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Stability inAdversity

AnnuAl RepoRt 2009

APICORPP.O. Box 9599Dammam 31423Kingdom of Saudi Arabia

telephone (966) 3 847 0444Fax (966) 3 847 0011 (966) 3 847 0022telex 870068 APIC SJe-mail [email protected] [email protected] www.apicorp-arabia.com www.apic.com

APICORP(Bahrain Banking Branch)Almoayyed Tower26th FloorAl Seef DistrictP.O. Box 18616 ManamaKingdom of Bahrain

telephone (973) 17 563 777Fax (973) 17 581 337

A Gyroscope measures or maintains orientation based on

principles of conservation of angular momentum. Like a

gyroscope, APICORP is able to defy gravity and remain stable in

economic and global markets downturns.

ApicoRp Shareholders 02Mission and Vision 03Financial Summary 03Board of Directors 04executive Management 05chairman’s Statement 06Statement by the chief executive and General Manager 08

Annual Review of the Arab Macro-economicand energy investment outlook 10 Part One: A Still-Fragile Recovery 12 Part Two: A Continuing Shrinking Investment Outlook 15 Part Three: A More Challenging Funding Environment 17

ApicoRp Activities in 2009 Project and Trade Finance 22 Direct Equity Investments 24 Equity Participations 28 Treasury & Capital Markets Activities in 2009 30 Economics & Research 31 Conferences and Seminars 2009 33

2009 Financial Statements Independent Auditors’ Report to the Shareholders 36 Statement of Financial Position 37 Statement of Income 38 Statement of Comprehensive Income 39 Statement of Changes in Equity 40 Statement of Cash Flows 42 The Formation, Status and Activities of APICORP 43 Significant Accounting Policies Applied in the Financial Statements 44 Notes to the Financial Statements 53

CONTENTS

Arab Petroleum Investments Corporation (APICORP) is an inter Arab multi-lateral financial institution, established on 23 November 1975 in accordance with an international agreement between governments of the ten member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC).

APICORP’S ShAREhOLDERS

APICORP is wholly owned by the member states of the Organisation of Arab Petroleum Exporting Countries (OAPEC) who are listed as follows:

ApicoRp: the pioneer Financial institution of the Arab oil and Gas industry since 1975

Apicorp

Libya 15% Egypt 3%

Syria 3%Iraq 10%

Saudi Arabia 17%

Bahrain 3%

Kuwait 17%

UAE 17%

Qatar 10%Algeria 5%

02 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 03

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

We will measure our success by our ability to • Be the partner of choice of oil and gas and energy-related companies, both public and private; • Be recognized as a world-class professional institution and the leading source of research on the Arab hydrocarbon and energy industries.

We will achieve our vision by • Profitably complementing the offering of private sector financial institutions; • Attracting and retaining the best professionals in the industry; • Pioneering solutions for our Clients; • Maintaining a portfolio of activities weathering the cyclicality of the industry; • Nurturing a performance culture throughout the Company.

MISSION & vISION


04 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 0504 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 05

BOARD OF DIRECTORS

naser Mohamed Al-SharhanFor the United Arab Emirates

(Member of the Audit Committee)

Farid BakaFor the Democratic and

Popular Republic of Algeria(Member of the Audit Committee)

Mahmood Hashim Al-KoohejiFor the Kingdom of Bahrain

(Chairman of the Audit Committee)

Abdullah A. Al-ZaidChairman of the Board

For the Kingdom of Saudi Arabia

Abdullah A. Al-ZaidChairman of the Board

Mohamed Ali Al-HuweijDeputy Chairman of the Board

For the Socialist Peoples’ Libyan Arab Jamahiriya

Mohamed Ali Al-HuweijDeputy Chairman of the BoardDeputy Chairman of the Board

H.e. eng. Sufyan Al-AllouFor the Syrian Arab Republic

Fayadh Hassan nimaFor the Republic of Iraq

ibrahim Ben A. Al-MannaieFor the State of Qatar


naser Mohamed Al-Sharhanaser Mohamed Al-SharhanFor the United Arab EmiratesFor the United Arab Emirates

H.H.e. eng. Sufyan Al-AllouFor the Syrian Arab RepublicFor the Syrian Arab Republic

Mahmood Hashim Al-KoohejiMahmood Hashim Al-KoohejiMahmood Hashim Al-KoohejiFor the Kingdom of BahrainFor the Kingdom of Bahrain

Fayadh Hassan Fayadh Hassan nimaFor the Republic of IraqFor the Republic of Iraq

Shaikh talal naser A. Al-SabahFor the State of Kuwait


H.e. eng. Sameh FahmiFor the Arab Republic of Egypt

Shaikh talal naser A. Al-SabahFor the State of Kuwait

H.e. eng. Sameh FahmiFor the Arab Republic of Egypt

Farid BakaFor the Democratic and

ibrahim Ben A. Al-MannaieFor the State of Qatar



ExECUTIvE MANAGEMENT

Ahmad Bin Hamad Al-nuaimiChief Executive

and General Manager

nabeel Ali Al-AdsaniDeputy General Manager

pRoJectS DepARtMent

Dr. Abdulaziz S. AlidiExecutive vice President

talal KhalilSenior vice PresidentBusiness Development

Basema t. MahroosSenior vice PresidentBusiness Development

irfan Sayed AliSenior vice PresidentBusiness Development

pRoJect & tRADe FinAnce DepARtMent

nicolas thevenotExecutive vice President

Bassam Al-tamimiSenior vice PresidentNAAM Business Group

Sami Al-Sunaidvice PresidentTrade Finance

Rajesh Ramanathanvice PresidentGCC Business Group

tReASuRY & cApitAl MARKetS DepARtMent

Hesham FaridExecutive vice President

Richard BurnellSenior vice PresidentMoney Markets & Foreign Exchange

Faiq HussainSenior vice President, MM, Fx and Arbitrage

FinAnciAl contRol DepARtMent

Ayman F. Zeyadahead

Khaled YousefAccounts and Control Manager

Kamran KhanFinancial & Management Accounts Manager

FinAnciAl opeRAtionS DepARtMentMohamed Al-MubarakSenior Manager

leGAl DepARtMent

Ali Hassan FadelGeneral Counsel & BOD Secretary

ADMiniStRAtion & HuMAn ReSouRceS DepARtMent

emad M. Fodahhead

Samir el GhonaimyAdministration Manager

Mahdi Al-MahdiPublic Affairs Manager

inFoRMAtion SYSteMS DepARtMent

Mohammed i. el-Khoulyhead

econoMic & ReSeARcH DepARtMent

Ali Aissaoui Senior Consultant

Dr. Wichai turongpunManager (Acting head)

GloBAl MARKetinG &pRoJect cooRDinAtion

najwa Al-tunisiSenior Manager

RiSK MAnAGeMent unit

Suresh Merguhead

Ahmad Bin Hamad Al-nuaimiChief Executive

nabeel Ali Al-AdsaniDeputy General Manager


ChAIRMAN’S STATEMENT

The world’s financial crisis has dragged the world economy into a deep and prolonged recession, and has eventually led to the collapse of the world’s financial markets and the postponement of a number of projects in the Arab world. Although the financial and oils markets have stabilized, concerns over the effects of this crisis still persist, while the shortage of liquidity has crippled the loans markets as a whole.

Financial ResultsIn spite of the above circumstances, APICORP’s operations in 2009 reported a net income of US$ 58.5 million, compared to US$ 27.6 million in 2008, a 112% increase. Total assets by year end were US$ 4.1 billion, compared to US$ 3.57 billion in 2008, a 15% increase, while total shareholders’ equity also rose to US$ 1.0 billion in 2009, compared to US$ 895 million in 2008, a 12% increase.

Dividend payableIn accordance with the Corporation’s statutes, 10% of the net profit has been transferred to the Legal Reserve, and in view of the ensuing financial crisis, the Board of Directors sanctioned that no dividend distributions to be effected for the year 2009, in support of the Corporation’s balance sheet.

Direct equity investmentsAPICORP’s direct equity investments portfolio consists of 14 Arab joint venture projects with vital and diversified activities. This portfolio contributes to the Corporation’s objectives of developing the hydrocarbon and energy industries in the Arab world. In addition, the Corporation is now taking the necessary steps towards participating into new equities, pending the viability of these projects.

By 31st December 2009, total value of APICORP’s direct equity investments was US$ 339 million, a 20% increase over its value in 2008.

project and trade FinanceIn spite of the fact that the project finance activity was at its historical lows in 2009 as a result of several depressing factors, chiefly the lack of desire from banks to lend, APICORP’s assets growth, nor its revenue stream were seriously affected. Net income from project and trade finance activity in 2009 amounted to US$ 30.1 million, compared to US$ 29.7 million in 2008, and US$ 23.9 million in 2007; while loan assets grew to US$ 2.6 billion by the end of 2009, compared to US$ 2.4 billion in 2008, and US$ 1.9 billion in 2007.

On behalf of the Board of Directors of Arab Petroleum Investments Corporation (APICORP), it gives me great pleasure to present the 34th Annual Report on the Corporation’s activities and financial results for the year ended 31 December 2009.


Finally, in spite of the continuing economic difficulties affecting local, regional and international financial markets, the Corporation remains in a strong position to maintain its core activities and play an instrumental role in the support of the oil, gas, petrochemical and energy industries in the Arab world.

It is worth mentioning here that the Corporation has also strengthened its competitive position in the financing of the hydrocarbon and energy projects in the Arab world, at a time that saw the withdrawal of the regional and international financial institutions from the project finance arena.

EconomicsandResearchThe Economic and Research Department at APICORP is dedicated to the study of economic and policy issues relevant to the Corporation’s business development and growth strategy. The addressing of these issues is focused on the scanning of the Corporation’s business environment and trends, the impact of the global financial crisis and its effects on the Arab (MENA) economic and energy investment outlook; the continual enhancement of our in-house country risk methodology, in addition to the dissemination of our research findings through the economic commentary, which has significantly expanded, and is considered as an added value to the economic and energy policy debate related to energy industry in the Arab region.

On behalf of the Board of Directors and the staff of the Corporation, I would like to record my deep thanks and appreciations to governments of the member states for the support they provided to Corporation in its aspiration towards achieving its objectives. Finally, and with great honour, I would like to express my gratitude and recognition to the government of the Custodian of the Two holy Mosques, Kingdom of Saudi Arabia, for the special care it provided to the Corporation.

Abdullah A. Al-ZaidChairman of the Board of Directors


STATEMENT By ThE ChIEF ExECUTIvE AND GENERAL MANAGER

Recent developments in the world’s oil markets that saw huge volatility of oil prices, led the Organization of Petroleum Exporting Countries (OPEC) to cut the oil output three times between September 2008 and February 2009. That policy had eventually led to the price control and markets stabilization.

The subprime loan market crisis that started in the United States spread to other forms of credits, with devastating consequences on the funding of the world economic activity. however, the drastic and decisive policy actions taken by central banks and government treasuries to support financial institutions and prevent further banks failures and restore confidence resulted in a positive outcome, particularly in the interbank markets.

In the tumult of that crisis, APICORP managed to overcome the liquidity and credit crisis, and was able to achieve a commendable performance, both in terms of operations and profitability during that period. Such a performance demonstrates the Corporation’s sound financial position, vigilant management, and healthy and balanced operations and business lines, in spite of the collapse of the financing activity worldwide.

I would also like to seize this opportunity to briefly embark on some of the Corporation’s main achievements during the past five years (2005-2009).

In the year 2005, APICORP achieved the highest net income of its history at US$ 95 million, also allowing in the year that followed the highest historically dividend distributions of US$ 40 million. On the same year (2006) APICORP obtained a license from Bahrain Monetary Agency (The Bahrain Central Bank) for the establishment of APICORP’s Banking Branch in the Kingdom of Bahrain, which has been in full operation since 2007. On that same year, APICORP established an Economic and Research Department, together with a Risk Management Unit. Also in 2007, and for the first time in its history, the Corporation launched its first comprehensive 5 year strategy, with the support of the international consultant Bain & Company. The consultant’s recommendations, which covered many aspects of the Corporation’s activities, from the organizational and governance aspects, to operational and mission related matters across our three business lines were all approved by our Board of Directors.

Finally, in 2007, the Corporation started collecting deposits from major industrial companies in Member States and signed a US$ 400 million medium term loan at the lowest borrowing rate APICORP had been able to achieve since its entering the loan market.

The general performance of APICORP’s activities as a financial institution, whose core business is dependent on investment and finance of the petroleum and petrochemical industries in the Arab world, is undoubtedly impacted by both oil prices and interest rates, as they both represent an influential factor in the performance of the Arab and world economies as a whole.


Overall, within the last five years APICORP has participated in 97 petroleum and petrochemical project and trade finance loan agreements, for a total value of US$ 52.7 billion and an APICORP final take of US$ 3.6 billion. During that period, APICORP was awarded 8 financial advisory mandates that it completed very satisfactorily.

It is worth mentioning here that, in spite of the world’s financial crisis, APICORP managed to achieve profits during the years 2008 and 2009, totalling US$ 86 million. Furthermore, in aggregate, over the last 5 years, the Corporation’s net profits have grown to US$ 312 million, a 70% increase over the preceding five years (2000-2004), which totaled US$ 184 million.

That in particular was a consequence of the doubling of the Corporation’s total assets that reached by the end of the year 2009 US$ 4,119 million, compared to the 2004 level of US$ 2,121 million. Also that total shareholders’ equity grew by 35% to total US$ 1,002 million by year-end 2009, compared to US$ 744 million at the end of 2004.

On a final note, the Corporation continues its diligent efforts through direct contacts with senior executives from the petroleum and energy industries in the Arab countries, to identify potential investment opportunities, in order to take an equity share in these projects or be part of arranging the required debt financing.

Ahmad Bin hamad Al-NuaimiChief Executive and General Manager



AnnuAl ReVieW of the Arab Macro-Economic and Energy Investment Outlook



A DiM liGHt At tHe enD oF A lonG tunnel

The year 2009 saw the global financial crisis spread far beyond its US roots to engulf the rest of the world. By throwing the global economy into a deep and protracted recession, the crisis has precipitated the collapse of oil markets and prices and cast a shadow on the Arab growth outlook. For a region whose main economies rely predominantly on petroleum exports, one crisis has followed on the heels of another.

The sharp contraction of credits has been compounded by a dramatic fall in corporate cash flows and government fiscal petroleum revenues to severely constrain funding. Even if both the credit market and the oil market have stabilized in recent months, it is unreasonable to believe that the region’s troubles are over. Serious delayed effects, such as those experienced by Dubai, may yet occur. As insightfully noted by Mohamed El-Erian in this regard, “[the global] financial crisis was a consequential phenomenon whose lagged impact is yet to play out fully in the economic, financial, institutional and political arenas.” 1

At the heart of the new challenges facing the Arab world, as it strives to mitigate the shocks and aftershocks of these crises, is how to maintain its capacity to make a major contribution to the world’s energy supply, particularly as its growth potential is still far from being realized. The region holds 54 percent of the world’s proven reserves of crude oil and condensate, but only contributes to 33 percent of global oil output. Similarly, while it contains 30 percent of proven natural gas reserves, it only accounts for 15 percent of total gas output. however, in times of crisis expediency becomes a necessary course of action: scaling down energy investment plans by making key projects redundant has been inevitable. This annual review of the state of the global economy and the oil markets and their effect on the Arab economic and energy investment outlook, falls in three parts: pARt one exposes the fragility of the global recovery, the extent oil markets have stabilized and the downside risks to Arab growth. pARt tWo highlights the region’s continuing shrinking energy investment outlook. pARt tHRee outlines the more challenging environment facing energy policy makers and project sponsors.

1 Mohamed El-Erian, “Dubai: what the immediate future holds”, Daily Telegraph, dated 29 November 2009.


12 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 13 12 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 13

PART ONE: A STILL-FRAGILE RECOvERy

Despite the recession loosening its grip, the outlook for the global economy remains clouded with uncertainty. As traditional economic paradigms have been challenged by the financial crisis, economists have had a hard time to produce reliable forecasts . They were first mostly “behind the curve”, i.e. unable to anticipate events, then “ahead of the curve”, i.e. indulging in voluntary optimism. The IMF macroeconomists, for instance, went through three revisions of their October 2008 forecasts before acknowledging the depth of the global recession (April 2009). Later, in July, then in October 2009, they declared that the recovery was in sight. Their underlying assumption of a “v-shaped” global recession, which is well reflected in Figure 1 (grey zone), stems from the belief that the strong and coordinated monetary, fiscal and financial policy responses around the world have been effective. According to their October 2009 outlook, these responses have supported demand, decreased uncertainty, and minimized systemic risk in financial markets.

At the time of releasing this commentary, the IMF revised further upward its forecasts for 2010 and concluded that the global economy was on a faster track to recovery. 2 It put growth in advanced economies at 2 .1 percent, and growth in emerging markets and developing countries at 6.0 percent, both translating into a robust 3.9 percent growth for world output. however, the IMF’s key prerequisite is that “due to the still-fragile nature of the recovery, fiscal policies need to remain supportive of economic activity in the near term, and the fiscal stimulus planned for 2010 should be implemented fully.” (Ibid.)


2 “IMF Revises Up Global Forecast to Near 4% for 2010”, IMF Survey Magazine online, 26 January 2010.

