Arab Petroleum Investments Corporation Annual Report 2004 APICORP
Arab Petroleum Investments Corporation Annual Report 2004
APICORP
ARAB PETROLEUM INVESTMENTS CORPORATION
P. O. Box 9599, Dammam 31423, Saudi ArabiaTel: 966 3 847 0444 Fax: 966 3 847 0011 / 966 3 847 0022Telex: 870068 APIC SJ
E-mail: [email protected]:www.apicorp-arabia.com
ContentsAPICORP’S Shareholders 02
APICORP’S Objectives 03
Financial Summary 2000-2004 03
Board of Directors 04Executive Management 05Chairman’s Statement 06World and Arab Economic Review in 2004 09
Board of Directors’ Report APICORP Activities in 2004Project and Trade Finance 13Direct Equity Investments 17Treasury Activities 22
2004 Financial StatementsIntroduction 25Accounting Policies applied in the financial statements 26Income Statement 31Balance Sheet 32Changes in Shareholder’s Equity 33Cash Flows 35Notes to the Financial Statements 36Auditors’ Report to the Shareholders 60
Arab Petroleum Investments Corporation (APICORP)
is an inter Arab joint stock company established on
23 November 1975 in accordance with an international
agreement signed and ratified by the governments of
ten member states of the Organisation of Arab
Petroleum Exporting Countries (OAPEC)
APICORP: The Pioneer FinancialInstitution of the Arab Oil andGas Industry
APICORP
United Arab Emirates 17%Bahrain 3%Algeria 5%Saudi Arabia 17%Syria 3%Iraq 10%Qatar 10%Kuwait 17%Libya 15%Egypt 3%
APICORP’S Shareholders
APICORP is wholly owned by the member states of the Organisationof Arab Petroleum Exporting Countries (OAPEC) as listed below:
The Corporation is independent, both in its management and in the performance of its activities. APICORP conducts itsoperations on a commercial basis, in a business-like manner and with the intention of making a profit.
The prime objective of APICORP is to participate in the equity,as well as the debt financing, of projects in the petroleum industryat large. These include all businesses which are based on thedevelopment, processing or transportation of the products of the oil and gas industry and its downstream derivatives.The Corporation gives priority to joint Arab ventures which serve the regional Arab Corporation market.
APICORP’S OBJECTIVES & FINANCIAL SUMMARY ARAB PETROLEUM INVESTMENTS CORPORATION 03
The Corporation may undertake all operations required for thefulfilment of its objectives, in particular :
1. initiate, study and promote petroleum, and petroleum relatedprojects, and participate in their equity financing;
2. extend or guarantee medium and long-term loans to financeprojects in the petroleum industry;
3. participate in the short-term financing of the international tradein Arab petroleum, gas and petrochemicals;
4. underwrite, purchase and sell the shares (and equity capital) of companies in the petroleum industry; and
5. issue its own bonds and borrow from Arab and internationalfinancial markets.
Financial Summary 2000-2004
APICORP’S Objectives
2000
2001
2002
2003
2004
500,000
1,000,000
1,500,000
2,000,000
2,500,000
0
Total Assets US$ 000
2000
2001
2002
2003
2004
10,000
20,000
30,000
40,000
0
50,000
Shareholder's Equity US$ 000
2000
2001
2002
2003
2004
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
0
Net Income US$ 000
Board of Directors
04 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS
Members of the Board
Chairman of the Board of DirectorsAbdullah A. Al-Zaid
For the Kingdom of Saudi Arabia
Deputy Chairman of the Board of DirectorsMohammed A. Dahmani For the Socialist People’s Libyan Arab Jamahiriya
Naser Mohamed Al-SharhanFor the United Arab Emirates(Member of the Audit Committee)
Dr. Radhwan H. HasanFor the Republic of Iraq
Ibrahim A. Al-MannaieFor the State of Qatar
Abbas Ali NaqiFor the State of Kuwait(Chairman of the Audit Committee)
H.E. Eng. Sameh FahmiFor the Arab Republic of Egypt
Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain(Member of the Audit Committee)
Fareed BakaFor the Democratic and Popular Republic of Algeria
H.E. Dr. Ibrahim HadadFor the Syrian Arab Republic
Projects DepartmentDr. Abdulla Ali Al-IbrahimSenior Manager
Talal KhalilBusiness Development ManagerNorth Africa and the Mediterranean Business Group
Dr. Abdul-Aziz Al-IdiBusiness Development ManagerGCC Business Group
Dr. Mohamed Abdul-JabbarSenior Economist
Project and Trade Finance DepartmentNicolas ThevenotSenior Manager
Bassam Al-TamimiManager, North Africa and theMediterranean Business Group
Haitham A. MalaikahManager, GCC Business Group
Ali AissaouiSenior Research Officer
Kamel Ali Bu-KhamsinFinance Trade Officer
Sami R. Al-SunaidProject Finance Officer
Rajesh RamanathanProject Finance Officer
Treasury and CapitalMarkets DepartmentDino Roy MorettoSenior Manager
Hesham FaridPortfolio Manager
Faiq HussainTreasury Officer - Money Markets
Ravi KumarAssistant Portfolio Manager
Investment andPlacementFaysal Essam HamzaSenior Manager
Financial ControlDepartmentOmar Al OmarSenior Manager
Aymen F. ZeyadaOperations Manager
Faisal Abbas FadlAccounting and Reports Manager
Legal DepartmentDr. Mohamed Nur El-Din El-TahirGeneral Counsel and Secretary of the Board of Directors
Ali Hassan FadelLegal Counsel
Administration andHuman ResourcesDepartmentAbdulla A. Al-NashwanSenior Manager
Mahdi Al-MahdiHead of Public Affairs
Information SystemsDepartmentGalal OsmanSenior Manager
Mohamed L. El-KhoulyAssistant Manager, Fin.Apps. Group
Internal AuditAbdul-Aziz Habib Al-MatarHead of Internal Audit
Ahmad Bin Hamad Al-Nuaimi*Chief Executive and General Manager
Executive Management
EXECUTIVE MANAGEMENT ARAB PETROLEUM INVESTMENTS CORPORATION 05
* Mr. Rasheed Al-MarajUp to April 6, 2005
Financial ResultsAPICORP’s operations in the year 2004 achieved a net profit ofUS$38.85 million, compared with US$33.52 million in 2003, 16%increase, while total assets rose to US$2,121 million at the end of 2004, compared to US2,088 million in 2003.Total shareholder’sequity rose to US$744 million at the end of 2004 from US$707million in 2003.
Project FinanceDuring the year 2004, APICORP participated in arranging of loanfinancings to the total value of US$9.1 billion, with a final take ofUS$482 million, compared to US$6.2 billion and a final take of US$435 million in 2003.The net loan portfolio, including undrawncommitments, rose to US$1,629 million, compared to US$1,597million in 2003. Income from loan financing was US$19.4 million,compared to US$16.0 million in 2003, approximately 35% of thetotal income of the Corporation.
Our loan portfolio during 2004 was diversified across varioussectors of the oil and gas industry.The loans extended last yearwere utilised to finance the establishment of new projects, supportoperational or expansion activities of existing projects, or to acquireequity shares in the capital of companies involved in the oil and gassector.
APICORP’s support of Arab oil exports continued in 2004 throughthe participation in trade finance transactions amounting to US$792million, with a final take of US$60 million.
Direct Equity InvestmentsWorld economic recovery, together with the rise of energy prices have positively impacted the performance of the companies inwhich APICORP holds an equity interest leading to an increase inthe total fair value of the Corporation’s holdings in these projectsby about 12.1% or US$208 million in 2004.
The growth in world demand for oil, resulting from the recovery of the world economy, together with the improved competitiveadvantage of the Arab oil and gas industries - as an outcome of theworld’s commodities price increase have had a remarkable impacton the US$10.7 million dividend achieved by APICORP’s directequity investments portfolio in 2004, a 27.7% increase over 2003.
Chairman’s Statement
It is my pleasure to present to you, on behalf of the Board of Directors of Arab Petroleum Investments Corporation (APICORP),the twenty-ninth Annual Report on the Corporation’s activities and its financial results for the year ended 31 December 2004.
06 ARAB PETROLEUM INVESTMENTS CORPORATION CHAIRMAN’S STATEMENT
High energy prices have slowed down the development of theintensive energy-consuming projects highly dependent on oil and gas products outside the Arab region.This helped the opening up of more opportunities for the expansion of the existing industries,as well as the setting up of new projects in the Arab region.
Outlook for the FutureThe structural changes witnessed in the world’s energy market over the past few years have stimulated a strong appetite byinvestors towards the hydrocarbon projects planned for the Arabregion. APICORP is closely monitoring these developments and thefeasibility of taking an equity share in the capital of those projects.This goes in line with APICORP’s investment strategy that aims at doubling the net-worth of direct equity investments within the coming three years, while giving consideration to productsdiversification within the approved investment criteria of theCorporation. Complementary to this ambitious plan is APICORP’scommitment to establish an investment fund focusing on energyprojects and related oil and gas industries.
On the project finance front, APICORP is planning to takeadvantage of this positive environment to maintain its effectiveparticipation by playing a leading role in arranging the necessaryfinancing for the expansion and development of projects in the oil, gas, petrochemical and other related industries in the region.
Dividend PayableIn accordance with the Statute of the Corporation, 10% of the net profit was transferred to the Legal Reserve.The Board ofDirectors recommends the distribution of US$20 million as cash dividends to the shareholders for the year 2004.
The General ManagerOn the occasion of the appointment of Mr. Ahmad Bin Hamad Al-Nuaimi as General Manager of APICORP as from 6th April 2005, to succeed Mr. Rasheed Mohamed Al-Maraj, who has beenappointed as Governor of the Bahrain Monetary Agency (BMA),I would like, on behalf of members of the Board of Directors toexpress our sincere thanks and appreciations to Mr. Al-Maraj for his outstanding efforts and contribution that marked his term ofoffice at APICORP, which commenced in April 1999, and wish Mr. Al-Maraj all the success in his new assignment.
ARAB PETROLEUM INVESTMENTS CORPORATION 07
08 ARAB PETROLEUM INVESTMENTS CORPORATION CHAIRMAN’S STATEMENT
Mr. Al-Nuaimi is not new to APICORP; he represented the State of Qatar on APICORP’s Board of Directors from 1992 to 2004 and is a member of the Audit Committee. Mr. Al-Nuaimi hadassumed a number of senior positions at the Islamic DevelopmentBank – he was an Executive Director for the periods from February 1988 to August 1991 and from May 1994 to May 1997.Mr. Al-Nuaimi was also a member of the Finance Committee, theOperations Committee, the Executive Committee of the IslamicBanks Portfolio. He was also a member of the Executive Committeeof the Investment Trust Funds. Mr. Al-Nuaimi had taken a numberof senior positions at the Ministry of Finance in the State of Qatar,most recently, he was the Economic Advisor to the SupremeCouncil for Economic Affairs and Investments at the State of Qatar.
A Note of ThanksThe Board of Directors would like to seize this opportunity to express their thanks, gratitude and appreciation to local, regional and international banks and financial institutions for their continuedsupport, and close cooperation with APICORP since the early years of its establishment. No doubt, their support was crucial to APICORP’s success and achievement of its objectives to play a leading role in the financing of oil and gas industries throughoutthe Arab region.
On behalf of the Board of Directors, I wish to register our sincerethanks and appreciation to the management and staff of APICORPfor their efforts, and perseverance, which contributed to the strong results achieved by the Corporation in 2004. I am alsopleased to take this opportunity to express our sincere appreciationto the Governments of the Member States, for their continuedsupport and fruitful cooperation with the management of APICORP.Also, I am honoured, to extend our gratitude to the Government of the Custodian of the Two Holy Mosques, the Kingdom of Saudi Arabia, the host country, for the special attention received by the Corporation.
Abdullah A. Al-ZaidChairman of the Board of Directors
World EconomyThe world economy achieved a remarkable growth during 2004,in spite of the tensions experienced by developed economies due to the unprecedented rise in oil prices. The USA, China, and Indiawere engines of the world economy in 2004, notwithstanding themeasures taken by those nations to prevent their economies fromoverheating.
The OECD countries were estimated to have achieved a growthrate of around 3.6% in 2004, compared to 2.2% in 2003. In 2004,China maintained its impressive economic performance andcontinued to grow at around 9%.
Robust economic growth in both Asia and America has had positiveimpacts on the oil market in 2004 when world oil demand grew by 3.4%, compared to 2.4% and 0.8% in 2003 and 2002 respectively.In addition, hurricanes that hit Gulf coast of the United States, andcaused a sharp decline in US output, tightened global oil marketeven further and pushed prices much higher. In 2004, price of Brentcrude rose by 33.3% (year-over-year) to around US$38/bbl, and WTIprice averaged US$41.5/bbl, an increase of 33.9% over 2003.
WORLD AND ARAB ECONOMIC REVIEW IN 2004 ARAB PETROLEUM INVESTMENTS CORPORATION 09
World and Arab Economic Review in 2004
The Arab EconomiesRobust global oil demand in 2004 and the resulting increase in OPEC output reflected positively on the real growth of Arabeconomies. OPEC production (excluding Iraq) rose by around 5% above its 2003 average, while Iraq oil output enjoyed a healthyrecovery, rising by about 50% above its 2003 level.
