Prospectus. Issue Manager: The Financial Corporation Co. SAOG P.O. Box 782, P.C. 131, Sultanate of Oman Tel: ; Fax:

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1 oman.com Prospectus Private Placement of 35,000, % Subordinated Bonds Issue Price of RO per Bond (comprising a face value of RO and Baizas 5 towards Issue expenses) Issuer s Credit Rating: Fitch: BBB+ ; Capital Intelligence: BBB+ Issue Manager: Issuer: The Financial Corporation Co. SAOG P.O. Box 782, P.C. 131, Sultanate of Oman Tel: ; Fax: Ahli Bank SAOG P. O. Box 545, P.C. 116, Sultanate of Oman Tel: ; Fax: Issue Opens: December 12, 2010 Issue Closes: December 15, 2010 Legal Advisor: Collecting Bank: Ahli Bank SAOG P. O. Box 545, P.C. 116, Sultanate of Oman Tel: ; Fax: Said Al Shahry Law Office PO Box 1288, PC 112 Ruwi, Sultanate of Oman Tel: Fax:

2 Ahli Bank SAOG P. O. Box 545, P.C. 116 Sultanate of Oman Tel: Fax: Private Placement of Rial Omani Thirty Five Million subordinated, non convertible & unsecured Bonds at an Issue Price of RO per Bond (comprising a face value of RO and Baizas 5 towards Issue expenses) Issue opens on: December 12, 2010 Issue closes on: December 15, 2010 Issue Manager: The Financial Corporation Co. SAOG P.O. Box 782, P.C. 131 Sultanate of Oman Tel: ; Fax: Registrar & Trustee: Muscat Clearing and Depository Company SAOC P.O Box 952, Ruwi, PC 112, Sultanate of Oman Tel: ; Fax: Issuer: Ahli Bank SAOG P. O. Box 545, P.C. 116 Sultanate of Oman Tel: ; Fax: Legal Advisor: Said Al Shahry Law Office PO Box 1288, PC 112 Ruwi, Sultanate of Oman Tel: Fax: This is an unofficial English version of the original Prospectus prepared in Arabic and approved by the Capital Markets Authority pursuant to the Administrative Order No. xx/2010 dated December xx, In the event of any conflict between the Arabic version and the English version, the Arabic version will prevail. Although every effort has been made in preparing this translation, none of the Issuer, the Issue Manager and the Legal Advisor shall be held responsible for any information interpreted differently from the approved Arabic Prospectus. The Capital Market Authority (CMA) assumes no responsibility for the accuracy and adequacy of the statements and information contained in this Prospectus nor shall it have any liability for any damage or loss resulting from the reliance upon or use of any part of the same by any person.

3 IMPORTANT NOTICE TO INVESTORS The principal aim of this Prospectus is to present material information that may assist investors to make an appropriate decision as to whether or not to invest in the securities offered. This Prospectus contains all material information and data and does not contain any misleading information or omit any material information that would have positive or negative impact on the decision of whether or not to invest in the offered securities. The Board of Directors of Ahli Bank are jointly and severally responsible for the integrity and adequacy of the information contained and confirm that to their knowledge due diligence had been observed in the preparation of this Prospectus and further confirm that no material information has been omitted, the omission of which would render this Prospectus misleading. All investors should examine and carefully review this Prospectus and make their own independent investigation and examination of the financial conditions and affairs of the Company in order to decide whether it would be appropriate to invest in the securities offered by taking into consideration all the information contained in this Prospectus in its context. Notwithstanding the above, the potential investors are advised to seek independent advice from their own investment and other professional advisors on the investment in the offered securities and on the information contained in the Prospectus before deciding on whether or not to invest in the securities offered. It is noteworthy that no person has been authorized to make any statements or provide information on the Issuer or the offered securities other than the persons whose names are indicated herein and if any statement is made or information is provided, it should not be relied upon by anyone. The Capital Market Authority (CMA) assumes no responsibility for the accuracy and adequacy of the statements and information contained in this Prospectus nor shall it have any liability for any damage or loss resulting from the reliance upon or use of any part of the same by any person. 3

4 TABLE OF CONTENTS SECTION PAGE No. 1. DEFINITIONS BOND ISSUE SUMMARY CREDIT RATING RISK FACTORS AND MITIGANTS OBJECTIVES AND LICENSES PURPOSE OF THE BOND ISSUE AND ISSUE EXPENSES TERMS AND CONDITIONS OF THE BOND ISSUE RIGHTS AND RESPONSIBILITIES RELATED PARTY TRANSACTIONS HISTORICAL FINANCIAL PERFORMANCE PEER GROUP COMPARISON CORPORATE SNAPSHOT, BUSINESS PLAN AND FUTURE STRATEGY CORPORATE GOVERNANCE, BOARD OF DIRECTORS AND MANAGEMENT TEAM SUBSCRIPTION CONDITIONS AND PROCEDURES UNDERTAKINGS

5 SECTION 1 DEFINITIONS Agency Agreement Ahli Bank / Bank / Issuer/Company Allotment Date Articles Board / Board of Directors Bonds Bondholder Bondholders Resolution Business Day CBO CCL CMA CMA Law Conditions Director Event of Default Face Value The agreement between the Issuer and MCDC for MCDC to act as the Trustee Ahli Bank SAOG, Sultanate of Oman The date on which the Bank allots Bonds to the applicants who have submitted valid Applications which have been accepted by the Issue Manager. The Allotment Date for the proposed Bond Issue of the Bank is deemed to be the next day of closing of subscription Articles of Association of the Issuer, as may be amended from time to time in accordance with the provisions as contained therein Issuer s Board of Directors elected in accordance with the Articles 35,000,000 Bonds with a face value of RO (Rial Omani One) and issued at a price of RO (Rial Omani One and Baizas Five) per Bond aggregating to RO 35,175,000 (Rial Omani Thirty Five Million and One Hundred and Seventy Five Thousand) to be issued hereunder A holder of a Bond issued by the Issuer pursuant to this Issue A resolution passed at a meeting of Bondholders duly convened and held in accordance with the provisions of the Trust Deed and in accordance with the applicable provisions of the CCL A day on which banks and the Registrar are open for business in Oman Central Bank of Oman Commercial Companies Law of Oman as contained in Royal Decree 4/74 and the amendments thereto Capital Market Authority of Oman Capital Market Law of Oman as contained in Royal Decree 80/98 The terms and conditions of the issue of Bonds as set out in Section 7 of this Prospectus Means a member of the Board of Directors Any of the events described in Condition 21 of Section 7 of this Prospectus RO per Bond 5

6 Financial Year Interest Payment Record Dates Issue Price Laws of Oman MCDC/Registrar MOCI MSM Oman Prospectus Register Regulations Rial Omani or RO Section Shares Shareholders Trust Deed Trustee The financial year of the Issuer commencing on 1 st January and ending on 31 st December or as may be amended by the Shareholders in accordance with the Issuer s Articles of Association Interest semi annual, on 15th December & 15th June each year starting from allotment date. The interest payments shall be made to the Bondholders whose names appear on the Register as of the relevant record date. Interest cheques (or electronic payments) will be mailed by registered mail to respective Bondholders within one week of the respective Interest Payment Record Dates. RO per Bond including Baizas 5 towards issue expenses The laws of Oman in the form of Royal Decrees, Ministerial Decisions and CMA and CBO Regulations as the same may have been, or may from time to time be enacted, amended or re enacted or issued Muscat Clearing and Depository Company SAOC, P.O. Box 952, Ruwi, Postal Code 112, Oman Ministry of Commerce and Industry of Oman Muscat Securities Market The Sultanate of Oman Means this Prospectus The Register to be maintained by the Registrar in which information relating to the Bonds and the Bondholders shall be recorded Means regulations issued pursuant to the Laws of Oman Omani Rial, which is the lawful currency of Oman Section of this Prospectus Ordinary Shares of the Issuer of nominal value of 100 Baizas (Baizas one hundred each) The shareholders of the Issuer The trust deed being entered into between the Issuer and MCDC for the purpose of this Bond issue MCDC or any successor body thereto and includes all persons who may be appointed trustee under the terms of the Trust Deed to act for and on behalf of the Bondholders as their representative 6

