Board of Director’s Report Project and Trade Finance · carbon black, urea, NPK fertilizer, storage of petroleum products, and production acrylic fibre. A brief summary on each

APICORP Annual Report 200720

PROJECT AND TRADE FINANCE

2007 has set up another historical record for the project and trade finance activities at APICORP in terms of income, business volume and advisory and arranging mandates. In addition, our involvement and know-how in Islamic Finance has increased, both for project finance and trade finance.

We have had an exceptional year in terms of transactions progressed, allowing us to accelerate our asset growth, from US$ 1.3 billion at the end of 2006 to US$ 1.9 billion at the end of 2007.

Indeed, despite skyrocketing project costs, investments in the energy sector have remained steady due to high oil prices and high foreign demand for hydrocarbon products.

In this context, the Corporation has continued to play an instrumental role in the financing of most of the entrepreneurial and viable oil, gas and petrochemical projects launched in the Arab World in 2007, confirming accordingly its position as the prominent regional player in the financing of the Arab energy industry. Also, as per the 2007-2011 strategy approved by the Board of Directors in April 2007, the Corporation has taken preliminary steps to expand in other sectors connected to the hydrocarbon industry with a mandated arranger position in Qatalum. Also, our involvement in power financings has been confirmed through our involvement in Shuqaiq and Marafiq, two landmark IWPPs in Saudi Arabia.

As a result, the Corporation has closed in 2007, 28 transactions (20 in 2006), with underwriting and final take commitments amounting in aggregate to US$ 1.9 billion and US$ 1.4 billion respectively. Our net income for 2007 has reached US$ 23.9 million, after US$ 18.8 million in 2006, and much above the historical record of 2004 at US$ 19.4 million.

PROJECT FINANCEProject Finance has remained the most active and profitable segment of the Corporation’s lending activities in 2007. As evidenced by the table below, the Corporation has consolidated further its leading role in the arrangement of most of the landmark financings that took place in the Arab hydrocarbon industry in 2007. In particular, the Corporation was awarded arranging mandates, including bookrunner role, technical/modelling bank role, documentation bank role and agency role.

Project and Trade FinanceBoard of Director’s ReportAPICORP Activities in 2007

APICORP Annual Report 2007 21

Client

Kuwait Paraxylene Production Company

Shuqaiq Water and Electricity Company

National Industrial Gases Company

E-Agrium

Equipolymers

Saudi Polyolefins

Amount andType of facility

US$ 1.4 billionConventional /Islamic

US$ 1,388 millionConventional

SR 1,500 millonIslamic

US$ 939 millionConventional

Euro 55 million Conventional


Purpose

Aromatics complex

Independent Water and Power Project

Industrial gases project

Urea – Ammonia project

Expansion financing and general Corporate purposes

Polypropylene plant expansion

Main sponsors

Kuwait Aromatics Company (KARO)

ACWA Shuqaiq InvestmentsPublic Investment FundSaudi Electricity Company

SABIC

Agrium ECHEMEGASGASCOAPICORP

PICDow Chemicals

NICBasell

Date of signing

May 2007

June 2007

June 2007

June 2007

June 2007

June 2007

APICORP role

Mandated Lead Arranger

Underwriter


Mandated International Lead Arranger Modelling Bank

Joint Arranger

Mandated Lead Arranger, Underwriter

Project and Trade Finance


Client

The National Shipping of Saudi Arabia

Jubail Water & Electricity Company (Marafiq)Saudi Arabia

Saudi European Petrochemical Company (Ibn Zahr)

Egyptian Fertilizers Company

E-Methanex

Qatalum

SABIC Innovative Plastics

Egyptian General Petroleum Corporation (EGPC)

Arab Drilling and Workover Company(ADWOC)

