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Sahara Petrochemicals Co. (2260.SE)

CMP SAR 16.10 Target SAR 13.21 Downside 18.0%

MSCI GCC Index 428.64 Tadawul All Share Index 5,947.77

Key Stock Data Sector Petrochemicals Reuters Code 2260.SE Bloomberg Code SPC AB Equity Net Out. Shares (bn) 0.293 Market Cap (SAR bn) 4.710 Market Cap (USD bn) 1.256 Avg. 12m Vol. (mn) 1.265 Volatility (30 day) 39.158 Volatility (180 day) 53.427

Stock Performance (%) 52 week high / low (SAR) 24.50 / 8.60

1M 3M 12M Absolute (%) -8.6 -7.1 -35.3 Relative (%) -12.3 -6.4 -19.6

Shareholding Pattern (%)

Zamil Group Holding Company 7.50 Yamama Saudi Cement Company 1.67 Other Investors 70.83 Public 20.00

Sahara and Tadawul All Share Index

Executive Summary Sahara Petrochemical Company (Sahara) is a Saudi joint stock company engaged in investment activities in the chemicals and petrochemicals sectors. The company primarily invests in industrial projects through its subsidiaries and affiliates - Al Waha Petrochemical Co., Tasnee and Sahara Olefins Co. (TSOC), SEPC and Saudi Acrylic Acid Co. (SAAC). The company is expected to have a petrochemical production capacity of 1.5 million tonnes by 2011. Net loss during 1H09 at SAR 20 million Sahara did not report operating revenues for 1H09. Selling, general & administrative (SG&A) expenses increased 40.6% to SAR 25.12 million during the first half of 2009. Consequently, the company’s operating loss comprising of only expenses which increased to SAR 25.12 million in 1H09 as against SAR 19.19 million in 1H08. Further, the company did not report any income from murabaha in 1H09 compared to an income of SAR 0.06 million in 1H08. Nonetheless, the company did witness a 59.4% increase in income from related companies to SAR 5.46 million during 1H09. The company reported a net loss of SAR 20.17 million in 1H09 compared to SAR 15.44 million in 1H08. Adjusted annualised LPS stood at SAR 0.014 as against SAR 0.011 in 1H08. Outlook and valuation The performance of companies operating in the petrochemicals sector was marred by the global economic crisis, which led to weak demand for petrochemicals and the resultant decline in price realizations for most products. However, on a positive note, there has been an improvement in demand and pricing for petrochemical products in anticipation of an economic recovery. Sahara is well-placed with the construction and commissioning of its industrial complexes progressing as planned. Going forward, we expect the company to benefit from the revenue contributions by these complexes as they attain optimum utilization. Further, Sahara Petrochemical remains focused on expanding its production capacity through investments in the petrochemical sector. Despite these factors, the recent rally in the stock price, which has appreciated 62.7% since the start of the year, discounts the expected future earnings flow. Besides this, operational challenges related to the commencement of commercial operations remain a key challenge. To determine the fair value of Sahara, we have used the DCF valuation method. As Sahara is yet to start full fledged operations, the company’s stock is trading at an exceptionally high P/E multiple of 506.58x and 109.73x on 2009E and 2010E earnings, and at a P/B multiple of 1.61x and 1.39x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has outperformed the index by increasing 62.7% since January as against a gain of 23.8% by the Tadawul All Share Index. Considering the above factors, we arrive at a price target of SAR 13.21, which exhibits a potential downside of 18.0% from its closing price of SAR 16.10 (as on Sep 24, 2009). Accordingly, we initiate our coverage on Sahara Petrochemicals Co. with an UNDERWEIGHT recommendation.

SAR Million 2007A 2008A 2009E 2010E 2011E Revenues NA NA 881 2,779 3,734 EBITDA -17 -44 143 594 868 Margin (%) NA NA 16.2 21.4 23.3 Net Profit -5 -41 93 429 636 Margin (%) NA NA 10.6 15.4 17.0 Adjusted EPS (SAR) NM -0.01 0.03 0.15 0.22 Total Assets 3,048 4,721 6,602 7,468 8,260 RoAE NA -2.2 4.0 13.6 17.7

UNDERWEIGHT

Background Established in 2004, Sahara Petrochemical Company (Sahara) is a Saudi joint stock company engaged in investment activities in the chemicals and petrochemicals sector. Headquartered in Riyadh, Sahara operates as a holding company that invests in petrochemical projects. In May 2004, Sahara underwent an IPO to raise SAR 300 million by offering 20% of its shares on the Saudi Stock Exchange (Tadawul). The proceeds of the IPO were allocated towards funding of its projects. Through its subsidiaries, Sahara invests in industrial projects in the petrochemical and chemical fields and owns and executes projects necessary to supply raw materials and utilities. Currently, the company has one subsidiary, Al Waha Petrochemical Co. and three affiliate companies – TSOC, SEPC and SAAC. Located in Al Jubail Industrial City, Al Waha was formed as a joint venture with LyondellBasell in September 2006. It is currently managing a petrochemical complex for the production of 467,000 tonnes per annum of propylene. SEPC is currently running a petrochemical complex for the production of 1,008,000 tonnes per annum of ethylene and 285,000 tonnes per annum of propylene. Apart from these, Sahara intends to invest in three new projects. These new projects are Arabian Chlor Vinyl Co. (ACVC), Saudi Acrylic Monomers Co. (SAMC) and the Superabsorbent Polymers (SAP) Project.

Sahara Ownership Structure as of July 1, 2009

Sahara invests in industrial projects in petrochemical and chemical segments

15%

20% 65%

75%

50%

75%

Founding Shareholders

57.52%

Gen Org for Social Ins

4%

Gen Retirement Org - 4%

Uqaf High Commission

2%

Public

32.48%

Sahara Petrochemical Co.

Al Waha Petrochem

Co.

Arabian Chlor

Vinyl Co.

LyondellBasell (25%)

Ma’aden (50%)

Saudi Acrylic

Acid Co.

Saudi Acrylic Monomers

Co.

SAP Project

NIC

Rohm & Hass

Joint Venture Partner

Tasnee and Sahara

Olens Co.

NIC

Gen Org for Social Ins

Tasnee Petrochem Mktg Co.

Nat Gulf Co. for

Petrochem

Nat Worldwide

Indl

Saudi Ethylene &

Polyethylene

LyondellBaseIl

32.55%

75% 75% Expected

25% 25% Expected 25%

Planned

NIC: National Industrialization Co. Source: Sahara Petrochemicals

Board of Directors • Chaired by H.H. Engineer Abdulaziz Abdullah Al-Zamil

• Eng. Esam Fouad Himdy – Managing Director

• Dr. Abdulrahman Abdullah Al-Zamil

• Mr. Satam A. Al-Harbi • Mr. Jabr Abdulrahman Al-Jabr

• Mr. Rashid Saif Al-Ghurair • Mr. Sultan Khalid Bin Mahfouz

• Mr. Khalid A. Al-Abdullatif • Mr. Saeed Omer Qasim El-Esayi

• Mr. Abdulrahman Hayel Saeed

• Mr. Tariq Mutlaq Al-Mutlaq Source: Zawya Global economy expected to witness negative growth of 1.4% in 2009

Business Model

Subsidiaries/Associates of Sahara Sahara has following subsidiaries, associates and affiliates.