Also, the decline in private capital outflow from Arab world in general and GCC in particular has greatly contributed toeconomic performance of the region. Initial estimates indicate that economic growth in the Arab region achieved a rate of 5.1% in 2004, compared to 4.3% in 2003. In addition, increasedliquidity in the regional markets, which offer limited investmentchannels in productive activities, have pushed up Arab stock markets to record levels during 2004.
These economic developments have taken place with only mildinflationary pressures in the Gulf region. The benefits to the Arabeconomies from these developments would have been greater had it not been for the weakness of the US dollar versus majorcurrencies. Continued weakness of the US dollar over 2004 had negatively impacted the purchasing power of the oil exportrevenues as US dollar exchange rates averaged 9% and 6.4% lower(than in 2003) against the Euro and the Japanese Yen, respectively.
10 ARAB PETROLEUM INVESTMENTS CORPORATION WORLD AND ARAB ECONOMIC REVIEW IN 2004
ARAB PETROLEUM INVESTMENTS CORPORATION 11
The Petrochemical IndustriesFundamentals of world petrochemical industry witnessed asignificant improvement in 2004 as a result of global economicrecovery and its positive impact on global demand on one hand,and the slowdown in building new capacities on the other. In 2004,Arab petrochemical and fertilizers industries posted record salesand profit margins, as higher energy prices have further enhancedtheir competitive advantage.
Rising energy prices have slowed further the development of newenergy-intensive production capacities outside the Arab region.That would certainly help to increase the opportunities for boththe expansion of the existing capacities and the establishment ofnew projects in the Arab region. APICORP intends to seize thispositive atmosphere and ascertain its developmental role byincreasing its direct equity investments; and playing leading roles in arranging the necessary financing for the existing industries aswell as the newly developed projects in the oil, gas, petrochemicaland fertilizers industries.To that end, APICORP has already set plans to monitor the progress of more than 30 new projects,whose developments are in advanced stages of planning andimplementation.
12 ARAB PETROLEUM INVESTMENTS CORPORATION WORLD AND ARAB ECONOMIC REVIEW IN 2004
Outlook for 2005Latest OECD’s forecast that the 2005 OECD economic growthrate will be close to 2.9% is certainly reassuring, but fears that high oil prices would negatively impact American consumerspending remain there. Moreover, the US has yet the need tocorrect the budget and trade deficits, but that may lead to a decline in government spending and may further weaken the value of the US dollar. As far as China is concerned, IMF forecasts that the Chinese economy will maintain its robustperformance of around 7.5% in 2005.
As for the Arab economies, their fundamentals have seen aremarkable improvement recently as a result of the rise in energyprices over the last few years. That is a cause for optimism for thefuture of economic development in the Arab region, especially if the spike in oil prices would not slow the economic and politicalreforms, which started to take place in some major Arab countries.
The International Energy Agency (IEA) forecasts that the 2005 call on OPEC crude may rise by about 100 thousand bpd to 28.3 million bpd from 28.2 million bpd in 2004. In 2005, global oil demand is expected to increase by 1.5 million bpd, of which 0.9 million bpd would be supplied by non-OPEC countries, andaround 0.5 million bpd is the estimated increase in OPECproduction of (NGLs). Despite the projected decline in the growthof the world oil demand to 1.8% in 2005, from 3.4% in 2004, oilprices are not expected to average lower in 2005. In addition to a limited non-OPEC supply growth, there are a number of othermarket supportive factors.These factors include tight commercial oil inventories in the group of OECD countries, continued erosionof spare production capacity within OPEC, and the still considerableglobal geopolitical and security risks.
As for the medium term outlook (2005-2007) of globalpetrochemical industry, evidence indicates that its fundamentalswould improve even further, and the year 2004 perhapsrepresented a significant turning point for the industry, particularly if the world economy remains free of any unforeseen shocks.
BOARD OF DIRECTORS’ REPORT ARAB PETROLEUM INVESTMENTS CORPORATION 13
The Board of Directors’ Report for the year 2004 represents anoverview of the main activities of the Corporation related to thefinancing of oil, gas, petrochemical, electric power and Arab oilexports, together with advisory services activity. In addition, theAnnual Report also reviews the progress of the Corporation’sequity participations in oil, gas and petrochemical projects andindustries in the Arab world, as well as the Treasury activities.
Project and Trade FinanceThe Corporation has continued to play an active role in financingoil, gas and petrochemical industries in the Arab world, focusing onprojects that are entrepreneurial and viable, while maintaining itsleading role among the financial institutions in the region.
During the year, the Arab region greatly benefited from the steadyimprovement in the global economic conditions. In particular,sustained higher international oil, gas and petrochemical pricestranslated into a significant upsurge in project activities, whichallowed the Corporation to increase its net loan portfolio, includingundrawn commitments from US$1,597 million at the end of 2003to US$1,629 million by the close of 2004. The resulting strong loanasset growth, which is in line with the Corporation’s strategicdirection, boosted the department’s operating income to US$19.4million from US$16.0 million in the previous year.
Project FinanceThe upsurge in project activities was reflected into higher fundingrequirements. As a result, the Corporation was involved in 18facilities totalling US$9.1 billion with a final take of US$482 million.This compares to the 11 facilities realised in 2003, totalling US$6.2billion with a final take of US$435 million. As illustrated in thefollowing table, which provides a sample of the deals concludedduring the year, the Corporation continued to take a leading role in the arrangement of most of these financings.
Board of Directors’ Report
APICORP Activities in 2004
PurposeAmount and Signing date
Main SponsorsClient APICORP’s Role
Part finance the costof a Fertilizer plantexpansion project
Part finance the costof setting up aPetrochemical project
Part finance cost of building fourchemical tankers of 46,200 tons.
Part finance the debtrequirement for thegas pipeline project
Part finance the debtrequirement for apetrochemical project
Fertilizer Plantexpansion
To finance part of the acquisition cost of three new buildingLNG carriers
US$250 millionMay 17, 2004
US$240 millionMay 31, 2004
US$104 millionJuly 6, 2004
US$1,360 millionJuly 21, 2004
US$492 millionJuly 21, 2004
US$330 millionAugust 11, 2004
US$105 millionAugust 14, 2004
Government of Egyptand private sectorinvestors, with leadingfinancial institutions in Egypt
Oman Oil Company& LG International
NSCSA
Emirate of Abu Dhabi,Total, Oxy
Saudi IndustrialInvestment Group and Chevron PhillipsChemical Co
SABIC
Sonatrach
Egyptian FertilizersCompany
OmanPolypropylene LLC
National ChemicalCarriers
Dolphin EnergyLimited
Jubail ChevronPhillips LLC
Saudi ArabianFertilizer Company
SonatrachPetroleumCorporation
Mandated Arranger,Book runner,Technical Bank
Financial Advisor,Arranger,Underwriter,Documentation Bank,Technical andInsurance Bank
Mandated LeadArranager
Lead Manager
Co-Arranger
Mandated LeadArranger
Lead Manager
14 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT
APICORP’S Financing Activities in 2004
PurposeAmount and Signing date
Main SponsorsClient APICORP’s Role
Funding Oman LNGequity participation in Qalhat LNG
Debt re-financing
Funding two newLNG trains
US$175 millionAugust 24, 2004
US$600 millionNovember 10,2004
US$3600 millionDecember 15, 2004
Government ofOman, Shell,Total
Government ofKuwait and the DowChemical Company
Qatargas and ExxonMobil
Oman LNG LLC
EquatePetrochemicalCompany
Qatargas II
Mandated LeadArranger
Co-Arranger
Mandated LeadManager
PurposeAmount and Signing date
Main SponsorsClient APICORP’s Role
Oil Import
Unfunded riskguarantee and cash advances
Oil import
US$200 millionFeb 25, 2004
US$300 millionNov 23, 2004
US$322 millionNov 30, 2004
Government of India
Oil investNetherlands BV(partly owned by theLibyan Government)
Government ofIndonesia
Indian OilCorporation Ltd.
Holborn EuropeanMarketing Co.
P T Pertamina(Persero)
Participant
Participant
Participant
ARAB PETROLEUM INVESTMENTS CORPORATION 15
Trade FinanceAs part of its commitment to participate in trade-financetransactions involving oil and gas transactions with the Arab world,the Corporation contributed to three transactions in favor of Indian Oil Company Ltd, Holborn European Marketing Co, and PT Pertamina (Persero) calling for a total funding of US$792 millionand a final take of US$60 million.
APICORP’S Financing Activities in 2004
16 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT
Advisory In addition to its financing activity, the Department has remainedcommitted to provide specialized advisory services in the field ofstructured finance for the hydrocarbon sector within the region.Two financial advisory mandates were signed in 2004, both forprojects in the petrochemical sector in Saudi Arabia.
ResearchAs part of its main task of scanning the Corporation environment,the Research Unit has embarked on a broad survey of energyinvestments in the Arab world to support the Corporation’sbusiness and marketing strategy. The Unit also progressed on an in-house methodology for country and industry risk assessments.Furthermore, the unit has researched and analyzed a wide range ofeconomic issues relating to the Department’s financing and advisorywork and contributed to efforts aimed at raising the Corporation’sprofile by providing research materials for presentations to regionaland international conferences and workshops.
ARAB PETROLEUM INVESTMENTS CORPORATION 17
As at end-2004, APICORP has equity investments in 12 companiessituated in seven Arab countries. That portfolio of investments was valued at US$208 million, at the end of 2004. The operations of these companies cover a wide array of activities: drilling andrelated services, seismic services, extraction of LPG, production of polypropylene, methyl tertiary butyl ether, aromatics, purifiedterephathalic acid, polyester fibres, linear alkyl benzene, carbon black, ammonia, urea, NPK fertilizer, storage of petroleum products,and production of acrylic fibre.
A brief summary of APICORP'S direct equity investments isprovided 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 2004 was 83,000 tons of propane, 91,000 tons of Butane and 190,000 tons of light naphtha. At-end 2004, BANAGAS reported net income of BD5.4 million (versus BD1.96 million in 2003).
(2) - Arab Drilling and Workover Company (ADWOC)APICORP share: 20%ADWOC was established in 1978 to provide drilling and relatedoperation services in Libya and nearby Arab markets. In 2004,ADWOC has achieved an average utilisation rate of 92% for its 14 rigs versus 89% in 2003, an increase of 3.4%. At-end of 2004,ADWOC posted net income of LD9.7 million (versus LD16 millionin 2003), and its total shareholders' equity totalled LD85.6 million in 2004.
(3) - Arab Company For Detergent Chemicals (ARADET)APICORP share: 32%ARADET was established in 1981 to produce 50,000 tons/yr of linear alkyl benzene (LAB) and (STPP) with the same capacity.The LAB complex at Baiji, in operation since 1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene andtoluene. In 2004, the Company produced 29,000 tons of LAB, ofwhich 27,000 tons were sold on the local and regional markets.At-end 2004, ARADET generated net profit to the equivalent ofUS$1.3 million (versus US$9.3 million in 2003).
Direct Equity Investments
(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’stotal storage capacity stands at 300,000 cubic meters. TANKMEDwas able to raise capacity utilisation rate from 67% in 2003 to 72%in 2004. In 2004,TANKMED witnessed an increase in its revenuesto TD6.0 million from TD5.6 million in 2003. At-end 2004,TANKMED posted a net income of TD1.6 million, compared to TD1.8 million in 2003.
(5) - Arab Geophysical Exploration Services Company(AGESCO)APICORP share: 10%AGESCO was established in 1985 to provide advanced seismicservices in Libya and the Arab world. The company maintains three seismic crews and was able to achieve operation rate of 90% in 2004. AGESCO recorded a net profit of LD2.4 million at the end of 2004 (versus LD 6.8 million in 2003).
(6) - Saudi-European Petrochemical Company (Ibn Zahr)APICORP share: 10%Ibn Zahr was established in 1985 in Jubail to produce methyltertiary butyl ether (MTBE), a gasoline octane booster andpolypropylene. In 2004, MTBE production was about 1.4 milliontons, while polypropylene output totalled about 488,000 tons.At end-2004, Ibn Zahr reported record net income of SR836million, an increase of 79% over 2003.
(7) - Alexandria Carbon Black Company (ACBC)APICORP share: 12%ACBC was established in 1993 to produce and market carbonblack, an oil based material. Having commissioned its fourthproduction line in October 2004, ACBC currently has a designcapacity of about 150,000 tons/yr. Its 2004 sales were 143,000 tons, an increase of 2.8% on 2003 level. In 2004, ACBC posted a net income of LE140.8 million, an increase of 9.5% over 2003.The General assembly approved in 2003 an increase in thecompany’s paid-up capital from LE99.5 million to LE150 million.
18 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT
(8) - Arabian Industrial Fibers Company (Ibn Rushd)APICORP share: 8.26%Ibn Rushd was established in 1993 in Yanbu on the west of SaudiArabia. Ibn Rushd is an integrated petrochemical complex composedof three plants for the production of aromatics (725,000 tons/yr),purified terephathalic acid (PTA, 350,000 tons/yr) and polyester(154,000 tons/yr). In 2004, Ibn Rushd production reached 1.1 milliontons: 194,000 tons polyester ; 509,000 tons aromatics; and 387,000tons of PTA. For the first time, Ibn Rushd succeeded in 2004 to posta net profit of SR4.3 million versus net loss of SR456 million in 2003.