Qatar Fertilizer Company (QAFCO)Qatar

Amount andTupe of facility

US$ 438 millionIslamic

US$ 1,572 millionConventional




US$ 2.25 billionConventional





Purpose

VLCCs acquisition

Power and water project

Polypropylene plant expansion

Corporate

Methanol plant

Aluminium smelter project

Speciality chemicals business acquisition

Petroleum products imports

Drilling services

Urea-Ammonia project

Main sponsors

Saudi GovernmentPublic

Suez, ACWA Power, GIC, Marafiq, SEC and PIF

SABIC, Ecofuel, APICORP

Abraaj Capital Fund

Methanex, EGAS, ECHEM, GASCOAPICORP

Qatar Petroleum, Norsk Hydro

SABIC

Egyptian Government

Arab Petroleum Services CompanyAPICORP

Industries QatarYara International

Date of signing

June 2007

June 2007

July 2007

July 2007

Aug 2007

Aug 2007

Aug 2007

Aug 2007

Oct 2007

Oct 2007

APICORP role

Structuring Bank, Mandated Lead Arranger and Underwriter

Sub underwriter

Financial Advisor and then Mandated Arranger

Lead Arranger

Lead Arranger


Arranger

Participant

Mandated Lead Arranger, Modelling Bank, Documentation Bank


Project and Trade FinanceBoard of Director’s ReportAPICORP Activities in 2007


TRADE FINANCE:In 2007, the efforts made since 2005 to revitalize and expand the Trade Finance activity of the Corporation has been pursued, with an increased volume of business and some senior roles as shown in the sample of the deals provided below.

ADVISORY: The Corporation has remained committed to provide specialized advisory services in the field of structured finance for the hydrocarbon industry within the region, but on a selective basis. Two advisory assignments, NAMA and Ibn Zahr, were concluded successfully in summer and one new mandate was won in November to advise ETAP, the national oil company of Tunisia, on the financing of its share of the project cost of a gas field offshore Tunisia. That field, the Hasdrubal field, is being developed jointly by ETAP and British Gas.

Client

Midor

AMPTC

Egyptian General Petroleum Corporation (EGPC)Egypt

Trafigura Beheer

Société Anonyme Marocaine de L’Industrie et du Raffinage (SAMIR)

Holborn European Marketing Company

Amount andType of facility


US$ 75 millionL/C





Purpose

Oil processing

Oil trading

Petroleum products imports

General corporate purposes

Petroleum and petroleum products purchase

Oil trading

Main sponsors

Egyptian General Petroleum Corporation (EGPC)

OAPEC

Arab Republic of Egypt

Trafigura

Corral Petroleum HoldingHolmarcom GroupPublic

Oilinvest

Date of signing

March 2007

March 2007

April 2007

May 2007

June 2007

Sept 2007

APICORP role

Participant

Structuring bank

Joint Underwriter

Participant

Participant

Participant

Project and Trade Finance


After the sale of its shares in the Jordanian Phosphate mines company during 2007, achieving capital gains , the fair value of APICORP portfolio of investments in 14 companies situated in seven Arab countries was US$ 343.3 million as at the end of 2007. The operations of these 14 companies cover a wide array of activities: drilling and related services, seismic services, extraction of LPG, production of methanol, polyethylene, ethylene glycol, polypropylene, methyl tertiary butyl ether, aromatics, purified terephthalic acid, polyester fibres, linear alkyl benzene, carbon black, urea, NPK fertilizer, storage of petroleum products, and production acrylic fibre.

A brief summary on each of direct equity investment is provided below:

1. Bahrain National Gas Company (BANAGAS) APICORP share: 12.5%

BANAGAS was established in 1978 to extract and market LPG and light naphtha from associated gas. Total production in 2007 was 76 thousand tons of propane, 82.7 thousand tons of Butane and 177 thousand tons of light naphtha. At end 2007, BANAGAS reported a net income of BD 15.8 million (versus BD 12 million in 2006).

2. Arab Drilling & Workover company (ADWOC) APICORP share: 20%

ADWOC was established in 1978 to provide drilling and related operation services in Libya and nearby Arab markets. In 2007, ADWOC has achieved an average utilization rate of 100% for its 16 rigs, an increase of 3% over 2006. In 2007, ADWOC posted net income of LD 24.4 million (versus LD 16.8 million in 2006).

