Equity Research March 15, 2009

Listing Saudi Stock Exchange (Tadawul) Transportation Sector Code:4030.SSE

Company Profile Head office: 569 Salah Aldeen Road P.O. Box 8931 Riyadh 11492 Saudi Arabia Tel: +966 1- 4785454 Fax: +966 1- 4778036 Website: www.nscsa.com.sa

Key Statistics

Price (SAR) 16.00

Market Cap (SAR 'MM) 5,056

Issued Shares (B) 315

P/E 6.80

BV (SAR) 16.12

P/B 0.99

Dividend Yield (%) 9.23

52-week High (SAR) 36.25

52-week Low (SAR) 13.40

Financial Year Ending 31-Dec.

Dr. Saleh Alsuhaibani Head of Investment Research Tel: No.: +966 1 279 5809 Email: alsuhaibanis@arfs.com AbdulAziz Algabbani Equity Research Analyst Tel:+966 1 2795833 algabbaniam@arfs.com Al Rajhi Financial Services Co. Investment Research Dept P.O Box 28 Riyadh 11411, Saudi Arabia Tel: +966 1-2795830 Fax: +966 1-2795840 Website: www.arfs.com

Email: research@arfs.com

National Shipping Company of Saudi Arabia (NSCSA) Comprehensive Report

Performance Indicators

2008 2009E 2010E 2011E 2012E

Revenues (SAR ‘000)

2,594,530 2,524,241 2,587,232 2,678,583 2,774,732

Gross Profit (SAR ‘000)

960,648 934,623 957,946 991,769 1,027,369

Operating Income (SAR ‘000)

854,930 831,769 852,525 882,627 914,309

Net Income (SAR ‘000)

749,968 808,566 837,395 866,417 887,344

EPS (SAR) 2.38 2.57 2.66 2.75 2.82

Total Assets (SAR '000)

9,819,426 10,457,911 11,239,712 12,026,370 12,801,349

Stock Price Performance

Months 1 3 6 12 YTD

Price Performance (%) -11.40 1.93 -36.07 -50.32 -11.71

TASI NSCSA

Recommendation

Target Price (SAR) 21.55

Current Price (SAR) 16.00

Upside Potential (%) 34.64

PriceSAR

.12

4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

8,500

9,000

PriceSAR

.12

16

18

20

22

24

26

28

30

32

34

Volume

.1234

10M

16 01 16 01 18 01 16 01 16 03 17 01 16 06 16 02 16 01 16 01 18 01 16 01 16Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09

1

Executive Summary

Slowdown in World Economy & Trade… The global economy had tough times in 2008 due to slowing demand caused by the global financial crisis and rising inflation. Global growth is expected to decelerate significantly in 2009, before recovering gradually in the second half of 2010. Reflecting the deceleration in world GDP growth and the weaker import demand in the United States, world merchandise exports grew at a slower pace in 2008. Growth in world merchandise trade slipped to 4.4 percent in real terms down from 6.4 percent in 2007. However, merchandise trade continues to be a driving force of the world economy. Both in volume and in dollar value terms, world merchandise trade has grown as fast as world output over the past five years. In 2008, world trade growth seems to have lost some of its strength, particularly for developed economies. During the upward cycle that started in 2001, merchandise trade growth has been driven by the developed countries and East Asia, led by China. Overview of the Global Maritime Transport Industry… Shipping is a global industry and its prospects are closely tied to the level of economic activity in the world. A higher level of economic growth would generally lead to higher demand for finished products, intermediary products and raw materials, all of which has a direct impact of the size of international trade flows. Robust growth in international seaborne trade over the last decade, developments in World energy markets and increasing freight rates are driving the gains in the shipping industry. Freight rates are driven by the interplay of demand for commodities and supply of carrier vessels. Margins on spot freight carriage are higher than medium term freight contracts and these in turn are higher than the margins on long term contracts. The spot rates are more volatile and hence the companies having a higher proportion of time charters usually have a stable earnings profile. However, the shipping market is cyclical in nature and freight rates generally tend to be highly volatile.

Rising Exports from Saudi Arabia… Saudi Arabia has become one of the fastest expanding economies in the region with a real economic growth rate of 5% over the last five years. As a major exporter of oil and petrochemical, Saudi Arabia is a hub for shipping industry. Oil exports constitute the main foreign trade item in the Kingdom, and which subsume nearly 85-90% of the entire exporting activities of the nation. The soaring oil prices have played a key role in obtaining big revenues from its exports. The Kingdom’s exports have expanded by about 250% in 2008 from their 2003 level, thereby registering a massive growth of 191% in the trade balance. This has created a huge demand for shipping services in the Kingdome. Robust Financial Performance of NSCSA… NSCSA has witnessed growth of 77% with the net profit reaching SAR 749.9 MM at the end of 2008. This rise in profits is due to an increase in crude oil freight rates in the spot market during the year 2008 as well as to the increase in the company's fleet of oil tankers. Furthermore, the total expenses to sales ratio has deceased considerably to 67% in 2008 from 79% in 2007. This indicates the operating efficiency of the Company and its active involvement in cost reduction activities. The Company’s earning per share (EPS) for 2008 rose to SAR 2.38 from SAR 1.48 recorded in 2007. New Carriers will help the Company to boost its Revenue As part of the strategic expansion plan, NSCSA placed orders for a variety of new shipping vessels. In total, the Company plans to acquire a fleet of 28 vessels by 2011. After delivery of all the vessels, NSCSA will become market leader in this segment, and will be well entrenched as a

2

leading shipping company internationally. Under stable market conditions, we believe that the rise in the capacity will lift the Company’s revenue and profits to greater heights in the coming years. Concerns

Slowing global trade and tight credit markets translate to weaker demand for maritime shipping

The threat of piracy in the Gulf of Aden. Crimes on the high seas have continued with

more than 100 raids last year including the capture of the Saudi Arabian oil tanker, the Sirius Star.

With the current credit crisis making obtaining necessary funding by both shipyards and shipowners more difficult, and the current uncertain outlook for the Maritime shipping industry pressuring asset values, we are seeing signs that the challenging orderbook is becoming more challenging by the day.

Although demand for tankers could fall as much as 15% in 2009 due to the impact of reduced OPEC production, average ship supply is expected to grow by 7% in the same year. This will lead to excess supply.

Investment Recommendation We initiate the coverage of National Shipping Co. with a BUY recommendation. NSCSA aimed to expand its fleet of vessels since 2007, which would enable the company to increase the operating revenue. Based on a weighted average target price, by using the 3 valuations models viz. Discounted Cash Flow Model with Free Cash Flow to Firm Approach and Free Cash Flow to Equity Approach and Relative Valuation Model, we have arrived at a one year target price for NSCSA, of SAR 21.55 per share. This reflects a 34.64% upside potential with the current market price of SAR 16.00. The purpose of this valuation exercise is to arrive at a fair value per share, through the use of fundamental analysis, which should prevail for NSCSA in the next 12 months.

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Contents Page

World Economy & International Trade 4

Overview of the Global Maritime Transport Industry 9

Favorable Macroeconomics for the Saudi Shipping Sector 26

National Shipping Company (NSCSA) - Company Profile 30

SWOT Analysis 38

Financial Performance 41

Valuation 45

Financial Statements 50

Abbreviation 52

Glossary 53

Bibliography 54

4

World Economy & International Trade World Economy

After several years of robust growth, the world economy is now facing some serious challenges in sustaining its brisk pace. Markets have entered a vicious cycle of asset deleveraging, price declines, and investor and credit spreads spiked to distressed levels, and major equity indices dropped due to the financial crisis. Furthermore, Emerging markets came under even more severe pressure. Since the beginning of October, spreads on sovereign debt doubled, returning to 2002 levels. Financial conditions continue to present serious downside risks. The forceful policy responses in many countries have contained the risks of a systemic financial meltdown.

Global growth is projected to slow from 5 percent in 2007 to 3.7 percent in 2008 and to over to 2 percent in 2009, with the downturn led by advanced economies. In 2008, the world economy expanded slightly with gross domestic product (GDP) growing at 3.7 percent. Growth was little-based, with GDP in all country groupings decreasing slightly more than the previous year. GDP grew by 1.4 percent in the advanced economies, and 6.6 percent in developing countries.

In 2008, the global expansion is losing speed in the face of a major financial and credit crisis. The slowdown has been greatest in the advanced economies, particularly in the United States and Euro zone, where the housing market correction continues to exacerbate financial stress. The cyclical downturn in emerging economies is of a similar magnitude to that in the advanced economies when measured relative to higher trend growth rates, in line with past cycles, led by China and India.

Chart 1: Global Economic Indicator

4.45 4.9

3.7

2.2

00.5

11.5

22.5

33.5

44.5

55.5

6

2005 2006 2007 2008e 2009f

Year

Gro

wth

Rat

e (%

)

e: estimated. f: forecasted. Source: IMF, World Economic Outlook, 2008.

Overall, global GDP measured at purchasing- power-parity weights is estimated to have increased 3.7 percent in 2008 in spite of activity in the advanced economies decelerated quite sharply toward the end of 2008, particularly in the United States. The major drag on the world economy is coming from the slowdown and recession in the United States, driven by the slump in the housing sector. The ongoing housing downturn in the United States became much more serious in the third quarter of 2007 with the sub-prime

The world economy is facing

uncertain times, and Global

activity is slowing quickly.

The financial crisis of the

United States is the main drag

for the world economy.

5

mortgage meltdown, which triggered a full-scale credit crunch that reverberated throughout the global financial system. Central banks of the major economies have adopted various measures to attenuate the financial distress, but these measures did not address the more fundamental problems rooted in the unregulated workings of the global financial system and its links with the world economy.

Most developed economies entered into recession during the second half of 2008, and the economic slowdown has spread to developing countries and the economies in transition. According to IMF baseline forecast, world growth rate is expected to slow to a meagre 2.2 percent in 2009, a sharp deceleration from the 3.7 percent growth estimated for 2008 and well below the more robust growth in previous years. The baseline forecast assumes that it will take six to nine months for financial markets in developed countries to return to normalcy, assuming central banks in the United States, Europe and Japan provide further monetary stimulus from the end of 2008 and on into 2009.

Growth for the United States in 2008 would decline to 1.4 percent on an annual-average basis, a downward revision to reflect incoming data for 2008. Nevertheless, the economy is projected to enter deep recession during the year of 2009, as the growth rate will be negative before starting to gradually recover in 2010. Growth projections for the euro area and Japan also show a slowdown in activity in 2009.

In a similar way, the emerging and developing economies continued to have a weak growth rates in 2009. Among the most affected are commodity exporters, given that commodity price projections have been marked down sharply, and countries with acute external financing and liquidity problems. Countries in East Asia—including China—generally have suffered smaller markdowns, because their financial situations are typically more robust, they have benefited from improved terms of trade from falling commodity prices, and they have already initiated a shift toward macroeconomic policy easing.

Table 1: World Economic Growth, 2005–2009

Country 2005 2006 2007 2008e 2009f

World 4.4 5 4.9 3.7 2.2 Advanced Economies 3.2 2.6 3 1.4 -0.3 United states 3.1 2.9 2.2 1.4 -0.7 Japan 1.9 2.4 2.1 0.5 -0.2 Euro Area 1.6 2.8 2.6 1.2 -0.5 Germany 0.8 2.9 2.5 1.7 -0.8 France 1.7 2 1.9 0.8 -0.5 Italy 0.6 1.8 1.5 -0.2 -0.6 United Kingdom 1.8 2.9 3.1 0.8 -1.3 Developing Economies 7.1 7.8 7.9 6.6 5.1 China 10.4 11.1 11.4 9.7 8.5 India 9.1 9.7 9.2 7.8 6.3 Middle east 5.7 5.8 5.8 6.1 5.3

Source: IMF, World Economic Outlook, 2008. Expansions in emerging and developing economies are also expected to lose steam in 2009 to 5.1 percent in 2009. Growth declined among the developing economies as a result of the effects of the global financial turmoil, mainly through increased volatility in their local equity markets and a measurable widening of the yield spreads on their external debts, but neither effect appears to have been long lasting. Moreover, weakening global demand is depressing commodity prices. Oil prices have declined by over 70 percent since their peak in July 2008, retreating to levels not seen since early 2003—reflecting the major global downturn, the strengthening of the U.S. dollar, and the financial crisis—despite the decision by the Organization of Petroleum Exporting Countries to reduce production.

The economic outlook is

exceptionally uncertain,

continued moderate growth in

most developing countries.

A stronger macroeconomic

policy response could limit the

damage.

6

The relative resilience of these economies is partly due to their improved macroeconomic conditions and their large accumulation of foreign exchange reserves, along with vigorous growth over the past few years. Part of that strength can also be traced to their growing interdependence, driven by the sustained, rapid growth in the two most populous emerging economies, China and India. Nevertheless, the growth in most of these economies has been far from self-sustaining and remains highly dependent on the wider international economic environment, which in turn is largely determined by the economic policies and performance of the major developed countries. Risks to the global growth outlook are seen as balanced around the revised baseline. Financial risks remain elevated, as rising losses in the context of a global slowdown could add to strains on capital and exacerbate the squeeze on credit availability. Moreover, as discussed below, Risks related to global imbalances also remain a concern. On the positive side, demand in advanced and emerging economies might be more resilient than projected to recent commodity prices and financial shocks.

Nonetheless, there are many reasons to remain concerned about the potential impact on activity of the financial crisis. The process of deleveraging could be more intense and protracted than factored into these projections. Intense deleveraging could also increase the risks of substantial capital flow reversals and disorderly exchange rate depreciations for many emerging economies. Another downside risk relates to growing risks for deflationary conditions in advanced economies, although these are still small, given well-anchored inflation expectations.

Beyond the direct impact of the financial crisis, activity is increasingly being held back by slumping confidence. As the financial crisis has become more entrenched, households and firms are increasingly anticipating a prolonged period of poor prospects for jobs and profits. As a result, they are cutting back on consumption, notably of durables, and investment. Moreover, the declining international oil prices have decreased projected current account surpluses of oil exporting countries.

International Trade Development

Reflecting the deceleration in world GDP growth and the weaker import demand in the United States, world merchandise exports grew at a slower pace in 2008. Growth in world merchandise trade slipped to 4.4 percent in real terms down from 6.4 percent in 2007. The volume of world merchandise exports increased by 7.1 percent in 2008. Large variations in trade performances prevailed both within and between regions. Merchandise trade continues to be a driving force of the world economy. Both in volume and in dollar value terms, world merchandise trade has grown as fast as world output over the past five years. During 2007, however, world trade growth seems to have lost some of its strength, particularly for developed economies. During the upward cycle that started in 2001, merchandise trade growth has been driven by the developed countries and East Asia, led by China.

Table 2: World Trade Growth (%), 2004–2009e

Country 2004 2005 2006 2007 2008e 2009f

World Trade Growth Rate (%) 11.2 7.4 9.3 6.4 4.4 2.1

Source: UN, World Economic Situation and Prospects, 2009.

These trends reversed sharply in 2008, however, financial crisis hit equity markets and oil prices plummeted by more than 70 percent from their peak levels of July to December 2008. Weakening demand in developed countries, realignments in exchange rates and

Trade slows down due to

weakening demand from

developed economies.

7

fluctuations in the prices for commodities, such as oil and gas, introduced uncertainties into the global markets in 2008. Furthermore, other commodities, including basic grains, have also declined significantly. In the outlook, most of these prices are expected to even out further along with the moderation in the global demand, but a cut in the supply of oil, as already indicated by the Organization of the Petroleum Exporting Countries (OPEC), may keep oil prices from falling.