7 SECTION 2 BOND ISSUE SUMMARY The following constitutes the summary (the Summary ) of the essential characteristics of, and risks associated with, the Issuer and the Bonds. This Summary should be read as an introduction to this Prospectus. It does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Prospectus. Any decision by an investor to invest in the Bonds should be based on consideration of this Prospectus as a whole. Issuer: Ahli Bank SAOG Commercial Registration No: Registered Office Postal Address: P.O. Box 545, P.C: 116, Mina Al Fahal, Sultanate of Oman Credit Rating Long term rating: Fitch: BBB+ (August 2010) Capital Intelligence: BBB+ (July 2010) Instrument offered Tenor of the Bonds Call option Interest rate Interest payment record dates Number of Bonds Unsecured Non Convertible Subordinated Bonds (Tier II Capital) 7 years The issuer has an option to redeem the Bonds at the end of 5 years from the allotment date 5.5% per annum of the face value of the Bond Interest semi annual, on 15 th December & 15 th June each year starting from allotment date 35,000,000 (Thirty Five Million) Bonds Face Value of the Bond Issue Expense Issue Price Minimum and Maximum Subscription Rial each Rial per Bond Rial per Bond including Baizas 5 towards issue expenses payable in full on subscription Application must be for a minimum of 100,000 bonds and in multiples of 1000 thereafter. There is no maximum limit on subscription. 7

8 Security The Bonds will constitute direct, unconditional, subordinated and unsecured obligations of the Issuer, ranking pari passu without any preference among themselves and equally with all other existing and future unsecured and subordinated obligations of the Issuer save for such obligations that may be preferred by provisions of law that are mandatory and of general application Proposed Investors Allotment of Bonds The table below shows the names of the proposed investors for subscription of this issue. The Bonds will be allotted on the next day of closing of subscription, as per table below. Validity of the allotment shall be subject to the approval of all relevant authorities. If any of the investors withdraws or does not subscribe to the full amount, the Board of Directors shall allocate the unsubscribed Bonds to one or more of the other investors subject to their maximum bonds commitment. In the event the Bond Issue is not subscribed in full by the proposed Investors the Board of Directors may accept subscription only to the extent it is subscribed and accordingly the Bond issue size will be reduced. Use of Proceeds Proceeds of the issue will be utilised to Fund the overall financing requirements of the Bank in line with its growth plan Reduce dependence on large institutional funds Bridge the maturity gap in the long term buckets expected to arise because of projected funding to large infrastructure/ government/ quasi government projects Increase single obligor limits of the Bank and thus enable it to participate in large project financing To meet the Tier II capital requirements of the Bank, which shall be governed by the Central Bank of Oman s rules and regulations Listing Trustee The Bonds shall be listed and traded in the Muscat Securities Market Muscat Clearing and Depository Company SAOC 8

9 Issue Manager Auditor Legal Advisor Collecting Bank The Financial Corporation Co. SAOG (FINCORP) P.O. Box 782, Al Hamriya. P.C. 131 Sultanate of Oman Tel: Fax: KPMG P.O. Box 641 Postal Code 112 Ruwi, Sultanate of Oman Tel: Fax: Said Al Shahry Law Office PO Box 1288, PC 112 Ruwi, Sultanate of Oman Tel: Fax: Ahli Bank SAOG Table showing names of proposed investors, number of bonds undertaking and proposed allotment of bonds: Sl. Name of the Investor Undertaking amount Proposed Allotment Million Bonds Million Bonds 1 Public Authority for Social Insurance (PASI) MoD PF (10%) Oman Fisheries Vision Insurance National Life & General Insurance Dr. Abdulla Abbas Rashid Al Rajhi The Financial Corporation Co. SAOG (FINCORP) Port Services Corporation Oman Arab Bank SAOC Abdul Kader Ahmed Askalan Oman Qatar Insurance Oman Investment Fund Oman Re insurance Ahli United Bank Money Market Fund Oman LNG Bank Muscat Staff Saving Civil Service Pension Fund Engr. Mohsin Mohammed Al Sheikh Diwan of Royal Court Pension Fund Malallah Ali Mohammed Al Lawati Total

10 The issue of the Bonds was authorized by: 1. The CBO vide their letter No. BDD/CBS/AB/2010/6331 dated August 11, 2010 approving the Issue; and 2. The Shareholders of the Issuer at an Extra ordinary General Meeting held on December 1, 2010 approving the Issue of Bonds. 10

11 SECTION 3 CREDIT RATING Credit Rating of the Issuer Fitch Fitch Ratings is dual headquartered in New York and London, with 50 offices worldwide. Fitch Ratings global expertise, built on a foundation of local market experience, spans capital markets in over 150 countries. Fitch Ratings is widely recognized by investors, issuers, and bankers for its credible, transparent and timely coverage. Fitch Ratings is a part of the Fitch Group, which is a majority owned subsidiary of Fimalac, S.A., an international business support services group headquartered in Paris, France. Fitch s Issuer Rating: Long Term Short Term Financial Strength / Outlook Fitch Rating BBB + F2 Stable Fitch Ratings Definitions The following rating scale applies to Issuer ratings: Long Term Ratings Investment Grade AAA Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. AA Very high credit quality. AA ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A High credit quality. A ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. 11

12 BBB Good credit quality. BBB ratings indicate that there are currently expectations of low credit risk. The capacity for payment of financial commitments is considered adequate but adverse changes in circumstances and economic conditions are more likely to impair this capacity. This is the lowest investment grade category. The modifiers + or may be appended to a rating to denote relative status within major rating categories. Speculative Grade BB Speculative. BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. B Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business and economic environment. CCC, CC, C High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic conditions. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default. D Indicates an entity or sovereign that has defaulted on all of its financial obligations. Default generally is defined as one of the following: Failure of an obligor to make timely payment of principal and/or interest under the contractual terms of any financial obligation; The bankruptcy filings, administration, receivership, liquidation or other winding up or cessation of business of an obligor; The distressed or other coercive exchange of an obligation, where creditors were offered securities with diminished structural or economic terms compared with the existing obligation. Issuers will be rated 'D' upon a default. Defaulted and distressed obligations typically are rated along the continuum of 'C' to 'B' ratings categories, depending upon their recovery prospects and other relevant characteristics. Default is determined by reference to the terms of the obligations' documentation. Fitch will assign default ratings where it has reasonably determined that payment has not been made on a material 12

13 obligation in accordance with the requirements of the obligation's documentation, or where it believes that default ratings consistent with Fitch's published definition of default are the most appropriate ratings to assign. Short Term Ratings F1 Highest short term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments. F2 Good short term credit quality. Good intrinsic capacity for timely payment of financial commitments. F3 Fair short term credit quality. The intrinsic capacity for timely payment of financial commitments is adequate. B Speculative short term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions. C High short term default risk. Default is a real possibility. D Default. Indicates a broad based default event for an entity, or the default of all short term obligations. Notes: The modifiers + or may be appended to a rating to denote relative status within major rating categories. Gradation may be used among the ratings from A to E: i.e. A/B, B/C, C/D, and D/E. Capital Intelligence (CI) CI has been providing credit analysis and ratings since 1985, and now rates over 400 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 39 countries. A specialist in emerging markets, CI s geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South East Asia, the Far East, and North and South Africa. CI s Issuer Rating: L / Term S / Term Financial Strength / Outlook CI Rating BBB+ A2 BBB /Stable 13

14 CI Ratings Definitions Long Term Ratings Investment Grade AAA The highest credit quality. Exceptional capacity for timely fulfillment of financial obligations and most unlikely to be affected by any foreseeable adversity. Extremely strong financial condition and very positive non financial factors. AA Very high credit quality. Very strong capacity for timely fulfillment of financial obligations. Unlikely to have repayment problems over the long term and unquestioned over the short and medium terms. Adverse changes in business, economic and financial conditions are unlikely to affect the institution significantly. A High credit quality. Strong capacity for timely fulfillment of financial obligations. Possesses many favourable credit characteristics but may be slightly vulnerable to adverse changes in business, economic and financial conditions. BBB Good credit quality. Satisfactory capacity for timely fulfillment of financial obligations. Acceptable credit characteristics but some vulnerability to adverse changes in business, economic and financial conditions. Medium grade credit characteristics and the lowest investment grade category. "+" and " " signs indicate that the strength of a particular bank is, respectively, slightly greater or less than that of similarly rated peers. Speculative Grade BB Speculative credit quality. Capacity for timely fulfillment of financial obligations is vulnerable to adverse changes in internal or external circumstances. Financial and/or non financial factors do not provide significant safeguard and the possibility of investment risk may develop. B Significant credit risk. Capacity for timely fulfillment of financial obligations is very vulnerable to adverse changes in internal or external circumstances. Financial and/or nonfinancial factors provide weak protection; high probability for investment risk exists. C Substantial credit risk is apparent and the likelihood of default is high. Considerable uncertainty as to the timely repayment of financial obligations. Credit is of poor standing with financial and/or non financial factors providing little protection. RS Regulatory supervision. The obligor is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support. 14