SUBSIDIARIES/ASSOCIATES/INVESTMENTS COUNTRY % SHARE

Al Waha Petrochemical Company Saudi Arabia 75.00 Arab Chlorophyll Company Saudi Arabia 50.00 Tasnee and Sahara Olefins Company Saudi Arabia 32.55

INDUSTRY SCENARIO According to estimates by the International Monetary Fund (IMF), the world economy will recede 1.4% during 2009 as a result of the continued economic slowdown. This is contrary to the growth rates of 5.1% and 3.1% registered for 2007 and 2008, respectively. However, the trend is likely to reverse with growth rebounding to 2.5% in 2010. The Middle East region’s GDP, which registered a healthy real growth of 5.7% and 6.3% during 2006 and 2007 respectively, is anticipated to come down from 5.2% in 2008 to 2.0% for 2009 before expanding back to 3.7% in 2010. Within the region, the GCC countries witnessed GDP growth of 6.4% in 2008, but are likely to grow at a mere 1.3% during 2009 owing to multiple factors that include weak oil prices, contraction of global demand and trade-related activity, squeezed liquidity, lower tourism and reduced remittances. However, the GCC’s growth is expected to normalize to 4.2% in 2010 on improving market dynamics. Saudi Arabia’s real GDP grew at an average 4.4% over the period 2004-08, on the back of high oil prices and subsequent economic development. However, unlike the overall GCC region, Saudi Arabia’s real GDP is expected to contract 0.9% during 2009 before bouncing back to a positive 2.9% in 2010. As per preliminary estimates, Saudi Arabia’s nominal GDP increased 22.0% YoY to reach SAR 1,753.50 billion in 2008 from SAR 1,437.68 billion in 2007, driven by record oil prices during the first half of the year. Average oil prices jumped to USD 95.0 per barrel (bbl) in 2008 from USD 67.6 per bbl in 2007. The mining & quarrying sector (up 37.2% to SAR 1,005.20 billion) was the largest contributor to the GDP at 57.3%. Meanwhile, recording a YoY growth of 9.2%, the construction sector logged in revenues worth SAR 71.03 billion during 2008 accounting for 4.1%. The finance, insurance, real estate and business services sectors together contributed 6.6%. In light of the financial turmoil and economic slowdown along with falling oil prices, the IMF forecasts a 22.3% decline in nominal GDP for 2009. However, a reversal is expected, as economic growth is likely to rebound to 13.3% in 2010. The country is estimated to run a budget deficit of SAR 65 billion (USD 16 billion) in 2009 – the first in six years. However, massive fiscal surpluses registered during 2003-2008 have allowed Saudi Arabia to boost its foreign assets, which supported higher spending and offset the pressure due to the global crisis.

Provide sound investment opportunities for the Saudi private sector in the petrochemical downstream industries

SAHARA

Sahara operates as a holding company that invests in industrial projects in the chemical and petrochemical field

All major projects of the company are carried out through joint ventures with regional giants and international players

Constant efforts to secure state-of-the-art technology and skilled workforce to produce value-added and export-oriented products

Increased demand from Asian economies drives growth in the petrochemical industry Access to cheap feedstock instrumental to the emergence of Middle East as a petrochemical hub

Saudi Arabia's Nominal GDP

0

400

800

1,200

1,600

2,000

2004 2005 2006 2007 2008E0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Nominal GDP (SAR Billions) Nominal GDP Grow th (%)

Contribution to GDP (%)

0.0%

14.0%

28.0%

42.0%

56.0%

70.0%

2004 2005 2006 2007 2008E

Oil to GDP Non-oil to GDP

Source: SAMA, Central Department of Statistics & Information The global petrochemical industry witnessed a healthy growth scenario in the years prior to the global economic crisis on rising demand from emerging Asian economies. Rising population coupled with unparalleled growth witnessed by these economies over the last few years resulted in a rise in demand for petrochemicals from these regions. The demand for petrochemical products increased at a CAGR of 4% during the 2002-07 period. With demand being the key driver for any increase in capacity and utilisation rates, global petrochemical capacity increased at a CAGR of 3.3% to 128.4 million tonnes over this period and capacity utilisation rates reached 91.7% in 2007 compared to 87% in 2002. Consequently, petrochemical production has increased at a CAGR of 3.9% to 117.7 million tonnes over 2002-07. The year 2008 continued to benefit from soaring oil and gas prices, which contributed significantly to the top-line and bottom-line growth of the companies operating within the industry. Further, on the cost front, the Middle East & North Africa (MENA) region holds the advantage of lower feedstock costs owing to its rich oil fields and gas reserves. According to a study by the Association of Petrochemicals Producers in Europe (APPE), Middle Eastern producers enjoy the highest profit margins when compared to producers in Eastern European, American, and South East Asian. The trend is likely to continue as the region holds approximately 65% of the world oil reserves and 49% of the world gas reserves. Additionally, the willingness of the region to diversify its economy beyond oil and gas is adding up to an increased interest in the petrochemicals sector. The MENA region accounts for approximately 66% of the global petrochemical capacity of which the Gulf region (comprising the six GCC countries and Iran) contributes about 86%, while the rest is contributed by North African countries like Egypt, Libya, and Algeria. Saudi Arabia has the maximum share in the petrochemical capacity amongst the Gulf countries, accounting for approximately 43% of the total capacity. Saudi Basic Industries Corp. accounts for approximately 54% and 28% of the total production capacity of Saudi Arabia and MENA respectively, and is the biggest petrochemical company in the region. During the last few years, there has been a major shift in the petrochemical production base from the US and Europe to MENA and China, which have emerged as the hub for new capacities and expansions. The North American region, which once used to be the hub of petrochemical facilities, has been on a downturn due to high feedstock costs that have hurt margins across the industry. The marginal returns earned by companies in the US petrochemical industry coupled with stiff competition from the Chinese and MENA regions on account of feedstock cost advantage have directly impacted capacity expansion plans. Even the European petrochemicals industry has suffered on account of higher feedstock costs, which has stalled growth for the industry. Further, the European industry has witnessed subdued growth due to various regulations including the Kyoto protocol - the European Union’s directive on chemicals and environmental campaigns. Ethylene is the most important feedstock in the production of a number of derivatives apart from being used as a raw material for a variety of inputs for plastics, fibres and elastomers. According to Chemical Market Associates Inc. (CMAI), the global ethylene industry operating rates are projected to fall from 92% in early 2008 to below 90% throughout 2012 in the wake of current economic situation. The massive build-up of ethylene capacity in the Middle East and Asia might be detrimental to the demand-supply dynamics of the sector. Historically, from 1995 to 2008, ethylene capacity increased by more than 22 million metric tonnes (mmt) in the Asia-Pacific region and approximately 13 mmt in the Middle East. CMAI projects that these regions are projected to add another 41 mmt of capacity by 2015. With investments to the tune of USD 80 billion planned over the next 5 years, Saudi Arabia is expected to double its ethylene capacity from the levels achieved in 2008 to18.2 million tonnes per annum by the end of 2013.

