Management and Administration 2. Chairman s Report 3. Investment Manager s Report 5. Portfolio Update 8. Breakdown of Assets Portfolio 9

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2 Contents Management and Administration 2 Chairman s Report 3 Investment Manager s Report 5 Portfolio Update 8 Breakdown of Assets Portfolio 9 Underlying Portfolio Companies 10 Directors Report 20 Independent Auditor s Report 24 Consolidated Statement of Assets and Liabilities 26 Consolidated Statement of Operations 27 Consolidated Statement of Changes in Net Assets 28 Consolidated Statement of Cash Flows 29 Consolidated Schedule of Investments 30 Notes to the Consolidated Financial Statements 35 Notice of Annual General Meeting 50 Annual Report and Audited Consolidated Financial Statements 1

3 Management and Administration Directors Hisham Al Otaibi (Chairman) Maha Al-Ghunaim Anne Ewing Kishore Dash Registered Office Arnold House St. Julian s Avenue St. Peter Port Guernsey GY1 3NF Channel Islands Investment Manager Global Capital Management Ltd. c/o Intertrust Corporate Services (Cayman) Limited 190 Elgin Avenue George Town Grand Cayman Cayman Islands Administrator and Secretary HSBC Securities Services (Guernsey) Limited P.O. Box 208 Arnold House St. Julian s Avenue St. Peter Port Guernsey GY1 3NF Channel Islands Registrar Capita Registrars (Guernsey) Limited Longue Hougue House St. Sampson Guernsey GY2 4JN Channel Islands Custodian HSBC Custody Services (Guernsey) Limited P.O. Box 208 Arnold House St. Julian s Avenue St. Peter Port Guernsey GY1 3NF Channel Islands Legal advisers to the Company (as to English law) Allen & Overy LLP One Bishops Square London E1 6AD United Kingdom Legal advisers to the Company (as to Guernsey law) Ogier Ogier House St. Julian s Avenue St. Peter Port Guernsey GY1 1WA Channel Islands Matched Bargain Facility Provider Jarvis Investment Management Ltd. 78 Mount Ephraim Tunbridge Wells Kent TN4 8BS United Kingdom Independent Auditor KPMG Channel Islands Limited Glategny Court Glategny Esplanade St. Peter Port Guernsey GY1 1WR Channel Islands 2 Global MENA Financial Assets Ltd

4 Chairman s Report On behalf of the Board of Directors of Global Mena Financial Assets Limited ( GMFA or the Company ), I am pleased to present the seventh Annual Report of the Company together with the consolidated financial statements (the financial statements ) for the year ended 31 March Dear Shareholders, The global economy witnessed several hurdles on its path to recovery. The US economy continued improving, as more jobs were created and Gross Domestic Product ( GDP ) figures augmented. The US Dollar strengthened against the Euro, the British Pound, and the Yen, reflecting investor confidence. In contrast, China grew at 7.4%, well below government s forecasts and at the lowest level in many years. Oil prices declined by more than 50%, with West Texas Intermediate ( WTI ) touching USD47.6/barrel. Despite a plunge in oil prices, growth in the Middle East and North Africa ( MENA ) oil-exporting countries is projected to remain stable in In the oil-importing countries, growth is projected to improve to 4% from 3% in 2014, on the back of steady recovery in the Eurozone and more suitable fiscal and monetary policies. Lower oil prices impacted the oil-importing countries, positively, though it could take a while for the impact to manifest fully. Although the decline in oil prices reduced the fiscal space, the impact is expected to be offset by financial buffers, oil exporters have been putting in place, over the years. Furthermore, Gulf Cooperation Council ( GCC ) governments are expected to steadily undertake the required fiscal adjustment over the medium term. Growth forecast for 2015 have been revised downwards to 3.4%, in view of expected slowdown in both oil and non-oil sector growth. However, the general outlook for the MENA region is of continued recovery, with growth hovering around 3 percent in 2015, before rising to 4 percent in Equity markets in the MENA region witnessed considerable decline during the year. The Dow Jones MENA Index slipped by 10.1%, while the MSCI World Index rose by 4.0%, during the same period. This impacted the valuations of GMFA portfolio companies as well, which are benchmarked to listed peers, after adjusting for 25% marketability discount. Equity markets, especially the GCC ones mirrored oil price trend, ignoring growing corporate earnings. GMFA witnessed a similar trend. Portfolio section of this Annual Report sheds light on improving profitability of the Portfolio Companies, amidst decline in valuations. We remain positive about continued growth prospects of the MENA region and steady market recovery. Developments with GMFA For the outgoing year, the entire investment portfolio recorded net profit, with profits improving for most of the portfolio companies. The consumer finance portfolio, especially Al Manar Financing and Leasing Company ( Al Manar ) and Al Soor Financing and Leasing Company ( Al Soor ) recorded substantial improvement in profits, while Bindar Trading Investment Company ( Bindar ) and Jordan Trade Facilities Company ( JOTF ) registered decline in profitability, amidst increase in top-line. The decline was attributable to settlement of income tax liabilities in the wake of industry-wide hike in income tax and the retrospective compliance with the same. The banking portfolio comprising of Asian Finance Bank Berhad ( AFB ) and Industrial Bank of Kuwait ( IBK ) recorded improvement, with IBK reporting both top-line and bottom line growth. Despite challenges faced by the re-insurance sector in the GCC, Al Fajer Retakaful Insurance Company ( Al Fajer ) and Gulf Takaful Insurance Company ( GTIC ) reported net profit. The quality of insurance portfolio and hence credit rating improved for both. First Qatar Real Estate Development Company ( First Qatar ), wherein GMFA acquired a minority stake of 2.16%, in lieu of settlement of Iskan Murabaha, recorded improvement in both operating and net profit. Annual Report and Audited Consolidated Financial Statements 3