Figure 1: Regional Growth impact of the twin crisis

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APICORP ResearchSource: IMF, WEO Oct 2009 and 26 Jan 2010 update and own compilation and forecast for the Arab world

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the rise, fall and stabilization of oil prices

The way the financial crisis and the consequent global recession have impacted oil markets is far from simple or straightforward. To be sure, the oil price bubble formed in the summer of 2008, when oil prices reached an all time intra-day high of $147 per barrel on the New york Mercantile Exchange (Nymex), could not be sustained. It was believed, up to then, that the increasingly heavy involvement of institutional investors, which sought to diversify their asset portfolios into commodities as a hedge against inflation and a weaker dollar, has led to serious market dislocations. Their positions have grown so large that they distorted prices in the futures markets. In this context, both the Organization of the Petroleum Exporting Countries (OPEC) and the U.S. Commodity Futures Trading Commission (CFTC) refrained from drawing boundaries of tolerable market behavior. Instead, they indulged into a sterile debate over whether speculation or fundamentals were driving up oil prices.

Central to this controversy was the concern that neither institutions wanted to be held responsible for the surge in oil prices. As international pressure mounted, however, Saudi Arabia squeezed its thin spare capacity – too thin at that time - to cushion the physical market with extra oil for which there was no demand. Simultaneously, but on a different plane, CFTC focused its scrutiny on swap dealers and commodity index traders in a move to shed light on the activity of investment banks and improve transparency and control of the futures market. With some success: the burst of the bubble led to prices falling under $35 per barrel the following winter. But this was steeper than oil market analysts’ anticipations and far lower than oil producers’ expectations.

Figure 2: opec output cuts: Setting a Floor to oil prices

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APICORP ResearchSource: OPEC monthly - Dec 2009


The collapse of oil prices threw OPEC into crisis management mode . Cutting output three times between September 2008 and February 2009, the Organization managed to set a critical floor of $40 per barrel for its reference basket price (Figure 2). A fourth cut has finally not been implemented as prices stabilized around $75 per barrel “fair price”. As the world’s biggest oil producer and holder of the largest spare capacity, Saudi Arabia plays a critical role in balancing global supply and demand. As such, it exerts considerable influence on international oil markets, including the ability – as long as its spare capacity is perceived as ample enough - to anchor market expectations. Not unexpectedly, since the early summer of 2009 oil prices have tended to be contained within a range of $60 to $80 per barrel, which we have established to be at the confluence of the breakeven price of petroleum projects in frontier areas and the price needed to ensure producers’ long-term fiscal sustainability.3

Downside risks to Arab growth

As long as the oil market was uptrend, up to mid-2008, the Arab world was thought to be spared from the financial crisis. however, the subsequent steep fall in oil prices highlighted previously, and the tightening of credits have combined to take a toll on the region’s economy. Growth, whose average during the 5-year period preceding the financial crisis was 5.2 percent, has contracted sharply to 2.1 percent in 2009 (Figure 6). As noted earlier, the IMF raised its forecast for the region (as re-compiled by ourselves) to 3.5 percent for 2010 (Figure 1), despite the near absence of growth in the UAE as a result of the “drag” of Dubai’s real estate sector. The extent to which the region’s growth will recover, and reach the high rates experienced in the pre-crises period, depends on key countries maintaining a certain level of public expenditures and the limits of their fiscal sustainability.

In this regard, the major risk to the medium term Arab economic outlook is a weak and protracted global recovery, which would keep downward pressure on oil prices and governments’ fiscal revenues. Other risks to the outlook include delayed effects of the crisis of the sort experienced by Dubai. On a far more severe level, heightened geopolitical threats should not be discounted either. Whatever the growth scenarios for the Arab world, however, inflation and unemployment, whose relative importance has been reversed, will continue to top the region’s socio-economic policy agenda.

3 This price range has been conceptualized and extended by Ali Aissaoui in “GCC Oil Price Preferences: At the Confluence of Global Energy Security and Local Fiscal Sustainability,” Energy Security in the Gulf: Challenges and Prospects (ECSSR: forthcoming, 2010); proceedings of the ECSSR 15th Annual Energy Conference, Abu Dhabi, November 16–18, 2009.



PART TWO: A CONTINUING ShRINKING INvESTMENT OUTLOOK

To cope with these far-reaching crises, Arab energy policy makers and project sponsors have had little option but to reassess their investment strategies and scale down projects portfolios. Figure 3, which summarizes the key findings of our successive annual rolling five-year reviews, shows that the uptrend momentum achieved in recent years has reversed. Indeed, the current (seventh) review for the five-year period 2010–14 points to lower capital investment potential. It also confirms a further drop in actual capital requirements. At the present time, we expect the capital investment potential to decrease by nearly 15 percent, to US$470 billion, and the actual capital requirements to fall by some 29 percent below this potential, to $335 billion.

Figure 3: Rolling 5-year reviews of Arab energy investments

Closely reflecting the distribution pattern of crude oil and natural gas reserves in the region, 70 percent of the energy capital investment potential continues to be located in five countries namely Saudi Arabia, Qatar, the UAE, Algeria and Kuwait, with more than half of this potential in the first three (Figure 4).

In Saudi Arabia, potential capital investments have come down to $139 billion. Shelved or postponed projects are estimated at 21 percent of this potential, mostly in the refining and petrochemical sectors.

In Qatar the potential capital investment is now estimated at US$62 billion. In this country, we assume that the moratorium on further development of the North Field gas reserves will not be lifted during the review period. As a result, shelved and postponed projects are put at a higher rate of 42 percent of potential.

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In the UAE the revised potential capital investment totals US$51 billion with projects made redundant amounting to 16 percent. In Algeria postponed projects represent some 18 percent of the revised potential investment of US$38 billion.

Finally, Kuwait, which exhibits the same revised investment potential as that of Algeria, has by far the highest rate of postponed and shelved projects. This, however, has more to do with the dynamics of domestic politics and policy than the effect of the credit and oil market crises. In this context, it is difficult to estimate the country’s actual capital requirements as long as major upstream projects such as “Project Kuwait” - a US$55 billion investment program - remain at a standstill, or key downstream projects such as the US$15 billion Al-Zour refinery of 615,000 barrels-per-day capacity, are undecided.


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Figure 4: Geographical pattern of total energy investments

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The above five-country highlight is dictated more by ranking expediency than by the assumption of particular uncertainties. Equally notable in terms of frustrated effort are the constraints faced by countries such as Oman, Egypt, Libya and Iraq. More specifically in Iraq, where the ambitions to achieve the full development of the oil sector have been revived, the extent of foreign investors’ contribution will depend on the government’s ability to provide an ultimate solution to recurrent security problems.

Furthermore, when considering all the significant energy-investing countries, a further important aspect to highlight is that the investment outlook is affected across the board. In the non petroleum-producing countries energy investments are concentrated in a chronically under-developed power sector. While all sectors of the industry are facing the same funding challenges, in the power and power/water sectors the key test is the extent the burden of financing new generation capacity can continue to be shifted to the private sector, both of which are examined next.

PART ThREE: A MORE ChALLENGING FUNDING ENvIRONMENT On top of the challenges facing the Arab energy sector is funding. In a context of the credit and oil market turmoil, a marked shift in projects’ capital structure has exacerbated the dilemma facing corporate financing policies . Indeed, we have witnessed a trend towards a more equity- oriented capital structure. The industry normally uses retained earnings (internal equity) to fund high risk, high return upstream and associated midstream activities. In contrast, it tends predominantly to use debt and external equity for low risk, low return downstream activities.

Based on most recent deals, the average equity–debt ratio in the oil-based refining/petrochemical sectors has been 35:65. The ratio in the gas-based downstream sector has been 40:60 to factor in higher risks of feedstock availability. In the power and power/water generation sectors private investors used to target much higher equity-debt ratios, up to 10:90, in order to enhance their returns on equity. Nowadays, the overall ratio for this sector has been reset to 30:70 to reflect a lower leverage of independent power and power/water projects (IPPs/IWPPs). As private investors may not be able to afford neither a higher equity stake nor the higher cost of long-maturity financing, we should expect a lower share of IPPs/IWPPs in the potential capital investment; much lower than the 40 percent found in the last review.4

On this basis, the resulting weighted average capital structure for the whole oil and gas supply chain is likely to be 55 percent equity and 45 percent debt for the period 2010–14 (Table 1). This compares with the equity–debt ratios of 50:50 found in the pre-credit crisis review for the period 2008–12.



4 For a thorough analysis of the outlook of the power sector in the Arab world see Ali Aissaoui, “Powering the Arab Economies in a New, More Challenging Environment”, MEES dated 25 January 2010.

table 1: potential capital Requirements and Assumed capital Structure

potentiAl cApitAlrequirements

Assumed cApitAlstructure

US$ billion Percent Equity Debt

OIL SUPPLy ChAINUpstreamMidstreamDownstream

7010140

15230

100%100%35%

0%0%65%

GAS SUPPLy ChAINUpstreamMidstreamDownstream

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10323

100%100%40%

0%0%60%

POWER/WATER LINKGeneration 80 17 30% 70%

TOTAL INvESTMENTS 470 100 55% 45%

APICORP Research

Whatever the trend in capital structure is, however, achieving the needed amount and mix of equity and debt will be considerably more challenging . On the one hand, we have estimated that a prolonged period of low oil prices below $60 per barrel will affect project sponsors’ ability to self- finance upstream investments. As noted earlier, $60 per barrel is the lower bound of a price band that lies at the confluence of the economic price needed to develop projects in frontier areas and the fiscal price needed to meet oil producers’ realistic requirements for revenues. This level of price will limit the amounts of corporate retained earnings, restricting as a result self-financing.

On the other hand, funding prospects for the still highly leveraged downstream will be even more daunting. The annual volume of debt would be in the range of US$30 billion to $42 billion for the next five years. The lower bound results from the actual capital requirements found in the current review and the likely capital structure highlighted above. The higher bound corresponds to the potential requirement and the speed at which redundant projects will be brought back when the business climate improves. A median amount compares to the all-time annual record of US$38 billion achieved in the loan market prior to the onset of the global credit crisis (Figure 5). Nowadays, such amounts of debt can hardly be met owing to lesser credit availability, higher costs of borrowing and tighter lending conditions. And this is despite the move by some Arab public investment funds to tap governments’ net savings and step up their lending and involvement in the local debt market as has been the case in Saudi Arabia in particular.


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Figure 5: project Financing loans to the Arab energy Sector

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APICORP Research usingDelaogic Loanware database2009*: Provisional2010**: Own estimations (tentative)

All-in pricing Above

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investment climate

In this context, and more than any time before, projects’ and companies’ credit ratings, which are almost always capped by sovereign limits, will be closely scrutinized. however, not every country has a sovereign rating. Of the fifteen Arab petroleum-producing countries, only nine have solicited one and just eight of them have managed to attain investment grade. The fewer countries in the GCC area, namely Kuwait, Qatar, Saudi Arabia and the UAE, whose rating has been maintained at AA- by Standard and Poors (S&P) - or equivalent ratings by other credit rating agencies (CRAs) - will be able to achieve relatively lower borrowing cost and better lending terms (Table 2).

table 2: Arab countries’ Sovereign Ratings(Long Term, Foreign Currency; nr: not rated)

RATED COUNTRIES S&P MOODy’S FITCh

KUWAIT AA- Aa2 AA

QATAR AA- Aa2 nr

SAUDI ARABIA AA- Aa3 AA-

UAE nr1 Aa2 nr2

BAhRAIN A A2 A

OMAN A A2 nr

LIByA nr nr BBB+

TUNISIA BBB Baa2 BBB

MOROCCO BB+ Ba1 BBB-

EGyPT BB+ Ba1 BB+

JORDAN BB Ba2 nr

LEBANON B B2 B-1 Abu Dhabi (AA) and Ras Al Khaimah (A) - 2 Ras Al Khaimah (A)

APICORP Research - Compiled from CRAs - February 2010

TUNISIA BBB Baa2 BBB

MOROCCO BB+ Ba1 BBB-

EGyPT BB+ Ba1 BB+

JORDAN BB Ba2 nr

INvESTMENT

GRADE

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To complement the above limited number of sovereign ratings, APICORP uses its own “perceptual mapping” of the energy investment climate that encompasses all Arab petroleum-producing countries. This mapping, which combines three attributes (investment potential, country risk, and the enabling environment) shows an IDEAL POINT, which is the centre of gravity of the highest achievable scores (Figure 6).

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APICORP ResearchUpdated Dec. 2009 Investment grade

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Figure 6: perceptual Mapping of the energy investment climate


Accordingly, Saudi Arabia (KSA) on the one hand, and the cluster formed of Qatar (QAT), Kuwait (KUW) the United Arab Emirates (UAE) on the other hand occupy the most desirable quadrant [vast Investment Potential - Strong Enabling Environment – Lower Country Risk]. They all appear nearest to the Ideal Point. Iraq (IRQ), which still appears far from this point, has in fact improved its position compared to previous scorings. The remaining countries are clustered relatively close together, with broadly similar perceived investment climates in each cluster. Despite the challenges highlighted earlier, the GCC area appears better placed to expedite project gestation and implementation and ensure a rapid resumption of energy investments, once the crisis is over.

CONCLUSION

The global financial crisis and the subsequent turmoil in the oil markets have combined to take a toll on the region’s macroeconomic and energy investment outlooks. To cope with this dual crisis, Arab energy policy makers and project sponsors have had little option but to reassess their investment strategies and scale down projects portfolios. As a result, the uptrend momentum achieved in recent years has reversed. Our current review for the 5- year period 2010– 14 has revealed a lower potential capital investment, which stems largely from the postulation of subdued project costs. The review has also confirmed a further drop in actual capital requirements as a consequence of the continuing shelving and postponement of projects that are no longer viable. Furthermore, although the overall capital structure of the remaining projects has slightly shifted to equity, the downstream industry remains highly leveraged. In a context of higher risk aversion and tighter credit conditions, securing the appropriate amount and mix of debt is likely to be considerably more challenging than any time before. Although the credit and oil markets have stabilized, the speed at which redundant energy projects are likely to be brought back is still uncertain. The region’s investment recovery will ultimately depend on the revival of global and domestic growth. Meanwhile, funding may not be fully restored yet. Not without lenders and investors being reasonably confident that severe delayed effects of the global financial crisis, of the sort experienced by Dubai, will continue to be contained should they happen again.


APICORP Activities in 2009

Project finance activity has remained at an historical low in 2009 due to the persistence of several depressing factors, in particular the lack of appetite of banks to lend on one hand and the reluctance of sponsors/developers to invest on the other hand in view of the huge uncertainties affecting the global and regional market conditions both in the short and medium terms.

Accordingly, only one project finance transaction was processed last year, the Saudi Total Refinery Project (SATORP).This project financing will be reaching financial close first quarter of 2010. Trade finance was more dynamic with 4 transactions.

PROJECT AND TRADE FINANCE

The project and trade finance transactions progressed in 2009 are listed in the table below.

* Signing of the Commitment Letter

CLIENT MAIN SPONSORSAMOUNT ANDTyPE OF FACILITy

DATE OFSIGNING

PURPOSE APICORP ROLE

AMPTC OAPECUS$ 75 millionLetter of Credit

August 2009 Oil tradingStructuringBank

EgyptianGeneralPetroleumCorporation(EGPC)

Arab Republic of Egypt

US$ 400 millionConventional

September2009

Import of petroleumproducts

Participant

EgyptianGeneralPetroleumCorporation(EGPC)

Arab Republic of Egypt

US$ 140 millionIslamic

May 2009Import ofpetroleumproducts

Participant

holbornEuropeanMarketingCompany

Oilinvest,

LibyaUS$ 350 millionConventional

September2009

Oil trading Participant

Saudi AramcoTotal Refiningand Petrochemical Co.

SaudiAramcoTotal S.A

US$ 2.8 billionConventional/Islamic

December2009*

Refining andpetrochemicals

MandatedLeadArranger


The collapse of the number of transactions in 2009 has not impacted negatively our asset growth nor our revenue stream as a large portion of the transactions booked between 2006 and 2008 were still last year in a drawdown phase.

Furthermore, the trend of higher loan pricings that had emerged in second half of 2007 has continued in 2009. Also, we have been able, on few occasions to get the Market Disruption Clause exercised in order to match our remuneration with our real cost of funding.

Overall, our portfolio has continued to generate a satisfactory positive carry, slightly below the historical record of 2008 however.

In addition, it shall be highlighted that there has not been any default in our loan portfolio so far, as energy related project and trade finance activities remain both low risk products, subject to preserving a conservative credit risk policy.

For 2009, the net income generated by the project and trade finance activities at APICORP has amounted to US$ 30.1 million of which around US$7.7 million of fees to be compared with US$ 29.7 million in 2008 and US$ 23.9 million in 2007. Our asset growth has continued, but at a slightly lower pace, to reach US$ 2.6billion at the end of 2009 against US$ 2.4 billion at the end of 2008 and US$ 1.9 billion at the end of 2007.

To conclude, in a context of an unprecedented financial market turmoil, the Corporation has been in a position to maintain a high quality portfolio of loans as well as to continue, when required, to be active and to play an instrumental role in the energy industry in the Arab world.

In view of these solid foundations, the Corporation can expect to consolidate its competitive position in the financing of the Arab energy industry as many financial institutions, both international and regional, have with-drawn from the project finance market and do not seem to be prepared to make a comeback soon.

