· 2018-11-19 · ali aissaoui head of research sami al-sunaid manager, trade finance dr. wichai...

02 Arab Petroleum Investments Corporation

APICORP’s Shareholders

APICORP is wholly owned by the member states of the Organisation of 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 its operations on a

commercial basis, in a business-like manner and with the intention

of making a profit.

The corporation gives priority to joint Arab ventures, which serve the

regional Arab market.

United Arab Emirates 17%

Bahrain 3%

Algeria 5%

Saudi Arabia 17%

Syria 3%

Iraq 10%

Qatar 10%

Kuwait 17%

Libya 15%

Egypt 3%

ShareholdersAPICORP’S

Mission &

vision

APICORP’S

03Arab Petroleum Investments Corporation

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

advisory and research. These include all businesses, which are based on the development, processing or transportation of the products of the oil and gas industry and its

downstream derivatives.

We will measure our success by our ability to

- Be the partner of choice of oil & gas and energy-related companies, both public and Private

- Be recognized as a world-class professional institution and the leading source of Research on

the Arab hydrocarbon and energy industries

- Profitably complement the offering of private sector financial institutions

We will achieve our vision by

- Attracting and retaining the best professionals in the industry

- Nurturing a performance culture throughout the Company

- Pioneering solutions for our Clients

- Maintaining a portfolio of activities weathering the cyclicality of the industry

The Corporation may undertake all operations required for the fulfilment of its objectives, in particular:

1. initiate, study and promote petroleum, and petroleum related projects, and participate in their equity financing;

2. extend or guarantee medium and long-term loans to finance projects in the petroleum industry;

3. participate in the short-term financing of the international trade in 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 international financial markets.

Financial Summary 2002-2006

04

DirectorsBoard of

Arab Petroleum Investments Corporation

Members of the board

Chairman of the BoardAbdullah A. Al-ZaidFor the Kingdom of Saudi Arabia

Deputy Chairman of the BoardMohamed A. DahmaniFor the Socialist Peoples' Libyan Arab Jamahiriya

Naser Mohamed Al-SharhanFor the United Arab Emirates(Member of the Audit Committee)

Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain(Member of the Audit Committee)

Farid BakaFor the Democratic and PopularRepublic of Algeria

H.E. Eng. Sufian M. Al-AlaoFor the Syrian Arab Republic

Hassan M. Habib Al-RufaieFor the Republic of Iraq

Ibrahim Ben A. Al-MannaieFor the State of Qatar

Abbas Ali NaqiFor the State of Kuwait(Chairman of the Audit Committee)

H.E. Eng. Sameh Fahmi For the Arab Republic of Egypt


ManagementExecutive

Projects DepartmentDr. Abdulla Ali Al-IbrahimSenior Manager

Talal KhalilBusiness Development Manager

Mediterranean & North Africa Business Group

Dr. Abdul-Aziz Al-IdiBusiness Development ManagerGCC Business Group

Project and Trade Finance DepartmentNicolas ThevenotSenior ManagerBassam Al-TamimiManager Mediterranean & North Africa Business GroupHaitham A. MalaikahManager, GCC Business GroupAli AissaouiHead of ResearchSami Al-Sunaid Manager, Trade FinanceDr. Wichai TurongpunEconomist, Research UnitKamel Ali BuKhamseenProject Finance OfficerRajesh RamanathanProject Finance Officer

Treasury and Capital Markets DepartmentDino Roy MorettoSenior ManagerHesham FaridPortfolio ManagerRichard BurnellManager, Money Markets & Foreign ExchangeFaiq HussainManager, Money MarketsRavi KumarPortfolio Manager

Ahmad Bin Hamad Al-NuaimiChief Executive and General Manager

Financial Control DepartmentOmar Al OmarSenior ManagerAymen F. ZeyadaOperations ManagerKhaled YousefAccounts and Control ManagerMohamed Suba’aAsst. Manager, Accounts and ControlMohamed Al-MubarakAsst. Operations Manager

Legal DepartmentAli Hassan FadelLegal Counsel

Administration and Human Resources DepartmentAbdulla A. Al-NashwanSenior ManagerSamir Al-GhonaimiAdministration ManagerMahdi Al-MahdiHead of Public AffairsAbdulaziz Al-NaimiHuman Resources Manager

Information Systems DepartmentMohamed I. El-KhoulyActing ManagerMohamed Mas'adaAssistant Manager, Financial Applications

Internal AuditAbdul-Aziz Habib Al-MatarHead of Internal Audit

06

StatementChairman’s

Arab Petroleum Investments Corporation

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 31stAnnual Report on the Corporation’s activities and financial results for the year ended 31 December 2006.

Financial Results

APICORP’s operations in 2006 achieved a net profit of US$51 million, compared to US$94.6 million in 2005. The significant increase in the net income during 2005 wasachieved primarily through the selling of APICORP’s equity holding in the Egyptian Fertilizers Company, which generated US$58.8 million in profits. Excluding the profitsfrom the Egyptian Fertilizers Company, net income from operations in 2006, surpassed that of the same period in 2005 by 42%.

The Corporation’s assets increased by 13% to US$2.6 billion, compared to US$2.3 billion in 2005, while total shareholders equity rose to US$897 million at the end of 2006,compared to US$848 million in 2005, a 6% increase.

Dividend Payable

In accordance with the Corporation’s Statutes, 10% of the net profit has been transferred to the LegalReserve. The Board of Directors has authorized the distribution of US$ 20 million as cash dividends tothe shareholders for the year 2006, and the transfer of the remaining profits to the company’s general reserve.

Direct Equity Investments

In symbolizing APICORP’s objectives which are based on providing support and assistance to thepetroleum and petrochemical industries in the Arab world, APICORP at the end of 2006, held directequity investments in 14 Arab joint venture projects, situated in 7 Arab countries. The operationsof these companies cover a wide spectrum of activities such as drilling and related services,extraction of LPG, production of poly ethylene, ethylene glycol, polypropylene to name a few.The total value of APICORP’s direct equity investments portfolio at 31 December 2006 wasUS$256.7 million, compared to US$234 million in 2005, or a 9.4% increase.

It is worth mentioning that APICORP’s direct investments portfolio achieved significant profits in 2006,amounted to US$30.1 million, an 85% increase over the US$16.3 million as dividends received in 2005.This significant increase in income from the company’s investments portfolio was a result of theunprecedented profit achieved by the Saudi European Petrochemical Company (Ibn Zahr) in whichAPICORP owns 10% of its share capital.

In connection with the new equity investments, APICORP, together with Danagaz Company ofBahrain and the Egyptian Gas Company (EGAS), established the Egyptian Bahraini Gas Derivatives


StatementChairman’s

Company, with a US$23 million in capital (of which APICORP owns 20%). Based in Egypt, this new company aims towards the extraction of propane and butane from associated gas. In addition, APCORP also took a 7% equity share in the US$430 million capital of the Egyptian Methanex Methanol Company (Emethanex).

The project aims to establish a complex in Damietta city for the production of methanol for export, with a production capacity of 3,600 tons/day. Other participants in theproject beside APICORP are the Egyptian Petrochemicals Holding Company (ECHEM), the Canadian Methanex Corporation (Methanex), the Egyptian Gas Holding Company(EGAS) and the Egyptian Natural Gas Company (GASCO).

Project and Trade Finance

2006 was another good year for the project and trade finance activity in terms of volume of activity and the financing mandates received, in addition to APICORP’s growing interest in Islamic financing.

Throughout 2006 APICORP concluded more than 20 project and trade finance transactions, valued at US$13 billion, with APICORP’s underwriting and commitment totallingaround US$1.4 billion and US$970 million respectively, compared to 19 transactions in 2005, with a total value of around US$10 billion and an APICORP final take of aroundUS$800 million. The total net income from project and trade activity by year-end 2006 was US$18.8 million, compared to US$17.2 million in 2005.

In project finance, APICORP was selected as the role bank in 9 landmark project financing transactions mainly in the downstream segment of the energy industry, with totalvalue of US$10.5 billion.

In trade finance, APICORP continued its support of the Arab oil exports during 2006 through the participation in trade finance transactions totalling US$1.1. billion and afinal take of US$175 million.

Looking forward, during 2007, APICORP will continue to play a leading and effective role in arranging project and trade finance loans for the oil and gas industry in the Arabregion. In addition to providing financial advisory services, particularly within the Kingdom of Saudi Arabia, being the largest market for project financing in the region. It is expected that the APICORP loan portfolio in 2007 will rise to US$1.6 billion.

The Strategy Committee

In accordance with Board of Director’s Resolution issued on its 1st July 2006 meeting, the company appointed an in-house committee to undertake a review of theAPICORP’s strategy over the medium term. The committee’s initial task was the evaluation and selection of the consultants who would be involved in the structure and adetailed study of the company’s strategy for the next five years. In September Bain & Company was chosen by the committee to prepare the strategy study within anapproved time frame for presentation to the Board of Directors at their first meeting in 2007.

The Banking Unit in the Kingdom of Bahrain

APICORP Bahrain, on completion of the design and installation of its new offices located on the 26th floor of the Al-Moayyed Tower, commenced operations during the lastquarter of 2006.

On behalf of the Board of Directors, I would like to record my thanks and gratitude to the management and staff of APICORP for their efforts and dedication, which directlyimpacted the good results achieved by the Corporation; and I would be more happy to register with pride our sincere thanks to the governments of the member states, fortheir continued and fruitful cooperation as well as their everlasting support to APICORP.

I am also honoured to convey our utmost thanks and appreciations to the government of the Custodian of the Two Holy Mosques, Kingdom of Saudi Arabia, for the special care it engulfs the Corporation with.

Abdullah A. Al-ZaidChairman of the Board of Directors

Global Context, Regional Economic and Energy Investment Outlook for the Arab World


Global and regional economic trends

Much of the focus in the first half of 2006 was on the oil producers’ high net savings and their potential destination for both public and private investments. However, the

fall of oil prices from their July 2006 peak, the continuation of the depreciation of the US dollar and the relentless inflation in the cost of energy project portfolios have

shifted attention to the ability of the oil and gas producers to augment capacity in order to bring additional supply to the market. Moreover, broader issues of concern

include the extent to which the global and regional economic trends will continue to provide a supportive environment for the region’s energy investment.

Following the strong performance of 5.3% in 2004, the highest in recent memory, global economic growth slowed to 4.9% in 2005 before peaking again at 5.2% in 2006.

Looking forward, despite substantial uncertainty the prospect is for a more sustainable global growth path than originally anticipated. On the one hand, the US economy,

which showed exceptional resilience in recent years, may moderately improve. On the other hand, the strong growth momentum in China and India is expected to continue

into 2007. As a result, global growth is projected at 4.7%.

This relatively favorable external environment and the prudent macro-economic policies pursued by governments in the Arab world have laid the foundation for a

strong macroeconomic performance. The region as a whole has recorded an average growth of 6.7% over the last three years. Although slightly moderating, this trend is

expected to continue, as growth should average 6.1% in 2007.

Sustained world economic expansion, which has increased demand for oil and gas in recent years, has helped boost prices, which greatly benefited the net oil and gas

exporting countries. In particular, APICORP’s shareholding-countries, whose economic growth is still largely founded on hydrocarbon revenues, have until 2006 slightly

outperformed the rest of the region. Due, however, to the current relatively lower oil price environment, they are expected to lose their regional growth advantage in 2006.

1 Ten shareholding countries minus Iraq, due to this country's exceptional circumstances.

1



Benefiting from strong increases in oil export volumes and prices, most countries in the region have strengthened their fiscal positions. This encouraged partial retirement

of long-term debt, which led to a significant reduction of public debt as a percentage of GDP from 62% in 2002 to 35% in 2006. In contrast, however, aggregate foreign

exchange reserves, which reached a peak of 22 months of imports in 2005, have since dwindled to 12 months as a result of a sharp increase in both the volume and cost of

imports of goods and services in the shareholding countries.

The net savings accumulated during the long upward oil cycle of 1999-2006, which correspond to the excess of private saving over investment and taxes over government

spending, reached the record level of US$695 billion in the shareholding countries at the end of 2006. Contrary to the “petrodollar surpluses” of the 1970s, which were

“recycled” through foreign commercial banks and the IMF, investment of these savings have been diversified across a broad spectrum of foreign assets.