3. Arab Company For Detergent Chemicals (ARADET) APICORP share: 32%

ARADET was established in 1981 with a production capacity of 50,000 tons/yr of linear alkyl benzene (LAB). The LAB complex at Baiji, in operation since 1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene and Toluene. In 2007, the company produced approximately 2907 tons of LAB, all of which, along with the stock of last year, was sold in the regional markets (8800 tons). At the end 2007, ARADET generated operating net loss of US $ 3.4 million , dropped to a loss of US$ 1.34 million after settlement of the value of raw material in favour of the company (versus a net loss of US $ 4.8 million in 2006).

4. Tankage Méditerranée (TANKMED) APICORP share: 20%

TANKMED was established in 1984 to provide storage services for petroleum products at La Skhira terminal in Tunisia. TANKMED’s total storage capacity stands at 300,000 cubic meters.

As at the end of 2007, TANKMED maintained a capacity utilization rate of 98%, compared to a utilization rate of 99% for 2006, achieving an income of TD 9.28 million and a net profit of TD 4.3 million at the end of 2007 (versus a net profit of TD 3.6 million for the same period of 2006).

Direct Equity InvestmentsBoard of Director’s ReportAPICORP Activities in 2007


5. Arab Geophysical Exploration Services Company (AGESCO) APICORP share: 10%

AGESCO was established in 1985 to provide advanced seismic services in Libya and the Arab world. The company maintains three seismic crews and was able to achieve a high operation rate in 2007 which resulted in total revenues of LD 57.9 million, compared to LD 47.7 million in 2006. AGESCO recorded a net operating profit of LD 15.4 million at the end of 2007 (versus LD 11.2 million in 2006).

6. The Saudi European Petrochemical Company (Ibn Zahr) APICORP share: 10%

Ibn Zahr, established in 1985 in Jubail, with a production capacity of 1.3 million tons/yr of methyl tertiary butyl ether (MTBE), a gasoline octane booster and 640,000 tons/yr of polypropylene. In 2007, MTBE production was about 1.6 million tons and polypropylene output totalled to about 631,000 tons. At end 2007, Ibn Zahr reported a net income of SR 2,267 million (versus a net income of SR 1,785 million in 2006).

7. Alexandria Carbon Black Company (ACBC) APICORP share: 12%

ACBC was established in 1993 to produce and market carbon black, an oil based material. ACBC currently has a design capacity of about 210,000 tons/yr. The company, at the end of 2007, produced over 242.3 thousand tons of Carbon Black and posted a net income of about US$ 46.84 million (versus US$ 36.23 million in 2006).

8. The Arabian Industrial Fibres Company (Ibn Rushd) APICORP share: 3.45%

Ibn Rushd was established in 1993 in Yanbu on the west of Saudi Arabia. Ibn Rushd is an integrated petrochemical complex composed of three plants for the production of aromatics (730,000 tons/yr), purified terephthalic acid (PTA, 350,000 tons/yr) and polyester (146,000 tons/yr). In 2007, Ibn Rushd produced a total of 1.07 million tons of products. Ibn Rushd recorded a net loss of SR 655.3 million in 2007 (versus a net loss of SR 522 million in 2006).

9. Oriental Petrochemicals Company (OPC) APICORP share: 14%

OPC was established in 1996 with an initial capacity of 120,000 tons/yr polypropylene that later can be expanded to 162,000 tons/yr. The company announced the successful commissioning of its plant at the beginning of 2002, and since then it has become the main producer and supplier of polypropylene to the local market. During 2007, OPC produced about 142,500 tons and marketed 147,000 tons of polypropylene, and was able to generate a net profit of LE 30 million (versus 24.7 million in 2006).

Direct Equity Investments


10. Alexandria Acrylic Fibres Company (AFCO) APICORP share: 10%

AFCO was established late 2003 in Egypt, and its plant with a nameplate capacity of 18,000 t/yr was completed in September 2005. The plant was commissioned at the end of 2005, to produce poly acrylic fibres, which is used mainly in manufacturing carpets and blankets. In 2007, the company produced about 16.6 thousand tons in the local and international markets. At the end of 2007, the company registered a net loss of LE 15.33 million (versus LE 30.5 million in 2006). The issued capital was increased by LE 136.55 million to reach LE 286.55 million in 2007 to finance the expansion project which will add two production lines with a capacity of 18,000 t/y for each of them.

