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Prospectus Dubai Holding Commercial Operations MTN Limited (incorporated with limited liability in the Cayman Islands) U.S.$5,000,000,000 Debt Issuance Programme unconditionally and irrevocably guaranteed as to payment of principal and interest by Dubai Holding Commercial Operations Group LLC (incorporated with limited liability in Dubai)
This Prospectus has been prepared for the purpose of giving information with regard to the issue of notes (“Notes”) issued under a debt issuance programme (the “Programme”) of Dubai Holding Commercial Operations MTN Limited (the “Issuer”) described in this Prospectus during the period of 12 months after the date hereof. Application has been made for such Notes to be admitted during the period of 12 months after the date hereof to listing on the Dubai International Financial Exchange (“DIFX”). Notes which are admitted to trading or listed on an exchange may subsequently be de-listed, as described in “General Information”. Notes may also be issued under the Programme which are admitted to trading or listed on a stock exchange other than the DIFX. The Programme also permits Notes to be issued on the basis that they will not be admitted to listing, trading and/or quotation by any competent authority, stock exchange or quotation system. The DIFX takes no responsibility for the contents of this document, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon any part of the contents of this document. Notes may only be offered in minimum denominations of at least ¤50,000 (or its equivalent in another currency) and as such will qualify as Restricted Securities within the meaning of the Listing Rules of the DIFX. Any sale or transfer of Notes after the date of issuance of such Notes may only be made in minimum denominations of ¤50,000 (or its equivalent in another currency). Dubai Holding Commercial Operations Group LLC (the “Company” or the “Guarantor”) will unconditionally and irrevocably guarantee on an unsecured basis all of the Issuer’s obligations pursuant to the Notes issued under the Programme. The Programme has been rated A1 by Moody's Investors Service Limited (“Moody’s”), A+ by Standard & Poor’s Rating Services, a division of The McGraw - Hill Companies, Inc. (“S&P”) and AA- by Fitch Ratings Ltd. (“Fitch”). Tranches (as defined herein) of Notes to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is to be rated, the rating(s) will not necessarily be the same as the relevant rating(s) assigned to the Programme. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency. The Notes have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “Securities Act”). The Notes will be issued only in bearer form and Notes having a maturity of more than one year are subject to United States tax law requirements. The Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons, subject to certain exceptions. Each Series (as defined herein) of Notes will initially be represented on issue by a temporary global note in bearer form (each a “Temporary Global Note”) or a permanent global note in bearer form (each a “Permanent Global Note” and together with the Temporary Global Note, the “Global Notes”). Global Notes may be deposited on the issue date with a common depositary on behalf of Euroclear Bank S.A./N.V. (“Euroclear”) and Clearstream Banking, société anonyme (“Clearstream, Luxembourg”). The provisions governing the exchange of interests in Global Notes for other Global Notes and definitive notes are described in “Summary of Provisions Relating to the Notes While in Global Form”. Investing in the Notes involves risk. See “Risk Factors” beginning on page 10 of this Prospectus.
Arranger JPMorgan Dealers ABN AMRO Barclays Capital BNP PARIBAS Citigroup Dresdner Kleinwort Emirates Bank International HSBC JPMorgan Mashreqbank Standard Chartered Bank The Royal Bank of Scotland 23 January 2007 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:01 am – g5mac4 – 3621 Intro : 3621 Intro
In this Prospectus, the terms the “Company” and the “Guarantor” refer to Dubai Holding Commercial Operations Group LLC. References to the “Issuer” are to Dubai Holding Commercial Operations MTN Limited.
The Guarantor accepts responsibility for the information contained in this Prospectus and declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. The Issuer and the Guarantor, having made all reasonable enquiries, have confirmed to the Dealers named under “Subscription and Sale” below that as of the date of this Prospectus, this Prospectus contains all information that is material in the context of the issue and offering of the Notes; that such information is true and accurate in all material respects and is not misleading in any material respect; that any opinions, predictions or intentions expressed herein are honestly held or made and are not misleading in any material respect; that all proper inquiries have been made to ascertain and to verify the foregoing; and that this Prospectus does not contain any untrue statement of a material fact or fail to state a material fact necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading.
Each Tranche of Notes will be issued on the terms set out herein under “Terms and Conditions of the Notes” (the “Conditions”) as amended and/or supplemented by a document specific to such Tranche called final terms (the “Final Terms”). This Prospectus must be read and construed together with any amendments or supplements hereto and with any information incorporated by reference herein and, in relation to any Tranche of Notes which is the subject of Final Terms, must be read and construed together with the relevant Final Terms.
No person has been authorised to give any information or make any representation regarding the Issuer, the Guarantor, the Programme or the Notes other than as contained in this Prospectus. Any such representation or information should not be relied upon as having been authorised by the Issuer, the Guarantor, the Dealers, the Trustee (as defined herein) or any of the respective affiliates of the Issuer, the Guarantor, the Dealers or the Trustee. Neither the delivery of this Prospectus, nor the offering, sale or delivery of any Notes shall under any circumstances imply that there has been no change in the business, results of operations, financial condition or prospects of the Issuer or the Guarantor since the date of this Prospectus.
Neither the Trustee nor any Dealer makes any representation or warranty, expressed or implied, and accepts no responsibility, as to the accuracy or completeness of the information contained in this Prospectus. Nothing contained in this Prospectus is, nor should prospective investors rely upon anything as, a promise or representation by the Dealers or the Trustee as to the past or the future. By accepting delivery of this Prospectus, prospective investors agree to the foregoing.
The distribution of this Prospectus and the offering, sale and delivery of the Notes in certain jurisdictions is restricted by law. Each of the Issuer, the Guarantor, the Dealers and the Trustee requires that any prospective investors and anyone who receives this Prospectus inform themselves about and observe such restrictions. This Prospectus does not constitute, and may not be used for or in connection with, any offer to, or solicitation by, anyone in any jurisdiction in which, or to or by any person whom, such offer or solicitation would be unlawful.
The Notes will be subject to restrictions on resale and transfer as described under “Subscription and Sale”. In particular, Notes have not been and will not be registered under the Securities Act, and Notes having a maturity of more than one year are subject to United States tax law requirements. Subject to certain exceptions, Notes may not be offered, sold or delivered within the United States or to U.S. persons.
Neither this Prospectus nor any Final Terms constitutes an offer or an invitation to subscribe for or purchase any Notes and should not be considered as a recommendation by the Issuer, the Guarantor, the Dealer, the Trustee or any of them that any recipient of this Prospectus or any Final Terms should subscribe for or purchase any Notes. Each recipient of this Prospectus or any Final
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Terms shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Issuer and the Guarantor.
The maximum aggregate principal amount of Notes outstanding and guaranteed at any one time under the Programme will not exceed U.S.$5,000,000,000 (and for this purpose, any Notes denominated in another currency shall be translated into U.S.$ at the date of the agreement to issue such Notes (calculated in accordance with the provisions of the Programme Agreement as defined under “Subscription and Sale”)). The maximum aggregate principal amount of Notes which may be outstanding and guaranteed at any one time under the Programme may be increased from time to time, subject to compliance with the relevant provisions of the Programme Agreement.
Forward-looking Statements
Some statements in this Prospectus may be deemed to be “forward-looking statements”. Forward- looking statements include statements concerning the Issuer’s, the Guarantor’s and each of the Guarantor’s subsidiaries’ plans, objectives, goals, strategies and future operations and performance, and the assumptions underlying these forward-looking statements. When used in this document, the words “anticipates”, “estimates”, “expects”, “believes”, “intends”, “plans”, “aims”, “seeks”, “may”, “will”, “should” and any similar expressions generally identify forward-looking statements. These forward-looking statements are contained in “Risk Factors”, “The Issuer” and “The Company” and other sections of this document. The Issuer and the Guarantor have based these forward-looking statements on the current views of the Guarantor’s management with respect to future events and financial performance. Although the Issuer and the Guarantor believe that the expectations, estimates and projections reflected in such forward-looking statements are reasonable, if one or more of the risks or uncertainties materialise, including those which the Issuer or the Guarantor has identified in this Prospectus, or if any of the Issuer’s or the Guarantor’s underlying assumptions prove to be incomplete or inaccurate, the Issuer’s or the Guarantor’s actual results of operations may vary from those expected, estimated or predicted.
These forward-looking statements speak only as at the date of this Prospectus. Without prejudice to any requirements under applicable laws and regulations, each of the Guarantor and the Issuer expressly disclaims any obligation or undertaking to disseminate after the date of this Prospectus any updates or revisions to any forward-looking statements contained herein to reflect any change in expectations or any change in events, conditions or circumstances on which any such forward- looking statement is based.
Certain Publicly Available Information
Certain statistical data and other information appearing in the “Overview of the United Arab Emirates and Dubai” section in this Prospectus have been extracted from public sources. None of the Issuer, the Guarantor, the Dealers or the Trustee accept responsibility for the factual correctness of any such statistics or information but each of the Issuer and the Guarantor accepts responsibility for accurately extracting and transcribing such statistics and information and believes, after due inquiry, that such statistics and information represent the most current publicly available statistics and information from such sources at the dates and for the periods with respect to which they have been presented.
In this Prospectus all references to “AED” and “UAE dirham” are to the currency of the United Arab Emirates (“UAE”), all references to “¤”, “Euro” and “euro” are to the single currency of the participating member states in the Third Stage of the European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time, all references to “U.S.$” and “U.S. dollar” are to the currency of the United States of America and all references to “Sterling” and “£” are to the currency of the United Kingdom. References to a “Member State” are references to a member state of the European Economic Area.
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The UAE dirham has been officially pegged to the U.S. dollar since 22 November 1980. The mid- point between the official buying and selling price for the UAE dirham is maintained at a fixed rate of AED 3.67 = U.S.$1.00.
Presentation of Financial Information
The financial information set out on pages F-1 to F-55 of this Prospectus has been derived from the combined audited financial statements of Dubai Holding Commercial Operations Group LLC for the year ended 31 December 2005.
Supplemental Prospectus
Each of the Issuer and the Guarantor has given an undertaking to the Dealers that if at any time during the duration of the Programme a significant new matter or inaccuracy arises relating to the information included in the Prospectus or there is a significant change affecting any matter disclosed in the Prospectus, in each case which is capable of affecting an assessment by investors of the assets and liabilities, financial position, profits and losses, and prospects of the Issuer and/or the Guarantor and/or of the nature of, and the rights attaching to, the Notes and/or the Guarantee (as defined herein), each of the Issuer and the Guarantor shall prepare an amendment or supplement to this Prospectus or publish a replacement Prospectus for use in connection with any subsequent offering of the Notes.
In connection with the issue of any Tranche of Notes, the Dealer or Dealers (if any) named as the Stabilising Manager(s) (or any person acting on behalf of any Stabilising Manager(s)) in the applicable Final Terms may over–allot Notes or effect transactions with a view to supporting the market price of the Notes at a level higher than that which might otherwise prevail. However, there is no assurance that the Stabilising Manager(s) (or any person acting on behalf of a Stabilising Manager) will undertake stabilisation action. Any stabilisation action may begin on or after the date on which adequate public disclosure of the terms of the offer of the relevant Tranche of Notes is made and, if begun, may be ended at any time, but it must end no later than the earlier of 30 days after the issue date of the relevant Tranche of Notes and 60 days after the date of the allotment of the relevant Tranche of Notes.
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Contents
Page
General Description of the Programme...... 6
Risk Factors...... 10
Terms and Conditions of the Notes ...... 19
Summary of Provisions Relating to the Notes while in Global Form...... 40
Use of Proceeds ...... 44
The Issuer ...... 45
The Company ...... 46
Overview of the United Arab Emirates and Dubai ...... 65
Taxation ...... 67
Subscription and Sale ...... 69
Form of Final Terms ...... 72
General Information ...... 82
Index to the Combined Financial Statements ...... F-1
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General Description of the Programme
The following description does not purport to be complete and is qualified in its entirety by reference to, and must be read in conjunction with, the detailed information appearing elsewhere in this Prospectus and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Final Terms. Potential investors should read this entire Prospectus, especially the risks discussed under “Risk Factors”.
Words and expressions defined in the “Terms and Conditions of the Notes” below or elsewhere in this Prospectus have the same meaning in this description.
Issuer ...... Dubai Holding Commercial Operations MTN Limited
Guarantor ...... Dubai Holding Commercial Operations Group LLC
Initial Programme Amount ...... Up to U.S.$5,000,000,000 (or its equivalent in other currencies at the date of issue) aggregate principal amount of Notes outstanding at any one time.
Arranger ...... J.P. Morgan Securities Ltd.
Dealers ...... ABN AMRO Bank N.V. Barclays Bank PLC BNP PARIBAS Citigroup Global Markets Limited Dresdner Bank Aktiengesellschaft Emirates Bank International PJSC HSBC Bank Middle East Limited J.P. Morgan Securities Ltd. Mashreqbank psc Standard Chartered Bank The Royal Bank of Scotland plc
The Issuer may from time to time terminate the appointment of any dealer under the Programme or appoint additional dealers either in respect of one or more Tranches or in respect of the whole Programme. References in this Prospectus to “Permanent Dealers” are to the persons listed above as Dealers and to such additional persons that are appointed as dealers in respect of the whole Programme (and whose appointment has not been terminated) and references to “Dealers” are to all Permanent Dealers and all persons appointed as a dealer in respect of one or more Tranches.
Trustee ...... HSBC Trustee (C.I.) Limited
Issuing and Paying Agent ...... HSBC Bank plc
Clearing systems ...... Euroclear, Clearstream, Luxembourg and/or in relation to any Tranche of Notes, any other clearing system as may be specified in the relevant Final Terms.
Issuance in Series ...... The Notes will be issued on a syndicated or non-syndicated basis. Notes will be issued in Series. Each Series may comprise one or more Tranches issued on different issue dates. The Notes of each Series will be subject to identical terms, except that the issue date and the amount of the
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first payment of interest may be different in respect of different Tranches. The Notes of each Tranche will be subject to identical terms except that a Tranche may comprise Notes of different denominations.
Forms of Notes ...... Notes may only be issued in bearer form. Each Tranche of Notes will initially be in the form of either a Temporary Global Note or a Permanent Global Note, in each case as specified in the relevant Final Terms. Each Global Note will be deposited on or around the relevant issue date with a depositary or common depositary for Euroclear and/or Clearstream, Luxembourg and/or any other clearing system. Each Temporary Global Note will be exchangeable for a Permanent Global Note or, if so specified in the relevant Final Terms, for Definitive Notes. If the TEFRA D Rules are specified in the relevant Final Terms as applicable, certification as to non-U.S. beneficial ownership will be a condition precedent to any exchange of an interest in a Temporary Global Note or receipt of any payment of interest in respect of a Temporary Global Note. Each Permanent Global Note will be exchangeable for Definitive Notes in accordance with its terms. Definitive Notes will, if interest-bearing, have Coupons attached and, if appropriate, a Talon for further Coupons.
Currencies...... Notes may be denominated in any currency or currencies, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements. Payments in respect of Notes may, subject to such compliance, be made in and/or linked to any currency or currencies other than the currency in which such Notes are denominated.
Denominations ...... No Notes may be issued under the Programme which have a minimum specified denomination of less than ¤50,000 (or its equivalent in another currency). Subject thereto, Notes will be issued in such denominations as may be specified in the relevant Final Terms, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Maturities ...... Any maturity subject, in relation to specific currencies, to compliance with all applicable legal and/or regulatory and/or central bank requirements.
Where Notes have a maturity of less than one year and either (a) the issue proceeds are received by the Issuer in the United Kingdom or (b) the activity of issuing the Notes is carried on from an establishment maintained by the Issuer in the United Kingdom, such Notes must: (i) have a minimum redemption value of £100,000 (or its equivalent in other currencies) and be issued only to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of
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their businesses; or (ii) be issued in other circumstances which do not constitute a contravention of section 19 of the UK Financial Services and Markets Act 2000 (the “FSMA”) by the Issuer.
Issue Price ...... Notes may be issued at any price and either on a fully or partly paid basis, as specified in the relevant Final Terms. The price and amount of Notes to be issued under the Programme will be determined by the Issuer, the Guarantor and the relevant Dealer(s) at the time of issue in accordance with prevailing market conditions.
Status ...... The Notes will constitute unsubordinated and (subject to the provisions of the “Negative Pledge” below) unsecured obligations of the Issuer as described in “Terms and Conditions of the Notes – Guarantee and Status”.
Status of the Guarantee ...... Notes will be unconditionally and irrevocably guaranteed by the Guarantor on an unsubordinated basis.
Redemption ...... Notes may be redeemable at par or at such other Final Redemption Amount (detailed in a formula, index or otherwise) as may be specified in the relevant Final Terms.
Redemption by Instalments ...... The Final Terms issued in respect of each issue of Notes that are redeemable in two or more instalments will set out the dates on which, and the amounts in which, such Notes may be redeemed.
Optional Redemption ...... The Final Terms issued in respect of each issue of Notes will state whether such Notes may be redeemed prior to their stated maturity at the option of the Issuer (either in whole or in part) and/or the holders, and if so the terms applicable to such redemption provided that, if a Change of Control Event occurs (see “Change of Control” below), the Issuer shall, at the option of the holder of such Note, upon the holder of such Note giving notice to the Issuer at any time during the Redemption Period, redeem such Note on the Redemption Date at its principal amount (or such other amount as may be specified in the relevant Final Terms) together with interest accrued to the date fixed for redemption (as described in “Terms and Conditions of the Notes – Redemption, Purchase and Options”).
Early Redemption ...... Except as described in “Optional Redemption” above, early redemption will only be permitted for tax reasons as described in “Terms and Conditions of the Notes – Redemption, Purchase and Options”.
Change of Control ...... The Notes may be redeemed at the option of the holders of the Notes if at any time His Highness Sheikh Mohammed Bin Rashid Al Maktoum or his heirs cease(s) to own, directly or indirectly, or otherwise control at least 50% of the issued share capital of the Guarantor.
Interest ...... Notes may be interest-bearing or non-interest bearing. Interest (if any) may accrue at a fixed rate or a floating rate or other variable rate or be index-linked and the method of
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calculating interest may vary between the issue date and the maturity date of the relevant Series.
Zero Coupon Notes...... Zero Coupon Notes may be issued at their principal amount or at a discount to it and will not bear interest.
Negative Pledge ...... The Notes will have the benefit of a negative pledge as described in “Terms and Conditions of the Notes – Negative Pledge”.
Cross Default ...... The Notes will have the benefit of a cross default provision as described in “Terms and Conditions of the Notes – Events of Default”.
Taxation ...... All payments in respect of Notes will be made without withholding or deduction for, or on account of taxes imposed or levied by the Cayman Islands or the UAE or any Emirate therein (or any political subdivision or authority thereof having the authority to tax), unless the withholding or deduction is required by law.
Governing Law ...... The Notes will be governed by and construed in accordance with English law. See also “Risk Factors – UAE law and courts and the enforcement of foreign judgments in the Emirate of Dubai” below.
Listing ...... Application will be made to list the Notes on the Dubai International Financial Exchange or as specified in the relevant Final Terms. As specified in the relevant Final Terms, a Series of Notes may also be unlisted.
Enforcement of Notes in Global Form In the case of Global Notes, individual investors’ rights against the Issuer will be governed by a trust deed dated 23 January 2007 (the “Trust Deed”), a copy of which will be available for inspection at the specified offices of the Paying Agents and at the principal office of the Trustee.
Ratings ...... The Programme has been rated A1 by Moody’s, A+ by S&P and AA- by Fitch. Tranches of Notes to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is to be rated, the rating(s) will not necessarily be the same as the relevant rating(s) assigned to the Programme. A security rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction or withdrawal at any time by the assigning rating agency.
Selling Restrictions ...... For a description of certain restrictions on offers, sales and deliveries of Notes and on the distribution of offering material in the United States, the United Kingdom, the UAE, the Cayman Islands, the Republic of Italy and the Netherlands and such other restrictions as may be required in connection with a particular issue of Notes, see “Subscription and Sale” below.
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Risk Factors
Prospective investors should read this entire Prospectus. Words and expressions defined in the “Terms and Conditions of the Notes” or elsewhere in this Prospectus have the same meanings when used in this section. Investing in the Notes involves certain risks which are described below. However, the risks described below are not exhaustive and other considerations, some of which may not be presently known to the Issuer or the Company, may impact on any investment in the Notes.
Risks Relating to the Issuer
The Issuer is a newly formed entity and has no operating history. It has no subsidiaries nor any significant business other than the issuance of the Notes and is not expected to have any income except payments received from the Company, which will be the only material sources of funds available to meet the claims of the holders of the Notes. Therefore, the Issuer is subject to the same risks relating to the Company to the extent that such risks could limit the Company’s ability to satisfy its obligations as guarantor of the Notes.
Risks Relating to the Company
General
The Company is a limited liability company owned as to 99.67% by Dubai Holding LLC. However, the ability of the Company to satisfy its obligations as guarantor of the Notes under the Programme is solely dependent upon the Company’s financial condition, its revenues and results of operations.
Dependency of the Company on businesses of its subsidiaries
The Company is a holding company and as such is dependent on the operations, revenues and cash flows generated by its subsidiaries. The Company’s subsidiaries are involved in a diverse range of businesses and operations and are subject to differing risks and challenges, largely depending on the industries in which they operate. Those businesses are currently broadly divided between two main sectors, real estate development and hospitality and leisure. The Company is subject to the risks faced by the real estate development and hospitality and leisure industries in general (both in Dubai and in other countries in which its subsidiaries operate) as well as specific risks affecting the projects or assets of its subsidiaries.
Economic and political risks may have a negative impact on the hospitality and leisure and real estate industry in Dubai
The Company derives a significant portion of its revenues from the Jumeirah Group (see “The Company – Jumeirah Group LLC”) which both owns and manages hotels in Dubai and overseas. The “Jumeirah” brand has become synonymous with quality and luxury and its hotels (both those owned and managed as well as those which it only manages) have achieved consistently high occupancy rates.
There has also been a high demand for residential and commercial property in Dubai over the last few years largely due to its strong economic growth which can be attributed to Dubai’s success as a business, tourist and lifestyle destination as well its ability to provide a stable and secure base in which foreign companies can set up and from which they can run their regional operations.
Although the UAE has enjoyed relative peace and stability, any economic or political instability to the region may have an adverse effect on tourism and travel and thereby cause a decline in occupancy rates resulting in a decline in the Jumeirah Group’s revenues as well as a decline in the demand for real estate in Dubai. This may have a material adverse effect on the revenues generated by the Company.
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The success of the real estate projects and investments outside the UAE will be affected by any economic or political uncertainty within the relevant countries
The Company has ventured into emerging markets in other countries within the Gulf Co-operation Council (“GCC”), North Africa and Turkey mainly via SAMA Dubai, its international real estate development arm (see “The Company – SAMA Dubai”).
SAMA Dubai has focused on the development of high end residential, business and leisure communities as well as spa resorts in countries such as Oman, Qatar, Bahrain, Morocco and Turkey. These properties have been popular with purchasers, investors and tourists in Dubai but in many of these countries, lifestyle, business and residential communities have not yet been developed on the scale seen in Dubai. There can be no assurance that those projects would attract a sufficient number of customers or investors due to the different demographics and the economic and political conditions in these countries.
These countries may be subject to a range of economic, political and social risks which may adversely affect the viability of those projects. Such risks include, but are not limited to, external acts of war and civil unrest, government intervention, including the imposition of tariffs, risk of draconian changes in law including as to title to property. While SAMA Dubai’s strategy is to invest in countries with a relatively stable long-term economic and political outlook, there can be no assurance that such countries will not suffer from such occurrences and that the cost and viability of, and returns from, such projects would not be thereby affected.
Some of these countries are also in the process of transitioning into a market economy and are experiencing changes in their economies and government policies (including policies relating to foreign ownership, the granting of licences and permits to build properties and repatriation of profits) as well as property and contractual rights. These changes may cause delays in construction of the projects, affect the enforcement of contracts and the ability to obtain efficient legal redress within those jurisdictions.