Ten shareholding countries minus Iraq, due to this country’s exceptional circumstances.

As a consequence of a continuing weakening of the US dollar since 2003, inflation in the region has increased consistently to 8.1% in 2005 and 7.1% in 2006 to reflect higher

import prices from non-US dollar areas. Inflation in the shareholding countries, which was negligible until 2003 moved upward in parallel. Despite the waning of the dollar

exchange effect, inflation in the region is expected to be higher in 2007, nearly double that of the anticipated world’s average of 3.6%.

Record liquidity excess, which is largely the result of higher export revenues and substantial repatriation of funds held abroad, has contributed to the surge in domestic

asset prices witnessed until early 2006. Regrettably, some of these markets had been pushing up share prices valuation well in excess of their underlying fundamentals as

evidenced by an overall forward-looking price-earning ratio well above 40. Not unexpectedly, therefore, most of the stocks have witnessed sharp corrections and a

relentless decline throughout 2006. Although currently stabilizing, the extent of their recovery is likely to be determined by developments in the world oil and currency

markets.

Oil and currency markets developments

Recent trends in oil and currency markets have raised serious concerns within the oil-producing community, of which APICORP’s shareholding countries. The value of the

OPEC reference basket (ORB), which reached an all time high of US$72/bl during the first week of August 2006, fell to US$48/bl during the third week of January 2007.

It would have declined further if not for the combination of OPEC’s output cuts and revised higher world oil demand. However, although the ORB moved up strongly as a

result, the continuing depreciation of the US dollar (the currency for pricing, invoicing and settlement of oil trades) has persistently weakened the producers’ purchasing

power. Oil prices expressed in Euro for instance have settled 21% lower.

10 Arab Petroleum Investments Corporation 2 The ORP price differential relative to light sweet crude benchmarks such as WTI has been minus US$3.75/bl on average in recent months.

2


Energy capital investment requirements


Outlook for the Arab energy investments

With a share of 56% of the world’s proven oil reserves and 30% of proven natural gas reserves, the Arab world is well endowed to bridge the widening gap between rising

global energy demand and largely stagnant or even declining supplies from other areas. The region, which in 2006 contributed 33% of the world’s production of crude oil

and condensate and 13% of that of natural gas, has pursued ambitious plans to fully develop its potential on the assumption that the call on the region’s hydrocarbon

products will continue to grow.

This requires huge investments whose funding weighs heavily in the overall capital demand and supply of the region.

APICORP’s estimates that in 2006 the region invested some US$57 billion in new energy projects, 82% of which in the hydrocarbon chain including petrochemicals and

fertilizers and 18% in the power and combined power-water sector. This level of investment is equivalent to 5% of Arab GDP and 19% of Arab gross accumulation of fixed

capital for 2006. Looking forward, these investment figures are set to increase larger and faster.

Indeed, APICORP’s review of energy investments in the Arab world for the period 2007-2011 has underscored much higher levels of capital requirements of some US$345

billion. As detailed below, this represents a 57% increase over the last annual survey of US$220 billion for the period 2006-2010. Past surveys have shown that rising capital

investment was mostly matched with an increase in the number of projects. This time, however, the number of projects has leveled off. The factors most responsible for the

current upsurge are notable changes in scope and/or scale of key projects and soaring project costs across the board.

APICORP Reasearch

MENA

Reviews

2004-08

2005-09

2006-10

2007-11

US $ bn

180

210

260

395

US $ bn

150

175

220

345

Increase %

-

17

24

52

Increase %

-

17

26

57

Arab world



Reflecting the distribution of hydrocarbon resources, nearly half the energy investments are concentrated in three countries namely Saudi Arabia, Qatar and Algeria.

However, the countries most responsible for the current upsurge are Kuwait, Egypt, Qatar and Libya, as their combined capital investment requirements have risen by more

than 80%. Qatar, which has shown a stronger momentum, has moved from third to second place in the country ranking.



Of the expected US$345 billion total energy capital investment in the Arab world, the oil supply chain accounts for 41%, the gas chain for 45% and the oil-or-gas-fuelled

power generation sector for the remaining 14%. The Figure below shows the extent to which the investment outlook in each link of the supply chain has evolved. It reveals

a much higher increase in the downstream sector, most dramatically in the oil-based refining/petrochemical and the natural gas-based petrochemical and fertilizer sectors.

The capital structure of these investments (characterized through a single debt-equity ratio) is likely to be 53% debt and 47% equity for the period 2007-2011. This structure,

which is underpinned by a more highly leveraged downstream industry, highlights new challenges for securing the appropriate amount and mix of debt financing.

APICORP has established that to successfully attract the needed capital, further improvement of the energy investment climate, particularly in the non-GCC area, should

remain a key focus of policy.

Conclusions

Notwithstanding a moderate growth outlook for the global economy, the strong regional economic trend across the Arab world is likely to continue providing a supportive

environment for the region’s energy investment. However, with a persistent weakening of the oil producers’ purchasing power and the sharp increase in energy project

costs, which is the factor most responsible for the continuing upsurge in capital investment requirements, the region’s energy investment outlook and policy are likely to

become more challenging and demanding than ever before.


AnnualReport2006

APICORP’s


APICORP continued to play an instrumentalrole in the financing of most of the oil, gasand petrochemical projects launched in theArab region in 2006

Board of Directors’


APICORP ACTIVITIES IN 2006

Project and Trade Finance

2006 has set up another historical record for the project and trade financing activities at APICORP in terms of business volume as well as arranging mandates and bank roles

awarded to APICORP. In addition, we have increased our involvement in financings based on Islamic principles in Project Finance as well as in Trade Finance transactions.

We have had an exceptional year in terms of transactions progressed, allowing us to keep a steady asset growth, from US$ 1.1 billion at the end of 2005 to US$ 1.3 billion

by year end 2006, despite substantial prepayments.

Indeed, investments in the energy sector have been massively supported by high oil prices and steady foreign demand for hydrocarbon products. In such a dynamic but

also highly competitive environment, the Corporation has continued to play an instrumental role in the financing of most of the oil, gas and petrochemical projects

launched in the Arab World, focusing on projects that are entrepreneurial and viable.

As a result, the Corporation has closed in 2006 more than 20 transactions totaling US$ 13 billion, with underwriting and final take commitments amounting in aggregate

to US$ 1.4 billion and US$ 970 million respectively. This compares to the 19 transactions closed in 2005, totaling around US$ 10 billion, with final take commitments amounting

in aggregate to US$ 800 million.

Our net income for 2006 has reached US$18.8 million, slightly above the 2005 net income (US$ 17.2 million).

Project Finance

Project Finance has remained the most active and profitable segment of the Corporation’s lending activities in 2006. The number of mandates awarded to APICORP for

Project Finance transactions has reached this year the number of 8 arranging mandates, including in particular 2 bookrunner roles, 1 technical bank role and 1 agency role

in some landmarks transactions.

As further evidenced in the following table, which provides a sample of the deals concluded during the year, the Corporation continued in 2006 to play a leading role in

the arrangement of most of these financings.

Board of Directors’ Report

Saudi Malaysia Water& Electric Co. Ltd.PIFSECACWA Power

Saudi AramcoSumitomo ChemicalCo. Ltd.

Qatar PetroleumQatar NavigationCompanyQatar ShippingCompany

OAPEC

Union CarbideCorporationPetrochemicalIndustries Company(PIC)

SABICSPDC

SABICSaudi PrivateInvestorsPublic Shareholders

Oman Oil Company(OOC)Oman RefineryCompany (ORC)LG InternationalCorporation (LGI)

General NationalMaritime TransportCompany (GNMTC)

SABIC

US$ 947 millionJanuary 2006

US$ 2.34 billion March 2006

US$ 500 millionMarch 2006

US$ 326 millionMarch 2006

US$2.5 billionMay 2006

US$780 millionMay 2006

US$1,197 millionJune 2006

US$ 625 millionAugust 2006

US$ 172 millionAugust 2006

Euro1,250 millionNovember 2006

Power Generation

Integrated Refinery

Shipping

Shipping

Expansion of petrochemical facilities

Expansion of petrochemical facilities

Petrochemical facilities

Petrochemical facilities

Shipping

Expansion of petrochemical

Senior Arranger

Mandated LeadArranger,Underwriter,Bookrunner

Mandated LeadArranger

Mandated LeadArranger, UnderwriterBookrunner

Mandated LeadArranger, Underwriter

Mandated LeadArranger, Underwriter

Mandated LeadArranger, OnshoreSecurity Agent

Mandated LeadArranger, Underwriter,Technical Bank

Co-Arranger

Lead Arranger


Client Main SponsorsAmount, Date ofSigning & Type

Purpose APICORP Role

ReportBoard of Directors’

SHUAIBAH

RABIGH

NAKILAT

AMPTC

EQUATE

SHARQ

YANSAB

AOL

GNMTC

SABIC EURO

Trade Finance

In 2006, very good progress of the plan launched the previous year to revitalize and expand the Trade Finance activity of the Corporation has been made and has

translated into a further increase of the volume of business and some senior roles in that field, as shown in the following table, which provides a sample of the deals

concluded during the year.

Advisory

The Corporation has remained committed to provide specialized advisory services in the field of structured finance for the hydrocarbon industry within the region.

However, due to the high level of activity on the lending side, the Corporation has had to adopt a highly selective approach in order to preserve the quality of its services.

The two advisory mandates won in 2005 for NAMA as well as for Ibn Zahr were still in progress at the end of 2006.

Research

Research Unit has continued to make significant progress in improving the frameworks and methodologies for scanning the Corporation environment, framing its

business strategy and assessing industry and country risks. In addition to their in-house applications, the research findings have provided original materials for

presentations to regional and international conferences and workshops, which greatly enhanced the Corporation’s profile. Furthermore, the unit has continued

preparing and dispatching externally its monthly Economic Commentary, which is becoming the Corporation’s brand in the field.

Board of Directors’


Report

EGPC / IDB

Vitol Holding B.V.

Trafigura

Corral PetroleumHolding

US$ 50 millionApril 2006

US$ 300 millionMay 2006

US$ 300 millionNovember 2006

US$ 100 millionApril 2006

Oil trading

General corporatepurposes

General Corporatepurposes

Oil purchases.

Co-Arranger with IDB

Mandated LeadArranger, Underwriter,Documentation Bank,Bookrunner

Lead Arranger

Participant

Client Main SponsorsAmount, Date ofSigning & Type

Purpose APICORP Role

EGPC

VITOL

TRAFIGURA

SAMIR


APICORP’s mission is to contribute to thedevelopment and the transformation of theArab hydrocarbon and energy industriesthrough equity and debt financing, advisory and research.


APICORP ACTIVITIES IN 2006 Direct Equity Investments

As at end-2006, APICORP has equity investments in 14 companies situated in seven Arab countries. That portfolio of investments was

valued at US$ 256.7 million, based on the net asset values at the end of 2006. The operations of these companies cover a wide array

of activities: drilling and related services, seismic services, extraction of LPG, production of methanol, polyethylene, ethylene glycol,

polypropylene, methyl tertiary butyl ether, aromatics, purified terephathalic acid, polyester fibres, linear alkyl benzene, carbon black,

urea, NPK fertilizer, storage of petroleum products, and production acrylic fiber.

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

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

BANAGAS was established in 1978 to extract and market LPG and light naphtha from associated gas. Total production in 2006 was

81,650 tons of propane, 89,374 tons of Butane and 186,192 tons of light naphtha. At year-end 2006, BANAGAS reported net income of

BD 12 million (versus BD 11.4 million in 2005).

(2) - Arab Drilling & Workover Company (ADWOC)APICORP share: 20%

ADWOC was established in 1978 to provide drilling and related operation services in Libya and nearby Arab markets. In 2006, ADWOC

has achieved an average utilization rate of 97% for its 15 rigs, an increase of 4% over 2005. In 2006, ADWOC posted net income of LD

16.8 million (versus LD 7.2 million in 2005).

(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). The LAB complex at Baiji, in operation since

1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene and Toluene. In 2006, the Company produced

approximately 18,000 tons of LAB, all of which was sold on the regional markets. At end 2006, ARADET generated net loss of US $ 5

million (versus a net loss of US $ 2.6 million in 2005).