15 SD Selective default. The obligor has failed to service one or more financial obligations but CI believes that the default will be restricted in scope and that the obligor will continue honouring other financial commitments in a timely manner. D The obligor has defaulted on all, or nearly all, of its financial obligations. Short Term Ratings Investment Grade A1 Superior credit quality. Highest capacity for timely repayment of short term financial obligations that is extremely unlikely to be affected by unexpected adversities. A2 Very strong capacity for timely repayment but may be affected slightly by unexpected adversities. A3 Strong capacity for timely repayment that may be affected by unexpected adversities. Speculative Grade B Adequate capacity for timely repayment that could be seriously affected by unexpected adversities. C Inadequate capacity for timely repayment if unexpected adversities are encountered in the short term. RS Regulatory supervision. The obligor is under the regulatory supervision of the authorities due to its weak financial condition. The likelihood of default is extremely high without continued external support. SD Selective default. The obligor has failed to service one or more financial obligations but CI believes that the default will be restricted in scope and that the obligor will continue honouring other financial commitments in a timely manner. D The obligor has defaulted on all, or nearly all, of its financial obligations. Notes: "+" and " " signs indicate that the strength of a particular bank is, respectively, slightly greater or less than that of similarly rated peers. 15

16 SECTION 4 RISK FACTORS AND MITIGANTS Investors may note that the risks and mitigating factors mentioned below are not exhaustive and constitute Ahli Bank s opinion based on its current knowledge and the information available with it. The actual risks and the impact of such risks could be materially different from those mentioned herein. General Risks a) Economic Risk Risk: The Bank s performance is primarily dependent on the economic environment of Oman in which it operates. Any sustained change in the economic environment could have an impact on the Bank s underlying performance. Mitigants: The Bank is run by experienced management which is supervised and guided by various committees of the Board, each with defined authority and responsibility. The Bank adopts a conservative credit policy and has strong operational and risk based internal controls. b) Change in Regulations Risk: The Bank is under the supervision of CBO, CMA and MOCI in Oman. Any sustained change in the prevailing regulatory climate could have an impact on the Bank s underlying performance. Mitigants: In line with the previous policies of the Omani regulatory authorities, any changes in regulations are expected to maintain a healthy banking sector and the Bank has a well experienced and stable management and infrastructure to adapt to such changes. 16

17 Specific Risks a) Competition Risk: The Bank faces competition from other commercial and specialised banks in Oman. This could result in increased pressure on business volumes as well as margins with a consequent impact on profitability. Mitigants: The Bank takes proactive steps to meet the challenges of competition. b) Credit Risk Risk: Credit risk is the risk that counter party to a financial instrument will fail to perform according to the terms and conditions of the contract thus causing the Bank to incur a financial loss. Mitigants: The Bank has clear parameters and limits on assessment and mitigation of credit and concentration risks. The bank has clearly laid out credit policies, which document, inter alia, the assessment of the payment ability and past history of the borrower and lay down specific standards for collaterals. The policies also lay down concentration limits on the basis of CBO regulations. Concentration limits are monitored on various parameters, including geography and industry. The credit approval and administration procedures are also clearly laid down and the implementation of such procedures is ensured through adequate internal controls, including Internal Audits. Periodic credit review processes are in place to ensure continuing compliance with the policies. The Bank strictly follows the CBO guidelines and instructions on classification of Non Performing Loans and maintains adequate provisions in case of a loss. There is also a General Portfolio provision which is created on the entire Loans portfolio on the basis of CBO guidelines. These robust credit policies and provisioning policies put the Bank in a comfortable position to address any Credit Risks. 17

18 c) Liquidity Risk Risk: Liquidity risk is the risk that the Bank will encounter difficulty in its maturing obligations to a counterparty. Mitigants: The Bank s policies are designed to ensure that even under severely adverse conditions, the Bank will be in a position to meet its obligations. The Bank s Asset Liability Committee (ALCO) meets periodically to review and monitor various relevant measures against target positions. The Bank also maintains significant investments in liquid instruments issued by Governments and banks principally for liquidity reasons. The Bank also has standby lines of credit to meet its obligations at any given time, if the need arises. d) Interest rate risk Risk: Interest rate risk arises from the possibility that changes in interest rates will affect the value of underlying financial instruments. The Bank is exposed to interest rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off statement of financial position instruments that mature or re price in a given period. Mitigants: The Bank s overall goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect the Bank s net interest income. Interest rate risk is measured as the potential volatility in net interest income caused by changes in market interest rates. The Bank manages this risk by matching or hedging the re pricing profile of assets and liabilities through various risk management strategies. e) Foreign Exchange Risk Risk: Foreign exchange risk is the risk that the foreign currency positions taken by the Bank may be adversely affected due to volatility in foreign exchange rates. 18

19 Mitigants: The responsibility for management of foreign exchange risk rests with the treasury department of the Bank. Foreign exchange risk management is ensured through regular measurement and monitoring of open foreign exchange positions. Treasury takes every possible measure to cover open positions created by customer transactions. Instruments used to mitigate this risk are foreign exchange spot, forwards, deposits, etc. These instruments help to insulate the Bank against losses that may arise due to significant movements in foreign exchange rates. All foreign exchange exposures are centrally managed by the Bank s Treasury and are daily marked to market. Limits have been assigned with respect to overnight open exposures, stop loss and authorised currencies to monitor and control foreign exchange exposures. f) Redemption Risk: While the Bonds have a maturity of seven years from the Allotment Date, the Bank will have a call option to redeem the Bonds at the end of five years and hence the investors will face the risk of early redemption. 19

20 SECTION 5 OBJECTIVES AND LICENSES Overview The Bank was set up in May 1997 as Alliance Housing Bank (AHB), Oman s first private sector housing bank. It was reconstituted with its new identity as Ahli Bank SAOG on January 5, 2008, following its strategic partnership with Ahli United Bank (AUB), a leading regional commercial bank and International Finance Corporation (IFC), a member of the World Bank Group. The Bank is fully transformed into and licensed by the CBO as a commercial bank and currently provides a wide range of products and services in corporate, retail, investment and private banking through its Head Office and 12 Branches. Bank Objectives As per Article 4 of the Articles of Association of the Bank, the main objectives of the Bank are as under: 1) To carry on the business of banking in all its fields, and to transact and to do all matters and things incidental thereto, or which may, at any time hereafter at any place, where the Bank shall carry on business, be usual in connection with the business of banking or dealing in money or securities for money. 2) To play the role of underwriter, originator or intermediary for the issue of shares and loan debentures, to play the role of custodian, manager and trustee of trust agreements related to investment and bonds and to participate in any other manner in capital and stock markets, especially in investment, trading, underwriting new issues of bonds in regional and international capital markets with main emphasis on capital debt markets. 3) To carry on business of conventional financing. 4) To act as executors and trustees of wills, settlements and trust deeds of all kinds made by customers and others and to undertake and execute trusts of all kinds. 5) To deal with all types of bank notes, coins, currencies, receive and to deposit any monies in current accounts, term deposits, savings accounts and receive precious articles and financial documents for deposit in safe custody. 6) To issue and negotiate bank guarantees and letters of credit, cheque payments, money orders and all other negotiable documents and their collection. 7) To advance and lend money on real, personal and mixed securities, on cash, credit or other accounts, on policies, bonds, debentures, bills of exchanges, promissory notes, letters of credit or other obligations, or on the deposit of title deeds, merchandise, bills of sale and landing, delivery orders, warehousemen s and certificates, notes, dock warrants, or other mercantile or tokens, bullion, stocks and shares. 20