5 Chairman s Report During the year, the Investment Manager, successfully exited the investment in Al Salam Bank, the stake in which was acquired upon its merger with BMI-Bahrain. PTC India Financial Services ( PTC ), the Indian power infrastructure finance company, was also exited. A new investment in a premium Turkish sports goods retailer was made during the year, at a lucrative multiple. The investment offers good geographical and sectoral diversification benefits for the existing Banking, Financial Services and Insurance ( BFSI ) portfolio of GMFA. Corporate Governance During the year, the Independent Committee ( IC ) of the Board reviewed the recovery efforts for Abyaar Wakala. The committee continued to work with the Investment Manager and the appointed legal counsel in Kuwait, on the recovery and settlement of the outstanding Islamic money market instrument. After various rounds of negotiations, a Debt Settlement Agreement was signed on the 25th of December 2014, envisaging settlement through a combination of cash and real estate assets transfer. A portion of cash and assets has been transferred, while the remaining shall be transferred in line with the agreed upon schedule, to be monitored closely. The directors have ensured adherence to the best practices in corporate governance during the year and believe that appropriate internal controls and systems are in place. I would like to take this opportunity to reaffirm our commitment to shareholders and to present my gratitude to the Board of Directors for their continued support. I would also like to extend my appreciation to the investment management team for their efforts in driving value to the portfolio companies and in managing GMFA in shareholder s best interest. The Board looks forward to profitable exits and liquidity for the investors upon commencement of Harvesting Period from April 2016 onwards. Hisham Al Otaibi Chairman July Global MENA Financial Assets Ltd

6 Investment Manager s Report Dear Investors, After a year of geopolitical turmoil and faltering external demand, there was an uptick in growth in developing MENA countries, attributable to improving manufacturing and export sectors. Most of the regions oil-exporting countries grew, with the exception of Iraq, Libya, and Yemen. The real GDP of MENA oil-exporting countries expanded by 2.4%, on the back of increased oil production in some countries, compared to 2.1% in 2013, The GDP of MENA s oil-importing countries expanded by 3.0% in at par with the previous year s growth. Furthermore, Egypt s industrial production expanded significantly, with a marked increase in confidence. Countries such as Jordan and Lebanon stayed on transition path, resulting in a modest growth. The growth trend in the MENA GDP compared to other regions of the world is highlighted in the following chart. 8% GDP Growth Trend 7% 6% 5% 4% 3% 2% 1% 0% -1% e 2016e 2017e 2018e World Advanced Economies European Union Emerging & Developing MENA Sub Saharan Africa From April 2014 to March 2015, crude oil price (West Texas Intermediate) averaged USD74.6/barrel, recording a decline of 24%, over last year. The world oil demand grew by 1.1% in 2014, reflecting 2013 trend. The oil demand in United States witnessed significant growth, while the downward trend continued in Europe, with signs of improvement in the second half of the year. According to the latest OPEC projections, world oil demand will grow by 1.3% during 2015, to reach 92.4 million barrels per day. Meanwhile, oil supply from OPEC remained the same during the year. Disruptions in oil supply from Libya, Iraq, and Nigeria were countered by increase in supply from Saudi Arabia and Kuwait Oil Prices Trend USD/barrel Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 WTI OPEC Basket As demand from Europe and Asia promptly increased during the first quarter of 2015, oil prices began to surge slightly. However, the reduction in oil prices has supported consumption in advanced economies, removed budgetary constraints in some emerging economies, and has allowed central banks to maintain monetary policies. Annual Report and Audited Consolidated Financial Statements 5

7 Investment Manager s Report Capital Markets Performance For the period, April 2014 to March 2015, the GCC equity markets declined, on account of political uncertainty in the region and due to decline in oil prices. The Dow Jones MENA Index declined by 10%, while the MSCI World Index rose by 4% at the same time MENA Markets vs World Markets points Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Dow Jones MENA Index MSCI World Index Amongst the regional indices, Bahrain and Qatar were the only ones witnessing growth, gaining 7% and 1%, respectively. Dubai fell by 21%, followed by Abu Dhabi at 9%. Saudi Arabia, the largest market in the GCC, recorded a decline of 7%, while Kuwait and Oman declined by 17% and 9% respectively. The GCC equity markets did not reflect the trend in the GCC corporate earnings. Overall corporate earnings grew by 10% to USD68.5bn, with UAE leading the way with a growth of 30%, attributable largely to recovery in the banking and financial sectors. 125 GCC Market Performance points Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Kuwait Saudi Arabia Dubai Abu Dhabi Bahrain Qatar Oman Bahrain s earnings rose by 15% to reach USD 2.1bn, led by the industrial & investments sectors. Meanwhile, Kuwait Qatar and Saudi Arabia witnessed hikes of 8%, 6% and 2.6% respectively. Oman was the only market witnessing a decline of 1.6% in its earnings. 6 Global MENA Financial Assets Ltd