ADvISORy

Financial Advisory performed well with three mandates awarded in 2009, out of which one was completed same year.

CLIENT MAIN SPONSORS MANDATE

ASRy OAPEC Financial feasibility of ASRy’s strategic plan.

Independent Terminal Bahrain(ITB)

APICORPBAPCOIPG

Financing of a petroleum products storage terminal in Bahrain.

Egyptian Bahraini Gas

Derivatives Company (EBGDCo)

APICORP

DANAGAS

EGAS

Financing of a gas derivativesproject in Egypt.


1) Bahrain national Gas company (BAnAGAS)ApicoRp share: 12.5%BANAGAS was established in 1978 to extract and market LPG and light naphtha from associated gas. Total production in 2009 was around 76.9 thousand tons of propane, 84.3 thousand tons of Butane and 184.6 thousand tons of light naphtha. At the end of 2009, BANAGAS reported a net income of BD 8.8 million (versus BD 19.4 million in 2008).

2) Arab Drilling & Workover company (ADWoc)ApicoRp share: 20%ADWOC was established in 1978 to provide drilling and related operation services in Libya and nearby Arab markets. At the end of 2009, the net income declared was LD 29.6 million, i.e. decreased by 11.7% compared to 2008.

3) Arab company For Detergent chemicals (ARADet)ApicoRp share: 32%ARADET was established in 1981 to produce 50,000 tons/yr of linear alkyl benzene (LAB). The LAB complex at Baiji, in operation since 1987, also includes an aromatics line with a capacity of 30,000 tons/yr of benzene and Toluene. Total LAB production at the end of 2009 reached 36,700 tons, i.e. higher by 15% compared to the budget. ARADET recorded a net profit for 2009 of US$ 11.2 million compared to net loss of US$ 1.65 million at the end of 2008.

DIRECT EQUITy INvESTMENTS


The total investment of APICORP encompasses nine petrochemical, three Oil & Gas services and two gas products companies in six Arab countries with a total value of US$ 339 million at the end of 2009, compared to US$ 282 million at the end of 2008. Five petrochemical companies and one gas liquids recovery company are located in Egypt. Saudi Arabia hosts IBN ZAhR, IBN RUShD and yANSAB petrochemical companies. The Seismic and Drilling companies are located in Libya. The remaining three companies are located in Bahrain, Iraq and Tunisia.

The range of the products from the projects in Saudi Arabia, Iraq and in Egypt consists of: Methanol, Ethylene Glycol, Polyethylene, Polypropylene, Methyl Tertiary Butyl Ether (MTBE), Aromatics (BTx), Linear Alkyl Benzene (LAB), Carbon Black, Nitrogen Fertilizers (Ammonia and Urea) and synthetic fibers (Polyester, Poly Acrylic).

A brief summary on each of our direct equity investments and their profitability in 2009 is provided below:


4) tankage Méditerranée (tAnKMeD)ApicoRp share: 20%TANKMED was established in 1984 to provide storage services for petroleum products at La Skhira terminal in Tunisia. TANKMED’s total storage capacity stands at 363,000 cubic meters. During 2009, TANKMED maintained a capacity utilization rate of 96%, and achieved a net income of TD 6.0 million i.e. higher by 50% compared to 2008 profit.

5) Arab Geophysical exploration Services company (AGeSco)ApicoRp share: 16.67%AGESCO was established in 1985 to provide advanced seismic services in Libya and the Arab world. The company maintains two operational seismic crews and was able to achieve net profit at the end of 2009 of around LD 7.1 million, i.e. lower by 9% compared to 2008 profits.

6) the Saudi european petrochemical company (iBn ZAHR)ApicoRp share: 10%IBN ZAhR, established in 1985 in Jubail, can produce 1.3 million tons/yr of methyl tertiary butyl ether (MTBE), a gasoline octane booster and 1.1 million tons/yr of polypropylene. In 2009, MTBE production was 1.433 million tons and polypropylene output totaled to about 905,000 tons. At end 2009, IBN ZAhR reported a net income of US$ 485 million versus a net income of US$ 602 million in 2008.

7) Alexandria carbon Black company (AcBc)ApicoRp share: 12%ACBC was established in 1993 to produce and market carbon black, an oil based material. ACBC has a design capacity of about 210,000 tons/yr. The company, at the end of 2009, produced over 183 thousand tons of Carbon Black and posted a net income of about US$ 31.9 million, i.e. higher by 126% than 2008 profit.

8) the Arabian industrial Fibers company (iBn RuSHD)ApicoRp share: 3.45%IBN RUShD was established in 1993 in yanbu on the west of Saudi Arabia. IBN RUShD is an integrated petrochemical complex composed of three plants for the production of aromatics (730,000 tons/yr), purified terephthalic acid (PTA 350,000 tons/yr) and polyester (146,000 tons/yr). At the end of 2009, IBN RUShD recorded a net loss of SR 390 million versus a net loss of SR 1,178 million for the year 2008.


9) oriental petrochemicals company (opc) ApicoRp share: 14% OPC was established in 1996 with an initial capacity of 120,000 ton/yr polypropylene that can be expanded to 162,000 tons/yr. The company announced the successful commissioning of its plant at the beginning of 2002, and since then it has become the main producer and supplier of polypropylene in the local market. At the end of 2009, the company produced around 160 thousand and marketed around 175 thousand of polypropylene. OPC has declared a net profit of around L.E 78.13 million compared to net loss of around L.E 78.6 million at the end of 2008.

10) Alexandria Acrylic Fibers company (AFco)ApicoRp share: 10%AFCO was established in late 2003 in Egypt, and it has a poly acrylic fiber plant with a nameplate capacity of 18,000 t/yr which is currently in the process of being expanded to 54,000 t/yr. The plant was commissioned at the end of 2006, to produce poly acrylic fibers, which is used mainly in manufacturing carpets and blankets. At the end of 2009 the company recorded a total production figure of 18.4 thousand tons and has achieved a net profit of around L.E 43 million.

11) Yanbu national petrochemical company (YAnSAB)ApicoRp share: 1.57%yANSAB was established in early 2006 by SABIC with a paid up capital of SR 5,625 million, of which SABIC owns 55%, SABIC partners in IBN RUShD and TAIF own 10%, and the remainder percentage was offered to the Saudi public. The complex is designed to produce 900,000 tons per year of low and high polyethylenes, 700,000 tons per year of ethylene glycols, 400,000 tons per year of poly propylene, in addition to some other by products. yANSAB was started up during the first half of 2009. At the end of 2009, yANSAB recorded a non-operational net loss of SR 29.2 million compared to SR 25.6 million in 2008.

12) egyptian Methanol company (e-Methanex)ApicoRp share: 7%Methanex Corporation, Egyptian Petrochemicals holding Company (EChEM), Methanex Corporation, Canada, Egyptian Natural Gas holding Company (EGAS), Egyptian Natural Gas Company (GASCO) and APICORP established E-Methanex in 2005 with a paid up capital of US $ 420 million to build a US $ 950 million cost methanol production facility in Damietta, Egypt, with a nameplate capacity of 1.28 million tons per year. The project is now 95% completed and is expected to start its commercial operation in July 2010.



13) Misr oil processing company (Mopco)ApicoRp share: 3.03%MOPCO general assembly has officially approved the acquisition merger with EAgrium, and therefore, the equity paid up capital of MOPCO has been doubled from L.E 996 million to L.E 1,992 million and as a result, APICORP’s share decreased from 7% to 3.03%. Construction works for the expansion project at MOPCO site has restarted and is expected to be completed and be ready for commercial start-up by July 2012. MOPCO expansion project (ex. EAgrium) consists of two identical and integrated units with a capacity of 400 thousand t/y Ammonia and 635 thousand t/y Urea each. And as a result, MOPCO’s total capacity will increase to 1.2 million t/y and 1.9 million t/y of Ammonia and Urea respectively. At the end of 2009, MOPCO produced 645,000 tons of Urea which was mostly exported and recorded a net income of L.E 526 million equivalent to US$ 96 million.

14) the egyptian Bahraini Gas Derivatives company (eBGDco)ApicoRp share: 20%The Egyptian Natural Gas Company, DANAGAZ of Bahrain and APICORP established EBGDCO in early 2007 in Egypt with a share capital of US $ 25 million, to construct a US $ 95 million facility for propane and butane recovery from associated natural gas. The plant is located at Ras Shukair on the Red Sea. All EPC contracts are in place with approximately 30% construction progress achieved so far and the project is expected to be completed in April 2011.



APICORP EQUITy PARTICIPATIONS AS AT 31 DECEMBER 2009

COMPANy NAME PAID-UP CAPITAL PARTICIPATION OThER MAJOR ShAREhOLDERS ACTIvITIES

Bahrain National Gas Company (BANAGAS)Bahrain

BD 8million

12.5% National Oil and Gas Authority (NOGA), Bahrain Chevron Asia Pacific Company

Extraction and marketing of LPG and condensates from associated gas.

Arab Drilling and Workover Company(ADWOC)Libyan Arab Jamahiriya

LD 60million

20% Arab Petroleum Services Co. (APSC), Libya Santa Fe, USAFirst Energy Bank

Drilling and related operations in the Arab world.

Arab Company for Detergent Chemicals (ARADET)Iraqzv

ID 36million

32% Government of the Republic of IraqGovernment of the Kingdom of Saudi ArabiaGovernment of the State of KuwaitArab Mining Company, AmmanThe Arab Investment Co., Saudi Arabia

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

Tankage Mediterranee(TANKMED)Tunisia

TD 14.4million

20% I’Entreprise Tunisienne d’Activités Petrolieres (ETAP), TunisiaNational Oil Distribution Company (SNDP)Societe Tuniso Seoudienne d’Investissement et de Développement (STUSID)Banque Tunisio-Koweitienne de Développement (BTKD)

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

Arab Geophysical Exploration Services Company (AGESCO)Libyan Arab Jamahiriya

LD 19 million

16.67% Arab Petroleum Services Co. (APSC), Libya National Oil Co., Libya

Providing advanced seismic services in the Arab world.

Saudi European Petrochemical Company(IBN ZAhR)Saudi Arabia

SR 1,025million

10% Saudi Basic Industries Corp. (SABIC) Saudi ArabiaEcofuel, Italy

Production of gasolineoctane booster MTBE,and Polypropylene (PP).

Alexandria Carbon Black Company (ACBC)Egypt

US$ 16,205 million

12% Indian Industrial Investment Group (BIRLA), IndiaTransport and Engineering Company (El Nesser Tire Co.), EgyptAl-Nasr Coke Company, EgyptSaudi Egyptian Industrial Investment Company, EgyptInternational Finance Corporation (IFC), USAContinental Carbon Company, USA

Production and marketing of carbon black.

The Arabian Industrial Fibers Company (IBN RUShD), Saudi Arabia

SR 8,510million

3.45% Saudi Basic Industries Corp. (SABIC), Saudi ArabiaPublic Investments Fund, Saudi ArabiaGIC, KuwaitSaudi Pharmaceuticals Co., Saudi ArabiaSAFCO, Saudi ArabiaOthers

Production ofAromatics, PTA andPolyester Fibers.


COMPANy NAME PAID-UP CAPITAL PARTICIPATION OThER MAJOR ShAREhOLDERS ACTIvITIES

Oriental Petrochemical Company (OPC) Egypt

LE 120million

14% Oriental Weavers Group, EgyptArab International Investments Co., LibyaAl-Ahli Bank, EgyptEgyptian Petrochemicals Co., EgyptMisr Insurance Co., Egypt

Production and marketing ofPolypropylene.

Alexandria Acrylic Fibers Company (AFCO)Egypt

LE 286.55million

10% Alexandria Carbon Black Co., EgyptThai Carbon Black Public Co., Ltd. ThailandThai Rayon Public Co., Ltd. ThailandThai Acrylic Fiber Public Co., Ltd. ThailandSidikerir Petrochemicals Co., EgyptSaudi Egyptian Industrial Investment Co., Egypt

Production andmarketing of AcrylicFibers

yanbu National Petrochemical Company (yansab)Saudi Arabia)

SR 5,625million

1.57% SABICSABIC Partners in Ibn Rushd and TaifSaudi PublicOthers

Production andmarketing of PE, EG, PPand other by products

Egyptian Methanex Methanol Company (EMethanex)*Egypt

US$ 420million

7% Methanex Corporation, CanadaEgyptian Petrochemicals holding ztCompany (Echem), EgyptEgyptian Natural Gas holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), Egypt

Production andmarketing of Methanol

Misr Oil Processing Company (MOPCO)*Egypt

LE 1,992million

3.03% Egyptian General Petroleum Corporation, EgyptAgrium, CanadaNational Investments Bank, EgyptEgyptian Petrochemicals holding Company (Echem), EgyptEgyptian Natural Gas holding Company (Egas), EgyptEgyptian Natural Gas Company (GASCO), EgyptAl Nasr Petroleum Company, EgyptOthers

Production andmarketing of Ammoniaand Urea

The Egyptian Bahraini Gas Derivative Company (EBGDCO)*Egypt

US$ 25million

20% The Egyptian Natural Gas holding Company (Egas)Danagas of Bahrain

Fractionation of naturalgas liquids (NGL) torecover Propane andButane.



2009 has been a very challenging year for the global financial sector due to the adverse impact of the ongoing subprime crisis. Failures of banking entities related to Saad and Al Gosaibi groups and Dubai debt crisis have also impacted the regional banking activities in 2009.

APICORP’s strategy during 2009 was on prioritizing liquidity management and minimizing risk given the challenging market and economic environment that has existed since the recent credit crisis. Treasury and Capital Markets assets as at 31st December 2009 stood at US$ 1,117 million compared to US$ 854 million as at 31st December 2008. Treasury and Capital Markets achieved a gross income of US$ 13 million, compared to US $ 38 million for the year 2008. The income was affected partly due to measures taken by Treasury to maintain a high level of US treasury securities for most part of the year for the purpose of liquidity management and also partly due to low libor rates. As at end 31st December 2009, APICORP’s liquidity measured by cash, placements and investment in treasury securities amounted to a comfortable US$ 614 million. As at 31st December 2009, Fixed Income securities portfolio had a high standard of credit profile with an average of A+ rating.

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

TREASURy AND CAPITAL MARKETS ACTIvITIES IN 2009


The Economics and Research Department is dedicated to the study of economic and policy issues relevant to APICORP’s business development and growth strategy. To address these issues, we focused on three separate but interdependent areas in 2009:

(i) the scanning of the Corporation’s business environment and trends, highlighting the impact of the global financial crisis and its lagged effects, on the Arab (MENA) economic and energy investment outlooks;

(ii) the continual enhancement of our in-house country risk methodology and the associated “perceptual mapping” of the energy investment climate in the Arab (MENA) world;

(iii) the dissemination of our research findings through our monthly Economic Commentary, whose reach has significantly expanded, to add value to the region’s economic and energy policy debate.

Furthermore, our Review of Energy Investments in the Arab/MENA world has become a trusted source of insightful analysis in the field. Repetition of the review year after year, since 2003, has made trend studies possible, thus offering analysts a useful tool for policy and planning.

Both the Economic Commentary and the Review of Energy Investments have greatly contributed to elevating APICORP’s external profile and helped strengthen our relationship with peer institutions, research centers and specialized agencies.

The following is a selection of topics addressed in our Economic Commentary during 2009:

ThE DEPARTMENT OF ECONOMICS AND RESEARCh



“ApicoRp’s Annual Review of the Arab Macro-economic and energy investments outlooks; Heightened Risks in the Midst of a Dual crisis”January-February 2009

“Bringing Water into the energy equation: A critical Review of the WeFceRA Report and Discussion of the Missing MenA Dimension”March 2009

“What is a Fair price for oil and What Makes $75 a Barrel Seem Fair?”April 2009

“MenA energy investment outlook Reassessed: cost uncertainties and Funding challenges”May 2009

“the challenges of Diversifying petroleum-dependent economies: Algeria in the context of the Middle east and north Africa”June-July 2009

“the oil price Dimension of the producer-consumer Dialogue: A nonmarket perspective” August-September 2009

“powering the Arab economies in a new, More challenging environment” November-December 2009

These and other issues are accessible on APICORP website: www.apicorparabia.com



CONFERENCES AND SEMINARS 2009

TITLE DATE vENUE

The Basics of Oil and Gas Industry 23-26 March Kuwait

The Workshop on the National and International Oil Companies,under the auspices of the State of Kuwait and the International Energy Agency (IEA)

29 March to 1st April Kuwait

Oil, Gas and Petrochemicals Summit 11-13 May Paris

Euromoney Saudi Arabia Conference 18-20 May Riyadh

Tufts University Global Leadership Seminar 21-25 September France

The Workshop organized by the Oxford Institute of Energy Studies on“Oil Price volatility : Causes and Mitigation Strategies”

8-9 October UK

5th Middle East Investment Summit 19-21 October Abu Dhabi

The 1st GCC Conference on Investments in Oil & Gas and Petrochemical 20-21 October Bahrain

The Middle East Energy Finance Infrastructure Conference 27-29 October Abu Dhabi

A meeting in Doha, organized by Georgetown University and the Gulf Research Centre, on the Economic Challenges Facing the GCC Countries

11-14 November Qatar

The ECSSR Energy Security Conference, organized by the Emirates Centre for Strategic Studies and Research

14-18 November Abu Dhabi

“Kyoto, Copenhagen and Beyond: The Likely Impact of Response Measures on Petroleum-Producing Countries”. This was part of “Bahrain Initiatives”, an event which, this year, coincides with climate change taking center stage at Copenhagen.

