypt 30,000 15,000 45,000 72,000 3.0

1,000,000 500,000 1,500,000 2,400,000 100.0

EXHIBIT 13

Project & Trade Finance Gross Loans by Country as of Year-End 2014

(US$ Thousands) Outstanding Balance % of Total

Saudi Arabia 1,171,205 41.8

Qatar 724,793 25.9

United Arab Emirates 249,476 8.9

Kuwait 216,391 7.7

Oman 96,922 3.5

Egypt 59,326 2.1

Singapore 56,272 2.0

Iraq 51,850 1.9

Netherlands 25,000 0.9

Libya 23,102 0.8

Algeria 20,534 0.7

Cyprus 20,000 0.7

Sudan 16,560 0.6

Jordan 16,000 0.6

Pakistan 12,845 0.5

Bermuda 11,994 0.4

Bahrain 10,661 0.4

Marshall Islands 8,854 0.3

Luxembourg 5,000 0.2

Vietnam 1,535 0.1

Bangladesh 1,158 0.0

Total 2,799,478.0 100.0



EXHIBIT 14

Project & Trade Finance Gross Loans by Sector as of Year-End 2014

( US$ Thousands) Outstanding Balance % of Total

Petrochemical 572,528 20.5

Petroleum - Others 562,433 20.1

Petroleum - Refineries 524,677 18.7

Power Generation 380,563 13.6

Manufacturing 200,878 7.2

Petroleum - Floating Prod, Storage 182,935 6.5

Petroleum - Trade Finance 109,503 3.9

Gas Processing 102,518 3.7

Mining 66,606 2.4

Services 40,000 1.4

Maritime Transport 34,637 1.2

Fertilizer Plant 17,202 0.6

Total 2,799,480.0 100.0



Moody’s Related Research

Rating Action: » Moody's assigns provisional (P)Aa3 to APICORP's Sukuk Programme, 30 June 2015

Credit Opinions: » Arab Petroleum Investments Corporation (APICORP)

Issuer Comments:

» APICORP Diversifies Its Investment Activities, a Credit Positive, February 2013 (150528)

» APICORP Makes Progress Toward Reducing Asset/Liability Maturity Mismatch, February 2012 (140194)

Rating Methodologies:

» Multilateral Development Banks and Other Supranational Entities, December 2013 (161372)

» Sovereign Bond Ratings, September 2013 (157547)

Moody’s Website Links:

» Sovereign Risk Group Webpage

» Supranational Ratings List To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients.

Related Website

» APICORP

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» contacts continued from page 1

Analyst Contacts:

NEW YORK +1.212.553.1653

Steven A. Hess +1.212.553.4741 Senior Vice President [email protected]

LONDON +44.20.7772.1372

Alastair Wilson +44.20.7772.1372 Managing Director - Sovereign Risk [email protected]

Report Number: 184247

Author Steffen Dyck

Associate Analyst Zahabia Saleem Gupta

Production Associate Avkash Prasad

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For Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.

MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.



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