8 Investment Manager s Report Development with the Investments of GMFA FY 2015 had been eventful for GMFA. All portfolio companies recorded tangible profits and GMFA received a dividend of USD 2.9 mn. Profits of Al Manar, Al Soor, IBK and AFB improved significantly, while GTIC and Al Fajer witnessed improvement in quality of earnings. Bindar and JOTF, the Jordanian consumer finance companies, recorded top line growth, yet decline in net profit. Significant headway was made in Abyaar Wakala recovery and a new investment was made in a Turkish Sports goods retailer. We also exited two investments during the year. For Al Manar and Al Soor, the overall profitability improved to USD 7.5mn and USD 15.3mn, over USD 6.5 mn and USD 15mn, respectively, for last year. Al Soor distributed 6% dividend, while Al Manar paid 5% dividend, generating USD 1.2mn and USD 0.7mn, in dividend income for GMFA. During the year, Bindar recorded a liability of USD 2mn, accounting for income and sales tax claims. Consequently, the net profit reduced to USD 487 K, compared to USD 1.95mn for FY Similarly net profit for JOTF stood at USD 2.16mn, compared to USD 2.44mn, last year. The decline was attributable to additional tax provisions. Al Fajer and GTIC reported surplus in insurance operations and GTIC distributed dividend for the first time. The independent rating of both the insurance companies improved. During the year, a new entity with the name of Emirates Re was established as a 100% subsidiary of Al Fajer in Dubai International Financial Centre ( DIFC ). The entire insurance portfolio of Al Fajer had been transferred to Emirates Re. The banking companies in the portfolio, recorded sizeable improvement in bottom line. The net profit for IBK and AFB improved to USD 35 mn and USD 4mn, compared to USD 32 mn and USD 2mn, for the last year, respectively. IBK distributed 40% (of share capital) dividend for the year. Under the guidance of the Independent Committee ( IC ) of the Board and after various rounds of negotiations and legal efforts, a Debt Settlement Agreement was signed with Abyaar for the recovery of outstanding Wakala. The agreement envisages settlement through cash (KWD 3.2 mn to be paid in installments) and asset transfer (KWD 6.51 mn). GMFA has so far received KWD 900k in cash and KD 3.2 mn worth of assets, namely Durrat Al Sufouh for General Trading Company W.L.L and Olgana Residential Towers Units. The remaining cash and assets will be transferred as per the agreed upon schedule. We look forward to selling the assets in a year s time. On the transactions front, GMFA sold its stake in Al Salam bank at an attractive price, recording an IRR of 20%. Post our exit, the market price fluctuated significantly, with a general decline in average price. We also exited our investment in PTC India Financial Services ( PFS ), tactically, through the market and recorded an IRR of 31%, on the rebased value of FY In March 2015, GMFA acquired 70% stake in Olgarlar Spor Malzemeleri ( Olgarlar ), a sports, outdoor and lifestyle goods retailing and distribution company in Turkey, representing 30 international brands in Turkey on an exclusive basis. Olgarlar recorded Compound Annual Growth Rate ( CAGR ) of 18% and 15% in revenue and net profit, in local currency terms, over two year period. We stand committed to the mandate given to us by the shareholders and are confident of delivering profitable exits in the exit period, commencing shortly from April 2016 onwards. I would like to take this opportunity to thank the Board of GMFA and the shareholders, for their continued support and trust in us. Sincerely, Sulaiman Al-Rubaie Managing Partner Global Capital Management Ltd. July 2015 Annual Report and Audited Consolidated Financial Statements 7

9 Portfolio Update BREAKDOWN OF ASSETS PORTFOLIO (as at 31 MARCH 2015) Company Country GMFA s % Stake Fair Value (US$) % of Fair Value Bindar Trading & Investment Company Jordan 71% 13,229, % Jordan Trade Facilities Company Jordan 87.27% 21,749, % Al Manar Financing & Leasing Company K.S.C. Kuwait 13.74% 13,754, % Al Soor Financing & Leasing Company K.S.C. Kuwait 12.39% 27,517, % Total Consumer Finance 76,251, % Industrial Bank of Kuwait K.S.C. Kuwait 2.47% 19,658, % Total Development Finance 19,658, % Asian Finance Bank Berhad Malaysia 6.67% 9,186, % Total Banking 9,186, % Durrat Al Sofouh for General Trading Company W.L.L. United Arab Emirates 42% 6,785, % First Qatar Real Estate Development Company Kuwait 2.16% 3,249, % Total Real Estate 10,034, % Gulf Takaful Insurance Company K.S.C Kuwait 18.23% 3,672, % Al Fajer Retakaful Insurance Company K.S.C Kuwait 20.01% 19,549, % Total Insurance 23,222, % Olgarlar Spor Malzemeleri Turkey 70% 22,435, % Total Others 22,435, % Total Overall 160,788, % 8 Global MENA Financial Assets Ltd

10 Breakdown of Assets Portfolio Breakdown of Total Assets (as at 31 March 2015) Unlisted Equity 46% Cash & Deposits 42% Listed Equity 12% Portfolio Breakdown (as at 31 March 2015) Development Finance 12.2% Consumer Finance 47.4% Retail 14.0% Minority 10-50% 44.3% Controlling > 50% 35.7% Banking 5.7% Real Estate 6.3% Insurance 14.4% Minority < 10% 20.0% Turkey 14% Malaysia 6% Jordan 22% UAE 4% Kuwait 54% Annual Report and Audited Consolidated Financial Statements 9