21 8) To settle negotiable cheques and to borrow funds and repay debts from any resources and with any other parties and using any financial instruments including but not limited to deposit certificates, loan debentures, loan bonds convertible into shares and bonds whether of medium term, limited term or floating term bonds with or without security. 9) To establish and distribute banking investment products 10) To sell and buy gold bullion and foreign currencies, to lend against them and to carry on all banking treasury business activities. 11) To establish and acquire companies of different status, to establish branches or acquire banks and other companies or to participate in banks and other companies' capital inside or outside the Sultanate of Oman or to enter into partnership with companies and organizations transacting activities similar to those transacted by the Bank. 12) To play the role of financial consultant in respect of financial investment and generally to carry on all financial business transactions, brokerage deals, financial operations, agency business and to provide financial consultancy services to its corporate customers inside or outside the Sultanate of Oman. 13) To subscribe to the shares of manufacturing projects, to invest the bank s funds in any investments, to own and sell such investments, to dispose thereof in any other manner and to carry on such business activities as an owner company or as an investor in accordance with the applicable laws in the Sultanate of Oman. 14) To lend monies and to extend credit and financial facilities 15) Providing housing loans or such other loans as may be permitted by the Central Bank of Oman to Omani nationals, GCC nationals or any other nationals as may be permitted by the applicable laws of Oman for the purposes of purchase, construction, development, completion, expansion, repair or maintenance of private homes in the Sultanate of Oman or in such other places or countries as may be permitted by the Central Bank of Oman. 16) To encourage saving schemes and mobilize deposits to be employed by the Bank for the purposes of its objectives. 17) To attract local and foreign capital to contribute in financing construction projects in the Sultanate of Oman, arranging or obtaining local or international loans for the Bank and/ or local real estate projects and the acceptance of foreign deposits and external loans, provided that such activities comply with the regulations stipulated by the Government of the Sultanate of Oman for this purpose. 18) To own land through purchases or appropriation for the purpose of development and/or resale. 19) To carry out the business of housing finance, banking and services related to the acceptance of time deposits, provided that such deposits are not connected in any way to direct credit facilities extended to depositors if such facilities are outside the scope of the Bank's specialty. 20) To carry out banking business and services to customers and others, provided that these be within the limits that enable the Bank to control the loans and credit facilities and to ensure that they are used for the purposes for which they were extended or within the limits that enable the Bank to benefit from banking business and services. 21

22 21) To finance either directly or whilst acting as agents for the Government or any third party social housing projects and other projects aimed at providing homes for low and medium income Omani nationals and for such other groups of persons as the Government of Oman may wish to encourage to own their properties in Oman. 22) To acquire, negotiate and to receive public and private funds. 23) To grant monies in consideration of guarantees in kind or personal or mixed either in cash or by making credit to accounts or in consideration of bills, debentures, promissory notes or any other obligations or in consideration of title deed deposits. 24) To issue bonds and certificates and different type of securities after obtaining the approval of the Central Bank of Oman. 25) To finance or assist in financing the sale of houses, buildings, flats, either furnished or otherwise, by way of hire purchase or deferred payment or similar transactions and to institute, enter into, carry on, or assist in financing the sale and maintenance of any such houses, buildings, flats, furnished or otherwise as aforesaid, upon any term whatsoever in accordance with the Central Bank of Oman regulations as existing from time to time and subject to the prior approval of the Central Bank of Oman. 26) To acquire and discount, hire purchase or other agreements or any rights therein (whether proprietary or contractual) and generally to carry on business and to act as financiers, traders in securities and commission agents or in any other capacity in Oman and to sell, barter, exchange, pledge, make advances upon or otherwise deal in properties, houses, buildings, flats furnished or otherwise as aforesaid subject to first obtaining the Central Bank of Oman's approval. 27) To act as insurance agents, intermediaries or financial advisors for the benefit of its customers and to advise, sell and procure the sale of such services to its customers subject to the Central Bank of Oman's and other necessary regulatory approvals. Licences and Approvals The Company obtained and maintains valid licences and memberships from the relevant authorities in order to pursue the activities for which it has been incorporated which are as follows: Authority Purpose of Licence/ Licence No. Issue Date Expiry Date MOCI * CBO Commercial Banking License Ongoing * Renewed every five years 22

23 SECTION 6 PURPOSE OF THE BOND ISSUE AND ISSUE EXPENSES Purpose The purpose of the issue will be to Fund the overall financing requirements of the Bank in line with its growth plan Reduce dependence on large institutional funds Bridge the maturity gap in the long term buckets expected to arise because of projected funding to large infrastructure/ government/ quasi government projects Increase single obligor limits of the Bank and thus participate in large project financing. To meet the Tier II capital requirements of the Bank, which shall be governed by the Central Bank of Oman s rules and regulations The Estimated Issue Expenses The total costs of the subordinated debt issue are estimated at RO 175,000/. The details of the issue expenses estimates are given in the following table: Details Expense (RO) Advertising, Promotion, Printing of prospectus, forms, Rating etc. 75,000 CMA listing and prospectus approval fee 4,500 Issue Management/legal/trustee fees 50,000 Mis. Expenses /Contingency 45, 500 Total estimated issue expenses 175,000 The issue expenses are 5 Baizas per Bond. In case the actual issue expenses exceed the collected amount, the excess shall be borne by the Bank. 23

24 SECTION 7 TERMS AND CONDITIONS OF THE BOND ISSUE 1. The Issue The Bonds will be created and issued by the Bank which is incorporated and registered as a Company in the Commercial Register maintained by the MOCI (C.R. No ) and as a Commercial Bank in Oman. The Issue is governed and has been made pursuant to the Articles and the Laws of Oman. 2. Nominal Value & Issue Price Each Bond shall have a nominal value of RO (Rial Omani One) and the Issue Price of RO (Rial Omani One and Baizas Five) and is inclusive of Baizas 5 (Baizas Five) as Issue Expenses. 3. Allotment and issue of Bonds The allotment of Bonds is deemed to be made on the next day of closing of subscription. Validity of the allotment shall be subject to the approval of all relevant authorities. 4. Redemption The Bonds shall be redeemed in full, by way of cheque, or electronic transfer at the Issuer s discretion, to be made out in favour of the then registered holders thereof, on the redemption date or the call option date. The redemption date of the Bonds shall be 7 (Seven) years from the Allotment Date or the date on which the bank exercises its call option, which shall be at end of 5 years from the Allotment Date or later, subject to the approvals of the EGM and CBO. The Bonds are not redeemable at the initiative of the Bondholder or without the consent of the CBO, in case of the call option. 5. Call Option 6. Title Subject to the approval of the CBO, the Bank will have a call option to redeem the Bonds at the end of 5 (Five) years. The MCDC shall act as the Registrar and transfer agent with respect to the Bonds and shall also act as the Trustee in accordance with the terms of a Trust Deed which shall be entered into by and between the Bank and the Trustee. The title to the Bonds passes on the recordation of the transfer in the Bondholders Register maintained by the MCDC. The 24

25 registered owner of the Bonds save as otherwise required by the Laws of Oman will be treated as the absolute owner of the Bonds for all purposes. 7. Interest payments Interest on the Bonds shall accrue with effect from the Allotment Date (i.e. one day after the closing of subscription). All further interest payments shall take place semi annually in arrears. Those payments will be made to the Bondholders whose names appear on the Register on the designated Interest Payment Record Dates shown below. Interest Payment Record Dates 15 th December 15 th June The first interest payment record date will be 15 th June The interest payments shall be made to the Bondholders whose names appear on the Register as of the relevant record date. Interest payments shall be made by cheque or electronic transfer, at the discretion of the Issuer to the Bondholders. Interest cheques (or electronic payments) will be mailed by registered mail to respective Bondholders within one week of the respective Interest Payment Record Date. 8. Interest rate Interest shall be calculated on the Face Value of the Bond at an interest rate of 5.5% (Five and a half percent) per annum. The interest rate shall remain fixed at the aforesaid rate for the entire tenor of the Bond. Interest calculation shall be made on the basis of the number of days in an interest period and a 365 (Three Hundred and Sixty Five) day year. 9. Default interest In the event that any interest payable by the Issuer under conditions 7, 8 and 21 of this terms and conditions is not paid on the due date or otherwise in the manner provided by conditions 7, 8 and 21, the Issuer shall pay default interest at the rate of 1% p.a. (One percent per annum) over and above the applicable rate of interest on the overdue sum from the date of default up to the date of actual certification by the Issuer to the Trustee that payments have been made. So long as the default continues, the default interest shall continue to accrue on the same basis and shall be compounded annually. 10. Listing on the MSM The Bonds shall be listed on the MSM. The Issue Manager shall complete all the formalities relating to the listing of the Bonds on the MSM. 25