(9) - Oriental Petrochemicals Company (OPC)APICORP share: 14%OPC was established in 1996 with a design capacity of 120,000tons/yr polypropylene expandable to 162,000 tons/yr.The companyannounced the successful commissioning of its plant at the beginningof 2002, and since then it has become the main producer andsupplier of polypropylene in the Egyptian market. During 2004,OPC produced 132,000 tons of polypropylene and made a recordnet profit of LE94 million (versus LE64 million in 2003).
(10) - Egyptian Fertilizers Company (EFC)APICORP share: 10%EFC was established in Egypt in 1998 to produce 400,000 tons/yr of ammonia and 600,000 tons/yr of urea. In 2004, the companyproduced 626,000 tons urea, all of which was sold in theinternational and local markets. In addition, the company produced 17,000 tons of surplus ammonia, which was sold in the local market. In March 2003 the EFC’s General Assemblyapproved the increase of the company’s paid-up capital fromUS$118 million to US$147.5 million to partially finance theexpansion project currently underway in order to double the urea production. For 2004, EFC reported record net income of US$65.3 million versus US$63.6 million in 2003.
(11) - Alexandria Acrylic Fiber Company (AFCO)APICORP share: 10%AFCO was established late 2003 in Egypt to produce acrylic fibers used in the manfacturing of various consumer products such as blankets, carpets and clothes. AFCO plant with 18,000tons/yr output capacity is still under-construction and is expected to be commissioned in September 2005.
ARAB PETROLEUM INVESTMENTS CORPORATION 19
20 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT
Other Major ShareholdersParticipationPaid-up Capital
Company Name Activities
Bahrain National Oil Co.(BANOCO), Bahrain Caltex Trading & Transport Co., Bahrain
Arab Petroleum Services Co.(APSC), LibyaSanta Fe, USA
Government of the Republic ofIraq, Government of the Kingdomof Saudi Arabia, Government of the State of Kuwait, Arab MiningCompany, Jordan,The ArabInvestment Co., Riyadh
I’Entreprise Tunisienne d’Activities Petrolieres (ETAP),Tunisia Societe Tuniso Seoudienned’Investissement et deDeveloppement (STUSID)Banque Tunisio-Koweitienne de Developpement (BTKD)
Arab Petroleum Services Co.(APSC), LibyaGeosource, UKNational Oil Co., Libya
Saudi Basic Industries Corp.(SABIC), Saudi ArabiaEcofuel, Italy, Fortum Oy, Finland
12.5%
20%
32%
20%
10%
10%
BD8million
LD12million
ID36million
TD12million
LD4million
SR1,025million
Bahrain NationalGas Company(BANAGAS) Bahrain
Arab Drilling andWorkoverCompany(ADWOC) LibyanArab Jamahiriya
Arab Company for DetergentChemicals(ARADET)Iraq
TankageMéditerranée(TANKMED)Tunisia
Arab GeophysicalExplorationServices Company(AGESCO) LibyanArab Jamahiriya
Saudi-EuropeanPetrochemicalCompany(IBN ZAHR)Saudi Arabia
Extraction andmarketing of LPG and condensatesfrom associated gas.
Drilling and relatedoperations in the Arab world.
Production andmarketing of linearalkyl benzene and sodiumtripolyphosphate(STPP). STPP project is beingimplemented.
Storing,trans-shipping andhandling petroleumand petrochemicalproducts at La Skhira terminal.
Providing advancedseismic services in the Arab world.
Production of gasoline octanebooster MTBE, andPolypropylene.
APICORP Activities in 2004APICORP Equity Participations as at 31 December 2004
ARAB PETROLEUM INVESTMENTS CORPORATION 21
* In 2003, the General Assembly approved the increase of the paid up capital from LE99.5 million to LE150 million.
Other Major ShareholdersParticipationPaid-up Capital
Company Name Activities
Government of the Kingdom ofJordan, Government of the State of Kuwait, Arab Mining Company,Jordan, Islamic Development Bank,Saudi Arabia
Indian Industrial Investment Group(BIRLA), India,Transport andEngineering Company (El Nesser TireCo.), Egypt,Alexandria Tire Company,Egypt,Al-Nasr Coke Company, Egypt,Saudi Egyptian Industrial InvestmentCompany, Egypt, International Finance Corporation (IFC), USAContinental Carbon Company, USA
Saudi Basic Industries Corp. (SABIC),Saudi Arabia GIC, KuwaitSaudi Pharmaceuticals Co., SaudiArabia, SAFCO, Saudi Arabia
Oriental Weavers Group, EgyptArab International Investments Co.,Libya, National Bank of Egypt (Al-Ahli Bank), Egypt, EgyptianPetrochemicals Co., Egypt, MisrInsurance Co., Egypt, OrientInsurance Co. (Al-Sharq), Egypt
Orascom, Egypt,The holding EgyptianKuwaiti Company, Banque Misr, Egypt,Misr Insurance Co., Egypt, NationalInvestment Bank, Egypt, Others
Aditya Birla Group, IndiaSidikrier Petrochemical Co., EgyptAlexandria Carbon Black Co., EgyptThe Saudi Egyptian IndustrialInvestment Co., Egypt
0.76%
12%
8.3%
14%
10%
10%
JD75million
LE150*million
SR3,550million
LE120million
$147.5million
LE150million
Jordan PhosphateMining Company(JPMC) Jordan
Alexandria CarbonBlack Company(ACBC)Egypt
Arabian IndustrialFibers Company (IBN RUSHD)Saudi Arabia
OrientalPetrochemicalCompany (OPC)Egypt
Egyptian FertilizersCompany (EFC)Egypt
Alexandria AcrylicFiber Co. Egypt
Mining phosphate rock,production andmarketing of chemicalfertilizer compounds.
Production andmarketing of carbonblack.
Production ofAromatics, PTA andPolyester Fibers.
Production andmarketing ofPolypropylene.
Production andmarketing of Urea and surplus Ammonia.
Production andmarketing of PolyAcrylic Fibers.
22 ARAB PETROLEUM INVESTMENTS CORPORATION BOARD OF DIRECTORS’ REPORT
Treasury Activities in 2004The conservative strategy adopted by the management toward the Treasury investments and funding operations has had a positiveimpact on the overall performance.Treasury has maintained itsfocus on high quality investments while abandoning weakerpositions to ensure high liquidity and stable return.
In 2004,Treasury operations achieved a net income of US$14.0million, compared to US$21.8 million in the year 2003.Treasuryassets grew from US$691 million in 2003 to US$706 million at 31st December 2004. Securities portfolio has maintained a highstandard of credit profile and stands at an average AA Rating byDecember 2004.
The rise in the US dollar interest rate has negatively impacted the bond markets, while positively impacting the equities andinvestment managed funds. Capital gains from the sales of securities and investment funds totalled US$1.9 million.
Conferences and Seminars1) The 18th Conference on the
Fundamentals of Oil andGas Industry, OAPEC, Kuwait20-25 March, 2004.
2) A Workshop by Oxford Institute for Energy Studies,Bahrain 20-21 April, 2004.
3) AFA 10th International AnnualConference held in Cairo, Egypt,20-23 January, 2004.
4) The Advisory Workshop (Nexant/Chem Systems)27-28 April, 2004, Abu Dhabi,UAE.
CONTENTS
24 The financial statements consist of pages 25 to 59
IntroductionThe formation, status and activities of APICORP 25Accounting policies applied in the 2004 financial statements
A General 26B Financial instruments 26-28C Cash and cash equivalents 28D Loans and other receivables 28E Securities 28-29F Direct equity investments 29G Property and equipment 30H Investment property 30I Income recognition 30
Primary financial statements for the year ended 31 December 2004Income statement 31Balance sheet 32Changes in shareholders' equity 33-34Cash flows 35
Notes to the 2004 financial statements1 Net interest income 362 Net fee income 373 Dividend income 374 Gains on trading securities 375 Realised gains on available-for-sale securities 376 Other operating income 387 General administrative expenses 388 Impairment losses 38-399 Other operating expenses 3910 Trading securities 3911 Available-for-sale securities 4012 Deposits placed with banks 4013 Syndicated and direct loans 40-4214 Direct equity investments 43-4415 Property and equipment 4416 Other assets 4517 Deposits from banks 4618 Term financing 4619 Other liabilities 4620 Employee retirement benefits 4721 Off-balance sheet exposures 47-4822 Related party transactions 4823 Cash flows from operating activities 4924 Capital adequacy 5025 Financial instruments and risk management 50-5226 Effective interest rates 5327 Fair value information 5328 Maturity profile of assets and liabilities 5429 Repricing profile of financial assets and liabilities 55-5630 Currency exposures 56-5731 Industry distribution of assets and liabilities 5832 Geographical distribution of risk 59
Auditors’ report to the shareholders 60
INTRODUCTION
The financial statements consist of pages 25 to 59 25
The formation, status and activities of APICORP
The information on this page is presented in order to provide the reader with background information about APICORP that
is essential to the understanding of the financial statements, as set out in pages 25 to 59. Similarly, the accounting policies as
explained in pages 26 to 30 are intended to acquaint the reader with the International Financial Reporting Standards (IFRS)
and the methodology followed by the Corporation in the presentation of its financial statements, and the classification and
measurement of assets and liabilities therein.
Arab Petroleum Investments Corporation (APICORP - the Corporation) is an Arab joint stock company
established on 23 November 1975 in accordance with an international agreement signed and ratified by the ten member
states of the Organisation of Arab Petroleum Exporting Countries (OAPEC).The agreement defines the objectives of the
Corporation as:
• participation in financing petroleum projects and industries, and in fields of activity which are derived therefrom, ancillary
to, associated with, or complementary to such projects and industries; and
• giving priority to Arab joint ventures which benefit the member states and enhance their capabilities to utilise their
petroleum resources and to invest their funds to strengthen their economic and financial development and potential.
Domicile and taxation
The Corporation is an international entity, and operates from its registered head office in Dammam, Kingdom of Saudi Arabia.
The establishing agreement states that APICORP is exempt from taxation in respect of its operations in the member states.
Share capital
The capital is denominated in shares of US$1,000 and is owned by the governments of the ten OAPEC states as follows:
Issued and AuthorisedUS$ 000 fully paid capital Percentage
United Arab Emirates 93,500 204,000 17%
Kingdom of Bahrain 16,500 36,000 3%
Democratic and Popular Republic of Algeria 27,500 60,000 5%
Kingdom of Saudi Arabia 93,500 204,000 17%
Syrian Arab Republic 16,500 36,000 3%
Republic of Iraq 55,000 120,000 10%
State of Qatar 55,000 120,000 10%
State of Kuwait 93,500 204,000 17%
Socialist People’s Libyan Arab Jamahiriya 82,500 180,000 15%
Arab Republic of Egypt 16,500 36,000 3%
550,000 1,200,000 100%
Activities
APICORP is independent in its administration and the performance of its activities, and operates on a commercial basis with
the intention of generating net income. Most of its 109 (2003: 107) employees are Arab nationals.The Corporation has no
subsidiaries, branches or divisions, and operates only from its head office in the Kingdom of Saudi Arabia. Accordingly no
business or geographical segment information is reported in the financial statements.
Currently the Corporation's project-financing activities take the form of loans and direct equity investments in projects.
These activities are funded by shareholders’ equity, medium-term financing and short-term deposits from banks.
ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
A. GENERALA-1 Compliance with International Financial Reporting StandardsThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issuedby the International Accounting Standards Board (IASB), and interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC) of the IASB.
A-2 Basis of preparationAPICORP presents its financial statements in United States dollars (rounded to the nearest thousand) because it is asupranational organisation with its capital and the majority of its transactions and assets denominated in that currency.
The financial statements are prepared on a fair value basis for financial assets held for trading, available-for-sale assets and financial liabilities.Other financial assets and non-financial assets and liabilities are stated at amortised cost or historical cost.
The accounting policies are consistent with those used in the previous year.
A-3 Foreign currency transactionsTransactions in currencies other than US dollars (foreign currencies) are translated at the exchange rates ruling at the date of the transaction. All monetary assets and liabilities denominated in foreign currencies are translated into US dollars at rates prevailing at the balance sheet date. Differences arising from changes in exchange rates are recognised in the income statement.
Direct equity investments (non-monetary assets) denominated in foreign currencies, that are stated at fair value, aretranslated to US dollars at current exchange rates. Differences arising from changes in rates are included in the revaluationreserve in shareholders' equity. Capital expenditure on property and equipment is stated at the historical rates of exchange.There are no other foreign currency denominated non-monetary assets or liabilities.
Share capital originally contributed in Saudi Riyals is maintained at the historical rates of exchange.
B. FINANCIAL INSTRUMENTSB-1 ClassificationTrading securities are those that the Corporation purchased principally for the purpose of gains over the short-term.Theseconsist of managed funds and equity securities.