7 December Bahrain

The Private Sector and Civil Society Forum, which was organized ahead of the Arab Summit for Economic & Social Development.

19-20 January Kuwait

The 2009 Middle East Oil & Gas Show and Conference 16 March Bahrain

FinAnciAl StAteMentSFor the year end 31 December 2009


CONTENTS

Independent Auditors’ Report to the Shareholders 36 Statement of Financial Position 37 Statement of Income 38 Statement of Comprehensive Income 39 Statement of Changes in Equity 40 Statement of Cash Flows 42 The Formation, Status and Activities of APICORP 43 Significant Accounting Policies Applied in the Financial Statements 44 Notes to the Financial Statements 53


36 ApicoRp Annual Report 2009 ApicoRp Annual Report 2009 PB

PBApicorpAnnualReport2009 ApicorpAnnualReport200937

Note 2009 2008

ASSETSCashandcashequivalents 28,860 9,391Placementswithbanks 1 464,918 227,618Tradingsecurities 2 63 98Available-for-salesecurities 3 622,383 616,940Available-for-saledirectequityinvestments 4 338,854 282,848Syndicatedanddirectloans 5 2,621,330 2,371,196Propertyandequipment 6 32,070 34,174Otherassets 7 10,622 27,963 ToTAL ASSETS 4,119,100 3,570,228

LiABiLiTiES AND EQUiTYDepositsfrombanks 8 930,749 1,388,641Depositsfromcorporates 757,091 432,334Depositsfromshareholders 370,438 15,000Securitiessoldunderagreementtorepurchase 385,368 159,558Otherliabilities 9 24,671 31,355Termfinancing 10 649,148 648,590 Total liabilities 3,117,465 2,675,478

EQUiTYSharecapital 550,000 550,000Legalreserve 120,000 114,100Generalreserve 108,425 66,539Available-for-saleinvestmentsfairvaluereserve 170,574 122,225Retainedearnings 52,636 41,886 Total equity (page46&47) 1,001,635 894,750

ToTAL LiABiLiTiES AND EQUiTY 4,119,100 3,570,228

oFF-BALANcE SHEET EXpoSUrES 11 356,818 1,008,317

Thefinancialstatements,whichconsistofpages43to84,wereapprovedbytheBoardofDirectorson10April2010andsignedontheirbehalfby:

Abdullah A. Al Zaid Ahmed Bin Hamad Al Nuaim ChairmanChiefExecutiveandGeneralManager

STATEmENT oF FiNANciAL poSiTioNasat31December2009 (US$000)

38ApicorpAnnualReport2009 ApicorpAnnualReport20093938ApicorpAnnualReport2009 ApicorpAnnualReport200939

Note 2009 2008

Interestincome 69,667 134,763Interestexpense (55,771) (104,488)Net interest income 13 13,896 30,275 Netfeeincome 14 1,412 6,545Dividendincome 15 59,501 57,988Lossontradingsecurities 16 (35) (3,893)Gainonsaleofavailable-for-salesecurities 17 104 2,982Otherincome 20 7,158 2,634Total income 82,036 96,531 Operatingexpenses 18 (21,958) (23,553)Impairmentlosses 19 (1,542) (45,368) proFiT For THE YEAr 58,536 27,610

per share information 22Earnings US$106 US$50Netassetvalue US$1,821 US$1,627

Thefinancialstatementsconsistofpages43to84

STATEmENT oF iNcomEfortheyearended31December2009 (US$000)



2009 2008

Profitfortheyear 58,536 27,610other comprehensive income

Transferredtostatementofincomeonsaleofavailable-for-salesecurities - 14,681 Transfertostatementofincomeonimpairmentofavailable-for-salesecurities - (1,782) Changesinfairvalueofavailable-for-salesecurities 4,354 (56,145) Changesinfairvalueofavailable-for-saledirectequityinvestments 43,995 (90,017) other comprehensive income for the year 48,349 (133,263) Total comprehensive income for the year 106,885 (105,653)

STATEmENT oF comprEHENSivE iNcomEfortheyearended31December2009 (US$000)

Thefin

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2009 2008

opErATiNg AcTiviTiES Interestreceived 71,820 144,918 Interestpaid (55,746) (111,163) Proceedsfromsaleoftradingsecurities - 46,832 (Increase)/maturityofplacementswithbanks (237,300) 163,957 Drawdownsofsyndicatedanddirectloans (651,626) (1,145,135) Repaymentsofsyndicatedanddirectloans 405,130 665,279 Recoveryfromguarantee - 4,000 Feesreceived 1,458 6,659 Feespaid (128) (114) Operatingexpensespaid (19,613) (21,368) Otherincomereceived 1,734 995 Otherreceipts/(payments) 12,031 (7,753) cash flows from operating activities (472,240) (252,893)

iNvESTiNg AcTiviTiES Proceedsfromsaleofavailable-for-salesecurities 524,245 204,918 Purchaseofavailable-for-salesecurities (526,905) (100,462) Purchaseofavailable-for-saledirectequityinvestments (12,010) (29,599) Dividendsreceivedfromavailable-for-saledirectequityinvestments 59,067 57,979 Purchaseofpropertyandequipment (801) (402) cash flows from investing activities 43,596 132,434

FiNANciNg AcTiviTiES (Repayments)/proceedsofdepositsfrombanks (457,892) 45,735 Proceedsfromdepositsfromcorporates 324,757 137,604 Proceedsfromdepositsfromshareholders 355,438 15,000 Proceedsfrom/repaymentsofsecuritiessoldunderagreementtorepurchase 225,810 (65,999) Dividendspaid - (18,000) cash flows from financing activities 448,113 114,340

Net increase/(decrease) in cash and cash equivalents for the year 19,469 (6,119)Cashandcashequivalentsatthebeginningoftheyear 9,391 15,510 cash and cash equivalents at 31 December (page43) 28,860 9,391

STATEmENT oF cASH FLoWSfortheyearended31December2009 (US$000)



FormATioN, STATUS AND AcTiviTiES oF Apicorp

ArabPetroleumInvestmentsCorporation (APICORP- theCorporation) isanArab jointstockcompanyestablishedon23November1975inaccordancewithaninternationalagreementsignedandratifiedbythetenmemberstatesoftheOrganizationofArabPetroleumExportingCountries(OAPEC).TheagreementdefinestheobjectivesoftheCorporationas:

-participationinfinancingpetroleumprojectsandindustries,andinfieldsofactivitywhicharederivedtherefrom,ancillaryto,associatedwith,orcomplementarytosuchprojectsandindustries;and

-givingprioritytoArabjointventureswhichbenefitthememberstatesandenhancetheircapabilitiestoutilisetheirpetroleumresourcesandtoinvesttheirfundstostrengthentheireconomicandfinancialdevelopmentandpotential.

Domicile and taxationThe Corporation is an international entity, and operates from its registered head office in Dammam,KingdomofSaudiArabia.TheestablishingagreementstatesthatAPICORPisexemptfromtaxation inrespectofitsoperationsinthememberstates.

Share capitalThecapitalisdenominatedinsharesofUS$1,000andisownedbythegovernmentsofthetenOAPECstatesasfollows:

ActivitiesAPICORP is independent in itsadministrationand theperformanceof itsactivities,andoperatesonacommercialbasiswiththeintentionofgeneratingnetincome.ItoperatesfromitsregisteredheadofficeinDammam,KingdomofSaudiArabiaanditsBankingUnitinManama,KingdomofBahrain.

CurrentlytheCorporation’sproject-financingactivitiestaketheformofloansanddirectequityinvestmentsinprojects.Theseactivitiesarefundedbyshareholders’equity,medium-termfinancing,depositsfromgovernment,corporateandshort-termdepositsfrombanks.

(US$000)

Issuedand Authorised Percentage fullypaid capital

UnitedArabEmirates 93,500 204,000 17% KingdomofBahrain 16,500 36,000 3% DemocraticandPopularRepublicofAlgeria 27,500 60,000 5% KingdomofSaudiArabia 93,500 204,000 17% SyrianArabRepublic 16,500 36,000 3% RepublicofIraq 55,000 120,000 10% StateofQatar 55,000 120,000 10% StateofKuwait 93,500 204,000 17% SocialistPeoples’LibyanArabJamahiriya 82,500 180,000 15% ArabRepublicofEgypt 16,500 36,000 3% 550,000 1,200,000 100%


SigNiFicANT AccoUNTiNg poLiciES

A gENErAL

A-1 Statement of complianceThefinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(IFRS).

A-2 Basis of preparationTheprincipalaccountingpoliciesappliedinthepreparationofthesefinancialstatementshavebeenconsistentlyappliedtoallthepresentedyears,unlessotherwisestated.

APICORP’s functional and presentation currency is United States dollars (US $) because it isa supranational organisation with its capital and the majority of its transactions and assetsdenominatedinthatcurrency.

The financial statements have been prepared on the historical cost convention except for themeasurementatfairvalueoftradingsecurities,certainavailable-for-salesecuritiesandderivativefinancialinstruments.

ThepreparationofthefinancialstatementsinconformitywithIFRSsrequiresmanagementtomakejudgements,estimatesandassumptionsthataffecttheapplicationofaccountingpoliciesandthereportedamountsofassets,liabilities,incomeandexpenses.Actualresultsmaydifferfromtheseestimates.Estimatesandunderlyingassumptionsarereviewedonanongoingbasis.Revisionstoaccountingestimatesarerecognisedintheperiodinwhichtheestimatesarerevisedandinanyfutureperiodsaffected.InformationaboutcriticaljudgementsinapplyingaccountingpoliciesthathavethemostsignificanteffectontheamountsrecognisedinthefinancialstatementsisincludedinthenotesKandL.

i) Standards, amendments and interpretations issued and effective on or after 1 January 2009

iAS 1 (revised) - presentation of Financial StatementsRevised IAS1“PresentationofFinancialStatements” introduces the term“totalcomprehensiveincome”,whichrepresentschangesinequityduringaperiodotherthanthosechangesresultingfromtransactionswithownersintheircapacityasowners.Totalcomprehensiveincomemaybepresentedineither:

asinglestatementofcomprehensiveincome(effectivelycombiningboththeincomestatement andallnon-ownerchangesinequityinasinglestatement),or Inanincomestatementandaseparatestatementofcomprehensiveincome.

TheCorporationhasoptedtopresentthetotalcomprehensiveincomeintwoseparatestatements;astatementofincomeandaseparatestatementofcomprehensiveincome.

TheadoptionofrevisedIAS1impactedthetypeandamountofdisclosuresmadeinthefinancialstatements, buthadno impacton the retainedearningsof theCorporation. Inaccordancewiththe transitional requirements of the standard, the Corporation has provided full comparativeinformation.

Amendments to iFrS 7 - Financial instruments: DisclosuresThe IASBpublished amendments to IFRS 7 inMarch 2009. The amendment requires enhanceddisclosuresaboutfairvaluemeasurementsandliquidityrisk.Inparticular,theamendmentrequiresdisclosureoffairvaluemeasurementsbylevelofafairvaluemeasurementhierarchy.Theadoptionoftheamendmentresults inadditionaldisclosuresbutdoesnothaveanimpactonthefinancialpositionorthecomprehensiveincomeoftheCorporation.


SigNiFicANT AccoUNTiNg poLiciES (continued)

A-2Basisofpreparation(continued)

improvements to iFrS (issued in may 2008)ImprovementstoIFRSissuedinMay2008containednumerousamendmentstoIFRSthattheIASBconsidersnon-urgentbutnecessary.‘ImprovementstoIFRS’compriseamendmentsthatresultinaccountingchangestopresentation,recognitionormeasurementpurposes,aswellasterminologyoreditorialamendmentsrelatedtoavarietyofindividualIFRSstandards.Theamendmentseffectiveforannualperiodsbeginningonorafter1January2009havebeenadoptedbytheCompanyandnomaterialchangestoaccountingpoliciesaroseasaresultoftheseamendments.

ii) Standard and interpretations issued but not yet effective Thefollowingnew/amendedIFRS’sandinterpretationshavebeenissuedthatarenotyetmandatoryforadoptionbytheCorporation.

iFrS 9 Financial instruments part 1: classification and measurementIFRS9wasissuedinNovember2009andisapplicableforreportingperiodbeginningonorafter1 January 2013. This standard replaces those parts of IAS 39 relating to the classification andmeasurementoffinancialassets.Keyfeaturesareasfollows:

Financial assetsare required tobeclassified into twomeasurement categories: those tobemeasuredsubsequentlyatfairvalue,andthosetobemeasuredsubsequentlyatamortisedcost.Thedecisionistobemadeatinitialrecognition.Theclassificationdependsontheentity’sbusinessmodelformanagingitsfinancialinstrumentsandthecontractualcashflowcharacteristicsoftheinstrument.

Aninstrumentissubsequentlymeasuredatamortisedcostonlyifitisadebtinstrumentandboththeobjectiveoftheentity’sbusinessmodelistoholdtheassettocollectthecontractualcashflows,and theasset’scontractualcashflowsrepresentonlypaymentsofprincipaland interest(thatis,ithasonly‘basicloanfeatures’).Allotherdebtinstrumentsaretobemeasuredatfairvaluethroughprofitorloss.

All equity instruments are to be measured subsequently at fair value. Equity instrumentsthatareheldfortradingwillbemeasuredatfairvaluethroughprofitorloss.Forallotherequityinvestments,anirrevocableelectioncanbemadeatinitialrecognition,torecognizeunrealisedandrealisedfairvaluegainsandlossesthroughothercomprehensiveincomeratherthanprofitorloss.Thereistobenorecyclingoffairvaluegainsandlossestoprofitorloss.Thiselectionmaybemadeonaninstrument-by-instrumentbasis.Dividendsaretobepresentedinprofitorloss,aslongastheyrepresentareturnoninvestment.

TheCorporationisconsideringtheimplicationsofthestandard,theimpactontheCorporationandthetimingofitsadoptionbytheCorporation.

improvements to iFrS (issuedinApril2009)ImprovementstoIFRSissuedinApril2009containednumerousamendmentstoIFRSthattheIASBconsidersnon-urgentbutnecessary.‘ImprovementstoIFRS’compriseamendmentsthatresultinaccountingchangestopresentation,recognitionormeasurementpurposes,aswellasterminologyoreditorialamendmentsrelatedtoavarietyofindividualIFRSstandards.Theamendmentseffectiveforannualperiodsbeginningonorafter1January2010withearlieradoptionpermitted.Nomaterialchangestoaccountingpoliciesareexpectedasaresultoftheseamendments.

iii) Early adoption of standardsTheCorporationdidnotearlyadoptneworamendedstandardsin2009.



A-3 Foreign currency transactionsTransactions in currencies other than US dollars (foreign currencies) are translated at theexchange rates rulingat thedateof the transaction.Allmonetaryassetsand liabilities, excepttradingequities(non-monetary),denominatedinforeigncurrencies,aretranslatedintoUSdollarsatratesprevailingatthebalancesheetdate.Differencesarisingfromchangesinexchangeratesarerecognisedinthestatementofincome.

Available-for-saleequity investments (non-monetaryassets)denominated in foreigncurrenciesthatarestatedatfairvaluearetranslatedtoUSdollarsatprevailingexchangerates.Differencesarisingfromchangesinratesareincludedinthefairvaluereserveinequity.Allothernon-monetaryassetsandliabilitiesarestatedatthehistoricalratesofexchange.

Share capital originally contributed in Saudi Riyals is maintained at the historical rates ofexchange.

B FiNANciAL ASSETS

B-1 classificationTheCorporationallocatesfinancialassetstothefollowingIAS39categories:

Tradingsecuritiesare those that theCorporationacquiresor incursprincipally for thepurposeofgainsoverthenear-termorifitispartofaportfolioofidentifiedfinancialinstrumentsthataremanagedtogetherandforwhichthereisevidenceofarecentactualpatternofshort-termprofit-taking.Theseconsistoflistedequitysecurities.

Available-for-saleinvestmentsarenon-derivativefinancialassetsthatarenotclassifiedasheldfortradingorloansprovidedbytheCorporationorheldtomaturity.Available-for-saleinvestmentsincludecertaindebtsecurities,managedfundsanddirectequityinvestments.

Loansandreceivablesarenon-derivativefinancialassetswithfixedordeterminablepaymentsthatarenotquotedinanactivemarket.

B-2 recognitionAvailable-for-saleandheldfortradingfinancialassetsarerecognisedonatradedatebasis.

Loansarerecognisedonthedayonwhichtheyaredrawndownbytheborrower.

B-3 measurementFinancialassetsaremeasuredinitiallyrecognisedatfairvalueplustransactioncostsexceptforfinancialassetsheldfortradingwheretransactioncostsarerecognisedinthestatementofincome.Subsequenttoinitialrecognition,alltradingandavailable-for-saleinvestmentsarere-measuredtofairvalue,exceptincaseofcertainunlistedavailable-for-saledirectequityinvestments,whereareliablemeasureoffairvalueisnotavailableandhencearecarriedatcostlessimpairmentallowances,ifany.

Gains and losses arising from a change in the fair value of trading securities and derivativeinstrumentsnotdesignatedasanaccountinghedgearerecognisedinthestatementofincomeintheperiodinwhichitarises.