Prices of oil and non-oil primary commodities have also shown strong fluctuations during 2008, largely driven by financial factors, as well as shifts in the balance between supply and demand. The prices of most commodities rose sharply in the first half of 2008, continuing a multi-year upward trend that began in 2003. Food prices, especially the price of rice, surged the most in early 2008, leading to a food crisis in some 40 developing countries. Oil prices also soared by about 50 per cent in the first half of the year. While some commodity-specific factors on either the supply or demand side could explain part of the surge in these prices, a common factor had been the relocation of funds by investors from other financial assets towards commodity markets, along with the declining value of other financial assets.

In 2007, world merchandise trade grew by 6.4 percent, with developing Asia contributing about 40 per cent to the trade expansion. Developed countries have contributed about 45 percent of the growth in 2007 and about half of the trade expansion since 2001. Other developing countries have contributed about 14–15 per cent to the growth of world merchandise trade. Growth of world trade decelerated to 4.4 percent in 2008, down from 6.4 percent in 2007, mainly owing to a decline in imports of the United States. The US imports, which account for about 15 per cent of the world total, have registered a decline in each quarter since the fourth quarter of 2007. In the outlook, import demand in most economies is expected to diminish further, leading to a further weakening of growth in global trade in 2009.

Table 3: Growth Rates of Global Trade, 2004–2008

Million $

Country 2004 2005 2006 2007 2008

World Export volume 10.7 7 9.9 7.2 7.1 Export value 21.2 14.4 15.7 15.5 12.4 Developed countries Export volume 8.3 5.3 9.5 5.8 6.1 Import Volume 9.3 6.3 7.8 4.7 5.7 Economies in transition Export volume 15.4 3.9 6.3 6.6 5.3 Import Volume 19.6 8.2 20.4 21.9 15 Developing economies Export volume 14.5 10.3 10.9 9.4 8.7 Import Volume 14.1 9.3 11.5 11.5 10.4 East and South Asia Export volume 17.6 12 13 13 10.5 Import Volume 15 9.5 9.5 11.1 10.2

Source: UN, World Economic Situation and Prospects, 2008.

World trade dynamics are strongly correlated with the evolution of domestic demand in the developed world, with consumption growth in the United States of America having been the main driver during the last decade. The growth of domestic demand in the United States and that of other developed economies have moved in tandem with the growth of exports of manufactures from developing countries. The exception to this pattern was in 1998, which saw a steep fall in manufacturing exports from developing countries in the aftermath of the Asian crisis and the generalized decline in economic activity in many Asian countries.

Commodity prices have strictly

declined sharply in 2008.

The United States economy is

expected to decline in 2009,

Japan is in recession and its

economy will stagnate in 2009,

and major European countries

are in recession.

8

Similarly, exports of energy and raw materials by developing countries have closely followed the cycles of domestic demand in the developed countries that have been supported by manufacturing exports from the developing regions.

Will this apparent virtuous cycle of strong demand in the developed world, industrial export-led growth in developing Asia and vigorous demand for raw materials and energy from many other developing countries be sustained in the coming years? This pattern of buoyant world trade has lasted for more than a decade now. It is also clearly part of the global imbalances that have developed over this period. Not surprisingly, therefore, the growth of world merchandise exports is closely associated with the business cycle of the major deficit economy, the United States. A strong slowdown in the United States economy, and if no stimulus to demand is given in other parts of the world, the unraveling of the global imbalances will take place in the context of much less vibrant global trade, making the adjustment all the more painful.

The relatively strong import performance in the developing world is explained in part by the fact that for some of these regions, export volumes, and thus foreign revenues, remained high due to a small acceleration in demand originating in East Asia. Indeed, East Asia was the only region whose rate of import growth increased, if only slightly, from 10.5 per cent to 11 per cent 2007. On the other hand, developing and transition economies are driving the growth in world merchandise trade and are gaining a larger global market share. Their contribution to global merchandise exports by value increased from 34 perent in 1997 to over 40 percent in 2007. In 2007, 12 countries from both transition economies and developing regions were featured among the world’s 30 leading importers and exporters.

Demand for transport services naturally grows in tandem with growth in world trade, and receives a boost from the fragmentation and globalization of international production. The positive correlation between GDP, merchandise exports and maritime transport is evident. Against this background, growth in world GDP and merchandise trade directly impacts on seaborne trade and demand for shipping services. As can be seen in the following section, with strong world GDP growth in 2007 and international merchandise trade growing even faster, demand for shipping services and the volume of seaborne trade have also expanded.

Trade balances in the developing world and economies in transition have remained relatively moderate at the level of regional aggregates. East Asia’s trade surpluses have increased in 2008 and are expected to decrease further in 2009 due to the global meltdown, although at a slower pace than in previous years. China’s bilateral surplus with the United States remains the largest component of the region’s trade surplus. South Asia’s trade deficit decreased slightly during 2008.

However, it is expected that the recent strength of the dollar will be temporary and the risk of a hard landing of the dollar in 2009 or beyond remains. As the global financial crisis intensifies, the world economy is experiencing an abrupt adjustment of the global imbalances. The current-account imbalances across the globe narrowed somewhat in 2008.

In conclusion, trends in merchandise trade growth have switched towards a slower world economic growth, recession in rich countries, severe slowdown in poor countries and problems have not bottomed out yet, stimulated in part by the significant appreciation of the United States dollar since the second half of 2008, leading to a decline in that economy’s trade deficit. This is reflected in wiped out of the surpluses in some of the surplus economies, especially in Europe, Japan and most developing country regions. However, the adjustments are small and do not amount to any substantial global macroeconomic rebalancing as yet.

The crisis will hit growth prospects of developing countries hard.

Trade balances have not yet changed significantly.

The rebound of the dollar was driven by a flight to safety.

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Overview of the Global Maritime Transport Industry The global economy had tough times in 2008 due to slowing demand caused by the global financial crisis and rising inflation. Global growth is expected to decelerate significantly in 2009, before recovering gradually in the second half of 2010. At the same time, OPEC has responded to the sharp drop in oil prices by targeting large output cuts, which will be reflected more apparently in the months ahead. On 10 September, OPEC announced a 0.5m barrels per day (bpd) cut in output, followed by a 1.5m bpd cut on 1 November, and the latest 2.2m bpd cut effective 1 January. These announced cuts sum up to 4.2, bpd. This represents a massive 15.6% cut from the August production level. Marine transport remains the backbone supporting international trade and globalization. Shipping industry is the primary means of international transportation of any essential raw material or finished good. Over 80% of trade flows moved today is by water. The global shipping can be classified into the following categories as illustrated in Table 4.

Table 4: Categories of Global Shipping

Category Good transported

Dry Bulk Coal, Iron Ore, Steel, Grain, Sand/Gravel Wet Bulk (tanker) Crude Oil, Liquefied Natural Gas, Liquid Chemicals, fresh water Containers Finished goods

General cargo Refrigerated cargo, specialized cargo, Ro-Ro cargo, general cargo (single- and multi-deck), general cargo/passenger

Source: Review of Maritime Transport, 2008, UNCTAD. Shipping is a global industry and its prospects are closely tied to the level of economic activity in the world. A higher level of economic growth would generally lead to higher demand for finished products, intermediary products and raw materials, all of which has a direct impact on the size of international trade flows. Robust growth in international seaborne trade over the last decade, developments in World energy markets and increasing freight rates are driving the gains in the shipping industry. Freight rates are driven by the interplay of demand for commodities and supply of carrier vessels. Margins on spot freight carriage are higher than medium term freight contracts and these in turn are higher than the margins on long term contracts. The spot rates are more volatile and hence the companies having a higher proportion of time charters usually have a stable earnings profile. However, the shipping market is cyclical in nature and freight rates generally tend to be highly volatile. This can be seen by looking at the fluctuation in the rates since 2002 in Chart 1.

By examining the Clarkson’s Clarksea index - which measures the average earnings of tankers, bulk carriers, containerships and gas carriers - shown in the graph above, and attempted highlighting a trend line and then extending a parallel line to draw a channel showing the upper bound and lower bound of the index value during each year since January 2003. There was a fair amount of apprehension about the future as the shipping market returned from holiday to gloomy stories of credit problems in the banking system and a record shipyard orderbook. The Clarksea Index was $36,800/day in early October 2007 which in the circumstances seemed a good rate, where both the dry and wet markets boomed, the Clarksea index crept slowly up to a new all-time record of $ 50,000/ day in late of November 2007, before edging back to finish 2008 at $ 14,000 per day. Thus the average earnings index of tankers, bulk carriers, containerships and gas carriers declined by 72 percent from its peak in 2007.

Reflecting the deceleration in

World GDP growth and the

weaker import demand in 2009

will affect strongly the

maritime transport industry.

Robust growth in international

seaborne trade over the last

decade, developments in

World energy markets and

increasing freight rates are

driving the gains in the

shipping industry.

10

Chart 2: Clarkson Clarksea Index

05000

100001500020000250003000035000400004500050000

2003-012003-042003-072003-102004-012004-042004-072004-102005-012005-042005-072005-102006-012006-042006-072006-102007-012007-042007-072007-102008-012008-042008-072008-102009-01

Year

$/day

Source: Clarkson Research Studies. The performance of the global shipping industry depends on the examined time frame. The more recent trend suggests a smoothed growth in rates, with the Clarksea index reaching USD 14,000 per day in December 2008, and an average of USD 32,067 for 2008, compared to USD 32,000 and USD 23,800 per day on average in 2007 and 2006 respectively. However, 2008 results are still better than the average for the 2004, which at USD 29,900 was a long-term peak.

This is in line with a period of strong global economic growth, and an associated strong growth in global trade activity. Furthermore, it is important to consider the imbalances of demand capacities versus supply capacities for seaborne trade; the extreme imbalances whether actual or expected are what causes the price hikes or drops in chartering rates. In conclusion, the last six months of 2008 witnessed a sharp decline in the earnings of tankers, bulk carriers, containerships and gas carriers.

Projecting the outlook of the shipping industry is a difficult task since the industry is dependent on equilibrium of a demand and supply of a shipped good, and the demand for seaborne trade versus the available seaborne capacities that determine the chartering rates. There are many conflicting views on the outlook of the industry, with arguments that suggest that chartering rates will soon drop, while others suggesting that the industry is soon to witness a new high in the second half of 2010 when the global economy recover and oil prices start to rise to new records.

World Seaborne Trade Growth

In 2008, goods loaded at ports worldwide are estimated to have reached 8,506 billion tons, by an annual increase reached to 2.9 percent than 2007. Crude oil accounted for 24.4 percent of total goods loaded, while petroleum products represented 9 percent. About 35% of the total seaborne trade is in oil and oil products. While total seaborne trade has been showing positive growth year on year, the oil and oil products seaborne trade has been growing at a slower rate decreasing its contribution to total sea trade from almost 40% in 1990’s to its current levels of 33.4% of the total in 2008.

2008 results are still better

than the average for the 2004,

which at USD 29, 900 was a

long-term peak.

Charting rates change due to

imbalances between demand

and supply capacities.

In 2008, the total volume of goods loaded by world seaborne trade increased by 2.9 percent compared with 2007.

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Table 5: Development of International Seaborne Trade

Year Total Oil Main Bulks

(iron,ore,coal,etc) Total Dry Trade

Total (all cargo)

2000 2,180 1,315 3,595 5,918

2001 2,229 1,345 3,650 6,022

2002 2,210 1,413 3,848 6,207

2003 2,345 1,495 4,040 6,546

2004 2,470 1,623 4,313 6,952

2005 2,556 1,730 4,520 7,259

2006 2,644 1,854 4,772 7,616

2007 2,719 1,987 5,012 7,941

2008 2,798 2,106 5,254 8,270

Average growth 2007-2008

1.7% 4.4% 3.4% 2.9%

Source: Clarkson Research Studies.

The larger balance of world goods loaded (63.5 percent) was made up of dry cargo, including bulk, break bulk and containerized goods. According to the Review of Maritime Transport 2008, the geographical breakdown of total goods loaded by continent highlights the continued preponderance of Asia, with a share of 40 percent followed in descending order by America (23 percent), Europe (18 percent), Africa (10 percent) and Oceania (9 percent).

Chart 3: International Seaborne Trade

01,5003,0004,5006,0007,5009,000

10,500

2000 2001 2002 2003 2004 2005 2006 2007 2008

Mill

ion

of t

ons

Crude O il & Produc ts Total Dry Cargo Main Bulks

Source: Clarkson Research Studies.

Sectors of World Seaborne Trade The demand for seaborne transport is driven by world economic growth and trade. The following sections consider 2006 developments affecting the various economic sectors (crude oil and petroleum products, dry bulk and other cargoes) that generate cargo to be carried by sea.

Million of tons

Share of Asia for total goods loaded reaches 40 percent in 2008.

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Table 6: International Seaborne Trade By Sector

Million of tons

*Includes iron ore, coal, grain, bauxite/alumina and phosphate. Source: Clarkson Research Studies, Review of Maritime Transport 2008, UNTCAD. Seaborne trade in crude oil and petroleum product world shipments of tanker cargoes reached 2.7 billion tons, of which about three quarters were crude oil and the remaining share was made up of petroleum products. The share of tanker trade in total 2008 world seaborne trade amounted to 33.8 percent. An overview presenting key oil and gas producers and major traders is provided. World Shipments by Country Groups According to Review of Maritime Transport 2008, the share of developed countries in terms of goods loaded was 33.3 percent. Within this grouping, Europe was the major player and dry cargo the main cargo flow, followed by petroleum products (exports) and crude oil (imports). Europe’s share of world goods loaded amounted to 14.8 percent, followed by Australia and New Zealand (8.5 percent combined), North America (7.9 percent) and Japan and Israel (2.2 percent combined). Europe is the destination of 26.9 percent of world crude oil shipments, 32.8 per cent of petroleum products and 24.9 per cent of dry cargo. North America accounted for 14.8 percent of world goods unloaded, followed by Japan and Israel (10.8 per cent), and Australia and New Zealand (1.2 percent). In contrast with developed nations, developing economies contribute a larger share of global exports than imports. In 2007, 63.2 per cent of goods loaded in the world originated in developing regions, while 46.2 percent of world’s shipments were unloaded at ports in developing countries. Reflecting their trade structure, ports in developing countries loaded 85.8 percent of total world crude oil exports and 48.2 percent of total world exports of petroleum products. In terms of goods unloaded, ports in developing economies accounted for 52.1 percent of world dry cargo imports, 39.2 percent of world petroleum products and 33.3 percent of crude oil. Developing Asia’s dominance both as a loading and unloading area is maintained with a share of 38 percent with respect to goods loaded and 37.1 percent of goods unloaded. Transition economies accounted for 3.5 per cent of world goods loaded and 0.7 percent of world goods unloaded. Oil shipments loaded at their ports are estimated to have reached 6.9 percent of total world oil loaded, reflecting in particular oil shipped from the Black and Baltic Seas.

Five Main

Other Total Gas trade

Year Crude Oil

Other Oil

Products

Total Oil Products

Iron Ore Coal Grain Dry

Bulks* Dry

Trade Dry

Trade LNG LPG

Total Seaborne

Trade

2000 1,656 524 2,180 447 520 264 1,315 874 3,595 39 104 5,918

2001 1,684 545 2,229 450 552 260 1,345 860 3,650 36 107 6,022

2002 1,667 543 2,210 480 577 271 1,413 906 3,848 36 113 6,207

2003 1,770 575 2,345 516 626 264 1,495 885 4,040 36 125 6,546

2004 1,850 620 2,470 587 662 275 1,623 855 4,313 38 132 6,952

2005 1,885 671 2,556 658 692 272 1,730 840 4,520 38 144 7,259

2006 1,933 712 2,644 720 733 291 1,854 805 4,772 40 160 7,616

2007 1,984 736 2,719 781 787 303 1,987 748 5,012 39 171 7,941

2008 2,043 755 2,798 856 817 315 2,106 738 5,254 43 176 8,270

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Main Industry Drivers

There are several variables which affect the global maritime transport and related logistics including development of the world economy and seaborne trade, development of the world fleet, Energy market, World fleet productivity and supply and demand, Trade and freight markets, port infrastructure and port services and Legal issues and regulatory developments. While there are some variables which cannot be easily influenced, such as geography, others can be positively affected by improving both the institutional infrastructure and the policy framework.