Benzene prices improve on increased demand from Asian producers India, China contribute to the rise in demand for polypropylene

Major Petrochemical Projects in Middle East

Country/Company Product Targeted completion Status

Saudi Arabia Arabian Industrial Fibers (Ibn Rushd) Propylene and derivatives 2012 Planned

Saudi Kayan Olefins, aromatics and derivatives 1Q11 Under construction

National Chevron Phillips Ethylene and derivatives 4Q11 Under construction

Petro Rabigh II Olefins, aromatics and derivatives Under study

Saudi Aramco/Dow Chemical Ethylene, aromatics and derivatives 2014 FEED stage

Saudi Aramco/Total Propylene and aromatics Post 2012 NA Abu Dhabi Borouge II Olefins and derivatives 2H10 Under construction

Borouge III Polyolefins 2014 Feasibility study stage

ChemaWEyaat Olefins, aromatics and derivatives 2014 Under preliminary

engineering Qatar

ExxonMobil/Qatar Petroleum Ethylene Post 2012 FEED award delayed

Honam Petrochemical/Qatar Petroleum Olefins and derivatives Post 2012 Decision on project

deferred to 2H12 Oman Duqm Refining & Petrochemical

Refinery, olefins and derivatives Post 2012 Delayed

* FEED – Front-End Engineering Design Source: Chemical Industry News & Intelligence

Benzene is the basic raw material for a number of petrochemical intermediaries including styrene, phenol, acetone, cyclohexane and nitrobenzene. Demand for benzene as a raw material for the production of styrene constitutes 52%, while cumene used in the manufacturing of phenol and cyclohexane accounts for 19% and 13%, respectively. Nitrobenzene and other chemical intermediaries account for the rest of the demand for benzene. Off late, the demand for benzene has been increasing buoyed by higher gasoline consumption in Asia. According to the CMAI, the demand for benzene is expected to witness an absolute growth of 1.3 million tonnes per year through 2011. On the other hand, the supply side dynamics remain tight mainly due to a shortage of investments in the sector. However, rising demand has necessitated additional capacities to be installed. According to the CMAI, approximately 9 million tonnes per year of benzene capacity is likely to be added over 2007-10. Further, according to the CMAI, around 3.1 million tonnes per year of new benzene capacity is likely to be added across Northeast and Southeast Asia during the next five years. In the Middle East, 1.5 million tonnes of new annual benzene capacity will be added over 2007-11. However, on the flip side, increased capacity is likely to strain utilisation rates, which are expected to fall to 80%. Benzene prices, which follow crude oil and natural gas prices, have increased significantly since the start of 2Q09 mainly due to higher demand for styrene from Asia. The price of benzene shot up sequentially 66.9% during the first two months of the second quarter. Moreover, the Asian demand for benzene is increasing fast and the trend may necessitate exports from the US and the Europe. However, in the long run, with an increase in capacity, the price for benzene is expected to exhibit a better correlation to the cost of production. Polypropylene (PP) is the basic raw material for the production of a variety of products including fibers, yarns, and textiles. It is also used in food packaging, electronic films, photo and graphic arts applications and automobiles, where its low weight serves as an inherent advantage. Historically, the demand for PP has grown at around 7-8% mainly due to its versatility and relatively low cost compared to other polymers. According to the CMAI, the demand for PP is expected to increase at approximately 6% per annum over the 2007-12 period buoyed by rising demand from India and China. However, the overcapacity build-up in Middle East and Asia is expected to become a key challenge for the industry as 9 million tonnes of annual capacity gets added over 2008-10. The scenario is also expected to intensify the competition for the export markets with North America likely to lose its leadership position and Europe turning into a net importer. Meanwhile, China continues to remain the largest consumer of PP. According to the China Petroleum & Chemical Industry Association (CPCIA), the PP production is likely to increase to 12 million tonnes by 2010 from an estimated 7.13 million tonnes in 2007. Further, according to International Construction Information Society (ICIS), a cost and specification information provider for the construction industry expects at least 11 new PP plants with total capacity of 3.9 million tonnes per year under construction to come on-stream between 2008 and 2011.

Asian economies, mainly China, remain the biggest export market for the Middle East Economic downturn leads to negative demand for petrochemicals in China

The ongoing global economic recession and credit crunch has dampened demand leading to price correction across basic petrochemical products. The prices of ethylene, butadiene, polypropylene and benzene have declined to at least three-year lows. However, on a positive note, the improving demand scenario has led to an improved trend in 2Q09. The prices for polypropylene, polyethylene and benzene witnessed a sequential improvement during 2Q09. While polypropylene prices reported a 24.4% sequential gain, polyethylene price improved 17.4% in 2Q09 compared to the previous quarter. The price of benzene however, gained the maximum rising 80.6% in 2Q09 on a sequential basis.

Price Change in Crude Oil and Natural Gas

-36%

-18%

0%

18%

36%

54%

72%

2004 2005 2006 2007 2008

Crude OPEC basket Natural Gas

Price Change of Key Petrochemicals

-56%

-28%

0%

28%

56%

2006 2007 2008 2009

Polyethylene Ethylene Benzene Polypropylene

Source: Bloomberg *2009 includes prices till August Source: Bloomberg On the demand side, Asian economies have emerged as the key markets for petrochemical products because of their favourable demand growth. China remains the biggest export market with petrochemical demand expected to rise around 9% each year till 2012 compared to a mere 1.8% projected for the US and Europe. At the same time, as a result of the feedstock cost advantage, the Middle East region has emerged as a significant petrochemical producer, targeting its low cost products towards the Asian markets. However, given the economic slump, the demand for petrochemical products is likely to remain low with over-capacity further deteriorating the situation. Ethylene derivatives exports from North America are expected to decline as a result of weakening global demand, appreciating dollar and overcapacity building up in the Middle East. The reduction in operating rates in Asia particularly the Middle East is expected to exert pressure on US exports and cash margins. According to ICIS, exports from the Middle East are expected to increase from 4.3 million tonnes in 2008 to 11.7 million tonnes in 2013 benefiting from capacity expansions. Consequently, net trade balance for US polyethylene is expected to fall from 3.4 million tonnes in 2008 to 0.80 million tonnes by 2013. With access to low cost feedstock (coal), China has been developing the local industry to fulfil the soaring domestic demand. However, the scenario is changing fast as a result of the sluggish demand for petrochemicals. According to CPCIA, Chinese petrochemical industry is moving downwards for the first time after ten years of high growth. Further, according to the Centre for Business Intelligence, an independent commodities information provider in China, demand for key petrochemical products including ethylene, polyethylene, benzene and purified terephthalic acid (PTA) witnessed negative growth in demand for the first time in 2008. Amongst this, PTA’s demand was the most affected declining 8% in 2008 compared to a rise of 26% in 2007. The slowdown in global demand for Chinese textiles, toys, electronics, home appliances, machinery and other finished manufactured goods has caused the dip in demand for petrochemical products. Further, industry experts believe that the sector would be challenged by overproduction, lack of innovation and competitiveness and price undercutting from other parts of the world.

Demand and Production in China in 2008 ('000 tonnes)

0

3,200

6,400

9,600

12,800

16,000

Ethy

lene

Prop

ylen

e

Poly

ethy

lene

(PE)

Poly

prop

ylen

e

Petro

benz

ene

Purif

ied

tere

phth

alic

acid

(PTA

)

Mon

oeth

ylen

egl

ycol

(MEG

)

Met

hano

l

Demand Production Sources: CBI Research & Consulting, China National Bureau of Statistics

Global turmoil leads to weak demand, over capacity aggravates situation

The Chinese government has undertaken certain initiatives to revive the industry. During January 2009, China’s state council approved a stimulus package of approximately RMB 500 billion (USD 73 billion) to ensure scheduled commission of planned capacity additions, in order to revive the local industry. This initiative will likely reduce chemical imports to 17 mmt in 2011 from 20 mmt in 2007.