Loans are created by the Corporation providing money to a debtor, other than those created with the intention of gains overthe short-term. Loans comprise deposits placed with banks, and syndicated and direct loans.
Available-for-sale assets are financial assets that are not held for trading purposes, or loans provided by the Corporation.Available-for-sale instruments include certain debt securities, managed funds and direct equity investments.
B-2 RecognitionPrior to 2003 the Corporation recognised all financial assets held for trading and available-for-sale assets on the date on which it committed to purchase the assets (trade date). From this date forward any gains and losses arising from changesin fair value of the assets are recognised.
From 2003, onward, because of the implementation of new accounting software, the recognition policy has been modifiedwith respect to purchase of available-for-sale assets and assets held for trading, which are now recognised on a settlementdate basis. The effect of this change on carrying values and income has been negligible.
Loans are recognised on the day on which they are drawn down by the borrower.
26 The financial statements consist of pages 25 to 59
ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2004
B-3 MeasurementFinancial instruments are measured initially at cost. Premiums, discounts and initial transaction costs are included in the initial carrying amount of the related instruments, where appropriate. Subsequent to initial recognition, all tradinginstruments and available-for-sale assets are measured at fair value.
All non-trading financial liabilities, loans and receivables are measured at amortised cost, less impairment losses, if any.
B-4 Fair value measurement principlesThe fair value of financial instruments is based on their quoted market price at the balance sheet date without any deductionfor transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using discounted cash flow techniques, or other methods, as appropriate.
B-5 Gains and losses on subsequent measurementGains and losses arising from changes in the fair value of available-for-sale financial assets are recognised directly in arevaluation reserve in shareholders' equity.When the assets are sold, collected or otherwise disposed of, or are impaired,the cumulative gain or loss recognised in equity is transferred to the income statement.
Gains and losses arising from a change in the fair value of trading instruments are recognised in the income statement.
B-6 DerecognitionA financial asset is derecognised when the Corporation loses control over the contractual rights attaching to that asset.This occurs when the rights are realised, expire or are surrendered.A financial liability is derecognised when it is extinguished.
Prior to 2003 the available-for-sale assets and assets held for trading that were sold were derecognised, and correspondingreceivables from the buyer for the payment were recognised at the date on which the Corporation commits to sell the assets(trade date).The Corporation uses the specific identification method to determine the gain or loss on derecognition.
In 2003 because of the implementation of new accounting software, the recognition policy has been modified with respectto sale of available-for-sale assets and assets held for trading, which are now derecognised on a settlement date basis. Theeffect of this change on carrying values and income has been negligible.
Loans are derecognised on the date on which they are repaid.
B-7 ImpairmentFinancial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. Ifany such indication exists, the assets' recoverable amounts are estimated.
The recoverable amount of an equity instrument is its fair value. The recoverable amount of loans and debt instrumentsremeasured to fair value is calculated as the present value of the related expected future cash flows discounted at the currentmarket rate of interest for such an instrument.
Where an asset remeasured to fair value directly through equity is impaired, and a write-down was previously recogniseddirectly in equity, the write-down is transferred to the income statement and is recognised as part of the impairment loss.Any subsequent additional impairment loss is similarly recognised in the income statement.
The financial statements consist of pages 25 to 59 27
ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2004
B-7 Impairment (continued)In the case of an asset remeasured to fair value directly through equity becoming impaired, and an increase in the fair valueof the asset has previously been recognised in equity, the increase in the fair value of the asset previously recognised in equityis reversed, to the extent that the asset is impaired.
If in a subsequent period the amount of an impairment loss decreases, and the decrease is due to a change in estimates, or canbe linked objectively to an event occurring after the write-down, the write-down is reversed through the income statement.
C. CASH AND CASH EQUIVALENTSC-1 ClassificationCash and cash equivalents comprise cash balances on hand and cash in call accounts.
D. LOANS AND OTHER RECEIVABLESD-1 LoansSyndicated and direct loans provided by the Corporation as an arranger, or through participation in the initial syndication,are carried at cost (less allowances for impairment where appropriate). It is the Corporation's policy to hold all loans tomaturity. No loans purchased from the secondary market have been held since 2000.
The unamortised portion of deferred participation and commitment fees received is deducted from the carrying cost of the loans.
D-2 Amounts paid under guaranteesAmounts paid under guarantees are reported net of impairment allowances to reflect the present value of the estimatedrecoverable amounts (after taking into account collateral held).The discount rate used reflects the current cost of fundingthe exposures.
D-3 Allowances for uncollectibility (impairment)Allowances for uncollectibility (impairment) consist of:
• Specific allowances for individual loans when circumstances are identified that may lead to significant, possibly permanent,losses.The most common occurrences are failure to meet interest or repayment commitments.
The impairment allowance is calculated by discounting expected future cash flows from the loan, using the effectiveinterest rate of the loan, and comparing the result with the carrying value.
• Similarly an allowance for potential defaults is maintained against other loan exposures, to cover potential losses, as a result of potential downgradings.
Increases and decreases in allowances for uncollectibility are recognised in the income statement.
When a loan is known to be uncollectible, and the final loss has been determined, the loan is written off after receivingspecific approval to do so from the Board of Directors.
E. SECURITIESE-1 ClassificationThe Corporation’s securities holdings, which include both debt and equity securities as well as managed funds, are classifiedaccording to the purposes for which they were held at 1 January 2001 or, in the case of subsequent purchases, the purposesfor which they were acquired.
28 The financial statements consist of pages 25 to 59
ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2004
E-1 Classification (continued)Securities that the Corporation holds for the purpose of gain over the short-term are classified as trading instruments.Other investments are classified as available-for-sale instruments.
• Available-for-sale portfolio: This consists of investment grade fixed-rate bonds, structured notes and floating-rate notes that are intended to generate a steady stream of interest income, whilst representing a contingency reservoir of liquidity.The portfolio also contains managed funds that are intended to generate capital gains.
The available-for-sale securities are carried at fair value (market value) with changes being routed through shareholders'equity.Allowances are made for specific value impairments as and when these are identified. Such impairments are routedthrough the income statement.
Gains or losses in the value of available-for-sale securities, apart from impairments, are recognised in income only on ultimatedisposal.
• Trading securities consist of equities and managed funds carried at market value with changes in value being routedthrough the income statement.
E-2 AmortisationWhere bonds have been purchased at a premium or a discount, the premiums and discounts are amortised through theincome statement over the period from the date of purchase to the date of maturity.
F DIRECT EQUITY INVESTMENTSF-1 ClassificationAPICORP has direct investments in the unquoted ordinary share capital of closed companies established for specific start-up projects in the petroleum and petrochemical industries, mostly in partnership with governments or quasi-governmental entities.The Corporation is represented on the boards of the companies.
The three companies in which the Corporation holds 20% or more of the equity are not treated as associates under IAS-28 because APICORP's philosophy is that it should act in a fiduciary and advisory capacity and not exercise significantinfluence over the management and operations of the companies.
Once the companies become established and begin paying dividends, it is the Corporation's intention to profitably disposeof its holdings in order to recycle the funds to new projects. Accordingly, these investments are classified as available-for-saleassets, and are recorded initially at cost, including transaction costs.
F-2 Fair valuesBecause the direct equity investments are in closed companies with no available market valuations, management considersthe best approximation to fair value to be the net asset value, or the present value of discounted future cash flows, wherethese can be reasonably estimated.
The net asset values are based upon the most recent audited financial statements or monthly management information,adjusted for conformity with International Financial Reporting Standards. Changes in fair values are routed throughshareholders' equity.
F-3 ImpairmentReductions in net asset values below original cost are examined to determine whether there is evidence of impairment.In assessing impairment, expected future cash flows and other factors are taken into consideration. Changes in impairmentare routed through the income statement.
The financial statements consist of pages 25 to 59 29
ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)
for the year ended 31 December 2004
G. PROPERTY AND EQUIPMENTG-1 ClassificationItems of property and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (if any).
Where an item of property and equipment comprises major components having different useful lives (for example: theCorporation's head office building), these components are accounted for as separate items of property and equipment.No borrowing costs have been capitalised.
G-2 Subsequent expenditureExpenditure incurred subsequently to replace a major component of an item of property and equipment that is accountedfor separately is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefitsexpected to accrue from the item of property and equipment.
All other expenditure, for example on maintenance and repairs, is expensed in the income statement as incurred.
G-3 DepreciationDepreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the items ofproperty and equipment, and of the major components that are accounted for separately. Land is not depreciated.
The estimated useful lives of the Corporation's property and equipment are as follows:
• Head office building (civil works and other major components) 20 to 40 years• Head office building (finishes, systems and equipment) 5 to 20 years• Housing compound buildings (including extension completed in 2000) 15 years (from 2000)• Housing compound equipment, furniture and fittings 5 to 10 years• Office furniture, equipment and computer hardware (and related software) 3 to 10 years
H INVESTMENT PROPERTYThe Corporation's investment property, being land that is no longer required for the development of the head office building,is included in other assets in the balance sheet and is carried at fair value.Any gain or loss arising from a related change infair value is recognised in income.
I. INCOME RECOGNITIONI-1 Interest incomeInterest income is recognised in the income statement as it accrues, taking into account the effective yield of the asset.Thisincludes the amortisation of any discount or premium or other differences between the initial carrying amount of an interest-bearing instrument and its amount at maturity.
I-2 Fee incomeFee income arises from financial services provided by the Corporation including project and structured finance transactions,for example advising on underwriting and arranging syndicated loan facilities, and is recognised when the service is provided.
Fees that are analogous to interest and are considered to be part ot the overall yield on loans, specifically participation and commitment fees, are initially deferred and then amortised over the lives of the related loans.The amortised income is included in interest income.
I-3 Dividend income
Dividend income is recognised in the income statement from the date on which the dividend is declared.
30 The financial statements consist of pages 25 to 59
INCOME STATEMENTfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 31
US$ 000 Notes 2004 2003 2002
INTEREST INCOME 22 42,925 39,797 45,636
Interest expense and charges (23,778) (20,599) (25,574)
NET INTEREST INCOME 1 19,147 19,198 20,062
Fee income 22 4,297 1,281 2,689
Fee expense (120) (157) (103)
Net fee income 2 4,177 1,124 2,586
Dividend income 3, 22 10,697 8,414 4,192
Realised and unrealised gains on trading securities 4 9,026 9,907 5,388
Realised gains on available-for-sale securities 5 124 3,013 5,672
Other operating income 6 5,404 1,800 1,552
General administrative expenses 7 (17,327) (14,539) (14,423)
Net reversals of impairment losses 8 7,968 4,620 3,962
Other operating expenses 9 (364) (20) (533)
NET INCOME FOR THE YEAR BEFORE APPROPRIATIONS 38,852 33,517 28,458
Appropriations of net income 2004 2003 2002
Legal reserve 3,900 3,400 3,000
Dividend to shareholders (see below) 20,000 20,000 20,000
Retained earnings 14,952 10,117 5,458
Total net income as above 38,852 33,517 28,458
Appropriations of net income for dividends are proposed by the Directors and are then subject to approval by the Annual
General Assembly of the shareholders.