Demand Dynamics This part provides an overview of the demand for global maritime transport services as well as a review and forecast of developments in world seaborne trade, against the background of the world economy and global trade, and continued demand for oil and dry bulk transportation from emerging and developing countries. Demand in the industry is driven by the growth of trade and its geographical balance. Supply on the other hand is driven by new ship building orders as well as scrapping existing tonnage. Therefore freight rates and earnings of shipping companies are mainly a function of demand and available supply in the market. Currently, a degree of over supply in the tanker market has been exerting some pressure on freight rates, apart from the fact that scrapping has not been keeping pace with the increasing supply 1. Crude Oil Demand

A number of developments affected the oil sector in 2008. These included the global financial crisis, appreciation of the United States dollar, geopolitical risks in production and exporting areas, extreme weather events and refinery capacity limitations as well as rigid OPEC production quotas. It has been at a very unusual period as far as the world economy is concerned. In 2008, the world economy entered a recession period and major economies such as Europe and Japan were going through their own “globalization” cycle.

It is hard not to see some parallel between that period of expansion, led by the oil and steel industries, and the recent growth driven by Asia, most notably China but also increasingly India. In both cases the headlong expansion put pressure on world economic resources, resulting in shortages of raw materials and concern about the environment. In the former case, a decade of headlong growth ended in the mid-1970s in a deep recession and a shipbuilding capacity bubble which ended up causing a great deal of trouble for the shipping industry.

About 34% of the total seaborne trade is in oil and oil products. While total seaborne trade has been showing positive growth year on year, the oil and oil products seaborne trade has been growing at a slower rate decreasing its contribution to total sea trade from almost 40% in 1990’s to its current levels of 34% of the total. In 2008, the share of crude oil shipment in the total world seaborne trade amounted to 24.4 percent. During the last year, crude oil seaborne shipments increased by an estimated 2.9 percent, to reach 2.04 billion tons. Major loading areas are mainly located in developing regions, with Western Asia topping the list (726.7 million tons). Other loading areas include Western Africa (238.6 million tons), Northern Africa (139.6 million tons), the Caribbean and Central America (119.8 million tons), South America’s northern and eastern seaboards and Central Africa (117.4 million tons each). Major unloading areas are located in developed regions, including Europe (528.4 million tons loaded), North America (534.4 million tons) and Japan (211.5 million tons). Major unloading developing regions included Southern and Eastern Asia, with 424.8 million tons and South-Eastern Asia, with 95.8 million tons,

Trade of crude oil affect seriously by major factors such as financial crisis and geopolitical risks. Crude oil and oil products represent about 34 percent of global seaborne trade in 2008.

Oil products seaborne trade rose by 1.7 percent in 2008.

14

reflecting growing energy requirements in developing Asia, and an evolving intraregional South–South trade.

Chart 4: Global Crude Oil Seaborne Trade

33.5

35.5

37.137.9

38.839.8

40.5

30

32

34

36

38

40

42

2002 2003 2004 2005 2006 2007 2008

Year

mbp

d

Source: Clarkson Research Studies.

Chart 5: Global Crude Oil Shipments

500

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,500

2000 2001 2002 2003 2004 2005 2006 2007(e)

2008(f)Year

Mill

ion

tons

Wor ld Seaborne Trade Crude O il Transpor tation

Source: Clarkson Research Studies. The downward trend in oil prices continued in the second half of 2008 as the worsening global economy weakened oil demand due to the global financial crisis and the second Organization of Petroleum Exporting Countries (OPEC) agreement for substantial production cuts has failed, thus far, to support substantially higher prices. The outlook for supply and demand fundamentals indicates a fairly loose oil market balance over the next 2 years. The global economic downturn points to declining oil consumption in 2009, while additional production capacity from both OPEC and non-OPEC nations should boost surplus production capacity, reducing the likelihood of a renewed strong upward pressure on prices. Global real GDP growth (weighted according to shares of world oil consumption) is assumed to be 2.2 percent in 2009. These projections compare with 4.9 percent real GDP growth in 2007 and 3.7 percent in 2008. The oil price path going forward will be driven mainly by the depth and duration of the global economic downturn, the pace and timing of the recovery, and actual OPEC production.

In 2008 , World shipments of tanker cargoes reached 2.84million tons, of which more than two thirds were crude oil. The global financial crisis in 2008 affected seriously the demand in crude oil and its products.

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Crude oil production measured in million barrels per day (mbpd) increased for five consecutive years before reaching 85.91 mbpd in 2008. World crude oil output rose by 0.01 percent than 2007, it expected to decline by 0.94 percent in 2009. Major oil producers are located in Western Asia, North America and Africa.

Chart 6: Global Oil Demand, 2002-2009e

50

60

70

80

90

100

2002 2003 2004 2005 2006 2007 2008e 2009e

Mbp

d

0

0.008

0.016

0.024

0.032

0.04

%

G lobal O il demand Growth Rate

Source: EIA.

According to the Energy Information Administration (IEA), global oil demand contracted in 2008 for the first time since 1983, falling some 0.2 mbpd to 85.8 mbpd. The US macroeconomic outlook is grimmer than originally thought and the country is now judged to have been in recession for a year, with manufacturing activity having fallen to its lowest level since 1982. The IEA is forecasting the Organization for Economic Cooperation and Development (OECD) countries oil demand to stagnate until at least 2013. The Chinese economy is under real stress, causing the government in Beijing to unveil a fiscal stimulus package of some 2% of GDP. Growth in exports of manufactured goods look set to decline next year and it remains to be seen how the world’s fourth largest economy will weather the global economic slowdown. On the other side, the IEA is forecasting global oil demand growth of 0.5 mbpd in 2009 at 86.3 mbpd. However, next year’s growth will be wiped out if the global economy continues to worsen. The members of the Organization of the Petroleum Exporting Countries (OPEC) accounted for 41.8 percent of global oil production in 2007. Their production reached 34.39 mbpd in 2006 and 35.75 moped in 2007. Thus, non-OPEC countries continued to supply the largest share of global oil production (58.2 percent). In 2008, production in OECD countries declined by 2.7 per cent, while in 2007 it fell by 0.5 per cent. As a result, its market share dropped to 20.87 percent in 2008 compared with 21.87 per cent in 2006.

Table 7: Major Oil Producers

Region Percentage

OPEC 41.8

OECD 24.4

Non-OPEC & Non OECD 33.8 Source: EIA Statistics.2008. The IEA predicts that non-OPEC supply will rise modestly over the next 2 years. After falling by 340,000 b/d in 2008 because of project delays and disruptions in Central Asia and the Gulf of Mexico, non-OPEC supply is projected to grow by about 180,000 b/d in 2009 and 90,000 b/d in 2010. These projections assume that unexpected delays to new non-OPEC

Modest oil demand growth expected 2009 and limited demand growth in 2009 with declining OPEC production. According to International Energy Outlook, 2008, the world marketed energy consumption is projected to grow by 50 percent over the 2005 to 2030 period.

16

supply that have occurred in the past will continue through the forecast period. Supply growth in countries such as the United States, Brazil, and Azerbaijan is expected to more than compensate for continued declines in many non-OPEC nations, particularly Mexico, the North Sea, and Russia. The global economic slowdown and falling oil prices bring additional risk to the usual uncertainties concerning non-OPEC supply growth, such as unexpected disruptions, project delays, and underestimation of decline rates. Lower oil prices bring into doubt the viability of some high-cost non-OPEC projects, especially those utilizing no conventional technology or those seeking to exploit frontier oil basins. The credit crunch associated with the global economic crisis can also make it difficult to acquire financing for new projects or even finance the investment required to prevent accelerated declines at producing fields. If conditions in global financial markets lead to delayed investment in existing and new oil fields, then even a short-lived economic downturn could have longer-term ramifications for world oil supply. This would heighten the risk of a return to a tight supply situation once the world economy and oil demand growth recover. The EIA projects that total OPEC crude oil production (including Iraq) will fall by more than 2 mbpd from 31.4 mbpd in September 2008 to 29.3 million in the first quarter of 2009, implying a compliance rate of a little more than 50 percent. Because of Indonesia's exit from OPEC, EIA has revised its historic and forecasted values for OPEC oil production to be consistent with the current membership. OPEC crude oil production is expected to average 30.0 mbpd in 2009 and 30.7 mbpd in 2010. In addition, EIA expects that OPEC production of non-crude liquids will rise substantially next year, growing by 600,000 b/d in 2009 and by 850,000 b/d in 2010. The combination of lower demand for OPEC crude oil and the capacity expansions expected in several OPEC countries means that surplus production capacity could increase to roughly 4 mbpd in 2009 and 4.7 mbpd by the end of 2010, compared with the 1 to 2 million of surplus capacity available over the past several years. Given three OPEC production cuts for a total of approximately 4.2 mbpd, tanker demand growth is likely to be negative in 2009 while the global tanker fleet is likely to grow by nearly 7.0%. We believe this will result in significant pressure on tanker spot rates in 2009 and that eventually will be for the benefit of ships being taken out for storage (about 25 currently) will reverse itself and put additional pressure on the market. 2. Natural Gas Demand

In 2007, world production of natural gas expanded by 2.4 percent over the previous year, taking the total to 2,940 billion cubic meters (bcm). Expressed in million tons of oil equivalent (mtoe), total production amounted to 2,654. The Russian Federation remained the world’s largest producer, with a market share of 20.6 per cent, followed by the United States, with a world share of 18.6 percent. Other producers included Canada (6.2 percent), the Islamic Republic of Iran (3.8 percent), Norway (3 percent), Algeria (2.8 percent), China (2.3 percent), Indonesia (2.2 percent) and Malaysia (2 percent).

Table 8: Major Natural Gas Producers

Region Percentage

North America 27

Asia Pacific 13

Middle East 12 Europe & Economies in transition 36 Africa 7 Latin America 5

Source: Review of Maritime Transport & UNCTAD 2008.

EIA expects that OPEC production of non-crude liquids will rise substantially next year.

Natural gas witnessed good growth rates during the last year, but affected also by the financial crisis. Liquefied natural gas (LNG) Shipments are estimated to have increased by 3 per cent in 2008.

17

In 2007, world natural gas consumption increased by 3.1 percent to reach 2,922 bcm or 2,638 mtoe. The United States and the Russian Federation were the main natural gas consumers, with their shares in world total consumption amounting to 22.3 per cent and 15 percent, respectively. Other major consumers included the Islamic Republic of Iran (3.8 percent), Canada (3.2 percent), Japan and the United Kingdom (3.1 percent each). Liquefied natural gas (LNG) shipments are estimated to have increased by 3 percent in 2008 to reach 181 million tons, with growth being mainly driven by the additional capacity provided by liquefaction and purification facilities that started up in 2006 as well as those that were completed in 2007 (e.g. Nigeria and Equatorial Guinea). Major LNG importers included a mix of developed and developing countries, namely Japan, the Republic of Korea, the United States, Spain, France and India. Main LNG exporters are located in developing regions, with Qatar – the world largest exporter – accounting for 17 per cent of world natural gas exports. Other exporters included Malaysia (13.1 per cent), Indonesia (12.2 per cent), Algeria (10.9 per cent), Nigeria (9.3 per cent), Australia (9 per cent), and Trinidad and Tobago (8 per cent). Other smaller players were Egypt, Oman and Brunei. It is worth noting that a significant number of LPG carriers are also able to transport ammonia and other petrochemical gas cargoes, such as ethylene, propylene, butadiene and VCM. 3. Dry Bulk Carrier Demand The recent global economic weakness has resulted in the large iron ore miners cutting production capacity and delaying capacity addition programs. However, looking at Exhibit 114, iron trade growth is still expected to increase by nearly 50 million tons or 6% in 2009. Virtually all of this growth will come from China which is embarking on a massive $586 billion infrastructure program to help jump start its economy. Further, with a large price reduction in the annual contract price for iron ore, imported ore could potentially replace some of the lower grade domestic ore in China that is expensive to process. This could stimulate the demand for imported Chinese ore in excess of growth in steel output, which would have a significant positive impact on dry bulk shipping rates. We have already seen inventory stocks at the Chinese ports come down to under 60 million tons after reaching a high of 75 million in September despite lackluster Chinese crude steel production in October and November. This implies to us that China will need to begin to import ore in a more significant way in the coming months. The coal trade, like all commodities, has been impacted by the global slowdown as electric producers and steel mills elect to draw down inventories in tighter economic times. However, we believe global steel production will turn the corner and begin to start growing again in late 1Q09 or early 2Q09 led by the Chinese mills ramping up capacity as a result of the infrastructure build out program, and this will stimulate coking coal demand which is projected to increase by 10 million tons in 2009. Further, as letters of credit continue to become more available and the global economies begin to experience resurgence in demand as a result of the vast resources being pumped into stimuli programs, we believe demand from electric power producers will gradually come back to the market throughout 2009 for thermal coal. Thermal coal trade is still expected to increase by 17 million tons in 2009. Longer term, coal fired generation remains the most economical way for emerging nations such as China and India to bring additional power on-line. While there has no doubt been a serious destruction in the demand for commodities as a result of the global economic turmoil, we believe apparent demand as measured by the BDI or shipping rates continues to be less than real demand until letters of credit become freely available and some restocking of inventories occurs. We believe that these two things, along with a real rebound in iron ore demand in China as it likely ramps up steel production to facilitate the country’s $586 billion infrastructure spending program, should provide a firm boost to dry bulk shipping rates by the end of 1Q09. Additionally, a

While fleet growth should Be modest On limited shipyard deliveries in 1H09.

Dry bulk Fleet growth expected To accelerate In 2009 And 2010.

Iron Ore Demand Should Allow Dry Bulk transportation Demand to Rebound.