Gainsandlossesarisingfromchangesinthefairvalueofavailable-for-salefinancialassetsarerecognised inothercomprehensive incomeandpresented ina fair value reserveasaseparatecomponentofequity.Whentheassetsaresold,collectedorotherwisedisposedof,orareimpaired,thecumulativegainorlosspreviouslyrecognisedinothercomprehensiveincome,andpresentedinthefairvaluereserveinequity,istransferredtotheprofitorloss.



B-3 FinancialAssets–Measurement(continued)

Loans are subsequently measured at amortised cost using the effective interestmethod, lessallowance for impairment, ifany.Theunamortisedportionofdeferredparticipationandupfrontfeesreceivedisdeductedfromthecarryingvaluesoftheloans.

B-4 AmortisationWhere financial assets, mainly bonds, have been purchased at a premium or a discount, thepremiumsanddiscountsareamortised,usingtheeffectiveinterestmethod,throughthestatementofincomeovertheperiodfromthedateofpurchasetothedateofmaturity.

B-5 Fair value measurement principlesForfinancialassetstradedinactivemarkets,fairvalueisbasedontheirquotedclosingbidmarketpricesordealerpricequotationsatthebalancesheetdatewithoutanydeductionfortransactioncosts.

B-6 De-recognitionFinancialassetsarederecognisedwhenthecontractualrightstoreceivethecashflowsfromtheseassetshave ceased to exist or the assetshave been transferred and substantially all the risksandrewardsofownershipoftheassetsarealsotransferred(thatis,ifsubstantiallyalltherisksandrewardshavenotbeen transferred, theCorporation testscontrol toensure thatcontinuinginvolvementonthebasisofanyretainedpowersofcontroldoesnotpreventderecognition).

B-7 impairmentAllfinancialassetsthatarenotcarriedatfairvaluethroughprofitorlossareassessedateachreportingdatetodeterminewhetherthereisobjectiveevidencethatitisimpaired.Afinancialassetisimpairedifobjectiveevidenceindicatesthatalosseventhasoccurredaftertheinitialrecognitionoftheasset,andthatthelosseventhadanegativeeffectontheestimatedfuturecashflowsofthatassetthatcanbeestimatedreliably.

Assets carried at amortised costObjective evidence that financial assets are impaired can include default or delinquency by aborrower, restructuring of an amount due to the Corporation on terms that the Corporationwouldnotconsiderotherwise,indicationsthataborroweroranissuerwillenterbankruptcy,thedisappearanceofanactivemarketforasecurity.

TheCorporation considers evidence of impairment, for loans and other financial assets carried atamortisedcost,atbothaspecificassetandcollectivelevel.Allindividuallysignificantfinancialassetsareassessedforspecificimpairment.Allindividuallysignificantloansfoundnottobespecificallyimpairedarethencollectivelyassessedforanyimpairmentthathasbeenincurredbutnotyetidentified.Assetsthatarenotindividuallysignificantarecollectivelyassessedforimpairmentbygroupingtogetherassetswithsimilarriskcharacteristics. Inassessingcollective impairment theCorporationuseshistoricaltrendsoftheprobabilityofdefault,timingofrecoveriesandtheamountoflossincurred,adjustedformanagement’sjudgementastowhethercurrenteconomicandcreditconditionsaresuchthattheactuallossesarelikelytobegreaterorlessthansuggestedbyhistoricaltrends.

Animpairmentlossinrespectofafinancialassetmeasuredatamortisedcostiscalculatedasthedifferencebetweenitscarryingamountandthepresentvalueoftheestimatedfuturecashflowsdiscountedattheasset’soriginaleffectiveinterestrate.Lossesarerecognisedinprofitorlossandreflectedinanallowanceaccountagainstreceivables.Ifanassethasavariableinterestrate,thediscountrateformeasuringanyimpairmentlossisthecurrenteffectiveinterestratedeterminedunderthecontract.



B-7 FinancialAssets–Impairment(continued)

Interestontheimpairedassetcontinuestoberecognisedthroughtheunwindingofthediscount.When a subsequent event causes the amount of impairment loss to decrease, the decrease inimpairmentlossisreversedthroughprofitorloss.

If,inasubsequentperiod,theamountoftheimpairmentlossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,thentheimpairmentlossisreversed,withtheamountofthereversalrecognisedinprofitorloss

Assets classified as available-for-saleIncaseofequityinvestmentclassifiedasavailable-for-sale,asignificantorprolongeddeclineinthefairvalueofsecuritybelowitscostisobjectiveevidenceofimpairment.

Debtinstruments,classifiedasavailable-for-sale,areconsideredasimpaired,ifobjectiveevidenceindicatesthatalosseventhasoccurredaftertheinitialrecognitionoftheinstrument,andthatthelosseventhadanegativeeffectontheestimatedfuturecashflowsofthatinstrumentthatcanbeestimatedreliably

Ifanysuchevidenceexistsforavailable-for-salefinancialassets,thecumulativeloss,measuredasthedifferencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairmentlossonthatfinancialassetpreviouslyrecognisedinprofitorloss,isremovedfromequityandrecognisedin the income statement. Impairment losses recognised in the statement of income on equityinstrumentsarereverseddirectlythroughcomprehensiveincome.Fordebtinstrumentsclassifiedasavailable-for-sale, if inasubsequentperiod,thefairvalueincreasesandtheincreasecanbeobjectivelyrelatedtoaneventoccurringaftertheimpairmentlosswasrecognisedinprofitorloss,theimpairmentlossisreversedthroughthestatementofincome.

c FiNANciAL LiABiLiTiES

c-1 initial recognition and measurementTheCorporationhasthefollowingnon-derivativefinancialliabilities:depositsfrombanks,depositsfromcorporate,termfinancingandfinancingreceivedunderrepurchaseagreementsforsecurities.Financial liabilitiesare initiallyrecognized,on the tradedateatwhich theCorporationbecomesa part of the contractual provisions of the instrument, at fair value, representing the proceedsreceived net of premiums, discounts and transaction costs that are directly attributable to thefinancialliability.

c-2 Subsequent measurementAllfinancialliabilitiesareclassifiedasnon-tradingliabilitiesandaremeasuredatamortisedcostusingtheeffectiveinterestratemethod.

c-3 DerecognitionFinancialliabilitiesarederecognisedwhentheCorporation’scontractualobligationsaredischarged,cancelledorexpire.

D cASH AND cASH EQUivALENTSForthepurposeofthestatementofcashflows,cashandcashequivalentscomprisecashbalancesonhandandbankbalanceswithoriginalmaturitiesof lessthan3months,whicharesubject toinsignificantriskoffluctuationinitsrealisablevalue.



E rEpUrcHASE AND rESALE AgrEEmENTS

Assetssoldwithasimultaneouscommitmenttorepurchaseataspecifiedfuturedate(repos)arenotderecognised.AstheCorporationsretainsallorsubstantiallyalltherisksandrewardsofthetransferredassets.Amountsreceivedundertheseagreementsaretreatedasliabilitiesandthedifferencebetweenthesaleandrepurchasepricetreatedasinterestexpenseusingtheeffectiveinterestmethod.

Assetspurchasedwithacorrespondingcommitmenttoresellataspecifiedfuturedate(reverserepos)arenotrecognisedinthebalancesheet.Amountspaidundertheseagreementsaretreatedasassetsand thedifferencebetween thepurchaseandresaleprice treatedas interest incomeusingtheeffectiveinterestmethod.

F propErTY AND EQUipmENT

F-1 classificationItemsofpropertyandequipmentarestatedatcostlessaccumulateddepreciationandimpairmentlosses,ifany.

Where an item of property and equipment comprises significant components having differentusefullives,thesecomponentsareaccountedforasseparateitemsofpropertyandequipment.Noborrowingcostshavebeencapitalised.

F-2 Subsequent expenditureExpenditure incurred subsequently to replace a major component of an item of property andequipment that is accounted for separately is capitalised. Other subsequent expenditure iscapitalisedonlywhenitincreasesthefutureeconomicbenefitsexpectedtoaccruefromtheitemofpropertyandequipment.

Allotherexpenditure, forexampleonmaintenanceandrepairs, isexpensed in thestatementofincomeasincurred.

F-3 DepreciationDepreciationischargedtothestatementofincomeonastraight-linebasisovertheestimatedusefullivesoftheitemsofpropertyandequipment,andofthemajorcomponentsthatareaccountedforseparately.Landisnotdepreciated.

TheestimatedusefullivesoftheCorporation’spropertyandequipmentareasfollows: Headofficebuilding(civilworksandothermajorcomponents) 20to40years Headofficebuilding(finishes,systemsandequipment) 5to20years Housingcompoundbuildings(includingnewextension) 15years Housingcompoundequipment,furnitureandfittings 5to10years Officefurniture,equipmentandcomputerhardware(andrelatedsoftware) 3to10years OfficefitoutscapitalizedatBahrainbrancharedepreciatedoverun-expiredperiodofleaseor 5years,whicheverisless.

The property and equipment residual values and useful lives are reviewed, and adjusted ifappropriate,ateachbalancesheetdate.



g iNcomE rEcogNiTioNg-1 interest income and expenses

Interestincomeandinterestexpenseforallinterest-bearingfinancialinstrumentsarerecognisedwithin “interest income” and “interest expense” in the statement of income using the effectiveinterestratemethod.Fees,includingloanoriginationlessanyearlyredemptionfeesareincludedinthecalculationoftheeffectiveinterestratetotheextentthattheyareconsideredtobeanintegralpartoftheeffectiveinterestrate.

g-2 Dividend incomeDividendincomeisrecognisedinthestatementofincomewhentheCorporation’srighttoreceiveisestablished.

g-3 Fee incomeFee income arises from financial services provided by the Corporation including project andstructuredfinancetransactions,forexampleadvisingonunderwritingandarrangingsyndicatedloanfacilities,andisrecognisedwhentheserviceisprovided.

Fees thatareanalagous to interestandareconsidered tobepartof theoverall yieldon loans,specificallyparticipationandupfrontfeesareinitiallydeferredandthenamortisedoverthelivesoftherelatedloans.Theamortisedincomeisincludedininterestincome.

g-4 rent incomeRentincomeisrecognisedinthestatementofincomeonatimeapportionmentbasis.

H EmpLoYEES’ END oF SErvicE BENEFiTSThe Corporation provides end of service benefits to its employees. The entitlement to thesebenefitsisbasedupontheemployees’finalsalaryandlengthofservicesubjecttothecompletionofaminimumserviceperiod.Provisionfortheunfundedcommitment(whichisadefinedbenefitschemeunderIAS19)hasbeenmadebycalculatingtheliability,hadalltheemployeesleftatthebalancesheetdate.

i DErivATivE FiNANciAL iNSTrUmENTSDerivative financial instruments are contracts, the value ofwhich is derived fromone ormoreunderlyingfinancialinstrumentsandincludeinterestrateswapsandforwardcurrencycontracts.TheCorporationholdsderivativefinancialinstrumentstohedgeitsforeigncurrencyandinterestrateriskexposures.

TheCorporationdesignates interest rateswaps (“hedging instruments”)as fairvaluehedges tohedgetheinterestrateriskonitsfixedincomesecurities(“hedgeditems”)classifiedasavailable-for-salesecurities.On initialdesignationof thehedge, theCorporation formallydocuments therelationshipbetweenthehedginginstrumentsandhedgeditems,includingtheriskmanagementobjectives and strategy in undertaking the hedge transaction, together with the methods thatwillbeused toassess theeffectivenessof thehedgingrelationship.TheCorporationmakesanassessment,bothattheinceptionofthehedgerelationshipaswellasonanongoingbasis,whetherthehedginginstrumentsareexpectedtobe“highlyeffective”inoffsettingthechangesinthefairvalue of the respective hedged items during the period forwhich the hedge is designated, andwhethertheactualresultsofeachhedgearewithinarangeof80-125percent.

Derivativesarerecognisedinitiallyatfairvalue;attributabletransactioncostsarerecognisedinprofitorlossasincurred.Subsequenttoinitialrecognition,derivativesaremeasuredatfairvalue,andchangesthereinareaccountedforasdescribedbelow.



I DerivativeFinancialInstruments(continued)

i-1 Fair value hedgesWhenaderivativeisdesignatedasthehedginginstrumentinahedgeofthechangeinfairvalueofarecognisedassetorliabilityorafirmcommitmentthatcouldaffectprofitorloss,changesinthefairvalueofthederivativearerecognisedimmediatelyinprofitorlosstogetherwithchangesinthefairvalueofthehedgeditemthatareattributabletothehedgedrisk(inthesamelineiteminthestatementofincomeasthehedgeditem).

Ifthehedgingderivativeexpiresorissold,terminated,orexercised,orthehedgenolongermeetsthecriteriaforfairvaluehedgeaccounting,orthehedgedesignationisrevoked,hedgeaccountingisdiscontinuedprospectively.Anyadjustmentuptothatpointtoahedgeditemforwhichtheeffectiveinterestmethodisused,isamortisedtoprofitorlossaspartoftherecalculatedeffectiveinterestrateoftheitemoveritsremaininglife.

i-2 other non-trading derivativesWhenaderivativeisnotheldfortrading,andisnotdesignatedinaqualifyinghedgerelationship,allchangesinitsfairvaluearerecognisedimmediatelyinprofitorlossasacomponentofotherincome.

i-3 Fair valueThefairvalueofforwardexchangecontractsisestimatedbydiscountingthedifferencebetweenthecontractualforwardpriceandthecurrentforwardpricefortheresidualmaturityofthecontractusingZeroCouponcurve(basedonLIBOR).ThefairvalueofinterestrateswapsisdeterminedbydiscountingestimatedfuturecashflowsbasedonthetermsandmaturityofeachcontractandthesameZeroCouponcurveatthemeasurementdate.FairvaluesrecognizedreflectthecreditriskoftheinstrumentandincludeadjustmentstotakeaccountofthecreditriskoftheCorporationandcounterpartywhenappropriate.

J FiNANciAL gUArANTEEFinancialguaranteesarecontracts that require theCorporation tomakespecifiedpayments toreimbursetheholderforalossitincursbecauseaspecifieddebtorfailstomakepaymentwhendueinaccordancewiththetermsofadebtinstrument.Financialguaranteeliabilitiesarerecognisedinitiallyattheirfairvalue,andtheinitialfairvalueisamortisedoverthelifeofthefinancialguarantee.Thefinancial guarantee liability is subsequently carriedat thehigher of this amortisedamountandthepresentvalueofanyexpectedpaymentwhenapaymentundertheguaranteehasbecomeprobable.

K JUDgEmENTSIn the process of applying the Corporation’s accounting policies, management has made thefollowingjudgments,apartfromthoseinvolvingestimations,whichhavethemostsignificanteffectontheamountsrecognisedinthefinancialstatements:

impairment of available-for-sale investmentsTheCorporationconsidersavailableforsaleequityinvestmentsthatareatfairvalue,asimpaired,whentherehasbeenasignificantorprolongeddeclineinthefairvaluebelowitscostorwhereotherobjectiveevidenceofimpairmentexists.Thedeterminationofwhatis“significant”or“prolonged”requiresconsiderablejudgment.Inaddition,objectiveevidenceforimpairmentmaybedeteriorationinthefinancialhealthoftheinvestee,industryandsectorperformance,changesintechnologyandoperationalandfinancingcashflows.



L ESTimATioN UNcErTAiNTYThekeyassumptionsconcerningthefutureandotherkeysourcesofestimationuncertaintyatthebalancesheetdate, thathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow:

L-1 impairment losses on loans and advancesTheCorporationreviewsitsloansportfolioonahalfyearlybasistoassesswhetheraprovisionforimpairmentshouldberecordedinthestatementofincome.Inparticular,considerablejudgmentbyCorporationisrequiredintheestimationoftheamountandtimingoffuturecashflowswhendeterminingthelevelofprovisionsrequired.Suchestimatesarenecessarilybasedonassumptionsaboutseveral factors involvingvaryingdegreesof judgmentanduncertainty,andactual resultsmaydifferresultinginfuturechangestosuchprovisions.

L-2 collective impairment provisions on loans and advancesInadditiontospecificprovisionsagainstindividuallysignificantloansandadvances,theCorporationalso makes a collective impairment provision against loans and advances which although notspecifically identified as requiring a specific provision have a greater risk of default thanwhenoriginallygranted.Theamountof theprovision isbasedon thehistorical losspattern for loanswithineachcategoryandisadjustedtoreflectcurrenteconomicchanges.Theloansarecategorisedbasedonvariouscreditriskcharacteristicsoftheloans.

m proviSioNSTheCorporationrecognizesaprovisionwhenithasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.

N LEgAL AND gENErAL rESErvESUnderArticle35ofAPICORP’sestablishmentagreementandstatute,10%ofannualnetincomeistobetransferredtoalegalreserveuntilsuchreserveequalsthepaidupsharecapital.Thelegalreserveisnotavailablefordistribution.

Article 35alsopermits the creationof other reservessuchasageneral reserve. Thegeneralreservemay be applied as is consistentwith the objectives of theCorporation, and asmay beresolvedbytheGeneralAssembly,ontherecommendationoftheBoardofDirectors.