11 Underlying Portfolio Companies Bindar Trading and Investment Company Country Jordan Industry Credit and Finance Fair Value USD 13,229,940 Valuation Basis Quoted % Ownership 71% Bindar Trading and Investment Company ( Bindar ) is one of the largest consumer finance companies in Jordan. Bindar finances vehicles for personal and commercial use, durable assets and real estate properties. Bindar is primarily engaged in collateralized lending, operating from 4 branches across the capital Amman and the province of Irbid. It is listed on the Amman Stock Exchange and accounts for roughly 16% of the market share in non-banking consumer finance segment, in Jordan. Jordan offers ample growth opportunities for consumer finance, since it s relatively middle- to low income country with a large un-bankable population, compared to rich Arab neighbours. Bindar was historically set up as an auto finance company; it later diversified into real estate and SME financing. However, it still continues to be one of the largest financiers of private (used) cars in non-banking finance sector, in Jordan. As a general policy, Bindar focuses on small tickets (USD 10k- 14 k), collateralized lending, majorly in retail segment, which is considered to be less risky than corporate sector. Since consumer finance companies in Jordan cannot accept deposits, therefore the biggest source of financing for them are banks, followed by funding from debt capital markets. For FY 2014, total income increased from USD 5.58mn (FY13) to USD 5.77mn (FY14). During the same period, personnel expenses remained stable, general and administration expenses increased by USD 0.18mn due to onetime legal and tax expenses. Bad debt provision decreased from USD 1.1mn in FY13 to USD 0.9mn for FY14. During the year, Bindar recorded a contingent liability of USD 2mn to account for income and sales tax claims. Consequently, the net profit reduced to USD 487 K compared to USD 1.95mn for FY Bindar continues to expand its footprint in underpenetrated areas a new branch in Irbid commenced operations in October 2014 and is expected to contribute to portfolio growth in In March 2015, Bindar successfully raised JD 5mn (USD 7mn) by issuing a 5 year Bond at the rate of 8.9%. This will help Bindar expand operations and better match asset-liability duration. In Q1 2015, management decided to pay all outstanding income and sales tax liabilities, therefore an amount of USD 2mn was paid to settle all outstanding income and sales tax claims. Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Interest Income 3,414 4,099 3,747 Non-interest Income 1,292 1,481 2,074 Net Profit 1,725 1, Book Value 31,284 31,587 31,107 Total Assets 46,342 51,874 52,042 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end 10 Global MENA Financial Assets Ltd

12 Underlying Portfolio Companies Jordan Trade Facilities Company Country Jordan Industry Credit and Finance Market Value USD 21,749,498 Valuation Basis Quoted % Ownership 87.27% Jordan Trade Facilities Company ( JOTF ) provides financing for vehicles and durable assets and is one of the first companies to enter the consumer finance business in Jordan. JOTF was listed on the Amman Stock Exchange in JOTF is the oldest consumer finance company in Jordan accounting for c 13-15% of the market share in non-banking consumer finance segment. Operating from 6 branches across all major governorates in Jordan, JOTF enjoys excellent brand equity, driven by strong customer relationships. The customer base largely includes individuals, family offices, small and medium corporates. JOTF provides a variety of financing solutions including: private and public vehicle financing; real estate financing; tools and equipment financing; personal loans; small business financing; finance leasing (through leasing subsidiary); credit cards (co-branding). With 99% of collateralized lending, JOTF has an excellent track record in recovery and maintaining a healthy NPL ratio. Write offs since inception account for less than 1% of the total lending. JOTF continues to diversify its product suite. Two new products were introduced during the year and new recruitments were made to support the growth strategy. An incentive-driven scheme has been developed for the collection, sales, and legal departments. Such initiatives are expected to reflect positively on the sales and collections in FY For FY 2014, net interest income improved by 13.1% to stand at USD6.9mn. Provision for bad debt increased to account for 59.1% of non-performing loans. G&A and personnel expenses recorded an increase of around 17%. On the whole, net profit stood at USD2.16mn compared to USD2.44mn for the last year, resulting in a decline of 10.7%. The decline was attributable to additional tax provisions that JOTF had built up during the year. The management efforts in controlling the nonperforming loans resulted in an improvement in the Non-Performing Loan ( NPL ) ratio to 13% from 15% in FY The recent AGM has approved the distribution of 7% cash dividends for FY Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Interest Income 4,526 6,127 6,928 Non-interest Income 1,142 1,291 1,134 Net Profit 1,994 2,436 2,160 Book Value 27,909 28,237 28,786 Total Assets 49,137 47,397 47,729 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end Annual Report and Audited Consolidated Financial Statements 11

13 Underlying Portfolio Companies Al Manar Financing & Leasing Company Country Kuwait Industry Credit and Finance Fair Value USD 13,754,186 Valuation Basis Price to Book Value % Ownership 13.74% Al Manar Financing and Leasing Company K.S.C ( Al Manar ) is an Islamic financial institution providing Islamic Shari ah compliant financial products and services across a variety of sectors, including consumer, real estate and fleet financing. Al Manar is regulated by the Central Bank of Kuwait and is rated by Capital Intelligence ( CI ), which gave it a corporate rating of BB- long term and a short term rating of BB with a stable outlook, as of Dec Al Manar s share of financing stood at approximately 5.6% of the overall non-banking consumer finance market and at around 0.1% of the overall finance market including banks (in 2014). Al Manar differentiates itself by offering better customer service and faster processing compared to Banks. Al Manar has been gradually enhancing its exposure to corporate clients since most retail clients prefer dealing with Banks, offering competitive rates for auto and real estate loans. For FY 2014, net interest income decreased by 15.3% from USD 14.4mn to USD 12.2mn due to the shrinkage of the financing portfolio, which reduced from USD 141mn (FY 13) to USD 107mn (FY 14). The shrinkage in portfolio was due to decline in new financing which amounted to USD 48mn for FY 14, down from USD 100mn in FY 13. Provision for bad debt decreased by 87% to USD 0.5 mn from USD 3.8 mn last year, due to recovery of a previously impaired account of USD 2mn. Net profit for the period stood at USD 7.5mn, recording an increase of 15% over the same period last year. By the end of the year, Al Manar managed to secure a USD52mn facility from a local bank which is expected to boost the financing portfolio growth in The Board of Directors has recommended a dividend of 5% for the year ended 2014, which would generate dividend of USD 700k for GMFA. Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Interest Income 10,241 14,411 12,218 Non-interest Income 2,007 2,787 1,461 Net Profit 4,187 6,518 7,519 Book Value 111, , ,446 Total Assets 190, , ,081 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end 12 Global MENA Financial Assets Ltd