18

resumption of iron ore cargoes from Brazil to China should provide a meaningful increase in ton miles. Dry bulk shipping rates have declined significantly in the 4th quarter of 2008, Capesize spot rates entered the quarter at approximately $35,000 per day before bottoming at around $2,500 per day in mid to late November and rebounding to near $10,000 per day where they currently stand. A sudden lack of availability of letters of credit and significant demand destruction as a result of the global financial crisis were the culprits for the sudden unforeseen drop in shipping demand. Things have started to gradually improve with letters of credit becoming available, and the Chinese beginning to fixture ships to restock some of their iron ore inventory that has been coming down materially in recent weeks from a high of 75 million tons in late September to under 60 million tons today. We believe rates are poised to improve significantly from current levels as we move into 2009 for the following reasons: 1) letters of credit will continue to become more available, 2) a restocking of inventories following the drawdown that is occurring right now, 3) the Chinese begin to amp up their iron ore purchases in a meaningful way as a result of the country’s infrastructure spending stimulus package, and 4) supply of new dry bulk vessels is not a huge concern in the fist half of 2009. Supply Dynamics The year 2008 has witnessed magnificent feats due to the global credit crunch. Much has been made its impact on the downturn in various global Industries and shipbuilding is no exception. After many grim years, shipbuilding is about to have its day in the sun as it enters one of the fastest periods of expansion in its history during the first nine months of 2008, whereas, In 2007 the growth of shipyard production (in deadweight tonnes) was quite modest at 5.2%. Compared with seaborne trade growth of around 4%, the capacity side of the market appeared to be in line with demand growth during 2007, a fact which was confirmed by the world cargo fleet growing 5.8%. 1. Development of World Fleet At the end of 2008, the world merchant fleet reached 1.1 billion deadweight tons (dwt). Year-on year growth was 6.7 percent, a gain of 68.2 million dwt. The tonnage of oil tankers increased by 6.1 percent and that of bulk carriers by 6.5 percent. These two types of ships together represent about 73 percent of total tonnage, a slight increase from 72.0 percent in 2007. The fleet of general cargo ships increased by 1.1 per cent in 2008; as this growth rate was below the world total growth rate, this category’s share of the total world fleet has further declined to 3.5 percent. The fleet of containerships increased by 16.3 million dwt, or 12.6 percent of the total world fleet. This high growth rate reflects the increasing share of trade in manufactured goods, which is further enhanced by its continued containerization. In 2008, only 1.1 percent of the dry bulk fleet (0.4 percent of the total fleet) are combined ore/bulk/oil carriers, a further decrease from the 1.5 percent share of one year earlier. In spite of the high fluctuations in vessel charter rates, both for oil tankers and for dry bulk carriers, the building cost differential between pure dry bulk carriers and combined carriers still deters investment in the more versatile combined carriers. Among other types of ships, in 2007 there was a continued strong growth of liquefied natural gas carriers (plus 11.5 per cent), reflecting the growing use of LNG in the global energy supply, although the record number of new LNG carriers also raised concerns of short-term overcapacity following delays in the completion of liquefaction plants. Currently, the largest containerships are all gearless, i.e. the vessels depend on the ports’ container cranes for the handling of the containers. Many smaller ports, especially in developing countries with infrastructure constraints in their ports, cannot accommodate

The world fleet grew by 6.7 per cent – a response to further enhanced by oil prices in the first nine months of 2008.

19

large or gearless containerships. Operating costs for geared containerships are higher than on gearless ships, while loading and unloading speeds in the ports are lower.

Chart 7: World Fleet by Principle Vessel Types

0

2 0 0

4 0 0

6 0 0

8 0 0

10 0 0

( M ill ions o f dwt )

other 79.282822 80.770608 82.145512 84.296274 88.27037 92.968937

Containership 84.832086 91.482782 99.662803 111.512802 128.082787 143.955428

General 39.042324 37.872567 37.802199 37.873871 38.013323 38.4336

Dry Bulk 294.802266 302.172698 322.589776 345.155531 368.566218 392.63443

Oil tanker 312.846151 320.935947 334.976236 359.530921 379.249358 402.32587

37622 37987 38353 38718 39083 39448

Source: Clarkson Research Studies. Age Distribution of the World Merchant Fleet As shown in the following Table that provides data on the average age distribution of the world merchant fleet by both ship types and groups of countries and territories of registration, the estimated average age of the total world fleet continued to decrease during 2007 to 11.8 years. By vessel type, the youngest fleet continues to be that of containerships, with an average age of 9.0 years; 37.3 per cent of tonnage on containerships is younger than five years and only 12.4 per cent is 20 years and older. The average age of tankers increased marginally to 10.1 years, the average age of bulk carriers decreased slightly from 12.9 to 12.7 years, and general cargo vessels continue to be the oldest vessel type, with an average of 17.1 years and 55.9 percent of tonnage 20 years and older. Only 12.0 per cent of general cargo tonnage is younger than 5 years, reflecting the trend that general cargo is increasingly containerized.

Table 9: Age Distribution of World Merchant Fleet, by type of Vessel, as of 1 Jan, 2008 (percentage of total dwt)

Country Group Type of vessel 0-4

years 5-9

years 10-14 years

15-19 years

20 years & over

All Ships 25.8 21.3 15.8 11.7 25.2 Tankers 28.8 27.6 14.1 16.2 13.2 Bulk carriers 23.4 18.3 18.4 9.6 30.3 General Cargo 12.0 10.8 12.2 9.2 55.9 Containership 37.3 22.9 19.4 8 12.4

World Total

All others 20.5 15.8 9.8 10.0 44 Source: Review of Maritime Transport, UNCTAD, 2008.

73 per cent of general cargo Tonnage comes form two types "oil tankers and bulk carriers. Among containerships built since 2001, the number gearless vessels is three times higher than that of geared ships. 55.9 per cent of general cargo tonnage is 20 years and older.

20

As regards country groupings, ships registered in developed countries are the youngest (average age of 9.7 years in January 2008), followed by developing countries (12.3 years) and transition economies (15.5 years). Replacement of general cargo vessels by containerships is particularly noticeable in the fleets registered in developing and transition economies. In these country groups, containerships were introduced later than in the developed market economies fleets. As a consequence, in developing economies, 39.2 percent of containerships are younger than five years old, versus only 12.1 per cent of general cargo vessels in this age group. Of general cargo vessels registered in developing economies, 59.7 per cent are older than 19 years, versus only 12.8 per cent of containerships in this age group. For transition economies, 74.8 per cent of general cargo vessels are older than 19 years, and 37.8 per cent of containerships younger than 5 years. After a period of ageing in the 1990s and modernizing in the present decade, at the beginning of 2008 the average age of the world fleet was approximately the same as it was in 1987, with tankers being on average younger, and bulk carriers and general cargo ships still somewhat older today than two decades ago. 2. The Capacities and Delivery of Newbuildings In 2008, the orderbook activities reached the highest level ever recorded in terms of deadweight tons, with orderbooks totaling 162.8 million dwt, a further increase over previous year’s historical record of 146.6 million dwt During 2007. About 504 cargo carrying commercial vessels of 10k dwt and above were delivered in 2008, a historical record, too, and an increase of 19 percent over 2007. As regards the tonnage and vessel types, the deliveries of oil tankers of 10,000 dwt and above account for 36 percent of delivered dwt, dry bulk carriers of 10,000 dwt and above for 30 percent and other vessels or 34 percent; the latter category includes all kinds of commercial vessels of 10k dwt and above. As regards the number of vessels, 75 percent of vessels delivered in 2007 belong to the category of “other vessels”, as compared to 13 percent for large oil tankers and 11 percent for large dry bulk carriers. The total tanker fleet increase by 6.1 percent, it is forecasted to increase by 5.4 percent during 2009, the estimated rise in newbuildings deliveries and no scrapping during 2008 led to an increase in the total fleet. Furthermore, the conversions of single hulled tankers to FPSOs and VLOCs. The fleet is forecast to total 175.2 m dwt by the end of 2009, as conversions out of the fleet continue to offset the number of deliveries.

Table 10: World Tankers Fleet and Delivery of New buildings

Numbers. end

M dwt, end

Tanker Fleet

2005 2006 2007 2008 2009f 2005 2006 2007 2008 2009f

1,031 1,145 1,706 2,048 1,858 85.5 85.4 146.6 162.8 175.2 Order book ( end period) New orders 462 955 759 343 0 29.7 88.1 48.2 51.5 0

New buildings delivered

344 372 424 504 0 29.8 26 30.7 35.3 0

Sold for scrap

71 74 78 71 0 4 3 3.1 4 0

losses 2 1 0 0 0 0.03 0.01 0.0 0.0 0

Miscellaneous additions

2 0 9 0 0 0.2 0 0.88 0 0

Miscellaneous removals

19 29 43 82 0 2.8 3.1 6.2 10.14 0

Total tanker fleet over 10,000 dwt

3,736 3,991 4.558 4,569 4.920 320.1 343.4 363.1 385.6 406.5

% change 6.9% 6.8% 14.2% 0.2% 7.6% 7.2% 7.2% 5.7% 6.1% 5.4%

Source: Clarkson Research Studies.

54.2 percent of world's tonnage is controlled by owners from Greece, Japan, Germany, China and Norway. Trade profiles often match he nationally controlled fleet. Oil exporters, for example, are also among the main providers of tanker capacity. In 2008, deliveries of oil tankers reached a historical record of 35.3 million deadweight tons.

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Chart 8: Oil and VLCC Tanker fleet

4 0 73 8 6

3 6 33 4 3

3 2 0

15414 814 213 813 1

0

50

10 0

150

2 0 0

2 50

3 0 0

3 50

4 0 0

4 50

2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 F

Y ear

A ll Tanke rs V LC C

Source: Clarkson Research Studies. In 2008, the global Very Large Crude Carrier (VLCC) fleet consists of 503 vessels, or 148.1 MM dead weight tons (dwt), with VLCCs on order through 2012 totaling 78.4 MMdwt resulting in an orderbook to fleet ratio of 52%, higher than the total crude tanker fleet ratio of 46%. Although less than 1% of tonnage is over the typical scrapping age of 25 years, 21% of VLCCs represent single-hull vessels that will likely be scrapped by 2010 to comply with IMO mandates. Additionally, deliveries are expected to increase the total VLCC fleet slightly from148.1 MMdwt in 2008, to153.8 MMdwt in 2009.

Chart 9: Tankers Fleet Development by Hull Type

050

100150200250300350400450500

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Double Hull Tanker fleet Non Double Hull Tnaker Fleet

Source: Clarkson Research Studies. Single hulled vessels capacities as a percentage of total tanker capacity has been decreasing regularly. In 1990 96% of total capacities was single hulled vessels, while by 2006 only 26% are of single hulled, accounting for almost 93.1 million dwt. These capacities are to be phased out within the next three years an substituted by double hulled vessels. Order books suggest that almost 110 million dwt will be substituted by the end of 2009, which given the increase in oil demand and demolition of old tankers will put supply capacities under pressure and should drive chartering rates higher. Chart 13 illustrates tanker fleet by hull type.

A yearly review of the oil tanker fleet split into many size ranges and main groupings. It describes the existing fleet and its recent development such as the order book, its delivery schedule for the coming five years and as a percentage of the fleet for each size range.

Two sides of the same coin: While 2008 saw record highs in newbuildings, it also saw record in removals. Deliveries are expected to increase the total vlcc fleet slightly from148.1 MMdwt in 2008, to153.8 MMdwt in 2009. Single hulled vessels declined as regulation of IMO.

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Figure 1: Distribution of Tanker Fleet by Type

Source: Clarkson Research Studies.

As regards tonnage and vessel types during 2007, the total tanker fleet are approximately split between various types VLCC oil tankers of 200,000 dwt and above representing 38.4 percent of total fleet. The second type is Suezmaz oil tankers of 120,000 - 200,000 dwt 14.2 percent with Aframax oil tankers of 80,000 – 120,000 dwt accounting for about 19.8 percent, Panamax oil tankers of 60,000 – 80,0000 dwt represented about 6.2percent . The remaining category includes all kinds of commercial vessels of 10,000 – 60,000 dwt. According to IMO Regulation 13G, single hull tankers must phase out by 2010 , plus the phase out of double bottom/double sided tankers by age 25 years or 2015 whichever is earlier. Figures also include specialised and chemical carriers not necessarily subject to Regulation 13G. Single hull vessels may under certain circumstances benefit from life extension but those with pre-2008 phase out dates are included in 2008 phase out numbers. With the orderbook standing at 35% of the fleet (in terms of deadweight) there is a real possibility that the fleet could become oversupplied. One mitigating factor is the Marpol 13G single hulled phase-out deadline in 2010. 22% of the tanker fleet is non-double hulled; if all those vessels meet the phase-out schedule, the fleet should increase roughly in line with the expected demand growth. However, some vessels may get an extension to operate until 2015. Charterers are already favouring double hulled vessels as port states and operators are becoming increasingly wary of single hulled vessels. VLCC Tankers Fleet Development The global VLCC fleet consists of 513 vessels, or 152.3 MMdwt, with VLCCs on order through 2012 totaling 78.4 MMdwt resulting in an orderbook to fleet ratio of 52%, higher than the total crude tanker fleet ratio of 46%. Although less than 1% of tonnage is over the typical scrapping age of 25 years, 21% o f VLCCs represent single-hull vessels that will likely be scrapped by 2010 to comply with IMO mandates. Additionally, deliveries are expected to increase significantly from 13.0 MMdwt in 2008, to 19.3 MMdwt in 2009, and to 20.9 MMdwt in 2010.

VLCC Tanker fleet >200,000 DWT

SUEZMAX Tanker fleet >120-200,000 DWT

Arabian Gulf West Africa Read Sea North Sea Mediterranean

Mediterranean West Africa Black Sea North Sea

Mediterranean Caribbean Arabian Gulf Black Sea China North Sea

Combined Carriers

SHIP TYPES LOAD AREAS

AFRAMAX Tanker fleet >80-120,000 DWT

Today, due to a shortage of capacity, second-hand vessels are more expensive than newbuilding contracts.

23

Table 11: VLCC Tanker Fleet Supply

M Bpd/M.Dwt VLCC Fleet

2006 2007 2008 2009F 2010F

Beginning Fleet 137.7 142.3 148.1 153.9 157.6

Additions 5.8 9 13 19.3 20.9

Removals -1.1 -3.2 -7.2 -15.6 -15.6

Ending Fleet 142.2 148.1 153.9 157.6 162.6

Source: Clarkson Research Studies. The balance between the demand for oil and oil products seaborne trade and the available supply of capacities on tankers will determine the chartering rates which are the main drivers for shipping operators. The chartering rates are cyclical, depending on many factors, including weather conditions. Therefore, the chartering rates tend to be at their highest levels towards the northern hemisphere winter, i.e. towards the first and fourth quarters of the year. Product Tanker Supply The product tanker fleet is expected to grow rapidly in 2009 before leveling off a bit in 2010, as 24.7 MMdwt are scheduled to be delivered between 2009 and 2010 with only 7.7 MMdwt expected to be scrapped in that period. With an estimated 94.2 MMdwt in the worldwide product tanker fleet at the end of 2008, we expect product tanker supply to expand 11.2% in 2009 and 6.3% in 2010 based on our assumptions for net fleet expansion of 10.6 MMdwt in 2009 and 6.6 MMdwt in 2010. While product tanker fleet growth is expected to accelerate in the number of ships, the growth also reflects the shift towards building larger product tankers required for longer haul product tanker trades. In fact, Aframax product tankers represent 28% of the current order book compared to the existing fleet capacity, which consists of 21% Aframax product tankers.

Table 12: WORLDWIDE PRODUCT TANKER FLEET

M Bpd/M.Dwt VLCC Fleet

2006 2007 2008 2009F 2010F

Total Fleet 77.3 84.2 94.2 104.8 111.4

Additions 9.2 9.3 13.1 13.7 11

Removals -0.9 -2.2 -3.5 -3.2 -4.5

Net Fleet change 8.2 7.1 9.6 10.6 6.6

Source: Clarkson Research Studies. Shipbuilding Price Trends With the confirmation of higher steel prices, yards took a pause from concluding new business whilst they recalculated price levels. As yards finalize their new price expectations in the atmosphere of costlier steel, there may well be a further period of quiet whilst negotiations are undertaken to close bid/offer spreads. Nonetheless, some sales have been made at higher price levels, not only as a result of higher steel prices, but also due to earlier deliveries in 2010 in particular demanding a premium. For this reason, all of the tanker newbuilding prices, most notably, have moved upwards, with continued enquiry at the top end of the market.

Liquefied natural gas (LNG) Shipments are estimated to have increased by 3 per cent in 2008.

24

Chart 10: Development of New buildings Price

175 183202

226 221

110 120 129146 150

0

50

100

150

200

250

2005 2006 2007 2008

Price $ m

iliion

Index of all tankers VLCC

Source: Clarkson Research Studies.