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

TANKMED was established in 1984 to provide storage services for petroleum products at La Skhira terminal in Tunisia. TANKMED’s total

storage capacity stands at 300,000 cubic meters.

As at the end of 2006, TANKMED maintained a capacity utilization rate of 99%, compared with a utilization rate of 95% for year 2005

achieving an income of TD 9.2 million and a net profit of TD 3.6 million versus a net profit of TD 2.5 million for year of 2005.



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

AGESCO was established in 1985 to provide advanced seismic services in Libya and the Arab world. The company maintains three

seismic crews and was able to achieve operation rate of 92% in 2006. AGESCO recorded an unpredicted net profit of LD 11.2 million at

the end of 2006 (versus LD 0.45 million in 2005).

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

Ibn Zahr, established in 1985 in Jubail, can produce 1.3 million tons/yr of methyl tertiary butyl ether (MTBE), a gasoline octane booster and

640,000 tons/yr polypropylene. In 2006, MTBE production was about 1.67 million tons and polypropylene output totaled about

561,000 tons. At end 2006, Ibn Zahr reported a net income of SR 1,785 million versus a net income of SR 2,156 million in 2005.

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

ACBC was established in 1993 to produce and market carbon black, an oil based material. ACBC currently has a design capacity of

about 150,000 tons/yr. The company, at the end of 2006, produced over 190 thousand tons of Carbon Black and posted a net income

of about LE 206.5 million versus LE 171 million in 2005.

(8) - The Arabian Industrial Fibres Company (Ibn Rushd)APICORP share: 8.26%

Ibn Rushd was established in 1993 in Yanbu on the west of Saudi Arabia. Ibn Rushd is an integrated petrochemical complex

composed of three plants for the production of aromatics (730,000 tons/yr), purified terephthalic acid (PTA, 350,000 tons/yr) and

polyester (146,000 tons/yr). In 2006, Ibn Rushd produced a total of 921,000 tons of products; 140.000 tons polyester; 482.000 tons

aromatics; and 300.000 tons of PTA. Ibn Rushd recorded a net loss of SR 522 million in 2006 versus a net loss of SR 384 million in 2005.

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

OPC was established in 1996 with an initial capacity of 120,000 tons/yr polypropylene that later can be expanded to 162,000 tons/yr.

The company announced the successful commissioning of its plant at the beginning of 2002, and since then it has become the main

producer and supplier of polypropylene in the local market. During 2006, OPC produced over 142,000 tons and marketed 143,000 tons

of polypropylene, and was able to generate a net profit of LE 24.7 million (versus 31.7 million in 2005).




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

AFCO was established late 2003 in Egypt, and its plant with a nameplate capacity of 18,000 t/yr was completed in September 2005. The

plant was commissioned in December 2005, to produce poly acrylic fibers, which is used mainly in manufacturing carpets and blankets.

In October 2006, production capacity reached 104% and it is forecasted to achieve a net operating income of LE 2.5 million and LE 17.8

million in 2006 and 2007 respectively. The issued capital in cash was increased with an amount of LE 136.55 million to become

LE 286.55 million in 2006, with a main purpose to double plant capacity to 36,000 t/yr.

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

Yansab was established in early 2005 by SABIC with a paid up capital of SR 5,625 million (US$ 1.5 billion), of which SABIC owns 55%,

SABIC partners in Ibn Rushd and Taif own 10%, and the remainder percentage was offered to the Saudi public. Currently, the

company has become listed on the Saudi Stock Market (Tadawul).

Yansab petrochemical complex, which costs US $ 5.6 billion, is being built in Yanbu Industrial area and expected to be completed in

late 2008. The complex will produce 900,000 tons per year of polyethylenes 700,000 tons per year of ethylene glycols, 400,000 tons per

year of poly propylene, in addition to some other by products.

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

Metanex Corporation, Egyptian Petrochemicals Holding Company (ECHEM), Egyptian Natural Gas Holding Company (EGAS), Egyptian

Natural Gas Company (GASCO) and APICORP established EMethanex in 2005 with an initial paid up capital of US $ 30 million to build a

US $ 950 million cost methanol production facility in Damietta, Egypt with a nameplate capacity of 3,600 ton per day.

The start of commercial operation is planned in April 2010 and the target markets are Europe, and Asia.

13) The Egyptian Bahraini Gas Derivative Company (EBGDCO)APICORP share: 20%

The Egyptian Natural Gas Company, Danagaz of Bahrain and APICORP established EBGDCO in 2005 in Egypt with a share capital of US

$ 23 million. The objective of the company will be to construct a US $ 75 million facility for propane and butane recovery from

associated natural gas. The plant will be located at Ras Shakair on the Suez Gulf.

EBGDCO


BD 8 million

LD 12 million

ID 36 million

TD 12 million

LD 4 million

SR 1,025 million

JD 75 million

12.5%

20%

32%

20%

10%

10%

0.76%

Bahrain National Oil Co. (BANOCO),BahrainCaltex Trading & Transport Co., Bahrain

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

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

I’Entreprise Tunisienne d’ActivitiesPetrolieres (ETAP), TunisiaSociete Tuniso Seoudienned’Investissement et de Developpement(STUSID)Banque Tunisio-Koweitienne deDeveloppement (BTKD)

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

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

Government of the Kingdom of JordanGovernment of the State of KuwaitInvestment Agency - BruneiIslamic Development Bank, SaudiArabiaOthers

Extraction and marketing of LPG and condensates fromassociated gas.

Drilling and related operationsin the Arab world.

Production and marketing of linear alkyl benzene and sodium tripolyphosphate(STPP). STPP project is beingimplemented.

Storing, trans-shipping andhandling petroleum andpetrochemical products at LaSkhirra terminal.

Providing advanced seismicservices in the Arab world.

Production of gasoline octanebooster MTBE, andPolypropylene (PP).

Mining phosphate rock, production and marketing of chemical fertilizer compounds.

Company Name Paid-up Capital Participation Other Major Shareholders Activities


Bahrain National GasCompany (BANAGAS)Bahrain

Arab Drilling andWorkover Company(ADWOC)Libyan Arab Jamahiriya

Arab Company forDetergent Chemicals(ARADET)Iraq

Tankage Mediterranee(TANKMED)Tunisia

Arab GeophysicalExploration ServicesCompany (AGESCO)Libyan Arab Jamahiriya

Saudi EuropeanPetrochemical Company(IBN ZAHR) Saudi Arabia

Jordan PhosphateMining Company (JPMC)Jordan

APICORP ACTIVITIES IN 2006 APICORP EQUITY PARTICIPATIONS AS AT 31 DECEMBER 2006



LE 150 million

SR 3,550 million

LE 120 million

LE 286.5 million

SR 5,625 million

US $ 30 million

US $ 23 million

12%

8.3%

14%

10%

1.57%

7%

20%

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

Saudi Basic Industries Corp. (SABIC), Saudi ArabiaGulf Investment Corporation, GIC, KuwaitSaudi Pharmaceuticals Co., Saudi ArabiaSAFCO, Saudi Arabia, Others

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

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

SABIC SABIC Partners in Ibn Rushd and Taif Saudi Public

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

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

Production and marketing of carbon black.

Production of Aromatics, PTAand Polyester Fibers.

Production and marketing of Polypropylene.

Production and marketing of Acrylic Fibers

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

Production of and Marketingof Methanol

Fractionation of natural gasliquids (NGL) to recoverpropane and butane.

Company Name Paid-up Capital Participation Other Major Shareholders Activities

Alexandria Carbon BlackCompany (ACBC)Egypt

The Arabian IndustrialFibers Company (IBN RUSHD)Saudi Arabia

Oriental PetrochemicalCompany (OPC)Egypt

Alexandria Acrylic FibersCompany (AFCO)Egypt

Yanbu NationalPetrochemical Company(Yansab)*Saudi Arabia

Egyptian MethanolCompany (EMethanex)*Egypt

The Egyptian BahrainiGas Derivative Company(EBGDCO)**Bahrain

APICORP ACTIVITIES IN 2006 APICORP EQUITY PARTICIPATIONS AS AT 31 DECEMBER 2006

* Under construction. ** Under formation


AnnualReport2006

APICORP’s

Treasury & Capital Markets activities in 2006

The conservative strategies adopted by the management towards the Treasury & Capital Markets investment and funding operations has had a positive impact on overall

performance of the corporation. Treasury & Capital Markets has maintained its focus on high quality investments to ensure high liquidity and stable returns.

In 2006, Treasury & Capital Markets operations achieved a net income of US$ 19.8 million, compared to US $ 20.7 million for the year 2005. Treasury & Capital Markets assets

grew from US$ 910 million as at 31st December 2005 to US$ 1001 million as at 31st December 2006. Fixed Income securities portfolio has maintained a high standard of

credit profile and had an average of AA Rating as at 31st December 2006.

During last quarter of 2006, the foreign branch of APICORP started operations as an Investment Bank in Bahrain. The Bahrain branch now complements all the Treasury &

Capital Markets activities of APICORP’s head office.

The strong global growth coupled with increased earnings of corporate and financial sectors positively impacted the investments in managed funds and bonds during

2006.

Disclosure of the Activities of the Strategy Review Committee According to Section 5 of its statutes (Reporting and Disclosure), the Strategy Review Committee’s activities during any one calendar year should be disclosed, as appropriate,

in the Corporation’s Annual Report. The following is a proposed draft for 2006.

DRAFT 1

Pursuant to the deliberations of the Board of Directors dated 1st July 2006 on the formulation of a new corporate strategy, the Chief Executive and General Manager

resolved to establish a Strategy Review Committee. The Committee’s main functions and responsibilities include :

• Providing oversight and guidance to the formulation and implementation of the corporate business strategy with the aim

of achieving profitable growth and delivering acceptable shareholder returns in line with the Corporation’s policy guidelines.

• Ensuring proper resource allocation and/or re-allocation in support of the business strategy.

• Monitoring the timely implementation of the strategy as approved by the Board of Directors and translated into action plans.

Since its establishment in September 2006, the Committee, met twice during the year 2006. First to review the terms of reference for the formulation of a corporate

business strategy for the 5-year period 2007-2011. Then to deliberate on the preliminary content and articulation of the strategy to be presented to the Board of Directors

during their first meeting of 2007.


Conferences and Seminars:

During the course of the year, APICORP participated in a number of conferences and seminars in relation to financing of the energy industry and it presented

research and study papers in most of these conferences:

- The 8th Arab Energy Forum, held in Aman, Jordan during the period between 14-17 May 2006.

- Paris International Oil Summit (as a special guest) (Paris, 7 April 2006).

- Fleming Gulf 2nd Project Finance Forum (Dubai, 29-30 May 2006).

- CERA Annual Energy Executive Conference (Istanbul, 20-22 June 2006).

- Asia/China Petrochemicals & Refining Summit (6 December 2006).

- The Sudan Development Programme (11 – 15 February 2006) Dubai, UAE.

- Meed Conference: (28 February – 1 March 2006) Doha, Qatar.

- MEED Conference, November 29, 2006, Dubai, UAE.

- A delegation from APICORP visited Kuwait on 30-31 May 2006 to attend the

annual meeting of Board of Trustees of the Islamic Development Bank.