China Cracker Expansion Plans, ’000 tonnes

Company Project location 2009 expansion

2010 expansion

2011 expansion

Start-up time

Sinopec (including joint ventures) Fujian United Petrochemical

Fujian, South China 800 - - 1H 2009

Shanghai Secco Petrochemical

Shanghai, East China 300 - - Aug-09

Tianjin Petrochemical Tianjin, North China 1,000 - - Sep-09

Zhenhai Refinery and Petrochemical

Zhejiang, East China 1,000 - - Oct-09

Guangzhou Petrochemical

Guangdong, East China - - 1,000 Planning

board Wuhan Petrochemical

Hubei, Central China - - 800 Planning

board Petro China Dushanzi Petrochemical

Xinjiang, Northwest China 1,000 - - 1Q 2009

Panjin Petrochemical Liaoning, Northeast China 450 - - Oct-09

Fushun Petrochemical

Liaoning, Northeast China - 800 - Planning

board Sichuan Petrochemical

Sichuan, Southwest China - - 800 Planning

board Daqing Petrochemical

Heilongjiang, Northeast China - 600 - Planning

board Total New Capacity 4,550 1,400 2,600 Source: CBI Research & Consulting

The demand for petrochemicals has remained weak given the ongoing financial turmoil. This in turn has led to the closure of production facilities, delays in capacity addition plans and industry-wide merger and acquisition activity. Capacity additions have been facing delays or postponement mainly in the financing and engineering stages with tightened credit availability. The liquidity crunch has already forced Qatar Petroleum and Korea-based Honam Petrochemical to defer a joint cracker and derivatives project. Saudi Aramco and Dow Chemical-operated Ras Tanura project, estimated at USD 26 billion and touted as the biggest petrochemical project in the sector is faced with apprehensions regarding the scheduled completion in 2014. While decline in feedstock costs has improved profitability for producers, the weak demand scenario has kept a check on the volumes of business generated. However, on a positive note, the demand situation is expected to improve in the medium term. Petrochemical prices, which have already seen multi-year lows, have been slowly, but definitely, recovering. On the other hand, with a decline in construction costs, petrochemical players are renegotiating contracts with their engineering partners. Saudi Aramco decided to renegotiate contracts for its giant Manifa oilfield development project towards the end of 2008. Apart from this, the present situation is believed to be throwing up an array of consolidation and merger opportunities with the Middle East being considered a potential buyer for distressed assets across Asian and European petrochemical companies. In February 2009, Abu Dhabi’s sovereign wealth fund IPIC agreed to acquire Canada-based NOVA Chemicals for USD 2.3 billion, including the debt assumption. In another development, Sabic and Sipchem have signed an MoU to work together on new projects worth USD 4 billion using Sipchem’s government allocation of feedstock ethane. Further, the companies are also taking preparatory steps towards streamlining operational efficiencies, enhancing vertical integration, reducing capacity and realigning portfolios to focus on core businesses and see through this global turmoil.

Sahara reported a pre-operating net loss of SAR 41 million in 2008

Financial Performance - FY2008 Sahara’ financial performance in 2008 included only non-operational income. The company reported a more than three-fold increase in SG&A expenses to SAR 40.17 million compared to SAR 12.38 million in 2007. In addition, other operating expenses amounted to SAR 3.78 million compared to SAR 4.98 million. Consequently, operating loss comprising mainly of expenses stood at SAR 43.94 million for 2008 compared to the last year’s operating loss of SAR 17.36 million. Income from murabaha declined to SAR 0.07 million from SAR 14.39 million in 2007. However, on superior performance by companies in which Sahara has investments resulted in a 40.5% increase in income from related companies to SAR 3.32 million from SAR 2.37 million. Rising expenses coupled with a decline in non-operating income led to an increase in net loss to SAR 41.15 million in 2008 compared to SAR 5.11 million in the previous year. Accordingly, adjusted loss per share (LPS) increased from SAR 0.002 to SAR 0.014 in 2008.

-50

-40

-30

-20

-10

0

2007 2008 1H08 1H09

Operating Profit/ (Loss) (SAR Millions)

-50

-40

-30

-20

-10

0

2007 2008 1H08 1H09

Net Profit/ (Loss) (SAR Millions)

-

1,200

2,400

3,600

4,800

6,000

2007 2008 1H08 1H09

Total Assets (SAR Millions)

-1.5%

-1.2%

-0.9%

-0.6%

-0.3%

0.0%

2008 1H08 1H09

Return on Average Assets (RoAA)

-

420

840

1,260

1,680

2,100

2007 2008 1H08 1H09

Shareholders' Equity (SAR Millions)

-3%

-2%

-2%

-1%

-1%

0%

2008 1H08 1H09

Return on Average Equity (RoAE)

Chart Gallery

Size of the Company The salient features of the balance sheet are:

Sahara’s total assets increased 42.3% to SAR 5,283.05 million in 1H09 compared to SAR 3,712.02 million in 1H08 led by a rise in projects under development and investments in related companies. Projects under development representing 72.5% of the total assets in 1H09 increased 36.0% to SAR 3,828.57 million compared to SAR 2,815.49 million in 1H08. On the other hand, the company also increased investments in related companies by 7.6% to SAR 822.31 million from SAR 764.26 million in 1H08. However, the share of investments in related companies declined from 20.6% to 15.6% in 1H09.

Capital work in progress nearly doubled to SAR 33.49 million in 1H09 from SAR 17.22 million in

1H08. Intangible assets also increased from SAR 6.09 million to SAR 23.03 million in 1H09. In addition, the company witnessed an almost five-fold rise in cash & cash equivalents to SAR 485.31 million mainly representing unused proceeds of net loans.

Total liabilities more than doubled to SAR 3,168.13 million compared to SAR 1,442.25 million in

1H08 taking its share in the total balance sheet to 60% from 38.9%. Total debt increased from SAR 1,257.91 million to SAR 2,859.02 million in 1H09, as the company raised fresh long-term loans to finance its development plans. The share of total loans in the balance sheet stood at 54.1% in 1H09 compared to 33.9% in 1H08. Accordingly, the company’s debt-to-equity ratio increased from 0.66 to 1.63. Furthermore, while interest rate swaps increased 74.3% to SAR 90.38 million, accounts payable reported a more than six-fold rise to SAR 98.41 million and other payables stood at SAR 108.63 million.

Shareholders’ equity reduced 7.5% to SAR 1,752.92 million compared to SAR 1,895.91 million in

1H08 mainly on declines in retained earnings and fair value of interest rate derivatives. Retained earnings were lower by 50.9% at SAR 43.13 million on losses reported during the period. At the same time, decline in fair value of interest rate derivatives accumulated to SAR 165.27 million compared to SAR 66.97 million in 1H08.

Financial Performance Analysis – 1H09 Sahara did not report any operational revenues in 1H09. The company’s SG&A expenses increased 40.6% to SAR 25.12 million compared to SAR 17.87 million in 1H08. Consequently, operating loss comprising of only expenses increased to SAR 25.12 million in 1H09 as against SAR 19.19 million in 1H08. The company did not report any income from murabaha in 1H09 compared to an income of SAR 0.06 million in 1H08. At the same time, the company did witness a 59.4% increase in income from related companies to SAR 5.46 million. The company reported a net loss of SAR 20.17 million compared to SAR 15.44 million in 1H08. Adjusted annualised LPS stood at SAR 0.014 as against SAR 0.011 in 1H08. Due to losses reported during 1H08 and 1H09, Sahara’s annualised negative returns on average equity stood at 1.6% and 2.3%, respectively. Annualised negative returns on average assets also stood at 0.8% in 1H09 compared to 0.9% in 1H08.

Sahara reported a net loss of SAR 20 million for 1H09

Peer Comparison In order to do a peer comparison, we have taken comparable companies involved in petrochemicals business across Saudi Arabia that includes Saudi Industrial Investment Group (SIIG), National Industrialization Company (NIC), Saudi International Petrochemical Company (SIPCHEM) and Sahara.