14 Underlying Portfolio Companies Al Soor Financing & Leasing Company Country Kuwait Industry Credit and Finance Fair Value USD 27,517,626 Valuation Basis Price to Book Value % Ownership 12.39% Al Soor Financing and Leasing Co. KSCC ( Al Soor ) was established in 2005 with a paid-up capital of USD165 million. Al Soor is one of the most pre-eminent consumer finance companies in Kuwait, offering financing for the purchase of new and used cars, fleet financing, SME, corporate finance and turnkey financing for Government projects. Al Soor is amongst a few finance companies in the GCC, which stayed profitable at the peak of global economic crisis of 2008, primarily due to its conservative financing norms, and firm recovery policy. Al Soor is classified as a financing company with no investment activities. As of Dec 2014, Al Soor s market share was approximately 24.7% of the non-banking consumer finance market, which makes it a lead player in the segment. In order to tap in growing Islamic finance market, Al Soor converted its subsidiary Al-Mulla International Finance Co. into a Sharia-compliant financing company in early Al Soor is now offering both conventional and Islamic financing. For the nine month period ended 31 Dec 2014, Al Soor recorded net interest income of USD25.4mn, compared to USD 12.8mn for the same period last year. Total income from operations increased from USD 21mn to USD 32mn, while net profit stood at USD 18.5mn, against USD 15mn, for the full year last year. The improvement is on account of lower bad debt provision and higher net interest income for the period. Total new financing for the first nine months increased to USD 355mn, compared to USD 309m for the preceding year. The increase is attributable to improvement in Al Soor s retail operations where financing increased by 38%. During the year, Al Soor s portfolio under management (on behalf of other banks) reached USD146mn, compared to USD 145mn for the previous year. Al Soor retains the management of the portfolio and earns the management fee, while sharing the interest income with the Bank. The Board of Directors of Al Soor has recommended to the AGM dividend distribution of 6% for FY2014. This is expected to generate USD 1.2mn in dividend income for GMFA. Key Financials USD 000 FY 2012 FY M 2014 Net Interest Income 25,544 28,865 25,416 Non-interest Income 782 3,939 6,838 Net Profit 13,006 15,314 18,499 Book Value 253, , ,498 Total Assets 445, , ,284 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: March year end Exchange rate as of respective year end Annual Report and Audited Consolidated Financial Statements 13

15 Underlying Portfolio Companies Industrial Bank of Kuwait Country Kuwait Industry Corporate Banking Fair Value USD 19,658,060 Valuation Basis Price to Book Value % Ownership 2.47% The Industrial Bank of Kuwait ( IBK ; the Bank ) was established with the initiative of the Government of Kuwait for the purpose of supporting industrial sector growth in Kuwait. IBK provides medium and long-term financing for the establishment, expansion, and modernization of the industrial sector. IBK also offers a full range of commercial banking facilities to meet the working capital needs of industrial customers. Compared to commercial banks, IBK has an edge in Net Interest Margin (NIM) due to low cost of funding through a long term revolving facility of ~USD 1.0 billion granted by the Government of Kuwait. The revolving facility is valid for a period of 20 years (September 2027) and is provided at a fixed interest rate of 3.5% per annum. For FY2014, net interest income stood at USD 46.2mn, recording a decline of 7.5% over FY However, non-interest income (investment income and fee) improved by 26%. On the whole net profit improved to USD 35.5 mn on the back of improvement in non-interest income and slight reduction in non-performing loans provision. During the year, the financing portfolio decreased by 4.7% due to conservative lending policies pursued in the wake of sluggish growth in the Kuwaiti industrial sector. For FY 2014, IBK approved the financing for 19 industrial projects in sectors such as oil and gas extraction, food and beverage, paper manufacturing, printing and publishing, with total commitments amounting to USD 167mn, as compared to USD 120mn for FY13. The NPL to gross loan ratio decreased from 2.76% in FY 13 to 1.22% in FY14. In November 2014, Fitch Ratings re-affirmed IBK s Long-term Issuer Default Rating (IDR) at A+ with a Stable Outlook. GMFA holds an insignificant minority stake of 2.5%, which limits any meaningful engagement with management of IBK. For FY 2014, IBK s Board of Directors recommended the distribution of 40% of the share capital as a dividend. GMFA received USD 650K in dividend income. Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Interest Income 55,059 49,975 46,216 Non-interest Income 33,815 43,305 54,428 Net Profit 29,571 32,170 35,560 Book Value 740, , ,831 Total Assets 2,346,118 2,319,271 2,277,075 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end 14 Global MENA Financial Assets Ltd