An oversupply of real estate may adversely affect the prices of property
The real estate market in Dubai has grown rapidly in recent years with the development of numerous large scale and ambitious real estate projects in order to meet the anticipated demand for residential, business and leisure properties brought about by strong economic growth and an increase in tourism and business interests in Dubai. If the supply exceeds the demand for such properties, prices of the real estate developments owned and operated by the Company would fall, thereby reducing expected revenues which will in turn have a material adverse effect on the Company’s financial condition and results of operations.
The Company is subject to competitive risks in the real estate market in Dubai and overseas
The Company faces competition in the real estate market from Emaar and Nakheel (each as defined herein) (see “The Company – Competition”). The Government of Dubai may present a particular vision for a potential real estate project and encourage each of these companies to present an innovative and attractive master plan in order to achieve that vision. Therefore, the Company must constantly ensure that it is able to anticipate and respond to changes in the market and other competitive factors in the real estate industry. Any failure to do so could result in a decline in the number of projects awarded to the Company, thereby having an adverse effect on real estate revenues.
In relation to its overseas developments, the Company does not currently face any viable local competition as the real estate markets in the relevant countries have not developed along the same scale as they have in the UAE. However, there can be no assurance that this will not change in the future and that the Company will not face competition from other real estate developers within those countries. This may result in an increase in the cost of carrying out those projects, result in an
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oversupply of real estate projects and/or a decrease in the prices of property, which may in turn have a material adverse effect on the Company’s financial condition and results of operations.
Competition faced by the Jumeirah Group could affect its profitability
The Jumeirah Group faces competition from other well known hotel brands in Dubai and more particularly overseas. It is therefore essential for the Jumeirah Group to maintain a high level of service, promote the exclusivity of its hotels and retail areas as well as ensure that it is ahead of its competitors. If the Jumeirah Group is unable to maintain its luxury hotel status, this could result in a decline in its occupancy rates and the number of visitors it attracts thereby causing a decline in its revenues.
The real estate projects developed and/or operated by the Company may be affected by natural disasters and other environmental risks
The real estate projects developed and/or operated by the Company are exposed to the effects of natural disasters and major accidents which are beyond its control. Although the projects are constructed, operated and maintained to withstand certain of these occurrences, they may not be fully protected in all circumstances and there can be no assurance that such events would not delay the completion of those projects, cause a decline in their value or cause those projects to be abandoned entirely. These factors may have a material adverse affect on the Company’s business, financial condition and results of operations.
UAE federal law contains provisions regarding environmental protection and development which impose liability on owners/developers as well as provisions under which a party may be liable for harm caused by it to another party. As a result, the Company could face potential environmental liability as a landowner and developer under UAE federal law and the Civil Code. Moreover, if an environmental liability arises in relation to any project owned or operated by the Company and it is not remedied or is not capable of being remedied, this may have a material adverse effect on the project and the business of the Company as a whole due to the cost of rectifying the problem and/or the disruption to the project.
The real estate projects currently under development may be subject to delays in completion as well as an increase in the cost of construction
Many of the real estate properties developed by the Company, particularly those of SAMA Dubai, Tatweer Dubai LLC (“Tatweer”) and Dubai Properties LLC (“DP”), are still in the initial stages of construction and have significant capital expenditure requirements. As construction is outsourced to third party contractors, the completion of those projects is dependent upon the contractors’ ability to meet their targets. There may be a future shortage of certain building materials, which may result in construction delays of between 4-6 months. Although the Company does not solely rely on one building contractor for each project, some of its projects will naturally be exposed to such delays. Such delays and increase in costs could adversely affect the profits derived from such projects.
The Company’s future development and construction activities may be subject to various obstacles
The Company intends to continue developing new properties in the future both in Dubai and in other regional markets. Its future development and construction activities may be subject to various risks including:
• the inability to obtain desirable property locations;
• delays or refusals to obtain all necessary zoning, land use, building, occupancy and other required governmental permits and authorisations particularly in developments outside Dubai;
• the inability to complete its projects on schedule or within budgeted amounts; and
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• fluctuations in occupancy rates at newly developed properties due to a number of factors (including market and economic conditions).
Dependency on pre-selling of its properties to finance the real estate projects
A large number of the real estate projects developed by the Company are financed by pre-selling (see “The Company – Strategy”). By pre-selling such properties, the Company obtains funds from the initial deposits and instalments paid by customers for residential or commercial spaces prior to, or in the early stages of, construction of the projects. The ability to pre-sell depends on the customers’ belief that the project is viable in the long term and that the Company will deliver high standards of quality which will result in attractive economic returns. However, completion delays, material shortages or adverse market conditions could impact the ability to pre-sell effectively thereby increasing the Company’s reliance on other methods of funding.
The rights of holders of the Notes may be subject to UAE bankruptcy law
In the event of the Company’s insolvency, UAE bankruptcy law may, to the extent that it applies to a limited liability company, adversely affect the Company’s ability to perform its obligations under the Notes. There is little precedent to predict how claims by or on behalf of the holders of Notes would be resolved, and therefore there can be no assurance that such holders of Notes will receive repayment of their claims in full or at all.
UAE law and courts and the enforcement of foreign judgments in the Emirate of Dubai
The Emirate of Dubai’s courts are unlikely to enforce an English judgment without re-examining the merits of the claim and may not observe the parties’ choice of English law as the governing law of the transaction. In addition, even if English law is applied as the governing law, this will only be applied to the extent that it is compatible with the Emirate of Dubai law and public policy. Moreover, judicial precedent in the UAE has no binding effect on subsequent decisions and there is no formal system of reporting court decisions in the UAE. These factors create greater judicial uncertainty than would be expected in certain other jurisdictions.
Risks Relating to the Notes
Notes may not be a suitable investment for all investors
Each potential investor in any Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
(i) have sufficient knowledge and experience to make a meaningful evaluation of the relevant Notes, the merits and risks of investing in the relevant Notes and the information contained or incorporated by reference in this Prospectus or any applicable supplement;
(ii) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the relevant Notes and the impact such investment will have on its overall investment portfolio;
(iii) have sufficient financial resources and liquidity to bear all of the risks of an investment in the relevant Notes, including where principal or interest is payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor’s currency;
(iv) understand thoroughly the terms of the relevant Notes and be familiar with the behaviour of any relevant indices and financial markets; and
(v) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
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Some Notes are complex financial instruments and such instruments may be purchased as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of such Notes and the impact this investment will have on the potential investor’s overall investment portfolio.
Risks related to the structure of a particular issue of Notes
A wide range of Notes may be issued under the Programme. A number of these Notes may have features which contain particular risks for potential investors. Set out below is a description of certain such features:
The Notes may be redeemed prior to maturity
Unless in the case of any particular Tranche of Notes the relevant Final Terms specifies otherwise, in the event that the Issuer would be obliged to pay additional amounts as described under Condition 7 or the Company would be unable for reasons outside its control to procure payment by the Issuer and in making payment itself would be required to pay such additional amounts, in either case, as a result of any change in, or amendment to, the laws or regulations of the Cayman Islands (in the case of a payment to be made by the Issuer) or the United Arab Emirates or any Emirate therein (in the case of a payment to be made by the Company) or, in each case, any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes, subject as provided in Condition 5(c), the Issuer may redeem all outstanding Notes in accordance with the Conditions.
In addition, if in the case of any particular Tranche of Notes the relevant Final Terms specifies that the Notes are redeemable at the Issuer’s option in certain other circumstances the Issuer may choose to redeem the Notes at times when prevailing interest rates may be relatively low. In such circumstances an investor may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as that of the relevant Notes.
Index Linked Notes and Dual Currency Notes
The Issuer may issue Notes with principal or interest determined by reference to an index or formula, to changes in the prices of securities or commodities, to movements in currency exchange rates or other factors (each, a “Relevant Factor”). In addition, the Issuer may issue Notes with principal or interest payable in one or more currencies which may be different from the currency in which the Notes are denominated. Potential investors should be aware that:
(i) the market price of such Notes may be volatile;
(ii) they may receive no interest;
(iii) payment of principal or interest may occur at a different time or in a different currency than expected;
(iv) the amount of principal payable at redemption may be less than the nominal amount of such Notes or even zero;
(v) a Relevant Factor may be subject to significant fluctuations that may not correlate with changes in interest rates, currencies or other indices;
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(vi) if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one or contains some other leverage factor, the effect of changes in the Relevant Factor on principal or interest payable likely will be magnified; and
(vii) the timing of changes in a Relevant Factor may affect the actual yield to investors, even if the average level is consistent with their expectations. In general, the earlier the change in the Relevant Factor, the greater the effect on yield.
Partly Paid Notes
The Issuer may issue Notes where the issue price is payable in more than one instalment. Failure to pay any subsequent instalment could result in an investor losing all of its investment.
Variable rate Notes with a multiplier or other leverage factor
Notes with variable interest rates can be volatile investments. If they are structured to include multipliers or other leverage factors, or caps or floors, or any combination of those features or other similar related features, their market values may be even more volatile than those for securities that do not include those features.
Inverse Floating Rate Notes
Inverse Floating Rate Notes have an interest rate equal to a fixed rate minus a rate based upon a reference rate such as LIBOR. The market values of such Notes typically are more volatile than market values of other conventional floating rate debt securities based on the same reference rate (and with otherwise comparable terms). Inverse Floating Rate Notes are more volatile because an increase in the reference rate not only decreases the interest rate of the Notes, but may also reflect an increase in prevailing interest rates, which further adversely affects the market value of such Notes.
Fixed/Floating Rate Notes
Fixed/Floating Rate Notes may bear interest at a rate that the Issuer may elect to convert from a fixed rate to a floating rate, or from a floating rate to a fixed rate. The Issuer’s ability to convert the interest rate will affect the secondary market and the market value of such Notes since the Issuer may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Issuer converts from a fixed rate to a floating rate, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. If the Issuer converts from a floating rate to a fixed rate, the fixed rate may be lower than then prevailing rates on its Notes.
Notes issued at a substantial discount or premium
The market values of securities issued at a substantial discount or premium to their nominal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities.
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Risks related to Notes generally
Set out below is a brief description of certain risks relating to the Notes generally:
Because the Global Notes are held by or on behalf of Euroclear and Clearstream, Luxembourg, investors will have to rely on their procedures for transfer, payment and communication with the Issuer
Notes issued under the Programme may be represented by one or more Global Notes. Such Global Notes will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the circumstances described in the relevant Global Note, investors will not be entitled to receive Definitive Notes. Euroclear and Clearstream, Luxembourg will maintain records of the beneficial interests in the Global Notes. While the Notes are represented by one or more Global Notes, investors will be able to trade their beneficial interests only through Euroclear and Clearstream, Luxembourg.
While the Notes are represented by one or more Global Notes, the Issuer will discharge its payment obligations under the Notes by making payments to the common depositary for Euroclear and Clearstream, Luxembourg for distribution to their account holders. A holder of a beneficial interest in a Global Note must rely on the procedures of Euroclear and Clearstream, Luxembourg to receive payments under the relevant Notes. The Issuer has no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Notes.
Holders of beneficial interests in the Global Notes will not have a direct right to vote in respect of the relevant Notes. Instead, such holders will be permitted to act only to the extent that they are enabled by Euroclear and Clearstream, Luxembourg to appoint appropriate proxies.
Modification, waivers and substitution
The Terms and Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority.
The Terms and Conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or potential Event of Default shall not be treated as such or (iii) the substitution of another company as principal debtor under any Notes in place of the Issuer, in the circumstances described in Condition 10.
European Monetary Union
If the United Kingdom joins the European Monetary Union prior to the maturity of the Notes, there is no assurance that this would not adversely affect investors in the Notes. It is possible that prior to the maturity of the Notes the United Kingdom may become a participating Member State and that the Euro may become the lawful currency of the United Kingdom. In that event (i) all amounts payable in respect of any Notes denominated in Sterling may become payable in Euro; (ii) the law may allow or require such Notes to be re-denominated into Euro and additional measures to be taken in respect of such Notes; and (iii) there may no longer be available published or displayed rates for deposits in Sterling used to determine the rates of interest on such Notes or changes in the way those rates are calculated, quoted and published or displayed. The introduction of the Euro could also be accompanied by a volatile interest rate environment, which could adversely affect investors in the Notes.
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EU Savings Directive
Under EC Council Directive 2003/48/EC on the taxation of savings income, each Member State is required, from 1 July 2005, to provide to the tax authorities of another Member State details of payments of interest (or similar income) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other counties). A number of non-EU countries and territories including the Cayman Islands have adopted similar measures with effect from the same date.
If a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive.
Change of law
The Terms and Conditions of the Notes are based on English law in effect as at the date of issue of the relevant Notes. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the relevant Notes.
Risks related to the market generally
Set out below is a brief description of certain market risks, including liquidity risk, exchange rate risk, interest rate risk and credit risk:
There is no active trading market for the Notes
Notes issued under the Programme will be new securities which may not be widely distributed and for which there is currently no active trading market (unless in the case of any particular Tranche, such Tranche is to be consolidated with and form a single series with a Tranche of Notes which is already issued). If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering price, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the financial condition of the Company. There is no assurance as to the development or liquidity of any trading market for any particular Tranche of Notes.
Exchange rate risks and exchange controls
The Issuer will pay principal and interest on the Notes in the Specified Currency. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease (1) the Investor’s Currency-equivalent yield on the Notes, (2) the Investor’s Currency equivalent value of the principal payable on the Notes and (3) the Investor’s Currency equivalent market value of the Notes.
Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal.
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Interest rate risks
Investment in Fixed Rate Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of Fixed Rate Notes.
Credit ratings may not reflect all risks
One or more independent credit rating agencies may assign credit ratings to an issue of Notes. The ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time.
Legal investment considerations may restrict certain investments
The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for various types of borrowing and (3) other restrictions apply to its purchase or pledge of any Notes. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Notes under any applicable risk-based capital or similar rules.
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Terms and Conditions of the Notes
The following is the text of the terms and conditions that, subject to completion and amendment and as supplemented or varied in accordance with the provisions of Part A of the relevant Final Terms, shall be applicable to the Notes in definitive form (if any) issued in exchange for the Global Note(s) representing each Series. Either (i) the full text of these terms and conditions together with the relevant provisions of Part A of the Final Terms or (ii) these terms and conditions as so completed, amended, supplemented or varied (and subject to simplification by the deletion of non- applicable provisions), shall be endorsed on the Notes. All capitalised terms that are not defined in these Conditions will have the meanings given to them in Part A of the relevant Final Terms. Those definitions will be endorsed on the definitive Notes. References in the Conditions to “Notes” are to the Notes of one Series only, not to all Notes that may be issued under the Programme.
The Notes are constituted by a Trust Deed (as amended or supplemented as at the date of issue of the Notes (the “Issue Date”), the “Trust Deed”) dated 23 January 2007 between the Issuer, the Guarantor, and HSBC Trustee (C.I.) Limited (the “Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the Noteholders (as defined below). These terms and conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed, which includes the form of the Notes, Receipts, Coupons and Talons referred to below. An Agency Agreement (as amended or supplemented as at the Issue Date, the “Agency Agreement”) dated 23 January 2007 has been entered into in relation to the Notes between the Issuer, the Guarantor, the Trustee, HSBC Bank plc as initial issuing and paying agent and the other agent named in it. The issuing and paying agent, the paying agents and the calculation agent(s) for the time being (if any) are referred to below respectively as the “Issuing and Paying Agent”, the “Paying Agents” (which expression shall include the Issuing and Paying Agent) and the “Calculation Agent(s)”. Copies of the Trust Deed and the Agency Agreement are available for inspection during usual business hours at the principal office of the Trustee (presently at 1 Grenville Street, St. Helier, Jersey JE4 9PF, Channel Islands) and at the specified offices of the Paying Agents.
The Noteholders, the holders of the interest coupons (the “Coupons”) relating to interest bearing Notes and, where applicable in the case of such Notes, talons for further Coupons (the “Talons”) (the “Couponholders”) and the holders of the receipts for the payment of instalments of principal (the “Receipts”) relating to Notes of which the principal is payable in instalments are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and are deemed to have notice of those provisions applicable to them of the Agency Agreement.
As used in these Conditions, “Tranche” means Notes which are identical in all respects.
1. Form, Denomination and Title
The Notes are issued in bearer form in the Specified Denomination(s) shown hereon provided that the minimum Specified Denomination shall be ¤50,000 (or the equivalent in any other currency as at the date of issue of the relevant Notes).
This Note is a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index Linked Interest Note, an Index Linked Redemption Note, an Instalment Note, a Dual Currency Note or a Partly Paid Note, a combination of any of the foregoing or any other kind of Note, depending upon the Interest and Redemption/Payment Basis shown hereon.
Notes are serially numbered and are issued with Coupons (and, where appropriate, a Talon) attached, save in the case of Zero Coupon Notes in which case references to interest (other than in relation to interest due after the Maturity Date), Coupons and Talons in these Conditions are not applicable. Instalment Notes are issued with one or more Receipts attached.
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Title to the Notes, the Receipts, the Coupons and the Talons shall pass by delivery. Except as ordered by a court of competent jurisdiction or as required by law, the holder (as defined below) of any Note, Receipt, Coupon or Talon shall be deemed to be and may be treated as its absolute owner for all purposes whether or not it is overdue and regardless of any notice of ownership, trust or an interest in it, any writing on it and no person shall be liable for so treating the holder.
In these Conditions, “Noteholder” means the bearer of any Note and the Receipts relating to it, “holder” (in relation to a Note, Receipt, Coupon or Talon) means the bearer of such Note, Receipt, Coupon or Talon and capitalised terms have the meanings given to them hereon, the absence of any such meaning indicating that such term is not applicable to the Notes.
2. Guarantee and Status
(a) Guarantee: The Guarantor has unconditionally and irrevocably guaranteed the due payment of all sums expressed to be payable by the Issuer under the Trust Deed, the Notes, Receipts and Coupons. Its obligations in that respect (the “Guarantee”) are contained in the Trust Deed.
(b) Status of Notes and Guarantee: The Notes and the Receipts and Coupons relating to them constitute (subject to Condition 3) unsecured obligations of the Issuer and shall at all times rank pari passu and without any preference among themselves. The payment obligations of the Issuer under the Notes and the Receipts and Coupons relating to them and of the Guarantor under the Guarantee shall, save for such exceptions as may be provided by applicable legislation and subject to Condition 3, at all times rank at least equally with all other unsecured and unsubordinated indebtedness and monetary obligations of the Issuer and the Guarantor respectively, present and future.
3. Negative Pledge
So long as any Note or Coupon remains outstanding (as defined in the Trust Deed), neither the Issuer nor the Guarantor will, and the Guarantor will ensure that none of its other Subsidiaries will, create, or have outstanding, any mortgage, charge, lien, pledge or other security interest (each a “Security Interest”), other than a Permitted Security Interest, upon the whole or any part of its present or future undertaking, assets or revenues (including any uncalled capital) to secure any Relevant Indebtedness, or any guarantee or indemnity in respect of any Relevant Indebtedness, without at the same time or prior thereto according to the Notes and the Coupons the same security as is created or subsisting to secure any such Relevant Indebtedness, guarantee or indemnity or such other security as either (i) the Trustee shall in its absolute discretion deem not materially less beneficial to the interest of the Noteholders or (ii) shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders.
In these Conditions:
“Non-recourse Project, Securitisation or Asset Financing” means any securitisation (Islamic or otherwise) of existing or future assets, or the financing of all or part of the costs of the acquisition, construction or development of any project or asset, provided that (i) any Security Interest given by the Issuer, Guarantor or the relevant Subsidiary is limited solely to assets of the securitisation, the project or to the value of the asset (as applicable), (ii) the person or persons participating in such securitisation or providing such financing expressly agrees or agree to limit their recourse to the project or asset (as applicable) so securitised or financed and the revenues derived from such project or asset (as applicable) as the principal source of repayment for the moneys advanced and (iii) there is no other recourse to the Issuer, Guarantor or the relevant Subsidiary in respect of any default by any person under the securitisation or financing.
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“Permitted Security Interest” means:
(i) any Security Interest in respect of any Relevant Indebtedness, provided that the aggregate outstanding amount secured thereby shall not at any time exceed an amount equal to 10 per cent. of the aggregate of the share capital and reserves of the Guarantor and its Subsidiaries, as shown in its most recent audited consolidated financial statements or Combined Financial Statements (as defined in Condition 9);
(ii) any Security Interest securing Relevant Indebtedness of a person and/or its subsidiaries existing at the time that such person is merged into or consolidated with the Guarantor or any Subsidiary, provided that such Security Interest was not created in contemplation of such merger or consolidation and does not extend to any other assets or property of the Guarantor or any Subsidiary;
(iii) any Security Interest created in connection with any Non-recourse Project, Securitisation or Asset Financing; or
(iv) any renewal of or substitution for any Security Interest permitted by any of the preceding clauses (i) through (iii), provided that with respect to any such Security Interest the principal amount secured has not increased and the Security Interest has not been extended to any additional assets (other than the proceeds of such assets).
“Relevant Indebtedness” means any indebtedness which is in the form of, or represented or evidenced by, bonds, notes, debentures, loan stock, sukuk certificates or other securities which for the time being are, or are intended to be, or capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market; and
“Subsidiary” means, at any particular time, any company which is then directly or indirectly controlled, or at least 50% of whose issued equity share capital (or equivalent) is then beneficially owned, by the Guarantor. For a company to be “controlled” by the Guarantor means that the Guarantor (whether directly or indirectly and whether by the ownership of share capital, the possession of voting power, contract or otherwise) has the power to appoint and/or remove all or the majority of the members of the Board of Directors or other governing body of that company or otherwise controls or has the power to control the affairs and policies of that company.
4. Interest and other Calculations
(a) Interest on Fixed Rate Notes: Each Fixed Rate Note bears interest on its outstanding nominal amount from the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of Interest, such interest being payable in arrear on each Interest Payment Date. The amount of interest payable shall be determined in accordance with Condition 5(h).
(b) Interest on Floating Rate Notes and Index Linked Interest Notes:
(i) Interest Payment Dates: Each Floating Rate Note and Index Linked Interest Note bears interest on its outstanding nominal amount from the Interest Commencement Date at the rate per annum (expressed as a percentage) equal to the Rate of Interest, such interest being payable in arrear on each Interest Payment Date. The amount of interest payable shall be determined in accordance with Condition 5(h). Such Interest Payment Date(s) is/are either shown hereon as Specified Interest Payment Dates or, if no Specified Interest Payment Date(s) is/are shown hereon, Interest Payment Date shall mean each date which falls the number of months or other period shown hereon as the Interest Period after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date.
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(ii) Business Day Convention: If any date referred to in these Conditions that is specified to be subject to adjustment in accordance with a Business Day Convention would otherwise fall on a day that is not a Business Day, then, if the Business Day Convention specified is (A) the Floating Rate Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event (x) such date shall be brought forward to the immediately preceding Business Day and (y) each subsequent such date shall be the last Business Day of the month in which such date would have fallen had it not been subject to adjustment, (B) the Following Business Day Convention, such date shall be postponed to the next day that is a Business Day, (C) the Modified Following Business Day Convention, such date shall be postponed to the next day that is a Business Day unless it would thereby fall into the next calendar month, in which event such date shall be brought forward to the immediately preceding Business Day or (D) the Preceding Business Day Convention, such date shall be brought forward to the immediately preceding Business Day.
(iii) Rate of Interest for Floating Rate Notes: The Rate of Interest in respect of Floating Rate Notes for each Interest Accrual Period shall be determined in the manner specified hereon and the provisions below relating to either ISDA Determination or Screen Rate Determination shall apply, depending upon which is specified hereon.
(A) ISDA Determination for Floating Rate Notes
Where ISDA Determination is specified hereon as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual Period shall be determined by the Calculation Agent as a rate equal to the relevant ISDA Rate. For the purposes of this sub-paragraph (A), “ISDA Rate” for an Interest Accrual Period means a rate equal to the Floating Rate that would be determined by the Calculation Agent under a Swap Transaction under the terms of an agreement incorporating the ISDA Definitions and under which:
(x) the Floating Rate Option is as specified hereon;
(y) the Designated Maturity is a period specified hereon; and
(z) the relevant Reset Date is the first day of that Interest Accrual Period unless otherwise specified hereon.
For the purposes of this sub-paragraph (A), “Floating Rate”, “Calculation Agent”, “Floating Rate Option”, “Designated Maturity”, “Reset Date” and “Swap Transaction” have the meanings given to those terms in the ISDA Definitions.