26 11. Registration of Transfers The administration of registration of transfers of Bonds shall be maintained by MCDC, the transfer agent which is normally responsible for maintaining the register of Shares, bonds and other listed securities of all companies listed on the MSM. MCDC will act as the Registrar to the Bonds and maintain a register setting out the names and addresses, the number of Bonds held and the bank account details of the Bondholders. 12. Trading and transferability of Bonds and restrictions on transferability The Registrar will maintain a separate register of Bondholders, in which it will record transfers of Bonds that take place through trading on the MSM. Transfers may be made for a minimum of one Bond and transfer of any fractional Bond shall not be allowed. Bondholders may sell their Bonds, or acquire additional Bonds, through the MSM by placing either a sell order, or a buy order, through any MSM registered stockbroker. Trading through the MSM, as well as settlements and transfers through that market shall be governed under the rules applicable to trading of corporate bonds issued by MSM and the Laws of Oman. The buyer shall provide his/her details to his/her broker who will in turn provide the buyer s details to the Registrar of the Bond in the buyer s name. Bonds may be pledged, donated or bequeathed by notifying the Registrar to facilitate all necessary formalities. MCDC will effect the registration of transfer of any Bonds. Any charges levied by the Registrar shall be borne by the buyer and the seller of the Bonds in accordance with the regulations. All transfers of Bonds and entries on the register of the Bondholders as maintained by the Registrar will be made subject to the regulations concerning transfer of Bonds. 13. Variation of rights The terms and conditions attaching to the Bonds shall be capable of amendment under the following circumstances: 13.1 In the event that any term or condition thereof needs to be amended in order to comply with the Laws of Oman, or change in the Laws of Oman, or any regulation of CBO, the CMA, the CBO, the MSM, or MOCI, the Issuer shall be entitled to enforce such change or amendment forthwith, on condition that each holder of the Bond shall be duly notified by registered mail of such amendment, within 14 days In the event that the Issuer intends proposing any other amendment or variation to the terms and conditions attaching to the Bonds, it shall call a meeting of Bondholders for such 26

27 purpose, who shall be entitled to consider, and vote upon such variation or amendment by way of formal meeting to be held, other than as specifically provided for herein, in accordance with procedures similar to that applying to general meetings of shareholders of public companies under the CCL and the Laws of Oman. 14. Meetings of the Bondholders, modifications and waiver The Trust Deed contains provision for convening meetings of Bondholders as per the CCL that considers matters affecting their interest as proposed by the Issuer, including the modification of any of these conditions or any provisions of the Trust Deed. Any such modification may be made if sanctioned by a Bondholders resolution as provided for in the Trust Deed The resolutions of the Bondholders general meeting shall not be valid unless such meeting is attended by, personally or by proxy, a number of Bondholders representing at least twothirds of the Bonds of a certain issue. Failing such quorum, a second meeting shall be convened to discuss the same agenda. The date of the second meeting shall be notified to the Bondholders in the same manner followed with regard to the first meeting at least one week prior to the date set for the second meeting. A quorum representing one third of the Bonds shall be sufficient for the second meeting, provided such second meeting is held within one month from the date of the first meeting. However, a resolution to extend the redemption period of the bonds or reduce the rate of interest or the principal debt or the securities or in way prejudice the rights of the Bondholders, shall not be adopted unless the meeting is attended by Bondholders who represent two third of the bonds. Resolutions shall be adopted by two thirds majority of the Bonds represented at the meeting In all circumstances, voting shall take place by way of a poll, in terms whereof each Bond shall represent 1 (One) vote. Resolutions shall be adopted by a two thirds majority of the Bonds represented at the meeting through Bondholders present in person or by proxy Notwithstanding any other matters on which a Bondholders Resolution would be required, Bondholders Resolution will be required in case of any proposal made by the Issuer to: i) modify the call option, or the dates on which interest is payable in respect of the Bonds or the maturity of the Bonds except pursuant to the call option ii) iii) iv) reduce or cancel the principal amount or interest on the Bonds or modify the date of payment in respect of the Bonds change the currency of payment of the Bonds sanction the exchange or substitution of the Bonds for, or the conversion of the Bonds into, notes, debentures, debenture stock or other obligations or securities of the Issuer or any other body corporate formed or to be formed 27

28 14.4 The Trustee may agree as per the powers vested in it by the Trust Deed without the consent of the Bondholders, to (i) any modification of any of the provisions of the Trust Deed which is of a formal, minor or technical nature or is made to correct a manifest error, and (ii) any other modification (except as mentioned in the Trust Deed), and any waiver or authorisation of any breach or proposed breach, of any of the provisions of the Trust Deed which does not, in the sole the opinion of the Trustee materially prejudice the interests of the Bondholders. Any such modification, authorisation or waiver shall be binding on the Bondholders and, if the Trustee so requires, shall be notified by the Issuer to the Bondholders as soon as is reasonably practicable. In the event that the Issuer fails to notify the Bondholders within a week, the Trustee shall be at liberty to notify the Bondholders In connection with the exercise of its functions (including but not limited to those in relation to any proposed modification, authorisation or waiver) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders and the Trustee shall not be entitled to require, nor shall any Bondholder be entitled to claim from the Issuer any indemnification or payment in respect of any tax consequences of any such individual Bondholders. 15. Further Issues The Issuer shall be at liberty from time to time to make further issues of bonds or any other debt, equity or hybrid (a combination of debt and equity) instrument including debt instruments ranking in priority to the Bonds in accordance with the CCL and the Laws of Oman. 16. Security & Bondholder s Claim over the Assets The Bonds will be unsecured and subordinated to the senior debt. Articles 85, 86 and 87 of the Banking Law of 2000 set out the priority of payments on the liquidation of a bank. Assets held by the Bank in a fiduciary capacity are excluded from the general pool of assets and must be distributed to the specified beneficiaries of those assets. Priority is also given to payment of all liquidation expenses (including fees of the administrator). The remaining assets of the bank in liquidation are distributed pursuant to Article 87 on a pro rata basis in the following order of priority: unpaid monthly salaries within the limit of three months or R.O. 1,000, whichever is less, plus employees claims related to other entitlements claims by the Deposit Insurance Scheme, as a guarantor to the deposits claims of the CBO claims of other creditors of the bank in liquidation 28

29 In respect of repayment of principal and interest represented by the Bonds, the Bondholders will be unsecured and subordinated to Senior Liabilities of the Bank and the Bond will form a part of the Issuer s Subordinated Liabilities. The rights of the Bondholders in respect of repayment of principal and interest represented by the Bonds will, however, rank pari passu with all other Subordinated Liabilities of the Issuer and have priority over payment to Shareholders. It is recorded that the subordinated Bonds are specifically intended to comply with the requirements of the regulations and laws applicable to banks registered and incorporated in Oman as they relate and refer to second tier (Tier II) capital. In this Clause: Senior Liabilities mean liabilities of the Issuer, which are repayable ahead of Subordinated Liabilities and Share Capital; and Subordinated Liabilities mean liabilities of the Issuer, which are stated to be repayable after payment of Senior Liabilities and ahead of Share Capital. 17. Status The Bonds constitute a direct obligation of the Issuer and shall, save for such exceptions as may be provided for by the Laws of Oman, at all times rank pari passu without any preference among themselves. 18. Undertakings and Covenants As long as any Bond remains outstanding (as defined in the Trust Deed), the Issuer shall duly obtain and maintain in full force and effect all governmental approvals including any exchange rules in the market and valid transfer approvals, which may, as a result of any change in, or amendment to, the Laws of Oman subsequent to the commencement of the period of subscription of the Bonds, become necessary or desirable under the Laws of Oman for the execution, delivery and performance of the Bonds by the Issuer for the validity and enforceability of the Bonds. It shall also obtain all necessary governmental and administrative approvals in Oman for the payment of all amounts due in respect of the Bonds as is required by the terms of the Issue. 19. Corporate reorganization In the event of any consolidation or amalgamation of the Issuer with any company or other corporate entity (other than a consolidation or amalgamation) in which the Issuer is the continuing entity), or in the event of the occurrence of the sale or transfer of ownership of all the assets of the Issuer, the Issuer will forthwith notify the Bondholders of such event and It shall (to the extent permitted by law) cause the company or the corporate entity 29