NoTES To THE FiNANciAL STATEmENTSfortheyearended31December2009

1. pLAcEmENTS WiTH BANKS

2009 2008

WithIslamicfinancialinstitutions 35,000 27,768Withconventionalfinancialinstitutions 429,918 199,850 464,918 227,618

2. TrADiNg SEcUriTiES 2009 2008 Listedequity 63 98

3. AvAiLABLE-For-SALE SEcUriTiES 2009 2008 Fixed-ratebonds 179,015 189Floating-ratebonds 281,338 306,272U.Streasurybills 119,998 29,999U.Streasurynotes - 121,162Structurednotes 34,816 108,801Managedfunds 7,216 50,517 622,383 616,940

Movementinallowanceforimpairment: Openingbalance 55,506 - Chargefortheyear - 55,506 Writebackonrealisationofinvestments (11,160) - Allowance for specific impairment at 31 December 44,346 55,506

Securities sold under agreements to repurchase: The Corporation enters into collateralised borrowingtransactions(repurchaseagreements)intheordinarycourseofitsfinancingactivities.Collateralisprovidedintheformofsecuritiesheldwithintheavailable-for-saleportfolio.At31December2009, the fairvalueof available-for-sale securities thathadbeenpledgedas collateral under repurchaseagreementswasUS$469,023 (2008:US$302,020).Thesetransactionsareconductedunderthetermsthatareusualandcustomarytostandardlendingandsecuritiesborrowings&lendingactivities.

(US$000)



4. AvAiLABLE-For-SALE DirEcT EQUiTY iNvESTmENTS

2009 2008Unlisted investments – carried at cost less impairmentKingdomofBahrain BahrainNationalGasCo.(Banagas) 11,491 11,491KingdomofSaudiArabia SaudiEuropeanPetroCo.(IbnZahr) 142,219 142,219 ArabianIndustrialFibersCo.(IbnRushd) - -RepublicofIraq ArabCompanyforDetergentChem(Aradet) 5,120 5,120SocialistPeoples’LibyanArabJamahiriya ArabDrillingandWorkoverCo.(Adwoc) 11,686 11,686 ArabGeophysicalExplorationSvcsCo.(Agesco) 594 594ArabRepublicofEgypt AlexandriaCarbonBlackCo. 10,996 10,996 AlexandriaFiberCo.SAE(AFC) 4,550 4,550 OrientalPetrochemicalsCo. 6,151 6,151 EgyptianMethanexMethanalCo. 27,048 18,788 MISROilProcessingCompanySAE 33,911 33,911 EgyptianBahrainiGasDerivativeCo. 5,000 1,250Non-shareholdercountries TankageMediterranee(Tankmed),Tunisia 1,112 1,112

Listed investments – carried at fair valueKingdomofSaudiArabia YansabPetrochemicalComplex(YANSAB) 78,976 34,980

338,854 282,848

movements during the year: Balanceatthebeginningoftheyear 282,848 343,266Additionsduringtheyear 12,010 29,599Changeinfairvalueduringtheyear 43,996 (90,017) Balance at 31 December 338,854 282,848

movements in allowance for specific impairment Atthebeginningoftheyear 86,490 86,490Impairmentchargefortheyear - - Allowance for specific impairment at 31 December 86,490 86,490

commitments – uncalled share capital Atthebeginningoftheyear 30,200 64,699Additionalcommitmentsduringtheyear 500 (4,900)Commitmentsfulfilled (12,010) (29,599)

commitments at 31 December 18,690 30,200

(US$000)



4 Available-for-saledirectequityinvestments(continued)

CompaniesinwhichtheCorporationholds20%ormoreoftheequityarenottreatedasassociatesunderIAS28-InvestmentsinAssociatesbecauseAPICORP’sphilosophyisthatitshouldactinafiduciaryandadvisorycapacity and not exercise significant influence over the management and operations of the companies.These investments primarily include private equity investments in closely held project companieswheretheCorporationintendstoexittheseinvestmentsprincipallybymeansofstrategicbuyoutsbyanexistingshareholderorthroughinitialpublicofferings.Investmentcommitteeregularlyevaluatesexitopportunities.Accordingly,theseinvestmentsareclassifiedasavailable-for-saleassets.

Unquotedavailable-for-saledirectequityinvestmentsarecarriedatcostintheabsenceofreliablemeasureof fair value. The fair valueof these investments cannotbe reliablymeasureddue to lackof informationfromtheinvesteecompanies,whichisprimarilyduetolackofinfluenceoftheCorporationontheinvesteecompanies.

5. SYNDicATED AND DirEcT LoANS

2009 2008Unimpaired loans -Islamic 566,951 432,993 -Conventional 2,055,325 1,958,071Unamortisedparticipationandupfrontfees (8,133) (13,507)Collectiveimpairmentallowance (6,660) (6,361)

2,607,483 2,371,196impaired loans Non-performingloans(seebelow) 17,345 17,652 Performingloans 15,397 - Allowanceforspecificimpairments (18,895) (17,652) 13,847 -

2,621,330 2,371,196

impaired (non-performing) loans – Fully providedIraqicompaniesfullyownedbyGovernmentofIraq 51,848 51,848Dividends&interestduetoGovernmentofIraq,offsetagainstdefaultedloans (51,063) (50,756)NetIraqiloans,afterdividendsoffset(seebelow) 785 1,092Others 16,560 16,560

Total impaired (non-performing) loans at 31 December 17,345 17,652

(US$000)



5 Syndicatedanddirectloans(continued)

impaired loans to companies fully owned by government of iraq

Asaresultofthe1990-1991secondGulfwar,certainGovernmentofIraqcontrolledcompaniesdefaultedonloansfromtheCorporation.Consequently,since1992dividends(andnoncontractualaccruedinterestthereon)duetotheGovernmentofIraq(ashareholderinAPICORP)havenotbeenpaid.

Witheffectfrom1998,theCorporationreducedimpairmentallowancesagainstthedefaultedloansbytheamountoftheunpaiddividends,whilestillcarryingthedividendsasliabilitiesinthebalancesheetup-to2003.

InMay2003,APICORPBoardofDirectorsadoptedaresolutionauthorizingmanagement,incaseswherenosettlementisreached,toset-offbaddebtsowedtotheCorporationbycompaniesandpubliccorporationsfully owned by any of APICORP’s shareholder governments, against accounts held by the Corporationbelongingtosuchbodiesandgovernmentsincludingdividends,providedalllegalrequirementsaresatisfiedandcompliedwith.

Accordingly,anduntilnegotiationisundertakenwiththeGovernmentofIraq,theCorporationstartingfrom2003,hasmadeaprimaryoffsetoftheunpaiddividends(andnoncontractualaccruedinterestthereon)duetotheGovernmentofIraq,againsttheprincipalamountsofthedefaultedloansduefromGovernmentofIraqcontrolledcompanies.

Sincethebeginningofdefaultduring1990-92,theCorporationhaskeptmemorandumrecordforcontractualinterestandfeeonthedefaultedIraqiloans.ThetotalcontractualoverdueinterestandfeeontheseimpairedIraqiloansasat31December2009amountstoUS$123,215thousand(2008:US$117,100thousand).

2009 2008Unimpaired loans movement during the yearOutstandingatthebeginningoftheyear 2,391,064 1,886,598Draw-downsonnewandexistingloans 651,626 1,145,135Repaymentsduringtheyear (405,130) (665,279)Reclassifiedasperforming(impaired) (15,397) 27,898Exchangeratemovements 113 (3,288)

Unimpaired loans outstanding at 31 December 2,622,276 2,391,064

Undrawn loan commitments and guarantees Atthebeginningoftheyear 977,624 984,586Additionalunderwritingandcommitmentduringtheyear 40,000 844,584Drawdownsduringtheyear (651,626) (1,145,135)Expiredcommitmentsandothermovements-net (27,870) 293,589

Undrawn commitments at 31 December 338,128 977,624

(US$000)



5 Syndicatedanddirectloans(continued)

Allowance for specific impairments 2009 2008Atthebeginningoftheyear Allowanceforspecificimpairments–gross 68,408 71,277 Less:UnpaiddividendsandinterestduetoGovernmentofIraq (50,756) (47,146) 17,652 24,131

Write-downs(note19) 1,550 -

Reversalsofwrite-downs(note19) -UnpaiddividendsandinterestduetotheGovernmentofIraq (307) (3,610) -Specificimpairmentallowancereversalsonrecovery - (2,869)

Netreversal/(reduction)intheyear 1,243 (6,479)

Allowanceforspecificimpairmentsat31December–gross 69,958 68,408UnpaiddividendsandinterestduetotheGovernmentofIraq (51,063) (50,756)

Allowance for specific impairments at 31 December - net 18,895 17,652

Allowance for collective impairment Atthebeginningoftheyear 6,361 6,020Additionalallowanceduringtheyear 299 341

Allowance for collective impairment at 31 December 6,660 6,361

6. propErTY AND EQUipmENT 2009 2008LandatRakah–headofficebuildingandhousingcompound 4,003 4,003Headofficebuilding,equipment,decorandfurnishings 38,656 38,454Housingcompoundbuildings,equipment,decorandfurnishings 28,396 28,371Computerhardwareandotherofficeequipment 914 882Computersystemssoftware 908 908BahrainBankingunitofficeequipment,decorandfurnishings 1,526 984

Total cost at 31 December 74,403 73,602

Accumulateddepreciation (42,333) (39,428) 32,070 34,174 movements during the year Netcarryingvalueatthebeginningoftheyear 34,174 36,518Additionsatcost Headofficebuilding,operatingequipment,decor&furnishings 202 39 Housingcompoundbuildings,equipment,decor&furnishings 25 96 Computersystemssoftware–acquisition&implementation 32 150 Other 542 116Depreciationcharge (2,905) (2,745)

Net carrying value at 31 December 32,070 34,174

(US$000)



7. oTHEr ASSETS 2009 2008Accruedinterestreceivables 6,785 14,455Employeeloansandadvances 711 789Derivatives 2,256 12,426Miscellaneousreceivablesandadvancepayments 870 293 10,622 27,963

8. DEpoSiTS From BANKS 2009 2008

Short-termdepositsfromconventionalbanks USdollar 98,350 331,850 Othercurrencies 356,876 247,736Short-termMurabahafinancingfromIslamicfinancialinstitutions USdollar 287,460 483,824 Othercurrencies 188,063 325,231 930,749 1,388,641

9. oTHEr LiABiLiTiES 2009 2008

Accruedinterestpayable 11,268 12,880Employees’endofservicebenefits 6,605 6,924Accruedexpenses 2,270 4,135Derivativeinstruments 3,714 6,426Otherpayables 814 990 24,671 31,355 movement in employees’ end of service benefits Balanceasat1January 6,924 6,334 Chargefortheyear 910 1,201 Paidduringtheyear (1,229) (611) Balance as at 31 December 6,605 6,924

10. TErm FiNANciNg 2009 2008

US$250millionloan2005-2010–fullydrawn 250,000 250,000 Interestrate–US$LIBORplus37.5basispoints US$400millionloan2008–2012–fullydrawn 400,000 400,000 Interestrate:US$LIBORplus28.5basispoints Unamortisedfront-endfee (852) (1,410) 649,148 648,590Thetermfinancingaresubjecttofollowingfinancialcovenants,withwhichtheCorporationhascomplied: Theratiooftotalshareholders’fundstototalassetsshallatalltimesbeequaltoorgreaterthan20%;and Theamountoftotalshareholders’fundsshallatalltimesbegreaterthanUS$500million.

(US$000)



11. oFF-BALANcE SHEET EXpoSUrES 2009 2008

Commitmentstounderwriteandfundloans(seenote5) 338,128 977,624Commitmentstosubscribecapitaltoavailable-for-saledirectequityinvestments(seenote4) 18,690 30,200Contractedcapitalexpenditurecommitments - 493 356,818 1,008,317

12. Derivative financial instruments

Fair value hedgesTheCorporationusesinterestrateswapstohedgeitsexposuretochangesinfairvalue,ofcertaininvestmentsinfixedratebonds,attributabletochangesinmarketinterestrate.Fairvaluesoftheinterestrateswapagreementsareestimatedbasedontheprevailingmarketratesofinterest.

other derivatives held for risk management TheCorporationusesderivatives,notdesignatedinqualifyingaccountinghedgerelationship,tomanageitsexposuretomarketrisks.TheCorporationentersintoforeignexchange forward contracts to hedge against foreign exchange fluctuations. Fair values of the forwardcurrencycontractsareestimatedbasedontheprevailingmarketratesofinterestandforwardratesoftherelatedforeigncurrencies,respectively.

ThefairvaluesofderivativefinancialinstrumentsheldbytheCorporationasat31Decemberareprovidedbelow:

Asset Liabilities Asset Liabilities

Interestrateswap(Fairvaluehedges) 1,765 950 - -Foreignexchangecontracts(Otherderivativesheldforriskmanagement) 491 2,764 12,426 6,426 At 31 December 2,256 3,714 12,426 6,426

Thenotional amount of derivative financial instrumentsheld by theCorporation as at 31December areprovidedbelow: 2009 2008

Interestrateswap(Fairvaluehedges) 159,986 -Foreignexchangecontracts(Otherderivativesheldforriskmanagement) 555,163 556,516 At 31 December 715,149 556,516

Thecontractualmaturityanalysisofthederivativeinstrumentsareincludedaspartofliquidityriskinformationinnote25.

(US$000)

20082009


NoTES To THE FiNANciAL STATEmENTSfortheyearended31December2009 (US$000)

13. NET iNTErEST iNcomE

interest income 2009 2008 Cashandbankbalances 25 376 Placementswithbanks–Islamic 166 578–Conventional 2,314 15,401 Available-for-salesecurities–couponinterest 10,382 20,601 Available-for-salesecurities–amortisationofpremium (1,105) 193 Syndicatedanddirectloans–Islamic 10,487 19,909 –Conventional 40,987 73,873 Amortisationofloanparticipationandupfrontfees 6,411 3,832 Total interest income 69,667 134,763

interest expense Deposits,REPOandotherfrombanks–Conventional (16,010) (42,887)–Islamic (16,013) (21,851) Depositsfromcorporate (15,378) (14,528) Termfinancing (7,480) (23,030) Amortisationoftermfinancingfront-endfees (583) (582) Unpaiddividends (307) (1,610) Total interest expense (55,771) (104,488) Net interest income 13,896 30,275

14. NET FEE iNcomE

Fee income 2009 2008 Underwritingandarrangingservices 106 3,708 Agency,advisoryandotherservices 1,204 2,256 Feefromsecuritieslendingactivities 230 695 1,540 6,659Fee expense Custodyfeesandotherchargespaidtobanks (128) (114) Net fee income 1,412 6,545

15. DiviDEND iNcomE 2009 2008Tradingsecurities - 9Available-for-saledirectequityinvestments 59,501 57,979 59,501 57,988

16. LoSS oN TrADiNg SEcUriTiES 2009 2008Netlossonsale - (3,880)Netlossonrevaluation (35) (13) (35) (3,893)



17. gAiN oN SALE oF AvAiLABLE-For-SALE SEcUriTiES 2009 2008

Bondsandstructurednotes - 1,100Managedfunds 104 1,882 104 2,982

18. opErATiNg EXpENSES 2009 2008Staffcosts (11,450) (12,885)Employees’endofservicebenefits (875) (1,169)Premisescosts,includingdepreciation (4,422) (4,269)Equipmentandcommunicationscosts (2,277) (2,664)KeyManagement’s&Boardbenefits,feesandexpense (1,958) (1,849)KeyManagement’spostemploymentbenefits (35) (32)Donations (302) (315)Consultancy (327) (53)Othercorporateexpenses (312) (317) (21,958) (23,553)

19. impAirmENT LoSSES Write-downs 2009 2008 Syndicatedanddirectloans(note5) Specificimpairmentallowance (1,550) - Collectiveimpairmentallowance (299) (341) Available-for-salesecurities(note3) - (55,506) (1,849) (55,847)reversals of write-downs Syndicatedanddirectloans(note5) GovernmentofIraq–reversalthroughunpaiddividend 307 3,610 Specificimpairmentallowancereversalsonrecovery - 2,869RecoveryfromAradet,Iraq(seebelow) - 4,000 307 10,479 Net impairment losses (1,542) (45,368)

payments under guarantees - Aradet, iraqFollowingtheliftingof theUnitedNationssanctionsagainst Iraq,APICORPwassuccessful innegotiatingtermsforthesettlementofamountspaidonbehalfofAradetunderguarantees.Thebalanceduetilldate,under the 2005 settlement agreement of guarantees was duly received and the related provisions werereleased,sincethisbalancewasfullyprovidedinpreviousyearsandtherecoveryrelatingtothisbalanceisrecognisedinstatementofincome.

(US$000)



20. oTHEr iNcomE 2009 2008

Exchangegains/(losses) 2,146 (5,467)Derivativesfairvalueschanges - 7,115Investmentsoffsetvalue 793 -InterestrateSWAPOffsetValue (815) -Rent–headofficebuildingandhousingcompound 1,660 986Miscellaneousincome 3,374 - 7,158 2,634

21. proposed appropriations of profit 2009 2008

Legalreserve 5,900 2,800Generalreserve 52,636 -Retainedearnings - 24,810 58,536 27,610

22. per share information

Thecalculationofearningspershareat31December2009wasbasedontheprofitofUS$58,536thousandfor2009(2008:US$27,610thousand)andaweightedaveragenumberofsharesof550thousandoutstandingasat31December2009 (2008:550 thousandshares).Thecalculationofnetasset valuepershareat31December2009wasbasedonthenetassetsofUS$1,001,635thousandasat31December2009:(2008:US$894,750thousand)andaweightedaveragenumberofsharesof550thousandoutstandingasat31December2009(2008:550thousandshares).