16 Underlying Portfolio Companies Asian Finance Bank Berhad Country Malaysia Industry Commercial Banking Fair Value USD 9,186,229 Valuation Basis Price to Book Value % Ownership 6.67% Asian Finance Bank Berhad ( AFB ) commenced operations in 2007 in Kuala Lumpur, Malaysia. AFB is one of the three foreign Islamic banks that were granted license by the Central Bank of Malaysia to undertake Islamic banking business. AFB offers full range Shari ah compliant banking products covering consumer, commercial (including SME and trade finance), corporate, treasury, and some investment banking services. For the period ended December 2014, net finance incomes slightly increased from USD 7.7mn to USD 7.8mn, while the non-interest income comprising of investment income, trade finance and fee, decreased from USD 7.8mn to USD 7.2mn. Total income from operations decreased from USD 15.6mn to USD 15mn. Bad debt provisioning for the year decreased to USD 2.4 mn, compared to USD3.1 mn. Personnel expenses and overheads reduced significantly from USD 9.2mn to USD 6.8mn. On the whole, the bank posted a net profit of USD 4.2 mn for FY14 against a net profit of USD 2.3 mn for FY13, registering an increase of 82%. As of December 2014, Capital Adequacy stood at 21% compared to the minimum regulatory requirement of 8%. It is expected that the Bank will: continue with the focus on corporate funding of Government Linked Companies (GLCs) and that of good rated high level corporates in oil and gas, infrastructure, education and health sectors; be selective on commercial credit with adequate collateral and healthy cash-flow; develop investment banking services by leveraging on the network of shareholders, with the focus on Malaysia and Gulf Co-operation Council (GCC) countries; preserve and create shareholders value with quality assets growth within the limited capital buffer. Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Interest Income 8,868 7,782 7,859 Non-interest Income 8,387 7,836 7,294 Net (Loss)/Profit (2,298) 2,301 4,275 Book Value 158, , ,763 Total Assets 940, , ,770 Return on Assets (%) (0.24) Return on Equity (%) (1.45) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end Annual Report and Audited Consolidated Financial Statements 15

17 Underlying Portfolio Companies First Qatar Real Estate Development Company Country Kuwait Industry Home Financing Fair Value USD 3,249,052 Valuation Basis Price to Book Value % Ownership 2.16% First Qatar Real Estate Development Company ( First Qatar ) was established in 2004 to invest and develop real estate projects, especially in Qatar. Qatar has been experiencing strong economic growth within the GCC and performed reasonably well in the wake of real estate crisis in the aftermath of 2008 financial crisis. The real estate market in Qatar has been positive over the past years and shows continuing improvement. The news of Qatar hosting 2022 world cup has buoyed the overall investment sentiment in Qatar. First Qatar is one of the leading developers in the prestigious Pearl Qatar ( project and has commenced construction on the Panorama Hilton Residence, as part of Phase 3 of the Qatar Pearl master-development project. It is expected that the Panorama Hilton Residence will be completed within 3 years. The management has also taken the initiative to undertake 4 projects in Oman and has sold two parcels in the Viva Bahriya section. It has completed development and sold one building in the La Riviera in the Porto Arabia section of Pearl Qatar. First Qatar also purchased, operated and sold two buildings and one land in Kuwait. Net rental income has been steady and historically formed a significant part of gross revenue. However, the decline in 2014 was due to sale of property units in La Riviera. Rental Income is expected to decline significantly in 2015 as more units are expected to be sold. Profit on sale of inventories has increased significantly in 2014, over the past years since First Qatar delivered several projects. Also during the year, First Qatar managed to recover USD 12 mn in doubtful debt after winning a court case for a plot of land sold in Pearl, Qatar. This contributed to a record net profit of USD 13.7mn for FY Key Financials USD 000 FY 2012 FY 2013 FY 2014 Net Rental Income 1, Net (Loss)/Profit (5,804) ,714 Book Value 170, , ,805 Total Assets 191, , ,061 Return on Assets (%) (3.02) Return on Equity (%) (3.41) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end 16 Global MENA Financial Assets Ltd

18 Underlying Portfolio Companies Olgarlar Spor Malzemeleri Country Turkey Industry Sports Retailer Fair Value USD 22,435,874 Valuation Basis Cost % Ownership 70% In March 2015, GMFA acquired 70% stake in Olgarlar Spor Malzemeleri ( Olgarlar ), a sports, outdoor and lifestyle goods retailing and distribution company in Turkey. Representing 30 international brands on an exclusive basis, Olgarlar purchases goods from domestic and international suppliers and sells those products through its own store network, online store, franchise stores and to third party stores. Olgarlar distribution channell consists of around 400 accounts, including department stores, sporting goods retail chains, independent sports shops and online retailers. Currently, it operates 23 SPX stores (22 own and 1 franchisee stores). SPX stores have a specialized product range compared to traditional sporting goods retailers, including snowboarding and skiing, street lifestyle, city outdoor, racket sports, water sports and swimming accessories and equipment. In addition to SPX stores, the company has 6 Vault stores (2 own and 4 franchisee stores), engaged in multi-brand shoe-retailing. Olgarlar represents global brands such as Rossignol and Burton at winter sports, Dunlop and Babolat in racket sports, Merrell and Salomon in outdoor category, Billabong in watersports/lifestyle, etc. Furthermore, Olgarlar owns two lifestyle brands, namely Routefield and Antidote. Olgarlar recorded CAGR of 18% and 15% in revenue and net profit, respectively in local currency terms, over two year period, which translates to 6% and 4% CAGR in USD terms. The decline in revenue for FY 2014 compared to FY 2013 was purely due to exchange rate variation. As part of its business strategy, Olgarlar management: plans to expand into new cities as well as to increase penetration in existing cities by opening SPX stores to benefit from the high market growth in outdoor and life style category in Turkey; envisages a substantial growth potential in Vault stores (predominantly via own stores), multibrand shoe retailing concept; plans to open Routefield (Olgarlar s own brand) stores, which focuses on casual wear for young customers (Routfield products are currently sold in SPX stores). Key Financials USD 000 FY 2012 FY 2013 FY 2014 Revenue 19,945 23,819 22,585 Net Profit 3,053 4,136 3,285 Book Value 13,097 9,999 12,300 Total Assets 17,128 17,508 18,016 Return on Assets (%) Return on Equity (%) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end Annual Report and Audited Consolidated Financial Statements 17