Per US$ 1,000 share information 2004 2003 2002
• Earnings (based on weighted average number of shares outstanding) US$ 70.64 US$ 64.50 US$ 61.87
• Proposed dividend (2003 and 2002: actual) US$ 36.36 US$ 36.36 US$ 43.48
• Net asset value US$ 1,353 US$ 1,285 US$ 1,478
BALANCE SHEET31 December 2004
32 The financial statements consist of pages 25 to 59
US$ 000 Notes 2004 2003 2002
ASSETS
Cash and cash equivalents 16,079 15,564 10,207
Trading securities 10 75,858 71,004 79,921
Available-for-sale securities 11 420,713 394,367 299,137
Deposits placed with banks 12 193,669 209,690 186,866
Syndicated and direct loans 13 1,149,413 1,149,715 1,056,013
Direct equity investments 14 208,111 185,648 168,323
Property and equipment 15 42,734 45,048 47,249
Other assets 16 14,019 17,390 16,286
Total Assets 2,120,596 2,088,426 1,864,002
LIABILITIES
Deposits from banks 17 858,674 874,375 725,156
Term financing 18 499,098 498,559 423,019
Unpaid dividends 13 - - 28,740
Other liabilities 19 18,408 8,593 6,999
Total liabilities 1,376,180 1,381,527 1,183,914
SHAREHOLDERS' EQUITY
Share capital (see page 25) 550,000 550,000 460,000
Legal and general reserves (see page 33) 103,500 99,600 156,200
Revaluation reserve (see page 33) 43,201 24,536 11,242
Retained earnings (see page 34) 47,715 32,763 52,646
Total shareholders' equity 744,416 706,899 680,088
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,120,596 2,088,426 1,864,002
OFF-BALANCE SHEET EXPOSURES
Commitments, guarantees and derivatives 21 563,494 593,259 609,625
The financial statements were approved by the Board of Directors on 6 April 2005 and were signed by:
Abdullah A. Al-Zaid Mohammed A. Dahmani Rasheed M. Al-Maraj
Chairman Deputy Chairman General Manager
CHANGES IN SHAREHOLDERS’ EQUITYfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 33
US$ 000 Notes 2004 2003 2002
SHARE CAPITAL (see page 25)
Issued share capital at the beginning of the year 550,000 460,000 460,000
Capitalisation of general reserve in 2003 (see below) - 90,000 -
Issued share capital at 31 December (as page 32) 550,000 550,000 460,000
LEGAL RESERVE
Legal reserve at the beginning of the year 84,600 81,200 78,200
Appropriation from net income (see page 31) 3,900 3,400 3,000
88,500 84,600 81,200
GENERAL RESERVE
General reserve at the beginning of the year 15,000 75,000 75,000
Transfer from retained earnings (see page 34) - 30,000 -
Used to increase the issued share capital (as above) - (90,000) -
15,000 15,000 75,000
Legal and general reserves at 31 December (as page 32) 103,500 99,600 156,200
REVALUATION RESERVE - available for sale assets
Securities
Net unrealised losses at the beginning of the year (2003: gains) (4,071) 1,179 (345)
Decrease in fair value (market value) in the year
(2003, 2002: increase) (1,011) 1,239 3,792
Gains realised on sales transferred to income 5 (124) (3,013) (5,672)
Impairments released on realisation of losses
(2002: recognition of impairments) 8 (236) (3,476) 3,964
Exchange rate movements - - (560)
Net unrealised losses at 31 December (2002: gains) (5,442) (4,071) 1,179
Direct equity investments
Net unrealised gains at the beginning of the year (2002: losses) 28,607 10,063 (12,480)
Increase in fair value in the year 14 20,036 14,375 22,543
Unrealised losses charged to income on
recognition of impairments 8 - 4,169 -
Net unrealised gains at 31 December 48,643 28,607 10,063
Total revaluation reserve at 31 December (as page 32) 43,201 24,536 11,242
CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED)for the year ended 31 December 2004
34 The financial statements consist of pages 25 to 59
US$ 000 Notes 2004 2003 2002
RETAINED EARNINGS
At the beginning of the year 32,763 52,646 57,188
Dividends to the shareholders for the previous
year (see below) (20,000) (20,000) (30,000)
Transfer to general reserve (see page 33) - (30,000) -
Net income for the year before
appropriations (from page 31) 38,852 33,517 28,458
Transfer to legal reserve (see below) (3,900) (3,400) (3,000)
Retained earnings at 31 December (as page 32) 47,715 32,763 52,646
EQUITY at 31 December as on the balance sheet (page 32) 744,416 706,899 680,088
Share capital
On 3 May 2003 the General Assembly of shareholders resolved to increase the issued share capital from US$ 460 million to
US$ 550 million by the capitalisation of reserves.
Legal and general reserves
Under Article 35 of APICORP's statutes, 10% of annual net income is to be transferred to a legal reserve until such reserve
equals the subscribed share capital.The legal reserve is not available for distribution.
Article 35 also permits the creation of other reserves such as the general reserve. The general reserve may be applied as is
consistent with the objectives of the Corporation, and as may be resolved by the General Assembly, on the recommendation
of the Board of Directors.
CASH FLOWSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 35
US$ 000 Notes 2004 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES 23
Interest received 49,191 47,918 46,025
Interest paid (20,733) (20,813) (23,799)
Fees received 4,296 1,281 7,344
Fees paid (119) (157) (1,950)
Other income 72 62 53
Net receipts from trading activities 4,500 18,660 19,413
Interest recovery from restructured loans 4,120 - -
Operating expenses paid (13,646) (11,248) (12,275)
Cash inflows before changes in operating assets 27,681 35,703 34,811
DECREASE (INCREASE) IN OPERATING ASSETS
Decrease in deposits placed with banks (2003: increase) 16,021 (22,824) 98,168
Syndicated and direct loans drawn down 13 (380,484) (403,504) (624,238)
Loan repayments and prepayments received - performing loans 13 386,272 285,072 434,020
Net impairments recovery 13 13,337 14,312 749
Decrease in deposits from banks (2003, 2002 : increase) (15,701) 149,219 266,362
Net payments from other operating assets and liabilities (1,816) (11,897) (9,790)
Cash inflows from operating activities 45,310 46,081 200,082
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from redemptions and sales of available-for-sale securities 76,192 935,581 409,725
Purchases of available-for-sale securities (111,449) (1,038,395) (583,694)
Dividends from direct equity investments 10,669 8,352 4,139
Payments for direct equity investments (2,427) (2,950) -
Rent received 678 694 620
Capital expenditure on property and equipment (458) (1,006) (3,233)
Cash outflows from investing activities (26,795) (97,724) (172,443)
CASH FLOWS FROM FINANCING ACTIVITIES
Term financing drawn down 18 - 75,000 225,000
Term financing repaid 18 - - (225,000)
Dividends paid in respect of the previous year (18,000) (18,000) (27,000)
Cash outflows from financing activities (2003: inflows) (18,000) 57,000 (27,000)
TOTAL CASH INFLOWS IN THE YEAR 515 5,357 639
CASH AND CASH EQUIVALENTS
At the beginning of the year 15,564 10,207 9,568
Total cash inflows in the year as above 515 5,357 639
Cash and cash equivalents at 31 December
(as on the balance sheet - see page 32) 16,079 15,564 10,207
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
36 The financial statements consist of pages 25 to 59
1 NET INTEREST INCOME
US$ 000 2004 2003 2002
Interest income
Interest income arises from:
Cash and cash equivalents 102 39 158
Deposits placed with banks 2,661 1,962 3,548
Available-for-sale securities - coupon interest 15,136 17,042 11,868
Available-for-sale securities - amortisation of purchase premiums (7,900) (8,904) (3,835)
Syndicated and direct loans - interest excluding amortisation of fees 29,521 26,092 31,178
Amortisation of loan participation and commitment fees 3,405 3,566 2,719
42,925 39,797 45,636
The increase in interest income in 2004 and 2002 is as a consequence of the higher interest rates prevailing during these
years compared to 2003, as most of the Corporation's interest-bearing assets are floating-rate instruments rather than
fixed-rate instruments (see note 26 - Effective interest rates).The level of interest-bearing assets has increased marginally in
the three years presented.
Interest income does not include any interest accrued on non-performing securities or loans.
Interest expense and charges
Interest expense arises from:
Deposits from banks (9,895) (8,837) (11,046)
Term financing (9,678) (8,128) (9,829)
Amortisation of term financing front-end
fees and commitment fees (575) (665) (878)
Unpaid dividends (see note 13) (490) (332) (449)
Total interest (20,638) (17,962) (22,202)
Other charges arise from:
Morabaha transactions (see note 17) (3,140) (2,637) (3,372)
(23,778) (20,599) (25,574)
The increase in interest expense in 2004 and 2002 is as a consequence of the higher interest rates prevailing during these
years compared to 2003, as all of the Corporation's interest-bearing liabilities are either short-term fixed-rate instruments
or floating-rate instruments (see note 26 - Effective interest rates).
Net interest income 19,147 19,198 20,062
Notes 2004 2003 2002
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 37
2 NET FEE INCOME
US$ 000 2004 2003 2002
Fee income
Fee income derived from the Corporation's lending activities:
Underwriting and arranging services 2,489 690 2,087
Agency, advisory and other services 1,782 517 556
Fees from securities lending activities 26 74 46
4,297 1,281 2,689
Fee expense
Custody fees and other charges paid to banks (120) (157) (103)
Net fee income 4,177 1,124 2,586
3 DIVIDEND INCOME
US$ 000 2004 2003 2002
Dividend income is generated from:
Trading securities 28 62 53
Direct equity investments 10,669 8,352 4,139
Total dividend income 10,697 8,414 4,192
4 GAINS ON TRADING SECURITIES
US$ 000 2004 2003 2002
Realised and unrealised gains on trading securities arise from:
Listed equities (2002: losses) 1,043 598 (546)
Managed funds 7,983 9,309 5,934
Total realised and unrealised gains on trading securities 9,026 9,907 5,388
5 REALISED GAINS ON AVAILABLE-FOR-SALE SECURITIES
US$ 000 2004 2003 2002
Realised gains on available-for-sale securities arise from:
Fixed-rate bonds 142 5,563 7,466
US Treasury bonds - 256 7
Floating-rate bonds - 64 23
Managed funds 28 - -
Losses on impaired fixed-rate bonds (46) (2,870) (1,824)
Total realised gains on available-for-sale securities 124 3,013 5,672
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
38 The financial statements consist of pages 25 to 59
6 OTHER OPERATING INCOME
US$ 000 2004 2003 2002
Other operating income consists of:
Rent - head office building and housing compound 678 695 620
Exchange gains 562 1,105 -
Investment property - increase in fair value - - 865
Restructured interest of delinquent loans 4,120 - -
Miscellaneous income 44 - 67
Total other operating income 5,404 1,800 1,552
7 GENERAL ADMINISTRATIVE EXPENSES
US$ 000 2004 2003 2002
General administrative expenses consist of:
Human resources costs (9,802) (9,067) (8,928)
Staff retirement fund contributions (see note 20) (915) (930) (965)
Premises costs, including depreciation (2,599) (2,441) (2,391)
Equipment and communications costs (811) (909) (821)
Directors' fees, expenses and Board meeting costs (867) (783) (776)
Special donations (1,000) - -
Other corporate expenses (1,333) (409) (542)
Total general and administrative expenses (17,327) (14,539) (14,423)
8 IMPAIRMENT LOSSES
US$ 000 2004 2003 2002
Write-downs
Available-for-sale securities - transfer from the revaluation
reserve (see page 33) - - (3,964)
Syndicated and direct loans - SK Global, Korea (see note 13) - (9,397) -
Syndicated and direct loans - increase in allowance for
other potential defaults (312) (275) -
Direct equity investments (see note 14)
Unrealised losses transferred from the revaluation reserve (see page 33) - (4,169) -
Other receivables - (181) -
(312) (14,022) (3,964)
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 39
8 IMPAIRMENT LOSSES (continued)
US$ 000 2004 2003 2002
Reversals of write-downs
Available-for-sale securities - transfer from the revaluation
reserve (see page 33) 236 3,476 -
Syndicated and direct loans (see note 13)
Iraq Ministry of Oil - reduction against increase in unpaid dividends 2,489 2,332 3,449
Recovery from Aradet, Iraq - 11,035 -
Recoveries against other impaired loans 388 459 749
Reduction in allowance for other potential defaults - - 2,759
Payments under guarantees recoverable from third parties (see note 16)
Recovery from Aradet, Iraq 7,855 955 -
Net effect of changes in value of machinery and discount rates
(see note 16) (2,688) 385 969
8,280 18,642 7,926
Net decrease in impairment losses 7,968 4,620 3,962
9 OTHER OPERATING EXPENSES
US$ 000 2004 2003 2002
Exchange losses - - (93)
Investment property - decrease in fair value (364) - -
Head office building - pre-occupation and relocation costs - - (111)
New computer systems implementation - training costs - (20) (149)
Term finance - arrangement costs - - (179)
Other expenses - - (1)
Total other operating expenses (364) (20) (533)
10 TRADING SECURITIES
US$ 000 2004 2003 2002
Trading securities (carried at market value) consist of:
Listed equities - mostly USA corporations - denominated in US$ 3,347 3,152 3,338
Managed funds - mostly denominated in US$ 72,511 67,852 76,583
Total trading securities 75,858 71,004 79,921
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
40 The financial statements consist of pages 25 to 59
11 AVAILABLE-FOR-SALE SECURITIES
US$ 000 2004 2003 2002
Available-for-sale securities consist of:
Fixed-rate bonds (carried at market value) issued by:
Governments and other public sector issuers 248,550 291,679 182,572
Other issuers - mainly US and EU corporates 28,010 57,932 80,739
Floating-rate bonds (carried at market value) issued by:
Governments and other public sector issuers - - -
Other issuers 36,854 22,965 33,801
Structured notes (carried at market value) 78,727 - -
Managed funds (carried at market value) 28,572 21,791 -
Impaired bonds (carried at cost less estimated impairment) - - 2,025
Total available-for-sale securities 420,713 394,367 299,137
12 DEPOSITS PLACED WITH BANKS
US$ 000 2004 2003 2002
Deposits placed with banks consist of:
Deposits maturing within three months 160,108 178,618 158,126
Deposits representing dividends payable to the Iraqi
shareholder (see note 13) 33,561 31,072 28,740
Total deposits placed with banks 193,669 209,690 186,866
13 SYNDICATED AND DIRECT LOANS
US$ 000 2004 2003 2002
Performing loans
Syndicated, direct and revolving loans and trade finance facilities (at cost) 1,166,954 1,162,891 1,044,702
Unamortised participation and commitment fees (see page 30) (10,174) (10,374) (10,649)
Allowance for other potential defaults (7,367) (7,055) (6,780)
1,149,413 1,145,462 1,027,273
Impaired (non-performing) loans (see page 41)
Syndicated, direct and revolving loans and trade finance facilities (at cost) 69,948 74,589 80,448
Allowance for specific impairments (36,387) (39,264) (51,708)
Dividends due to Iraq Ministry of Oil offset against guaranteed loans
(see page 41) (33,561) (31,072) -
- 4,253 28,740
Total net loans outstanding 1,149,413 1,149,715 1,056,013
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 41
13 SYNDICATED AND DIRECT LOANS (continued)
US$ 000 2004 2003 2002
Impaired (non-performing) loans
Iraqi companies - guaranteed by the Central Bank of Iraq (see below) 42,090 42,090 42,090
Arab Company for Detergent Chemicals (Aradet), Iraq - direct loan (see below) - - 9,654
Other Iraqi companies (see below) 9,758 9,758 9,758
SK Global, Korea (see below) - 4,253 -
Sudan company 16,560 16,560 16,560
Other 1,540 1,928 2,386
Total impaired loans at 31 December 69,948 74,589 80,448
Loans guaranteed by the Central Bank of Iraq
As a result of the 1990-1991 Gulf crisis, certain Iraq Ministry of Oil controlled companies defaulted on loans from the
Corporation amounting to US$ 42.1 million.These loans were guaranteed on behalf of the Ministry of Oil by the Central
Bank of Iraq, against which the Corporation duly filed claims in 1996 for the repayment of the principal and the overdue
interest.Acknowledging the claims, the Central Bank informed the Corporation that the matter could only be addressed on
the ultimate lifting of the United Nations sanctions against Iraq.