23. rELATED pArTY TrANSAcTioNS

APICORP’sprincipalrelatedpartiesare itsshareholders.AlthoughtheCorporationdoesnot transactanycommercialbusinessdirectlywiththeshareholdersthemselves,itdoesfinancecompanies,whichareeithercontrolledbytheshareholdergovernmentsoroverwhichtheyhavesignificantinfluence.

Loans to related parties 2009 2008Loansoutstandingat31December–gross 1,950,012 1,863,487Allowanceforspecificimpairmentsoutstandingat31December (785) (1,092)Dividends&interestduetoGovernmentofIraq,offsetagainstdefaultedloansat31December (51,063) (50,756)

Commitmentstounderwriteandfundloansat31December 239,759 (540,366) Interestfromloansduringtheyear 37,780 72,797Loanfeesreceivedduringtheyear 1,512 5,133

Loans to relatedpartiesaremadeatprevailingmarket interest ratesandsubject tonormal commercialnegotiationastoterms.Themajorityofloanstorelatedpartiesaresyndicated,whichmeansthatparticipationandtermsarenegotiatedbyagroupofarrangers,ofwhichtheCorporationmay,ormaynot,bealeader.Noloanstorelatedpartieswerewrittenoffin2009and2008.



23 Relatedpartytransactions(continued)

Available-for-sale direct equity investments in related parties 2009 2008

Investmentsat31December 317,157 261,151Commitmentstoinvestat31December (18,690) (30,200)Dividendsreceivedduringtheyear 58,324 55,811

Deposits from related partiesDepositsfrombanksat31December - 47,000Depositsfromcorporateat31December 634,667 242,764Depositsfromshareholders 370,438 15,000Interestexpenseonrelatedpartiesdepositsfromcorporateduringtheyear 4,503 6,455Interestexpenseonrelatedpartiesdepositsfromshareholdersduringtheyear 2,335 2,534

Balancesduetokeymanagement 155 120Forkeymanagement’scompensation,seenote18.

24. cApiTAL ADEQUAcY AND mANAgEmENT

Theriskassetratioat31December2009isasfollows: 2009 2008carrying values On-balancesheetassets(page43) 4,119,100 3,570,228 Off-balancesheetexposures(note11) 356,818 1,008,317 4,475,918 4,578,545

risk-weighted exposures On-balancesheetassets 3,568,494 3,085,375 Off-balancesheetexposures 356,818 993,217 Totalrisk-weightedexposures 3,925,312 4,078,592

capital adequacy ratio Tier–1capital:sharecapital,legal&generalreservesandretainedearnings 831,061 772,525 Tier–2capital:Investmentsfairvaluereserve&collective impairmentallowance 177,234 128,585 Qualifying capital 1,008,295 901,110

capital base expressed as a percentage of total risk-weighted exposures: Qualifyingcapital 25.7% 22.1% Tier1capital 21.2% 19.0%



24. Capitaladequacyandmanagement(continued)

The Corporation’s policy is to maintain a strong capital base so as to maintain investor, creditor andmarket confidenceand to sustain futuredevelopmentof thebusiness.The impactof the level of capitalonshareholders’returnisalsorecognizedandtheCorporationrecognisestheneedtomaintainabalancebetweenthehigherreturnsthatmightbepossiblewithgreatergearingandtheadvantagesandsecurityaffordedbyasoundcapitalposition.TheCorporationmanages/monitorsitscapitalbasedonthecapitaladequacyratiosprescribedbyBaselCommittee.

TheCorporationhascompliedwithallexternallyimposedcapitalrequirementsthroughouttheyear(note10).TherehavebeennomaterialchangesintheCorporation’smanagementofcapitalduringtheyear.

25. FiNANciAL iNSTrUmENTS AND riSK mANAgEmENT

Financial instrumentsAfinancialinstrumentisanycontractthatgivesrisetobothafinancialassetinoneenterpriseandafinancialliability or equity instrument in another enterprise. APICORP’s financial assets are principally tradingsecurities,available-for-salesecurities,placementswithbanks,syndicatedanddirectloans,available-for-saledirectequityinvestmentsandcertainotherassets.

Financialliabilitiesconsistofcommitmentstolendandinvestinequity,depositsfrombanks,termfinancing,certainotherliabilitiesandguarantees.

ThesefinancialinstrumentsexposeAPICORPtovaryingdegreesofmarketrisk(includingcurrency,interestrateandpricerisks),creditriskandliquidityrisk.

credit risk managementCreditriskistheriskthataborrowerorcounter-partyofAPICORPwillbeunableorunwillingtomeetacommitment that ithasentered intowith theCorporation,causingafinancial loss to theCorporation. Itarisesfromthelending,treasuryandotheractivitiesundertakenbytheCorporation.Policiesandprocedureshavebeenestablishedforthecontrolandmonitoringofallsuchexposures.

Proposed loans and available-for-sale direct equity investments are subject to systematic investigation,analysisandappraisalbeforebeingreviewedbytheCreditCommittee(consistingoftheGeneralManagerand Senior Managers of the Corporation), which makes appropriate recommendations to the Board ofDirectors,whohavetheultimateauthoritytosanctioncommitments.Theseprocedures,plusthefactthatmostoftheloansarebackedbysovereignguaranteesandcommitmentsandexportcreditagencycover,limitAPICORP’sexposuretocreditrisk.

TheCorporationfacesacreditriskonundrawncommitmentsbecauseit ispotentiallyexposedtolossinanamountequaltothetotalunusedcommitments.Howevertheeventualloss,ifany,willbeconsiderablyless than the totalunusedcommitments,sincemostcommitments toextendcreditarecontingentuponborrowersmaintainingspecifiedcreditstandards.Allloancommitments,whetherdrawnorundrawn,aresubject to systematicmonitoring so that potential problemsmay be detected early and remedial actiontaken.

Treasuryactivitiesarecontrolledbymeansofaframeworkoflimitsandexternalcreditratings.DealinginmarketablesecuritiesisprimarilyrestrictedtoUnitedStatesandmajorEuropeanstockexchanges.Dealingsareonlypermittedwithapprovedinternationallyratedbanks,brokersandothercounter-parties.Securitiesportfoliosand investingpoliciesare reviewed from time to timeby theAssetsandLiabilitiesCommittee(“ALCO”).



25 Financialinstrumentsandriskmanagement–Creditriskmanagement(continued)

Themaximumexposuretocreditriskoncashandbankbalancesistheircarryingamount.Detailsofcreditriskexposureonotherfinancialinstrumentsareasfollows:

2009 2008 2009 2008 2009 2008

carrying amount at 31 Dec 2,621,330 2,371,196 464,918 227,618 615,167 565,423 Impairednonperforming GradeF 68,408 68,408 - - - - GradeE - - - - - -Grossamount 68,408 68,408 - - - -Allowanceforimpairment (68,408) (68,408) - - - -Carryingamountat31Dec - - - - - -Impairedperforming GradeD - - - - - - GradeC 15,398 - - - - -Grossamount 15,398 - - - - -Allowanceforimpairments (1,550) - - - - -Carryingamountat31Dec 13,848 - - - - -Neitherpastduenorimpaired GradeB 186,083 39,244 - - - - GradeA 2,285,255 2,351,820 - - - -Includesaccountswithrenegotiableterms - - GradeB 58,990 - - - - - GradeA 91,947 - - - - -

Loans&advancestobanksinOrganisationforEconomicCo-operationandDevelopmentcountries(OECD) - - 149,918 122,850 - -Loans&Advancestobanksinnon-OECDcountries - - 315,000 104,768 - -Externallyrated(investmentgrade)AFSinvestments - - - - 615,167 565,423GrossAmount 2,636,123 2,391,064 464,918 227,618 615,167 565,423Collectiveimpairmentallowance (6,660) (6,361) - - - -Unamortisedparticipationandcommitmentfee (8,133) (13,507) - - - -Netneitherpastduenotimpaired 2,621,330 2,371,196 464,918 227,618 615,167 565,423Total carrying amount at 31 Dec 2,621,330 2,371,196 464,918 227,618 615,167 565,423

Syndicated and direct placements with banks Available for Sales loans (note 5) (note 1) securities (note 3)



25 Financialinstrumentsandriskmanagement–Creditriskmanagement(continued)

TheCorporationmonitorsconcentrationofcreditriskbysectorandbygeographiclocation.Ananalysisofconcentrationofriskatreportingdateisshownbelow(alsoseenote31and32).

2009 2008 2009 2008 2009 2008

carrying amount at 31 Dec 2,621,330 2,371,196 464,918 227,618 615,167 565,423concentration of credit risk by sector Petroleumandpetrochemicals 1,527,664 1,473,391 - - 24,123 21,329 Fertilizerplants 477,850 416,425 - - - - Maritimetransportation 288,688 265,235 - - - - Powergeneration 201,479 139,839 - - - - Banksandfinancialinstitutions - - 464,918 227,618 - - Governmentsandpublicsector - - - - 576,070 533,984 Otherindustries 125,649 76,306 - - 14,974 10,110carrying amount at 31 Dec 2,621,330 2,371,196 464,918 227,618 615,167 565,423

2009 2008 2009 2008 2009 2008carrying amount at 31 December 2,621,330 2,371,196 464,918 227,618 615,167 565,423

concentration of credit risk by location KingdomofSaudiArabia 955,666 733,497 - - 39,112 48,583 StateofQatar 643,970 538,009 150,000 25,000 92,517 18,119 OtherGulfCooperation Councilstates 419,247 401,446 165,000 79,768 303,123 217,730 EgyptandNorthAfrica 293,117 349,928 - - - - Total Arab World 2,312,000 2,022,880 315,000 104,768 434,752 284,432 WesternEurope 105,660 123,895 148,000 112,000 19,707 62,888 UnitedStates 203,670 224,421 1,918 10,850 160,708 218,103carrying amount at 31 Dec 2,621,330 2,371,196 464,918 227,618 615,167 565,423

Liquidity risk and funding managementLiquidity risk is the risk thatCorporationwill encounterdifficulty inmeetingobligationsassociatedwithfinancialliabilitiesthataresettledbydeliveringcashoranotherfinancialasset.LiquidityriskmanagementensuresthatfundsareavailableatalltimestomeetthefundingrequirementsoftheCorporation.

APICORP’sliquiditymanagementpoliciesaredesignedtoensurethatevenunderadverseconditions,theCorporationhasaccesstoadequatefundstomeetitsobligations,andtoserviceitcoreinvestmentandlendingfunctions.Thisisachievedbytheapplicationofprudentbutflexiblecontrols,whichprovidesecurityofaccesstoliquiditywithoutundueexposuretoincreasedcostsfromtheliquidationofassetsortobidaggressivelyfordeposits.

AspartofliquiditymanagementtheCorporationalsoensuresavailabilityoftermfinancingatacompetitiverates,atalltimestomeetlongtermfundingrequirementsoftheCorporation.During2008,theCorporationalsoobtained,fromitsexistingshareholders,atotallineofcreditamountingtoUS$1billion.ThislineofcreditisavailabletotheCorporationtodrawfundsfromitsshareholders,ifrequired.




25. Financialinstrumentsandriskmanagement–Liquidityriskandfundingmanagement(continued)

Dailyliquiditypositionismonitoredandregularstresstestingisconductedunderavarietyofscenarioscoveringbothnormalandmoreseveremarketconditions.AllliquiditypoliciesaresubjecttoreviewandapprovalbyALCO.Liquiditycontrolsareprovidedforanadequatelydiversifieddepositbaseintermsofmaturitiesandtherangeofcounter-parties.Theassetandliabilitymaturityprofilebasedonestimatedrepaymenttermsissetoutinnote28.

Contractualmaturitiesoffinancialliabilities(includinginterest)

2009 Up to 3 months 1 year 5 years contractual carrying 3 months to 1 year to 5 years and over outflows value

LiabilitiesDepositsfrombanks (300,420) (78,128) - - (378,548) (930,749)Depositsfromcorporates (728,957) (30,532) - - (759,489) (757,091)Depositsfromshareholders (201,154) (175,184) - - (376,338) (370,438)SecuritiessoldunderREPO (336,895) (51,616) - - (388,511) (385,368)Termfinancing (802) (251,511) (402,656) - (654,969) (649,148) (1,568,228) (586,971) (402,656) - (2,557,855) (3,092,794)

Derivativeinstruments;Interestrateswap (1,031) (3,150) (16,052) (1,365) (21,598) (815)Forwardexchangecontracts (455,892) (99,271) - - (555,163) 2,247 Off-balancesheetexposures (56,230) (103,324) (87,045) (110,219) (356,818) (356,818) (2,081,381) (792,716) (505,753) (111,584) (3,491,434) (3,448,180)

2008 Upto 3months 1year 5years Contractual Carrying 3months to1year to5years andover Outflows value

LiabilitiesDepositsfrombanks (1,106,473) (325,958) - - (1,432,431) (1,388,641)Depositsfromcorporates (385,476) (72,641) - - (458,117) (447,334)SecuritiessoldunderREPO (79,787) (82,365) - - (162,152) (159,558)Termfinancing (1,864) (14,435) (675,485) - (691,784) (648,590) (1,573,600) (495,399) (675,485) - (2,744,484) (2,644,123)

Derivativeinstruments (337,579) (218,783) - - (556,362) 6,000Off-balancesheetexposures (221,468) (396,840) (372,437) (17,572) (1,008,317) (1,008,317)

(2,132,647) (1,111,022) (1,047,922) (17,572) (4,309,163) (3,646,440)




25 Financialinstrumentsandriskmanagement(continued)

market risk managementMarketriskistheriskthatchangesinmarketfactors,suchasinterestrate,equitypricesandforeignexchangerateswillaffecttheCorporation’sincomeorthevalueofitsholdingsoffinancialinstruments.Theobjectiveofmarketriskmanagementistomanageandcontrolmarketriskexposureswithinacceptableparameters,whileoptimizingthereturnonrisk.

APICORP holds (but currently does not actively trade) debt and equity securities. Treasury activities arecontrolledbytheAssetsandLiabilitiesCommitteeandarealsosubjecttoaframeworkofBoard-approvedcurrency,industryandgeographicallimitsandratingsbyagenciesincludingStandard&Poor’s.

Theprincipal risk towhichnon-tradingportfoliosareexposed is theriskof loss fromfluctuations in thefuturecashflowsorfairvaluesoffinancialinstrumentbecauseofachangeinmarketinterestrates,foreignexchangeratesandequityprices.

Interestraterisk:SyndicatedanddirectloansarenormallydenominatedinUnitedStatesdollars,asistheCorporation’sfunding,andinterestratesforbotharenormallylinkedtoLIBOR.TheCorporation’sexposuretointerestratefluctuationsoncertainfinancialassetsandliabilitiesisalsohedgedbyenteringintointerestrateswapagreements.

Exposuretointerestrateriskisrestrictedbypermittingonlyalimitedmismatchbetweenthere-pricingofthemaincomponentsoftheCorporation’sassetsandliabilities.There-pricingprofileofassetsandliabilitiesissetoutinnote29.

Themanagementof interest rateriskagainst interest rategap limits issupplementedbymonitoring thesensitivityoftheCorporation’sfinancialassetsandliabilitiestovariousstandardandnon-standardinterestratescenarios.Standardscenarios thatareconsideredonaperiodicbasis includea100basispoint (bp)parallelfallorriseinallyieldcurvesworldwide.AnanalysisofsensitivityoftheCorporation’sstatementofincomeandequitytoanincreaseordecreaseinmarketinterestrates(assumingnoasymmetricalmovementinyieldcurvesandaconstantbalancesheetposition)isasfollows:

Profit/loss Equity Profit/loss Equity At 31 December 2009 4,726 (54) (4,726) 54 At31December2008 2,360 - (2,360) -

AtreportingdatetheinterestrateprofileofCorporation’sinterestbearingfinancialinstrumentswas:

2009 2008Fixedrateinstruments Financialassets 179,015 189 Financialliabilities - - 179,015 189Variablerateinstruments Financialassets 3,529,616 3,215,565 Financialliabilities (3,093,646) (2,645,533) 435,970 570,032

100 bp parallel increase 100 bp parallel decrease


25 Financialinstrumentsandriskmanagement–Marketriskmanagement(continued)

currency riskisminimisedbyregularreviewofexposurestocurrenciesotherthanUnitedStatesdollarstoensurethatnosignificantpositionsaretaken,whichmayexposeAPICORPtounduerisks.Currentlythereisnotradinginforeignexchange.TheCorporation’snetcurrencyexposuresaresetoutinnote30.TheCorporation’sexposuresinthecurrenciesotherthanUS$isalsohedgedbyenteringintoforwardcontracts.

AnanalysisoftheCorporation’sstatementofincomesensitivityto5%strengtheningor5%weakeningofUS$againstmajorun-peggedforeigncurrenciesisshownbelow.Thisanalysisassumesthatallothervariables,inparticularinterestrates,remainsame.