11. Yanbu National Petrochemical Company (Yansab) APICORP share: 1.57%

Yansab was established in early 2005 by SABIC with a paid up capital of SR 5,625 million, of which SABIC owns 55%, SABIC partners in Ibn Rushd and Taif own 10%, and the remainder percentage was offered to the Saudi public. Currently, the company has become listed on the Saudi Stock Market (Tadawul).

Yansab petrochemical complex, which costs US $ 5.6 billion, is being built in Yanbu Industrial area and expected to be completed in late 2008. The complex will produce 900,000 tons per year of polyethylenes 700,000 tons per year of ethylene glycols, 400,000 tons per year of poly propylene, in addition to some other by products. Construction plans are progressing according to schedule, while commercial production is expected to start before the end of 2008.

12. Egyptian Methanol Company (EMethanex) APICORP share: 7%

Metanex Corporation, Egyptian Petrochemicals Holding Company (ECHEM), Egyptian Natural Gas Holding Company (EGAS), Egyptian Natural Gas Company (GASCO) and APICORP established EMethanex in 2005 with a paid up capital of US $ 420 million to build a US $ 950 million cost methanol production facility in Damietta, Egypt with a nameplate capacity of 3,600 ton per day. Construction works progressed by about 30%, while the start of commercial operation is planned in April 2010 and the target markets are Europe, and Asia.

Direct Equity InvestmentsBoard of Director’s ReportAPICORP Activities in 2007


13. Egyptian Agrium Nitrogen Products Company (EAgrium) APICORP share: 7%

In April 2007, APICORP participated in the capital of EAgrium with 7% share. Other partners are: the Canadian Agrium (60%) , Egyptian Petrochemicals Holding Company (ECHEM) with a share of 12% , Egyptian Natural Gas Holding Company (EGAS) with a share of 12%, and the Egyptian Natural Gas company (GASCO) with a share of 9%. The paid up capital of the company is US$ 475 million. EAgrium project (under construction) consists of two identical and integrated units with a capacity of 400 thousand t/y ammonia and 635 thousand t/y Urea each. The start of commercial production is planed in mid 2010. In a most recent development, construction works have stopped as a result of the fierce opposition by the locals under the claim that the the project is an environment hazard.

14. The Egyptian Bahraini Gas Derivatives Company (EBGDCO) APICORP share: 20%

The Egyptian Natural Gas Company, Danagaz of Bahrain and APICORP established EBGDCO in 2007 in Egypt with a share capital of US $ 25 million. The objective of the company will be to construct a US $ 75 million facility for propane and butane recovery from associated natural gas. The plant will be located at Ras Shakair on the Suez Gulf. The company was registered at the end of 2007 and the start of constructions is planned to start in mid 2008 and commercial production to start in 2010.

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

Direct Equity Investments

EBGDCO


•CompanyName •Paid-upCapital •Participation

•Bahrain National Gas Company (BANAGAS)

Bahrain•BD8million•12.5%

•Arab Drilling and Workover Company (ADWOC)

Libyan Arab Jamahiriya•LD12million•20%

•Arab Company for Detergent Chemicals (ARADET) Iraq

• ID36million•32%

•Tankage Mediterranee (TANKMED) Tunisia

•TD12million•20%

•Arab Geophysical Exploration Services Company (AGESCO) Libyan Arab Jamahiriya

•LD4million•10%

•Saudi European Petrochemical Company (IBN ZAHR) Saudi Arabia

•SR1,025million•10%

•Alexandria Carbon Black Company (ACBC) Egypt

•US16.2million•12%

OtherMajorShareholders

National Oil and Gas Authority (NOGA), BahrainChevron Asia Pactific Company

Arab Petroleum Services Co. (APSC), LibyaSanta Fe, USA

Government of the Republic of IraqGovernment of the Kingdom of Saudi ArabiaGovernment of the State of KuwaitArab Mining Company, JordanThe Arab Investment Co., Riyadh