In the meantime, dividends (and accrued interest thereon) for 1992 to 2003, amounting to US$ 33.6 million due to the Iraq
Ministry of Oil (the shareholder in APICORP on behalf of the Government of Iraq), have not been paid because of the United
Nations sanctions against Iraq. With effect from 1998, the Corporation reduced impairment allowances against the
guaranteed loans by the amount of the unpaid dividends, while still carrying the dividends as liabilities in the balance sheet.
In May 2003, APICORP Board of Directors adopted a resolution authorizing management, in cases where no settlement
is reached, to set-off bad debts owed to the Corporation by companies and public corporations fully owned by any of
APICORP's shareholder governments, against accounts held by the Corporation belonging to such bodies and governments
including dividends, provided all legal requirements are satisfied and complied with. Also in May 2003 the United Nations
repealed the sanctions against Iraq.
Accordingly, and until such time as negotiations may be undertaken with the Government of Iraq, the Corporation has made
a primary offset of the unpaid dividends due to the Iraqi Government, against the principal amounts of the direct loans to
Iraq Oil Ministry companies.
Direct loan to Aradet, Iraq
Following the lifting of the United Nations sanctions against Iraq, APICORP was successful in negotiating terms for the
settlement of its direct loan to Aradet, and other amounts paid on behalf of Aradet under a loan guarantee to an international
bank.The settlement amount of EUR 20.0 million was duly received in two equal instalment from Aradet in November 2003
and March 2004 and the related provisions were released, accordingly.
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
42 The financial statements consist of pages 25 to 59
13 SYNDICATED AND DIRECT LOANS (continued)
SK Global, Korea
In 2003, SK Global, a Korean company of hitherto good international standing, collapsed as a result of massive internal fraud.
At the time,APICORP was a participant in two international syndicated Islamic trade finance facilities to SK Global, with an
exposure of US$ 16.5 million. Following a restructuring of the SK Group's debt, APICORP has been obliged to accept a
reduced amount of US$ 7.1 million payable in 2003-2004, and to record an impairment loss of US$ 9.4 million in respect of
these facilities.All instalments of US$ 7.1 were received in accordance with the agreed settlement terms.
US$ 000 2004 2003 2002Movements in performing loans in the yearOutstanding at the beginning of the year 1,162,891 1,044,702 848,480 Draw-downs on new and existing loans 380,484 403,504 624,238 Repayments and prepayments received (386,272) (285,072) (434,020)Loans reclassified as impaired - SK Global (see above) - (16,486) - Exchange rate movements (euro and swiss franc-denominated loans) 9,851 16,243 6,004
Outstanding at 31 December 1,166,954 1,162,891 1,044,702 Undrawn loan commitments and guaranteesAt the beginning of the year 447,307 489,887 489,774 New underwriting and commitment agreements signed 523,339 416,390 679,754 Drawdowns in the year (380,484) (403,504) (624,238)Expired commitments, syndication sell-downs and other movements - net (109,678) (55,466) (55,403)
Undrawn commitments at 31 December 480,484 447,307 489,887
There were two open underwriting commitments of approximately US$ 96.6 million at the year end.
Allowance for specific impairmentsAt the beginning of the year
Non-performing loans (70,336) (80,448) (79,692)Unpaid dividends and interest due to the Iraq Ministry of Oil 31,072 28,740 25,291
(39,264) (51,708) (54,401)Reversals of write-downs (see note 8)
Increase in unpaid dividends and interest due to the Iraq Ministry of Oil 2,489 2,332 3,449 Release - Aradet - following settlement (see page 41) - 11,035 - Partial recoveries received - non-performing loans - other 388 459 749
Net exchange rate movements - (1,382) (1,505)
Net reduction in the year 2,877 12,444 2,693 Allowance for specific impairments at 31 December - gross (69,948) (70,336) (80,448)Unpaid dividends and interest due to the Iraq Ministry of Oil 33,561 31,072 28,740
Allowance for specific impairments at 31 December - net (36,387) (39,264) (51,708)
Allowance for other potential defaultsAt the beginning of the year (7,055) (6,780) (9,250)Movements in the year (see note 8)
Unrecognised interest - potential defaults (312) (275) (289)Effect of changes in discounting and other factors - - 2,759
Allowance for other potential defaults at 31 December (7,367) (7,055) (6,780)
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 43
14 DIRECT EQUITY INVESTMENTSUS$ 000 2004 2003 2002
Fair value Fair value Fair value
APICORP has the following direct equity investments in companies
in the Arab petroleum and petrochemical industries (and the related
percentage participation):
Kingdom of Bahrain
Bahrain National Gas Company (Banagas) - liquefied petroleum
gas - 12.5% 9,056 9,055 9,089
Kingdom of Saudi Arabia
Saudi European Petrochemical Co (Ibn Zahr) - MTBE and
polypropylene - 10% 99,717 92,892 86,235
Arabian Industrial Fibers Co (Ibn Rushd) - polyester fibres -
8.3% (see below) 24,561 23,678 25,193
Republic of Iraq
Arab Company for Detergent Chemicals (Aradet) -
linear alkyl benzene - 32% 13,673 16,576 13,051
Socialist People’s Libyan Arab Jamahiriya
Arab Drilling and Workover Company (Adwoc) -
drilling and related services - 20% 12,133 11,159 9,529
Arab Geophysical Exploration Services Company (Agesco) -
seismic services - 10% 626 624 337
Arab Republic of Egypt
Alexandria Carbon Black Company - carbon black - 12% 7,557 4,790 3,769
Alexandria Fiber Co. SAE (AFC) - acrylic fiber - 10% 2,470 - -
Egyptian Fertilisers Company (EFC) - ammonia and urea - 10% 29,322 21,056 16,065
Oriental Petrochemicals Company - polypropylene - 14% 5,567 3,225 3,888
Non-shareholder countries
Jordan Phosphate Mining Company, Jordan - fertilisers - 0.8% 2,606 2,095 1,167
Tankage Méditerranée (Tankmed), Tunisia - storage facilities - 20% 823 498 -
Net carrying value as on the balance sheet 208,111 185,648 168,323
All the investments are carried at net asset values (adjusted for capitalised pre-operating expenses, where appropriate)
except for Ibn Rushd (at the present value of expected future cash flows - see page 44) and Jordan Phosphate Mining
Company (at quoted market value).
Movements in the year
Net carrying value at the beginning of the year 185,648 168,323 145,780
New amounts invested in 2004 - AFC (2003: EFC) 2,427 2,950 -
Net increase in fair value in the year (see page 33) 20,036 14,375 22,543
Net carrying value as on the balance sheet 208,111 185,648 168,323
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
44 The financial statements consist of pages 25 to 59
14 DIRECT EQUITY INVESTMENTS (continued)
Arabian Industrial Fibers Co (Ibn Rushd)
For Ibn Rushd the net asset value is considered not to represent the fair value because of the trend of continuing losses.
Accordingly, the fair value of Ibn Rushd has been determined using the present discounted value of estimated future cash flows.
US$ 000 2004 2003 2002
Fair value at the beginning of the year 23,678 25,193 20,821
Fair value adjustment for the year
(change in value of estimated future cashflows) 883 (1,515) 4,372
Fair value - the present value of estimated future cash flows 24,561 23,678 25,193
Commitments - uncalled share capital
Arab Company for Detergent Chemicals (Aradet), Iraq - cancelled in 2003 - - 24,705
Saudi European Petrochemical Co (Ibn Zahr) 4,649 4,649 4,649
4,649 4,649 29,354
15 PROPERTY AND EQUIPMENT
US$ 000 2004 2003 2002
Cost
Land at Rakah - head office building and housing compound 4,004 4,004 4,004
Head office building, equipment, décor and furnishings 36,945 36,856 36,796
Housing compound buildings, equipment, decor and furnishings 27,713 27,505 27,222
Computer hardware and other office equipment 1,664 1,552 1,438
Computer systems software 743 694 893
Total cost at 31 December 71,069 70,611 70,353
Accumulated depreciation (28,335) (25,563) (23,104)
Net carrying value as on the balance sheet 42,734 45,048 47,249
Movements in the year
Net carrying value at the beginning of the year 45,048 47,249 47,669
Additions at cost
Head office building, operating equipment, décor and furnishings 89 143 894
Housing compound buildings, operating equipment, décor and furnishings 208 250 265
Core computer systems software - acquisition and implementation 50 59 617
Other 112 81 390
Depreciation charge (2,771) (2,734) (2,569)
Disposals at net carrying value - mostly fully depreciated (2) - (17)
Net carrying value as on the balance sheet 42,734 45,048 47,249
Capital commitments
Contracted for 131 70 84
Approved by the Board of Directors, but not yet contracted for 660 630 790
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 45
16 OTHER ASSETS
US$ 000 2004 2003 2002
Payments made under guarantees to creditors of Aradet
Contractors' claims with respect to STPP plant
1997-1998 - denominated in Euros 46,211 38,309 33,509
Bank loan guarantee 1990-1998 - denominated in Euros 7,855 8,480 7,418
Recovery - bank loan guarantee (see note 13) (7,855) (955) -
Impairment losses - denominated in Euros (45,241) (41,334) (36,812)
Fair value - estimated saleable value of machinery, currently in the
possession of APICORP, intended for the Aradet STPP plant in Iraq
(see below) 970 4,500 4,115
Investment property - land at Dammam at estimated fair value 1,995 2,359 2,359
Receivables
Accrued interest receivable 10,328 8,894 8,386
Employee loans and advances 68 82 136
Miscellaneous receivables and advance payments 658 1,555 1,290
Carrying value as on the balance sheet 14,019 17,390 16,286
Aradet STPP plant machinery
The machinery came into APICORP's possession following the settlement (as guarantor on behalf of Aradet) of contractors'
claims and related costs amounting to US$ 46.2 million (at current exchange rates) in 1997-1998. It is presently warehoused
in Belgium, and Aradet reimburses the Corporation for the storage costs.
Following the successful negotiations leading to the settlement the Corporation's long outstanding direct loan to Aradet in
2003 (see note 13), it is envisaged that in 2005 agreement may be reached with respect to repayment of the remaining
outstanding amounts related to the STPP plant and the release of the machinery to Aradet.
Meanwhile, for prudence, the machinery is carried at its estimated saleable value on the open market as assessed by an
independent expert .
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
46 The financial statements consist of pages 25 to 59
17 DEPOSITS FROM BANKS
US$ 000 2004 2003 2002
Short-term US dollar deposits from banks 502,471 588,660 366,226
Short-term non-dollar deposits from banks
(euros, Swiss francs and Saudi riyals) 102,450 96,610 169,950
Short-term US dollar Morabaha liabilities to Islamic financial institutions 149,129 117,562 175,731
Short-term non-dollar Morabaha liabilities to Islamic financial institutions 104,624 71,543 13,249
Total as on the balance sheet 858,674 874,375 725,156
18 TERM FINANCING
US$ 000 2004 2003 2002
US$ 200 million loan 2000-2005 - fully drawn 200,000 200,000 200,000
Interest rate: US$ LIBOR plus 40 basis points
US$ 300 million loan 2002-2007 - fully drawn 300,000 300,000 225,000
Interest rate: US$ LIBOR plus 45 basis points
Unamortised front-end fees for all current facilities (902) (1,441) (1,981)
Total amortised cost as on the balance sheet 499,098 498,559 423,019
The agreement for the US$ 200 million loan (for general corporate purposes) was signed on 9 July 2000 with a consortium
of 16 international banks. The agent for the consortium is Deutsche Bank Luxembourg SA. The Corporation intends to
refinance this facility, upon maturity, in 2005.
The agreement for the US$ 300 million (to refinance the two facilities that matured in 2002) was signed on 30 May 2002
with a consortium of 20 international banks.The agent is Credit Agricole Indosuez, Paris, France.
The loans are subject to similar financial covenants, with which the Corporation has complied:
• The ratio of total shareholders' funds to total assets shall at all times be equal to or greater than 0.2; and
• The amount of total shareholders' funds shall at all times be greater than US$ 500 million.