At 31 December 2009 5% strengthening of US $ 5% weakening of US $ against oEcD currencies against oEcD currencies EUR 164 (164) GBP (324) 324 CHF 32 (32) EGP 1 (1)

At31December2008 EUR (574) 574 GBP (133) 133 CHF 79 (79) EGP (19) 19

Equity prices risk is therisk thatCorporationsquotedequity investmentswilldepreciate invalueduetomovementsinthequotedequityprices.TheoverallauthorityofequitypricesriskmanagementisvestedinALCO.PeriodicallistedequitypricesmovementsarereviewedbyexecutivemanagementandALCO.Corporation’sexposuretolistedequitiesisinsignificanthencesensitivitytoequitypricesriskisnotsignificant.

operational riskOperational risk is the riskofunexpected losses resulting from inadequateor failed internal controlsorprocedures,systemsfailures,fraud,businessinterruption,compliancebreaches,humanerror,managementfailureorinadequatestaffing.

Aframeworkandmethodologyhasbeendevelopedtoidentifyandcontrolthevariousoperationalrisks.Whileoperationalriskcannotbeentirelyeliminated,itismanagedandmitigatedbyensuringthattheappropriateinfrastructure,controls,systems,procedures,and trainedandcompetentpeopleare inplace throughoutthe Corporation. A strong internal audit function makes regular, independent appraisals of the controlenvironment inall identifiedriskareas.Adequatelytestedcontingencyarrangementsarealso inplacetosupportoperationsintheeventofarangeofpossibledisasterscenarios.




26. EFFEcTivE iNTErEST rATES

TheweightedaverageeffectiveinterestratesoftheCorporation’sfinancialinstrumentsatthebalancesheetdatewere: 2009 2008Interest-bearingfinancialassets Fixed-ratebonds 5.17% 3.37%Floating-ratebonds 0.82% 3.20%USTreasuryNotes - 3.41%Structurednotes 0.15% 2.18%Placementsplacedwithbanks 0.88% 2.19%Syndicatedanddirectloans 1.30% 2.91% USdollardenominated 1.28% 2.86% Non-dollar–mainlydenominatedineuros 1.62% 3.86%

interest-bearing financial liabilities Depositsfrombanks 1.50% 3.82%USdollardenominated 1.57% 3.57%Non-dollar–Euros,SwissfrancsandSaudiriyals 1.34% 4.29%Termfinancing 0.58% 2.47%

US$LIBORAT31Decemberwas: One-month 0.23% 0.44%Three-month 0.25% 1.43%Six-month 0.42% 1.75%


27. FAir vALUE HiErArcHY AND cATEgoriES

valuation of financial instrumentsTheCorporationmeasuresfairvaluesusingthefollowingfairvaluehierarchythatreflectsthesignificanceoftheinputsusedinmakingthemeasurements:

Level1:quotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilities

Level2:Valuationtechniquesbasedonobservableinputs,eitherdirectly(i.e.asprices)orindirectly(i.e.asderivedfromprices).Thiscategoryincludesinstrumentsvaluedusing:quotedmarketpricesinactivemarkets forsimilar instruments;quotedprices for identicalorsimilar instruments inmarkets thatareconsideredlessactive;orothervaluationtechniqueswhereallsignificantinputsaredirectlyorindirectlyobservablefrommarketdata.

Level3:Valuationtechniquesusingsignificantunobservableinputs.Thiscategoryincludesallinstrumentswherethevaluationtechniqueincludesinputsnotbasedonobservabledataandtheunobservableinputshaveasignificanteffectontheinstrument’svaluation.Thiscategoryincludesinstrumentsthatarevaluedbasedonquotedmarketprices for similar instrumentswheresignificantunobservableadjustmentsorassumptionsarerequiredtoreflectdifferencesbetweentheinstruments.

Thetablebelowanalysesfinancialinstruments,measuredatfairvalueasattheendoftheyear,bylevelinthefairvaluehierarchyintowhichthefairvaluemeasurementiscategorized:

Level 1 Level 2 Level 3 Total

Tradingsecurities 63 - - 63 Available-for-salesecurities Fixed-ratebonds 179,015 - - 179,015 Floating-ratebonds 281,338 - - 281,338 U.Streasurybills 119,998 - - 119,998 Structurednotes 34,816 - 34,816 Managedfunds 7,216 - 7,216 Available-for-saledirectequity 78,976 - - 78,976 Derivativefinancialassets - 2,256 - 2,256

701,422 2,256 - 703,678

Derivativefinancialliabilities - (3,714) - (3,714)


Ap

ico

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ation(con

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2009

Cashan

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-28

,860

-

-28

,860

28

,860

Placemen

tswith

ban

ks

-46

4,91

8-

-46

4,91

846

4,91

8Trad

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s

63

--

-63

63

Availableforsalesecurities

--

622,38

3-

622,38

362

2,38

3Available-for-saledirecte

quity**

--

338,85

4-

338,85

433

8,85

4Synd

icated

and

directloa

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airvalue-ba

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ted

cash

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satcurrentm

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-2,62

1,33

0-

-2,62

1,33

02,65

2,76

6Otherassets

-71

1-

-71

171

1

Tota

l ass

ets

63

3,11

5,81

9 96

1,23

7 -

4,07

7,11

9 4,

108,

555

Dep

osits

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ban

ks

--

-93

0,74

993

0,74

993

0,74

9Dep

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corpo

rate

--

-75

7,09

175

7,09

175

7,09

1Dep

osits

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sha

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lders

--

-37

0,43

837

0,43

837

0,43

8Se

curitie

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se

--

-38

5,36

838

5,36

838

5,36

8Otherliab

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s-

--

814

814

814

Term

fina

ncing(Fairvalue-ba

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arketrates

forsimila

rremaining

maturity)

--

-64

9,14

864

9,14

864

7,17

7

Tota

l lia

bilit

ies

-

- -

3,09

3,60

8 3,

093,

608

3,09

1,63

7

**Unq

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Ap

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ed31Decem

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inform

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Fair

receivab

les

investmen

ts

amotisedcost

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nt

values

2008

Cashan

dba

nkbalan

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-9,39

1-

-

9,391

9,391

Placemen

tswith

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ks

-22

7,61

8-

-

22

7,61

8

227

,618

Trad

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s

98

--

-

98

98

Availableforsalesecurities

--

616,94

0-

61

6,94

0

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te4)

--

282,84

8-

28

2,84

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282,84

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Synd

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and

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cash

flow

satcurrentm

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-2,37

1,19

6-

-

2,37

1,19

6

2,48

6,54

7Otherassets

-78

9-

-

789

789

Totala

ssets

98

2,608

,994

899

,788

-

3,508

,880

3,62

4,23

1

Dep

osits

from

ban

ks

--

-(1,388

,641

)(1,388

,641

)(1,388

,641

)Dep

osits

from

corpo

rate

--

-(432

,334

)(432

,334

)(432

,334

)Dep

osits

from

sha

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lders

--

-(15,00

0)

(15,00

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curitie

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se

--

-(159

,558

)(159

,558

)(159

,558

)Term

fina

ncing(Fairvalue-ba

sedon

currentm

arketrates

forsimila

rremaining

maturity)

--

-(648

,590

)(648

,590

)(637

,574

)Otherliab

ilitie

s-

--

(990

)(990

)(990

)

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--

-(2,645

,113

)(2,645

,113

)(2,634

,097

)

**Unq

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non

theinvestee

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panies.


28. mATUriTY proFiLE oF ASSETS AND LiABiLiTiES

The maturity profile of the Corporation’s assets and liabilities, based on management’s estimate of itsrealizations, issetoutbelow.Theapparentsignificantshort-termmismatchbetweenmaturitiesofassetsandliabilitiesissubstantiallyreducedinpracticebecausethemajorityofdepositsfrombanksareroutinelyrolledoveronmaturity.

2009 Upto 3months 1year 5years 3months to1year to5years andover Total

ASSETSCashandbankbalances 28,860 - - - 28,860 Placementswithbanks 464,918 - - - 464,918 Tradingsecurities - - - 63 63 Available-for-salesecurities 153,689 28,325 305,445 134,924 622,383 Available-for-saledirectequityinvestments - - - 338,854 338,854 Syndicatedanddirectloans 65,420 6,088 570,718 1,979,104 2,621,330 Propertyandequipment - - - 32,070 32,070 Otherassets 7,303 980 134 2,205 10,622 Total assets 720,190 35,393 876,297 2,487,220 4,119,100

LIABILITIESANDEQUITY Depositsfrombanks (754,749) (176,000) - - (930,749)Depositsfromcorporates (726,994) (30,097) - - (757,091)Depositsfromshareholders (200,438) (170,000) - - (370,438)Securitiessoldunderagreementtorepurchase (333,971) (51,397) - - (385,368)Otherliabilities (11,101) (4,678) (3,197) (5,695) (24,671)Termfinancing 139 (249,740) (399,547) - (649,148)Equity - - - (1,001,635) (1,001,635) Total liabilities and equity (2,027,114) (681,912) (402,744) (1,007,330) (4,119,100) maturity gap (1,306,924) (646,519) 473,553 1,479,890 -

cumulative maturity gap (1,306,924) (1,953,443) (1,479,890) - -

2008 Totalassets 381,346 242,571 907,807 2,038,504 3,570,228Totalliabilitiesandequity (1,572,591) (449,075) (650,878) (897,684) (3,570,228) Maturitygap (1,191,245) (206,504) 256,929 1,140,820 -

Cumulativematuritygap (1,191,245) (1,397,749) (1,140,820) - -



29. rEpriciNg proFiLE oF FiNANciAL ASSETS AND LiABiLiTiES

TherepricingprofileoftheCorporation’sinterestbearingfinancialassetsandliabilitiesat31Decemberwasasfollows:


ASSETS Placementswithbanks 464,918 - - - 464,918Availableforsalesecurities Floating-ratebonds 281,338 - - - 281,338 Structurednotes 9,566 - - - 9,566Syndicatedanddirectloans US$denominated 2,401,339 181,140 - - 2,582,479 EuroandSwissfrancs 123,602 - - - 123,602 LiABiLiTiES Depositsfrombanks US$denominated (335,810) (50,000) - - (385,810) NonUS$denominated (418,939) (126,000) - - (544,939)Depositsfromcorporate (726,994) (30,097) - - (757,091)Depositsfromshareholders (200,438) (170,000) - - (370,438)SecuritiessoldunderREPO (333,971) (51,397) - - (385,368)Termfinancing (650,000) - - - (650,000) interest rate sensitivity gap 614,611 (246,354) - - 368,257 cumulative gap 614,611 368,257 368,257 368,257


ASSETS Availableforsalesecurities Fixed-ratebonds - 189 - - 189 Floating-ratebonds 306,272 - - - 306,272 UStreasurynotes 60,088 61,074 - - 121,162 Structurednotes 14,504 68,596 - 25,701 108,801Placementswithbanks 227,618 - - - 227,618Syndicatedanddirectloans US$denominated 1,589,876 712,510 - 68,408 2,370,794 EuroandSwissfrancs 86,366 2,313 - - 88,679

LIABILITIES Depositsfrombanks US$denominated (736,374) (79,300) - - (815,674) SaudiriyalandEuro (360,707) (212,260) - - (572,967)Depositsfromcorporate (361,007) (71,327) - - (432,334)Depositsfromshareholder’sstates (15,000) - - - (15,000)SecuritiessoldunderREPO (78,949) (80,609) - - (159,558)Termfinancing (648,590) - - - (648,590) Interestratesensitivitygap 84,097 401,186 - 94,109 579,392 CumulativeGap 84,097 485,283 485,283 579,392




30. cUrrENcY EXpoSUrES

TheCorporation’scurrencyexposuresat31Decemberwereasfollows:

2009 2008 Assets Liabilities Net Net and equity exposure exposure

ASSETS,LIABILITIESANDEQUITY UnitedStatesdollar 3,851,566 (3,910,662) (59,096) (68,005) Euro 98,929 (95,657) 3,272 (11,474) OtherOECDcurrencies(seebelow) 3,270 (9,058) (5,788) (1,087)Arabcurrencies - GCC(seebelow) 165,311 (103,723) 61,588 80,948 EgyptandNorthAfrica 24 - 24 (382) 4,119,100 (4,119,100) - -

COMMITMENTSANDGURANTEES UnitedStatesdollar 332,463 962,265Euro 24,355 28,420Arabcurrencies–GCC(seebelow) - 17,632 356,818 1,008,317

other oEcD currenciesTheothermembercountriesoftheOrganisationforEconomicCo-operationandDevelopment,excludingtheUnitedStatesandthetwelveEuropeanMonetaryUnioncountriesare:Australia,Canada,CzechRepublic,Denmark,Hungary,Iceland,Japan,Mexico,NewZealand,Norway,Poland,SouthKorea,Sweden,Switzerland,TurkeyandtheUnitedKingdom.

gccThememberstatesoftheGulfCo-operationCouncilare:Bahrain,Kuwait,Oman,Qatar,SaudiArabiaandtheUnitedArabEmirates.TheircurrenciesexceptforKuwaitarepeggedagainsttheUnitedStatesdollar.

Significant exchange ratesThefollowingyear-endrateshavebeenusedintranslatingothercurrenciestoUnitedStatesdollars:

2009 2008

Euro EUR1=US$ 1.4327 1.4124Saudiriyal SAR1=US$ 0.2666 0.2666Swissfranc CHF1=US$ 1.0390 1.0525Britishpound GBP1=US$ 1.5888 1.4518Egyptianpound EGP1=US$ 0.1822 0.1900

SincetheCorporation’snetforeigncurrencyexposurestocurrenciesotherthenUSdollarandGCCcurrenciesisnotsignificant,thesensitivityoffluctuationinthecurrencieswillnotbesignificant.



31. iNDUSTrY DiSTriBUTioN oF ASSETS AND LiABiLiTiES

TheindustrydistributionoftheCorporation’sassetsandliabilitieswasasfollows:

2009 2008ASSETS

Petroleumandpetrochemicals Refineries 158,293 218,932 Oilfieldproductiondevelopmentandservices 272,255 317,045 Floatingproduction,storageandoffloadingfacilities 45,015 30,380 Gas-to-liquidsplants - 33,827 Liquefiednaturalgasplants 401,724 371,250 Petrochemicalplants 966,778 750,618 Fertilizerplants 477,850 416,425 Maritimetransportation 290,284 267,638 Powergeneration 201,646 140,017 Otherpetroleum 54,567 117,477 Total petroleum and petrochemicals 2,868,412 2,663,609 Banksandfinancialinstitutions 479,249 166,104Banksandfinancialinstitutions–managedfunds - 51,517Otherindustries 193,573 157,208Governmentsandpublicsectorinstitutions 577,866 531,790 Total assets at 31 December 4,119,100 3,570,228

LIABILITIESANDEQUITY Banksandfinancialinstitutions 2,825,344 2,648,537Otherindustries 292,121 26,941Shareholders 1,001,635 894,750 Total liabilities and equity at 31 December 4,119,100 3,570,228

COMMITMENTSANDGUARANTEES Petroleumandpetrochemicals Refineries - 61,662 Oilfieldproductiondevelopmentandrelatedservices 50,642 151,081 Floatingproduction,storageandoffloadingfacilities 3,527 18,162 Liquefiednaturalgasplants 23,204 61,012 Petrochemicalsplants 76,751 205,174 Fertilizerplants 90,386 211,540 Maritimetransportation 75,000 114,750 Powergeneration 17,044 83,662 Otherpetroleum 20,264 54,639 Total petroleum and petrochemical 356,818 961,682 Otherindustries - 46,635 Total commitments and guarantees at 31 December 356,818 1,008,317

78ApicorpAnnualReport2009 ApicorpAnnualReport2009PB


32. gEogrApHicAL DiSTriBUTioN oF riSK

Thegeographical distributionof riskof theCorporation’sassetsand liabilities, after taking intoaccountinsuranceandthird-partyguarantees,wasasfollows: 2009 2008ASSETSKingdomofSaudiArabia 1,305,237 1,071,618StateofQatar 888,881 582,713OtherGulfCooperationCouncilstates 911,290 724,276OtherMiddleEaststates 5,254 5,211EgyptandNorthAfrica 395,806 442,056 Total Arab World 3,506,468 2,825,874 WesternEurope 287,025 293,923AsiaPacificRim 48 -UnitedStates 325,559 450,431 Total assets 4,119,100 3,570,228

LIABILITIESANDEQUITY KingdomofSaudiArabia 1,269,075 1,578,167StateofQatar 358,841 217,962OtherGulfCooperationCouncilstates 1,031,157 984,988OtherMiddleEaststates 182,594 35,469EgyptandNorthAfrica 324,100 90,505 Total Arab World 3,165,768 2,907,091 WesternEurope 880,275 576,546AsiaPacificRim 26,000 30,145UnitedStates 47,057 56,446 Total liabilities and equity 4,119,100 3,570,228

COMMITMENTSANDGUARANTEES KingdomofSaudiArabia 101,806 422,053StateofQatar 63,151 216,016OtherGulfCooperationCouncilstates 83,619 151,317EgyptandNorthAfrica 63,887 172,112 Total Arab World 312,463 961,498 WesternEurope 44,355 46,819 356,818 1,008,317

33. compArATivE AmoUNTS

Thecorrespondingfiguresfortheyear2008havebeenregroupedinordertoconformwiththepresentationforcurrentyear.Suchreclassificationsdonotaffectpreviouslyreportedprofitorequity.

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