19 Underlying Portfolio Companies Gulf Takaful Insurance Company Country Kuwait Industry Insurance Islamic Fair Value USD 3,672,733 Valuation Basis Price to Book Value % Ownership 18.23% Gulf Takaful Insurance Company ( GTIC ) was established in 2004 by a group of prominent business institutions to provide Sharia a compliant Takaful insurance to corporate institutions and individuals. GTIC operates in 4 business segments Marine and Aviation, General Accidents, Vehicles, and Health Insurance (referred to as Takaful Insurance) and has a market share of around 9% in Kuwait Takaful market. This makes it amongst the top six of the fifteen Takaful Insurance companies in Kuwait. Gulf Takaful has good distribution mix and product diversification. It is one of the few companies in its segment that reports surplus from insurance operations and holds Baa1 rating from Moody s with stable outlook. Gulf Takaful has the largest medical provider s network in Kuwait, which includes over 74 hospitals, clinics, pharmacies and labs. In contrast to the more developed Islamic banking sector, the Takaful landscape remains relatively under developed, with a smaller asset base, nevertheless it is growing at a fast pace. For FY 2014, gross written premium stood at USD 14.7 mn compared to USD18 mn for FY The decrease in premium was on account of the renewed emphasis on selective renewal of some of the existing treaties and due to cautious approach in new underwritings. As a direct consequence of this, the insurance operations recorded a surplus of USD 155k compared to deficit of USD 94k for the last year. Gulf Takaful recorded investment income of USD2.2mn, compared to loss of USD207k for the same period last year. The improvement in investment returns was on account of restructuring efforts led by Global. On the whole, GTIC recorded net profit of USD1.8mn compared to USD 121 K for FY2013. The improvement in performance was attributable to: restructuring of the investment portfolio and revision of the terms for a section of the insurance portfolio by incorporating better terms in the reinsurance treaty, which reduced the claims. Key Financials USD 000 FY 2012 FY 2013 FY 2014 Gross Premiums 17,918 18,027 14,752 Net (Deficit)/Surplus from Takaful operations (2,502) (94) 155 Net (Loss)/Income Attributable to Shareholders (3,591) 121 1,862 Shareholders Equity 45,945 44,192 44,203 Total Assets 47,778 46,108 46,111 Return on Assets (%) (7.52) Return on Equity (%) (7.82) Source: Company s Audited Financial Statements Note: December year end Exchange rate as of respective year end 18 Global MENA Financial Assets Ltd

20 Underlying Portfolio Companies Al Fajer Retakaful Insurance Company (Emirate Re) Country Kuwait Industry Reinsurance Islamic Fair Value USD 19,549,812 Valuation Basis Price to Book Value % Ownership 20.01% Al Fajer is the first re-takaful company in Kuwait, established in 2007 with a paid up capital of KD 50mn (USD 175mn). The company has a license to operate reinsurance business for all kinds of takaful insurance. Al Fajer faced numerous growth challenges, especially in the aftermath of 2008 global financial services crisis, which affected the GCC also. The Board of Directors of Al Fajer, supported by the major shareholders, undertook significant restructuring efforts. Therefore, in the beginning of 2014, Al Fajer Re operations were moved to Dubai (DIFC) under the name of Emirates Re, with a paid up capital of USD120mn. All shareholders of Al Fajer Re are in the process of being issued direct shareholding in Emirates Re. The rationale behind the restructuring was to establish a new entity operating under the strict supervisory and regulatory environment of the DFSA (Dubai) and to isolate the new entity from the legacy investment issues and the accumulated insurance deficit- Qarad Hassan. Post transfer of re-insurance business to the UAE, Al Fajer, the Kuwaiti entity, shall be orderly liquidated and assets (investments and cash) distributed to the shareholders. A.M. Best, the world s oldest and the most credible credit rating agency for insurance & reinsurance business provided financial strength rating of B++ (Good) and the issuer credit rating of bbb+ with positive outlook for Emirates Re in May The improved rating is a reflection of improving business prospects and sound financial position of Emirates Re was the first operating year for the Emirates Re (Dubai Entity), wherein it recorded gross written contributions of USD 82mn for FY It also paid claims amounting to USD 32mn and increased the reserves by USD 19.2mn. The participant fund registered a surplus of USD 1.04mn. Emirates Re continued to invest most of the available funds in A-rated Islamic deposits. The shareholders funds recorded USD 1.16mn of net income for the period ended Dec Key Financials USD 000 FY 2012 FY 2013 FY 2014 Gross Contributions 67,265 67,054 81,989 Net Profit/(Loss) Attributable to Shareholders 9,129 (37,294) 1,160 Shareholders Equity 164, , ,160 Surplus from Retakaful Operations 1,415 1,593 1,042 Total Assets 177, , ,030 Return on Assets (%) 5.16 (26.02) 0.94 Return on Equity (%) 5.54 (28.70) 0.95 Source: Company s Audited Financial Statements Note: March year end for FY 12 and FY13,and December Year end for FY 14. Exchange rate as of respective year end Annual Report and Audited Consolidated Financial Statements 19