30 resulting from such consolidation or amalgamation or which might have acquired such assets, as the case may be, to execute a trust deed supplemental to the Trust Deed (in form and substance satisfactory to the Trustee) such that the new entity assumes the obligations of the Issuer under the Trust Deed. 20. Ratings The Issuer has been rated by two leading credit rating agencies in the world namely Fitch and CI. The long term ratings given by these agencies to the Issuer are given below: Rating Agency Rating Fitch: BBB+ CI: BBB+ The Issuer undertakes to keep its rating under surveillance for the entire tenor of the Bond. The ratings are reviewed annually or earlier at the discretion of the rating agency. 21. Events of Default The following shall be treated as Events of Default in connection with the Bonds being issued: 1. The Issuer fails to pay any interest in respect of the Bonds until a period of 45 days after the relevant interest payment date. 2. An order has been issued or legislation passed directing the liquidation of the Issuer. 3. The Issuer has stopped or intends to stop the payment of its debts generally or ceases to carry on business or substantially the whole of its business. 4. The Issuer sells, transfers or otherwise disposes of, directly or indirectly, the whole or a substantial part of its undertaking or assets except a disposal at market value or in the ordinary course of its business or a disposal the terms of which have previously been approved by the majority of not less than two thirds in value of the Bondholders. For this purpose, a certificate from the Auditors of the Issuer for the time being shall be obtained stating that, in its opinion, the business or assets disposed of are not substantial. Such a certificate shall be conclusive evidence. 5. The Issuer becomes insolvent or is unable to pay its debts as they mature or applies for the appointment of a liquidator or takes any proceedings under the prevailing laws for a deferment, readjustment, compromise or any such arrangement with and for the benefit of the creditors. In each of such aforesaid events of default, the Trustee shall convene a meeting of the Bondholders and, if so directed by the Bondholders resolution, shall give notice to the 30

31 22. Prescription Issuer that the Bond will immediately start to accrue default interest as per Condition 9 mentioned above. Claims against the Issuer in respect of principal and interest shall become time barred unless made within the limitation periods provided by the Laws of Oman. 23. General duties and obligations of the Issuer to Bondholders 23.1 The Issuer shall conduct its business of operating a bank in accordance with the laws of Oman, as well as all bank and securities laws and regulations as may apply to it, or become applicable to it during the period of issue of the Bonds The Issuer shall prepare interim and annual financial statements in accordance with the laws applicable to banks in Oman. Any Bondholder shall be entitled to be furnished with a copy of any released financial results, or Annual Report, within 14 (Fourteen) days of a written request for such, which may be made to the Issuer The Issuer shall, in accordance with the regulatory requirements of Oman, publish its financial results timely in at least 1 (One) Arabic and 1 (One) English language newspaper, in each interim and annual financial reporting period, immediately after filing them with the MSM electronic transmission system In the event that the Bonds for any reason whatsoever become delisted from the MSM while still in issue, or are at any time removed from the electronically recorded registration system, the Issuer shall be entitled to issue Bond certificates as valid documents of title in respect of any Bonds then outstanding, as substitute to the electronic recording of ownership and title thereof. 24. Enforcement At any time after the Bonds becoming due and payable and remaining unpaid, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer as it may think fit to enforce the terms of the Trust Deed and the Bonds. 25. Other rights attaching to the Bonds The Bonds, while being transferable, are not negotiable and cannot be dealt with as a bill of exchange or under the laws applicable to bills of exchange or similar commercial banking instrument. However, the Bonds shall be capable of being pledged, ceded, sold, bequeathed, donated or dealt with in any way as may be ordinarily allowed under the Laws of Oman in respect of listed and stock market tradable securities. 31

32 26. Subscription period The bond issue shall open for subscription on December 12, 2010 and shall close on December 15, 2010 (both days inclusive). 27. Joint and fraction holdings No joint holdings of a Bond shall be capable of registration. Each Bond shall be registered in the name of a single person or a single legal entity. The Issuer shall not be held responsible for any misappropriation, loss or damage which any person may suffer due to a loss arising from a holding which is, directly, or indirectly jointly held. No person shall be capable of registering a fraction of a holding of a Bond. 28. Notices Notices to the Bondholders will be sent by the Issuer by mail (airmail if overseas) at their respective addresses on the Register, and will be deemed to have been given on the date of mailing. Notices will also be published in one Arabic and one English newspaper having general circulation in Oman, and each such notice shall be deemed to have been given on the date of such publication or if published more than once or on different dates, on the first date on which such publication is made. Copies of all notices shall also be given by the Issuer to CMA. 29. Documents for inspection The Articles, the Trust Deed and the audited financial statements of the Issuer for the financial year ended December 31, 2009 and its unaudited financial statements for the nine months ended on September 30, 2010 shall be available for inspection with the Trustee, at the specified offices of the Trustee and with the Issue Manager. 30. Applicability of the Central Bank of Oman Rules & Regulations and Commercial Companies Law The issue of the Bonds shall be governed by the CCL and the Laws of Oman. To the extent that any clause herein does not comply with, or contradicts any Article or Chapter of such Law, the Law shall override the provision contained in these terms and conditions. Nothing contained herein shall preclude any matter or dispute arising from the Bond issue from being adjudicated by a competent court of Oman. As the Bond issue is to meet the tier II capital requirements of the Bank, the rules and regulations of the Central Bank of Oman shall have an overriding influence on this current issue. 32

33 31. Trusteeship MCDC will be appointed as Trustee to the Bondholders to oversee the compliance of the Issuer with the terms and conditions of the issue, and to oversee, co ordinate and monitor the status and the rights of the Bondholders. 32. Governing law and jurisdiction These Terms and Conditions shall be governed by and construed in accordance with the Laws of Oman and any disputes arising between the Trustee, on behalf of the Bondholders and the Issuer in respect of these Terms and Conditions or any interpretation thereof shall be subject to amicable negotiations between the Issuer and the Trustee on behalf of the Bondholders. Failing a satisfactory resolution of the dispute, the disputed matter may be referred to the exclusive jurisdiction of the Primary Commercial Court of Oman for its adjudication. 33

34 SECTION 8 RIGHTS AND RESPONSIBILITIES TRUSTEE The following are the rights and responsibilities of the Trustee as per the terms of the Trust Deed entered into between the issuer and MCDC: 1. The Responsibilities and Duties of the Trustee Calling for periodical reports from the Issuer and inspect books of accounts, records, registers, the assets and the documents and reports relating to the credit rating of the Issuer. Monitoring material contracts, events, actions and announcements (including publications (including publication of annual financial statements) entered into or announced by the Issuer, from time to time. The Issuer shall inform the Trustee of any material transaction or contract that could be judged to affect the rights of Bondholders. Ensuring that interest due on the Bonds has been paid to the Bondholders on the relevant interest due dates. Monitoring the Issuer's adherence to the terms and conditions of the Issue and assessing whether or not the Issuer is able to discharge the claims of Bondholders as and when they become due. Ascertaining that the Bonds have been redeemed in accordance with the terms & conditions of the Issue. Acting upon any reasonable request of a holder of the Bonds, the auditors of the Issuer, the MOCI, CBO, the CMA, or the Issuer itself, who may alert MCDC to a situation which may constitute an Event of Default or breach which has, or potentially may have a material and substantial effect on the rights of the Bondholders. Calling or causing to be called the general meeting of Bondholders or on a request by one or more Bondholders who own at least 10% of the total issued Bonds. The call for the meeting shall be pursuant to Article 92 of the CCL. Ascertaining that the funds raised through this Issue are utilized in accordance with the Prospectus. Acting as an intermediary in resolving any material dispute arising between the Issuer and any individual Bondholder, or collective number of Bondholders on issues directly relevant to the terms and conditions relating to the Bonds. 34

35 Carrying out such other acts as necessary for the protection of the interests of the Bondholders. 2. Rights and Powers of the Trustee The Trustee shall have the following specific powers, in addition to any other powers that may be conferred upon it by the Laws of Oman: The Trustee may act on the opinion or advice of, or information obtained from, any expert and will not be responsible to anyone for any loss suffered by so acting. Any such opinion, advice or information may be sent or obtained by letter, telex or fax and the Trustee will not be liable to anyone for acting in good faith on any opinion, advice or information purporting to be conveyed by such means even if it contains some error or is not authentic. The Trustee need not notify anyone of the execution of the Trust Deed or do anything to find out if an Event of Default has occurred. Until it has actual knowledge or express notice to the contrary, the Trustee may assume that no such Event of Default has occurred and that the Issuer is performing all its obligations under the Trust Deed and the Conditions. The Trustee will not be responsible for having acted in good faith pursuant to a resolution adopted in a meeting of the Bondholders in respect of which minutes have been made and signed even if it is later found that no Event of Default has occurred and that the Issuer is performing all its obligations under the Trust Deed and these terms and conditions. If the Trustee, in the exercise of its functions, requires to be satisfied or to have information as to any fact or the expediency of any act, it may call for and accept as sufficient evidence of that fact or the expediency of that act a certificate signed by an Authorised Signatory of the Issuer as to that fact or to the effect that, in their reasonable opinion, that act is expedient and the Trustee need not call for further evidence and will not be responsible for any loss occasioned by acting on such certificate. The Trustee may deposit the Trust Deed and any other documents with any bank or entity whose business includes the safe custody of documents or with any lawyer or firm of lawyers believed by it to be of good repute and may pay all sums due in respect thereof. The Trustee may, if it considers it expedient in the interests of the Bondholders, employ and pay any professionals selected by it, for the performance of any functions and exercise of any powers of the Trustee to transact or conduct, or assist in transacting or conducting any business and to do or assist in doing all acts required to be done by the Trustee (including the receipt and payment of money) pursuant to the terms of this Trust Deed. If the Trustee exercises reasonable care in selecting an agent, the Trustee will not be responsible to anyone for any misconduct or omission by such agent so employed by it. 35