(B) Screen Rate Determination for Floating Rate Notes
(x) Where Screen Rate Determination is specified hereon as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Accrual Period will, subject as provided below, be either:
(1) the offered quotation; or
(2) the arithmetic mean of the offered quotations,
(expressed as a percentage rate per annum) for the Reference Rate which appears or appear, as the case may be, on the Relevant Screen Page as at either 11.00 a.m. (London time in the case of LIBOR or Brussels time in the case of EURIBOR) on the Interest Determination Date in question as determined by the Calculation Agent. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if
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there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Calculation Agent for the purpose of determining the arithmetic mean of such offered quotations.
If the Reference Rate from time to time in respect of Floating Rate Notes is specified hereon as being other than LIBOR or EURIBOR, the Rate of Interest in respect of such Notes will be determined as provided hereon.
(y) If the Relevant Screen Page is not available or if, sub-paragraph (x)(1) applies and no such offered quotation appears on the Relevant Screen Page or if sub-paragraph (x)(2) above applies and fewer than three such offered quotations appear on the Relevant Screen Page in each case as at the time specified above, subject as provided below, the Calculation Agent shall request, if the Reference Rate is LIBOR, the principal London office of each of the Reference Banks or, if the Reference Rate is EURIBOR, the principal Euro-zone office of each of the Reference Banks, to provide the Calculation Agent with its offered quotation (expressed as a percentage rate per annum) for the Reference Rate if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London time), or if the Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time) on the Interest Determination Date in question. If two or more of the Reference Banks provide the Calculation Agent with such offered quotations, the Rate of Interest for such Interest Accrual Period shall be the arithmetic mean of such offered quotations as determined by the Calculation Agent.
(z) If paragraph (y) above applies and the Calculation Agent determines that fewer than two Reference Banks are providing offered quotations, subject as provided below, the Rate of Interest shall be the arithmetic mean of the rates per annum (expressed as a percentage) as communicated to (and at the request of) the Calculation Agent by the Reference Banks or any two or more of them, at which such banks were offered, if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time) on the relevant Interest Determination Date, deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate by leading banks in, if the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the case may be, or, if fewer than two of the Reference Banks provide the Calculation Agent with such offered rates, the offered rate for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, or the arithmetic mean of the offered rates for deposits in the Specified Currency for a period equal to that which would have been used for the Reference Rate, at which, if the Reference Rate is LIBOR, at approximately 11.00 a.m. (London time) or, if the Reference Rate is EURIBOR, at approximately 11.00 a.m. (Brussels time), on the relevant Interest Determination Date, any one or more banks (which bank or banks is or are in the opinion of the Trustee and the Issuer suitable for such purpose) informs the Calculation Agent it is quoting to leading banks in, if the Reference Rate is LIBOR, the London inter-bank market or, if the Reference Rate is EURIBOR, the Euro-zone inter-bank market, as the case may be, provided that, if the Rate of Interest cannot be determined in accordance with the foregoing provisions of this paragraph, the Rate of Interest shall be determined as at the last preceding Interest Determination Date (though substituting, where a different Margin or
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Maximum or Minimum Rate of Interest is to be applied to the relevant Interest Accrual Period from that which applied to the last preceding Interest Accrual Period, the Margin or Maximum or Minimum Rate of Interest relating to the relevant Interest Accrual Period, in place of the Margin or Maximum or Minimum Rate of Interest relating to that last preceding Interest Accrual Period).
(iv) Rate of Interest for Index Linked Interest Notes: The Rate of Interest in respect of Index Linked Interest Notes for each Interest Accrual Period shall be determined in the manner specified hereon and interest will accrue by reference to an Index or Formula as specified hereon.
(c) Zero Coupon Notes: Where a Note the Interest Basis of which is specified to be Zero Coupon is repayable prior to the Maturity Date and is not paid when due, the amount due and payable prior to the Maturity Date shall be the Early Redemption Amount of such Note. As from the Maturity Date, the Rate of Interest for any overdue principal of such a Note shall be a rate per annum (expressed as a percentage) equal to the Amortisation Yield (as described in Condition 5(b)(i)).
(d) Dual Currency Notes: In the case of Dual Currency Notes, if the rate or amount of interest falls to be determined by reference to a Rate of Exchange or a method of calculating Rate of Exchange, the rate or amount of interest payable shall be determined in the manner specified hereon.
(e) Partly Paid Notes: In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero Coupon Notes), interest will accrue as aforesaid on the paid-up nominal amount of such Notes and otherwise as specified hereon.
(f) Accrual of Interest: Interest shall cease to accrue on each Note on the due date for redemption unless, upon due presentation, payment is improperly withheld or refused, in which event interest shall continue to accrue (as well after as before judgment) at the Rate of Interest in the manner provided in this Condition 4 to the Relevant Date (as defined in Condition 7).
(g) Margin, Maximum/Minimum Rates of Interest, Instalment Amounts and Redemption Amounts and Rounding:
(i) If any Margin is specified hereon (either (x) generally, or (y) in relation to one or more Interest Accrual Periods), an adjustment shall be made to all Rates of Interest, in the case of (x), or the Rates of Interest for the specified Interest Accrual Periods, in the case of (y), calculated in accordance with Condition 4(b) above by adding (if a positive number) or subtracting the absolute value (if a negative number) of such Margin, subject always to the next paragraph.
(ii) If any Maximum or Minimum Rate of Interest, Instalment Amount or Redemption Amount is specified hereon, then any Rate of Interest, Instalment Amount or Redemption Amount shall be subject to such maximum or minimum, as the case may be.
(iii) For the purposes of any calculations required pursuant to these Conditions (unless otherwise specified), (x) all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point (with halves being rounded up), (y) all figures shall be rounded to seven significant figures (with halves being rounded up) and (z) all currency amounts that fall due and payable shall be rounded to the nearest unit of such currency (with halves being rounded up), save in the case of yen, which shall be rounded down to the nearest yen. For these purposes “unit” means the lowest amount of such currency that is available as legal tender in the country or countries of such currency.
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(h) Calculations: The amount of interest payable per Calculation Amount in respect of any Note for any Interest Accrual Period shall be equal to the product of the Rate of Interest, the Calculation Amount specified hereon and the Day Count Fraction for such Interest Accrual Period, unless an Interest Amount (or a formula for its calculation) is applicable to such Interest Accrual Period, in which case the amount of interest payable per Calculation Amount in respect of such Note for such Interest Accrual Period shall equal such Interest Amount (or be calculated in accordance with such formula). Where any Interest Period comprises two or more Interest Accrual Periods, the amount of interest payable per Calculation Amount in respect of such Interest Period shall be the sum of the Interest Amounts payable in respect of each of those Interest Accrual Periods. In respect of any other period for which interest is required to be calculated, the provisions above shall apply save that the Day Count Fraction shall be for the period for which interest is required to be calculated.
(i) Determination and Publication of Rates of Interest, Interest Amounts, Final Redemption Amounts, Early Redemption Amounts, Optional Redemption Amounts and Instalment Amounts: The Calculation Agent shall, as soon as practicable on each Interest Determination Date, or such other time on such date as the Calculation Agent may be required to calculate any rate or amount, obtain any quotation or make any determination or calculation, determine such rate and calculate the Interest Amounts for the relevant Interest Accrual Period, calculate the Final Redemption Amount, Early Redemption Amount, Optional Redemption Amount or Instalment Amount, obtain such quotation or make such determination or calculation, as the case may be, and cause the Rate of Interest and the Interest Amounts for each Interest Accrual Period and the relevant Interest Payment Date and, if required to be calculated, the Final Redemption Amount, Early Redemption Amount, Optional Redemption Amount or any Instalment Amount to be notified to the Trustee, the Issuer, each of the Paying Agents, the Noteholders, any other Calculation Agent appointed in respect of the Notes that is to make a further calculation upon receipt of such information and, if the Notes are listed on a stock exchange and the rules of such exchange or other relevant authority so require, such exchange or other relevant authority as soon as possible after their determination but in no event later than (i) the commencement of the relevant Interest Period, if determined prior to such time, in the case of notification to such exchange of a Rate of Interest and Interest Amount, or (ii) in all other cases, the fourth Business Day after such determination. Where any Interest Payment Date or Interest Period Date is subject to adjustment pursuant to Condition 4(b)(ii), the Interest Amounts and the Interest Payment Date so published may subsequently be amended (or appropriate alternative arrangements made with the consent of the Trustee by way of adjustment) without notice in the event of an extension or shortening of the Interest Period. If the Notes become due and payable under Condition 9, the accrued interest and the Rate of Interest payable in respect of the Notes shall nevertheless continue to be calculated as previously in accordance with this Condition but no publication of the Rate of Interest or the Interest Amount so calculated need be made unless the Trustee otherwise requires. The determination of any rate or amount, the obtaining of each quotation and the making of each determination or calculation by the Calculation Agent(s) shall (in the absence of manifest error) be final and binding upon all parties.
(j) Determination or Calculation by Trustee: If the Calculation Agent does not at any time for any reason determine or calculate the Rate of Interest for an Interest Accrual Period or any Interest Amount, Instalment Amount, Final Redemption Amount, Early Redemption Amount or Optional Redemption Amount, the Trustee shall, at the cost of the Issuer, do so (or shall appoint an agent on its behalf to do so) and such determination or calculation shall be deemed to have been made by the Calculation Agent. In doing so, the Trustee shall apply the foregoing provisions of this Condition, with any necessary consequential amendments, to the extent that, in its opinion, it can do so, and, in all other respects it shall do so in such manner as it shall deem fair and reasonable in all the circumstances.
(k) Definitions: In these Conditions, unless the context otherwise requires, the following defined terms shall have the meanings set out below:
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“Business Day” means:
(i) in the case of a currency other than euro, a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in the principal financial centre for such currency; and/or
(ii) in the case of euro, a day on which the TARGET system is operating (a “TARGET Business Day”); and/or
(iii) in the case of a currency and/or one or more Business Centres a day (other than a Saturday or a Sunday) on which commercial banks and foreign exchange markets settle payments in such currency in the Business Centre(s) or, if no currency is indicated, generally in each of the Business Centres.
“Day Count Fraction” means, in respect of the calculation of an amount of interest on any Note for any period of time (from and including the first day of such period to but excluding the last) (whether or not constituting an Interest Period or an Interest Accrual Period, the “Calculation Period”):
(i) if “Actual/365” or “Actual/Actual – ISDA” is specified hereon, the actual number of days in the Calculation Period divided by 365 (or, if any portion of that Calculation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Calculation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Calculation Period falling in a non-leap year divided by 365);
(ii) if “Actual/365 (Fixed)” is specified hereon, the actual number of days in the Calculation Period divided by 365;
(iii) if “Actual/360” is specified hereon, the actual number of days in the Calculation Period divided by 360;
(iv) if “30/360”, “360/360” or “Bond Basis” is specified hereon, the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless (a) the last day of the Calculation Period is the 31st day of a month but the first day of the Calculation Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (b) the last day of the Calculation Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month));
(v) if “30E/360” or “Eurobond Basis” is specified hereon, the number of days in the Calculation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the date of the first day or last day of the Calculation Period unless, in the case of a Calculation Period ending on the Maturity Date, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30- day month); and
(vi) if “Actual/Actual-ICMA” is specified hereon,
(A) if the Calculation Period is equal to or shorter than the Determination Period during which it falls, the number of days in the Calculation Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Periods normally ending in any year; and
(B) if the Calculation Period is longer than one Determination Period, the sum of:
(x) the number of days in such Calculation Period falling in the Determination Period in which it begins divided by the product of (1) the number of days
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in such Determination Period and (2) the number of Determination Periods normally ending in any year; and
(y) the number of days in such Calculation Period falling in the next Determination Period divided by the product of (1) the number of days in such Determination Period and (2) the number of Determination Periods normally ending in any year
where:
“Determination Period” means the period from and including a Determination Date in any year to but excluding the next Determination Date; and
“Determination Date” means the date specified as such hereon or, if none is so specified, the Interest Payment Date.
“Euro-zone” means the region comprised of member states of the European Union that adopt the single currency in accordance with the Treaty establishing the European Community, as amended.
“Interest Accrual Period” means the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Period Date and each successive peroid beginning on (and including) an Interest Period Date and ending on (but excluding) the next succeeding Interest Period Date.
“Interest Amount” means:
(i) in respect of an Interest Accrual Period, the amount of interest payable per Calculation Amount for that Interest Accrual Period and which, in the case of Fixed Rate Notes, and unless otherwise specified hereon, shall mean the Fixed Coupon Amount or Broken Amount specified hereon as being payable on the Interest Payment Date ending the Interest Period of which such Interest Accrual Period forms part; and
(ii) in respect of any other period, the amount of interest payable per Calculation Amount for that period.
“Interest Commencement Date” means the Issue Date or such other date as may be specified hereon.
“Interest Determination Date” means, with respect to a Rate of Interest and Interest Accrual Period, the date specified as such hereon or, if none is so specified, (i) the first day of such Interest Accrual Period if the Specified Currency is Sterling or (ii) the day falling two Business Days in London for the Specified Currency prior to the first day of such Interest Accrual Period if the Specified Currency is neither Sterling nor euro or (iii) the day falling two TARGET Business Days prior to the first day of such Interest Accrual Period if the Specified Currency is euro.
“Interest Period” means the period beginning on (and including) the Interest Commencement Date and ending on (but excluding) the first Interest Payment Date and each successive period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next succeeding Interest Payment Date.
“Interest Period Date” means each Interest Payment Date unless otherwise specified hereon.
“ISDA Definitions” means the 2000 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc., unless otherwise specified hereon.
“Rate of Interest” means the rate of interest payable from time to time in respect of this Note and that is either specified or calculated in accordance with the provisions hereon.
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“Reference Banks” means, in the case of a determination of LIBOR, the principal London office of four major banks in the London inter-bank market and, in the case of a determination of EURIBOR, the principal Euro-zone office of four major banks in the Euro- zone inter-bank market, in each case selected by the Calculation Agent or as specified hereon.
“Reference Rate” means the rate specified as such hereon.
“Relevant Screen Page” means such page, section, caption, column or other part of a particular information service as may be specified hereon.
“Specified Currency” means the currency specified as such hereon or, if none is specified, the currency in which the Notes are denominated.
“TARGET System” means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System or any successor thereto.
(l) Calculation Agent: The Issuer shall procure that there shall at all times be one or more Calculation Agents if provision is made for them hereon and for so long as any Note is outstanding (as defined in the Trust Deed). Where more than one Calculation Agent is appointed in respect of the Notes, references in these Conditions to the Calculation Agent shall be construed as each Calculation Agent performing its respective duties under the Conditions. If the Calculation Agent is unable or unwilling to act as such or if the Calculation Agent fails duly to establish the Rate of Interest for an Interest Accrual Period or to calculate any Interest Amount, Instalment Amount, Final Redemption Amount, Early Redemption Amount or Optional Redemption Amount, as the case may be, or to comply with any other requirement, the Issuer shall (with the prior approval of the Trustee) appoint a leading bank or investment banking firm engaged in the interbank market (or, if appropriate, money, swap or over-the-counter index options market) that is most closely connected with the calculation or determination to be made by the Calculation Agent (acting through its principal London office or any other office actively involved in such market) to act as such in its place. The Calculation Agent may not resign its duties without a successor having been appointed as aforesaid.
5. Redemption, Purchase and Options
(a) Redemption by Instalments and Final Redemption:
(i) Unless previously redeemed, purchased and cancelled as provided in this Condition 5, each Note that provides for Instalment Dates and Instalment Amounts shall be partially redeemed on each Instalment Date at the related Instalment Amount specified hereon. The outstanding nominal amount of each such Note shall be reduced by the Instalment Amount (or, if such Instalment Amount is calculated by reference to a proportion of the nominal amount of such Note, such proportion) for all purposes with effect from the related Instalment Date, unless payment of the Instalment Amount is improperly withheld or refused, in which case, such amount shall remain outstanding until the Relevant Date relating to such Instalment Amount.
(ii) Unless previously redeemed, purchased and cancelled as provided below, each Note shall be finally redeemed on the Maturity Date specified hereon at its Final Redemption Amount (which, unless otherwise provided hereon, is its nominal amount) or, in the case of a Note falling within paragraph (i) above, its final Instalment Amount.
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(b) Early Redemption:
(i) Zero Coupon Notes:
(A) The Early Redemption Amount payable in respect of any Zero Coupon Note, the Early Redemption Amount of which is not linked to an index and/or a formula, upon redemption of such Note pursuant to Condition 5(c) or upon it becoming due and payable as provided in Condition 9 shall be the Amortised Face Amount (calculated as provided below) of such Note unless otherwise specified hereon.
(B) Subject to the provisions of sub-paragraph (C) below, the Amortised Face Amount of any such Note shall be the scheduled Final Redemption Amount of such Note on the Maturity Date discounted at a rate per annum (expressed as a percentage) equal to the Amortisation Yield (which, if none is shown hereon, shall be such rate as would produce an Amortised Face Amount equal to the issue price of the Notes if they were discounted back to their issue price on the Issue Date) compounded annually.
(C) If the Early Redemption Amount payable in respect of any such Note upon its redemption pursuant to Condition 5(c) or upon it becoming due and payable as provided in Condition 9 is not paid when due, the Early Redemption Amount due and payable in respect of such Note shall be the Amortised Face Amount of such Note as defined in sub-paragraph (B) above, except that such sub-paragraph shall have effect as though the date on which the Note becomes due and payable were the Relevant Date. The calculation of the Amortised Face Amount in accordance with this sub-paragraph shall continue to be made (both before and after judgment) until the Relevant Date, unless the Relevant Date falls on or after the Maturity Date, in which case the amount due and payable shall be the scheduled Final Redemption Amount of such Note on the Maturity Date together with any interest that may accrue in accordance with Condition 4(c).
Where such calculation is to be a made for a period of less than one year, it shall be made on the basis of the Day Count Fraction shown hereon.
(ii) Other Notes: The Early Redemption Amount payable in respect of any Note (other than Notes described in (i) above), upon redemption of such Note pursuant to Condition 5(c) or upon it becoming due and payable as provided in Condition 9, shall be the Final Redemption Amount unless otherwise specified hereon.
(c) Redemption for Taxation Reasons: The Notes may be redeemed at the option of the Issuer in whole, but not in part, on any Interest Payment Date (if this Note is either a Floating Rate Note or an Index Linked Note) or at any time (if this Note is neither a Floating Rate Note nor an Index Linked Note), on giving not less than 30 nor more than 60 days’ notice to the Noteholders (which notice shall be irrevocable) at their Early Redemption Amount (as described in Condition 5(b) above) (together with interest accrued to the date fixed for redemption), if (i) the Issuer satisfies the Trustee immediately before the giving of such notice that it has or will become obliged to pay additional amounts as described under Condition 7 or the Guarantor would be unable for reasons outside its control to procure payment by the Issuer and in making payment itself would be required to pay such additional amounts, in either case, as a result of any change in, or amendment to, the laws or regulations of the Cayman Islands (in the case of a payment to be made by the Issuer) or the United Arab Emirates or any Emirate therein (in the case of a payment to be made by the Guarantor) or, in each case, any political subdivision or any authority thereof or therein having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes, and (ii) such obligation cannot be avoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it, provided
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that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer (or the Guarantor, as the case may be) would be obliged to pay such additional amounts were a payment in respect of the Notes (or the Guarantee, as the case may be) then due. Before the publication of any notice of redemption pursuant to this paragraph, the Issuer shall deliver to the Trustee a certificate signed by two duly authorised officers of the Issuer (or the Guarantor, as the case may be) stating that the obligation referred to in (i) above cannot be avoided by the Issuer (or the Guarantor, as the case may be) taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of the condition precedent set out in (ii) above in which event it shall be conclusive and binding on Noteholders and Couponholders.
(d) Redemption at the Option of the Issuer: If a Call Option is specified hereon, the Issuer may, on giving not less than 15 nor more than 30 days’ irrevocable notice to the Noteholders (or such other notice period as may be specified hereon) redeem all or, if so provided, some of the Notes on any Optional Redemption Date. Any such redemption of Notes shall be at their Optional Redemption Amount together with interest accrued to the date fixed for redemption. Any such redemption or exercise must relate to Notes of a nominal amount at least equal to the Minimum Redemption Amount to be redeemed specified hereon and no greater than the Maximum Redemption Amount to be redeemed specified hereon.
All Notes in respect of which any such notice is given shall be redeemed on the date specified in such notice in accordance with this Condition.
In the case of a partial redemption the notice to Noteholders shall also contain the certificate numbers of the Notes drawn which shall have been drawn in such place as the Trustee may approve and in such manner as it deems appropriate, subject to compliance with any applicable laws and stock exchange or other relevant authority requirements.
(e) Redemption at the Option of Noteholders:
(i) If a Put Option is specified hereon, the Issuer shall, at the option of the holder of any Note, upon the holder of such Note giving not less than 15 nor more than 30 days’ notice to the Issuer (or such other notice period as may be specified hereon), redeem such Note on the Optional Redemption Date(s) at its Optional Redemption Amount together with interest accrued to the date fixed for redemption.
(ii) If a Change of Control Event occurs, the Issuer shall, at the option of the holder of any Note, upon the holder of such Note giving notice to the Issuer at any time during the Redemption Period, redeem such Note on the Redemption Date at its principal amount (or such other amount as may be specified in the relevant Final Terms) together (where applicable) with interest accrued to the date fixed for redemption. The Issuer and/or the Guarantor will give notice to the Trustee and the Noteholders in accordance with Condition 15 immediately upon becoming aware of the occurrence of a Change of Control Event.
For the purpose of this paragraph (ii):
a “Change of Control Event” will occur if at any time His Highness Sheikh Mohammed Bin Rashid Al Maktoum or his heirs cease(s) to own, directly or indirectly, or otherwise control at least 50% of the issued share capital of the Guarantor;
“Redemption Date” means, in respect of any Redemption Period, the date which falls 14 days after the last day of such Redemption Period; and
“Redemption Period” means, in relation to any Change of Control Event, the period from and including the date on which a Change of Control Event occurs to and including the date falling 60 days thereafter (whether or not the Issuer or the Guarantor has given the notice referred to above in respect of such event).
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(iii) To exercise such option the holder must deposit such Note (together with all unmatured Receipts and Coupons and unexchanged Talons) with any Paying Agent at its specified office, together with a duly completed option exercise notice (“Exercise Notice”) in the form obtainable from any Paying Agent, within the notice period. No Note so deposited and option exercised may be withdrawn (except as provided in the Agency Agreement) without the prior consent of the Issuer.
(f) Partly Paid Notes: Partly Paid Notes will be redeemed, whether at maturity, early redemption or otherwise, in accordance with the provisions of this Condition and the provisions specified hereon.
(g) Purchases: The Issuer, the Guarantor and any other Subsidiary may at any time purchase Notes (provided that all unmatured Receipts and Coupons and unexchanged Talons relating thereto are attached thereto or surrendered therewith) in the open market or otherwise at any price.
(h) Cancellation: All Notes purchased by or on behalf of the Issuer, the Guarantor or any other Subsidiary may be surrendered for cancellation, together with all unmatured Receipts and Coupons and all unexchanged Talons to the Issuing and Paying Agent and if so surrendered, shall, together with all Notes redeemed by the Issuer, be cancelled forthwith (together with all unmatured Receipts and Coupons and unexchanged Talons attached thereto or surrendered therewith). Any Notes so surrendered for cancellation may not be reissued or resold and the obligations of the Issuer and the Guarantor in respect of any such Notes shall be discharged.
6. Payments and Talons
(a) Principal and Interest: Payments of principal and interest in respect of each Note shall, subject as mentioned below, be made against presentation and surrender of the relevant Receipts (in the case of payments of Instalment Amounts other than on the due date for redemption and provided that the Receipt is presented for payment together with its relative Note), Notes (in the case of all other payments of principal and, in the case of interest, as specified in Condition 6(e)(vi)) or Coupons (in the case of interest, save as specified in Condition 6(e)(ii)), as the case may be, at the specified office of any Paying Agent outside the United States by a cheque payable in the relevant currency drawn on, or, at the option of the holder, by transfer to an account denominated in such currency with, a Bank. “Bank” means a bank in the principal financial centre for such currency or, in the case of euro, in a city in which banks have access to the TARGET System.