FINANCIAL STATEMENTSfor the year ended 31 December 2006

IntroductionThe formation, status and activities of APICORP

Significant Accounting policies applied in the 2006 financial statementsA GeneralB Financial assetsC Cash and cash equivalentsD Repurchase and resale agreementsE Property and equipmentF Investment propertyG Income recognitionH Employees’ end of service benefits

Significant accounting judgements and estimates I JudgementsJ Estimation UncertaintyK New international financial reporting standards and interpretations not yet adopted

Primary financial statements for the year ended 31 December 2005Income statementBalance sheetStatement of changes in equityStatement of cash flows

Notes to the 2006 financial statements1 Net interest and similar income2 Net fee income3 Dividend income4 Gains on trading securities5 Realised gains on available-for-sale securities6 Realised gains on Available-for-sale direct equity investments7 Other operating income8 General administrative expenses9 Impairment losses10 Other operating expenses11 Trading securities12 Available-for-sale securities13 Deposits with banks14 Syndicated and direct loans15 Available-for-sale direct equity investments16 Property and equipment17 Other assets18 Due to banks19 Term financing20 Other liabilities21 Employee retirement benefits22 Off-balance sheet exposures23 Related party transactions24 Cash flows from operating activities25 Capital adequacy26 Financial instruments and risk management27 Effective interest rates28 Fair value information29 Maturity profile of assets and liabilities30 Repricing profile of financial assets and liabilities31 Currency exposures32 Industry distribution of assets and liabilities33 Geographical distribution of risk

Report of the auditors to the shareholders

Contents

28

2929-30

3131

31-32323233

3333-34

34

3536

37-3839

40404141414141424243434343

44-4546-47

474848

48-494949505051

51-5252-53

54545556

57-5859-6060-61

62

The financial statements consist of pages 26 to 61

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 28 to 61. Similarly, the significant accounting policies as explained in pages 29 to 34 are intended to acquaint the reader with theInternational Financial Reporting Standards (IFRS) and the methodology followed by the Corporation in the presentation of its financial statements, and the classificationand 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 aninternational agreement signed and ratified by the ten member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC). The agreement defines theobjectives 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:

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. During2005 corporation was granted an investment-banking licence by the Central Bank of Bahrain (CBB). The operations of the Bahrain Banking unit will start from early 2007,currently the Corporation has no subsidiaries, branches or divisions, and operates only from its head office in the Kingdom of Saudi Arabia, hence no business or geographical segmental information is reported in the current 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.

Percentage

17%3%5%

17%3%

10%10%17%15%

3%

100%

28 The financial statements consist of pages 26 to 61

INTRODUCTION

Issued andfully paid

93,500 16,500 27,500 93,500 16,500 55,000 55,000 93,500 82,500 16,500

550,000

Authorisedcapital

204,000 36,000 60,000

204,000 36,000

120,000 120,000 204,000 180,000

36,000

1,200,000

US$ 000

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

A- GENERAL

A-1 Compliance with International Financial Reporting StandardsThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS)

A-2 Basis of preparationAPICORP presents its financial statements in United States dollars (rounded to the nearest thousand) because it is a supranational organisation with its capital and themajority of its transactions and assets denominated in that currency.

The financial statements have been prepared on the historical cost convention except for the measurement at fair value of trading securities, certain available-for-saleinvestments and investment property.

The preparation of financial statements in conformity with the IFRS, that requires the use of certain critical accounting estimates. It also requires management to exerciseits judgement in the process of applying the Corporation’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in notes I and J.

The accounting policies have been consistently applied by the Corporation and 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 ratesare recognised in the income statement.

Available-for-sale direct equity investments (non-monetary assets) denominated in foreign currencies, that are stated at fair value, are translated to US dollars at prevailingexchange rates. Differences arising from changes in rates are included in the fair value reserve in equity. Capital expenditure on property and equipment is stated at thehistorical 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 ASSETS

B-1 ClassificationTrading securities are those that the Corporation purchased principally for the purpose of gains over the short-term. These consist of managed funds and equity securities.

Loans arise when the Corporation provides money to a debtor, other than those created with the intention of gains over the short-term. Loans comprise deposits placedwith banks, and syndicated and direct loans.

Available-for-sale investments are non-derivative financial assets that are not classified as held for trading or loans provided by the Corporation. Available-for-sale investments include certain debt securities, managed funds and direct equity investments.

APICORP has available-for-sale direct equity investments in the quoted and unquoted ordinary share capital of companies established for specific start-up projects in thepetroleum and petrochemical industries, mostly in partnership with governments or quasi-governmental entities. The Corporation is represented on the boards of most ofthe investee companies.

The three companies in which the Corporation holds 20% or more of the equity are not treated as associates under IAS 28 - Investments in Associates because APICORP'sphilosophy is that it should act in a fiduciary and advisory capacity and not exercise significant influence 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 dispose of its holdings in order to recycle the funds tonew projects. Accordingly, these investments are classified as available-for-sale assets, and are recorded initially at cost, including transaction costs.

29The financial statements consist of pages 26 to 61

SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2006

B-2 RecognitionAvailable-for-sale and held for trading financial assets are recognised on a settlement date basis.

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

B-3 MeasurementFinancial assets are measured initially at fair value plus transaction costs. In case of financial assets held for trading transaction costs are recognised in the income statement. Subsequent to initial recognition, all trading and available-for-sale investments are measured at fair value.

Loans are carried at amotised cost using the effective interest method, less allowances for impairment, if any. The unamortised portion of deferred participation and commitment fees received is deducted from the carrying cost of the loans.

B-4 AmortisationWhere financial assets, mainly bonds, have been purchased at a premium or a discount, the premiums and discounts are amortised through the income statement over theperiod from the date of purchase to the date of maturity.

B-5 Fair value measurement principlesThe fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market priceis not available, the fair value of the instrument is estimated using discounted cash flow techniques, or other methods, as appropriate .Financial assets for which there is noquoted market price or other appropriate methods from which to derive reliable fair values, are stated at cost less impairment allowances, if any.

B-6 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 a fair value reserve in 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 securities are recognised in the income statement.

B-7 DerecognitionA financial asset is derecognised when the Corporation loses control over the contractual rights attached to that asset. This occurs when the rights are realised, expire orare surrendered. A financial liability is derecognised when it is extinguished.

Available-for-sale and trading financial assets are derecognised on a settlement date basis.

Loans are derecognised on the date on which they are repaid.

B-8 ImpairmentFinancial assets are reviewed at each balance sheet date to determine whether there is objective evidence of impairment. If any 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 instruments remeasuredto fair value is calculated as the present value of the related expected future cash flows discounted at the current market rate of interest for such an instrument.

Where a financial asset remeasured to fair value directly through equity is impaired, and a write-down was previously recognised directly 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 also recognised in the income statement. Similarly the increase in the fair value of financial asset, previously been recognised in equity is reversed to the extent, it is impaired.

SIGNIFICANT ACCOUNTING POLICIES APPLIED IN THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 DECEMBER 2006



Allowances for Loans 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.

- Loans not found to be individually impaired are grouped on similar credit characteristics, each group is collectively evaluated for impairment and collective impairment allowance is calculated.

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 receiving specific approval to do so from the Board of Directors.

If in a subsequent period the amount of an impairment loss decreases, and the decrease is due to a change in estimates, or can be linked objectively to an event occurringafter the write-down, the write-down is reversed through the income statement, except for available-for-sale equity investments, which is reversed through the equity.

C- CASH AND CASH EQUIVALENTS

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash balances on hand and cash in call accounts.

D- REPURCHASE AND RESALE AGREEMENTS

Assets sold with a simultaneous commitment to repurchase at a specified future date (repos) are not derecognised. Amounts received under these agreements are treated as liabilities and the difference between the sale and repurchase price treated as interest expense using the effective yield method.

Assets purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognised in the balance sheet. Amounts paid under theseagreements are treated as assets and the difference between the purchase and resale price treated as interest income using the effective yield method.

E- PROPERTY AND EQUIPMENT

E-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: the Corporation's head office building), these components are accounted for as separate items of property and equipment. No borrowing costs have been capitalised.

E-2 Subsequent expenditureExpenditure incurred subsequently to replace a major component of an item of property and equipment that is accounted for separately is capitalised. Other subsequentexpenditure is capitalised only when it increases the future economic benefits expected 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.


E-3 DepreciationDepreciation is charged to the income statement on a straight-line basis over the estimated useful lives of the items of property 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

The property and equipment residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

F- INVESTMENT PROPERTY

The 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 balancesheet and is carried at fair value. Fair value is determined by an independent, professional property valuer based on open market prices. Any gain or loss arising from a related change in fair value is recognised in income.

G- INCOME RECOGNITION

G-1- Interest and similar incomeInterest income and interest expense for all interest-bearing financial instruments except those classified as held-for-trading are recognised within interest and similarincome” and interest and similar expense” in the income statement using the effective interest rate method. The effective interest rate method is a method of calculatingthe amorised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the asset or liability. The effective interest rate is the rate that exactly discounts estimated future cash flows through the expected life of the financial asset or liability or, where appropriate, a shorter period,to the net carrying amount of the financial asset or liability. The application of the effective interest rate method has the effect of recognising interest income and interestexpense evenly in proportion to the amount outstanding over the period to maturity or repayment. In calculating the effective interest rate, cash flows are estimated taking into consideration all contractual terms of the financial instrument but excluding future credit losses. Fees, including loan origination less and early redemption fees,are included in the calculation of the effective interest rate to the extent that they are considered to be an integral part of the effective interest rate.

G-2 Fee incomeFee income arises from financial services provided by the Corporation including project and structured finance transactions, for example advising on underwriting andarranging syndicated loan facilities, and is recognised when the service is provided.

Fees that are analagous to interest and are considered to be part ot the overall yield on loans, specifically participation and commitment fees, are initially deferred and thenamortised over the lives of the related loans. The amortised income is included in interest income.

G-3 Dividend incomeDividend income is recognised in the income statement from the date on which the dividend is declared.



H- EMPLOYEES' END OF SERVICE BENEFITS

The Corporation provides end of service benefits to its employees. The entitlement to these benefits is based upon the employees’ final salary and length of service subject to the completion of a minimum service period. Provision for the unfunded commitment (which is a defined benefit scheme under IAS 19) has been made by calculating the notional liability, had all the employees left at the balance sheet date.

I- JUDGEMENTS

In the process of applying the Corporation’s accounting policies, management has made the following judgements, apart from those involving estimations, which have themost significant effect in the amounts recognised in the financial statements:

I-1 Classification of investmentsManagement decides on acquisition of an investment whether it should be classified as trading, or available for sale.

I-2- Impairment of investmentsThe Corporation treats available for sale and direct equity securities as impaired when there has been a significant or prolonged decline in the fair value below its cost orwhere other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires considerable judgement. The Corporation treats“significant” generally as 50% and “prolonged” as greater than 3 years. In addition, the Corporation evaluates other factors, including normal volatility in share price forquoted equities and the future cash flows and the discount factors for unquoted equities.

J- ESTIMATION UNCERTAINTY

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:

J-1 Impairment losses on loans and advances The Corporation reviews its loans portfolio on a quarterly basis to assess whether a provision for impairment should be recorded in the income statement. In particular, considerable judgement by Corporation is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required. Suchestimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting infuture changes to such provisions.

J-2 Collective impairment provisions on loans and advances In addition to specific provisions against individually significant loans and advances, the Corporation also makes a collective impairment provision against loans andadvances which although not specifically identified as requiring a specific provision have a greater risk of default than when originally granted. This collective provision isbased on any deterioration in the internal grade of the loan, since it was granted. The amount of the provision is based on the historical loss pattern for loans within eachgrade and is adjusted to reflect current economic changes.

These internal gradings take into consideration factors such as any deterioration in country risk, industry, technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows.



J-3 Valuation of unquoted available-for-sale direct equity investmentsFair values of unquoted available-for-sale direct equity investments is normally based on one of the following:

- recent arm’s length market transactions;- current fair value of another instrument that is substantially the same; - the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics; or- other valuation models.

Available-for-sale direct equity investments for which there is no quoted market price or other appropriate methods from which to derive reliable fair values, are stated atcost less impairment allowances, if any.

K- NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

During the year the following relevant new/amended IFRS standards and interpretations have been issued, which are not yet mandatory for adoption by the Corporation:

- IFRS 7 Financial instruments: Disclosures – Effective for financial years beginning on or after 1 January 2007- IAS 1 Presentation of Financial Statements (amended) – Effective for financial years beginning on or after 1 January 2007- IFRIC 10 Interim Financial Reporting and Impairment – Effective for financial periods beginning on or after 1 November 2006

The adoption of these standards and interpretations are not expected to have a material impact on the financial statements.