2004 2003 200219 OTHER LIABILITIES
US$ 000 2004 2003 2002
Accrued interest payable 5,558 3,543 4,629
Retentions due to contractors - head office building - - 473
Staff Retirement Fund current account (2002: receivable) - 681 (1,316)
Accrued expenses 1,265 1,618 1,355
Other payables 11,585 2,751 1,858
Total as on the balance sheet 18,408 8,593 6,999
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 47
20 EMPLOYEE RETIREMENT BENEFITS
A contributory defined-benefit retirement plan (The Staff Retirement Fund - the Fund) has been established to provide
APICORP employees with end-of-service gratuities and indemnities for death or disablement arising during service with the
Corporation. It is administered by a committee consisting of the General Manager and other senior managers as appointed
by the Board of Directors.
The Fund was actuarily valued at 31 December 1999, by the projected benefit method, assuming a discount rate of 8 percent
and average annual increases in salaries of 5 percent.The result indicated that the liabilities of the Fund to its beneficiaries
were adequately covered by the fair values of the Fund's assets.
US$ 000 2004 2003 2002
Current service cost
The Corporation's contributions to the Fund in respect of
current service cost, as charged in the income statement 915 930 965
21 OFF-BALANCE SHEET EXPOSURES
US$ 000 2004 2003 2002
The Corporation has off-balance sheet exposures as follows:
Commitments to underwrite and fund loans (see note 13) 480,484 447,307 489,887
Commitments to subscribe further capital to direct equity
investments (see note 14) 4,649 4,649 29,354
Guarantees as shareholder (see below) 75,230 90,300 90,300
Contracted capital expenditure commitments (see note 15) 131 70 84
Foreign exchange swap commitments - 50,933 -
Credit default swap commitments 3,000 - -
Total exposures as on the balance sheet 563,494 593,259 609,625
Guarantees as shareholder
APICORP is an 8.28% shareholder in The Arabian Industrial Fibers Company (Ibn Rushd) (see note 14), which in turn had a
senior debt facility from a consortium of banks (including the Corporation) of US$ 850 million.The shareholders had given
a guarantee whereby they would be severally liable to repay the loan to the banks in full, should the borrower fail to comply
with certain conditions. In September 2002 this loan was prepaid and replaced by a similar loan from the Public Investment
Fund, Saudi Arabia, similarly guaranteed by the shareholders. The Corporation's contingent liability thereunder remains at
US$ 70.4 million, as hitherto.
Under a previous rescheduling of the US$850 million loan,APICORP, as a shareholder, has provided an additional guarantee
of US$19.9 million in respect of a new US$200 million revolving facility made available by the banks.The facility was prepaid
and cancelled in 2004 and the related guarantee was released accordingly.
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
48 The financial statements consist of pages 25 to 59
21 OFF-BALANCE SHEET EXPOSURES (continued)
APICORP is a 10% shareholder in The Egyptian Fertilisers Company (EFC) (see note 14), which had a loan facility from a
consortium of banks (including the Corporation) of US$250 million to finance an expansion project. In compliance with the
loan's conditions, the shareholders had given an undertaking, prorated on their respective shares, to cover cost overrun or
cash flow shortfall limited to 15% of the total project cost of US$322 millions. The Corporation's contingent liability
thereunder is US$4.8 million.
Derivatives
As at 31 December 2004, APICORP had one open credit default swap transaction, of US$3 million, for a reference bond
portfolio rated A- by Standard & Poor's.The portfolio is managed by HSBC.
22 RELATED PARTY TRANSACTIONS
APICORP's principal related parties are its shareholders. Although the Corporation does not transact any commercial
business directly with the shareholders themselves, it does finance companies which are either controlled by the shareholder
governments or over which they have significant influence.
US$ 000 2004 2003 2002
Loans to related parties
Loans outstanding at 31 December - gross 907,129 1,011,600 881,455
Impairment allowances at 31 December (13,335) (17,752) (61,502)
Dividends offset against Iraq direct loans (33,652) (31,072) -
Commitments to lend at 31 December 367,097 260,543 351,899
Interest from loans during the year 23,585 21,004 20,582
Loan fees received during the year 5,305 3,387 5,663
Loans to related parties are made at ruling market interest rates and subject to normal commercial negotiation as to
terms.The majority of loans to related parties are syndicated, which means that participation and terms are negotiated by a
group of arrangers, of which the Corporation may, or may not, be a member. No loans to related parties were written off
in 2002-2004.
2004 2003 2002
Direct equity investments in related parties
Investments at 31 December - at fair value 160,589 154,482 147,322
Guarantees as shareholder at 31 December (see note 21) 75,230 90,300 90,300
Commitments to invest at 31 December 4,649 4,649 29,354
Dividends received during the year 9,287 7,798 4,011
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 49
23 CASH FLOWS FROM OPERATING ACTIVITIES
US$ 000 2004 2003 2002
Cash flows from operating activities are reconciled to
net income for the year as follows:
Net income for the year (as page 31) 38,852 33,517 28,458
Adjustments for non-cash items
Gains on trading securities (8,766) (9,438) (4,836)
Realised gains on sale of available-for-sale securities (124) (3,013) (5,672)
Depreciation of property and equipment 2,771 2,734 2,569
Investment property - decrease in fair value (2002 : increase) 364 - (865)
Net reversals of impairment losses - loans (2,877) (13,826) (6,957)
Impairment losses - payments under guarantees (2003, 2002 : reversal) 3,530 (1,340) (969)
Impairment reversals (2002: losses) - available-for-sale securities (236) (3,476) 3,964
Impairment losses - direct equity investments - 4,169 -
Amortisation and exchange differences, net (2,540) 8,323 (2,726)
Other non-cash items 2,633 298 1,155
33,607 17,948 14,121
Net sales of trading securities 4,500 18,660 19,413
Dividends from direct equity investments (included in investing activities) (10,669) (8,352) (4,139)
Rent received (included in investing activities) (678) (694) (620)
26,760 27,562 28,775
Changes in operating assets and liabilities
Decrease in deposits placed with banks (2003: increase) 16,021 (22,824) 98,168
Syndicated and direct loans drawn down (380,484) (403,504) (624,238)
Loan repayments and prepayments received - performing loans 386,272 285,072 434,020
Recoveries in respect of impaired loans 4,640 14,312 749
Decrease in other operating assets (2003: increase) 782 (694) 258
Decrease in deposits from banks (2003, 2002 :increase) (15,701) 149,219 266,362
Increase in other operating liabilities (2003, 2002 : decrease) 7,020 (3,062) (4,012)
Cash inflows from operating activities (as page 35) 45,310 46,081 200,082
2004 2003 2002US$ 000 US$ 000 US$ 000
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
50 The financial statements consist of pages 25 to 59
24 CAPITAL ADEQUACY
The risk asset ratio at 31 December 2004, calculated in accordance with the capital adequacy guidelines of the Basle
Committee on Banking Supervision, is as follows:
US$ 000 2004 2003 2002
Carrying values
On-balance sheet assets (as page 32) 2,120,596 2,088,426 1,864,002
Off-balance sheet exposures (see note 21) 563,494 593,259 609,625
2,684,090 2,681,685 2,473,627
Risk-weighted exposures
On-balance sheet assets 1,698,904 1,593,708 1,438,991
Off-balance sheet exposures 543,400 541,020 594,948
Total risk-weighted exposures 2,242,304 2,134,728 2,033,939
Capital adequacy ratio
Qualifying capital base expressed as a percentage of total
risk-weighted exposures:
Capital base - Tier-1 capital: Shareholders' equity as on
the balance sheet (as page 32) 744,416 706,899 680,088
Capital adequacy ratio 33.2% 33.1% 33.4%
25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Financial instruments
A financial instrument is any contract that gives rise to both a financial asset in one enterprise and a financial liability or equity
instrument in another enterprise.
• APICORP’s financial assets are principally trading securities (note 10), available-for-sale securities (note 11), deposits placed
with banks (note 12), syndicated and direct loans (note 13), direct equity investments (note 14) and certain other assets
(note 16).
• Financial liabilities consist of commitments to lend (note 13) and invest (note 14), deposits from banks (note 17), term
financing (note 18), other liabilities (note 19), and guarantees (note 21).
These financial instruments expose APICORP to varying degrees of price risk (including currency, interest rate and market
risks), credit risk and liquidity risk.
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
Price risk management
Price risk is the risk that interest rates, foreign exchange rates or market prices will move relative to positions taken,
exposing APICORP to potential losses and potential gains.
• Market risk is the risk that the value of a financial instrument will vary as a result of changes in market prices, whether
caused by factors specific to the individual security or its issuer or by factors affecting all securities traded in the market.
It arises both on financial instruments valued at current market prices (mark-to-market basis) as well as those valued at
cost-plus-accrued-interest (accruals basis).
APICORP holds (but currently does not actively trade) debt and equity securities.Treasury activities are controlled by the
Assets and Liabilities Committee and are also subject to a framework of Board-approved currency, industry and
geographical limits and ratings by agencies including Standard & Poor’s.
• Interest rate risk: Syndicated and direct loans are normally denominated in United States dollars, as is the Corporation’s
funding, and interest rates for both are normally linked to LIBOR.
Exposure to interest rate risk is restricted by permitting only a limited mismatch between the repricing of the main
components of the Corporation’s assets and liabilities.The repricing profile of assets and liabilities is set out in note 29.
• Currency risk is minimised by regular review of exposures to currencies other than United States dollars to ensure that
no significant positions are taken which may expose APICORP to undue risks. Currently there is no trading in foreign
exchange.The Corporation’s net currency exposures are set out in note 30.
Credit risk management
Credit risk is the risk that a borrower or counter-party of APICORP will be unable or unwilling to meet a commitment that
it has entered into with the Corporation. It arises from the lending, treasury and other activities undertaken by the
Corporation. Policies and procedures are in place for the control and monitoring of all such exposures.
Proposed loans and direct equity investments are subject to systematic investigation, analysis and appraisal before being
reviewed by the Credit Committee (consisting of the General Manager and senior managers), which makes appropriate
recommendations to the Board of Directors, who have the ultimate authority to sanction commitments.These procedures,
plus the fact that most of the loans are backed by sovereign guarantees and export credit agency cover, limit APICORP’s
exposure to excessive credit risk.
The Corporation faces a credit risk on undrawn commitments because it is potentially exposed to loss in an amount equal to
the total unused commitments. However the eventual loss, if any, will be considerably less than the total unused commitments,
since most commitments to extend credit are contingent upon borrowers maintaining specified credit standards.
The financial statements consist of pages 25 to 59 51
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
25 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)
Credit risk management (continued)
All loan commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problems may be
detected early and remedial action taken.
With one minor exception,APICORP representatives sit on the boards of companies in which the Corporation has direct
equity investments and thus are in a position to monitor circumstances that may expose the Corporation to risk.
Treasury activities are controlled by means of a framework of limits and credit ratings. Dealing in marketable securities is
primarily restricted to United States and major European stock exchanges. Dealings are only permitted with approved
internationally rated banks, brokers and other counter-parties. Securities portfolios and investing policies are reviewed from
time to time by the Assets and Liabilities Committee.
Liquidity risk and funding management
Liquidity risk is the risk of being unable to raise funds at a reasonable price to meet commitments when they fall due, or
to take advantage of investment opportunities when they arise. Liquidity risk management ensures that funds are available at
all times to meet the funding requirements of the Corporation.
APICORP’s liquidity management policies are designed to ensure that even under adverse conditions, the Corporation has
access to adequate funds to meet its obligations, and to service its core investment and lending functions.This is achieved by
the application of prudent but flexible controls, which provide security of access to liquidity without undue exposure to
increased costs from the liquidation of assets or to bid aggressively for deposits.
Liquidity controls also provide for an adequately diversified deposit base in terms of maturities and the range of counter-parties.
The asset and liability maturity profile based on contractual repayment terms is set out in note 28.
52 The financial statements consist of pages 25 to 59
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 53
26 EFFECTIVE INTEREST RATES
The effective interest rates of the Corporation's financial instruments at the balance sheet date were:
2004 2003 2002
Interest-bearing financial assets
Fixed-rate bonds - weighted average 2.08% 2.13% 2.33%
Floating-rate bonds - weighted average 3.06% 2.26% 3.00%
Structured notes 2.80% - -
Deposits placed with banks - weighted average 2.73% 1.15% 1.49%
Syndicated and direct loans - weighted average 3.20% 2.83% 2.90%
US dollar denominated 3.21% 2.42% 2.76%
Non-dollar - mainly denominated in euros 3.08% 3.34% 4.63%
Interest bearing financial liabilities
Deposits from banks - weighted average 2.19% 1.27% 1.94%
US dollar denominated 2.30% 1.20% 1.64%
Non-dollar - euros, Swiss francs and Saudi riyals 2.02% 1.75% 2.84%
Term financing - weighted average 2.75% 1.60% 2.16%
US$ LIBOR at 31 December was:
One-month 2.39% 1.02% 1.30%
Three-month 2.56% 1.06% 1.28%
Six-month 2.79% 1.14% 1.30%
27 FAIR VALUE INFORMATION
The following financial assets and liabilities are not carried at fair value in the Corporation's balance sheet:
US$ 000 2004 2003 2002
Financial assets - syndicated and direct loans
Carrying value - amortised cost less impairments (see note 13) 1,149,413 1,149,715 1,056,013
Fair value - based on current market prices 1,175,781 1,166,620 1,070,636
Financial liabilities - term financing
Carrying value - amortised cost (see note 18) 499,098 498,559 423,019
Fair value - based on current market rates for similar remaining maturity 499,224 494,331 418,950
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
54 The financial statements consist of pages 25 to 59
28 MATURITY PROFILE OF ASSETS AND LIABILITIES
The maturity profile of the Corporation's assets and liabilties as at 31 December, based on contractual repayment
arrangements, is set out below.The apparent significant short-term mismatch between maturities of assets and liabilities is
substantially reduced in practice because the majority of deposits from banks are routinely rolled over on maturity.