(b) Payments in the United States: Notwithstanding the foregoing, if any Notes are denominated in U.S. dollars, payments in respect thereof may be made at the specified office of any Paying Agent in New York City in the same manner as aforesaid if (i) the Issuer shall have appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment of the amounts on the Notes in the manner provided above when due, (ii) payment in full of such amounts at all such offices is illegal or effectively precluded by exchange controls or other similar restrictions on payment or receipt of such amounts and (iii) such payment is then permitted by United States law, without involving, in the opinion of the Issuer, any adverse tax consequence to the Issuer.
(c) Payments Subject to Laws: All payments are subject in all cases to any applicable laws, regulations and directives in the place of payment, but without prejudice to the provisions of Condition 7. No commission or expenses shall be charged to the Noteholders or Couponholders in respect of such payments.
(d) Appointment of Agents: The Issuing and Paying Agent, the Paying Agents and the Calculation Agent initially appointed by the Issuer and the Guarantor and their respective specified offices are listed below. The Issuing and Paying Agent, the Paying Agents and the
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Calculation Agent act solely as agents of the Issuer and the Guarantor and do not assume any obligation or relationship of agency or trust for or with any Noteholder or Couponholder. The Issuer and the Guarantor reserve the right at any time with the approval of the Trustee to vary or terminate the appointment of the Issuing and Paying Agent, any other Paying Agent or the Calculation Agent(s) and to appoint additional or other Paying Agents, provided that the Issuer shall at all times maintain (i) an Issuing and Paying Agent, (ii) one or more Calculation Agent(s) where the Conditions so require, (iii) such other agents as may be required by any other stock exchange on which the Notes may be listed in each case, as approved by the Trustee, and (iv) a Paying Agent with a specified office in a European Union member state that will not be obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive.
In addition, the Issuer and the Guarantor shall forthwith appoint a Paying Agent in New York City in respect of any Notes denominated in U.S. dollars in the circumstances described in paragraph (b) above.
Notice of any such change or any change of any specified office shall promptly be given to the Noteholders.
(e) Unmatured Coupons and Receipts and Unexchanged Talons:
(i) Upon the due date for redemption of Fixed Rate Notes (other than Dual Currency Notes or Index linked Notes) they should be surrendered for payment together with all unmatured Coupons (if any) relating thereto, failing which an amount equal to the face value of each missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the amount of such missing unmatured Coupon that the sum of principal so paid bears to the total principal due) shall be deducted from the Final Redemption Amount, Early Redemption Amount or Optional Redemption Amount, as the case may be, due for payment. Any amount so deducted shall be paid in the manner mentioned above against surrender of such missing Coupon within a period of 10 years from the Relevant Date for the payment of such principal (whether or not such Coupon has become void pursuant to Condition 8).
(ii) Upon the due date for redemption of any Floating Rate Note, Dual Currency Interest Note or Index Linked Note, unmatured Coupons relating to such Note (whether or not attached) shall become void and no payment shall be made in respect of them.
(iii) Upon the due date for redemption of any Note, any unexchanged Talon relating to such Note (whether or not attached) shall become void and no Coupon shall be delivered in respect of such Talon.
(iv) Upon the due date for redemption of any Note that is redeemable in instalments, all Receipts relating to such Note having an Instalment Date falling on or after such due date (whether or not attached) shall become void and no payment shall be made in respect of them.
(v) Where any Note that provides that the relative unmatured Coupons are to become void upon the due date for redemption of those Notes is presented for redemption without all unmatured Coupons, and where any Note is presented for redemption without any unexchanged Talon relating to it, redemption shall be made only against the provision of such indemnity as the Issuer may reasonably require.
(vi) If the due date for redemption of any Note is not a due date for payment of interest, interest accrued from the preceding due date for payment of interest or the Interest Commencement Date, as the case may be, shall only be payable against presentation (and surrender if appropriate) of the relevant Note. Interest accrued on a Note that only
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bears interest after its Maturity Date shall be payable on redemption of such Note against presentation of the relevant Note.
(f) Talons: On or after the Interest Payment Date for the final Coupon forming part of a Coupon sheet issued in respect of any Note, the Talon forming part of such Coupon sheet may be surrendered at the specified office of the Issuing and Paying Agent in exchange for a further Coupon sheet (and if necessary another Talon for a further Coupon sheet) (but excluding any Coupons that may have become void pursuant to Condition 8).
(g) Non-Business Days: If any date for payment in respect of any Note, Receipt or Coupon is not a business day, the holder shall not be entitled to payment until the next following business day nor to any interest or other sum in respect of such postponed payment. In this paragraph, “business day” means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in the relevant place of presentation, in such jurisdictions as shall be specified as “Financial Centres” hereon and:
(i) (in the case of a payment in a currency other than euro) where payment is to be made by transfer to an account maintained with a bank in the relevant currency, on which foreign exchange transactions may be carried on in the relevant currency in the principal financial centre of the country of such currency or
(ii) (in the case of a payment in euro) which is a TARGET Business Day.
7. Taxation
All payments of principal and interest by or on behalf of the Issuer or the Guarantor in respect of the Notes, the Receipts and the Coupons shall be made free and clear of, and without withholding or deduction for, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the Cayman Islands or the United Arab Emirates or any Emirate therein or, in each case any authority therein or thereof having power to tax, unless such withholding or deduction is required by law. In that event, the Issuer or, as the case may be, the Guarantor shall pay such additional amounts as shall result in receipt by the Noteholders and Couponholders of such amounts as would have been received by them had no such withholding or deduction been required, except that no such additional amounts shall be payable with respect to any Note, Receipt or Coupon:
(a) Other Connection: to, or to a third party on behalf of, a holder who is liable to such taxes, duties, assessments or governmental charges in respect of such Note, Receipt or Coupon by reason of his having some connection with the Cayman Islands or, in the case of payments by the Guarantor, the United Arab Emirates or any Emirate therein other than the mere holding of the Note, Receipt or Coupon; or
(b) Presentation more than 30 days after the Relevant Date: presented for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such additional amounts on presenting it for payment on the thirtieth day; or
(c) Payment to Individuals: where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or
(d) Payment by another Paying Agent: presented for payment by or on behalf of a holder who would have been able to avoid such withholding or deduction by presenting the relevant Note, Receipt or Coupon to another Paying Agent in a Member State of the European Union.
As used in these Conditions, “Relevant Date” in respect of any Note, Receipt or Coupon means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount
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outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon further presentation of the Note, Receipt or Coupon being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such presentation. References in these Conditions to (i) “principal” shall be deemed to include any premium payable in respect of the Notes, all Instalment Amounts, Final Redemption Amounts, Early Redemption Amounts, Optional Redemption Amounts, Amortised Face Amounts and all other amounts in the nature of principal payable pursuant to Condition 5 or any amendment or supplement to it, (ii) “interest” shall be deemed to include all Interest Amounts and all other amounts payable pursuant to Condition 4 or any amendment or supplement to it and (iii) “principal” and/or “interest” shall be deemed to include any additional amounts that may be payable under this Condition or any undertaking given in addition to or in substitution for it under the Trust Deed.
8. Prescription Claims against the Issuer and/or the Guarantor for payment in respect of the Notes, Receipts and Coupons (which, for this purpose, shall not include Talons) shall be prescribed and become void unless made within 10 years (in the case of principal) or five years (in the case of interest) from the appropriate Relevant Date in respect of them.
9. Events of Default If any of the following events (“Events of Default”) occurs, the Trustee at its discretion may, and if so requested by holders of at least one-fifth in nominal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (subject in each case to being indemnified and/or secured to its satisfaction), give notice to the Issuer that the Notes are, and they shall immediately become, due and payable at their Early Redemption Amount together with accrued interest: (a) Non-Payment: default is made for more than 14 days (in the case of interest) or seven days (in the case of principal) in the payment on the due date of interest or principal in respect of any of the Notes; or (b) Breach of Other Obligations: the Issuer or the Guarantor does not perform or comply with any one or more of its other obligations in the Notes or the Trust Deed which default is incapable of remedy or, if in the opinion of the Trustee capable of remedy, is not in the opinion of the Trustee remedied within 30 days after notice of such default shall have been given to the Issuer or the Guarantor by the Trustee; or (c) Cross-Default: (i) any other present or future indebtedness of the Issuer, the Guarantor or any Material Subsidiary for or in respect of moneys borrowed or raised becomes due and payable prior to its stated maturity by reason of any actual or potential default, event of default or the like (howsoever described), or (ii) any such indebtedness is not paid when due or, as the case may be, within any applicable grace period, or (iii) the Issuer, the Guarantor or any Material Subsidiary fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above in this paragraph (c) have occurred equals or exceeds U.S.$50,000,000 or its equivalent (on the basis of the middle spot rate for the relevant currency against the U.S. Dollar as appointed by any leading bank on the day on which this paragraph operates); or (d) Enforcement Proceedings: a distress, attachment, execution or other legal process is levied, enforced or sued out on or against all or (in the opinion of the Trustee) a material part of the property, assets or revenues of the Issuer, the Guarantor or any Material Subsidiary and is not discharged or stayed within 60 days, unless such enforcement proceedings are being actively contested in good faith by the Issuer; or
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(e) Security Enforced: any mortgage, charge, pledge, lien or other encumbrance, present or future, created or assumed by the Issuer, the Guarantor or any Material Subsidiary in respect of all or (in the opinion of the Trustee) a material part of the property, assets or revenues of the Issuer, the Guarantor or such Material Subsidiary, as the case may be, becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, administrative receiver, manager or other similar person); or (f) Insolvency: any of the Issuer, the Guarantor or any Material Subsidiary is (or is, or could be, deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or (in the opinion of the Trustee) a material part of its debts, proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared in respect of or affecting all or any part of the debts of the Issuer, the Guarantor or any Material Subsidiary; or (g) Winding-up: an order is made or an effective resolution passed for the winding-up or dissolution of the Issuer, the Guarantor or any Material Subsidiary, or the Issuer, the Guarantor or any Material Subsidiary ceases or threatens to cease to carry on all or (in the opinion of the Trustee) substantially all of its business or operations, in each case except for the purpose of and followed by a reconstruction, amalgamation, reorganisation, merger or consolidation (i) on terms approved by the Trustee or by an Extraordinary Resolution of the Noteholders or (ii) in the case of a Material Subsidiary, whereby the undertaking and assets of the Material Subsidiary are transferred to or otherwise vested in the Guarantor or another Subsidiary; or (h) Nationalisation: any step is taken by any person (acting otherwise than in a capacity as shareholder of Dubai Holding LLC) with a view to the seizure, compulsory acquisition, expropriation or nationalisation of all or (in the opinion of the Trustee) a material part of the assets of the Issuer, the Guarantor or any Material Subsidiary; or (i) Authorisation and Consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorisation, exemption, filing, licence, order, recording or registration) at any time required to be taken, fulfilled or done in order (i) to enable the Issuer and the Guarantor lawfully to enter into, exercise their respective rights and perform and comply with their respective obligations under the Notes and the Trust Deed, (ii) to ensure that those obligations are legally binding and enforceable and (iii) to make the Notes and the Trust Deed admissible in evidence in the courts of the Cayman Islands and the United Arab Emirates or any Emirate therein is not taken, fulfilled or done; or (j) Illegality: it is or will become unlawful for the Issuer or the Guarantor to perform or comply with any one or more of its obligations under any of the Notes or the Trust Deed; or (k) Analogous Events: any event occurs that under the laws of any relevant jurisdiction has an analogous effect to any of the events referred to in any of the foregoing paragraphs; or (l) Guarantee: the Guarantee is not (or is claimed by the Guarantor not to be) in full force and effect, provided that (other than in the case of paragraphs (a) and (c) and (in the case of the Issuer or the Guarantor) paragraphs (f) and (g)) the Trustee shall have certified that in its opinion such event is materially prejudicial to the interests of the Noteholders. For the purpose of this Condition:
“Consolidated Operating Profit” means the operating profit of the Guarantor for the most recent financial year as shown in the latest audited consolidated financial statements of the Guarantor and its Subsidiaries (or until publication of the first such audited consolidated financial statements, the audited combined financial statements of the Guarantor (the “Combined Financial Statements”) for the year ended 31 December 2005);
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“Consolidated Total Net Assets” means the aggregate amount of total assets of the Guarantor, after deducting therefrom (i) all current liabilities and (ii) all intangible assets, as at the end of the most recent financial year as shown in the latest audited consolidated financial statements of the Guarantor and its Subsidiaries (or until publication of the first such audited consolidated financial statements, the Combined Financial Statements);
“Material Subsidiary” means any Subsidiary:
(i) whose Operating Profit or whose Total Net Assets represent not less than 10% of the Consolidated Operating Profit, or, as the case may be, the Consolidated Total Net Assets of the Guarantor and its Subsidiaries taken as a whole; provided that in the case of a Subsidiary acquired after the end of the financial period to which the then latest audited consolidated financial statements of the Guarantor relate or, as the case may be, the Combined Financial Statements relate, in applying each of the above tests the reference in the relevant defined terms to the latest audited consolidated financial statements or, as the case may be, the Combined Financial Statements, for the financial period in which the acquisition is made have been prepared and audited as aforesaid, shall be deemed to be a reference to such first mentioned financial statements or Combined Financial Statements as if such Subsidiary had been shown in such financial statements or, as the case may be, Combined Financial Statements by reference to its then latest relevant financial statements or, as the case may be, Combined Financial Statements, adjusted as deemed appropriate (as defined in the Trust Deed) by the Auditors after consultation with the Guarantor; or
(ii) to which is transferred all or substantially all of the business, undertaking and assets of another Subsidiary which immediately prior to such transfer is a Material Subsidiary, whereupon (a) in the case of a transfer by a Material Subsidiary, the transferor Material Subsidiary shall immediately cease to be a Material Subsidiary and (b) the transferee Subsidiary shall immediately become a Material Subsidiary, provided that on or after the date on which the financial statements for the financial period current at the date of such transfer are published, whether such transferor Subsidiary or such transferee Subsidiary is or is not a Material Subsidiary shall be determined pursuant to the provisions of sub-paragraph (i) above;
“Operating Profit” means, in relation to a Subsidiary, its operating profit (consolidated in the case of a Subsidiary which itself has subsidiaries) for the most recent financial year as shown in such Subsidiary’s latest annual audited or unaudited, as the case may be, financial statements (consolidated in the case of a Subsidiary which itself has subsidiaries); and
“Total Net Assets” means, in relation to a Subsidiary, its total assets after deducting therefrom (i) all current liabilities and (ii) all intangible assets (consolidated in the case of a Subsidiary which itself has subsidiaries), as at the end of the most recent financial year as shown in its latest annual audited or unaudited, as the case may be financial statements (consolidated in the case of a Subsidiary which itself has subsidiaries).
A report by two duly authorised officers of the Guarantor that in their opinion (making such adjustments (if any) as they shall deem appropriate) a Subsidiary is or is not or was or was not at any particular time or during any particular period a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on the Issuer, the Guarantor, the Trustee and the Noteholders.
10. Meetings of Noteholders, Modification, Waiver and Substitution
(a) Meetings of Noteholders: The Trust Deed contains provisions for convening meetings of Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Trust Deed. Such a meeting may be convened by Noteholders holding not less than 10% in nominal amount of the Notes for the time being outstanding. The quorum for any meeting convened to consider an Extraordinary Resolution shall be two or more persons holding or
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representing a clear majority in nominal amount of the Notes for the time being outstanding, or at any adjourned meeting two or more persons being or representing Noteholders whatever the nominal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to amend the dates of maturity or redemption of the Notes, any Instalment Date or any date for payment of interest or Interest Amounts on the Notes, (ii) to reduce or cancel the nominal amount of, or any Instalment Amount of, or any premium payable on redemption of, the Notes, (iii) to reduce the rate or rates of interest in respect of the Notes or to vary the method or basis of calculating the rate or rates or amount of interest or the basis for calculating any Interest Amount in respect of the Notes, (iv) if a Minimum and/or a Maximum Rate of Interest, Instalment Amount or Redemption Amount is shown hereon, to reduce any such Minimum and/or Maximum, (v) to vary any method of, or basis for, calculating the Final Redemption Amount, the Early Redemption Amount or the Optional Redemption Amount, including the method of calculating the Amortised Face Amount, (vi) to vary the currency or currencies of payment or denomination of the Notes, or (vii) to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass the Extraordinary Resolution, or (viii) to modify or cancel the Guarantee, in which case the necessary quorum shall be two or more persons holding or representing not less than 75%, or at any adjourned meeting not less than 25%, in nominal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on Noteholders (whether or not they were present at the meeting at which such resolution was passed) and on all Couponholders.
(b) Modification of the Trust Deed: The Trustee may agree, without the consent of the Noteholders or Couponholders, to (i) any modification of any of the provisions of the Trust Deed that, in its opinion, 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 that is in the opinion of the Trustee not materially prejudicial to the interests of the Noteholders. Any such modification, authorisation or waiver shall be binding on the Noteholders and the Couponholders and, if the Trustee so requires, such modification shall be notified to the Noteholders as soon as practicable.
(c) Substitution: The Trust Deed contains provisions permitting the Trustee to agree, subject to such amendment of the Trust Deed and such other conditions as the Trustee may require, but without the consent of the Noteholders or the Couponholders, to the substitution of the Issuer’s successor in business (as defined in the Trust Deed) or any subsidiary of the Issuer or its successor in business or of the Guarantor or its successor in business or any subsidiary of the Guarantor or its successor in business in place of the Issuer or Guarantor, or of any previous substituted company, as principal debtor or Guarantor under the Trust Deed and the Notes. In the case of such a substitution the Trustee may agree, without the consent of the Noteholders or the Couponholders, to a change of the law governing the Notes, the Receipts, the Coupons, the Talons and/or the Trust Deed provided that such change would not in the opinion of the Trustee be materially prejudicial to the interests of the Noteholders.
(d) Entitlement of the Trustee: In connection with the exercise of its functions (including but not limited to those referred to in this Condition) the Trustee shall have regard to the interests of the Noteholders as a class and shall not have regard to the consequences of such exercise for individual Noteholders or Couponholders and the Trustee shall not be entitled to require, nor shall any Noteholder or Couponholder be entitled to claim, from the Issuer or the Guarantor any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders or Couponholders.
11. Enforcement
At any time after the Notes become due and payable, the Trustee may, at its discretion and without further notice, institute such proceedings against the Issuer and/or the Guarantor as it may think fit
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to enforce the terms of the Trust Deed, the Notes, the Receipts and the Coupons, but it need not take any such proceedings unless (a) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least one-fifth in nominal amount of the Notes outstanding, and (b) it shall have been indemnified and/or secured to its satisfaction. No Noteholder, Receiptholder or Couponholder may proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.
12. Indemnification of the Trustee
The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility. The Trustee is entitled to enter into business transactions with the Issuer, the Guarantor and any entity related to the Issuer or the Guarantor without accounting for any profit.
13. Replacement of Notes, Receipts, Coupons and Talons
If a Note, Receipt, Coupon or Talon is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations and stock exchange or other relevant authority regulations, at the specified office of the Issuing and Paying Agent in Luxembourg or such other Paying Agent as may from time to time be designated by the Issuer for the purpose and notice of whose designation is given to Noteholders, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security and indemnity (which may provide, inter alia, that if the allegedly lost, stolen or destroyed Note, Receipt, Coupon or Talon is subsequently presented for payment or, as the case may be, for exchange for further Coupons, there shall be paid to the Issuer on demand the amount payable by the Issuer in respect of such Notes, Receipts, Coupons or further Coupons) and otherwise as the Issuer may reasonably require. Mutilated or defaced Notes, Receipts, Coupons or Talons must be surrendered before replacements will be issued.
14. Further Issues
The Issuer may from time to time without the consent of the Noteholders or Couponholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them) and so that such further issue shall be consolidated and form a single series with the outstanding securities of any series (including the Notes) or upon such terms as the Issuer may determine at the time of their issue. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further securities forming a single series with the outstanding securities of any series (including the Notes) constituted by the Trust Deed or any deed supplemental to it shall, and any other securities may (with the consent of the Trustee), be constituted by the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Noteholders and the holders of securities of other series where the Trustee so decides.
15. Notices
Notices to Noteholders shall be valid if published in a daily newspaper of general circulation in London (which is expected to be the Financial Times) and so long as the Notes are listed on the Dubai International Financial Exchange (the “DIFX”), notified to the market through CANDI (Corporate Action News Disclosure for Issuers operated by the DIFX). If, in the opinion of the Trustee, any such publication is not practicable, notice shall be validly given if published in another leading daily English language newspaper with general circulation in Europe. The Issuer shall also ensure that notices are duly published in a manner that complies with the rules of any stock exchange or other relevant authority on which the Notes are for the time being or by which they have for the time being admitted to trading.
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Any 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 publication is made, as provided above.
Couponholders shall be deemed for all purposes to have notice of the contents of any notice given to the Noteholders in accordance with this Condition.
16. Contracts (Rights of Third Parties) Act 1999
No person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999.
17. Governing Law and Jurisdiction
(a) Governing Law: The Trust Deed, the Notes, the Receipts, the Coupons and the Talons are governed by, and shall be construed in accordance with, English law.
(b) Jurisdiction: The Courts of England are to have jurisdiction to settle any disputes that may arise out of or in connection with any Notes, Receipts, Coupons or Talons or the Guarantee and accordingly any legal action or proceedings arising out of or in connection with any Notes, Receipts, Coupons or Talons or the Guarantee (“Proceedings”) may be brought in such courts. Each of the Issuer and the Guarantor has in the Trust Deed irrevocably submitted to the jurisdiction of such courts.
(c) Service of Process: Each of the Issuer and the Guarantor has in the Trust Deed irrevocably appointed an agent in England to receive, for it and on its behalf, service of process in any Proceedings in England.
(d) Waiver: The Guarantor irrevocably agrees that, should any Proceedings be taken anywhere (whether for any injunction, specific performance, damages or otherwise), no immunity (to the extent that it may at any time exist, whether on the grounds of sovereignty or otherwise) in relation to those Proceedings (including without limitation, immunity from the jurisdiction of any court or tribunal, suit, service of process, injunctive or other interim relief, any order for specific performance, any order for recovery of land, any attachment (whether in aid of execution, before judgment or otherwise) of its assets, any process for execution of any award or judgment or other legal process) shall be claimed by it or on its behalf or with respect to its assets, any such immunity being irrevocably waived. The Guarantor irrevocably agrees that it and its assets are, and shall be, subject to such Proceedings, attachment or execution in respect of its obligations under the Guarantee.
(e) Consent: The Guarantor irrevocably and generally consents in respect of any Proceedings anywhere to the giving of any relief or the issue of any process in connection with those Proceedings including, without limitation, the making, enforcement or execution against any assets whatsoever (irrespective of their use or intended use) of any order or judgment which may be made or given in those Proceedings.
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Summary of Provisions Relating to the Notes While in Global Form
Initial Issue of Notes
Global Notes may be delivered on or prior to the original issue date of the Tranche with a common depositary for Euroclear and Clearstream, Luxembourg (the “Common Depositary”).
Upon the initial deposit of a Global Note with the Common Depositary, Euroclear or Clearstream, Luxembourg will credit each subscriber with a nominal amount of Notes equal to the nominal amount thereof for which it has subscribed and paid.
Notes that are initially deposited with the Common Depositary may also be credited to the accounts of subscribers with (if indicated in the relevant Final Terms) other clearing systems through direct or indirect accounts with Euroclear and Clearstream, Luxembourg held by such other clearing systems. Conversely, Notes that are initially deposited with any other clearing system may similarly be credited to the accounts of subscribers with Euroclear, Clearstream, Luxembourg or other clearing systems.
Relationship of Accountholders with Clearing Systems
Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or any other clearing system (“Alternative Clearing System”) as the holder of a Note represented by a Global Note must look solely to Euroclear, Clearstream, Luxembourg or any such Alternative Clearing System (as the case may be) for his share of each payment made by the Issuer to the bearer of such Global Note and in relation to all other rights arising under the Global Notes, subject to and in accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg, or such Alternative Clearing System (as the case may be). Such persons shall have no claim directly against the Issuer in respect of payments due on the Notes for so long as the Notes are represented by such Global Note and such obligations of the Issuer will be discharged by payment to the bearer of such Global Note in respect of each amount so paid.