INCOME STATEMENTYear ended 31 December

2004

42,925/(23,778)

19,147/

4,297/(120)

4,177/

10,697/9,026/

124/-/

5,404/

(17,327)7,968/

(364)

38,852/

2006

116,684/(87,195)

29,489/

2,318/(159)

2,159/

30,103/5,640..1,331/

-/698/

(20,326)1,914/

(30)

50,978/

Notes

1,23 1

23

2

3, 23 4567

89

10

2005

71,500/(49,484)

22,016/

2,461/(122)

2,339/

16,382/9,941/3,802/

58,755/2,119/

(16,731)(3,692)

(345)

94,586/

US$ 000

INTEREST AND SIMILAR INCOMEInterest expense and similar charges

NET INTEREST AND SIMILAR INCOME

Fee incomeFee expenseNet fee income

Dividend incomeRealised and unrealised gains on trading securitiesRealised gains on available-for-sale securitiesRealised gains on available-for-sale direct equity investmentsOther operating income

General administrative expensesImpairment reversals ( 2005 : net losses)Other operating expenses

NET INCOME FOR THE YEAR BEFORE APPROPRIATIONS

2004Actual

3,900 20,000 14,952

38,852

2006Proposed

5,100 20,000 25,878

50,978

2005Actual

9,500 40,000 45,086

94,586

Appropriations of net income:

Legal reserveDividend to shareholders (see below)Retained earnings

NET INCOME AS ABOVE

Per US$ 1,000 share information

· Earnings (based on weighted average number of shares outstanding)

· Proposed dividend (2005 and 2004: actual)

· Net asset value

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.

2004

US$ 70.64

US$ 36.36

US$ 1,353

2006

US$ 92.69

US$ 36.36

US$ 1,630

2005

US$ 171.97

US$ 72.73

US$ 1,543


BALANCE SHEET31 December 2006

2004

16,079 75,858

420,713 193,669

1,149,413 208,111

42,734 14,019

2,120,596

2006

10,264 63,698

582,087 345,000

1,304,554 256,731

38,300 34,090

2,634,724

Notes

11 12 13 14 15 16 17

18 19 20

22

2005

18,288 68,718

558,328 264,920

1,141,372 234,318

40,473 15,433

2,341,850

US$ 000

ASSETSCash and cash equivalentsTrading securitiesAvailable-for-sale securitiesDeposits with banksSyndicated and direct loansAvailable-for-sale direct equity investmentsProperty and equipmentOther assets

TOTAL ASSETS

858,674 499,098

18,408

1,376,180

1,160,668 549,045

28,496

1,738,209

982,440 498,478

12,473

1,493,391

LIABILITIESDue to banksTerm financingOther liabilities

Total liabilities

550,000 103,500

68,059 22,857

744,416

550,000 118,100 134,594

93,821

896,515

550,000 113,000

97,516 87,943

848,459

EQUITY Share capital (see page 37) Legal and general reserves (see page 37) Fair value reserve (see page 37) Retained earnings (see page 38)

Total equity

2,120,596 2,634,724 2,341,850 TOTAL LIABILITIES AND EQUITY

563,494 807,722 563,873 OFF-BALANCE SHEET EXPOSURESCommitments, guarantees and derivatives

The financial statements were approved by the Board of Directors on 6 April 2007 and were signed by:

Abdullah A. Al-Zaid Chairman

Ahmad Bin Hamad Al Nuaimi Chief Executive and General Manager


STATEMENT OF CHANGES IN EQUITYYear ended 31 December 2006

2004

550,000

84,600 3,900

88,500

15,000

103,500

2006

550,000

98,000 5,100

103,100

15,000

118,100

Notes 2005

550,000

88,500 9,500

98,000

15,000

113,000

US$ 000

SHARE CAPITAL (see page 28 and 36)Issued and paid up share capital at 31 December

LEGAL RESERVELegal reserve at the beginning of the yearAppropriation from net income (see page 35)

GENERAL RESERVEGeneral reserve

Legal and general reserves at 31 December

(4,071)(1,011)

(124)(236)

-(5,442)

53,465 20,036

---

73,501

68,059

(3,564)11,087 (1,331)

-(2)

6,190

101,080 33,993

--

(6,669)128,404

134,594

59

15151515

(5,442)5,783

(3,802)(101)

(2)(3,564)

73,501 50,060

(14,572)(7,909)

-101,080

97,516

FAIR VALUE RESERVE - available for sale investmentsSecuritiesBalance at the beginning of the year Increase in fair value (market value) in the year (2004:decrease)Gains realised on sales transferred to incomeImpairments released on realisation of losses Exchange rate movementsBalance at 31 December Direct equity investmentsBalance at the beginning of the yearIncrease in fair value in the yearGains realised on sales - Egyptian Fertilisers Company (EFC) Transfer to income statement on impairment - Arabian Industrial Fibers Co (Ibn Rushd)

Transfer of unrealised gains on impairmentsBalance at 31 December

Total fair value reserve at 31 December

STATEMENT OF CHANGES IN EQUITY (CONTINUED)Year ended 31 December 2006

2004

7,905(20,000)38,852(3,900)

22,857

744,416

2006

87,943.(40,000)50,978.(5,100)

93,821

896,515

2005

22,857 (20,000)94,586 (9,500)

87,943

848,459

US$ 000

RETAINED EARNINGSOpening retained earnings as adjusted Dividends to the shareholders for the previous year (refer page 35)Net income for the year before appropriations (refer page 35)Transfer to legal reserve (see below)

Retained earnings at 31 December

TOTAL EQUITY at 31 December (as in page 36)

Legal and general reservesUnder 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 legalreserve 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.

Retained earnings Included in retained earnings are fair value gains of US$ 57 million related to available for sale direct equity investments recognised on initial adoption of IAS 39 (revised2000) – Financial Instruments: Recognition and Measurement, on 1 January 2001.



STATEMENT OF CASH FLOWSYear ended 31 December 2006

2004

49,191 (20,733)

4,296 (119)

72 4,500 4,120

(13,646)

27,681

16,021 (380,484)386,272

13,337 (15,701)

(1,816)

45,310

2006

114,525 (75,969)

4,272 (159)

14 11,206

-(15,846)

38,043

(80,080)(745,369)611,342 (22,687)178,228 (11,650)

(32,173)

Notes

24

14 14 14

2005

76,058 (44,516)

2,461 (122)

77 16,333

-(14,388)

35,903

(71,251)(414,645)411,533

4,457 123,766

4,566

94,329

US$ 000

CASH FLOWS FROM OPERATING ACTIVITIESInterest receivedInterest paidFees receivedFees paidOther income receivedNet receipts from trading activities Interest recovery from restructured loansOperating expenses paid

Cash inflows before changes in operating assets

DECREASE (INCREASE) IN OPERATING ASSETSIncrease in deposits with banks (2004: decrease)Syndicated and direct loans drawn downLoan repayments and prepayments received - performing loansNet impairments recoveryIncrease in deposits from banks (2004: decrease) Net payments from other operating assets and liabilities (Net proceeds: 2005)

Cash outflows from operating activities (2005 and 2004 inflows)

CASH FLOWS FROM INVESTING ACTIVITIESProceeds from redemptions and sales of available-for-sale securitiesPurchases of available-for-sale securitiesDividends from available-for-sale direct equity investmentsPayments for available-for-sale direct equity investmentsProceeds from sales of available-for-sale direct equity investmentsRent receivedCapital expenditure on property and equipment paid

Cash inflows from investing activities (2005 and 2004 outflows)

CASH FLOWS FROM FINANCING ACTIVITIESTerm financing drawn downTerm financing repaidDividends paid in respect of the previous year

Cash inflows from financing activities (2005 and 2004 outflows)

TOTAL CASH OUTFLOWS IN THE YEAR (2005 AND2004 INFLOWS)

CASH AND CASH EQUIVALENTSAt the beginning of the yearTotal cash outflows in the year as above (2005 and 2004 inflows)

Cash and cash equivalents at 31 December (as on the balance sheet - see page 36)

76,192 (111,449)

10,669 (2,427)

-678

(458)

(26,795)

--

(18,000)

(18,000)

515

15,564 515

16,079

238,175 (255,544)

30,095 (2,573)

-692

(696)

10,149

50,000 -

(36,000)

14,000

(8,024)

18,288 (8,024)

10,264

1919

28,180 (167,858)

16,348 (23,645)72,732

716 (593)

(74,120)

200,000 (200,000)

(18,000)

(18,000)

2,209

16,079 2,209

18,288

The increase in interest expense in 2006 is as a consequence of the higher interest rates prevailing during current year compared to 2005 and 2004, as all of the Corporation'sinterest-bearing liabilities are either short-term fixed-rate instruments or floating-rate instruments (refer note 27 - Effective interest rates).

NOTES TO THE FINANCIAL STATEMENTSfor the year ended 31 December 2006

1- NET INTEREST AND SIMILAR INCOME2004

102102

2,661 15,136 (7,900)

122 29,521

3,405

43,149

2005

123 170

6,331 20,100 (7,494)

530 48,260

3,480

71,500

US$ 000

Interest and similar income from:Cash and cash equivalentsDeposits with banks - Islamic

- ConventionalAvailable-for-sale securities - coupon interestAvailable-for-sale securities - amortisation of purchase premiums Syndicated and direct loans - interest and similar income excluding amortisation of fees

- Islamic- Conventional

Amortisation of loan participation and commitment fees


The increase in interest income in 2006 is as a consequence of the higher interest rates prevailing during current year compared to 2005 and 2004, as most of theCorporation's interest-bearing assets are floating-rate instruments rather than fixed-rate instruments (refer note 27 - Effective interest rates). The level of interest-bearingassets has increased marginally in the three years presented.

Interest income does not include any interest accrued on non-performing securities or loans.

(9,895)(9,678)

(575)(490)

(20,638)

(3,140)

(23,778)

(38,109)(29,813)

(623)(2,014)

(70,559)

(16,636)

(87,195)

(20,290)(18,601)

(697)(1,189)

(40,777)

(8,707)

(49,484)

Interest expense and similar chargesInterest expense arises from:

Due to banksTerm financingAmortisation of term financing front-end fees and commitment feesUnpaid dividends (refer note 14)Total interest

Other charges arise from:Morabaha payable (see note 18)

19,371 29,489 22,016 Net interest and similar income

2004

2,489 1,782

26 4,297

(120)

4,177

2006

1,622 668

28 2,318

(159)

2,159

2005

1,072 1,349

40 2,461

(122)

2,339

2- NET FEE INCOMEUS$ 000

Fee incomeFee income derived from the Corporation's lending activities:

Underwriting and arranging servicesAgency, advisory and other services

Fees from securities lending activities

Fee expenseCustody fees and other charges paid to banks

Net fee income

2006

133 143

11,592 27,179 (5,372)

2,817 76,308

3,884

116,684



2004

28 10,669

10,697

2006

830,095

30,103

2005

34 16,348

16,382

3-DIVIDEND INCOMEUS$ 000

Dividend income is generated from:Trading securitiesAvailable-for-sale direct equity investments

Total dividend income

4-GAINS ON TRADING SECURITIESUS$ 000

Realised and unrealised gains on trading securities arise from:Listed equities Managed funds

Total realised and unrealised gains on trading securities

5- REALISED GAINS ON AVAILABLE-FOR-SALE SECURITIESUS$ 000

Realised gains on available-for-sale securities arise from:Fixed-rate bondsManaged fundsLosses on impaired fixed-rate bonds

Total realised gains on available-for-sale securities

6- REALISED GAINS ON AVAILABLE-FOR-SALE DIRECT EQUITY INVESTMENTSUS$ 000

Sale proceeds-Egyptian Fertilizers Company (EFC)Carrying value - net of fair value reserve

Realised gain on available-for-sale direct equity investments

7- OTHER OPERATING INCOMEUS$ 000

Rent - head office building and housing compoundExchange gainsRestructured interest of delinquent loansWrite off recovery-(SK Global)Miscellaneous income

Total other operating income

2004

1,043 7,983

9,026

2006

156 5,484

5,640

2005

643 9,298

9,941

2004

142 28

(46)

124

2006

-1,331

-

1,331

2005

-3,802

-

3,802

2004

--

-

2006

--

-

2005

72,733 (13,978)

58,755

2004

678 562

4,120 -

44

5,404

2006

692 ---6

698

2005

716 --

1,360 43

2,119


8- GENERAL ADMINISTRATIVE EXPENSES2004

(9,366)(857)

(2,599)(811)

(1,303)(58)

(1,000)-

(1,333)

(17,327)

2006

(11,216)(1,836)(2,670)

(907)(1,583)

(19)(303)

(1,010)(782)

(20,326)

2005

(10,335)(965)

(2,686)(853)

(1,265)(31)

-(18)

(578)

(16,731)

US$ 000

Human resources costsStaff retirement fund contributions (see note 21)Premises costs, including depreciationEquipment and communications costsGeneral assembly, Board of Directors' & Key Management’s benefits, fees and expensesKey Management's post employment benefits DonationsConsultancy Other corporate expenses

Total general and administrative expenses

9- IMPAIRMENT LOSSES / REVERSALSUS$ 000

Write-downsSyndicated and direct loans (see note 14)

Specific impairment allowance Collective impairment allowance

Available-for-sale direct equity investments (see note 15)Payments under guarantees recoverable from third parties

Net effect of changes in value of machinery and discount rates Net recoverable value in respect of machinery derecognised on settlement

Other receivables-net

Reversals of write-downsAvailable-for-sale securities - transfer from the revaluation reserve (see page 37)

Syndicated and direct loans (see note 14)Government of Iraq - reduction against increase in unpaid dividendsSpecific impairment allowance Collective impairment allowance

Payments under guarantees - Recovery from Aradet, Iraq (see below)Other receivables - net

Net decrease in impairment losses (2005 : increase )


2004

-(312)

(2,688)--

(3,000)

236

2,489 388

-7,855

-10,968

7,968

2006

(2,801)(187)

(7,482)

---

(10,470)

-

6,013 1,018

-5,000

353 12,384

1,914

2005

(1,206)-

(11,039)

-(970)(445)

(13,660)

101

3,190 339

3,238 3,100

-9,968

(3,692)

Payments under guarantees - Aradet, Iraq

Following the lifting of the United Nations sanctions against Iraq, APICORP was successful in negotiating terms for the settlement of amounts paid on behalf of Aradet underguarantees. The balance due till date, under the 2005 settlement agreement of guarantees was duly received and the related provisions were released, accordingly.