Net crude tanker supply is expected to grow significantly in 2009, with tanker fleet capacity increasing by 21.8 MMdwt in 2009 compared to 14.4 MMdwt in 2008, translating to fleet growth of 6.9% in 2009 followed by higher growth in 2010 of 5.4%. Growth assumptions are based on deliveries of 43.9 MMdwt in 2009 and 40.8 MMdwt in 2010, offset by scrapings/removals ramping up in 2009 ahead of the IMO phase-out of 22.1 MMdwt in 2009 and 22.5 MMdwt in 2010. With at least 35 VLCCs currently scheduled/completed for VLOC conversion, and five VLCCs scheduled for FPSO conversion, in addition to 10 Suezmaxes, the supply overcapacity which was anticipated for 2008 has not been a factor, but more deliveries in 2009 and lower demand will likely keep rates under pressure into 2009. The product tanker fleet is expected to grow rapidly in 2009 before leveling off a bit in 2010, as 24.7 MMdwt are scheduled to be delivered between 2009 and 2010 with only 7.7 MMdwt expected to be scrapped in that period. With an estimated 94.2 MMdwt in the worldwide product tanker fleet at the end of 2008, Clarkson expects product tanker supply to expand 11.2% in 2009 and 6.3% in 2010 based on the assumptions for net fleet expansion of 10.6 MMdwt in 2009 and 6.6 MMdwt in 2010. While product tanker fleet growth is expected to accelerate in the number of ships, the growth also reflects the shift towards building larger product tankers required for longer haul product tanker trades. In fact, Aframax product tankers represent 28% of the current orderbook compared to the existing fleet capacity, which consists of 21% Aframax product tankers.

3. Freight Rates Crude tanker rates have begun to come off in recent weeks as lower OPEC production levels are starting to have a more significant impact and overshadowing the benefit of the storage equation and the strong seasonal period. As of late 2008, VLCC rates were $73,413 per day, Suezmax rates were $47,192 per day, and Aframax rates were $35,791 per day. Tanker earnings started 2007 at a five year low. Double hulled VLCC earnings averaged $53.586/day,11.3% below 2006 earrings average. This was partially due to oil demand fluctuations factors. For 2009 forecasts, the 2008 have seen oil prices declined dramatically, the earnings started to go down, negative sentiment overflowed from owners and the declines in oil price after reaching a record level $ 147 per barrel in july 2008, pushing earnings up across the board. The expected earrings for Vlcc in 2009 are $ 63,980 per day Since then, earnings have strongly fallen from 2008 by 28.3 percent, as chatterers once again took control of the market. One year of modern VLCC tankers time charter earnings averaged $73,413/day during 2008, and the 1 Year Timecharter Rate will decline by 25 percent to reach $55,000/day during 2009. Timecharter earnings did pick up with the boom in the spot market, so the decline between this year and next reflects how weak the market was in 2009/2010. Whereas, 3

The time charter earnings for modern VLCCs averaged $73,413per day for 2008, compared to $58,644 for the same period in 2009. The VLCC market in 2007 started weak and, despite a couple of gains in March and May, the year was characterized by uncertainty.

25

Year Timecharter earning average in 2008 is $58,644/dsay, forecasts for 2009, this rate will decline by 21.8 percent to reach $45,833/day.

Table 13: Average time charter rates for different periods (US$ per day)

Vessel type 12 M Charter 36 M Charter

Crude tankers 2008 2009F 2008 2009F

VLCC/ULCC 73,413 55,000 58,644 45,833

Suezmax 47,192 42,000 40,923 38,000

Aframax 35,793 28,167 30,500 26,250

Handy size 29,486 6,833 21,837 9,167

Source: Clarkson Research Studies.

Chart 11: Time Charter Rates for I Year

0

15,000

30,000

45,000

60,000

75,000

90,000

105,000

2004

-01

2004

-03

2004

-05

2004

-07

2004

-09

2004

-11

2005

-01

2005

-03

2005

-05

2005

-07

2005

-09

2005

-11

2006

-01

2006

-03

2006

-05

2006

-07

2006

-09

2006

-11

2007

-01

2007

-03

2007

-05

2007

-07

2007

-09

2007

-11

2008

-01

2008

-03

2008

-05

2008

-07

2008

-09

2008

-11

VLCC Suezmax Aframax Tanker Handymax

Source: Clarkson Research Studies. Freight rates are driven by demand for commodities and supply of carrier ships. As indicated in the supply dynamics above the persistent short supply of tonnage leads to the increase in freight rates. We expect the freight rates will decline dramatically from its peak until 2010 as a result of global financial crisis and weak demand. Margins on spot are higher than medium term contracts and these in turn are higher than the margins on long-term contracts. The time charter rates of modern vessels are tracked usually for 12m, 36m and 60m contracts over different vessels types.

The last six month of 2008 saw a decline in rates so that year-on year growth was negative.

26

Favorable Macroeconomics for the Saudi Shipping Sector

Rising Gross Domestic Product

Saudi Arabia is the biggest and the richest economy in the Arab world, being one of the major global oil producing nations, the Kingdom of Saudi Arabia is leading the bandwagon of the economic boom in the Middle East since the last decade. Its rising GDP is one of the biggest testimonies to its growth story. Nominal GDP and growth rate are depicted in the below graph.

Chart 12: Nominal GDP of Saudi Arabia

4 6 7.6

4 13 .4

2 14 .6

2 50 .33 15.3

3 4 8 .73 8 1.5

2 2 .57

- 11.59

13 .8 016 .6 4

2 5.9 7

10 .599 .4 1

10 0

150

2 0 0

2 50

3 0 0

3 50

4 0 0

4 50

50 0

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 P 2 0 0 9 F- 2 0

- 10

0

10

2 0

3 0

N o minal GD P Gro wt h R at e ( %)

Source: SAMA, the Ministry of Finance and Global Insight.

From Chart 12, it is clear that the Kingdom’s nominal GDP has witnessed a consistent upward trend for the last five years. It has increased substantially from 214.6 B in 2003 to 250.3 B in 2004, representing a surge of 16.64%. In 2005, it crossed the 300 B mark and stood at 315.3 B, denoting an upsurge of nearly 26% from the previous year. In 2006, though the nominal GDP has increased, the level of appreciation has declined when compared with the previous appreciations. The GDP’s performance in 2006 was slightly higher, up by 13%, to reach 356.2 B. In 2007, the nominal GDP growth rate was about 7%, which is the lowest since 2003. The reason behind this weakening growth rate is the government’s strategy to decrease its dependence on the Oil Sector and to diversify its economy by facilitating the quick growth of the Non-oil Sectors. In 2008, nominal GDP is estimated to jump by more than 22.5 percent and set a record at 467.6 USD billion, while in 2009, it is predicted to decline about 11..6 percent due to the effect of the current financial crisis and the sharp decline in oil prices. The real GDP growth followed the same pattern, increasing in absolute terms and decreasing in percentage terms.

Table 14: Real GDP of Saudi Arabia

Indicator 2003 2004 2005 2006 2007 2008P 2009F

Real GDP ($ B) 182.9 192.6 203.3 209.7 216.8 225.9 229.7

Real GDP Growth Rate (%) 7.7 5.3 5.5 3.2 3.4 4.2 1.7 Source: SAMA & Ministry of Finance.

The Kingdom’s nominal GDP

has witnessed a consistent

upward trend for the last five

years.

P: Preliminary F: forecasted

27

The rising GDP and the diversification endeavors of the Kingdom have provided a major impetus to the Transportation Sector and to the supplementary sectors such as Shipping etc.

Growing Foreign Trade

Oil exports constitute the key and major foreign trade item or product in the Kingdom, and which subsume nearly 85-90% of the entire exporting activities of the nation. The soaring oil prices have also played a key role in obtaining big revenues from its exports. The Kingdom’s exports have expanded by about 250% in 2008 from their 2003 level, thereby registering a massive growth of 191% in the trade balance. The main driving force behind the positive trade balance is the rise in the price of crude oil. The increasing demand for crude oil from the domestic market and the increasing demand for oil in the developing countries will also create a significant effect on the Kingdom’s revenues, which will enable it to achieve its own economic diversification strategies in the long term. In general, a favorable trade flow growth will further enhance demand on shipping services.

Chart 13: External Trade Performance

16 2 .7

3 2 6 .9

2 4 0 .2

2 0 9 .6

18 0 .6

12 6

9 3 .2

13 6 .6

6 6 .259 .54 4 .73 6 .9

0

50

10 0

150

2 0 0

2 50

3 0 0

3 50

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 P

Export s Import s

Source: SAMA, the Ministry of Finance.

Improvement in Government Finance

From Table 11, it can be seen that Saudi Arabia’s total revenues from Oil and other Sectors have been scaling up substantially over the last many years. A major contribution to the Kingdom’s revenue was mainly from the Oil Sector, which is scaling up each passing year. Simultaneously, with the rising revenues, the country’s total expenditure was also rising rapidly. However, this increase in the total expenditure incurred by the Saudi government is because it has initiated the process of economic diversification to reduce the nation’s dependence on oil export revenues, which constitute more than 80% of its total revenue, on an average. All these factors are favorable to the Transportation Sector in the Kingdom.

Table 15: Government Finance

Particular 2003 2004 2005 2006 2007 2008

Total Revenues (including Oil & Other) (SAR B) 293.0 392.3 564.3 673.7 621.5 1100

Total Expenditure (both Capital & Current) (SAR B) 257.0 285.2 346.5 393.5 443.0 510

Surplus/Deficit (SAR B) 36.0 107.1 217.8 280.4 178.5 590 Source: SAMA & the Ministry of Finance.

Rising government

expenditure on Non-Oil

Sector.

Oil exports constitute the key

and major foreign trade item

or product in the Kingdom.

28

Soaring Foreign Investments

Saudi Arabia’s abundant natural resources, strategic location, modern infrastructure, and political and economic stability have made it a principal destination for FDI. Moreover, liberalization and the opening up efforts in 1984 boosted FDI inflows into the country to a great extent. The FDI inflows in the Kingdom have increased significantly from $ 183 MM in 2001 to $ 24.3 Billion in 2007. Of these inflows, the major contribution was from the U.S.A, Japan and the United Arab Emirates. The Kingdom’s solid economic growth, healthy business environment and soaring oil prices attracted more FDI into its Oil, Gas and other important industries such as the Telecom, Tourism, Infrastructure and Financial Services. The increasing FDI in the Infrastructure Sector is definitely a positive development for the Shipping Sector. The Kingdom’s government has opened up new economic sectors for foreign investment in line with its strategy to strengthen the economy. Saudi Arabia was the largest recipient of FDI in the Arab world in 2007, attracting $ 24 B, an increase of 33% as compared to the year 2006, demonstrating the country’s popularity in regard to FDI. The trends for FDI in the previous years can be seen from Table 12.

Table 16: Foreign Direct Investment in Saudi Arabia

Particular 2003 2004 2005 2006 2007

Foreign Direct Investment ($ B) 0.78 1.94 12.10 18.29 24.32

Source: Saudi Arabian General Investment Authority & UNCTAD.

Inflation Retreats

In 2003, the inflation rate in Saudi Arabia stood at 0.6% but in 2004, it went down to 0.3%. In 2005, the inflation rate plunged again to 0.7%. Thereafter, the increase in inflation continued and rose to a record high of 9.2% in 2008. In late 2008, inflation rate started to decline due to the effect of the global financial crisis. Inflation is forecast to drop to 4.2% in 2009 and 1.8% in 2010. It is worth noting that the inflation rate in the other GCC markets such as the UAE and Qatar was much higher when compared with that of Saudi Arabia. The main reason behind the Kingdom’s low inflation as compared with the other GCC markets is the high subsidies granted by the Kingdom in a direct form.

Chart 14: Inflation Trends (CPI %)

9 .2

4 .2

1.8

4 .1

2 .2

0 .70 .30 .6

- 0 .5

1

2 .5

4

5.5

7

8 .5

10

2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 P 2 0 0 9 f 2 0 10 f

%

Source: SAMA, Ministry of Finance and Global Insight.

The FDI inflows in the Kingdom

have increased significantly

from $ 183 MM in 2001 to $24.3

B in 2007.

29

Other Encouraging Economic Indicators

The other economic indicators such as the per capita GDP and the Oil Sector’s contribution towards the GDP have been increasing consistently over the last five years, which is a positive sign. An increase in its per capita GDP indicates the rising economic growth, whereas the increasing contribution of its Oil Sector’s to its GDP depicts the importance of the Oil Sector in generating the Kingdom’s revenue.

30

National Shipping Company (NSCSA) - Company Profile

Corporate History

The National Shipping Company of Saudi Arabia (NSCSA) with its head office in Riyadh, established in 1979, is one of the biggest shipping companies in the world and occupies a pre-eminent position among its industry peers at national, regional and international levels in all sectors of its business. The company was established by Royal Decree No. M/5 dated 12/02/1398H, corresponding to 21/01/1978, and registered under Commercial Registration No. 1010026026 dated 01/12/1399H, corresponding to 22/10/1979, issued in Riyadh. As the first national carrier, NSCSA was enabled to provide first class shipping service to the trading community and this contribution has become one of the strong bases for the national economy. The company primarily involves in the purchase, chartering and operation of vessels for the transportation of passengers and different types of cargo. The Company owns and operates a number of VLCCs (very large crude carriers) which are operating in various strategic ports. NSCSA also owns and operates chemical carriers and roll-on/roll-off container vessels operating in the liner trades between the Middle East, North Africa and the Indian Subcontinent. During the course of its diversification, the Company's services have expanded to include transportation of general cargo, crude oil, Chemical and LPG as well as specialized ship management. The Company with its commendable track record has established the reputation of providing high standard of service to its customer's at all international ports it is serving. The liner activity proved to be very competitive in the 1980s due to the fall in global oil prices, and the subsequent decline in the value of imports into Saudi Arabia. By the mid 1980’s the company started to diversify from the cargo and liner trade to the transportation of chemicals by operating two chemical tankers, one through the establishment of Arabian Chemical Carriers Company (ACC) 50:50 joint venture with United Arab Shipping Company which had owned one chemical tanker and another on its own. NSCSA last year sold its stake in ACC for SAR 23.4 mn and concentrated its chemical tanker business in National Chemical Carrier (NCC), in which it retains an 80% controlling stake. NSCSA established the National Chemical Carriers Company in 1990, through a long term strategic partnership with Saudi Arabian Basic Industries Company (SABIC) at (80%:20%) respectively. In 1996 NSCSA began its foray into crude oil transportation and was selected as Saudi Aramco 'Marine Cargo Carrier in February 2001. On the other hand, SABIC entered into a ship management agreement with one of the company's subsidiary, Mideast Ship Management Ltd. (MSML). In April 2003, the company signed a three year contract of affreightment with Chevron Transport Corporation Ltd., a subsidiary of ChevronTexaco, to transport ChevronTexaco's crude oil worldwide. In October 2004, National Chemical Carriers (NCC) and Hyundai Mipo Dockyard signed contracts for construction of four new chemical carriers worth a total value of SR 625 million ($166 million). In February 2005, the company signed an agreement for buying 30.3% share capital of Petredec Limited for a total sum of SAR 187.5 millions (USD 50 million). Last October, the Company's Board of Directors approved the Five- Year Strategic Plan (2009-2013) for the Company, which recommended proceeding with the Co.'s current main activities and continue keeping a close eye on the marine transportation industry as a preliminary step toward entering into other investments in the area of marine transportation and the other complementary activities as well as utilizing the potential opportunities at the right time after conducting the necessary studies and ascertaining the economic feasibility based on a number of factors including the fair profit return, the

NSCSA was founded in 1979 as

the first national shipper.

31

expected growth rate for the specific business in addition to the Company's ability to enter into such activities in a vigorous way that suits its competitive strengths. Furthermore, the said strategy recommendations also included the managerial and organizational re-structuring in such a manner that guarantees the achievement of the highest level of operational, financial and administrative efficiency and enhance the company's abilities to face the expected global changing conditions and utilize, in an optimal way, the potential resources. Finally, the governance controlling measures and regulations have been set in line with the international practices and the regulations adopted in the Kingdom in this regard.