Financial Performance of Comparable Companies SIIG NIC SIPCHEM Sahara 2008 1H09 2008 1H09 2008 1H09 2008 1H09 Ratios:

Total Assets Turnover Ratio (x)

0.31 0.27

0.36 0.25 0.18 0.06 NA NA Operating Profit Margin (%) -0.5 5.4 9.7 5.2 55.3 4.2 NA NA EBITDA Margin (%) 2.2 5.4 16.7 5.2 55.9 4.2 NA NA Net Profit Margin (%) 2.3 1.8 6.0 1.7 31.4 8.8 NA NA

Debt Equity Ratio

0.53 0.82

2.20 2.32 0.75 1.04 1.26

1.63 RoAA (%) 0.7 0.5* 2.2 0.4* 5.8 0.5* -1.1 -0.8* RoAE (%) 1.2 0.9* 9.1 1.8* 13.5 1.2* -2.2 -2.3* Market Indicators: Adj. EPS (SAR) 0.11 0.10* 1.30 0.29* 1.61 0.18* -0.01 -0.01* P/E (x) 210.91 219.39 15.91 72.21 13.04 117.90 NM NM Adj. BVPS (SAR) 11.55 11.60 15.88 15.74 14.89 14.40 6.05 5.99 P/BV (x) 1.98 1.97 1.31 1.32 1.41 1.46 2.66 2.69 Current Market Capitalisation (SAR Millions) 10,283 10,283 9,559 9,559 7,000 7,000 4,710

4,710

(SAR Million) Revenues 2,138.96 1,317.56 10,037.14 3,796.42 1,708.58 335.50 NA NA % YoY change 46.6 14.3 38.9 -26.5 11.8 -66.4 NA NA Operating Profit/ (Loss) -10.32 71.60 974.43 198.57 945.34 13.96 -43.94 -25.12 % YoY change NA -73.2 -12.9 -66.5 5.4 -97.7 NA NA EBITDA 46.26 71.60 1,671.81 198.57 954.44 13.96 -43.94 -25.12 % YoY change -90.2 -73.2 12.4 -66.5 5.3 -97.7 NA NA Net Profit/ (Loss) 48.75 23.43 600.85 66.19 536.78 29.69 -41.15 -20.17 % YoY change -88.9 -92.1 -9.1 -82.1 -9.6 -91.9 NA NA Total Assets 8,649.03 10,534.40 30,422.66 31,050.35 10,833.39 11,633.97 4,720.85 5,283.05 % YoY change 74.2 34.5 23.4 8.7 39.8 26.3 54.9 42.3 Shareholders’ Equity 5,197.23 5,219.95 7,317.76 7,249.45 4,964.60 4,801.14 1,769.18 1,752.92 % YoY change 66.3 -4.1 23.2 -9.5 65.7 -9.9 -9.3 -7.5 NA: Not applicable, NM: Not meaningful Source: Zawya, Sahara’s financial statements

Increased share capital through rights issue offered in August 2009 Sahara intends to invest in three new projects ACVC to start commercial operations by 3Q 2012

New Projects and Strategies In June 2009, the company received approval from the Capital Market Authority to increase capital by 56.02% via rights issue. Subsequently, in August 2009, Sahara offered 105,030,000 shares through a rights issue at a par value of SAR 10 per share, representing an increase in the company’s share capital to SAR 2.93 billion from SAR 1.88 billion. As per the company, the net proceeds of the offering will be used in Sahara’s investment in the new projects, investments in shared services, employee home ownership program and payment of commission on financing facilities. Meanwhile, the Al Waha project complex commenced the trial run in April 2009, and each of the cracker, LDPE and HDPE plants of SEPC commenced their respective trial runs in August 2008, November 2008 and March 2009, respectively. The commercial operations of the plants commenced in June 2009. Continuing its investments in the country’s petrochemical sector, in addition to its existing projects, Sahara intends to invest in three new projects. These projects are currently in the process of being established with estimated combined project costs of SAR 4.86 billion. Sahara’s affiliate TSOC and Rohm & Hass entered into an agreement on March 28, 2008, to form a joint venture, Saudi Acrylic Monomers Company (SAMC) to develop an integrated downstream petrochemical complex for the production of Acrylic Acid and its derivatives. TSOC, National Industrialization Company (Tasnee) and Sahara incorporated a new company by the name of Saudi Acrylic Acid Company (SAAC) which will own 75% of the equity of SAMC while Rohm & Hass will own the remaining 25%. Sahara will own 15% in SAAC directly and another 21.17% through its shareholding in TSOC. Hence, Sahara will effectively own 27.1% in SAMC. The company is waiting for industrial license, which it expects to receive before the end of this year. With an estimated total cost of the project to be SAR 2.27 billion, SAMC is expected to start operations by 3Q 2012. SAMC plans to produce 30,000 tpa of Glacial Acrylic Acid and 145,000 tpa of Butyl Acrylates and 50,000 tpa of 2-Ethyl Hexyl Acrylates. The company along with Saudi Arabian Mining Co. (Ma’aden) is considering developing an ethylene dichloride project with an integrated caustic/chlorine industrial complex at Jubail Industrial City. The total cost of the project is estimated to be SAR 1.76 billion. The company has already received an industrial license, and is yet to be incorporated. Commercial operations of ACVC are expected to start in 3Q 2012. The plant will target production of Ethylene Dichloride, mainly used to produce vinyl chloride monomer, the major precursor for Polyvinyl chloride (PVC) production. It also plans to produce Caustic Soda that is used in many industries, mostly as a strong chemical base in the manufacture of pulp and paper, textiles, drinking water, soaps and detergents and as a drain cleaner. Production capacity of Ethylene Dichloride plant will be around 300,000 tpa of Ethylene Dichloride, while Sahara plans to produce 250,000 tpa of Caustic Soda. Finally, its Superabsorbent Polymers (SAP) project will use the acrylic acid produced at SAMC as feedstock for the production of 77,000 tpa of SAP. Superabsorbent Polymers will be produced through a separate joint venture and Sahara is presently in the process of finding a joint venture partner for this purpose. The project is expected to cost a total of SAR 835.5 million, out of which Sahara’s equity contribution is expected to be SAR 68.0 million.

SWOT Analysis

THREATS

The company may not be able to raise sufficient external financing due to unfavourable financial markets that may in turn affect its project execution

OPPORTUNITIES

The country’s continuous focus on expanding its petrochemical sector and become primary centre of global production for basic chemicals Diversify from the existing oil-based economy and increase the competitiveness of the industrial sector Government funding to mega strategic projects amidst global crisis.

WEAKNESS

No historical performance to support manufacturing business record of the company High debt on its balance sheet

STRENGTHS

Access to cheap raw material - long-term supply agreements with Saudi Aramco for propane and ethane feedstock Technically strong joint venture partners Geographical location and proximity to markets Sahara’s new projects and JVs to manufacture products with growing demand

Risks and Concerns:

The current economic downturn has tightened liquidity across most economies in the GCC. Lower oil prices have proved detrimental to the budget surpluses enjoyed by the regional governments till the last year. Consequently, mobilisation of funds towards infrastructure projects has been adversely impacted, leading to a further slowdown in overall economic activity. In addition, weak economic growth has negatively impacted the demand across sectors thereby restricting consumer spending. Consequently, the region’s economies will likely witness slower/negative growth in 2009 despite some improvement during the second half of the year. Furthermore, as demand for petrochemicals is heavily dependent on the economic growth, companies might witness a restrained revenue growth. The prices of petrochemical products are mainly determined by the demand/supply scenario and tend to follow the global price trends for crude oil and natural gas, which form the basic raw materials. Therefore, any significant dip in crude oil and natural gas prices might lead to lower price realisations for petrochemical products, whereas at the same time, lower input costs might help improve operating margins as well. In addition, uncertainty related with regard to the timing and cost of completion of the new projects that will depend, in part, upon approvals from relevant governmental authorities. Delays in projection completion are also expected to lead to cost overruns, which in turn is likely to reduce the anticipated returns.