2004

-(364)

-

(364)

2006

(30)--

(30)

2005

(247)-

(98)

(345)

10- OTHER OPERATING EXPENSESUS$ 000

Exchange lossesInvestment property - decrease in fair valueTerm finance - arrangement costs

Total other operating expenses

11- TRADING SECURITIESUS$ 000

Trading securities (carried at market value) consist of:Listed equities - mostly USA corporations - denominated in US$Managed funds - mostly denominated in US$

Total trading securities at 31 December

12- AVAILABLE-FOR-SALE SECURITIESUS$ 000

Available-for-sale securities consist of:Fixed-rate bonds (carried at market value) issued by :

Governments and other public sector issuers Other issuers - mainly US and EU corporates

Floating-rate bonds (carried at market value) mainly issued by GCC other issuers Structured notes (carried at market value)Managed funds (carried at market value)

Total available-for-sale securities at 31 December

13- DEPOSITS WITH BANKSUS$ 000

Deposits with banks (maturing within three months) consist of:Morabaha deposits with Islamic financial institutions Other conventional deposits

Total deposits placed with banks at 31 December

2004

3,347 72,511

75,858

2006

497 63,201

63,698

2005

1,812 66,906

68,718

2004

248,550 28,010 36,854 78,727 28,572

420,713

2006

63,418 8,919

291,342 117,874 100,534

582,087

2005

239,626 34,236

150,039 87,660 46,767

558,328

2004

14,169 179,500

193,669

2006

-345,000

345,000

2005

-264,920

264,920


14- SYNDICATED AND DIRECT LOANS2004

5,833 1,161,121 1,166,954

(10,174)(7,367)

1,149,413

36,387 -

(36,387)-

1,149,413

2006

40,387 1,251,570 1,291,957

(10,549)(4,316)

1,277,092

26,395 30,901

(29,834)27,462

1,304,554

2005

16,511 1,137,208 1,153,719

(9,424)(4,129)

1,140,166

32,858 2,412

(34,064)1,206

1,141,372

US$ 000

Unimpaired (performing) loansSyndicated, direct and revolving loans and trade finance facilities (at cost)

- Islamic- Conventional

Unamortised participation and commitment fees (see page 32)Collective impairment allowance

Impaired loans Non-performing - Syndicated, direct and revolving loans and trade finance facilities (see below)Performing - Syndicated facilities Allowance for specific impairments

Total net loans outstanding at 31 December

Impaired (non-performing) loans - Fully providedIraqi companies fully owned by Government of Iraq Unpaid dividends and interest due to Government of Iraq, offset against the defaulted loans Net Iraqi loans, after dividends offset (see below)Others

Total impaired loans at 31 December


Impaired loans to companies fully owned by Government of IraqAs a result of the 1990-1991 second Gulf war, certain Government of Iraq controlled companies defaulted on loans from the Corporation. Consequently, since 1992 dividends (and non contractual accrued interest thereon) due to the Government of Iraq (a shareholder in APICORP) have not been paid.

With effect from 1998, the Corporation reduced impairment allowances against the defaulted loans by the amount of the unpaid dividends, while still carrying the dividends as liabilities in the balance sheet upto 2003.

In May 2003, APICORP Board of Directors adopted a resolution authorizing management, in cases where no settlement is reached, to set-off bad debts owed to theCorporation by companies and public corporations fully owned by any of APICORP's shareholder governments, against accounts held by the Corporation belonging to suchbodies and governments including dividends, provided all legal requirements are satisfied and complied with.

Accordingly, and until negotiation is undertaken with the Government of Iraq, the Corporation starting from 2003, has made a primary offset of the unpaid dividends (andnon contractual accrued interest thereon) due to the Government of Iraq, against the principal amounts of the defaulted loans due from Government of Iraq controlledcompanies.

Since the beginning of default during 1990-92, the Corporation had kept memorandum record for contractual interest and fee on the defaulted Iraqi loans. Totalcontractual over due interest and fee on these impaired Iraqi loans as on 31 December 2006 amounts to US $ 96.9 million.

51,848 (33,561)18,287 18,100

36,387

51,848 (42,764)

9,084 17,311

26,395

51,848 (36,751)15,097 17,761

32,858

14- SYNDICATED AND DIRECT LOANS (continued)US$ 000

Movements in performing loans in the yearOutstanding at the beginning of the yearDraw-downs on new and existing loansRepayments and prepayments receivedNet loans reclassified as impairedExchange rate movements (euro and swiss franc-denominated loans)

Outstanding at 31 December

Undrawn loan commitments and guaranteesAt the beginning of the yearNew underwriting and commitment agreements signedDrawdowns in the yearExpired commitments, syndication sell-downs and other movements - net

Undrawn commitments at 31 December

There were three open underwriting commitments of approximately US$ 225 million at the year end.

Allowance for specific impairmentsAt the beginning of the year

Allowance for specific impairments - grossUnpaid dividends and interest due to Government of Iraq

Write-downs (see note 9)Reversals of write-downs (see note 9)- Increase in unpaid dividends and interest due to the Government of Iraq- Partial recoveries received

Net reduction in the year

Allowance for specific impairments at 31 December - grossUnpaid dividends and interest due to the Government of Iraq

Allowance for specific impairments at 31 December - net

Allowance for collective impairment

At the beginning of the yearMovements in the year (see note 9)

Unrecognised interest Charge (2005:Reversal)

Allowance for cumulative impairment at 31 December



2004

1,162,891 380,484 (386,272)

-9,851

1,166,954

2006

1,153,719 745,369

(583,303)(28,039)

4,211

1,291,957

2005

1,166,954 414,645

(411,533)(2,412)

(13,935)

1,153,719

447,307 523,339

(380,484)(109,678)

480,484

488,732 1,090,902

(745,369)(123,754)

710,511

480,484 501,559

(414,645)(78,666)

488,732

(70,336)31,072

(39,264)

-

2,489 388

2,877

(69,948)33,561

(36,387)

(70,815)36,751

(34,064)

(2,801)

6,013 1,018 4,230

(72,598)42,764

(29,834)

(69,948)33,561

(36,387)

(1,206)

3,190 339

2,323

(70,815)36,751

(34,064)

(7,055)

(312)-

(7,367)

(4,129)

-(187)

(4,316)

(7,367)

-3,238

(4,129)

US$ 000

APICORP has the following available-for-sale direct equity investments in companiesin the Arab petroleum and petrochemical industries (and the related percentage participation):

Unlisted investments - Carried at cost (2005 and 2004 at fair value, see below)Kingdom of Bahrain

Bahrain National Gas Company (Banagas) - liquefied petroleum gas - 12.5%Kingdom of Saudi Arabia

Saudi European Petrochemical Co (Ibn Zahr) - MTBE and polypropylene - 10%Arabian Industrial Fibers Co (Ibn Rushd) - polyester fibres - 8.3% (see below)

Republic of IraqArab Company for Detergent Chemicals (Aradet) - linear alkyl benzene - 32% (see below)

Socialist Peoples' Libyan Arab JamahiriyaArab Drilling and Workover Company (Adwoc) - drilling and related services - 20%Arab Geophysical Exploration Services Company (Agesco) - seismic services - 10%

Arab Republic of EgyptAlexandria Carbon Black Company - carbon black - 12% Alexandria Fiber Co. SAE (AFC) - acrylic fiber - 10%Egyptian Fertilisers Company (EFC) - ammonia and urea - 10%Oriental Petrochemicals Company - polypropylene - 14%Egyptian Methanex - Methanol Company-7%

Non-shareholder countriesTankage Mediterranee (Tankmed), Tunisia - storage facilities - 20%

Listed investments - Carried at fair valueKingdom of Saudi Arabia

Yansab Petrochemical Complex (YANSAB)- Olefin derivaties-1.57 %Non-shareholder countries

Jordan Phosphate Mining Company, Jordan - fertilisers - 0.8%

Net carrying value at 31 December

The fair value of the unlisted available for sale direct equity investments as on 1st January 2006 is the new cost of these investments, as the reliable measure of fair valuesfor these investments is no longer available.

Movements in the yearNet carrying value at the beginning of the yearNew amounts invested-Egyptian Methanex Methanal Company (2005 : YANSAB, 2004 : AFC )Net increase in fair value in the year Disposal of investments EFCNet carrying value at 31 December


15- AVAILABLE-FOR-SALE DIRECT EQUITY INVESTMENTS2004

9,056

99,717 24,561

13,673

12,133 626

7,557 2,470

29,322 5,567

-

823

-

2,606

208,111

2006

11,491

142,219 -

6,720

11,686 594

10,996 2,101

-6,151 2,571

1,112

58,494

2,596

256,731

2005

11,491

142,219 5,613

15,258

11,686 594

10,996 2,101

-6,151

-

1,112

23,645

3,452

234,318


185,648 2,427

20,036 -

208,111

234,318 2,571

19,842 -

256,731

208,111 23,645 31,112

(28,550)234,318



200423,678

883

24,561

20065,613

(5,613)

-

200524,561

(18,948)

5,613

Arabian Industrial Fibers Co (Ibn Rushd)Fair value at the beginning of the yearChanges in the fair value and impairment

Carrying value at 31 December

Arab Company for Detergent Chemicals (Aradet)Fair value at the beginning of the yearChanges in the fair value and impairment


Commitments - uncalled share capitalAt the beginning of the yearNew commitmentsCommitments fulfilled

Commitments at 31 December

16-PROPERTY AND EQUIPMENTUS$ 000

CostLand at Rakah - head office building and housing compoundHead office building, equipment, décor and furnishings Housing compound buildings, equipment, decor and furnishingsComputer hardware and other office equipmentComputer systems softwareBahrain Banking unit office equipment, décor and furnishingsTotal cost at 31 DecemberAccumulated depreciation


Movements in the yearNet carrying value at the beginning of the yearAdditions at cost

Head office building, operating equipment, décor and furnishingsHousing compound buildings, operating equipment, décor and furnishingsCore computer systems software - acquisition and implementationOther

Depreciation chargeDisposals at net carrying value - mostly fully depreciated


Capital commitmentsContracted forApproved by the Board of Directors, but not yet contracted for

16,576 (2,903)

13,673

15,258 (8,538)

6,720

13,673 1,585

15,258

4,649 2,427

(2,427)

4,649

4,649 24,400 (2,571)

26,478

4,649 23,645

(23,645)

4,649

2004

4,004 36,945 27,713

1,664 743

-71,069

(28,335)

42,734

2006

4,004 37,287 28,121

1,841 809 214

72,276 (33,976)