I’Entreprise Tunisienne d’Activities Petrolieres (ETAP), TunisiaSociete Tuniso Seoudienne d’Investissement et de Development (STUSID)Banque Tunisio-Koweitienne de Development (BTKD)

Arab Petroleum Services Co. (APSC), LibyaHalliburton Oil Services Co., USANational Oil Co., Libya

Saudi Basic Industries Corp. (SABIC), Saudi ArabiaEcofuel, Italy

Indian Industrial Investment Group (BIRLA), India Transport and Engineering Company (El Nesser Tire Co.), EgyptAlexandria Tire Company, EgyptAl-Nasr Coke Company, EgyptSaudi Egyptian Industrial Investment Company, EgyptInternational Finance Corporation (IFC), USAContinental Carbon Company, USA

Activities

Extraction and marketing of LPG and condensates from associated gas.

Drilling and related operations in the Arab world.

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

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

Providing advanced seismic services in the Arab world.

Production of gasoline octane booster MTBE, and polypropylene (PP)

Production and marketing of carbon black.

APICORP Equity Participations as at 31 December 2007

Board of Director’s ReportAPICORP Activities in 2007


* Under construction** Under formation

•CompanyName •Paid-upCapital •Participation

•The Arabian Industrial Fibres Company (IBN RUSHD)

Saudi Arabia•SR8,510million•3.45%

•Oriental Petrochemical Company (OPC)

Egypt•LE120million•14%

•Alexandria Acrylic Fibres Company (AFCO) Egypt

•LE286.5million•10%

•Yanbu National Petrochemical Company (Yansab)* Saudi Arabia

•SR5,625million•1.57%

•Methanol Company (EMethanex)* Egypt•US$420million•7%

•Egyptian Agrium Nitrogen Products Company (EAgrium)*

•US$475•7%

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

Bahrain•US$25million•20%

OtherMajorShareholders

Saudi Basic Industries Corp. (SABIC), Saudi ArabiaGIC, KuwaitSaudi Pharmaceuticals Co., Saudi ArabiaSAFCO, Saudi Arabia

Oriental Weavers Group, EgyptArab International Investments Co., LibyaNational Bank of Egypt (Al-Ahli Bank), Egyptian Petrochemicals Co., EgyptMisr Insurance Co., Egypt Orient Insurance Co. (Al-Sharq), Egypt

Aditya Birla Group, IndiaSidikrier Petrochemical Co., EgyptAlexandria Carbon Black Co., EgyptSaudi Egyptian Industrial Investment Co., Egypt

SABIC SABIC Partners in Ibn Rushd and Taif Saudi Public

Egyptian Petrochemicals Holding Company (Echem), EgyptEgyptian Natural Gas Holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), Egypt Methanex Corporation, Canada

Egyptian Petrochemicals Holding Company (Echem), EgyptEgyptian Natural Gas Holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), EgyptAgrium of Canada

The Egyptian Natural Gas Holding Company ( Egas)Danagas of Bahrain

Activities

Production of Aromatics, PTA and Polyester Fibres

Production and marketing of Polypropylene.

Production and marketing of Acrylic Fibres

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

Production and marketing of Methanol

Production of Ammonia and Urea

Fractionation of natural gas liquids (NGL) to recover propane and butane.

APICORP Equity Participations as at 31 December 2007


The conservative strategies adopted by the management towards the Treasury & Capital Markets investment and funding operations has had a positive impact the on overall performance of the corporation. Treasury & Capital Markets has maintained its focus on high quality investments to ensure high liquidity and stable returns.

In 2007, Treasury & Capital Markets operations achieved a net income of US$ 20.3 million, compared to US $ 19.8 million for the year 2006. Treasury & Capital Markets assets grew from US$ 1001 million as at 31st December 2006 to US$ 1275.5 million as at 31st December 2007 (27.4% increase). Fixed Income securities portfolio has maintained a high standard of credit profile and had an average of AA Rating as at 31st December 2007.