Up to 3 months 1 year 5 years 2004
3 months to 1 year to 5 years and over Total
ASSETS
Cash and cash equivalents 16,079 - - - 16,079
Trading securities - - 75,858 75,858
Available for sale securities - 20,366 362,442 37,905 420,713
Deposits placed with banks 193,669 - - - 193,669
Syndicated and direct loans (752) 18,485 556,710 574,970 1,149,413
Direct equity investments - - - 208,111 208,111
Property and equipment - - - 42,734 42,734
Other assets 9,264 1,759 31 2,965 14,019
Total assets 218,260 40,610 919,183 942,543 2,120,596
LIABILITIES AND EQUITY
Deposits from banks (635,926) (222,748) - - (858,674)
Term financing 135 274 (299,507) (200,000) (499,098)
Other liabilities (15,638) (2,770) - - (18,408)
Shareholders' equity - (20,000) - (724,416) (744,416)
Total liabilities and equity (651,429) (245,244) (299,507) (924,416) (2,120,596)
MATURITY GAP (433,169) (204,634) 619,676 18,127 -
CUMULATIVE MATURITY GAP -
31 December 2004 (433,169) (637,803) (18,127) -
31 December 2003
Total assets 246,063 76,850 1,039,342 726,171 2,088,426
Total liabilities and equity (784,019) (117,728) (499,099) (687,580) (2,088,426)
Maturity gap (537,956) (40,878) 540,243 38,591 -
Cumulative maturity gap -
31 December 2003 (537,956) (578,834) (38,591) -
31 December 2002
Total assets 228,049 13,631 931,137 691,185 1,864,002
Total liabilities and equity (640,703) (91,452) (451,759) (680,088) (1,864,002)
Maturity gap (412,654) (77,821) 479,378 11,097 -
Cumulative maturity gap -
31 December 2002 (412,654) (490,475) (11,097) -
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 55
29 REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES
The repricing profile of the Corporation's financial assets and liabilities at 31 December was as follows:
Effective 2004 Up to Between Between Between interest Total 3 months 3 months 1 year and 2 years More than
rate and 1 year 2 years and 5 years 5 years
ASSETS
Available for sale securities
Fixed-rate bonds 2.08% 276,560 - 15,336 260,238 986 -
Floating-rate bonds 3.06% 36,854 36,854 - - - -
Structured notes 2.80% 78,727 9,646 69,081 - - -
Deposits placed with banks 2.73% 193,669 193,669 - - - -
Syndicated and direct loans
US$ denominated 3.21% 1,060,284 774,024 286,260 - - -
Non-US$ denominated 3.08% 106,670 32,902 73,768 - - -
LIABILITIES
Deposits from banks
US$ denominated 2.30% (651,600) (467,519) (184,081) - - -
Non-US$ denominated 2.02% (207,074) (168,407) (38,667) - - -
Term financing 2.75% (499,098) (249,865) (249,233) - - -
Interest rate sensitivity gap 394,992 161,304 (27,536) 260,238 986 -
Effective 2003 Up to Between Between Between More thaninterest Total 3 months 3 months 1 year and 2 years 5 years
rate and 1 year 2 years and 5 years
ASSETS
Available for sale securities
Fixed-rate bonds 2.13% 349,611 - 2,589 39,782 307,240 -
Floating-rate bonds 2.26% 22,965 22,965 - - - -
Deposits placed with banks 1.15% 209,690 209,690 - - - -
Syndicated and direct loans
US$ denominated 2.42% 1,040,681 780,228 260,453 - - -
Euro denominated 3.34% 122,210 54,988 67,222 - - -
LIABILITIES
Deposits from banks
US$ denominated 1.20% (706,221) (612,221) (94,000) - - -
Euro and Saudi riyal 1.75% (168,154) (164,274) (3,880) - - -
Term financing 1.60% (498,559) (498,559) - - - -
Interest rate sensitivity gap 372,223 (207,183) 232,384 39,782 307,240 -
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
56 The financial statements consist of pages 25 to 59
29 REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES (continued)
Effective 2002 Up to Between Between Between More thaninterest Total 3 months 3 months 1 year 2 years 5 years
rate and 1 year and 2 years and 5 years
ASSETSAvailable for sale securities
Fixed-rate bonds 2.33% 263,311 30,228 22,958 94,455 115,670 -
Floating-rate bonds 3.00% 33,801 33,801 - - - -
Deposits placed with banks 1.49% 186,866 186,866 - - - -
Syndicated and direct loans
US$ denominated 2.76% 963,227 670,959 292,268 - - -
Euro denominated 4.63% 81,475 77,998 3,477 - - -
LIABILITIES
Deposits from banks
US$ denominated 1.64% (541,957) (451,854) (90,103) - - -
Euro and Saudi riyal 2.84% (183,199) (183,199) - - - -
Term financing 2.16% (423,019) (423,019) - - - -
Interest rate sensitivity gap 380,505 (58,220) 228,600 94,455 115,670 -
30 CURRENCY EXPOSURES
The Corporations' currency exposures at 31 December were as follows:
US$ 000 2004 2004 2004 2003 2002 assets liabilities net net net
and equity exposure exposure exposureASSETS, LIABILITIES AND EQUITY
United States dollar 1,833,545 (1,883,441) (49,896) (144,270) (50,620)
Euro 96,805 (95,955) 850 16,522 1,273
Other OECD currencies (see page 57) 29,611 (27,574) 2,037 1,428 1,016
Arab currencies
GCC (see page 57) 128,894 (100,980) 27,914 110,050 31,638
Other Middle East 2,606 (1,545) 1,061 1,061 1,537
Egypt and North Africa 29,135 (11,101) 18,034 15,209 15,156
2,120,596 (2,120,596) - - -
COMMITMENTS AND GUARANTEES
United States dollar 511,366 489,666 556,096
Euro 47,356 47,530 48,862
Other OECD currencies (see page 57) - 481 -
Arab currencies - GCC (see page 57) 4,772 55,582 4,667
563,494 593,259 609,625
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 57
Other OECD currencies
The other member countries of the Organisation for Economic Co-operation and Development, excluding the United States
and the twelve European Monetary Union countries are:Australia, Canada, Czech Republic, Denmark, Hungary, Iceland, Japan,
Mexico, New Zealand, Norway, Poland, South Korea, Sweden, Switzerland,Turkey and the United Kingdom.
GCC
The member states of the Gulf Co-operation Council are: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab
Emirates.Their currencies are pegged against the United States dollar (Kuwait: basket of currencies to 31 December 2002).
Significant exchange rates
The following year-end rates have been used in translating other currencies to United States dollars:
US$ 000 2004 2003 2002
Euro EUR 1 = US$ 1.3624 1.2516 1.0488
Saudi riyal US$ 1 = SAR 3.7500 3.7500 3.7500
Swiss franc US$ 1 = CHF 1.1334 1.2480 1.3863
Egyptian pound US$ 1 = EGP 6.1000 6.1852 4.5000
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
58 The financial statements consist of pages 25 to 59
31 INDUSTRY DISTRIBUTION OF ASSETS AND LIABILITIESThe industry distribution of the Corporation's assets and liabilities at 31 December was as follows:
US$ 000 2004 2003 2002
ASSETSPetroleum and petrochemicals
Refineries 78,083 61,973 40,566 Oilfield production development and services 113,259 144,630 82,354 Floating production, storage and offloading facilities - 19,371 14,390 Pipelines and distribution 43,406 55,420 37,814 Gas-to-liquids plants 24,330 9,080 - Liquefied natural gas plants 195,750 155,661 174,117 Petrochemical plants 620,869 578,579 533,849 Fertiliser plants 65,222 93,599 97,231 Maritime transportation 55,953 52,205 49,221 Trade finance 14,854 100,058 96,467 Power generation 105,970 68,101 28,588 Other petroleum 9,276 12,754 76,414
Total petroleum and petrochemicals 1,326,972 1,351,431 1,231,011
Banks and financial institutions 395,540 356,659 371,115 Banks and financial institutions - managed funds 101,155 89,940 76,583 Other industries 94,258 97,010 90,408 Governments and public sector institutions 202,671 193,386 94,885
Total assets 2,120,596 2,088,426 1,864,002
LIABILITIES AND EQUITYBanks and financial institutions 1,363,330 1,377,158 1,181,544 Other industries 12,850 4,369 2,370 Shareholders 744,416 706,899 680,088
Total liabilities and equity 2,120,596 2,088,426 1,864,002
COMMITMENTS AND GUARANTEESPetroleum and petrochemicals
Refineries 46,944 23,506 13,301 Oilfield production development and related services 10,000 48,333 90,422 Floating production, storage and offloading facilities - - 5,117 Pipelines and distribution - 7,264 11,422 Gas-to-liquids plants 14,166 31,296 - Liquefied natural gas plants 118,097 61,000 4,674 Petrochemical plants 179,574 150,097 213,862 Fertiliser plants 34,429 74,687 51,101 Maritime transportation 34,894 - 5,813 Trade finance 21,736 55,773 98,306 Power generation 30,123 - 25,223
Total petroleum and petrochemicals 489,963 451,956 519,241Banks and financial institutions 3,000 70,833 19,900 Other industries 131 70 84 Governments and public sector institutions 70,400 70,400 70,400
Total commitments and guarantees 563,494 593,259 609,625
NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2004
The financial statements consist of pages 25 to 59 59
32 GEOGRAPHICAL DISTRIBUTION OF RISKThe geographical distribution of risk of the Corporation's assets and liabilities at 31 December, after taking into accountinsurance and third-party guarantees, was as follows:
US$ 000 2004 2003 2002
ASSETSKingdom of Saudi Arabia 607,364 564,340 584,889 State of Qatar 256,037 247,936 249,580 Other Gulf Co-operation Council states 378,186 259,111 219,276 Other Middle East states 17,343 26,338 56,397 Egypt and North Africa 217,135 316,118 228,288
Total Arab World 1,476,065 1,413,843 1,338,430
Western Europe 410,139 484,153 203,918 India, Bangladesh and Pakistan 15,126 17,542 12,780 Asia Pacific Rim 30,823 8,913 44,782 United States 110,659 135,695 262,445 Other North and South America 77,784 28,280 1,647
Total assets 2,120,596 2,088,426 1,864,002
LIABILITIES AND EQUITYKingdom of Saudi Arabia 446,672 450,524 290,339 State of Qatar 96,344 130,264 96,956 Other Gulf Co-operation Council states 780,980 676,385 588,235 Other Middle East states 100,679 159,479 214,467 Egypt and North Africa 223,259 216,768 201,339
Total Arab World 1,647,934 1,633,420 1,391,336
Western Europe 468,662 410,450 398,747 Asia Pacific Rim 4,000 44,556 64,885 United States - - 9,034
Total liabilities and equity 2,120,596 2,088,426 1,864,002
COMMITMENTS AND GUARANTEESKingdom of Saudi Arabia 283,800 277,970 262,675 State of Qatar 117,895 36,780 42,353 Other Gulf Co-operation Council states 78,981 119,625 145,262 Other Middle East states 4,830 - 24,705 Egypt and North Africa 64,988 153,111 117,912
Total Arab World 550,494 587,486 592,907
Western Europe 3,000 - - India, Bangladesh and Pakistan - 5,773 - Asia Pacific Rim 10,000 - 16,718
Total commitments and guarantees 563,494 593,259 609,625
AUDITORS’ REPORT TO THE SHAREHOLDERS
AUDITORS' REPORT TO THE SHAREHOLDERS
OF ARAB PETROLEUM INVESTMENTS CORPORATION
We have audited the accompanying balance sheet of Arab Petroleum Investments Corporation as of 31 December 2004, and
the related statements of income, cash flows and changes in equity for the year then ended.These financial statements are
the responsibility of the corporation's management. Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with International Standards on Auditing.Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of the corporation as of
31 December 2004 and the results of its operations and its cash flows for the year then ended in accordance with
International Financial Reporting Standards.
6 April 2005
Manama, Kingdom of Bahrain
A Member of Ernst & Young Global
60
DR. ABDULLAH A. BAESHEN - COUNTRY CO-ORDINATING PARTNER
P.O Box 140 Phone: 17 53 54 5514th Floor Fax: 17 53 54 05City Gardens [email protected] www.ey.com/meKingdom of Bahrain C.R. No. 6700
Financial Statementsfor the year ended 31 December 2004