38,300

2005

4,004 37,250 27,851

1,756 795

-71,656

(31,183)

40,473

45,048

89 208

50 112

(2,771)(2)

42,734

40,473

38 294

11 366

(2,869)(13)

38,300

42,734

304 144

52 93

(2,854)-

40,473

131 660

333 1,314

92 954

15- AVAILABLE-FOR-SALE DIRECT EQUITY INVESTMENTS (continued)US$ 000


17- OTHER ASSETS2004

970 -

970

1,995 -

10,328 68

658

14,019

2006

---

1,995 7,500

19,217 409

4,969

34,090

2005

970 (970)

-

1,995 -

12,514 336 588

15,433

US$ 000

Payments made under guarantees to creditors of AradetRecoverable value -AradetDe-recognition of recoverable value on settlement

Net recoverable value -Aradet (see below)

Investment property - land at Dammam at estimated fair valueAdvance to purchase available-for-sale investments (managed funds)Other ReceivablesAccrued interest receivableEmployee loans and advancesMiscellaneous receivables and advance payments


18- DUE TO BANKSUS$ 000

Short-term US dollar deposits from banksShort-term non-dollar deposits from banks (EURO, CHF and SAR)Short-term US dollar Morabaha payable to Islamic financial institutionsShort-term non-dollar Morabaha payable to Islamic financial institutions (EURO and SAR)

Total at on 31 December

19- TERM FINANCINGUS$ 000

US$ 200 million loan 2000-2005 - fully repaidInterest rate: US$ LIBOR plus 40 basis points

US$ 300 million loan 2002-2007 - fully drawnInterest rate: US$ LIBOR plus 45 basis points

US$ 250 million loan 2005-2010 -fully drawnInterest rate: US$ LIBOR plus 37.5 basis points

Unamortised front-end fees for all current facilities

Total amortised cost at 31 December


2004

502,471 102,450 149,129 104,624

858,674

2006

714,557 121,614 269,717

54,780

1,160,668

2005

608,506 77,521

197,552 98,861

982,440

2004

200,000

300,000

-

(902)

499,098

2006

-

300,000

250,000

(955)

549,045

2005

-

300,000

200,000

(1,522)

498,478

Up till 31 December 2006, Corporation was providing a contributory defined-benefit retirement plan (The Staff Retirement Fund - the Fund) for most of its employees. During the Year Corporation's Board of Directors decided to liquidate the Fund.

Further its was decided to pay member employees entitlements from the Fund's resources, after deduction of the end of service benefits. Liabilities of the Fund to its ben-eficiaries were adequately covered by the fair values of the Fund's assets on liquidation.

As a result of this decision, an End of service Benefits liability of US $ 4.9 million is transferred from the Staff Retirement Fund related to employees that were member ofliquated Staff Retirement Fund.

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, witha maturity date on 30 May 2007. The agent is Credit Agricole Indosuez, Paris, France.

The agreement for the US$ 250 million loan was signed on 27 April 2005 with a maturity date on 27 April 2010. This facility would be partially utilised to replace the US$200 million loan, which matured on 9 July 2005.

The mandated lead arrangers for the USS 250 facility were Arab Banking Corporation, The Bank of Tokyo-Mitsubishi Ltd, BNP Paribas, CALYON, Gulf International Bank BSC,Mizhuho Corporate Bank Ltd, Standard Chartered Bank and Sumitomo Mitsui Banking Corporation Europe Limited. Nine other international and regional banks participatedin the syndication. The agent for the banks is Sumitomo Mitsui Banking Corporation Europe Limited.

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

5,558 -

30 1,265

11,555

18,408

2006

18,603 -

6,330 2,188 1,375

28,496

2005

9,957 446

92 1,846

132

12,473


20- OTHER LIABILITIESUS$ 000

Accrued interest payableStaff Retirement Fund current account Employees’ end of service benefits Accrued expensesOther payables

Total other liabilities at 31 December

21- EMPLOYEE RETIREMENT BENEFITS

Employees’ End of service Benefits US$ 000The movement on the provision is as follows:Balance as at 1 JanuaryCharge for the yearTransferred from Staff Retirement FundPaid during the year

Balance as at 31 December

Current service costThe Corporation's contributions to the Fund in respect of current service cost, as charged inthe income statement

2004

-30

--

30

2006

92 1,358 4,910

(30)

6,330

2005

30 62

--

92

8571,836 965

19- TERM FINANCING (continued)

Guarantees as shareholderAPICORP is an 8.28% shareholder in The Arabian Industrial Fibers Company (Ibn Rushd) (see note 15), 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, shouldthe 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.

23- RELATED PARTY TRANSACTIONSAPICORP's principal related parties are its shareholders. Although the Corporation does not transact any commercial business directly with the shareholders themselves, itdoes finance companies which are either controlled by the shareholder governments or over which they have significant influence.

US$ 000

Loans to related partiesLoans outstanding at 31 December - grossImpairment allowances at 31 DecemberDividends offset against Iraq direct loans at 31 December

Commitments to lend at 31 December

Interest from loans during the yearLoan fees earned during the year

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 writtenoff in 2004-2006.

Available-for-sale direct equity investments in related partiesInvestments at 31 December - at fair valueGuarantees as shareholder at 31 December (see note 22)Commitments to invest at 31 December

Dividends received during the year

For key management’s compensation refer note 8


22- OFF-BALANCE SHEET EXPOSURES2004

480,484 4,649

75,230 131

3,000

563,494

2006

710,511 26,478 70,400

333 -

807,722

2005

488,732 4,649

70,400 92

-

563,873

The Corporation has off-balance sheet exposures as follows:

Commitments to underwrite and fund loans (see note 14)Commitments to subscribe capital to available-for-sale direct equity investmentsGuarantees as shareholder (see below)Contracted capital expenditure commitments (see note 16)Credit default swap commitments

Total exposures at 31 December

160,589 75,230

4,649

9,287

232,317 70,400 26,478

29,046

211,617 70,400

4,649

14,583


2004

907,129 (13,335)(33,652)

367,097

23,585 5,305

2006

914,907 (4,132)

(42,764)

616,855

54,987 5,244

2005

890,689 (10,145)(36,751)

384,294

36,612 2,655


24- CASH FLOWS FROM OPERATING ACTIVITIESUS$ 000

Cash flows from operating activities are reconciled to net income for the year as follows:

Net income for the year (as page 35)Adjustments for non-cash items

Gains on trading securitiesRealised gains on sale of available-for-sale securitiesRealised gains on sale of available-for-sale direct equity investmentsDepreciation of property and equipmentInvestment property - decrease in fair value Net reversals of impairment losses - loansImpairment losses - payments under guarantees Impairment reversals- available-for-sale securitiesImpairment losses - available-for-sale direct equity investmentsAmortisation and exchange differences, netOther non-cash items

Net sales of trading securities Dividends from available-for-sale direct equity investments (included in investing activities)Rent received (included in investing activities)

Changes in operating assets and liabilitiesIncrease in deposits with banks (2004:decrease)Syndicated and direct loans drawn downLoan repayments and prepayments received - performing loansRecoveries in respect of impaired loansIncrease in other operating assets (2005 and 2004: decrease)Increase in due to banks (2004:decrease)Increase in other operating liabilities (2005 : decrease)

Cash outflows from operating activities (2005 and 2004 inflows) (as page 39)

25- CAPITAL ADEQUACYThe risk asset ratio at 31 December 2006, calculated in accordance with the capital adequacy guidelines of the Basle Committee on Banking Supervision, is as follows:

US$ 000

Carrying valuesOn-balance sheet assets (refer page 36)Off-balance sheet exposures (refer note 22)


2004

38,852

(8,766)(124)

-2,771

364 (2,877)3,530 (236)

-(2,540)2,633

33,607

4,500 (10,669)

(678)26,760

16,021 (380,484)386,272

4,640 782

(15,701)7,020

45,310

2006

50,978

(5,521)(1,331)

-2,869

-(3,212)

--

7,482 (180)

(36,663)14,422

11,206 (30,095)

(692)(5,159)

(80,080)(745,369)611,342

3,173 (77)

178,228 5,769

(32,173)

2005

94,586

(10,843)(3,802)

(58,755)2,854

-(3,530)

970 -

11,039 23,328

(960)54,887

16,333 (16,348)

(716)54,156

(71,251)(414,645)411,533

340 385

123,766 (9,955)

94,329

2004

2,120,596 563,494

2,684,090

2006

2,634,724 807,722

3,442,446

2005

2,341,850 563,873

2,905,723


25- CAPITAL ADEQUACY (continued)2004

1,698,904 543,400

2,242,304

2006

2,268,511 794,483

3,062,994

2005

1,869,084 561,549

2,430,633

US$ 000

Risk-weighted exposuresOn-balance sheet assetsOff-balance sheet exposures

Total risk-weighted exposures

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

Capital base - Tier-1 capital: Equity at balance sheet (refer page 36)

Capital adequacy ratio

744,416

33.2%

896,515

29.3%

848,459

34.9%


26- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

Financial instrumentsA 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 11), available-for-sale securities (note 12), deposits placed with banks (note 13), syndicated and direct loans (note 14), available-for-sale direct equity investments (note 15) and certain other assets (note 17).

. Financial liabilities consist of commitments to lend (note 14) and invest (note 15), deposits from banks (note 18), term financing (note 19), other liabilities (note 20),and guarantees (note 22).

These financial instruments expose APICORP to varying degrees of price risk (including currency, interest rate and market risks), credit risk and liquidity risk.

Price risk managementPrice 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 individualsecurity 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-marketbasis) 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 arealso subject to a framework of Board-approved currency, industry and geographical limits and ratings by agencies including Standard & Poors.

. 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 30.

. 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 31.


26- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)


Credit risk managementCredit 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 arisesfrom 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 available-for-sale direct equity investments are subject to systematic investigation, analysis and appraisal before being reviewed by the CreditCommittee (consisting of the General Manager and senior managers), which makes appropriate recommendations to the Board of Directors, who have the ultimate authorityto 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 theeventual loss, if any, will be considerably less than the total unused commitments, since most commitments to extend credit are contingent upon borrowers maintainingspecified credit standards.

All loan commitments, whether drawn or undrawn, are subject to systematic monitoring so that potential problems may be detected early and remedial action taken.

With one exception, APICORP representatives are on the boards of companies in which the Corporation has available-for-sale direct equity investments and thus are in aposition 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 majorEuropean stock exchanges. Dealings are only permitted with approved internationally rated banks, brokers and other counter-parties. Securities portfolios and investingpolicies are review from time to time by the Assets and Liabilities Committee.

Liquidity risk and funding managementLiquidity 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 opportunitieswhen 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 liquiditywithout 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 profilebased on contractual repayment terms is set out in note 29.


27- EFFECTIVE INTEREST RATES2004

2.08%-

3.06%2.80%2.73%3.20%3.21%3.08%

2.19%2.30%2.02%2.75%

2.39%2.56%2.79%

2006

2.60%4.66%5.78%5.75%5.19%5.97%6.15%3.33%

5.17%5.40%3.91%5.83%

5.37%5.38%5.34%

2005

2.06%-

5.02%4.18%4.32%5.07%5.18%3.27%

4.20%4.37%3.45%4.77%

4.39%4.53%4.69%

The effective interest rates of the Corporation's financial instruments at the balance sheet date were:

Interest-bearing financial assetsFixed-rate bonds - weighted averageZero coupon bonds Floating-rate bonds - weighted averageStructured notesDeposits placed with banks - weighted averageSyndicated and direct loans - weighted average

US dollar denominatedNon-dollar - mainly denominated in euros

Interest bearing financial liabilitiesDeposits from banks - weighted average

US dollar denominated Non-dollar - Euros, Swiss francs and Saudi riyals

Term financing - weighted average

US$ LIBOR at 31 December was:One-monthThree-monthSix-month

28- FAIR VALUE INFORMATIONThe following financial assets and liabilities are not carried at fair value in the Corporation's balance sheet:

US$ 000

Financial assets Syndicated and direct loans

Carrying value - amortised cost less impairments (see note 14)

Fair value - based on current market prices

Available-for-sale direct equity investmentsCarrying value - amortised cost less impairments (see note 15)

Estimated fair value

Financial liabilities - term financingCarrying value - amortised cost (see note 19)

Fair value - based on current market rates for similar remaining maturity


2004

1,149,413

1,175,781

208,111

208,111

499,098

499,224

2006

1,304,554

1,296,290

256,731

291,471

549,045

532,303

2005

1,141,372

1,172,774

234,318

234,318

498,478

486,013

29- MATURITY PROFILE OF ASSETS AND LIABILITIESThe maturity profile of the Corporation's assets and liabilties as at 31 December, based on contractual repayment arrangements, is set out below. The apparent significantshort-term mismatch between maturities of assets and liabilities is substantially reduced in practice because the majority of deposits from banks are routinely rolled overon maturity.