The foreign branch of APICORP which started its operations as an Investment Bank in Bahrain during last quarter of 2006 complements all the Treasury & Capital Markets activities of APICORP’s head office. We continue to place emphasis to further increasing and diversifying our funding sources, which are vital to finance our core activities and maintain sufficient liquidity levels.

The events that unfolded during and after the sub prime crisis July and August 2007 had severely impacted the global financial markets. However, APICORP’s policy to avoid investing in high risk markets, such as sub-prime mortgages and sub-investment grade credits, has had a positive impact on overall Treasury & Capital Markets’ performance during the credit and liquidity crisis, which continued to negatively impact the global financial marekts.

Treasury and Capital MarketsBoard of Director’s ReportAPICORP Activities in 2007


Pursuant to the resolution of the Board of Directors dated 6 April 2007 and the decision taken by the Chief Executive and General Manager dated 11 November 2007 a new Department of Economics and Research has been established with the following mission, vision and objectives.

MISSION AND VISIONThe department will support the mission of APICORP by providing timely and perceptive analyses of the Corporation’s business environment and opportunities, responding to the policy and strategy needs of the Corporation and contributing to making the Corporation the leading source of research on the Arab/MENA petroleum industry.

OBJECTIVESThe department aims to provide critical insights to the APICORP’s Top Management by:

• Organizing the scanning of the Corporation’s economic and business environment in the MENA/Arab world, including an a rolling 5-year review of the energy investments ;

• Developing and maintaining an in-house “Perceptual Mapping” of the energy investment in the Arab/MENA world;

• Contributing through policy/strategy papers and special reports to the framing of the Corporation’s business development;

• Developing and maintaining an in-house country risk methodology and producing periodic country risk appraisals and ratings;

• Conducting energy industry risk assessments by analyzing the likely impact of changing trends and patterns in the petroleum and energy industry and monitoring APICORP exposure.

• Analyzing, determining and proposing credit limits for both countries and sectors;

• Providing research on equity markets and investment potential;

• Writing, editing and publishing a monthly economic commentary on current global and regional economic, financial and investment issues;

• Contributing to the enhancement of APICORP’s profile through the presentation of in-house research findings to international and regional conferences and workshops.

The Department, which took over from the Research Unit within PTF, has progressed on a number of research and policy papers covering the above objective fields. It has also continued preparing and dispatching externally the Corporation’s monthly Economic Commentary, which has become APICORP’s research brand.

Department of Economics and Research


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Venue

Paris

Dubai

Dubai

Jeddah

Oxford

Amman

Doha

Tripoli

Bahrain

Oxford

Dubai

Bahrain

Dubai

Dammam

Riyadh

Date

17 - 21 February 2007

25 - 27 February 2007

11 - 13 March 2007

8 - 10 April 2007

12 May 2007

18 - 20 May 2007

21 - 22 May

21 - 24 May 2007

4 - 5 June 2007

26 August - 7 September, 2007

23 - 24 Oct. 2007

28 - 30 October 2007

30 October 2007

17 - 19 November 2007

15 - 17 November

Title

OECD EmNet meeting on Energy Security

Fleming Gulf Forum on Investments in petrochemicals

The Changing Role of National Oil Companies: Implications for the Middle East

Saudi International Banking and Investment Conference

Oxford Energy Club Meeting

World Economic Forum

Qatar 2nd Economic Forum

Libya Oil & Gas Conference and ExhibitionUnleashing the Opportunities for Development

MEED’s Gulf Petrochemicals 2007 Exploring future supply and demand trends in the region’s fastest growing market

29th Oxford Energy Seminar Oxford Institute for Energy Studies

Investments in Oil and Gas 2007

Global Project Finance Congress

OAPEC Sponsored Companies meeting

Saudi Investment Forum 2007: Strategic Conference and International Exhibition Exploring opportunities in the Kingdom’s industrial sectors

OAPEC 3rd Summit

Conferences and SeminarsBoard of Director’s ReportAPICORP Activities in 2007

Documents

Board of Director’s Report Project and Trade Finance · carbon black, urea, NPK fertilizer, storage of petroleum products, and production acrylic fibre. A brief summary on each