Subsidiaries

1. Mideast Ship Management Mideast Ship mngment was established in the UAE in 1996 as a joint venture between NSCSA and Acomar it Group of the UK with the aim of becoming one of the major ship managers of the world. In 2005, NSCSA took full ownership of Mideast, which is now mainly involved in managing all the vessels owned by NSCSA and NCC, including one chemical tanker that is time chartered to SABIC. Its services were extended to include resolving challenging problems to reduce costs and delays, managing ship performance, site supervision for new ship buildings and working on behalf of ship-owners with insurance brokers to ensure that insurance claims are handled in the most beneficial way.

2. National Chemical Carriers National Chemical Carriers (NCC) was established in 1990 with a capital of SAR 500 m, as an 80% to 20% venture between NSCSA and SABIC respectively, followed in 2006 by an increase in capital to SAR 610 m. The company owns a fleet of 12 tankers with a capacity of over 460,000 dwt on pool and time charter basis serving over 150 ports worldwide. As part of its expansion plans, the company placed new construction orders with South Korean “Hyundai Mipo Dockyard” and “SLS Shipbuilding” for an additional 20 chemical tankers; this will bring an additional capacity of received 900,000 dwt between 2007 and 2011, to reach a total capacity of nearly 1.5 mn dwt. 3. Petredec Petredec is a leading liquefied petroleum gas trader and ship-owner headquartered in Monaco with offices in Singapore, London and Barbados. It controls a fleet of over 71 vessels under operations and 6 vessels on order aggregating approximately 250,000 cbm. Given the positive outlook of liquefied gas trade out of the Gulf, NSCSA’s investment in Petredec is an opportunity for the company to become a market leader in the shipping and trading of LPG in this region. This transaction is the first venture of NSCSA into gas transportation, and its first major investment outside the region.

Operations and Activities

The company engages in the marine transportation of crude oil, LPG, petrochemicals and cargo through its fleet of VLCCs, petrochemical tankers and cargo vessels. The company operates in three business segments: 1. Crude Oil Transportation The company, through its Very Large Crude Carriers (VLCC) segment, engages in the marine transportation of crude oil through its fleet of double hulled VLCCs. It operates VLCCs under spot and long-term charter agreements. The commercial operations of the company’s tankers are managed by a specialized team that has a considerable experience in the

NSCSA has three subsidiaries,

named Mideast Ship

Management, National

Chemical Carriers and

Petredec.

32

market which is capable of meeting the requirements in the international oil market. NSCSA determines the charter rates based on internationally acceptable prevailing rates at the time of signing the contracts while the prevailing market prices are applied in the case of spot market leases. At present, NSCSA has a fleet of 13 modern Very Large Tankers able to safely transport more than 28,500,000 bbls of Crude Oil. Additional four new Tankers of same size will be received in 2009.

Several types of tankers are used to transport oil; VLCCs are mainly used from the Middle East in high volumes (more than 2 million barrels per ship) and over long distances (Europe and Pacific Asia). Shorter journeys are generally serviced by smaller tanker ships such as from Latin America (Venezuela and Mexico) to the United States The Company owns large fleet of double hulled Very Large Crude Carriers. These vessels are of high international standards with capacity of 2.2 Million barrels each and more than 300,000 DWT. In the year 2004, the Company signed a contract for building 2 VLCCs for delivery in 2007. Another contract to build 6 new VLCCs was also concluded for delivery through 2008-2009. With these plans, the aggregate capacity of all crude oil fleet will increase to 5.250. Sizes range from a 205 meter Coastal Tanker to a 415 meter ULCC. It is worth noting however that the volume that can be carried by a ship increases as function of the cube of its length. Crude oil transportation is the major source of income for NSCSA, with almost 43.5 % of total revenues in 2007 generated from crude oil transportation. In addition, gross profit margins are higher than other transportation related services reaching almost 45%. The company as of date owns 13 VLCCs with a capacity of 300,000 dwt each, all of which are double hulled, double bottomed IMO compliant vessels. NSCSA operates vessels on spot and time charter basis, depending on the spot market conditions and shipping market outlook. However, its strategy involves having a balance between both spot and time charters based on a 50% to 50% up to 60% to 40% based on outlook in an attempt to maximize the profits of the company and shareholders returns. Of the existing fleet of 13 VLCC tankers, NSCSA charters out eight VLCCs on time basis, three of which are chartered out to Vela International, a subsidiary of Saudi Aramco, and two to Euronav and three to Hanjin Shipping. The remaining five are operated on spot basis to various clients. 2. Liquefied Petroleum Gas Transportation After NSCSA’s acquisition of 30% interest in Petredec, with a controlled fleet of over 71 vessels in operations and six vessels on order aggregating approximately 253,000 cbm; a new source of associated operating revenues has been introduced. NSCSA share of Petredec profits represent about 20% of its net profits as at 2007. Gas transportation combined with the contribution of crude oil transportation are the highest contributors to the company’s net profits. The combined contribution represents almost 70% of the company’s total net profits. NSCSA’s investment in Petredec is the first step towards a goal to become a global operator, and a regional market leader in the shipping and LPG trading business. This transaction fits well within the company’s strategy, while being its first investment outside the region, and its first investment in the LPG shipping business. This should give NSCSA additional expertise and knowledge in new markets and should broaden their knowledge in the LPG shipping business in particular; a product that is witnessing substantial growth in production out of the Gulf region. 3. Chemical Transportation The company, through its Petrochemical Carriers segment, engages in the marine transportation of petrochemicals through its fleet of petrochemical tankers. NSCSA entered into a long term strategic partnership with the Saudi Arabian Basic Industries Company (SABIC) at (80%:20%) respectively, to form the National Chemical Carriers Company Ltd. (NCC). NCC is the main player in the company’s chemical transportation business. It owns a fleet of 12 in-service petrochemical tankers and 14 tankers are under construction. The

Main business activities are

transportation of crude oil,

LPG, petrochemicals, and

general cargo, and ship

management.

33

company leases some of its tankers on long-term time charter to ISTC, a subsidiary of SABIC. It owns fourteen chemical tankers, of which six are operated under a pooling agreement with Odfjell Sachems Company and one is straight away chartered to Odfjell Sachems Company, six are chartered to SABIC and one tanker is chartered out to SEPCHEM Company. The company aims to increase its fleet capacity from 460,000 DWT to approximately 1.1 million DWT and plans to increase the number of tankers to 26. It has signed contracts to build 12 chemical tankers and leasing agreements for long term charters of 6 new build tankers with International Shipping Transportation Company (ISTC), a subsidiary of SABIC. NCC signed contract with SLS Ship Building Co. to build 10 petrochemical carriers. Further, in 2007 the company signed a contract to build six additional petrochemical carriers with a total cost of SR 3.008 billion (USD 802 million). All carriers are expected to be delivered during 2009, 2010 and 2011. 4. General Cargo Transportation The company, under its Liner Service segment, provides liner services, cargo transportation, freight forwarding and container services through its fleet of Roll on Roll Off (RoRo), conventional and container vessels. Its offers liner service by operating four fully owned RoRo/Conventional/Container vessels in the Arabian Gulf–Indian sub-continent, Red sea, Mediterranean, the U.S.-Canada (East Coast), the U.S. Gulf trade routes. NSCSA owns and operates a container storage and repair yard, with an area of 120,000 sqm at the Jeddah Islamic Port, to promote better customer services and to minimize loading, handling and operational costs related to import and export units. Global Freight Forwarding & NVOCC division is one of the key division in this segment, which provides customers with a comprehensive service package. Through its global network, this division offers shipping, road transportation, documentation, warehousing and distribution services; system based online tracking, vendor management, purchase order management and supply chain management services. This division also offers turn key project management services for the oil, cement, power, steel and water conversion industries. NSCSA expects a continued demand for specialized Ro-Ro-cum-Container vessels in the trade due to industrialization in the Middle East and continued infrastructure development. The company considers various options to upgrade the service in this segment. Further, it aims to build four multiple-purpose vessels which shall be contracted during the period of the plan. The company has join forces with Rohde & Liesenfeld (R&L) of Germany, which has over 70 offices in 35 countries worldwide, to manage large scale project arrangements into Saudi Arabia. 5. Ship Management The company also provides ship management services through its wholly owned subsidiary; Mideast Ship Management Ltd, which was established in 1997. NSCSA provides an online vessel and cargo tracking and scheduling service to its customers.. The company manages as of today a variety of vessels including VLCCs, chemical tankers and RoRo vessels. The aim is establishing a one stop shop for their clients, including technical and commercial management. The company also provides marine consultancy, and work on behalf of ship-owners with insurance brokers to ensure that insurance claims are handled in the most beneficial way. The vision was to establish a professionally qualified ship manager who would fulfill the requirements of the quality consciousness of ship owners with the focus on: Downtime not exceeding 1% to ensure ship running / earning, high safety standards to avoid accidents, damage to cargo and property, financial liabilities and contamination of the environment,

34

cost consciousness to maintain owner's profitability and transparent transactions to ensure owner's trust.

Company Structure

Ownership Structure NSCSA is publicly listed company with the government of Saudi Arabia owning 28%, while the remainder is free float. The company raised its capital in 2007 by an additional SAR 900 m via a rights issue. The proceeds from the offering are to be directed towards the implementation of the company five year strategy plan to finance the expansion of its operations by increasing its fleet size in all business transportation units including crude oil, chemical, gas and the liner business, in an effort to address booming energy and general trade flows from and to Saudi Arabia and the region.

Chart 15: Ownership Pattern

Govt. Sector28.1%

Private Sector71.9%

Board of Directors

The Company’s board of directors is illustrated in the Figure below.

Figure 2: NSCSA Board of Directors’ Structure

Director

Source: NSCSA

Board of Directors

Esam Hamad Al-Mubarak

Mr. Abdullah Sulaiman Al-Rubaian

NSCSA

Mr. Mohommed Abdulaziz AlSarhan

Mr. Nasser Mohammad Al-Kahtani

Dr. Bander Barjas Al-Abdulkareem

Mr. Saleh Abdullah AlDebasi Dr. Sami Abdullah Al-Saeed

Mr. Abdulkarim Ibrahim Al-Nafie

Mr. Farraj Mansour Abothenain

Director

Director

Director

Director

Director

Director

Chairman

Vice Chairman

35

Management Team NSCSA has a visionary and able management team, details of which are given in following table.

Table 17: The Management Team of NSCSA

Management Team Position

Mr. Humoud Al-Ajlan Chief Executive Officer Mr. Saleh Al-Shamekh President (Oil & Gas) Mr. Fahad Al-Meqren Owner's Rep. - North America Liner Service Mr. Abdullah Al-Muhanna CEO (National Chemical Carriers) Mr. Ahmed Al-Eidan ASST. CEO (Board Secretariat & Communication) Mr. Abdulaziz Al-Rasheed VCEO (Planning, Business Development) Mr. Mohammed Al-Otaibi VCEO (Finance)

Mr. Robert Houston President (Mideast Ship Management LTD)

Source: NSCSA

Operating Performance

The National Shipping Company achieved a net profit of SAR 740.3 million (EPS SAR 2.35 ) for 12 months up to December 31st, 2008 and recorded an increase of 75% in the profit over the corresponding year 2007 which was SAR 422.6 million (EPS SAR 1.48). The net profit of 4th Quarter 2008 is SAR 86.5 million compared to SAR 84.6 million for the same quarter 2007 which reflected an increase of 2% and versus SAR 282.2 million in the 3rd Quarter 2008. The improvement in profit is due to the increase of crude oil transportation average freight rates in spot market during the year 2008 and the increase of NSCSA’s fleet of Very Large Crude Carrier (VLCCs) in addition to the improvement in average freight rates of General Cargo sector. Furthermore, NSCSA will take delivery of 4 new VLCCs during the coming months of March, April, July and September 2009 respectively. NSCSA Board has decided to recommend dividends payout of SAR 1.5 per share. The global financial crisis and declining oil prices will affect the maritime shipping industry, so we expect a drop in the earnings of NSCSA this year due to mismatch between the demand for shipping capacities and the supply of shipping capacities. The substantial growth in expected profitability following that is similarly a function of expected strengthening of rates, as well as the introduction of new capacity, primarily of VLCCs and chemical carriers. Crude oil shipping margins will remain the highest among the different components of the companies business despite the anticipated drop. The company’s VLCC fleet as at end of 2008 generated a gross margin of around 45.5%, while we expect them to drop to 41% and 43% in 2009 and 2010 respectively. Strategic Plans - Future growth drivers & recent development The National Shipping Company of Saudi Arabia will complete three decades of service and celebrate a period during which it has become one of the world’s largest shipowners and occupies a pre-eminent position among industry peers at national, regional and international levels in all sectors of its business. Since launching its operations in 1979 for transporting general cargo and containers, the joint stock company NSCSA has diversified into the movement of crude oil, chemicals and liquefied petroleum gas, and also is in the business of specialized ship management. NSCSA has embarked upon its strategic growth

The Company’s shareholders

are all well known private

individuals or families.

36

plan with a capital outlay of SAR 5 billion to increase the fleet strength to 53 vessels by 2011, excluding future orders. In June 2008, NSCSA appointed Booz & Co. to study its current activities and opportunities in the maritime shipping market and prepare a strategic five-year plan, starting from 2009, through which it could expand its fleet size and activities. During the first quarter of 2008, the company’s subsidiary, NCC, received two tankers, NCC Dammam and Hail, taking its total fleet size to 16 chemical carriers. Moreover, NSCSA long-term strategy is to fulfill its growth ambitions by strengthening international alliances as well diversifying the company’s portfolio to reduce the company’s operational risk and increase its global reach. The key strategy of the company for crude oil transportation aims to expand the clients’ base through a team of qualified marketing and sales team, results in the increase of the company’s market share. Whereas, for chemical transportation aims to expand its operations by increasing the fleet size. It expects that the long term agreements will provide the opportunity to transport a major share of SABIC’s products to reputable clients all over the world. Regarding linear services, the company aims to achieve balance in operational returns between spot and long term charter agreements.

Concerns

Slowing Global Trade and Tight Credit Markets Translate To Weaker Demand Over the past six months, Maritime shipping demand has fallen dramatically leading to declining charter rates and asset values as well as virtually no demand for additional newbuildings. This slowdown in volume growth has been primarily attributable to weakening demand, but increasingly, trade demand appears to be weakening from oil and mineral reliant regions such as the Middle East and South America. Recently, the slowing demand for trade has been exacerbated by the tightening credit environment with letters of credit to support trade receivables becoming no longer available forcing shippers to postpone shipments or reduce shipment sizes. Unsafe Shipping Routes To avoid the threat of piracy in the Gulf of Aden, the Shipping Companies are diverting some of their vessels to the Cape of Good Hope in South Africa. While the voyage is longer compared to the traditional route through the Suez Canal, it provides a safer option. Major shipping and oil companies are arming staff and hiring professional security firms to combat Somali piracy in the Gulf of Aden. Despite a couple of bold moves by the Indian Navy to stop pirates on their tracks, crimes on the high seas have continued with more than 100 raids last year including the capture of the Saudi Arabian oil tanker, the Sirius Star. The intention is that armed crews will safeguard ships from pirates. The teams will also train the crew in anti-piracy measures. Further more, private security firms in Britain have offered professional teams armed with guns, flares and tear gas.

Orderbook Becoming More Challenging By the Day With the current credit crisis making obtaining necessary funding by both shipyards and shipowners more difficult, and the current uncertain outlook for the Maritime shipping industry pressuring asset values, we are seeing signs that the challenging orderbook is becoming more challenging by the day.