Exchange
Temporary Global Notes
Each Temporary Global Note will be exchangeable, free of charge to the holder, on or after its Exchange Date:
(i) if the relevant Final Terms indicates that such Global Note is issued in compliance with the C Rules or in a transaction to which TEFRA is not applicable, in whole, but not in part, for the Definitive Notes defined and described below; and
(ii) otherwise, in whole or in part upon certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement for interests in a Permanent Global Note or, if so provided in the relevant Final Terms, for Definitive Notes.
Permanent Global Notes
Each Permanent Global Note will be exchangeable, free of charge to the holder, on or after its Exchange Date in whole but not, except as provided under “Partial Exchange of Permanent Global Notes” below, in part for Definitive Notes if the Permanent Global Note is held on behalf of Euroclear or Clearstream, Luxembourg or an Alternative Clearing System and any such clearing system is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so.
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In the event that a Global Note is exchanged for Definitive Notes, such Definitive Notes shall be issued in Specified Denomination(s) only. A Noteholder who holds a principal amount of less than the minimum Specified Denomination will not receive a Definitive Note in respect of such holding and would need to purchase a principal amount of Notes such that it holds an amount equal to one or more Specified Denominations.
Partial Exchange of Permanent Global Notes
For so long as a Permanent Global Note is held on behalf of a clearing system and the rules of that clearing system permit, such Permanent Global Note will be exchangeable in part on one or more occasions if so provided in, and in accordance with, the Conditions (which will be set out in the relevant Final Terms) relating to Partly Paid Notes.
Delivery of Notes
On or after any due date for exchange the holder of a Global Note may surrender such Global Note or, in the case of a partial exchange, present it for endorsement to or to the order of the Issuing and Paying Agent. In exchange for any Global Note, or the part thereof to be exchanged, the Issuer will (i) in the case of a Temporary Global Note exchangeable for a Permanent Global Note, deliver, or procure the delivery of, a Permanent Global Note in an aggregate nominal amount equal to that of the whole or that part of a Temporary Global Note that is being exchanged or, in the case of a subsequent exchange, endorse, or procure the endorsement of, a Permanent Global Note to reflect such exchange or (ii) in the case of a Global Note exchangeable for Definitive Notes, deliver, or procure the delivery of, an equal aggregate nominal amount of duly executed and authenticated Definitive Notes. In this Prospectus, “Definitive Notes” means, in relation to any Global Note, the definitive Notes for which such Global Note may be exchanged (if appropriate, having attached to them all Coupons and Receipts in respect of interest or Instalment Amounts that have not already been paid on the Global Note and a Talon). Definitive Notes will be security printed in accordance with any applicable legal and stock exchange requirements in or substantially in the form set out in the Schedules to the Trust Deed. On exchange in full of each Permanent Global Note, the Issuer will, if the holder so requests, procure that it is cancelled and returned to the holder together with the relevant Definitive Notes.
Exchange Date
“Exchange Date” means, in relation to a Temporary Global Note, the day falling after the expiry of 40 days after its issue date and, in relation to a Permanent Global Note, a day falling not less than 60 days after that on which the notice requiring exchange is given and on which banks are open for business in the city in which the specified office of the Issuing and Paying Agent is located and in the city in which the relevant clearing system is located.
Amendment to Conditions
The Temporary Global Notes and Permanent Global Notes contain provisions that apply to the Notes that they represent, some of which modify the effect of the terms and conditions of the Notes set out in this Prospectus. The following is a summary of certain of those provisions:
Payments
No payment falling due after the Exchange Date will be made on any Global Note unless exchange for an interest in a Permanent Global Note or for Definitive Notes is improperly withheld or refused. Payments on any Temporary Global Note issued in compliance with the D Rules before the Exchange Date will only be made against presentation of certification as to non-U.S. beneficial ownership in the form set out in the Agency Agreement. All payments in respect of Notes represented by a Global Note will be made against presentation for endorsement and, if no further payment falls to be made in respect of the Notes, surrender of that Global Note to or to the order
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of the Issuing and Paying Agent or such other Paying Agent as shall have been notified to the Noteholders for such purpose. A record of each payment so made will be endorsed on each Global Note, which endorsement will be prima facie evidence that such payment has been made in respect of the Notes. Condition 6(d)(v) and Condition 7(d) will apply to the Definitive Notes only.
Prescription
Claims against the Issuer in respect of Notes that are represented by a Permanent Global Note will become void unless it is presented for payment within a period of 10 years (in the case of principal) and five years (in the case of interest) from the appropriate Relevant Date (as defined in Condition 7).
Meetings
The holder of a Permanent Global Note shall (unless such Permanent Global Note represents only one Note) be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders and, at any such meeting, as having one vote in respect of each integral currency unit of the Specified Currency of the Notes.
Cancellation
Cancellation of any Note represented by a Permanent Global Note that is required by the Conditions to be cancelled (other than upon its redemption) will be effected by reduction in the nominal amount of the relevant Permanent Global Note.
Purchase
Notes represented by a Permanent Global Note may only be purchased by the Issuer, the Guarantor or any other Subsidiary if they are purchased together with the rights to receive all future payments of interest and Instalment Amounts (if any) thereon.
Issuer’s Option
Any option of the Issuer provided for in the Conditions of any Notes while such Notes are represented by a Permanent Global Note shall be exercised by the Issuer giving notice to the Noteholders within the time limits set out in and containing the information required by the Conditions, except that the notice shall not be required to contain the serial numbers of Notes drawn in the case of a partial exercise of an option and accordingly no drawing of Notes shall be required. In the event that any option of the Issuer is exercised in respect of some but not all of the Notes of any Series, the rights of accountholders with a clearing system in respect of the Notes will be governed by the standard procedures of Euroclear, Clearstream, Luxembourg or any other clearing system (as the case may be).
Noteholders’ Options
Any option of the Noteholders provided for in the Conditions of any Notes while such Notes are represented by a Permanent Global Note may be exercised by the holder of the Permanent Global Note giving notice to the Issuing and Paying Agent within the time limits relating to the deposit of Notes with a Paying Agent set out in the Conditions substantially in the form of the notice available from any Paying Agent, except that the notice shall not be required to contain the serial numbers of the Notes in respect of which the option has been exercised, and stating the nominal amount of Notes in respect of which the option is exercised and at the same time presenting the Permanent Global Note to the Issuing and Paying Agent, or to a Paying Agent acting on behalf of the Issuing and Paying Agent, for notation.
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Trustee’s Powers
In considering the interests of Noteholders while any Global Note is held on behalf of a clearing system, the Trustee may have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to such Global Note and may consider such interests as if such accountholders were the holders of the Notes represented by such Global Note.
Notices
So long as any Notes are represented by a Global Note and such Global Note is held on behalf of a clearing system, notices to the holders of Notes of that Series may be given by delivery of the relevant notice to that clearing system for communication by it to entitled accountholders in substitution for publication as required by the Conditions or by delivery of the relevant notice to the holder of the Global Note.
Partly Paid Notes
The provisions relating to Partly Paid Notes are not set out in this Prospectus, but will be contained in the relevant Final Terms and thereby in the Global Notes. While any instalments of the subscription moneys due from the holder of Partly Paid Notes are overdue, no interest in a Global Note representing such Notes may be exchanged for an interest in a Permanent Global Note or for Definitive Notes (as the case may be). If any Noteholder fails to pay any instalment due on any Partly Paid Notes within the time specified, the Issuer may forfeit such Notes and shall have no further obligation to their holder in respect of them.
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Use of Proceeds
The net proceeds that the Issuer will receive from the sale of the Notes will be lent on an intra- group basis to the Guarantor which will use the proceeds for its general corporate purposes, including refinancing of existing indebtedness.
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The Issuer
The Issuer was incorporated on 20 November 2006 as an exempted company under the laws of the Cayman Islands. The Issuer’s registered office is located at the offices of Paget-Brown Trust Company Ltd., West Wind Building, Harbour Drive, P.O. Box 1111, George Town, Grand Cayman, Cayman Islands and its telephone number is +1 345 949 5122. Its authorised share capital is U.S.$50,000 and its issued share capital is U.S.$250.00 divided into 250 ordinary shares of U.S.$1.00 each. All of the issued share capital of the Issuer is held by the Company.
The Issuer’s principal purpose is to issue Notes under the Programme guaranteed by the Company. The Issuer has not conducted operations since its inception and has no subsidiaries or significant business other than the issuance of the Notes and is not expected to have any income except payments received from the Company which will be the only material sources of funds available to meet the claims of the holders of the Notes.
Articles of Association and Memorandum of Association of Dubai Holding Commercial Operations MTN Limited
The articles of association and memorandum of association of the Issuer permit the Issuer to issue the Notes and provide financing for the Company as described herein.
Management of the Issuer
Dubai Holding Commercial Operations MTN Limited’s board of directors is made up of four directors: H.E. Mohammad Al Gergawi, Mr. Fadel Al Ali, Mr. Hashim Al Dabal and Mr. Saud BaAlawy. In addition to their duties as directors of the Issuer, H.E. Al Gergawi is the Executive Chairman of Dubai Holding LLC, Mr. Al Ali is the Chief Financial and Operating Officer of Dubai Holding LLC, Mr. Al Dabal is the Chief Executive Officer of Dubai Properties LLC and Mr. BaAlawy is the Chief Executive Officer of Dubai Investment Group. The business address of each member of the board of directors is c/o Dubai Holding LLC, P.O. Box 66000, Level 38, Emirates Towers (offices), Sheikh Zayed Road, Dubai, United Arab Emirates.
As at the date of this Prospectus, there are no actual or potential conflicts of interest between any duties of the directors to the Issuer and their duties in respect of their other directorships or their private interests.
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The Company
Overview The Company is the holding company of a diverse group of companies with principal operations covering domestic and international real estate, hospitality and leisure and telecommunications. It is one of the largest infrastructure and property development companies in Dubai and the Middle East. Through its activities, the Company has contributed to the success of Dubai as a tourist destination and business hub by developing many of its landmark properties such as the Burj Al Arab, Jumeirah Beach Hotel and Emirates Towers (Dubai’s iconic buildings) and has pioneered the development of free zones (areas of land granted special rights by the Government of Dubai with the specific purpose of facilitating foreign investment) such as Dubai Internet City, Dubai Media City, Dubai Knowledge Village and Dubai Healthcare City. The Company is also involved in the development of many large scale ongoing projects which will be completed in the next three to five years such as Dubailand (an entertainment, leisure and residential area) as well as master-planned lifestyle and business communities (large communities which are built in accordance with a single scheme, even though they might be developed in stages, and comprise a range of amenities) such as The Lagoons, Jumeirah Beach Residences, Business Bay and The Villa (as further described below). The Company is instrumental in the execution of the Government of Dubai’s economic agenda of (i) diversifying the economy away from the oil industry into real estate, tourism, media and telecommunications, as well as financial, manufacturing and commercial services; (ii) enhancing the role of the private sector and further promoting foreign investment; (iii) allowing foreigners to own property on a freehold and long term lease basis; and (iv) establishing free zones aimed at attracting foreign entities to set up offices in Dubai for their regional operations encompassing the Gulf, the Indian sub-continent, the Levant and North Africa. While most of its current developments are located in Dubai, the Company has taken strategic steps to expand regionally by developing real estate projects in countries such as Oman, Bahrain, Qatar, Turkey and Morocco. The Company was incorporated on 29 October 2006 as part of the re-organisation of the subsidiaries of Dubai Holding LLC (“Dubai Holding”) in order to segregate clearly operating activities from investment activities. The Company is owned as to 99.67% by Dubai Holding and as to 0.33% by TECOM Investments FZ LLC. Dubai Holding is owned as to 99.67% by His Highness Sheikh Mohammed Bin Rashid Al Maktoum. The Company’s network of business activities provides it with a constant revenue stream and strong asset base. For the year ended 31 December 2005, its total revenues were AED 2.645 billion and its EBITDA was AED 1.478 billion. These figures are derived from the combined financial statements of the Company’s commercial operating subsidiaries (as described below) for the year ended 31 December 2005. The Company’s first set of consolidated financial statements will be produced for the year ended 31 December 2006. For the year ended 31 December 2005, the Company’s main sources of revenue were from its hospitality and leisure operations, real estate projects and the sale of land followed by income from its investments, as set out in the table below:
Year ended 31 December 2005 11111111111112Source of total revenue of Company Sector (%) Hospitality and Leisure...... 43.7 Real Estate...... 23.8 Land Sales ...... 16.6 Technology ...... 6.9 Services ...... 3.4 Commercials & Sponsorships ...... 3.2 Investment Income ...... 1.8 Other...... 0.5
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The Company receives its revenues from the following commercial operating subsidiaries which are listed in order of their total revenues for the year ended 31 December 2005:
(i) Dubai Properties LLC - a real estate developer of several large projects including Business Bay, Jumeirah Beach Residences, The Villa and Culture Village;
(ii) TECOM Investments LLC - a developer of substantial free zone real estate in Dubai including Dubai Internet City, Dubai Media City and Dubai Knowledge Village and has also made substantial investments in the telecommunications sector both locally and overseas;
(iii) Jumeirah Group LLC - a hospitality and leisure company which both owns and manages several key hotels and commercial properties in Dubai including the Burj Al Arab, Emirates Towers, Jumeirah Beach Hotel, the Jumeirah Beach Club, Madinat Jumeirah and also manages other hotels and commercial properties such as Bab al Shams, The Carlton Towers and The Lowndes Hotel in London as well as Essex House in New York. It also set up the Emirates Academy of Hospitality Management, the first hospitality training institute in Dubai;
(iv) SAMA Dubai LLC - previously known as Dubai International Properties LLC, SAMA Dubai LLC focuses on international real estate projects. Current projects under development include the Dubai Towers (which are business developments in Turkey and Qatar), the Salam Resorts and Spas (luxury hotels in Oman and Bahrain) and Amwaj (a comprehensive urban development in Morocco); and
(v) Tatweer Dubai LLC - a company set up to own and manage a large portfolio of real estate projects such as Dubailand, Dubai Healthcare City (a free zone for the healthcare industry), Dubai Industrial City and the Dubai Mercantile Exchange (Dubai’s first energy futures exchange) (set up as a joint venture with the New York Mercantile Exchange).
History
The following timeline shows the evolution of the Company and certain of its subsidiaries:
• Tatweer launches Dubailand and Dubai Mercantile Exchange scheduled to be launched in early 2007 • Jumeirah Group • Dubai International • Jumeirah Group created 1997 becomes part of Properties renamed • Dubai Internet City and Dubai Media City • Dubai Dubai Holding LLC SAMA Dubai launched in 2000, forming TECOM Healthcare City • Business Bay • SAMA Dubai launches Investments launched launched The Lagoons
<2001 2002 2003 2004 2005 2006
• Jumeirah Beach • Dubai Properties, Dubai • Establishment of the Residences launched International Properties Company (now SAMA Dubai) established • Tatweer established and Dubai Industrial City launched
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Group structure
The following diagram shows the operational structure of the Company as at the date of this Prospectus:
Dubai Holding
Commercial Operations Group LLC
Jumeirah TECOM Dubai Tatweer SAMA Group Investments Properties LLC Dubai LLC LLC LLC LLC
Dubai Internet Jumeirah Beach Dubailand Dubai Tower Burj Al Arab City Residence Dubai Industrial Salam Resort & Jumeirah Beach Dubai Media City The Villa City Spas Hotel Dubai Knowledge Business Bay Dubai Amwaj Jumeirah Beach Village Healthcare City Club Culture Village The Lagoons Dubiotech Dubai Energy Madinat Jumeirah Dubai Outsource Dubai Mercantile Bab Al Shams* Zone Exchange Emirates Towers Int ’I Media & Carlton Towers* Production Zone The Lowndes* Dubai Studio City Essex House* Empower Emirates Academy of e-hosting Datafort Hospitality Management Arab Media Group telecoms Interoute acquisitions Maltacom Axiom Telecom du
Tunisie Telecom
* These hotels are managed but not owned by Jumeirah Group LLC.
Many of the Company’s real estate projects are currently being developed and are expected to be completed over the next three to five years. Further detail on these projects is provided in the section entitled “Subsidiaries” below.
Subsidiaries
TECOM
TECOM Investments FZ LLC (“TECOM”) was incorporated on 29 May 2001 as DIC Investments FZ LLC and changed its name to TECOM Investments FZ LLC on 8 October 2002. TECOM was wholly- owned by Al Mada LLC, which is owned as to 99.66% by Dubai Holding. On 10 December 2006, ownership of all the shares in TECOM was transferred to TECOM Investments LLC, which was incorporated on 14 February 2006 to consolidate the different interests of TECOM. TECOM Investments LLC is owned as to 99.67% by the Company and as to 0.33% by Tecom Investments FZ LLC. TECOM’s main objective is to encourage the growth of a “knowledge-based economy” in Dubai by developing the information, technology and communication sector, the media sector and the educational sector. It has set up three separate free zone clusters: Dubai Internet City (dedicated
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to the information, communication and technology sector), Dubai Media City (dedicated to the media industry) and Dubai Knowledge Village (dedicated to educational and training institutions).
TECOM has also set up the largest internet protocol infrastructure in the world covering and supporting each of its free zones. This has now been transferred to Emirates Integrated Telecommunications Company PJSC (“du”) in which TECOM has a major shareholding (see “- Telecommunications” below).
TECOM’s business activities can be separated into four areas (i) free zones; (ii) investments; (iii) telecommunications and (iv) media, as further described below.
For the year ended 31 December 2005, TECOM’s total revenues were approximately AED 1.535 million (including release of deferred government grant income and government grant income) and its EBITDA was approximately AED 0.805 million.
Free zones
TECOM has set up the following free zones (which are designated areas of land granted special rights by the Government of Dubai making them attractive to foreign investors, see “TECOM’s Business Model” below):
(i) Dubai Internet City
Dubai Internet City is the first complete information technology and telecommunications hub built within a free trade zone and the biggest information technology infrastructure in the Middle East. Its clients include multinational companies such as Microsoft, Siemens, Oracle and IBM. Dubai Internet City provides these companies with a strategic base from which to carry out their operations in the Middle East and other emerging markets such as the Indian sub-continent, Africa and Central Asia.
(ii) Dubai Media City
Dubai Media City is a community built specifically for the media industry. Its clients include leading companies in the international media business such as the Associated Press, Bertelsmann, CNN, CNBC, International Advertising Association (IAA), McGraw-Hill Platts, Sony, Reuters as well as regional media companies such as the Middle East Broadcasting Corporation, Saudi Research and Publishing and Taj TV.
(iii) Dubai Knowledge Village
As an educational hub built in a free zone, Dubai Knowledge Village has attracted a range of educational and training institutions including prominent universities from the United Kingdom (such as Manchester Business School and Middlesex University) and Australia (such as the University of Wollongong and the SAE Institute) which offer advanced programmes in science, technology, business, management and media.
Investments
TECOM has also made the following strategic investments:
(i) Emirates Central Cooling Systems Corporation (“Empower”)
Empower was established in December 2003 as a joint venture owned 50% by TECOM and 50% by Dubai Electricity and Water Authority (“DEWA”). Empower will be engaged to provide cooling services to various real estate projects of the Company such as Jumeirah Beach Residences, Dubai Healthcare City and Business Bay as well as other entities that are not owned or operated by the Company, such as the Dubai International Financial Centre.
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(ii) e-Hosting DataFort (“EHDF”)
EHDF was formed as a result of a merger in April 2003 of e-hosting FZ LLC and Datafort FZ LLC and is a wholly owned subsidiary of TECOM. It is a managed hosting and IT security company and offers services which secure companies’ IT infrastructure including co-location, managed hosting, a strategic outsourcing data centre, internal security auditing, disaster recovery and business continuity services.
Telecommunications
TECOM also has a telecommunications portfolio which it has expanded by investing in both established businesses and new ventures in the telecommunications industry worldwide. These include:
(i) the acquisition of a 30% shareholding in Interoute Telecom Holding Limited (“Interoute”) by TECOM Investments Overseas Limited (Cayman), a special purpose vehicle incorporated on 10 August 2005. Interoute owns and manages one of the largest and most advanced voice and data networks in Europe;
(ii) the acquisition of a 60% shareholding in Maltacom (as part of Maltacom’s privatisation as a mobile and fixed telephone services provider) by Emirates International Telecommunications (Malta) Limited, a wholly owned subsidiary of Emirates International Telecommunications LLC (“EIT”). EIT was formed on 24 April 2006 as a joint venture vehicle between TECOM and Dubai Investment Group LLC (“Dubai Investment Group”);
(iii) the acquisition of a 40% shareholding in Axiom Telecom LLC by TECOM on 5 December 2005. Axiom Telecom LLC is a leading regional distributor of mobile telephones;
(iv) the acquisition of a 25% shareholding in du, the second mobile phone operator to be established in the UAE after Etisalat, by Emirates Communications and Technologies Company LLC (“ECTC”) on 31 December 2005. ECTC is owned by TECOM and TECOM Investments LLC (5% of ECTC’s shareholding in du was sold to the public in 2006); and
(v) the acquisition of a 35% shareholding in Tunisie Telecom in May 2006 from the Government of Tunisia by Emirates International Telecommunication (Tunisia) FZ LLC (“EITT”), a special purpose vehicle which is wholly owned by EIT. Tunisie Telecom is a telecom service provider which has a monopoly over the fixed line telephone industry and a duopoly over the mobile phone industry in Tunisia. The sale of this shareholding by the Government of Tunisia represents the first stage of Tunisie Telecom’s privatisation.
The Government of Tunisia may, at its discretion, offer an additional 16% shareholding in Tunisie Telecom. There is no certainty, at this stage, whether such an offer will be made as this depends on whether the Government of Tunisia considers the first stage of the privatisation to have been successful. It is also uncertain whether the offer will be made only to EITT or whether bids will be invited from other investors. However, if such an offer is made, it is likely to be made before the end of March 2007. If this acquisition goes ahead, EITT will have a 51% shareholding in Tunisie Telecom, thereby giving it a controlling stake in the company. TECOM expects to finance the acquisition initially through syndicated bank facilities which may at some stage be refinanced by the issuance of debt to investors in the capital markets.
Media
In addition, the Company has become a significant player in the media industry through the establishment of the Arab Media Group (“AMG”), the largest media grouping in the UAE, on 25 July 2005. AMG was owned as to 99.66% by Al Mada LLC and 0.34% by TECOM Investments FZ LLC. On 19 December 2006, Al Mada LLC transferred its shares in AMG to TECOM Investments
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LLC. AMG owns the Arabian Radio Network, which currently operates and broadcasts via eight radio stations and Awraq Publishing, which runs three daily newspapers and a number of magazines. In addition, AMG established Done LLC, an events management company and Shoof LLC, specialising in advertising in outdoor media such as on billboards and in shopping malls. Each of Done LLC and Shoof LLC are owned as to 99.66% by AMG and 0.34% by TECOM. In August 2005, AMG acquired Al Bayan, Dubai’s official Arabic newspaper for the last 30 years.
TECOM’s Business Model
TECOM’s strengths and success can be attributed to its overall goal of pioneering new investment ideas and opportunities in Dubai. The following elements of its business model have enabled it to achieve that goal:
(i) Development of free zones
TECOM has been able to attract a strong foreign client base by setting up free zones. Free zones are areas of land which are granted special rights by the Government of Dubai with the specific purpose of facilitating foreign investment. Companies established in free zones are treated as being off shore and therefore outside the UAE for legal purposes. They are suitable for companies intending to use Dubai as a base for a variety of activities including distribution, media publication and broadcasting. The free zones permit companies to have 100% foreign ownership and exemption from import duties, a 100% repatriation of capital and profits as well as the freedom to employ an overseas workforce.
TECOM expects to establish a number of other specialised free zones including:
(a) Dubai Outsource Zone - to provide the infrastructure for outsourcing companies which service the international market in sectors such as finance, accounting, information technology and also to serve as a centre for disaster recovery facilities for call centres located elsewhere in the world.