Cost of Equity: 13.34% WACC: 9.04%

Valuation Methodology: We have used DCF valuation method to arrive at the fair value of Sahara, as discussed below: Assumptions:

(i) Risk free Rate (Rf) of 3.20%, equivalent to one year average yield on 10 year US T-bill. (ii) Levered Beta of 1.43 (iii) A terminal growth rate of 2%

Based on the inputs and the Capital Asset Pricing Model (CAPM), we have arrived at a Cost of Equity of 13.34% and a WACC of 9.04%.

DCF Calculations DCF Valuation (FCFF Model)

(in SAR Million) 2009E* 2010E 2011E 2012E 2013E 2014E Operating Profit (EBIT) 110.05 489.25 711.06 1,070.98 1,201.84 1,382.68 Zakat on EBIT 3.37 15.00 21.81 32.84 36.86 42.40 Effective Tax Rate 3.1% 3.1% 3.1% 3.1% 3.1% 3.1% NOPAT 106.67 474.25 689.25 1,038.13 1,164.98 1,340.28 Add: Depreciation and Amortisation 56.38 104.27 157.34 178.53 201.68 225.42 Less: Capex 638.20 465.18 524.42 705.19 770.75 790.55 Less: Change in Net Working Capital 50.68 46.58 49.06 116.47 119.02 148.72 Operating Free Cash Flows to Firm (OFCFF) -525.83 66.77 273.11 394.99 476.90 626.43 Non-Operating Income 5.34 11.88 13.66 16.39 20.49 26.64 Tax on Non-Operating Income 0.16 0.36 0.42 0.50 0.63 0.82 Add: Non-Opearting Cash Flows (After Tax Non-Operating Income) 5.17 11.52 13.24 15.89 19.86 25.82 Free Cash Flow to Firm (FCFF) -520.66 78.28 286.35 410.89 496.76 652.25 WACC (Ko) (%) 9.04% 9.04% 9.04% 9.04% 9.04% 9.04% Present Value / Discount Factor 0.9577 0.8783 0.8055 0.7388 0.6776 0.6214 Long-Term Growth Rate (g) (%) 2.00% Terminal Multiple [(1 + g) / (WACC - g)] 14.50 Nominal Terminal Value [(FCFF * (1 + g)) / (WACC - g)] 9,456.62 Present Value of Free Cash Flows -498.62 68.76 230.66 303.55 336.59 405.32

*2009E excludes 1H09A

Calculation of Equity Value and Fair Value Per Share NPV of Free Cash Flows (during Explicit Forecast Period) 846.26 Terminal Value: Residual Cash Flow (FCFF of 2014E) 652.25 WACC 9.04% Long-Term Growth Rate (g) 2.00% Divided by Capitalisation Rate (WACC - g) 0.07 Equals Nominal Terminal Value 9,456.62 Implied Multiple of 2014E EBITDA 5.88 Times PV/ Discount Factor 0.62 Present Value of Terminal/Residual Value 5,876.49 Enterprise Value 6,722.75 Implied Multiple of 2014E EBITDA 4.18 Less: Long-term Debts 2,859.02 Less: Market Value of Preferred Shares 0.00 Add: Surplus Cash and Investments 0.00 Equity Value 3,863.73 No. of Outstanding Shares (Million) 292.53 Fair Value Per Share (SAR) 13.21

* figures in SAR Million unless specified

Sensitivity Analysis We have prepared a sensitivity analysis table, showing the probable nominal terminal value, discounted terminal value and enterprise value, given different growth rate assumptions and the WACC. The shaded area represents the most probable outcomes.

Sensitivity Analysis of Nominal Terminal Value (SAR Million) Discount

Factor Long-Term Growth Rate

1.00% 1.50% 2.00% 2.50% 3.00% 7.04% 10,915 11,960 13,213 14,741 16,649 8.04% 9,364 10,130 11,024 12,078 13,342 9.04% 8,199 8,786 9,457 10,230 11,132

10.04% 7,291 7,756 8,280 8,872 9,549 11.04% 6,565 7,363 7,363 7,833 8,361

Sensitivity Analysis of Discounted Terminal Value (SAR Million)

Discount Factor

Long-Term Growth Rate 1.00% 1.50% 2.00% 2.50% 3.00%

7.04% 7,510 8,229 9,091 10,142 11,455 8.04% 6,121 6,622 7,206 7,896 8,722 9.04% 5,095 5,460 5,876 6,357 6,917

10.04% 4,309 4,584 4,893 5,243 5,643 11.04% 3,691 4,140 4,140 4,404 4,701

Sensitivity Analysis of Enterprise Value (SAR Million)

Discount Factor

Long-Term Growth Rate 1.00% 1.50% 2.00% 2.50% 3.00%

7.04% 8,961 9,680 10,541 11,593 12,905 8.04% 7,518 8,019 8,603 9,292 10,119 9.04% 6,440 6,805 6,723 7,702 8,262

10.04% 5,605 5,880 6,189 6,539 6,939 11.04% 4,940 5,389 5,389 5,653 5,950

Investment Opinion The expansion of petrochemical sector remains highly dependent on the demand pattern for products, which in turn is reliant on macroeconomic health. The petrochemicals sector witnessed healthy growth during 2008, as sound economic growth registered by economies worldwide kept the demand for petrochemical products at a high level. At the same time, price realisations followed an upward trajectory leading to record top and bottom-line growth for the companies operating in the sector. However, towards the later part of 2008, the sector witnessed slower growth as demand for petrochemicals plunged as a result of the economic slump. The slowdown across the world economies driven by multiple factors including the subprime mortgage crisis and declining oil prices, amongst others, have been instrumental in pulling down the demand for petrochemical products. The prices of basic petrochemicals such as ethylene, butadiene, propylene, styrene, and benzene all slumped to at least three-year lows. Even China, which continues to be one of the largest consumers of petrochemicals, was no exception and witnessed negative demand growth for the first time in 10 years. As the impact of the economic crisis widened, the petrochemicals sector became more prone to shut-downs of production facilities and delays in capacity addition plans. In addition to this, the sector has also been abuzz with merger and acquisition talk. However, there has been a reversal in the prices of crude oil and natural gas. The OPEC crude increased from USD 35.58 per bbl at the start of the year to USD 71.14 per bbl as of August 14, 2009. The prices for polypropylene, polyethylene and benzene have all witnessed sequential improvements in 2Q09. While polypropylene prices reported a 24.4% sequential gain, polyethylene price improved 17.4% in 2Q09 compared to the previous quarter. The price of benzene gained the maximum rising 80.6% in 2Q09 on a sequential basis. This is expected to lead to a gradual improvement in earnings of the companies operating in this sector. Sahara is well-positioned with the construction and commissioning of its industrial complexes progressing according to plan. The company’s Al Waha project complex commenced its trial run in April 2009, while TSOC started commercial operations in June 2009. Going forward, we expect the company to benefit from the gradual increase in revenue from these complexes as they attain optimum utilization. Furthermore, the company continues to increase investments in the petrochemical sector of Saudi Arabia. Sahara even issued a 56.02% rights issue in August 2009 to ensure uninterrupted funding for its future endeavours. Despite these factors, we believe that the company’s stock price, which has already appreciated 62.7% since the start of the year, heavily discounts the expected future earnings flow. The company is also up against operational challenges relating to the commencement of commercial operations, which we believe is likely to delay/hinder earnings flow. Accordingly, we recommend an exit from the stock at the current levels. As Sahara is yet to start full fledged operations, the company’s stock is trading at an exceptionally P/E multiple of 506.58x and 109.73x on 2009E and 2010E earnings, and at a P/B multiple of 1.61x and 1.39x on 2009E and 2010E BVPS, respectively. Meanwhile, the stock has outperformed the index by increasing 62.7% since January as against a gain of 23.8% by the Tadawul All Share Index. Considering the above factors, we arrive at a price target of SAR 13.21, which exhibits a potential downside of 18.0% from its closing price of SAR 16.10 (as on Sep 24, 2009). Accordingly, we initiate our coverage on Sahara Petrochemicals Co. with an UNDERWEIGHT recommendation.