21 Directors Report DIRECTORS REPORT The Directors are pleased to present their Annual Report and the Audited Consolidated Financial Statements of Global MENA Financial Assets Limited (the Company ) and its subsidiaries (together the Group ) for the financial year ended 31 March Principal Activity The Company is a closed-ended investment company and was incorporated in Guernsey on 2 June The Company invests in the Middle East and North African ( MENA ) and emerging market regions either directly or by using its wholly-owned investment vehicles based in Bahrain: Financial Assets MENA W.L.L. and Financial Assets Bahrain W.L.L. (the Subsidiaries ). The Company, through Financial Assets Bahrain W.L.L., owns a 100 per cent. subsidiary, GMFA Asia Venture Ltd. in Mauritius to invest in India. Collectively, the Company and its Subsidiaries are known as the Group. The Company is an authorised closed-ended investment scheme as defined by the Authorised Closedended Investment Schemes Rules (2008) and, as such, is subject to ongoing supervision by the Guernsey Financial Services Commission. The Company is governed by the provisions of the Companies (Guernsey) Law, 2008, as amended. Investment Objective The Group s investment objective is to generate attractive absolute gains from investment in a diversified portfolio of financial sector and non-financial sector companies and assets focused on the MENA Region (which shall mean the Middle East and North Africa region, comprising of the following countries: Saudi Arabia, Oman, Qatar, Bahrain, Kuwait, United Arab Emirates, Algeria, Egypt, Iraq, Jordan, Lebanon, Libya, Morocco, Tunisia and Yemen as well as Turkey). The revenues of all MENA Region financial sector and non-financial sector companies and assets eligible for investment by the Group will be predominantly derived from such region. The Group s investment strategy is to utilise Global Capital Management Ltd. s (the Investment Manager ) proven private equity approach to acquire and manage controlling and significant minority stakes in unlisted companies and other assets and stakes of any size, which will include controlling and non-controlling stakes, in listed companies. Total investment by the Company in non-controlling stakes in listed companies will be limited to the higher of US$100 million or 20 per cent of the net asset value of the Company ( NAV ) (in each case at the time of investment). The Investment Manager seeks to play an important role in shareholder value creation through active engagement with portfolio companies. In placing its investments, it is the policy of the Group: to maintain at least an 80 per cent. exposure towards target MENA and a maximum of 20 per cent. to other emerging markets; and not to invest more than 30 per cent. of the net asset value of the Company in any single company or institution at the time of investment. No investment limit is set on any particular country, but the Group will not invest in Iran, Sudan, South Sudan and Syria. Investment Strategy and Process The Investment Manager adopts an investment approach based on macro-economic and sector analysis to identify stable, high return investment opportunities. The Group invests only in companies it believes have high growth potential. The Group will not restrict its investments to any specific sub-sector within the financial services sector. 20 Global MENA Financial Assets Ltd

22 Directors Report Management of Cash and Islamic Instruments The Group places uninvested cash with banks with strong credit ratings as approved by the Board from time to time where the limit per bank is US$40 million. For the years ended 31 March 2015 and 31 March 2014, the Group has not entered into any new investment in the Wakala instruments (Islamic instruments). Statement of Directors Responsibilities The Directors are responsible for preparing the Directors Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law, they have elected to prepare the financial statements in conformity with U.S. generally accepted accounting principles ( US GAAP ) and applicable law. The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these consolidated financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008, as amended. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Tax Status The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinances, 1989 and is charged an annual exemption fee of 1,200 (2014: 600). Results The total loss for the year ended 31 March 2015 for the Group amounted to US$3,774,136 (31 March 2014: profit of US$5,490,180). Dividends of US$4,955,020 were approved and paid for the year ended 31 March 2015 (31 March 2014: US$Nil). Net Asset Value At 31 March 2015, the value of the Group s Net Asset Value was US$281,291,754 (31 March 2014: US$290,020,910), the net asset value per share was US$1.29 (31 March 2014: US$1.33) or 0.87 (31 March 2014: 0.80) converted at the US$/GBP exchange rate of at the reporting date (31 March 2014: ). Annual Report and Audited Consolidated Financial Statements 21

23 Directors Report Directors The Directors who held office during the year and up to the date of this report are detailed within Management and Administration on page 2. The Board comprises four non-executive Directors, three of whom are independent, being Hisham Al Otaibi, Anne Ewing and Kishore Dash. None of the Directors have any beneficial interest in the shares of the Company at the end of the year. Development with the investments of the Company Shareholders in the Annual General Meeting ( AGM ) held on 16 August 2012 voted in favor of a fixed term Fund ending on 2020, compared to the earlier GMFA structure of a Permanent Investment Vehicle with the option of 7 year renewals on each seventh AGM. Under the agreed proposal following the investment of cash, an Investment Period will run until FY 2016 during which time the investment manager would be looking to invest the cash and reinvest the exit proceeds. A Harvesting Period will follow from April 2016 running until FY 2020 during which time an orderly exit will be organised and proceeds therefrom shall be distributed. Under the earlier structure GMFA was at least a seven year fund (perpetual investment vehicle subject to continuation vote on each seventh AGM). In the event of dissolution in August/Sept 2015 (should the shareholders have voted for non-continuation in the first seventh AGM) the proceeds would have commenced by First Quarter 2016, anyway, which is the beginning of the Harvesting Period under the current structure. In relation to the changes to the Investment period, a corresponding renewal of the Investment Management Agreement ( IMA ) that ensures the term of the IMA matches the term of the Company had been agreed as well. On 25 December 2014 the Subsidiary company; Financial Assets Bahrain W.L.L. signed a debt settlement agreement with Abyaar Real Estate Development Company ( Abyaar ) for US$33 million. The settlement comprised of US$10.9 million cash, US$6.8 million Private Equity and US$15.3 million Dubai real estate assets. On 29 December 2014 the Company received US$1 million in cash from Abyaar. The remaining cash amounts will be received bi-annually until 1 August On 4 February 2015 the Company has received a shareholding in 126 shares in Durrat Al Sofouh with ownership of 42% valued at US$6.8 million. The Company were granted 13 units in Olgana Residential Tower in lieu of debt settlement with Abyaar. Out of which on 23 March 2015 the Company received 5 units valued at US$ 4.3 million. Disclosure of Information to Auditor The Directors who held office at the date of approval of this Directors Report confirm that, so far as they are each aware, there is no relevant audit information of which the Group s auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Group s auditor is aware of the information. 22 Global MENA Financial Assets Ltd