36 The Trustee will not be liable to the Issuer or Bondholder by reason of having transferred any monies to a Bondholder based on the information recorded against the name of a registered Bondholder with the registrar. Unless ordered to do so by a court of competent jurisdiction, the Trustee shall not disclose or be required to disclose to any Bondholder or to any other person any confidential financial or other information made available to the Trustee by the Issuer unless the Trustee otherwise considers it necessary to so disclose for the proper discharge of its duties. As between itself and the Bondholders, the Trustee may determine all questions and doubts arising in relation to any of the provisions of the Trust Deed. Such determinations, whether made upon such a question actually raised or implied in the acts or proceedings of the trustee, will be conclusive and shall bind the Trustee and the Bondholders. The Trustee may determine whether or not an Event of Default is in its opinion capable of remedy. Any such determination will be conclusive and binding on the Issuer and the Bondholders. If the Trustee so decides that an Event of Default has occurred and/or is directed by the Bondholders pursuant to the passing of a Bondholders Resolution to commence proceedings against the Issuer, the Trustee shall commence proceedings to recover principal, interest and/or default interest on behalf of the Bondholders. The Trustee will not be responsible for the receipt or application by the Issuer of the proceeds of the issue of the Bonds. BONDHOLDERS Bondholder s Rights The Bondholders shall enjoy equal rights inherent in the ownership of Bonds as follows: The right to receive principal amount of the Bonds in accordance with condition 4 and 5 of Section 7 of this Prospectus. The right to receive interest payable on the Bonds in accordance with conditions 7, 8 and 9 of Section 7 of this Prospectus. The right to dispose or transfer the Bonds in accordance with condition 12 of Section 7 of this Prospectus and the Laws of Oman. In the event of the liquidation of the Bank, the right to claim any amounts outstanding under the Bonds as a debt owed by the Bank. The right to participate in Bondholders meetings and to vote at such meetings in accordance with the provisions of the Trust Deed and the CCL. The Bondholder shall have no right to participate in any other meetings of the Bank. 36

37 SECTION 9 RELATED PARTY TRANSACTIONS Related Party Transactions The Bank enters into transactions with major shareholders, directors, senior management and their related corporate entities in the ordinary course of business at commercial interest and commission rates, subject to shareholder approval (as may be required). Pricing policies and terms of other transactions are approved by the Bank s management and Board of Directors. The year end balances in respect of related parties included in the balance sheet are as follows: Directors and Senior Management Loans and advances 633, ,980 Customers deposits 260, ,193 Major shareholders Loans and advances 14,879,945 3,832,924 Due to banks and customer deposits 3,921,867 14,383,267 Investments 1,925,000 Other liabilities 363, ,959 Derivatives 61,515,351 Contingent Liabilities and Commitments 11,259,178 RO RO Transactions with major shareholders are further analysed as follows: Loans and advances: RO RO MB Holding and subsidiaries 7,028,298 3,832,924 Ahli United Bank and its subsidiaries 217,142 Others 7,634,506 14,879,946 3,832,924 37

38 Due to Banks and customer deposits: MB Holding and subsidiaries 669,681 7,001 Ahli United Bank and its subsidiaries 149,926 14,375,666 Others 3,102,260 3,921,867 14,382,667 Investments: Ahli United Bank and its subsidiaries 1,925,000 Other Liabilities: Ahli United Bank and its subsidiaries 206, ,253 Others 157,009 90, , ,959 Derivatives: Ahli United Bank and its subsidiaries 61,515,351 Contingent Liabilities and Commitments: Ahli United Bank and its subsidiaries 11,241,838 Others 17,340 11,259,178 The Bank has entered into a master risk participation agreement dated December 27, 2007 with a shareholder. Under this agreement, the Bank participated in loans and advances amounting to nil as of December 31, 2009 (December 31, 2008: RO 9 million). No provision is required in respect of loans given to related parties (2008: nil). 38

39 The income and expenses in respect of related parties included in the financial statements are as follows: Directors and Senior Management Interest Income 36,268 55,502 Interest Expense 2, Board Remuneration proposed 75,000 44,600 Board Sitting fees 42,930 37,400 Major shareholders Interest Income 604, ,618 Interest Expense 135, ,358 Fees and Other income 68,990 Other operating expenses 866, ,959 RO RO The Bank has also entered into a Technical and Management Services Agreement (TMSA) with a major shareholder. Under the terms of this agreement, the Bank will pay 2% of the net profit before tax and Management fee to the shareholder for services provided. An amount of RO 219,654 was included in the operating expenses during 2009 (2008: RO 138,688). Compensation of the key management personnel is as follows: RO RO Salaries and allowances 481, ,209 End of service benefits 9,117 6,811 Total compensation paid to key personnel 490, ,020 39

40 SECTION 10 HISTORICAL FINANCIAL PERFORMANCE Income Statement Particulars 2010 ( months up to September) (unaudited) RO '000 RO RO RO RO Interest income 25,392 28,088,190 22,967,237 13,630,636 12,593,504 Interest expense (11,688) (14,417,598) (11,638,616) (7,635,187) (6,007,266) Net interest income 13,704 13,670,592 11,328,621 5,995,449 6,586,639 Fees and commissions income 4,693 4,077,242 2,196,496 1,254, ,615 Other income , , , ,641 Net operating income 18,737 17,896,982 14,234,853 7,649,533 7,553,895 Staff expenses (3,478) (4,361,185) (4,042,410) (2,184,992) (1,187,193) Depreciation (841) (871,187) (383,192) (175,493) (53,574) Other expense (2,262) (2,688,874) (3,256,355) (1,921,954,) (1,795,016) Loan loss provision (359) (266,108) 139,319 (857,657) (56,455) Net operating expenses (6,940) (8,187,354) (7,542,638) (5,140,096) (3,092,238) Profit before taxation 11,797 9,709,628 6,692,215 2,509,437 4,461,658 Income tax expense (1,434) (1,168,464) (758,738) (290,783) (547,468) Net profit for the year (10,363) 8,541,164 5,933,477 2,218,654 3,914,190 40

41 Balance Sheet Particulars ( As of September) (unaudited) ASSETS RO '000 RO RO RO RO Cash and balances with the Central Bank 33, ,819,765 14,765,276 9,008,881 2,145,989 Due from other bank 25,713 7,208,923 10,116, ,265 9,594,196 Financial investments held for trading 6,042 6,198,219 Investment securities 27,554 36,216,426 46,004,380 55,311,308 11,204,813 Loans and advances to customers 575, ,562, ,297, ,412, ,322,598 Property and equipment 8,639 9,190,131 8,283, , ,184 Deferred tax asset , , , ,628 Other assets ,517,870 1,597, ,105 1,142,743 Total 683, ,058, ,404, ,966, ,178,151 LIABILITIES AND EQUITY LIABILITIES Customers deposits 528, ,710, ,256, ,220,863 92,514,166 Other borrowed funds 6,613 7,863,459 23,937,292 29,100,000 32,950,000 Due to other banks 31,663 35,149,926 18,426,459 39,611,657 14,850,000 Taxation 2,058 1,756,861 1,075, , ,109 Other liabilities 15,753 11,958,960 6,653,550 3,439,509 2,460, , ,439, ,349, ,978, ,512,452 EQUITY Share capital 71,238 67,846,154 64,615,384 64,615,384 21,000,000 Premium 6,290,440 6,290,440 Legal reserve 7,034 7,033,681 3,119,895 2,526,547 2,304,682 General banking reserve 1,559 1,558,554 1,131, ,822 1,877,389 General loan loss reserve 5,663 3,932,867 2,272,769 Cumulative change in fair value ,558 (159,405) (292,733) (10,884) Retained earnings 12,645 12,153,676 9,803,554 7,013,868 6,494,512 98,291 92,618,490 87,055,133 80,988,328 31,665,699 Total 683, ,058, ,404, ,966, ,178,151 41