US$ 000

ASSETSCash and cash equivalentsTrading securities Available for sale securitiesDeposits with banksSyndicated and direct loansAvailable-for-sale direct equity investmentsProperty and equipmentOther assets

Total assets

LIABILITIES AND EQUITYDue to banksTerm financingOther liabilitiesEquity

Total liabilities and equity

MATURITY GAP

CUMULATIVE MATURITY GAP - 31 December 2006

31 December 2005Total assetsTotal liabilities and equity

Maturity gap

Cumulative maturity gap - 31 December 2005

31 December 2004Total assetsTotal liabilities and equity

Maturity gap

Cumulative maturity gap - 31 December 2004

2006 Total

10,264 63,698

582,087 345,000

1,304,554 256,731

38,300 34,090

2,634,724



1 year to 5 years

--

334,712 -

617,520 --

301

952,533

5 years and over

-63,698

165,582 -

445,093 256,731

38,300 9,495

978,899

Up to 3 months

10,264 -

54,972 345,000 104,645

--

13,233

528,114

3 months to 1 year

--

26,821 -

137,296 --

11,061

175,178

(1,160,668)(549,045)

(28,496)(896,515)

(2,634,724)

-

-(299,349)

(1,227)-

(300,576)

651,957

(111,155)

--

(1,229)(866,515)

(867,744)

111,155

-

(1,090,168)-

(22,783)-

(1,112,951)

(584,837)

(584,837)

(70,500)(249,696)

(3,257)(30,000)

(353,453)

(178,275)

(763,112)

2,341,850 (2,341,850)

-

2,120,596 (2,120,596)

-

754,924 (499,042)

255,882

(186,574)

919,183 (299,507)

619,676

(18,127)

1,015,033 (828,459)

186,574

-

942,543 (924,416)

18,127

-

283,907 (959,025)

(675,118)

(675,118)

218,260 (651,429)

(433,169)

(433,169)

287,986 (55,324)

232,662

(442,456)

40,610 (245,244)

(204,634)

(637,803)

30- REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIESThe repricing profile of the Corporation's interest bearing financial assets and liabilities at 31 December was as follows:

US$ 000

ASSETSAvailable for sale securities

Fixed-rate bondsFloating-rate bondsStructured notes

Deposits with banksSyndicated and direct loans

US$ denominatedEuro and Swiss francs

LIABILITIESDue to banks

US$ denominatedSaudi riyal and Euro

Term financing

Interest rate sensitivity gap

Cumulative Interest Rate Sensitivity Gap - 31 Dec 2006


Fixed-rate bondsFloating-rate bondsStructured notes

Deposits with banksSyndicated and direct loans

US$ denominatedEuro and Swiss francs


US$ denominatedSaudi riyal and Euro

Term financing



(33,032)

(373,683)

365,488

451,693

(773,026)(176,382)(124,795)

86,205

86,205

98,625 132,277

19,546 264,920

589,641 55,399

(806,058)(176,382)(498,478)

451,693

(70,500)-

(99,186)

421,235

439,698

(913,774)(176,394)(449,859)

18,463

18,463

(984,274)(176,394)(549,045)

439,698

2006Total

72,337 291,342 117,874 345,000

1,254,979 67,879


Between 1 year

and 2 years

----

--

---

-

439,698


Up to 3 months

67,400 273,537

29,546 345,000

803,102 39,905

Between 3 months

and 1 year

4,937 17,805 88,328

-

451,877 27,974

Effective interest

rate

2.60%5.78%5.75%5.19%

6.15%3.33%

5.40%3.91%5.83%

---

--

---

-

451,693

175,237 17,762 68,114

-

501,675 9,415

2.06%5.02%4.18%4.32%

5.18%3.27%

4.37%3.45%4.77%

2005

273,862 150,039

87,660 264,920

1,091,316 64,814

More than5 years

----

--

---

-

439,698

Between 2 years

and 5 years

----

--

---

-

439,698

----

--

---

-

451,693

---

--

---

-

451,693

30- REPRICING PROFILE OF FINANCIAL ASSETS AND LIABILITIES (continued)The repricing profile of the Corporation's interest bearing financial assets and liabilities at 31 December was as follows:

US$ 000


Fixed-rate bonds Floating-rate bonds

Structured notesDeposits with banksSyndicated and direct loans

US$ denominated Euro denominated


US$ denominated Saudi riyal and Euro

Term financing



31- CURRENCY EXPOSURESThe Corporations' currency exposures at 31 December were as follows:

US$ 000

ASSETS, LIABILITIES AND EQUITYUnited States dollarEuroOther OECD currencies (see below)Arab currencies

GCC (see below)Other Middle EastEgypt and North Africa

COMMITMENTS AND GUARANTEESUnited States dollarEuroOther OECD currencies (see below)Arab currencies - GCC (see below)

(184,081)(38,667)

(249,233)

(27,536)

133,768

(467,519)(168,407)(249,865)

161,304

161,304

Between 3 months and 1 year

15,336 -

69,081 -

286,260 73,768

Up to 3 months

-36,854

9,646 193,669

774,024 32,902

(651,600)(207,074)(499,098)

394,992


Between 1 year

and 2 years

260,238 ---

--

---

260,238

394,006


Effective interest

rate

2.08%3.06%2.80%2.73%

3.21%3.08%

2.30%2.02%2.75%

2004

276,560 36,854 78,727

193,669

1,060,284 106,670

More than5 years

----

--

---

-

394,992

Between 2 years

and 5 years

986 ---

--

---

986

394,992

2006net

exposure

(49,896)850

2,037

27,914 1,061

18,034

-

2006net

exposure

(35,862)619 112

14,244 1,061

19,826

-

2006net

exposure

(51,074)733 247

31,780 1,061

17,253

-

2006assets

2,235,096 73,801 20,251

268,878 2,596

34,102

2,634,724

2006liabilities

and equity

(2,270,958)(73,182)(20,139)

(254,634)(1,535)

(14,276)

(2,634,724)

511,366 47,356

-4,772

563,494

802,740 --

4,982

807,722

497,898 61,234

-4,741

563,873

31- CURRENCY EXPOSURES (continued)

Other OECD currenciesThe other member countries of the Organisation for Economic Co-operation and Development, excluding the United States and the twelve European Monetary Unioncountries are: Australia, Canada, Czech Republic, Denmark, Hungary, Iceland, Japan, Mexico, New Zealand, Norway, Poland, South Korea, Sweden, Switzerland, Turkey andthe United Kingdom.

GCCThe member states of the Gulf Co-operation Council are: Bahrain, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Their currencies are pegged against the UnitedStates dollar.

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

EuroSaudi riyalSwiss francEgyptian pound


2005

1.1862 3.7500 1.1312 5.7388

2004

1.3624 3.7500 1.1334 6.1000

EUR 1 = US$US$ 1 = SARUS$ 1 = CHFUS$ 1 = EGP

2006

1.3158 3.7500 1.2188 5.7185




32- INDUSTRY DISTRIBUTION OF ASSETS AND LIABILITIESThe industry distribution of the Corporation's assets and liabilities was as follows:

US$ 000

ASSETSPetroleum and petrochemicals

RefineriesOilfield production development and servicesPipelines and distributionGas-to-liquids plantsLiquefied natural gas plantsPetrochemical plantsFertilizer plantsMaritime transportationTrade financePower generationOther petroleum

Total petroleum and petrochemicals

Banks and financial institutionsBanks and financial institutions - managed fundsOther industriesGovernments and public sector institutions

Total assets at 31 December

LIABILITIES AND EQUITYBanks and financial institutionsOther industriesShareholders

Total liabilities and equity at 31 December

2004

78,083 113,259

43,406 24,330

195,750 620,869

65,222 55,953 14,854

105,970 9,276

1,326,972

395,540 101,155

94,258 202,671

2,120,596

1,363,330 12,850

744,416

2,120,596

2006

113,582 159,027

10,772 38,667

216,180 555,873

72,294 210,785

65,886 114,230

14,650

1,571,946

351,879 171,235

73,495 466,169

2,634,724

1,728,585 9,624

896,515

2,634,724

2005

83,944 114,852

31,403 33,446

196,896 584,162

75,238 95,918 22,617

106,909 8,835

1,354,220

307,237 113,673

73,045 493,675

2,341,850

1,491,321 2,070

848,459

2,341,850



32- INDUSTRY DISTRIBUTION OF ASSETS AND LIABILITIES (continued)The industry distribution of the Corporation's assets and liabilities was as follows:

US$ 000

COMMITMENTS AND GUARANTEESPetroleum and petrochemicals

RefineriesOilfield production development and related servicesGas-to-liquids plantsLiquefied natural gas plantsPetrochemical plantsFertilizer plantsMaritime transportationTrade financePower generation

Total petroleum and petrochemicals

Banks and financial institutionsOther industriesGovernments and public sector institutions

Total commitments and guarantees at 31 December

33- GEOGRAPHICAL DISTRIBUTION OF RISKThe geographical distribution of risk of the Corporation's assets and liabilities, after takinginto account insurance and third-party guarantees, was as follows:

US$ 000

ASSETSKingdom of Saudi ArabiaState of QatarOther Gulf Cooperation Council statesOther Middle East statesEgypt and North Africa

Total Arab World

Western EuropeIndia, Bangladesh and PakistanAsia Pacific RimUnited StatesOther North and South America

Total assets at 31 December

2004

46,944 10,000 14,166

118,097 179,574

34,429 34,894 21,736 30,123

489,963

3,000 131

70,400

563,494

2006

124,896 1,669

-119,980 403,786

4,000 30,873

4,000 47,785

736,989

-333

70,400

807,722

2005

40,279 -

5,091 175,474 173,703

31,013 27,043 30,249 10,529

493,381

-92

70,400

563,873

2004

607,364 256,037 378,186

17,343 217,135

1,476,065

410,139 15,126 30,823

110,659 77,784

2,120,596

2006

579,712 276,965 610,722

59,458 297,256

1,824,113

550,235 -

8,527 162,724

89,125

2,634,724

2005

642,173 207,767 441,443

32,549 215,301

1,539,233

603,623 -

29,375 121,523

48,096

2,341,850


33- GEOGRAPHICAL DISTRIBUTION OF RISK (continued)US$ 000

The industry distribution of the Corporation's assets and liabilities was as follows:

LIABILITIES AND EQUITYKingdom of Saudi ArabiaState of QatarOther Gulf Cooperation Council statesOther Middle East statesEgypt and North Africa

Total Arab World

Western EuropeAsia Pacific RimUnited States

Total liabilities and equity at 31 December

COMMITMENTS AND GUARANTEESKingdom of Saudi ArabiaState of QatarOther Gulf Cooperation Council statesOther Middle East statesEgypt and North Africa

Total Arab World

Western EuropeIndia, Bangladesh and PakistanAsia Pacific Rim

Total commitments and guarantees at 31 December

2004

446,672 96,344

780,980 100,679 223,259

1,647,934

468,662 4,000

-

2,120,596

283,800 117,895

78,981 4,830

64,988

550,494

3,000 -

10,000

563,494

2006

656,254 139,780 954,278 135,524 269,963

2,155,799

408,190 20,000 50,735

2,634,724

391,271 195,657 122,980

-52,499

762,407

41,315 -

4,000

807,722

2005

365,134 124,866 989,091 127,317 259,176

1,865,584

438,996 35,538

1,732

2,341,850

218,993 219,740

53,156 -

26,735

518,624

35,000 -

10,249

563,873



REPORT OF THE AUDITORS TO THE SHAREHOLDERS

· 2018-11-19 · ali aissaoui head of research sami al-sunaid manager, trade finance dr. wichai...

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