Fair Value: SAR 13.21 Investment Opinion: UNDERWEIGHT

Financial Statements Consolidated Balance Sheet

(in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E ASSETS Non-current assets Capital work in progress 11.23 22.84 17.22 33.49 41.84 47.34 52.35 Investment in related companies 760.89 732.95 764.26 822.31 1,225.62 1,461.13 1,624.27 Project under development 2,092.73 3,390.36 2,815.49 3,828.57 1,092.32 1,243.33 0.00 Property, Plant and Equipment 1.47 5.48 3.23 13.07 3,141.73 3,455.90 5,223.64 Intangible assets 98.50 112.86 6.09 23.03 21.62 21.03 20.40 Total non-current assets 2,964.81 4,264.49 3,606.29 4,720.46 5,523.14 6,228.72 6,920.67 Current assets Cash & Cash Equivalents 81.16 453.04 103.01 485.31 994.96 940.55 881.56 Account Receivables and Prepaid Amounts 1.95 3.32 2.73 39.69 44.03 159.81 242.72 Inventory 0 0 0 37.59 39.63 138.96 214.72 Total current assets 83.11 456.36 105.73 562.59 1,078.62 1,239.32 1,339.00 Total Assets 3,047.92 4,720.85 3,712.02 5,283.05 6,601.76 7,468.04 8,259.67 LIABILITIES AND EQUITY Liabilities Non-current liabilities Long-Term Debt 200.00 957.67 699.79 1,164.14 1,121.99 1,194.54 1,308.78 Islamic loans 112.53 659.62 450.12 831.76 880.94 910.65 965.88 Bridging loan 0 0 0 752.00 752.00 752.00 752.00 Interest Rate Swap 0 148.55 51.86 90.38 90.38 90.38 90.38 End of service benefits 3.69 7.61 5.30 11.10 15.60 23.53 34.13 Other Liabilities 85.59 0 110.58 0 0 0 0 Total non-current liabilities 401.81 1,773.44 1,317.65 2,849.38 2,860.91 2,971.10 3,151.17 Current liabilities Due to bank 229.00 589.03 0 0 0 0 0 Account Payable and other liabilities 78.21 93.63 15.37 98.41 123.29 291.82 401.43 Other Payables 0 130.93 0 108.63 114.49 166.76 233.39 Current portion of Long-Term & Short Term loan 0 15.56 108.00 111.12 142.16 166.78 191.07 Provision for Zakat & Tax 1.62 0 1.22 0.60 0.60 0.60 0.60 Total current liabilities 308.83 829.15 124.60 318.75 380.53 625.96 826.48 Total liabilities 710.63 2,602.59 1,442.25 3,168.13 3,241.44 3,597.07 3,977.65 Equity Paid-Up Capital 1,875.00 1,875.00 1,875.00 1,875.00 2,925.30 2,925.30 2,925.30 Legal Reserve 0.07 0.07 0.07 0.07 9.37 52.29 115.85 Retained Earnings 103.25 62.10 87.81 43.13 155.07 584.29 902.12 Change in Fair Value Interest rate derivatives -28.07 -167.99 -66.97 -165.27 -165.27 -165.27 -165.27 Equity attributable to equity holders of the Company 1,950.24 1,769.18 1,895.91 1,752.92 2,924.47 3,396.60 3,778.00 Minority Interest 387.04 349.07 373.86 362.00 435.86 474.38 504.01 Total liabilities & equity 3,047.92 4,720.85 3,712.02 5,283.05 6,601.76 7,468.04 8,259.67

Consolidated Income Statement (in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Revenues NA NA NA NA 880.66 2,779.28 3,734.19 Cost of sales NA NA NA NA -684.26 -2,013.56 -2,630.70 Gross profit NA NA NA NA 196.40 765.72 1,103.49 Selling, general & administrative expenses -12.38 -40.17 -17.87 -25.12 -53.68 -172.20 -235.10 Operating expenses -4.98 -3.78 -1.33 0 0 0 0Depreciation & amortization NA NA NA NA -57.79 -104.27 -157.34 Operating profit (loss) -17.36 -43.94 -19.19 -25.12 84.92 489.25 711.06 EBITDA -17.36 -43.94 -19.19 -25.12 142.71 593.52 868.40 Income from Murabaha & other income 14.39 0.07 0.06 0 0 0 0 Income from related companies 2.37 3.32 3.43 5.46 10.80 11.88 13.66 Finance costs 0 0 0 0 0 -59.21 -70.22 Profit/ (loss) before minority interest & Zakat -0.60 -40.56 -15.71 -19.66 95.72 441.92 654.50 Minority interest -2.74 0.94 0.33 0.09 0.19 0.87 1.29 Loss before zakat -3.34 -39.61 -15.38 -19.57 95.91 442.79 655.79 Zakat -1.77 -1.53 -0.06 -0.60 -2.94 -13.58 -20.11 Net loss -5.11 -41.15 -15.44 -20.17 92.97 429.21 635.68 Adjusted EPS 0.00 -0.01 -0.01 -0.01 0.03 0.15 0.22

Consolidated Cash Flow Statement (in SAR Million) 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Cash Flow From Pre-Operating Activities Loss before Zakat -3.34 -39.61 -15.38 -19.57 95.91 442.79 655.79 Adjustments in: Depreciation and Amortization 0.31 1.03 0.31 1.40 57.79 104.27 157.34 Proceed from sale of property & equipment 0 0.04 0.06 0 0 0 0 End of service benefits 1.62 3.92 1.61 3.49 7.99 7.93 10.60 Share of income from related companies -2.37 -3.32 -3.43 -5.46 -10.80 -11.88 -13.66 Minority Interest 2.74 -0.94 -0.33 -0.09 -0.19 -0.87 -1.29 Finance costs 0 0 0 0 0 59.21 70.22 Change in assets & liabilities: Prepaid amounts and other assets -0.77 -1.38 -0.78 -36.37 -40.71 -115.78 -82.91 Account payables -6.60 15.43 -62.83 4.77 29.66 168.53 109.60 Other Liabilities 0 0 24.99 -22.30 -16.44 52.27 66.63 Inventory 0 0 0 -37.59 -39.63 -99.33 -75.75 Cash from Operating Activities -8.41 -24.84 -55.77 -111.71 83.58 607.15 896.56 Zakat -4.42 -0.40 -0.40 0 -2.94 -13.58 -20.11 Net Cash from Operating Activities -12.83 -25.24 -56.17 -111.71 80.64 593.57 876.45 Cash Flow From Investing Activities Purchase of Property and equipments -1.28 -5.09 -2.14 -8.97 -8.97 -314.17 -414.71 Intangible assets -46.16 -14.36 -6.71 -10.16 -10.16 0 0 CWIP and Projects under development -1212.12 -1263.906 -630 -349 -377.94 -204.50 -109.71 Investments in related companies 0 0 0 -83.90 -492.68 -235.51 -564.19 Net Cash flows from (used in) Investing Activities -1,259.57 -1,283.36 -638.48 -451.91 -889.74 -754.18 -1,088.61 Cash Flow From Financing Activities Net loans 540.53 1,680.35 716 637 1,264.24 126.89 193.75 Income tax from minority interest 0 0.12 0 0 0 0 0 Minority Interest 0 0 0 -41 86.78 38.52 29.64 Finance costs paid 0 0 0 0 0 -59.21 -70.22 Net Cash flows from Financing Activities 540.53 1,680.47 716.49 595.89 1,351.02 106.20 153.17 Net change in cash & cash equivalents -730.87 371.87 21.84 32.27 541.92 -54.41 -58.99 Cash & cash equivalents balance, Beginning of period 812.03 81.16 81.16 453.04 453.04 994.96 940.55 Cash & cash equivalents balance, End of period 81.16 453.04 103.01 485.31 994.96 940.55 881.56