(b) Dubiotech - a free zone dedicated to the biotechnology and pharmaceutical industry. Dubiotech will service the entire biotechnology industry, ranging from small companies to regional offices of major biotechnology and pharmaceutical companies and manufacturing plants and will facilitate government funded research and development.
(c) International Media Production Zone - the first free zone in the region dedicated to media-related production activities focusing on printing, publishing and packaging.
(d) Dubai Studio City - a project covering 22 million square feet and will include production, post-production, equipment rental and satellite facilities as well as a business centre.
TECOM’s expertise in managing free zones has also led to international interest. TECOM has been approached by regional governments to operate future free zone areas, such as SmartCity@Malta in partnership with SAMA Dubai LLC and Internet City in Cochin, India.
(ii) Providing a “one-stop shop” for international businesses in the free zones.
The Government of Dubai established the Dubai Technology and Media Free Zone Authority (“DTMFZA”) in 2000 in order to develop policies, standards and regulations with respect to the free zones, administer regulations and immigration matters and issue free zone licences and visas. TECOM has been mandated with the sole responsibility of operating and managing the free zones controlled by the DTMFZA. This has enabled it to provide a “one-stop shop” for international businesses by arranging all their trade licences, visas, utilities and telecommunications, thereby making the free zones more attractive to foreign investors. It has also enabled TECOM to control pricing within the free zones.
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Dubai Properties
Dubai Properties LLC (“DP”) was set up on 26 October 2004 in order to develop and manage several large real estate projects in Dubai. DP currently owns large portfolios of land granted to it by the Government of Dubai and approximately 100 million square feet is currently under development, mainly comprising the large projects of Business Bay, Jumeirah Beach Residences, The Villa and Culture Village.
DP’s objective is not only to build residential and commercial properties but to create master- planned lifestyle and business communities comprising large communities which are built in accordance with a single scheme even though they may be developed in stages. Master-planned communities are also intended to be self-contained by providing a range of amenities for its residents or occupants. Such amenities include retail, restaurant and entertainment facilities supported by a modern infrastructure of roads and recreational areas, as well as power, water and sewage facilities.
For the period from 26 October 2004 to 31 December 2005, DP’s total revenues were approximately AED 775 million (including transfer and late payment fees, release of government grants, zoning fees and investment income) and its EBITDA was approximately AED 475 million.
DP’s principal real estate developments are described below:
(i) Business Bay
Business Bay is a large scale commercial project built over an area of 64 million square feet located along an extension of the Dubai Creek next to the Burj Dubai development. The first phase will include 12 commercial and residential towers. This will include Executive Towers, a development consisting of 10 high-rise freehold residential towers, one commercial tower, one luxury hotel tower and a two-level shopping mall. Business Bay will also feature Vision Tower, a 51-storey skyscraper which will be a freehold office tower built on an area of 592,000 square feet with office spaces ranging from 5,000 to 12,000 square feet each. Business Bay will offer state of the art amenities such as shops and restaurants, health clinics, health clubs and recreational facilities such as childrens playgrounds, parks, jogging tracks and swimming pools.
The first phase of the project was launched in 2005 and is scheduled to be delivered at the end of 2007. The second phase of the project will be launched in 2007 and is scheduled to be delivered at the end of 2010.
(ii) Jumeirah Beach Residences
Launched at the end of 2002, Jumeirah Beach Residences is a U.S.$2 billion project covering 22 million square feet of gross floor area on 1.7 km of Dubai’s Jumeirah Beach coastline, making it the largest single phase residential and commercial project in the world. It is being developed as a lifestyle and tourist destination and will comprise 36 luxury residential apartment towers with approximately 6,700 apartments and four hotel towers. It is located on the north shore of the Dubai Marina, close to the Palm Jumeirah development and is designed to offer a year round beach resort lifestyle to its residents. Its luxury freehold apartments come in a range of super premium penthouses, terrace apartments, duplex apartments, garden apartments, loft apartments and studio apartments. The apartments are designed so that they will have a view of either the Arabian Gulf, the landscaped inner courtyards of the development or of Dubai Marina. It will be a self-contained community for over 25,000 residents and will provide amenities such as restaurants, cineplexes, health clubs, sports centres, medical facilities, beach clubs, shops, supermarkets and nursery schools. The project is scheduled for completion in early 2007.
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(iii) The Villa
The Villa was launched at the end of 2005 as a freehold residential retreat built in Spanish style within the Dubailand development (see “Tatweer-Dubailand”). It covers an area of 29 million square feet and comprises residences designed for outdoor living, comprising three, four and five bedroom courtyard villas with terraces that offer views of the surrounding landscapes. It will be divided into four districts: The Haciendas, The Ponderosa, The Aldea and The Centro. The Haciendas will contain exclusive villas with manicured gardens while The Ponderosa will offer ranch style living with private courtyards, villas, pools and fountains. The Aldea will consist of planned town housing and courtyards while The Centro will form the town centre with shops, clubhouses and community facilities. It is scheduled for completion in 2008.
(iv) Culture Village Culture Village is intended to represent a blend of Middle Eastern history with the rich heritage of Dubai through its mix of Arabic and old Dubai architecture. Its master plan has been divided into residential, commercial and retail zones with hospitality and entertainment sub-districts. The residential district will feature traditional low- to medium-rise buildings offering studios and one, two, three and four-bedroom apartments as well as loft-style apartments. The commercial district will house cultural institutions, schools, academies for art, music and dance. The retail district will feature luxury hotels, exclusive restaurants as well as rare book shops and art galleries. A traditional souk with Arabic arts and crafts and traditional spices and herbs will be the focal point of the retail district. It will also contain an amphitheatre for live performances and cultural festivals, an exhibition hall, museums and a dockyard where dhows (traditional style trading boats) will be put on display. It will be built along the Dubai Creek covering an area of 40 million square feet. The first phase of the project is expected to be launched in 2007 and is scheduled for completion in 2008.
Tatweer
Tatweer Dubai LLC (“Tatweer”) spearheads some of the most innovative projects in Dubai. It was established on 30 October 2004 and has a diverse portfolio of projects ranging from tourism and entertainment to energy and healthcare. It oversees a number of major real estate projects such as Dubailand, Dubai Healthcare City, Dubai Industrial City, Dubai Energy and Al-Bawadi. These projects are still in their early stages of development. It is expected that they will be completed within the next five to six years.
For the year ended 31 December 2005, Tatweer’s total revenues were approximately AED 106 million (including release of government grants) and it had an EBITDA of approximately AED (-149) million. The negative EBITDA can be attributed to the fact that most of Tatweer’s projects had not or had only just begun construction for the year ended 31 December 2005.
Tatweer has the following major projects:
(i) Dubailand Dubailand was launched in 2003. It was conceived as a large multi-purpose development comprising not only master-planned communities but also a leisure resort divided into six themed worlds and will comprise over 200 individual projects spread over 2.5 billion square feet of land. It will feature sporting facilities, a theme park, eco-tourism resorts, museums, galleries, spas and shopping centres and is scheduled to be completed in 2010. It will also consist of Al-Bawadi, a complex of 31 themed hotels covering an area of over 10 square kilometres. Dubailand will also encompass The Villa, an exclusive residential community developed by DP (see “-Dubai Properties” above).
1 The GCC includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
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(ii) Dubai Industrial City Dubai Industrial City was launched in 2004 as an industrial zone comprising manufacturing facilities in high value added sectors from the UAE, the countries of the Gulf Co-operation Council (“GCC”)1 and the Far East. It will occupy approximately 560 million square feet of land and will include an industrial academy, a dedicated logistics park and a commercial area. Its objective is to make Dubai into a hub for industrial development. It is scheduled to be completed in 2009.
(iii) Dubai Healthcare City (“DHCC”)
DHCC is a healthcare free zone and was launched in 2003. It has invited internationally respected institutions in health care delivery, education and research and development to co- locate on the site. Medical centres from the United Kingdom, Germany and the United States have already committed to participate in DHCC. It has a 100% occupancy rate for its first phase with 33 companies operating within the free zone.
DHCC has entered into a joint venture with Harvard Medical International to establish and manage the Centre for Healthcare Planning and Quality which will develop procedures for high quality patient care throughout the DHCC. It will also set up the Harvard Medical School Dubai Centre to provide training in specialised medical services, life sciences and also carry out research and development.
(iv) Dubai Mercantile Exchange (“DME”)
The DME is a joint venture between Tatweer and the New York Mercantile Exchange, the world’s largest physical commodity exchange. It will be the region’s first energy futures exchange and has initial plans to list three types of contracts: Middle East based sour crude oil, fuel oil and gold. It will be located in the Dubai International Financial Centre and will be regulated by the Dubai Financial Services Authority. It is scheduled to be launched in the first quarter of 2007.
(v) The Lagoons
The Lagoons is a master-planned resort style community developed as a joint venture with SAMA Dubai LLC (see a description of The Lagoons in “SAMA Dubai” below).
SAMA Dubai
SAMA Dubai LLC (“SAMA Dubai”) focuses on developing master-planned urban residential and business communities outside Dubai with a full range of amenities and it has made significant steps towards expanding its scope to developing projects internationally. In addition to lifestyle and business communities, it is developing a chain of high-end spas and resorts.
SAMA Dubai was incorporated as Dubai International Properties on 26 October 2004 and changed its name to SAMA Dubai LLC on 4 June 2006.
For the period from 26 October 2004 to 31 December 2005, it did not have any revenues and its EBITDA was approximately AED (- 71) million. As with Tatweer, this can be attributed to the fact that most of SAMA Dubai’s projects had not yet or had only just commenced as at 31 December 2005. SAMA Dubai’s major real estate projects are as follows:
(i) Dubai Towers, Doha
Dubai Towers, Doha will have over 80 storeys and will contain commercial offices, an upscale retail shopping boulevard, a boutique hotel and serviced and unfurnished apartments. It is expected to be launched in 2007 and to be completed in 2009.
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(ii) Dubai Towers, Turkey
Dubai Towers in Turkey will comprise a pair of 150 metre towers built in the Levent business district in Istanbul. It is expected to be launched in 2007 and will comprise a multi-use complex containing a five star hotel, luxury residences as well as shops and offices. It is scheduled for completion in 2010.
(iii) Salam Resorts & Spas, Oman and Bahrain
The Salam Resorts & Spas are a chain of luxury resorts which are currently being developed in Yiti and Shinas in Oman and Bahrain, respectively. SAMA Dubai developed the “Salam” brand in order to offer a premium seven star hospitality service worldwide. The Salam resort in Bahrain won the title of “The World’s Leading Tourism Development Project” at the World Travel Awards in September 2006. It is located on the south-western coast of Bahrain. The resort will cover an area of approximately 500,000 square metres and will feature luxury hotels, a world-class spa, resort-style villas, apartments, an eco-centre as well as shopping and dining outlets. The Salam resort in Yiti will be a beachfront property set against a mountain range. It will cover an area of 3.7 square kilometres and will include exclusive five star hotels, villas and apartments and will have modern sporting facilities including an 18 hole championship golf course. The Salam resort in Shinas will also feature luxury hotels and lifestyle communities similar to the resort in Yiti. Both resorts in Oman are being developed in partnership with the Government of Oman. The resorts in Yiti and Shinas are scheduled for completion in 2009 while the resort in Bahrain is scheduled for completion in 2010.
(iv) Amwaj, Morocco
Amwaj will comprise the first phase of the Bouregreg water metropolis in Rabat and will be launched in the first quarter of 2007. It is a comprehensive urban project developed in partnership with the local government. It will cover an area of 100 hectares and will encompass residential areas, approximately 200,000 square metres of office space with modern facilities, five star hotels and resorts, a harbour for yachts, a convention centre and 100,000 square metres of retail space as well as theatres. It is scheduled for completion in the second quarter of 2010.
(v) The Lagoons, UAE
Launched in 2006, The Lagoons is a multi-billion dollar capital investment owned and operated as a joint venture between SAMA Dubai and Tatweer and will consist of residential, business and entertainment areas. It is situated on the Dubai Creek adjacent to the Ras Al Khor Wildlife Sanctuary and covers an area of over 6.5 million square metres. It consists of several design areas with each design area having specific timing, construction and planning parameters. The Lagoons project is expected to be completed in 2010.
Residential accommodation will range from apartments to gated residential communities with schools, medical facilities and municipal centres serving each community. It will also contain business towers with premium office space. However, The Lagoons is not intended to be simply a residential and business zone but also to offer entertainment and resort style facilities to its customers. It will include a mall, a museum, an art centre, a theatre and a planetarium, as well as Dubai’s first opera house.
Although SAMA Dubai focuses on developing master-planned residential and business communities outside Dubai, it is currently developing The Lagoons as, due to its operations overseas, it has acquired the necessary expertise in building resort-style communities which will be essential for the success for The Lagoons project.
A key element of SAMA Dubai’s strategy for developing projects overseas is predominantly to enter into joint ventures or partnerships with local government entities in those countries such as with the
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Government of Oman for the development of the Yiti and Shinas resorts as well as with a local government entity in Morocco for the development of Amwaj. This ensures that the project receives the necessary local support and expertise, that it is carried out in a timely manner and also helps to secure a wide investor base.
Jumeirah Group LLC
Jumeirah Group LLC (“Jumeirah Group”) is an operator and manager of hotels and commercial properties. It was established on 28 November 2004 under the name “Jumeirah Hospitality and Leisure LLC” and changed its name to “Jumeirah Group LLC” on 29 November 2005. Jumeirah International LLC was established on 11 November 2001 although several of its assets have been in existence prior to that date, beginning with the establishment of the Jumeirah Beach Club in 1997. The assets were consolidated in 2001 under Jumeirah International LLC and were then transferred to Jumeirah Group in 2004. Its properties such as the Burj Al Arab and Jumeirah Beach Hotel are regarded as among the most luxurious in the world. It has won numerous awards, such as the award for being “The Middle East’s Leading Hotel Brand” at the World Travel Awards in November 2005, while Burj Al Arab took the prize as “The World’s Leading Hotel” and “The World’s Leading All Suite Hotel”. In September 2006, it won the accolade of “Best Business Hotel Chain in the Middle East” from the Business Traveller magazine in the United Kingdom and “Best Business Hotel Chain in the Middle East/Africa” for the third consecutive year at the annual Business Traveller Asia Pacific Awards.
The portfolio of assets of Jumeirah Group currently consists of 11 luxury hotels and resorts, seven of which are owned and managed, and four of which are managed, by Jumeirah Group. The hotels and/or resorts it owns besides the Burj Al Arab and Jumeirah Beach Hotel include Emirates Towers (hotel and office towers in the heart of Dubai), The Jumeirah Beach Club and the Madinat Jumeirah (a cluster of three resorts, i.e. Al Qasr, Mina Al Salam and Dar Al Masyaf, as well as shops, restaurants and entertainment mall). It has obtained contracts to manage hotels both locally and internationally such as Bab Al Shams (a desert resort in the outskirts of Dubai), The Carlton Tower and The Lowndes Hotel in London and Essex House in New York City. Bab Al Shams, Carlton Tower and Lowndes Hotel are each owned by His Highness Sheikh Mohammed bin Rashid Al Maktoum while Essex House is owned by Dubai Investment Group LLC.
All of these hotels (both those owned and managed by Jumeirah Group and those which are managed by Jumeirah Group) have a capacity of over 3,090 rooms, as set out in detail in the table below:
111Property Location111 Owned/1111112 Managed Rooms111 Burj al Arab Dubai Owned 202 Jumeirah Beach Hotel Dubai Owned 617 Emirates Towers Dubai Owned 400 Madinat Jumeirah Dubai Owned 884 Jumeirah Beach Club Dubai Owned 50 Bab Al Shams Dubai Managed 115 Essex House New York Managed 515 The Carlton Tower London Managed 220 The Lowndes Hotel London Managed 87 Total 3,090
Jumeirah Group has also established the Emirates Academy of Hospitality Management (the “Emirates Academy”) in October 2001. It offers degree-level courses in hospitality studies in conjunction with the Ecole Hôtelière de Lausanne in Switzerland and is the first major academy which focuses on tourism and hospitality training in the Middle East.
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For the period from 1 February 2005 to 31 December 2005, Jumeirah Group’s total revenues were approximately AED 1,999 million and its EBITDA was AED 772 million.
Jumeirah Group’s strategy is to continue to promote and strengthen its business model, which has been at the core of its success as a premier hospitality and leisure organisation. The key elements of its business model are as follows:
(i) World renowned brand name
Jumeirah Group has, and expects to continue to maintain, a reputation as an operator of high quality, world-class hotels and resorts. Hotels and buildings such as the Burj Al Arab, Jumeirah Beach Hotel and Emirates Towers have become icons of Dubai. As a result, the Jumeirah brand has become associated with quality and luxury and continues to attract tourists and business travellers alike. Dubai’s strong economic growth and its continued promotion as a holiday destination are expected to ensure high occupancy rates of Jumeirah Group’s hotels and resorts.
(ii) Acquisition of management contracts
Jumeirah Group has acquired key contracts to manage hotels both locally and overseas, as described above. The importance of its hotel management business has led to a decision by Jumeirah Group to restructure its operations in 2007 so as to segregate its management operations from its property assets in accordance with the best practices of the hotel industry and so that it can focus on increasing its hotel management operations. However, both the property and the hospitality management arms will continue to remain under the common ownership of the Company.
In order to enhance its hotel management business, Jumeirah Group has obtained more management contracts, including the contract to manage Dubai Towers in Doha, which is being developed by SAMA Dubai. It has also obtained direct awards to manage hotels in Shanghai and Beijing as well as a 40-storey skyscraper in London to be developed by the Beetham Group. Typically, the tenor of each management contract ranges between 15 to 20 years. Each of Jumeirah Group’s management contracts is expected to help to maintain and strengthen its brand name at a domestic and international level.
(iii) Emphasis on hospitality management
Jumeirah Group aims to not only maintain its reputation as an operator of top quality hotels and resorts but also as a provider of highly trained personnel in the field of hospitality management. To further this aim it has set up the Emirates Academy. Jumeirah Group attracts approximately 20% of graduates from the Emirates Academy thereby ensuring that only the most highly trained hospitality staff work in Jumeirah Group’s hotels and resorts. Jumeirah Group believes that this forms an essential part of its reputation and attracts a loyal customer base.
Competition
Real estate industry
Apart from the Company, Nakheel and Emaar Properties PJSC (“Emaar”) are also significant players in the real estate market in Dubai. Nakheel is wholly owned by the Government of Dubai. Emaar is a publicly listed company with the Government of Dubai holding approximately 32% of its shares while the Company’s parent company, Dubai Holding, is owned as to 99.67% by His Highness Sheikh Mohammed bin Rashid Al Maktoum.
Nakheel has a large number of commercial and residential properties under different stages of development. Its projects are located solely in Dubai and include the Palm Islands projects, the
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World and Jumeirah Islands. Emaar is the largest real estate company in the world by market capitalisation. It was the first real estate company in Dubai to offer residential units, including land plots, villas and condominiums to non-GCC nationals on a freehold basis with a focus on master- planned lifestyle communities. It has developed eight integrated residential developments in Dubai comprising over 14,000 homes.
All three companies contribute towards achieving Dubai’s economic vision as they each have specific areas of expertise and can therefore develop projects which compliment one another. For example, Nakheel has particular expertise in managing seaports and developing coastline properties and has therefore undertaken a project to extend the coastline along the Dubai Creek by developing the Palm Islands projects. Emaar is building the Burj Dubai development, a large scale mixed use urban development along the Dubai Creek which will form the new downtown area of Dubai. The Company (through its subsidiary DP), is developing Business Bay, a commercial project which comprises offices and residential towers adjacent to the Burj Dubai development. The proximity of each of these developments to one another makes them more attractive to investors as well as businesses and home-owners.
Emaar and Nakheel also develop complimentary real estate projects overseas. For example in March 2006, Emaar signed a memorandum of understanding with the Government of Morocco to build three master-planned lifestyle communities, including a golf and ski community, while the Company (through SAMA Dubai) is currently developing Amwaj, an urban development comprising hotels and resorts.
While the businesses and operations of the Company, Emaar and Nakheel are aligned with Dubai’s economic vision, they also provide a significant degree of competition for one another within the real estate market. For example, the Company faces competition from Emaar in the development of master-planned lifestyle communities as Emaar was the first real estate company to develop such communities (such as Arabian Ranches and Emirates Hills) in Dubai and therefore sets the benchmark for the quality of such developments.
On a regional level, the Company may also face a degree of competition from local real estate companies or other real estate companies from other countries in the region.
Hospitality and leisure industry
The Company has a strong position in the hospitality and leisure industry (see “Jumeirah Group” above). However, it faces competition from several key hotel chains in Dubai such as the Ritz Carlton, The One & Only and Four Seasons. The Jumeirah brand is constantly benchmarked against these hotel chains to ensure that it maintains a high level of quality and service. In terms of its international operations, it currently manages two hotels in London and one in New York and faces competition from leading hotel chains in those countries, including the hotel chains mentioned above. Through the acquisition of hotel management contracts in other countries, it aims to enhance its competitive position in the international hotel business.
Strategy
The Company’s overall strategy is aligned with the Government of Dubai’s vision of becoming an attractive hub for foreign investors and businesses, an ideal lifestyle and tourist destination as well as to encourage a “knowledge based economy” focused on sectors such as media, telecommunications and education. It focuses on developing an innovative and diverse range of projects in order to help achieve this vision. However, in order to ensure that it is able to execute such projects successfully and that adequate financing is available for them, it adheres to a detailed investment, funding and debt strategy.
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Investment strategy
The Company’s primary investment principle is that any project it undertakes must be aimed at improving the quality of life and business operations in the countries in which such projects are undertaken. It targets projects which will utilise the Company’s existing expertise, thereby allowing it to add value to those projects through speedy execution and intra-group cost synergies. Each investment must have the potential for high overall returns and long-term capital growth. Therefore, the Company focuses on large-scale investments within Dubai and in the wider Middle East and North African region. Its strategy is to invest only in projects which have the potential to achieve a return of not less than 15% over a full investment cycle.
This overall investment strategy is best illustrated through the specific investment strategies of DP, SAMA Dubai and Tatweer, the Company’s main domestic and international real estate development subsidiaries. Large-scale projects such as The Lagoons, Business Bay and Dubailand are developed following a systematic process. First, the detailed master plans for the overall real estate projects are drawn-up and then the main infrastructure (such as the necessary utilities and road networks) is installed. The master plans usually entail developing “anchor projects” first, such as Al-Bawadi which will form part of Dubailand, in order to generate interest in the surrounding land. The next stage is to sell a significant portion of the developed land surrounding the anchor project to co- developers which will in turn provide finance for that anchor project. DP, SAMA Dubai and Tatweer do not provide equity or debt financing to their co-developers. In addition, most of the residential and commercial developments are sold before completion, providing a main source of finance and guaranteeing future revenues (see “Pre-selling of Properties” below). After completion and transfer of the projects, they will continue to produce profitable, annuity-like income streams through long- term management contracts and rental income.
Funding Strategy
The Company intends to finance its future operations through:
• land sale proceeds;
• pre-selling;
• cash generated from its internal operations;
• bank financing (for example, bridging facilities have been put in place to finance potential investments);
• domestic capital markets; and
• international capital markets, including the issuance of Notes under the Programme.
(i) Financing from land sales
The Company’s land-owning subsidiaries obtain their land through government grants. The land is granted by the Government of Dubai to the Company with an implicit condition to develop, lease or sell the land to private developers. Granted land is valued by independent valuers at its fair value at the date of the grant and recorded in the balance sheet at this value. Received land is carried on the balance sheet as an asset with a corresponding deferred grant as a liability until the implicit condition above is met. The deferred grant is released to income as the land is utilised and the implicit condition of developing, selling or leasing the land is satisfied. The release of the grant is a non-cash transaction. No cash outflow will result from the deferred grant as it represents deferred (unrecognised) revenue. No cash inflow will result from the release of deferred grant as it represents release of “revenue in kind”. The on- sale of some of this land allows those subsidiaries to remain financially self-reliant despite large project financing needs. Contracts for the sale of land typically require that the purchaser makes an advance payment of between 10% to 25% of the purchase price of land
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with the balance to be paid over a two year period. The principal sources of land sales are the projects built by Tatweer (such as Dubailand), SAMA Dubai (such as The Lagoons) and DP (such as Business Bay, The Villa and Culture Village). The Company currently receives 30% of the proceeds from such land sales by way of dividend from its land-owning subsidiaries. As these real estate developments progress, the revenue from land sales as a proportion of the Company’s total revenues will decrease. Land sales are expected to constitute only 15% of total revenues in 2010 as against 23% of total revenues in 2005. The Company will therefore become increasingly reliant upon recurring income such as leases and sales of developed property units.