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Ship Supply Adjusted Although demand for tankers could fall as much as 15% in 2009 due to the impact of reduced OPEC production, average ship supply is expected to grow by 7% in the same year. This will lead to excess supply. On the other side, by the end of 2010 the tankers fleet will fall by remarkable percent due to mandatory single hull scrapping.

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SWOT Analysis The National Shipping Company of Saudi Arabia (NSCSA) is a diversified shipping company with international operations. The company is one of the biggest shipping companies in the world and enjoys a pre-eminent position among its industry peers at national, regional and international levels in all sectors of its business. It provides oil and gas, LPG, petrochemical and cargo shipping services to its customers. The company's core business activities are supported by an online tracking service on its website, which reflects improved customer services of the company. The company has adopted a comprehensive fleet expansion program which is expected to increase the business volume of the company. However, the company has shown a decreasing trend in the operating income, returns and margins in the past few years. The stringent maritime regulations and the volatility in the charter rates may affect the company’s profitable operation.

Strengths

Openness of the Economy The Saudi economy is considered to be among the most open economies in the Middle East due to heavy reliance on exported oil and imported consumer and capital goods. Traditionally, the degree of openness is measured by the value of traded goods and services (exports plus imports) as a percentage of GDP. The average ratio for Saudi Arabia is relatively high and is higher than the world average and for other countries in the region. High ratios reflect high dependency on oil exports and capital goods imports. Diversified Shipping Industry Operations The shipping Industry enjoys a diversification in its services. NSCSA engages in the shipping of crude oil, natural gas, LPG, petrochemicals and cargo transportation. The company also provides liner services, freight forwarding services, container services and ship management services. In the fiscal year ended December 2007, 43.5% of the company's total revenue was generated by the very large crude carriers (VLCCs) segment, 28.2% by Liner Service segment and the remaining 28.4% by Petrochemical Carriers segment.

The company, through its subsidiary Mideast, has established a one-stop-shop service to its clients. These services include: technical management, commercial management, chartering & post fixtures, sale and purchase, technical and marine consultancy, and insurance and claim handling. Moreover, the company has a strong fleet of different types of vessels that include VLCCs, cargo vessels, chemical tankers and container vessels. The company owns 13 VLCCs. The diversified operations with strong fleet of vessels reduce the company’s business risks and enable the company to tap opportunities in new as well as existing markets.

Online Tracking

NSCSA has been providing vital information on its web site to systematically guide its customers to arrange shipments or track the arrival of their cargo without any manual help through the following functions: service lines, North America line schedule, cargo tracking, vessel tracking, tariff rate information, booking service and vessels position. These facilities help the customers to select vessels, book voyages, schedule their shipments, track their cargo and the vessel etc. Further, the company's operations are supported by an extensive office and agent network spread out in the Middle East, North America, Europe and the Far East. The company's online tracking system and extensive agent structure helps the company to serve its customers efficiently.

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Oil demand

Even though oil shipping rates are expected to fall over the next two years, they should not collapse and crude tanker operators should still enjoy good margins. That could be attributed to the fact that oil is likely to remain the primary energy source through at least the middle of this century.

Weakness

Decline in Operating Income

The declining trend in the operating income and net profit of the company signifies its decreasing profitability and the increasing operating expenses, which may adversely affect the investors’ confidence.

High Leverage

The increasing debt is a matter of concern, since financial leverage may putpressure on bottom-line growth. Debt/equity ratio has increased from 52% in the end of 2007 to 79% as of 31 December 2008.

Opportunities

Fleet Expansion Program

Fleet augmentation plans were drawn up for the company's segments, and newbuilding orders placed as per the forecast requirements. In 2007, as part of strategic expansion plan, NSCSA placed orders for a variety of new shipping vessels. In total, NSCSA plans to acquire a fleet of 28 vessels by 2011. After delivery of all the vessels, NSCSA will become market leader in this segment, and will be well entrenched as a leading shipping company internationally.

NSCSA has entered into agreements to expand its fleet in the crude oil transport sector. The company has achieved significant progress in building the VLCCs contracted with Hyundai of South Korea. The company had also signed another contract in March 2006 for building 6 additional VLCCs to be delivered during the years 2008 and 2009.

The company also has a plan to expand its activities in transportation of petrochemicals through the National Chemical Carriers Company Ltd. It is also updating the fleet of petrochemicals’ transport by raising its capacity to 1.37 million deadweight tons served by 32 modern petrochemical tankers after delivering the 16 tankers that are being currently under construction according to contracts signed with SLS SHIPBUILDING Company. The strategic plan of the company recommends to build four multiple-purpose vessels which shall be contracted for during the remaining period of the plan. These newbuildings will increase the fleet of the company significantly, resulting in increased business activity and better and timely service to its customers.

The Strategic Plan

The Five- Year Strategic Plan (2009-2013) called for entering into other investments in the area of marine transportation and the other complementary activities as well as utilizing the potential opportunities at the right time after conducting the necessary studies and ascertaining the economic feasibility based on a number of factors including the fair profit

40

return, the expected growth rate for the specific business, in addition to the Company's ability to enter into such activities in a vigorous way that suits its competitive strengths.

Under this strategic plan, the company will also implement growth-oriented initiatives in operational, financial, administrative and technical areas. The company is making efforts to provide the customer with an integrated service. The company took initiatives for re-engineering its capital structure so that funds are available for the planned fleet expansion.

NSCSA enjoys a broad customer base of leading client on the local and global levels. With its global services covering the five continents, the company can expand its operations as a part of its five year approved strategic plan.

Threats

Stringent Maritime Regulations

The company’s operations are subject to various governmental regulations in the form of numerous international conventions, national, state and local laws and national and international regulations in force in the jurisdictions of the countries in which such tankers operate. Some of these regulations include the U.S. Oil Pollution Act of 1990, the International Convention on Civil Liability for Oil Pollution Damage of 1969, International Convention for the Prevention of Pollution of the International Maritime Organization and the International Convention for the Safety of Life at Sea of 1974. These regulations impose strict liability over the tanker companies which cause damage to the environment through discharge of oil. In addition, these regulations demand strict technical and operational requirements for tankers which may be expensive to maintain. The companies engaged in shipping activities are required to maintain high standards of safety and quality of vessels to avoid any accidents and leakages.

The high standards are to be maintained in the crude and petrochemical carriers, which result in higher maintenance costs. Further, these regulations and quality standards are updated periodically, resulting in new set of standards. Meeting the constantly changing vessel specifications can be very expensive and can decrease the profit margins of the company.

Volatility in Charter Rates

The charter rates in the crude oil shipping, petrochemical shipping and the cargo shipping sectors have been historically volatile. These rates are affected by various factors like fluctuations in the international demand for the products carried by these vessels, fuel prices, political instability and fluctuations in crude oil production, availability of vessels, trade restrictions imposed by international governing bodies and the restrictions imposed by regional governments. In addition, there is a risk of cancellation of long term contracts by the customers due to various reasons. The volatility in charter rates makes the operations and profits of the company unreliable and necessitates good planning and scheduling and long term contracts to maintain the profitability.

41

Financial Performance

Sales Growth

The National Shipping Company of Saudi Arabia has witnessed a jump in sales in 2008 as the container ship charter rates increased sharply. In 2008, the Company recorded a total sales of SAR 2.594 B from SAR 1.703B in 2007, representing a growth of 52%. The main source of income was oil shipping which contributed 52% of total income. Each of the goods and chemical shipping represented about 24% of the total revenue. In the second half of 2008 the company has taken delivery of two new VLCC. The two vessels that are from series of six sister ships were contracted in March 2006. The rest four new Tankers of same size will be received in 2009. At present NSCSA has a fleet of 13 modern Very Large Tankers able to safely transport more than 28,500,000 barrel of crude oil.

Chart 16: H is t ori cal Revenue Growt h

2,594

1,7031,6511,6021,637

0300600900

1,2001,5001,8002,1002,4002,7003,000

2004 2005 2006 2007 2008

(SA

R' M

M)

Source: NSCSA

Sources of Growth The sales in 2008 climbed 52% as revenue from oil shipping remarkably increased by 82% in 2008.The other two segments have also had double digit growth, the chemical and goods shipping soar 29% and 28% respectively.

-0.1 0

0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9

Oil Chemical Goods

2007 2008

Chart 17: Revenue Growth by Segment

NSCSA has witnessed a

sharp rise in sales in

2008.

42

The main source of income comes from oil shipping segment. In 2008, 52% of the company's revenue generated from oil shipping, where the chemical and goods shipping contributed together 48%.

Expenditure

With the expansion in the ships fleet and with more contracts in hand, the operating costs of the Company have increased following the same uptrend of sales. The operating expenses soared 31% to reach SAR 1,739MM in 2008, as compared to SAR 1,339 MM in 2007. Among the operating expenses, the Admin and Marketing Expenses soar 18% to SAR 105,7 MM in 2008 from SAR 87.3 MM in the previous year. On the other side, the cost of sales margin in 2008 declined to 63% versus 73.5% in 2007. By looking at Chart 19, one can clearly see that the Company has taken active measures in cutting down its expenses in 2008. In spite of the major expansion projects going on, the total expenses to sales ratio has deceased considerably to 67% in 2008 from 79% in 2007. This indicates the operating efficiency of the Company and its active involvement in the cost reduction activities.

Chart 18: 2008 Source of Revenue

52%

24%

24%

Oil Chemical Goods

60%

65%

70%

75%

80%

2004 2005 2006 2007 2008

Chart 19: Decrease in Expenses to Sales Ratio

43

Profitability

The Company’s operating profit jumped 134% to SAR 851.90 MM in 2008, from SAR 364.34 MM in the previous year. The net income also scaled up by 77% to SAR 749 MM in 2008, from SAR 422.6 MM in 2007. At the same time, operating profit margin enhanced to 33% compared to 26.5%, while net profit margin for the year 2008 increased to 29% from 24.8% in 2007. The rise in its net profit was mainly due to increase in shipping rates and vessel fleet.

Chart 20: Profi t abi l i t y Anal ys i s of NSCSA

0500

10001500200025003000

2007 2008

(SA

R' M

M)

0%5%10%15%20%25%30%35%

Operating Revenue Operating ProfitNet Income Operating Profit Margin (%)Net Profit Margin (%)

Source: NSCSA

Earnings per Share

As shown in Chart 20, it is clear that the Company recorded an EPS of SAR 2.14 for the year ended 2004. In 2005, the EPS increased slightly to SAR 2.19, while in 2006 it decreased to SAR 1.98 due to the capital increase which has been raised by SAR 250 MM thereby increasing the number of shares from 199.9 MM to 225 MM. One bonus share was offered for each eight shares held without any issue premium or cuts from future earnings. The Company again increased its capital in the following year to SAR 3.15 B through right issue. Hence, the EPS for 2007 decreased to SAR 1.48. With the improved performance of the Company’s operational activities, the Company’s EPS for 2008 rose to SAR 2.38.

Source: NSCSA

Chart 21: EPS Performance of NSCSA

2.38 2.142.19

1.96 1.48

0

2

4

2004 2005 2006 2007 2008

SAR

EPS

Souring EPS of the Company

has shown the improved

performance of the Company’s

operational activities.

44

Profitability Ratios

Chart 22 depicts the returns on both assets and equity over the last three years. After falling in 2007, the ROE ratio of NSCSA rose and reached 14.3% in 2008 compared with 8.8% in the previous year. This shows the sound profitability of the Company and its efficiency in using its assets appropriately to generate healthy earnings. The ROA ratio also improved to reach 7.6% in 2008, compared with 5.4% in 2007.

Chart 22: ROA and ROE Performance of NSCSA

14.30%

7.57%5.42%

7.60%

8.80%

14.58%

0.00%

10.00%

20.00%

2006 2007 2008

ROA ROE

Source: ARFS

Assets and Liabilities Movement

On the assets front, the total current assets surged 13% to SAR 1,579 MM in 2008 from SAR 1,400.6 MM in the previous year. The increase in the current assets was mainly attributable to the increase in short-term investments which rose by 37.24% compared with that of the last year. In the non-current assets area, the total non current assets jumped from SAR 6,396.14 MM in 2007 to SAR 8,240 MM in 2008 due to the existence of vessel under construction. Hence, the total assets in 2008 reached SAR 9,819 MM from SAR 7,796.78 MM in 2007, representing an overall growth of 25.43% in the current year. The long-term loans have increased from SAR 2,229.29 MM in 2007 to SAR 3709 MM in 2008. The total liabilities (without equity) including current and non-current, increased to SAR 4,565 MM from SAR 2,983.30 MM in the previous year.

Profitability ratio declined in

2007 owing to dilution of

shareholder’s equity.

The total current assets surged

13% to SAR 1,579 MM in 2008

from SAR 1,400.6 MM in the

previous year.

45

Valuation

We initiate the coverage of NSCSA with a BUY recommendation. NSCSA set its expansion plan in 2006 which included doubling the number vessels by the end of 2011. Based on a weighted average target price, by using the 3 valuations models; Discounted Cash Flow Model with Free Cash Flow to Firm Approach and Free Cash Flow to Equity Approach and Relative Valuation Model, we have arrived at a one year target price for NSCSA, of SAR 21.55 per share. This reflects a 36.64% upside potential with the current market price of SAR 16.00. The purpose of this valuation exercise is to arrive at a fair value per share, through the use of fundamental analysis, which should prevail for NSCSA in the next 12 months.

(A) Discounted Cash Flow Model

We have used the Discounted Cash Flow (DCF) model – “Free Cash Flow to Firm” and “Free Cash Flow to Equity”, as our primary methods to determine a one year target price of SAR 22.60 and SAR 24.20 respectively. Our target prices are 41.19% and 51.25% higher than the current price which is SAR 16.00. Our valuation approach is based on forecasted financial results through 2012. Larger Capacity will help the Company to boost its sales As the Company has been expanding its ship fleet since 2007, we expect that the Company is likely to fully obtain the benefits of its expanded capacity at the second half of 2009 onwards. Our Demand outlook for shipping across the world will be low in the first half of 2009. However the market is likely to pick up as we progress through 2010 as a result of the global stimulus packages spending on commodities. As of February 2009, more than fifty countries around the world announced an economic stimulus package. Long term charter contracts will help to k protect revenue from fluctuations Due to the OPEC members supply cuts, we believe that the oil shipping demand will decline. However, the demand contraction will not have a significant impact on the company performance because NSCSA will generate fixed income from the ships under long term charter contracts. Six ships of the company's fleet are under the long term contract, while seven ships are operating in the spot market. The company also will receive four ships in 2009. The crude oil shipping generates 52% of the company's revenue. Stable Revenue Growth Considering the expansion in the capacity, we forecast the revenues of NSCSA to grow slightly at a CAGR of 1.67% between 2008 and 2012. In 2009, we expect that the Company's revenues will decline as the world economy still struggling. It might show signs of recovery in the second half of 2010. Therefore, we expect growth in revenue starting 2010.

0.00

500.00

1,000.00

1,500.00

2,000.00

2,500.00

SA

R 'M

M

2008 2009E 2010E 2011E 2012E

Chart 23: Expected Revenue during 2008 to 20012E

We have arrived at a one year

target price for NSCSA of SAR

21.55 per share.

We believe that the rise in the

Company's fleet will definitely

lead the Company’s sales and

profits on greater heights in

the coming years.

Six vessels are under the long

term contract.

We forecast the revenues of

NSCSA will grow at a CAGR of

1.7% during 2008 – 2012

46

Net Profit of the Company is forecasted to rise slightly We expect that NSCSA will post a net profit of SAR 808.5 MM in FY09E from SAR 749.9 MM in FY08. We forecast that its bottom line will rise on the average at 4% from 2008 to 2012E. The ongoing increase in number of vessels will be the main growth driver for the rising net profits. We forecast that the net profit margin of the Company will be maintained at around a range of 28 % to 31% in the forecasted period.