42 Notes Loans and Advances to customers: RO RO Corporate lending 181,806, ,948,918 Mortgage and consumer lending 264,756, ,094,193 Gross loans and advances 446,563, ,043,111 Less: Allowance for impairment losses (3,000,941) (2,745,350) 443,562, ,297,761 An age analysis of the Bank's gross loans and advances is set out below: Loans not in arrears 1 30 days Loans in arrears days days 90 days or more Total Figures in RO 31 December ,417,683 8,683,610 5,174,786 5,875,833 1,411, ,563, December ,317,709 9,830,612 2,360,864 1,824, , ,043,111 Loan and advances within 1 to 89 days category are considered by the Bank as past due but not impaired. The fair value of collateral that the Bank held as at 31 December 2009 towards loans and advances not impaired amounted to RO 328,105,000 (31 December 2008 RO 282,505,611) An economic sector wise distribution of loans and advances before and after taking into account collateral held: Economic Sector Gross Exposure Net Exposure Gross Exposure Net Exposure Figures in (RO '000) Wholesale & Retail 38,997 33,156 24,056 12,976 Mining and quarrying 20,991 3,823 3,803 Construction 47,692 43,242 Manufacturing 28,890 25,890 41,909 37,695 Electricity, gas and water 17,067 17,067 42

43 Transport & Communication 6,062 6,062 Financial Institutions 2,549 4,314 4,292 Services 19,260 8,894 Personal Loans 264,756 34, ,096 33,238 Non resident lending ,389 1,382 Others 10, Total 446, , ,043 93,402 Impairment allowance for loans and advances to customers: Corporate lending Mortgage & consumer lending Total Corporate lending Mortgage & consumer lending Total 356,398 2,448,450 2,804,848 At 1 January 356,398 2,316,080 2,672, , ,157 Charge for the year 293, ,928 (232,527) (232,527) Recoveries (64,613) (64,613) 356,398 2,316,080 2,672,478 At 31 December 356,398 2,545,395 2,901,793 Loan impairment expense, net of recoveries include a loan write off of OMR 10,517 (31 December 2008: OMR 18,473). Interest is reserved for all non performing loans and advances where recovery is considered doubtful. As at 31 December 2009, the total balance of loans and advances on which interest is not being accrued, or where interest is suspended, amounted to OMR 1,411,272 (31 December 2008: OMR 709,848). The fair value of collateral that the Bank holds relating to loans individually determined to be impaired as at 31 December 2009 amounts to OMR 1,580,500 (31 December 2008: OMR 2,135,500). The collateral consists of cash, securities and properties. In accordance with the requirements of the CBO s circular referenced BM 977, the Bank is required to create a portfolio based provision (general loan loss provision) by debiting the income statement. On 29th December 2007, the CBO has permitted the Bank to create a general loan loss reserve in lieu of such general loan loss provisions, for a temporary period of three years from 1 January 2008 to 31 December Accordingly, the Bank has set aside an amount of OMR 3.9 million (31 December 2008: OMR million) as a non distributable loan loss reserve in its statement of equity. 43

44 Financial Investments: Available for Sale Held to Maturity Held For Trading Figures in RO 31 December 2009 Government development bonds Oman 1,135,000 6,198,219 7,333,219 7,367,863 Certificates of Deposit 30,000,000 30,000,000 30,000,000 Listed debt securities 2,453, ,700 2,584,303 2,552,218 Listed funds 2,497,123 2,497,123 2,447,584 Total (RO) 34,950,726 1,265,700 6,198,219 42,414,645 42,367, December 2008 Government development bonds Oman 1,535,000 1,535,000 1,535,000 Government treasury bills 41,907,726 41,907,726 41,802,353 Listed debt securities 1,120,177 1,412,180 2,532,357 2,697,040 Listed funds 29,297 29,297 22,585 Total (RO) 1,149,474 44,854,906 Customer Deposits: RO RO Time deposits 364,976, ,550,176 Demand and saving deposits 101,733,735 22,706, ,710, ,256,295 Total Cost 46,004,380 46,056,978 Other Borrowed Funds: RO RO Fixed rate bonds 6,000,000 6,000,000 Syndicated loan 15,400,000 NBO Loan 1,863,459 2,537,292 7,863,459 23,937,292 44

45 Key Financial Ratios 30 Sep Dec Dec Dec Dec 06 Operational Efficiency Net Interest Margin 2.5% 2.8% 2.33% 1.43% 2.25% Interest Income/Operating Income 73% 76% 80% 78% 87% Non interest Income/Operating Income 27% 24% 20% 22% 13% Cost to Income Ratio 35.1% 44.3% 54.3% 56.0% 37.3% Profitability ROE (%) 14.10% 9.50% 7.10% 3.90% 12.30% ROA (%) 2.00% 1.60% 1.60% 0.90% 2.40% Valuation Measures P/E P/B Asset Quality NPL/Gross Loan 0.33% 0.32% 0.19% 0.37% 0.92% Liquidity and Solvency Gross Loan to Customer Deposits 109% 96% 118% 159% 165% Gross Loan as % Total Assets 85% 72% 83% 79% 87% Deposits as % Total Liabilities & Equity 77% 76% 70% 50% 53% Capital Adequacy 15.66% 17.62% 23.36% 40.85% 33.13% 1. Net interest margin is calculated on the average interest bearing assets 2. ROE & ROA for 2010 are annualized 3. P/E is based on the market price as on the relevant dates and the annualized EPS (calculated on basis of weighted average number of shares outstanding during the year adjusted for bonus issue) 4. P/B is calculated on the basis of market price and book values on relevant dates 45

46 Information regarding Bonds issued previously Instrument : Non guaranteed Bonds (5.55%) Issued & Subscribed : 6,000,000 Bonds Par Value : RO Issue Date : April 20, 2004 Maturity Date : May 15, 2011 Market Capitalization : RO 6,132,000 The Bank is servicing the previously issued Bonds without any default in interest payments. Litigations (i) There is no litigation against the Bank which could have an adverse effect on the Bank s operations 46

47 SECTION 11 PEER GROUP COMPARISON Licensed Local Commercial Banks in Oman (As at December 31, 2009) Name of the Bank Date of Establishment No. of Authorised Offices No. of Operating Offices 1. National Bank of Oman Oman Arab Bank Oman International Bank Bank Muscat Bank Dhofar Bank Sohar Ahli Bank Source: CBO Annual Report 2009 Market Share of Commercial Banks Market share by loans and advances in Q OAB 6% OIBB 7% ABOB 5% BKDB 14% NBOB 15% BKSB 9% Source: Company Financial Statements BKMB 44% 47

48 Market share by customer deposits in Q OAB 8% OIBB 9% ABOB 6% BKDB 13% NBOB 15% BKSB 10% Source: Company Financial Statements BKMB 39% Comparative Financials (Based on 2009 Audited Financial Statements) Ahli Bank Bank Muscat (Figures in RO million unless stated) NBO OIB Bank Dhofar Bank Sohar Net Interest income Other operating income Total operating income Net profit EPS (RO) Dividend per share (RO) Net Interest Margin 2.8% 3.3% 3.6% 3.8% 4.0% 2.6% Interest Income/Operating Income 76.4% 59.9% 69.4% 74.0% 75.7% 78.5% Cost to Income Ratio 44.3% 28.2% 42.5% 45.1% 36.4% 59.1% ROE (%) 9.5% 10.3% 8.5% 12.5% 12.9% 7.9% ROA (%) 1.6% 1.2% 1.1% 2.1% 1.8% 0.9% NPL/Gross Loan 0.3% 5.0% 5.0% 10.5% 4.8% 0.24% Gross Loan to Customer Deposits 95.7% 123.6% 113.4% 94.0% 114.2% 91.7% Gross Loan as % Total Assets 72.5% 69.3% 79.5% 66.0% 84.6% 78.0% Deposits as % Total Liabilities & Equity 75.8% 59.7% 70.1% 70.2% 74.1% 94.8% Capital Adequacy 17.62% 15.2% 16.6% 15.3% 14.8% 12.9% 48