(ii) Pre-selling of Properties
Subsidiaries such as DP and SAMA Dubai fund their on-going projects principally by pre- selling the properties in those projects, so that they do not incur a large amount of debt. They enter into progressive payment contracts with the future owners of the property prior to construction. Payments are usually made in instalments over the period of construction of the project and purchasers pay initial deposits typically of between 10% to 25% of the purchase price. To date pre-selling has proved to be successful. For example, 75% of the apartments in Jumeirah Beach Residences were pre-sold within 12 months of the project being launched in 2002 with the next 15% to 20% of apartments being pre-sold by 2004 while 200 units where held by DP for rental purposes. Purchasers of apartments provided initial deposits amounting to 25% of the purchase price. In Business Bay, 96% of land, 100% of self- developed office space and 28% of the apartments have been pre-sold to investors. Pre- selling has therefore enabled each of these projects to be self-financing.
Debt Strategy
Since the Company was only incorporated recently, its current debt profile shows bank debt incurred at subsidiary level. The total amount of outstanding bank debt of its wholly-owned subsidiaries as at 31 December 2006 was approximately AED 3.8 billion excluding intra-group debt of approximately AED 6.08 billion. The following table shows the proportion of debt incurred by its wholly-owned subsidiaries (TECOM, SAMA Dubai and Jumeirah Group being the only wholly-owned subsidiaries which have incurred debt to fund their operations):
As at 111112131 December 2006 (%) Subsidiaries TECOM ...... 38 SAMA Dubai ...... 38 Jumeirah Group ...... 24
The total debt of Maltacom (in which TECOM has a 60% shareholding) as at 31 May 2006 was AED 130 million.
The Company intends to either refinance existing debt by borrowing at the Company level or to allow the Subsidiaries to repay their borrowings. However, it will not permit new debt to be raised at subsidiary level except for non-recourse project finance and debt incurred in setting up joint ventures.
The Company’s debt maturity management strategy includes refinancing existing debt with longer maturities as well as diversifying its range of debt instruments in the international capital markets and in its domestic borrowings. It has also adopted a pro-active approach to managing its cost of capital. Management monitors interest rate movements and manages its interest rate risk through the use of derivative financial instruments.
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Outlook
The Company has a diverse portfolio of operations which has evolved over the past year. Its combined financial statements for the year ended 31 December 2005 show that 43.7% of its revenues were derived from the hospitality and leisure sector, followed by 16.6% from land sales and 23.8% from the real estate sector. For the year ended 31 December 2006, the Company expects a change in the proportion each of these sectors contribute to the Company’s overall revenues with the real estate sector providing the largest portion. This is because of the large number of real estate projects currently under development in respect of which revenues will be recognised in 2006. Although the revenues of Jumeirah Group will continue to grow, they will constitute a smaller proportion of the Company’s overall revenues as compared to revenues from the real estate sector.
Litigation
The Company has not been involved in any legal or arbitration proceedings (including any such proceeding which is pending or threatened of which it is aware) which may have or have had in the previous twelve months a material adverse effect on its financial condition.
Management
Group Security Mohammad Al Gergawi AuditAudit Committee Committee Executive Chairman
Group Functions
Finance/Legal/Operations Group IT Internal Audit & Group Marketing Fadel Al Ali Sabri Al Azzazi Risk Management Malek Inja Chief Financial & Chief Information Abdulrahman Hareb Chief Maketing Officer Operating Officer Officer Chief Internal Audit Officer
Entities
TECOM Investments Jumeirah Group Dubai Properties SamaSama Dubai Tatweer Ahmad Bin Byat Gerald Lawless Hashim Al Dabal FarhanFarhan FaraidooniFaraidooni Saeed Al Muntafiq Executive Chairman Chief Executive Officer Chief Executive Officer Chief Executive Officer Chief Executive Officer
Sub Entities SubSub Entities Sub Entities SubSub Entities SubSub Entities
Executive Committee
The Executive Committee is headed by the Executive Chairman, H.E. Mohammad Al Gergawi. The main objectives of the Executive Committee are to:
• crystallise the Company’s strategic objectives (see “-Strategy” above);
• mobilise the necessary resources to achieve those objectives;
• establish appropriate controls to manage the actual performance and appraisal of those resources vis-à-vis those objectives; and
• align the objectives of each subsidiary with those of the Company as a whole.
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The following table shows the members of the Executive Committee of the Company as at the date of this Prospectus:
112Name Position111
H.E. Mohammad Al Gergawi Executive Chairman Fadel Al Ali Chief Financial and Operating Officer Hashim Al Dabal Chief Executive Officer, Dubai Properties Farhan Faraidooni Chief Executive Officer, SAMA Dubai Saeed Al Muntafiq Chief Executive Officer, Tatweer Ahmad Bin Byat Chief Executive Officer, TECOM Gerald Lawless Chief Executive Officer, Jumeirah Group Saud BaAlawy Chief Executive Officer, Dubai Investment Group Sameer Al Ansari Chief Executive Officer, Dubai International Capital
The business address for each member of the Executive Committee is c/o Dubai Holding Commercial Operations Group LLC at P. O. Box 66000, Dubai, UAE.
As at the date of this Prospectus, there are no actual or potential conflicts of interest between any duties of the members of the Executive Committee and their duties in respect of their other directorships or their private interests.
Profiles of key members of the Executive Committee are given below:
His Excellency Mohammad Al Gergawi
H.E. Mohammad Al Gergawi is the UAE Minister of State for Cabinet Affairs. He is also the Chairman of the Arab Strategy Forum and the Managing Director of Dubai Media Incorporated. He has also actively participated in leading and supervising the implementation of several Emirate-wide initiatives. He is also the Chairman of the private office of His Highness Sheikh Mohammed Bin Rashid Al Maktoum (“The Executive Office”) and was the first founding Chairman of the Young Arab Leaders organisation.
H.E. Mohammad Al Gergawi has received numerous awards such as the Moroccan Royal Order of Merit by His Majesty King Mohammad VI of Morocco and the American Business Award by the American Business Council.
Fadel Al Ali
Fadel Al Ali is Chief Financial and Operating Officer of the Company. He was formerly Head of UAE Distribution for Citibank, N.A., Dubai. He worked at Citigroup for over 16 years, covering consumer credit management, financial control, sales, distribution and strategic planning. Mr Al Ali has a BSc Honours degree in Industrial and Systems Engineering from the University of Southern California, Los Angeles. He also holds a certificate of finance from the American University of Sharjah, UAE. Mr Al Ali also sits on the boards of National Bonds Corporation, Dubai Bank, Islam Bank and the Dubai Mercantile Exchange.
Hashim Al Dabal
Hashim Al Dabal is Chief Executive Officer of Dubai Properties. He is also Senior Vice-President for Asset Management for the Dubai Investment Group and Vice Chairman of the DTMFZ. Mr Al Dabal was formerly an Executive Director at the Dubai Islamic Bank and prior to that he worked for ten years at Citibank U.A.E., where he was Resident Vice President.
Farhan Faraidooni
Farhan Faraidooni is the Chief Executive Officer of SAMA Dubai. He was the former Chief Executive Officer of the Executive Design Bureau, an entity of The Executive Office, where projects such as
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Jumeirah Beach Residences, Dubai Healthcare City and the Dubai International Financial Centre were conceptualised. Mr Faraidooni has also served as Head of Zoning at the Town Planning Department at Dubai Municipality, and as the Head of Real Estate at the Dubai Technology Electronic Commerce & Media Free Zone Authority. In addition to his role as Chief Executive Officer of SAMA Dubai, Mr Faraidooni is also a Board Member of Dubai Healthcare City.
Mr Faraidooni holds a Bachelor of Engineering and Architecture degree from the UAE University in Al Ain.
Saeed Al Muntafiq
Saeed Al Muntafiq is the Chief Executive Officer of Tatweer. Mr Al Muntafiq was the Director General of the Dubai Development and Investment Authority, a government organisation responsible for Dubai’s economic development and formerly the Chairman of the Board of Dubai Media City and a founding member of the DTMFZ. Mr Al Muntafiq is the Chairman of the Sheikh Mohammed bin Rashid Establishment for Young Business Leaders. He graduated from Schiller International University in the United Kingdom with a Bachelor of Arts in International Relations and completed the Management Development Program at Harvard Business School.
Ahmad Bin Byat
Ahmad Bin Byat has been the Director General of TECOM since 2002 and is a member of the boards of the DTMFZ, Dubai Media Incorporated, Empower and the Executive Chairman of Emirates Integrated Telecommunication Corporation. Mr Bin Byat is also a member of a Supreme Telecom Committee created by the Late President of the UAE, His Highness Sheikh Zayed Bin Sultan Al Nahyan, to oversee the gradual introduction of competition into the UAE’s telecom sector. Prior to this, he worked in a senior managerial capacity in Etisalat, the UAE state telecom service provider.
Gerald Lawless
Gerald Lawless is Chief Executive Officer of Jumeirah Group. Mr Lawless joined Jumeirah Group as Managing Director in June 1997 to oversee the opening of the Jumeirah Beach Hotel, Wild Wadi Water Park and Burj Al Arab. Prior to joining Jumeirah Group, Mr Lawless spent 23 years working for Forte Hotels and established the Middle East office of Forte Hotels in Dubai in 1991.
Saud BaAlawy
Saud BaAlawy is the Chief Executive Officer of Dubai Investment Group LLC and was the Chief Investment Officer of Dubai Internet City. Prior to joining Dubai Investment Group, he was the Gulf Treasurer and Vice President of Citibank, N.A. in Dubai. Mr BaAlawy also sits on the board of Dubai Islamic Insurance and Reinsurance Company and E-Millennium Private Equity Fund. He is also a member of the Chartered Institute of Management Accountants.
Sameer Al Ansari
Sameer Al Ansari is the Chief Executive Officer of Dubai International Capital and sits on the board of several local and international companies such as Dubai Media Incorporated, the Dubai International Financial Exchange, Jumeirah Group and The Tussauds Group. He was previously the Chief Financial Officer of the Dubai Aluminium Company. In 2003, Mr Al Ansari was appointed as Group Chief Financial Officer of The Executive Office. He is a fellow of the Institute of Chartered Accountants in England and Wales.
Corporate Governance
The Investment Committee
The Investment Committee is responsible for approving the Company’s investments and ensuring that an appropriate balance is achieved between risks and rewards. The members of the Investment Committee comprise the members of the Executive Committee as well as the Chief Financial Officer
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and the Treasurer. The Investment Committee ensures that adequate internal control processes are in place for making investment decisions and determines whether such investments yield adequate returns in line with the Company’s investment objectives. The Investment Committee also recommends appropriate process improvements. Although the members of the Investment Committee include the members of the Executive Committee, the two committees meet in separate capacities.
The Audit Committee
The Audit Committee comprises independent non-executive members who audit the Company’s financial procedures and initial control and review the Company’s compliance with IFRS. It also provides the Executive Chairman and the Executive Committee with advisory services on risks, internal audit controls and corporate governance.
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Overview of the United Arab Emirates and Dubai
The United Arab Emirates is a federation of seven emirates. Formerly known as the Trucial States, they were a British protectorate until gaining independence in December 1971 when they merged to form the United Arab Emirates. In common with other Arab states in the Gulf, all of the emirates have traditional monarchical governments which rule by emiri decree and no democratic representation. Each emir reserves a high degree of political autonomy within the federation, though in practice, real power is vested in the two richest emirates Abu Dhabi and Dubai. The other five emirates are Sharjah, Ajman, Umm Al-Qaiwain, Fujairah and Ras Al-Khaimah.
The federation is governed by the Supreme Council of the Rulers. This is the highest federal governing body and consists of the rulers of the seven emirates. The Supreme Council elects from its own membership the President and the Vice President (for renewable five-year terms). H.H. Sheikh Zayed bin Sultan Al Nahyan, the late Ruler of Abu Dhabi, held the position of President from 1971 until his death in November 2004. Following his death, his son H.H. Sheik Khalifa bin Zayed Al Nahyan took over as President of the United Arab Emirates.
H.H. Sheikh Mohammed bin Rashid Al Maktoum, is also the Vice President of the UAE. The position of Ruler of Dubai is passed down by the laws of succession. All the powers of government in Dubai are vested in the Ruler. The various departments and other arms of the Government and their respective executives operate under the powers and responsibilities specifically delegated to them from time to time by the Ruler. Laws of Dubai are passed by Decree of the Ruler.
The UAE (2005 GDP: U.S.$127.6 billion)1 is the second largest economy in the Arab world after Saudi Arabia (2005 GDP: U.S.$307,770 billion)2. Though it has a more diversified economy than most of its the other countries in the Gulf Cooperation Council (“GCC”), its wealth is largely based on oil and gas, which provides around a third of the gross domestic product (“GDP”) and half of exports. It has approximately 8% of proven global oil reserves according to the most recent estimates of the U.S. Energy Information Administration.
As approximately 70% of the UAE’s fiscal revenues come from oil, its finances are vulnerable to the vagaries of oil prices. Deficits have been a constant feature of public finance since 1986 but have been financed by investment income rather than borrowings. The use of oil revenues to build up a large stock of overseas assets has been a long running fiscal policy and has given the UAE a healthy net asset position of around 15% of GDP. Official reserves are broadly equivalent to total short-term external debt, and banks also have substantial liquid foreign assets, which together provides the country with comfortable external solvency and liquidity ratios. The UAE’s economy has performed soundly over the past few years. Its real GDP growth reached 9.7% in 2004 and an estimated 8.8% in 2005. Its GDP is forecasted to grow by 10% by the end of 2006.3
Abu Dhabi is the richest and largest of the seven emirates and the city of Abu Dhabi is also the chosen capital of the federation. The emirate of Abu Dhabi owns and controls around 90% of the capital wealth of the United Arab Emirates.
Dubai is the second largest emirate of the United Arab Emirates and has a long history as a trading port. With only a fraction of the fossil fuel reserves of Abu Dhabi, it has gradually reduced its dependency on oil and gas revenues. Consequently its economy has become more diversified and dynamic than Abu Dhabi’s and it is one of the most important commercial centres in the Middle East, with growing banking, tourism and real estate sectors. The Government of Dubai, under its present Ruler, HH Sheikh Mohammed Bin Rashid Al Maktoum has invested heavily in the infrastructure of the emirate and its economic development. Dubai’s non-oil sectors now contribute to 96% of its GDP, with 70% being contributed by the service sectors.
1 GDP figure for the UAE was sourced from the Economist Intelligence Unit, UAE Country Report, August 2006. 2 GDP figure for Saudi Arabia was sourced from an International Monetary Fund Report (2005). 3 Figures are extracted from the Economist Intelligence Unit, UAE Country Report, August 2006.
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Dubai Economy
Dubai has changed dramatically over the last three decades to become a major business centre within a dynamic and diversified economy. It benefits from a favourable demographic profile, strong economic growth resulting from high oil prices, high liquidity, moderate inflation, large investments in infrastructure in the non-oil sector as well as high sovereign ratings. It also serves as the biggest re-exporting centre in the Middle East.
Its low logistical and operational costs, advanced infrastructure, international outlook and liberal government policies have attracted investors. Sectors such as trade, transport, tourism, industry and finance have grown steadily and helped the economy to achieve a high degree of expansion and diversification.
With a strategic location and a consistently strong economic outlook, Dubai is seen as an ideal base for multinationals targeting markets in Central Asia, the Middle East, Africa, the Asian sub-continent and the Eastern Mediterranean. Together, these regions have a population of over two billion people and a combined GDP of U.S.$6.7 trillion.
Dubai is also a pre-eminent tourist destination and attracts a large number of skilled, diverse and multilingual professionals. Its economic cluster of technology, media, finance and healthcare hubs makes Dubai a magnet for the regional headquarters of the world’s major multinational companies.
In addition to its economic advantages, the city offers a high quality lifestyle with luxury residential and office accommodation and excellent educational, health and shopping facilities.
Dubai Real Estate Sector
The real estate sector in Dubai offers potential for investment returns for a variety of reasons including the emergence of Dubai as a hub for the tourism industry and its evolution as a ”lifestyle destination”. The property industry includes enterprises that are primarily engaged in renting or leasing real estate to other parties, managing real estate, selling and buying and providing other real estate related services, such as consultancy services.
Until recently, under the laws of Dubai, persons who were not nationals of GCC countries could not hold title to real estate located in Dubai. In the first half of 2006, the law was changed to allow non-GCC nationals to hold title to certain properties in Dubai. This has resulted in an increase in the number of real estate projects in Dubai. In addition, Dubai has benefited from the highest premium for commercial office space in the region because of its favourable legal framework and the lack of comparable office space in other GCC countries. The International Monetary Fund conservatively estimates that U.S.$200 billion of real estate projects are either in the process of development or are planned on being developed in Dubai.1
1 Figures are extracted from the Economist Intelligence Unit, UAE Country Report, August 2006.
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Taxation
The following is a general description of certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes. Prospective purchasers of Notes should consult their own tax advisers as to which countries’ tax laws could be relevant to acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes and the consequences of such actions under the tax laws of those countries. This summary is based upon the law as in effect on the date of this Prospectus and is subject to any change in law that may take effect after such date.
Dubai Tax Law
There is currently in force in the Emirates of Abu Dhabi and Dubai, legislation establishing a general corporate taxation regime (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai Income Tax Decree 1969 (as amended)). The regime is, however, not enforced save in respect of companies active in the hydrocarbon industry, some related service industries and branches of foreign banks operating in the United Arab Emirates. It is not known whether the legislation will or will not be enforced more generally or within other industry sectors in the future.
Under current legislation, there is no requirement for withholding or deduction for or on account of United Arab Emirates or Dubai taxation in respect of payments of interest or principal on debt securities (including the Notes).
The Constitution of the United Arab Emirates specifically reserves to the Federal Government of the United Arab Emirates the right to raise taxes on a Federal basis for the purpose of funding its budget. It is not known whether this right will be exercised in the future.
The United Arab Emirates has entered into “Double Taxation Arrangements” with certain other countries, but these are not extensive in number.
Cayman Islands Tax Law
Prospective investors should consult their professional advisers on the possible tax consequences of buying, holding or selling any Notes under the laws of their country of citizenship, residence or domicile. The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Notes. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Under existing Cayman Islands laws:
• payments of interest and principal on the Notes will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of interest and principal to any holder of the Notes nor will gains derived from the disposal of the Notes be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax; and
• no stamp duty is payable in respect of the issue of the Notes. An instrument of transfer in respect of a Note is stampable if executed in or brought into the Cayman Islands.
EU Directive on the Taxation of Savings Income
The European Union (the “EU”) has adopted a directive regarding the taxation of savings income (the “Directive”). The Directive requires Member States to provide to the tax authorities of other Member States details of payments of interest and other similar income paid by a person to an individual in another Member State, except that Austria, Belgium and Luxembourg will instead
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impose a withholding system for a transitional period unless during such period they elect otherwise. A number of third countries and territories including the Cayman Islands have adopted similar measures to the EU Directive.
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Subscription and Sale
Notes may be sold from time to time by the Issuer to any one or more of J.P. Morgan Securities Ltd., ABN AMRO Bank N.V., Barclays Bank PLC, BNP PARIBAS, Citigroup Global Markets Limited, Dresdner Bank Aktiengesellschaft, Emirates Bank International PJSC, HSBC Bank Middle East Limited, Mashreqbank psc, Standard Chartered Bank and The Royal Bank of Scotland plc, (together, the “Dealers”). Notes may also be sold directly to institutions who are not Dealers. The arrangements under which Notes may from time to time be agreed to be sold by the Issuer to, and purchased by, Dealers are set out in a Programme Agreement dated 23 January 2007 (the “Programme Agreement”) and made between the Issuer, the Guarantor and the Dealers. The Programme Agreement makes provision for the resignation or termination of appointment of existing Dealers and for the appointment of additional or other Dealers either generally in respect of the Programme or in relation to a particular Tranche of Notes.
United States of America:
The Notes have not been and will not be registered under the Securities Act, and may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meaning giving to them by Regulation S under the Securities Act.
Notes having a maturity of more than one year are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to a United States person, except in certain transactions permitted by U.S. tax regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended, and regulations thereunder.
Each Dealer has agreed that, and each further Dealer appointed under the Programme will be required to agree that, except as permitted by the Programme Agreement, it will not offer, sell or deliver the Notes of any identifiable Tranche, (i) as part of their distribution at any time or (ii) otherwise until 40 days after completion of the distribution of such Tranche as determined, and certified to the relevant Dealer, by the Issuing and Paying Agent, or in the case of Notes issued on a syndicated basis, the Lead Manager, within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each Dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Unless otherwise defined herein, terms used in this paragraph have the meanings given to them in Regulation S under the Securities Act.
In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United States by any dealer that is not participating in the offering may violate the registration requirements of the Securities Act.
United Kingdom
Each Dealer has represented and agreed that:
(a) No deposit-taking: in relation to any Notes having a maturity of less than one year:
(i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business; and
(ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal
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or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the FSMA by the Issuer;
(b) Financial promotion: it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Issuer or the Guarantor; and
(c) General compliance: it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Notes in, from or otherwise involving the United Kingdom.
United Arab Emirates
Each Dealer has represented and agreed that the Notes have not and will not be offered, sold or publicly promoted or advertised by it in the United Arab Emirates or the Dubai International Financial Centre other than in compliance with any laws applicable in the United Arab Emirates or the Dubai International Financial Centre, as the case may be, governing the issue, offering and sale of securities.
Italy
Each Dealer has acknowledged that the offer of the Notes has not been registered with the Commissione Nazionale per le Società e la Borsa (“CONSOB”) (the Italian Securities and Exchange Commission) pursuant to Italian securities legislation and accordingly, Notes may not be offered, sold or delivered, nor may copies of this Prospectus or of any other document relating to the Notes be distributed in the Republic of Italy in a solicitation to the public at large (sollecitazione all’investimento) within the meaning of Article 1, paragraph 1, letter (t) of Legislative Decree no. 58 of 24 February 1998, unless an exemption applies. Accordingly, in the Republic of Italy, the Notes:
(a) shall only be offered or sold to professional investors (operatori qualificati), as defined in Article 31, second paragraph of CONSOB Regulation No. 11522 of 1 July 1998, as amended and effected in compliance with the terms and procedures provided therein (“Regulation No. 11522”) or;
(b) shall only be offered or sold in circumstances which are exempted from the rules on solicitation of investments pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998 (the “Financial Services Act”) and Article 33, first paragraph, of CONSOB Regulation No. 11971 of 14 May 1999 as amended.
Moreover, and subject to the foregoing, each Dealer has acknowledged that any offer, sale or delivery of any Notes or distribution of copies of this Prospectus or any other document relating to any Notes in the Republic of Italy under (a) or (b) above must be:
(1) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, Legislative Decree No. 385 of 1 September 1993 (the “Banking Act”), Regulation No. 11522 and any other applicable laws and regulations; and
(2) in compliance with any other applicable laws and regulations including any relevant limitations which may be imposed by CONSOB or the Bank of Italy.
Insofar as the requirements above are based on laws which are superseded at any time pursuant to the implementation of Directive 2003/71/EC (the “Prospectus Directive”), such requirements shall be replaced by the applicable requirements under the Prospectus Directive or the relevant implementing laws.
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Cayman Islands
No invitation whether directly or indirectly may be made to the public in the Cayman Islands to subscribe for the Notes unless the Issuer is listed on the Cayman Islands Stock Exchange.