Chart 24: Expected Net Profi t and Marg ins

749.90 808.50 837.40 866.40 887.30

29%32%

32% 32% 32%

0

200

400

600

800

1,000

2008 2009E 2010E 2011E 2012E

SA

R 'M

M

0%

10%

20%

30%

40%

Net Incom e NPM (%)

Our DCF Valuation Methodology is explained below

I. For the purpose of the DCF valuation, we have considered the number vessels, and the expected freight rates according to Clarkson forecasts to predict the Company’s sales revenues for computing its cash flow.

II. We have applied a WACC of 11.32%, which is arrived at, as explained below:

For the risk-free rate, we have used a rate of 5%. For the market premium, we have used the market average return of 12.5%. The calculated Beta equals to 1.07. The cost of equity is arrived at, as per CAPM, and is taken as 13.32%, while the

Weighted Average Cost of Capital (WACC) is arrived at as 11.13%. We have used the WACC as the discounting rate in the ‘free cash flow to firm approach’ and cost of equity in the ‘free cash flow to equity approach’.

III. We have estimated NSCSA’s free cash flow for the next 4 years and assumed a perpetual growth rate of 5%, thereafter, which is in line with the long-term GDP growth of Saudi Arabia.

(A.1) Free Cash Flow to Firm Approach – Fair Value SAR 22.60 We have arrived at a one-year target price of SAR 22.60 for National Shipping Co.’s share after using the ‘free cash flow to firm’ approach. Our target price is 41.19% higher than the current market price of SAR 16.00. We believe that the Company’s new capacity expansion will accelerate the top line and the bottom line growth in the future. As a result, we anticipate the ‘free cash flow to firm’ will increase by a CAGR of 8.16% by the end of FY2012E from FY09E.

We forecast that its bottom-

line will rise slightly during

2009 – 2012

We anticipate the free cash

flow to firm will increase by

CAGR of 8.16% by the end of

FY2012E from FY08E

47

Table 18: Free Cash Flow to Firm (FCFF) All figures in SAR ’000

2009E 2010E 2011E 2012E

Operating Profit 828,528.42 849,168.76 879,027.71 910,449.48

(+) Depreciation 264,792.88 271,400.62 280,983.38 291,069.39

(-) CAPEX 264,792.88 271,400.62 280,983.38 291,069.39

(-) Increase In Networking Capital 63,933.61 329,872.37 359,435.23 401,979.97

Free Cash Flow to Firm 487,858.02 644,796.53 645,361.74 749,661.86

WACC 11.32% 11.32% 11.32% 11.32%

The results of the sensitivity analysis on two important inputs for our DCF valuation model, which are the WACC and the perpetual growth rate, used in computing the terminal value, are given below:

Table 19: Sensitivity Analysis of the Fair Value of Stock Performance – FCFF

Sensitivity Analysis of the Fair Value of stock performance

Perpetual growth rate Discount Factor

10.50% 11.00% 11.32% 11.82% 12.32% 0.50% 22.7 21.6 20.9 20.0 19.1

1.00% 23.6 22.4 21.7 20.7 19.7

1.50% 24.7 23.4 22.6 21.5 20.4 2.00% 25.9 24.4 23.6 22.3 21.2 2.50% 27.2 25.6 24.6 23.3 22.1

Our results suggest that under the worst case scenario, with the lowest terminal value multiple and the highest weighted average cost of capital, the fair value of NSCSA’s stock is estimated to be SAR 19.1. Under the best case scenario, with the highest terminal value and the lowest weighted average cost of capital, the fair value of NSCSA’s stock is estimated to be SAR 27.2.

(A.2) Free Cash Flow to Equity Approach – Fair Value SAR 24.20

We have also calculated the fair value per share based on the ‘free cash flow to equity’ approach. We have arrived at a one-year target price of SAR 24.20, reflecting a value around 51.25% higher than the current price of SAR 16.00. The below table shows the ‘free cash flow to equity holders’.

Table 20: Free Cash Flow to Equity Holders (FCFE) All figures in SAR ’000

2009E 2010E 2011E 2012E

Free Cash Flow to Firm 487,858.02 644,796.53 645,361.74 749,661.86

Issuance of debt 233,726.28 236,620.04 209,014.37 175,572.07

Excess Debt 0 0 0 . Free Cash Flow to Equity Holders 724,478.07 853,810.78 820,933.65 925,233.93

Cost of Equity 13.03% 13.03% 13.03% 13.03% The results of the sensitivity analysis on two important inputs for our DCF valuation model, which are the cost of equity and the perpetual growth rate, used in computing the terminal value, are given below:

48

Table 21: Sensitivity Analysis of the Fair Value of Stock Performance – FCFE

Sensitivity Analysis of the Fair Value of stock performance

Perpetual growth rate Discount Factor

12.00% 12.50% 13.03% 13.50% 14.00%

0.50% 23.44 23.10 22.75 22.45 22.13

1.00% 24.16 23.81 23.45 23.13 22.80

1.50% 24.93 24.57 24.20 23.87 23.53

2.00% 25.78 25.41 25.02 24.67 24.32

2.50% 26.71 26.32 25.92 25.56 25.19

Our results suggest that under the worst case scenario, with the lowest terminal value multiple and the highest cost of equity, the fair value of NSCSA’s shares is estimated to be SAR 22.13. Under the best case scenario, with the highest terminal value and the lowest cost of equity, the fair value of NSCSA’s shares is estimated to be SAR 26.71.

(B) Relative Valuation – Fair Value SAR 17.50

For a better valuation of NSCSA’s stock, we have also used two different price multiples for doing relative valuation, viz. P/E multiple and P/B multiple. We have used forward P/E and P/B multiples for the relative valuation. Based on a one year comparable forward P/E and P/B, we have arrived at a fair value of SAR 17.50, which offers an upside potential of 9.31% from the current market price of SAR 16.00. The valuation is based on the 2009 estimated results. On a conservative basis, we have given a 30% weightage to the relative valuation in arriving at the one year target price. For our relative valuation, we have included 3 similar companies that operate in the region, as the peer group.

Table 22: Key Statistics of GCC Shipping Companies

Company Country EPS BV per share P/E P/B

National Shipping Company of Saudi Arabia Saudi 2.38 16.2

6.39 0.94

Gulf Navigation Holding UAE 0.09 1.02 6.67 0.59

Qatar Navigation Qatar 8.21 77.64 7.43 0.79

Qatar Shipping Company Qatar 4.71 36 6.09 0.80

Qatar Gas Shipping (Nakalat) Qatar 0.36 8.65 53.33 2.22

Average P/E and P/B 16 1.1

Source: Reuters

Currently, the stock is trading at a P/E of 6.39x TTM EPS of 2.38, which is lower than the industry Average. From the P/B point of view, the stock is trading below the average of the industry. The higher P/B ratio indicates that the Company is growing faster than average, and that it will continue to grow at an even faster pace. On a very conservative basis, we forecast a 1-year P/E multiple of 7 and a 1-year P/B multiple of 0.94. Considering the strong fundamental performance, increased shipping capacity and the strong growth in the demand for shipping across the MENA region, we believe that the Company will achieve these multiples by any standards. We believe that the Company has a good opportunity to grow in the future. We have assigned 50% weightage each, to both the multiples. With these forward price multiples, we have arrived at a 12-month target price of SAR 17.50. The target price is based on our estimates of FY09’s EPS and Book Value per share. Our target price offers a price appreciation of nearly 9.3%

Lower P/E and P/B multiples

as compared to its average

sector peers

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The results of the sensitivity analysis on two important inputs for our relative valuation model, which are the expected P/E and expected P/B, are given below:

Table 23: Sensitivity Analysis of the Fair Value of Stock Performance – Relative Valuation

Sensitivity Analysis of the Fair Value of stock performance

Expected P/E Expected P/B

5 6 7 8 9

1 14.4 15.7 17.0 18.2 19.5

1.07 14.9 16.2 17.5 18.8 20.0

1.5 18.4 19.7 21.0 22.2 23.5

2 22.4 23.7 25.0 26.2 27.5

3 30.4 31.7 33.0 34.2 35.5

Our results suggest that under the worst case scenario, with the lowest expected P/E and and P/B multiples, the fair value of NSCSA’s shares is estimated to be SAR 14.4. Under the best case scenario, with the highest expected P/E and P/B multiples, the fair value of NSCSA's shares is estimated to be SAR 35.5.

Valuation Recommendation

Based on the 3 valuation parameters and after using a weighted average, we arrive at a one-year target price of SAR 21.55. We forecast NSCSA as a fairly undervalued stock at current levels, considering the sustainable future profit growth expectation. A BUY is recommended.

Table 24: NSCSA’s Target Price as per Different Valuation Models

Valuation Model Price per share (SAR)

Weights Weighted Target Price (SAR)

Free Cash Flow to Firm 22.60 40% 9.04

Free Cash Flow to Equity 24.20 30% 7.26

Relative Valuation 17.50 30% 5.25

One Year Target Price 21.55

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Financial Statements

Table 25: Projected Balance Sheet

(All figures in SAR' 000)

Particulars 2008 E2009 E2010 E2011 E2012

Assets Current Assets Cash in fund & bank balance 1,108,392 1,160,965 1,464,628 1,806,895 2,180,176

Trade Debtors 98,622 106,328 110,119 113,935 116,687

Doubtful Accts. -21,902 -24,046 -24,903 -25,766 -26,389

Prepaid Expenses 65,123 71,498 74,047 65,123 65,123

Grant Receivable 49,971 59,665 65,632 72,195 79,414

Other Current Assets 278,979 263,977 280,099 293,332 302,339

Total Current Assets 1,579,185 1,638,387 1,969,620 2,325,714 2,717,351

Investments 269,520 268,852 268,852 268,852 268,852

Capital in progress 2,077,603 2,285,363 2,628,168 2,904,125 3,238,100

Fixed Assets 5,773,941 6,146,132 6,253,895 6,408,502 6,457,869

Goodwill 119,177 119,177 119,177 119,177 119,177

Total Non Current Assets 8,240,241 8,819,524 9,270,092 9,700,656 10,083,998

Total Assets 9,819,426 10,457,911 11,239,712 12,026,370 12,801,349 Liabilities and shareholder's right

Current Liabilities

Short term Loans 71,250 69,320 71,050 73,558 76,199

Tax Provision 183,086 177,691 182,129 188,574 195,357

Other Current Liabilities 563,390 563,861 563,861 563,861 563,861

Total Current Liabilities 817,726 810,872 817,040 825,993 835,417

None Current Liabilities

Long term loans 3,709,941 3,943,667 4,180,287 4,389,302 4,564,874

Other None Current Liabilities 37,888 40,713 41,843 42,981 43,801

Total Non Current Liabilities 3,747,829 3,984,381 4,222,131 4,432,282 4,608,675

Total Liabilities 4,565,555 4,795,252 5,039,170 5,258,275 5,444,091

Shareholder's right

Capital 3,150,000 3,150,000 3,150,000 3,150,000 3,150,000

Reserve and surplus 2,103,871 2,512,658 3,050,542 3,618,095 4,207,257

Total Equity 5,253,871 5,662,658 6,200,542 6,768,095 7,357,257

Total Liabilities & Shareholders' Equity

9,819,426 10,457,911 11,239,712 12,026,370 12,801,349

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Table 26: Projected Income Statement

(All figures in SAR' 000)

2008 2009E 2010E 2011E 2012E

Operating Revenues 2,594,530 2,524,241 2,587,232 2,678,583 2,774,732 Operating Expenses 1,633,882 1,589,618 1,629,286 1,686,814 1,747,363 Gross Operating Income

960,648 934,623 957,946 991,769 1,027,369

General & Administrative expenses

105,718 102,854 105,421 109,143 113,061

Operating income 854,930 831,769 852,525 882,627 914,309 Income from Investments in Associated Co

(3,840) 43,497 51,586 52,654 45,021

Other Income (4,292) 27,050 29,457 30,783 30,929 Financing Expenses 105,833 102,714 105,280 109,005 112,926 Fuel Subsidy 72,859 70,712 72,478 75,043 77,742 Net Income Before Zakkat, Tax and minority interest

813,824 870,314 900,767 932,101 955,075

Zakkat and Income Tax

54,471 52,866 54,186 56,104 58,122

Minority Interest 9,385 8,882 9,186 9,580 9,609 Net Income 749,968 808,566 837,395 866,417 887,344 Basic Weighted Average Shares 315,000.00 315,000.00 315,000.00 315,000.00 315,000.00

EPS 2.38 2.57 2.66 2.75 2.82

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Abbreviation

B Billion BCM Billion Cubic Meters CAPEX Capital Expenditure CAPM Capital Asset Pricing Method DCF Model Discounted Cash Flow Model DWT Dead Weight tons EPS Earning Per Share FCFE Free Cash Flow to Equity FDI Foreign Direct Investment FCFF Free Cash Flow to Firm FY Financial Year GCC Gulf Cooperation Council GDP Gross Domestic Product KSA Kingdom of Saudi Arabia LNG Liquefied Natural Gas MBPD million barrels per day MM Million MTOE Million Tones Of Oil equivalent NCC National Chemical Carriers OECD Organization for Economic Co-operation and Development P/B (ratio) Price to Book Value (ratio) P/E (ratio) Price to Earnings (ratio) SABIC Saudi Basic Industries Corp. SAMA Saudi Arabian Monetary Agency SAR Saudi Arabian Riyals TTM Trailing Twelve Months VLCC Very Large Crude Carrier WACC Weighted Average Cost of Capital WTO World Trade Organization Y-O-Y Year-on-Year

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Glossary

Amortization -- The paying off of debt in regular installments over a period of time. Or, the deduction of capital expenses over a specific period of time (usually over the asset's life).

Bottom line – Net income of a company; termed as bottom line, it is typically found on the last line of a company's income statement. Depreciation -- A no-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence.

Discounted Cash Flow Model (DCF) - A valuation method used to estimate the attractiveness of an investment opportunity.

Free cash flow -- A measure of financial performance calculated as operating cash flow minus capital expenditures.

P/B ratio -- Is a financial ratio used to compare a company's book value to its current market price.

P/E ratio -- A valuation ratio of a company's current share price compared to its per-share earnings.

Reinsurance services – Services provided by an insurance company to another insurance company.

Top line – A reference to the gross sales or revenues of a company.

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Bibliography

Bloomberg

http://www.cds.gov.sa

Clarkson Research

Global Insight

www.gulfbase.com

ICR Research

http://www.mof.gov.sa

http://www.nscsa.com.sa

Reuters

http://www.sama.gov.sa

http://www.tadawul.com.sa

UNC TAD

http://www.worldbank.org

http://www.zawya.com

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Al Rajhi Financial Services Co. P.O.Box 28, Riyadh 11411, Kingdom of Saudi Arabia www.arfs.com Investment Research Dept Tel: +966 1 279 5830 Fax: +966 1 279 5840 research@arfs.com

Disclaimer Information and views expressed in this report are subject to change without notice. While proper care has been taken in the preparation of this report, we do not represent that the information contained herein is accurate, complete or free of any errors. As such, Al Rajhi Financial Services Co. or its employees can not be held liable for any losses arising from the use of this document. This report is prepared for your information from the sources believed to be reliable and is not an offer to buy or sell security or enter into any agreement. Al Rajhi Bank, its affiliates, subsidiaries and employees may have a position in the financial instruments mentioned in this report. This document or its content is not to be distributed in jurisdictions outside the Kingdom of Saudi Arabia where its distribution is restricted by law.