Common – Size Statements

Common-Size Consolidated Balance Sheet 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E ASSETS Non-current assets Capital work in progress 0.4% 0.5% 0.5% 0.6% 0.6% 0.6% 0.6% Investment in related companies 25.0% 15.5% 20.6% 15.6% 18.6% 19.6% 19.7% Project under development 68.7% 71.8% 75.8% 72.5% 16.5% 16.6% 0.0% Property, Plant and Equipment 0.0% 0.1% 0.1% 0.2% 47.6% 46.3% 63.2% Intangible assets 3.2% 2.4% 0.2% 0.4% 0.3% 0.3% 0.2% Total non-current assets 97.3% 90.3% 97.2% 89.4% 83.7% 83.4% 83.8% Current assets Cash & Cash Equivalents 2.7% 9.6% 2.8% 9.2% 15.1% 12.6% 10.7% Account Receivables and Prepaid Amounts 0.1% 0.1% 0.1% 0.8% 0.7% 2.1% 2.9% Inventory 0.0% 0.0% 0.0% 0.7% 0.6% 1.9% 2.6% Total current assets 2.7% 9.7% 2.8% 10.6% 16.3% 16.6% 16.2% Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% LIABILITIES AND EQUITY Liabilities Non-current liabilities Long-Term Debt 6.6% 20.3% 18.9% 22.0% 17.0% 16.0% 15.8% Islamic loans 3.7% 14.0% 12.1% 15.7% 13.3% 12.2% 11.7% Bridging loan 0.0% 0.0% 0.0% 14.2% 11.4% 10.1% 9.1% Interest Rate Swap 0.0% 3.1% 1.4% 1.7% 1.4% 1.2% 1.1% End of service benefits 0.1% 0.2% 0.1% 0.2% 0.2% 0.3% 0.4% Other Liabilities 2.8% 0.0% 3.0% 0.0% 0.0% 0.0% 0.0% Total non-current liabilities 13.2% 37.6% 35.5% 53.9% 43.3% 39.8% 38.2% Current liabilities Due to bank 7.5% 12.5% 0.0% 0.0% 0.0% 0.0% 0.0% Account Payable and other liabilities 2.6% 2.0% 0.4% 1.9% 1.9% 3.9% 4.9% Other Payables 0.0% 2.8% 0.0% 2.1% 1.7% 2.2% 2.8% Current portion of Long-Term & Short Term loan 0.0% 0.3% 2.9% 2.1% 2.2% 2.2% 2.3% Provision for Zakat & Tax 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total current liabilities 10.1% 17.6% 3.4% 6.0% 5.8% 8.4% 10.0% Total liabilities 23.3% 55.1% 38.9% 60.0% 49.1% 48.2% 48.2% Equity Paid-Up Capital 61.5% 39.7% 50.5% 35.5% 44.3% 39.2% 35.4% Legal Reserve 0.0% 0.0% 0.0% 0.0% 0.1% 0.7% 1.4% Retained Earnings 3.4% 1.3% 2.4% 0.8% 2.3% 7.8% 10.9% Change in Fair Value Interest rate derivatives -0.9% -3.6% -1.8% -3.1% -2.5% -2.2% -2.0% Equity attributable to equity holders of the Company 64.0% 37.5% 51.1% 33.2% 44.3% 45.5% 45.7% Minority Interest 12.7% 7.4% 10.1% 6.9% 6.6% 6.4% 6.1% Total liabilities & equity 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Common-Size Income Statement 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Revenues NA NA NA NA 100.0% 100.0% 100.0% Cost of sales NA NA NA NA -77.7% -72.4% -70.4% Gross profit NA NA NA NA 22.3% 27.6% 29.6% Selling, general & administrative expenses NA NA NA NA -6.1% -6.2% -6.3% Operating expenses NA NA NA NA 0.0% 0.0% 0.0% Depreciation & amortization NA NA NA NA -6.6% -3.8% -4.2% Operating profit (loss) NA NA NA NA 9.6% 17.6% 19.0% EBITDA NA NA NA NA 16.2% 21.4% 23.3% Income from Murabaha & other income NA NA NA NA 0.0% 0.0% 0.0% Income from related companies NA NA NA NA 1.2% 0.4% 0.4% Finance costs NA NA NA NA 0.0% -2.1% -1.9% Profit/ (loss) before minority interest & Zakat NA NA NA NA 10.9% 15.9% 17.5% Minority interest NA NA NA NA 0.0% 0.0% 0.0% Loss before zakat NA NA NA NA 10.9% 15.9% 17.6% Zakat NA NA NA NA -0.3% -0.5% -0.5% Net loss NA NA NA NA 10.6% 15.4% 17.0%

Financial Ratios 2007A 2008A 1H08A 1H09A 2009E 2010E 2011E Liquidity Ratios: Current Ratio (x) 0.27 0.55 0.85 1.76 2.83 1.98 1.62 Quick Ratio (x) 0.27 0.55 0.85 1.65 2.73 1.76 1.36 Profitability Ratios: Return on Average Equity (RoAE) (%) NA -2.2 -1.6 -2.3 4.0 13.6 17.7 Return on Average Assets (RoAA) (%) NA -1.1 -0.9 -0.8 1.6 6.1 8.1 Leverage Ratios: Debt to Equity (D/E) Ratio (x) 0.28 1.26 0.66 1.63 0.99 0.89 0.85 Shareholders' Equity to Total Assets Ratio (x) 0.64 0.37 0.51 0.33 0.44 0.45 0.46 Total Liabilities to Total Assets Ratio (x) 0.23 0.55 0.39 0.60 0.49 0.48 0.48 Current Liabilities to Equity Ratio (x) 0.16 0.47 0.07 0.18 0.13 0.18 0.22 Growth Rates: % YoY Growth in Total Revenues NA NA NA NA NA 215.6 34.4 % YoY Growth in Operating Profit NA NA NA NA NA 476.1 45.3 % YoY Growth in EBITDA NA NA NA NA NA 315.9 46.3 % YoY Growth in Net Profit NA NA NA NA NA 361.7 48.1 % YoY Growth in Total Assets NA 54.9 NA 42.3 39.8 13.1 10.6 % YoY Growth in Shareholders' Equity NA -9.3 NA -7.5 65.3 16.1 11.2 Ratios used for Valuation: Adj. EPS (SAR) 0.00 -0.01 -0.01 -0.01 0.03 0.15 0.22 Adj. BVPS (SAR) 6.67 6.05 6.48 5.99 10.00 11.61 12.91 P/E Ratio (x) NA NA NA NA 506.58 109.73 74.09 P/BV Ratio (x) 2.41 2.66 2.48 2.69 1.61 1.39 1.25 Current Market Price (SAR)** 16.10 16.10 16.10 16.10 16.10 16.10 16.10

* Annualized ** Current Market Price as on September 24, 2009

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