The Netherlands
Each Dealer has represented and agreed that zero coupon Notes in definitive form and other Notes in definitive form on which interest does not become due and payable during their term but only at maturity (savings certificates or spaarbewijzen as defined in the Dutch Savings Certificates Act or Wet inzake spaarbewijzen, the “SCA”) may only be transferred and accepted, directly or indirectly, within, from or into The Netherlands through the mediation of either the Issuer or a member of Euronext Amsterdam N.V. with due observance of the provisions of the SCA and its implementing regulations (which include registration requirements). No such mediation is required, however, in respect of (i) the initial issue of such securities to the first holders thereof, (ii) the transfer and acceptance by individuals who do not act in the conduct of a profession or business, and (iii) the issue and trading of such securities if they are physically issued outside The Netherlands and are not immediately thereafter distributed in The Netherlands.
General
Each Dealer has severally acknowledged to the Issuer and the Guarantor that no representation is made by the Issuer, the Guarantor or any Dealer that any action has been or will be taken in any jurisdiction by the Issuer, the Guarantor or any Dealer that would permit a public offering of the Notes, or possession or distribution of this Prospectus or any other offering material, in any country or jurisdiction where action for that purpose is required. Each Dealer will (to the best of its knowledge and belief in all material respects) comply with all applicable securities laws and regulations in each jurisdiction in which it purchases, offers, sells or delivers Notes or has in its possession or distributes this Prospectus or any other offering material, in all cases at its own expense.
Selling restrictions may be supplemented or modified with the agreement of the Issuer, the Guarantor and the Dealers. Any such supplement or modification may be set out in the relevant Final Terms (in the case of a supplement or modification relevant only to a particular Tranche of Notes) or in a supplement to this Prospectus.
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Form of Final Terms
Final Terms dated [•] DUBAI HOLDING COMMERCIAL OPERATIONS MTN LIMITED Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] unconditionally and irrevocably guaranteed as to payment of principal and interest by DUBAI HOLDING COMMERCIAL OPERATIONS GROUP LLC under the U.S.$5,000,000,000 Debt Issuance Programme PART A – CONTRACTUAL TERMS
Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Prospectus dated 23 January 2007 [and the supplemental prospectus dated [•]]. This document constitutes the Final Terms of the Notes described herein and must be read in conjunction with such Prospectus [as so supplemented]. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Prospectus. [The Prospectus [and the supplemental Prospectus] [is] [are] available for viewing at [address] [and] [website] and copies may be obtained from [address].] The following alternative language applies if the first tranche of an issue which is being increased was issued under a Prospectus with an earlier date. [Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the Prospectus dated [original date] [and the supplemental Prospectus dated [•]]. [This document constitutes the Final Terms of the Notes described herein and must be read in conjunction with the Prospectus dated [current date] [and the supplemental Prospectus dated [•]], save in respect of the Conditions which are extracted from the Prospectus dated [original date] [and the supplemental Prospectus dated [•]] and are attached hereto. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of these Final Terms and the Prospectuses dated [original date] and [current date] [and the supplemental Prospectuses dated [•] and [•]]. [The Prospectuses [and the supplemental Prospectuses] are available for viewing at [address] [and] [website] and copies may be obtained from [address].] [Include whichever of the following apply or specify as “Not Applicable” (N/A). Note that the numbering should remain as set out below, even if “Not Applicable” is indicated for individual paragraphs or sub-paragraphs. Italics denote guidance for completing the Final Terms.] 1. (i) Issuer: Dubai Holding Commercial Operations MTN Limited (ii) Guarantor: Dubai Holding Commercial Operations Group LLC 2. [(i)] Series Number: [•] [(ii) Tranche Number: [•]
(If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible).] 3. Specified Currency or Currencies: [•]
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4. Aggregate Nominal Amount of [•] Notes admitted to trading: [(i)] Series: [•] [(ii) Tranche: [•]] 5. Issue Price: [•] % of the Aggregate Nominal Amount [plus accrued interest from [insert date] ( if applicable)] 6. [(i)] Specified Denominations: [Note - where multiple denominations above ¤50,000 (or equivalent) are being used the following sample wording should be followed: [¤50,000] and integral multiples of [¤1,000] in excess thereof [up to and including [¤99,000]. No notes in definitive form will be issued with a denomination above [¤99,000]].] [(ii)] Calculation Amount: [If only one Specified Denomination, insert the Specified Denomination. If more than one Specified Denomination, insert the highest common factor] [Note: There must be a common factor in the case of two or more Specified Denominations] 7. [(i)] Issue Date: [•] [(ii)] Interest Commencement Date [•] 8. Maturity Date: [specify date or (for Floating Rate Notes) Interest Payment Date falling in or nearest to the relevant month and year] 9. Interest Basis: [•% Fixed Rate] [[specify reference rate] +/– • % Floating Rate] [Zero Coupon] [Index Linked Interest] [Other (specify)] (further particulars specified below) 10. Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption] [Dual Currency] [Partly Paid] [Instalment][Other (specify)]
11. Change of Interest or [Specify details of any provision for convertibility of Redemption/Payment Basis: Notes into another interest or redemption/ payment basis] 12. Put/Call Options: [Put Option] [Call Option] [(further particulars specified below)] 13. [(i)] Status of the Notes: [Senior/Subordinated] [(ii)] Status of the Guarantee: [Senior/Subordinated]]
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[(iii)][Date [Board] approval for [•] [and [•], respectively]] issuance of Notes [and (N.B Only relevant where Board (or similar) Guarantee] obtained: authorisation is required for the particular tranche of Notes or related Guarantee)] 14. Method of distribution: [Syndicated/Non-syndicated]
PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 15. Fixed Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Rate[(s)] of Interest: [•] % per annum [payable [annually/semi- annually/quarterly/monthly] in arrear] (ii) Interest Payment Date(s): [•] in each year (iii) Fixed Coupon Amount[(s)]: [•] per Calculation Amount (iv) Broken Amount(s): [•] per Calculation Amount, payable on the Interest Payment Date falling [in/on] [•] (v) Day Count Fraction: [30/360 / Actual/Actual (ICMA/ISDA) / other] (vi) Determination Dates: [•] in each year (insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon. N.B. only relevant where Day Count Fraction is Actual/Actual ([ICMA]))
(vii)Other terms relating to the [Not Applicable/give details] method of calculating interest for Fixed Rate Notes: 16. Floating Rate Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Interest Period(s) [•]
(ii)Specified Interest Payment [•] Dates: (iii) Interest Period Date: [•] (iv) Business Day Convention: [Floating Rate Convention/ Following Business Day Convention/ Modified Following Business Day Convention/ Preceding Business Day Convention/ other (give details)] (v) Business Centre(s): [•]
(vi)Manner in which the Rate(s) [Screen Rate of Interest is/are to be Determination/ISDA determined: Determination/other (give details)]
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(vii)Party responsible for [•] calculating the Rate(s) of Interest and Interest Amount(s) (if not the [Agent]): (viii) Screen Rate Determination: – Reference Rate: [•]
–Interest [•] Determination Date(s): – Relevant Screen Page: [•] (ix) ISDA Determination: – Floating Rate Option: [•] – Designated Maturity: [•] – Reset Date: [•] (x) Margin(s): [+/-][•] % per annum (xi) Minimum Rate of Interest: [•] % per annum (xii) Maximum Rate of Interest: [•] % per annum (xiii) Day Count Fraction: [•]
(xiv)Fall back provisions, [•] rounding provisions, denominator and any other terms relating to the method of calculating interest on Floating Rate Notes, if different from those set out in the Conditions: 17. Zero Coupon Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Amortisation Yield: [•] % per annum
(ii)Any other formula/basis of [•] determining amount payable:
18. Index-Linked Interest [Applicable/Not Applicable] Note/other variable-linked (If not applicable, delete the remaining sub- interest Note Provisions paragraphs of this paragraph) (i)Index/Formula/other [give or annex details] variable:
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(ii)Calculation Agent [•] responsible for calculating the interest due: (iii)Provisions for determining [•] Coupon where calculated by reference to Index and/or Formula and/or other variable: (iv)Interest Determination [•] Date(s): (v)Provisions for determining [•] Coupon where calculation by reference to Index and/or Formula and/or other variable is impossible or impracticable or otherwise disrupted: (vi)Interest or calculation [•] period(s): (vii)Specified Interest Payment [•] Dates: (viii) Business Day Convention: [Floating Rate Convention/ Following Business Day Convention/Modified Following Business Day Convention Preceding Business Day Convention/other (give details)] (ix) Business Centre(s): [•]
(x)Minimum Rate/Amount of [•] % per annum Interest: (xi)Maximum Rate/Amount of [•] % per annum Interest: (xii) Day Count Fraction: [•] 19. Dual Currency Note Provisions [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph)
(i) Rate of Exchange/method [give details] of calculating Rate of Exchange: (ii)Calculation Agent, if any, [•] responsible for calculating the principal and/or interest due: (iii) Provisions applicable where calculation by reference to Rate of Exchange impossible or impracticable:
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(iv)Person at whose option [•] Specified Currency(ies) is/are payable:
PROVISIONS RELATING TO REDEMPTION 20. Call Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [•] (ii) Optional Redemption
Amount(s) of each Note [•] per Note of [•] specified denomination and method, if any, of calculation of such amount(s): (iii) If redeemable in part:
(a)Minimum Redemption [•] Amount: (b)Maximum Redemption [•] Amount: (iv) Notice period [•] 21. Put Option [Applicable/Not Applicable] (If not applicable, delete the remaining sub- paragraphs of this paragraph) (i) Optional Redemption Date(s): [•]
(ii)Optional Redemption [•] per Note of [•] specified denomination Amount(s) of each Note and method, if any, of calculation of such amount(s): (iii) Notice period [•]
22. Final Redemption Amount of each Note In cases where the Final Redemption Amount is Index- Linked or other variable-linked: (i) Index/Formula/variable: [give or annex details]
(ii) Calculation Agent [•] responsible for calculating the Final Redemption Amount:
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(iii) Provisions for determining [•] Final Redemption Amount where calculated by reference to Index and/or Formula and/or other variable: (iv) Determination Date(s): [•]
(v) Provisions for determining [•] Final Redemption Amount where calculation by reference to Index and/or Formula and/or other variable is impossible or impracticable or otherwise disrupted: (vi) Payment Date: [•] (vii) Final Redemption Amount: [•]
(viii)Maximum Final Redemption [•] Amount: 23. Early Redemption Amount
Early Redemption Amount(s) of [•] each Note payable on redemption for taxation reasons or on event of default or other early redemption and/or the method of calculating the same (if required or if different from that set out in the Conditions):
GENERAL PROVISIONS APPLICABLE TO THE NOTES 24. Form of Notes: [Temporary Global Note exchangeable for a Permanent Global Note which is exchangeable for Definitive Notes in the limited circumstances specified in the Permanent Global Note] [Temporary Global Note exchangeable for Definitive Notes on [•] days’ notice] [Permanent Global Note exchangeable for Definitive Notes in the limited circumstances specified in the Permanent Global Note]
25. Financial Centre(s) or other [Not Applicable/give details. Note that this item special provisions relating to relates to the date and place of payment and not Payment Dates: interest period end dates, to which items 15 (ii), 16(iv) and 18(ix) relate]
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26. Talons for future Coupons or [Yes/No. If yes, give details] Receipts to be attached to Definitive Notes (and dates on which such Talons mature): 27. Details relating to Partly Paid [Not Applicable/give details] Notes: amount of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment: 28. Details relating to Instalment [Not Applicable/give details] Notes: amount of each instalment, date on which each payment is to be made: 29. Redenomination, [Not Applicable/The provisions [in Condition [•]] renominalisation and apply] reconventioning provisions:
30. Consolidation provisions: [Not Applicable/The provisions [in Condition [•]] apply] 31. Other final terms: [Not Applicable/give details] (When adding any other final terms consideration should be given as to whether such terms constitute a “significant new factor” and consequently trigger the need for a supplement to the Prospectus under Article 16 of the Prospectus Directive.)
DISTRIBUTION
32. (i)If syndicated, names of [Not Applicable/give names] Dealers: 33. [(ii)Stabilising Manager(s) (if [Not Applicable/give name] any):] 34. If non-syndicated, name of Dealer: [Not Applicable/give name] 35. Additional selling restrictions: [Not Applicable/give details]
[LISTING AND ADMISSION TO TRADING APPLICATION These Final Terms comprise the final terms required to list and have admitted to trading the issue of Notes described herein pursuant to the U.S.$5,000,000,000 Debt Issuance Programme of Dubai Holding Commercial Operations MTN Limited.
RESPONSIBILITY The Issuer and the Guarantor accept responsibility for the information contained in these Final Terms.
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Signed on behalf of the Issuer:
By:...... By: ...... Duly authorised Duly authorised
Signed on behalf of the Guarantor:
By:...... By: ...... Duly authorised Duly authorised
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PART B – OTHER INFORMATION
1. LISTING (i) Listing: [Dubai International Financial Exchange/other (specify)/None] (ii) Admission to trading: [Not Applicable] [Application has been made for the Notes to be admitted to trading on [•] with effect from [•].] 2. Ratings Ratings The Notes to be issued have been rated: [S & P: [•]] [Moody’s: [•]] [Fitch: [•]] [[Other]: [•]] The above disclosure should reflect the rating allocated to Notes of the type being issued under the Programme generally or, where the issue has been specifically rated, that rating. 3. OPERATIONAL INFORMATION ISIN Code: [•] Common Code: [•]
Any clearing system(s) other than [Not Applicable/give name(s) and number(s)] Euroclear Bank S.A./N.V. and Clearstream Banking Societe Anonyme and the relevant identification number(s): Delivery: Delivery [against/free of] payment
Names and addresses of [•] additional Paying Agent(s) (if any):
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General Information
1. The creation and issuance of the Notes has been authorised by the resolutions of the board of directors of Dubai Holding Commercial Operations MTN Limited and the Executive Committee of Dubai Holding Commercial Operations Group LLC, in each case dated 14 December 2006. 2. There are no governmental, legal or arbitration proceedings against or affecting the Issuer, nor is the Issuer aware of any pending or threatened proceedings, which are or might reasonably be expected to be material in the context of the issuance of the Notes. 3. There are no governmental, legal or arbitration proceedings against or affecting the Company or any of its assets, nor is the Company aware of any pending or threatened proceedings, which are or might reasonably be expected to be material in the context of the issuance of the Notes. 4. There has been no adverse change, or any development reasonably likely to involve an adverse change, in the condition (financial or otherwise) or general affairs of the Issuer since the date of its incorporation that is material in the context of the issuance of the Notes. 5. There has been no adverse change, or any development reasonably likely to involve an adverse change, in the condition (financial or otherwise) or general affairs of the Company since the date of its incorporation that is material in the context of the issuance of the Notes. 6. For so long as Notes may be issued pursuant to this Prospectus, copies of the following documents will be available for inspection and copies (together, where necessary, with English translations thereof) may be obtained during normal business hours at the specified offices of the Paying Agents:
• the Combined Financial Statements; • the Memorandum and Articles of Association of the Issuer; • the Articles of Incorporation of the Guarantor; • this Prospectus and any supplements thereto and any documents incorporated by reference therein;
• the Trust Deed; • the Agency Agreement; • the Programme Agreement; • any Final Terms relating to Notes which are admitted to listing, trading and/or quotation system or listed on any listing authority, stock exchange and/or quotation system. In the case of any Notes which are not listed, admitted to trading and/or quoted by any stock exchange and/or quotation system, copies of the relevant Final Terms will only be available for inspection by a holder of such Notes; and
• in the case of each issue of listed Notes subscribed pursuant to a subscription agreement, the subscription agreement or equivalent documents. 7. The Notes will contain the following legends: “Any United States person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code”1; and
1 This legend only applies to Notes which have an original maturity of more than 365 days.
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“This Note may not be offered, sold or otherwise transferred other than to a Qualified Investor as defined in the Offered Securities Rules of the Dubai Financial Services Authority”.
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Index to the Combined Financial Statements
Page
Independent Auditors’ Report...... F-2
Combined Balance Sheet as at 2004 and 2005 ...... F-3
Combined Statement of Income for the years ended 31 December 2004 and 2005...... F-4
Combined Statement of Changes in Equity for the years ended 31 December 2004 and 2005 ...... F-5
Combined Statement of Cash Flows...... F-6
Notes to the Combined Financial Statements as at and for the years ended 31 December 2004 and 2005...... F7-F55
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PricewaterhouseCoopers Emirates Towers Offices Level 40 P.O. Box 11987, Dubai UnitedArabEmirates Telephone +971 (4) 3043100 Facsimile +971 (4) 3304100 e-mail: [email protected] Independent auditors’ report to the shareholders of Dubai Holding LLC
We have audited the accompanying combined balance sheet of certain companies (“Dubai Holding – Commercial Operations Group”/“the Group”) within the control of Dubai Holding LLC (“the parent company”) as at 31 December 2005 and the related combined statements of income, cash flows and changes in equity for the year then ended. These combined financial statements have been prepared solely to assist the management of the parent company in connection with the formation of an intermediate holding company as explained in Note 1. These combined financial statements, set out on pages 2 to 54, are the responsibility of the management of the parent company. Our responsibility is to express an opinion on these combined financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit so as to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accompanying combined financial statements have been prepared, in all material respects, in accordance with the accounting policies set out in Note 2.
Without qualifying our opinion, we draw attention to the fact that, as explained in Note 1, these combined financial statements do not include all entities held under the control of the parent company and, accordingly, do not represent a set of consolidated financial statements for a parent reporting entity as defined in International Accounting Standard 27 “Consolidated and Separate Financial Statements”. Furthermore, these combined financial statements do not comply with the provisions of International Accounting Standard 14 “Segment Reporting”.
This report is intended solely for the purpose explained in Note 1 and should not be used or distributed to other parties for any other purpose.
28 December 2006
MJ Stevenson, AH Nasser, P Suddaby and JE Fakhoury are registered as practising auditors with the UAE Ministry of Economy & Planning 1
F-2 Dubai Holding - Commercial Operations Group
COMBINED BALANCE SHEET As at 31 December Notes 2005 2004 AED’000 AED’000 Assets Non-current assets Property, plant and equipment 5 19,240,830 625,919 Intangible assets 6 83,273 11,256 Investment property 7 27,833,835 6,287,053 Investment in associates 9 1,827,610 - Investment in joint ventures 11 60,811 27,926 Financial assets at fair value through profit or loss 10 432,325 357,156 Derivative financial instruments 12 50,397 17,798 Trade and other receivables 13 678,896 401,829 ------50,207,977 7,728,937 ------Current assets Inventories 17 53,788 - Property held for sale 8 24,337,063 1,796,159 Trade and other receivables 13 1,494,753 901,102 Derivative financial instruments 12 3,603 - Due from related parties 18 2,790,398 322,354 Cash and bank balances 19 1,452,984 867,226 ------30,132,589 3,886,841 ------Total assets 80,340,566 11,615,778 ======EQUITY AND LIABILITIES Capital and reserves Share capital 20 1,700 1,400 Capital contribution 21 189,172 - Reserves 22 3,498,362 17,798 Retained earnings 1,705,932 1,010,015 ------Total equity 5,395,166 1,029,213 ------Non-current liabilities Borrowings 25 1,501,509 941,176 Government grants 26 51,854,333 5,687,877 Retentions payable 27 91,439 41,314 Employees’ end of service benefits 28 84,320 9,192 Loans from parent company 18 2,638,531 ------56,170,132 6,679,559 ------Current liabilities Trade and other payables 29 2,669,982 809,232 Retentions payable 27 102,275 43,957 Borrowings 25 2,291,411 172,539 Advances from customers 31 7,016,851 2,497,101 Due to related parties 18 580,685 384,177 Loans from parent company 18 307,194 - Derivative financial instruments 12 873 - Government grants 26 5,805,997 ------18,775,268 3,907,006 ------Total equity and liabilities 80,340,566 11,615,778 ======These combined financial statements were approved by the management of Dubai Holding LLC on 31 August 2006 and were signed on their behalf by:
H . E . M o h a m m a d A l G e r g a w i F a d h e l A l A l i Executive Chairman Chief Financial and Operating Officer
The notes on pages 6 to 54 form an integral part of these combined financial statements. 2
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Dubai Holding - Commercial Operations Group
COMBINED STATEMENT OF INCOME
Year ended 31 December Notes 2005 2004 AED’000 AED’000
Continuing operations
Revenue 32 2,645,206 388,263 Direct costs (1,488,317) (101,773) ------Gross profit 1,156,889 286,490
Release of government grants 26 740,880 88,599 Net investment income 33 77,899 35,402 Other operating income 34 668,828 569,173 ------2,644,496 979,664 Expenses ------General and administrative 36 (748,855) (232,871) Marketing and selling 37 (352,385) (103,392) Consultancy (60,098) (52,626) Depreciation and amortisation (118,997) (77,712) Other expenses (4,972) (15,465) ------Total expenses (1,285,307) (482,066) ------
Operating profit 1,359,189 497,598
Finance costs (net) 38 (161,951) (10,866) Share of loss of associates and joint ventures 9,11 (80,406) (2,074) ------Profit before income tax 1,116,832 484,658
Income tax expense (50) ------Profit for the year from continuing operations 1,116,782 484,658
Discontinued operation
Profit for the year from discontinued operation 41 31,493 20,127 Profit from sale of discontinued operation 41 460,696 ------Profit for the year 1,608,971 504,785 ======
The notes on pages 6 to 54 form an integral part of these combined financial statements. 3
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COMBINED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2005
Notes Share Capital Retained Other Statutory Translation Fair value Total capital contribution earnings reserve reserve reserve reserve equity AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000
At 1 January 2004 1,050 - 767,323 - - - - 768,373 Share capital issued 350 ------350 Profit for the year - - 504,785 - - - - 504,785 Fair value gain relating to cash flow Hedges 12 ------17,798 17,798 Dividend declared 30 - - (262,093) - - - - (262,093)
F-5 At 31 December 2004 1,400 - 1,010,015 - - - 17,798 1,029,213
Subsidiary’s share capital and reserves on transfer 1,22 300 - (912,181) 3,475,313 450 90 - 2,563,972 Land transferred by shareholder 21 - 189,172 - - - - - 189,172 Profit for the year - - 1,608,971 - - - - 1,608,971 Transferred to legal reserve 23 - - (873) - 873 - - - Translation reserve 24 - - - - - (28,761) - (28,761) Fair value gain relating to cash flow Hedges 12 ------32,599 32,599 At 31 December 2005 1,700 189,172 1,705,932 3,475,313 1,323 (28,671) 50,397 5,395,166
The notes on pages 6 to 54 form an integral part of these combined financial statements. 4 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
COMBINED STATEMENT OF CASH FLOWS Year ended 31 December 2005 2004 Notes AED’000 AED’000
Cash flows from operating activities Cash generated from operations 43 3,505,125 1,238,499
Payment of employees’ end of service benefits 28 (6,812) (376) ------Net cash generated from operating activities 3,498,313 1,238,123 ------Cash flows from investing activities Purchases of property, plant and equipment net of project accruals 5 (749,161) (219,046) Proceeds from sale of property, plant and equipment 1,045,664 195,287 Purchases of investment property net of project accruals 7 (354,782) (156,913) Purchases of property held for sale net of project accruals 8 (2,217,181) (702,492) Proceeds from sale of property held for sale 28,856 - Purchase of intangible assets 6 (71,049) (8,858) Loans receivable 15 (17,429) (7,002) Finance leases provided during the year 16 (33,473) (73,227) Recovery of finance lease receivables 16 4,365 4,521 Deposits with original maturity of over three months 19 (46,328) 20,150 Interest received 46,324 12,662 Acquisition of associates and joint ventures 9,11 (2,114,919) (30,000) ------Net cash used in investing activities (4,479,113) (964,918)
Cash flows from financing activities Bank borrowings received net of repayment 25 1,731,653 (14,285) Interest paid (208,275) (23,528) Loan repaid to parent company (657,855) - Share capital issued - 350 ------Net cash provided by/(used in) financing activities 865,523 (37,463) ======(Decrease)/increase in cash and cash equivalents (115,277) 235,742 Cash on transfer of entity under common control 1 644,221 - Cash and cash equivalents, beginning of the year 686,282 450,540 ------Cash and cash equivalents, end of the year 19 1,215,226 686,282 ======
The notes on pages 6 to 54 form an integral part of these combined financial statements. 5
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005
1. BASIS OF PREPARATION
These combined financial statements have been prepared by aggregating the consolidated results, assets and liabilities of the following entities, all of which are currently held under the direct control of the Dubai Holding LLC (“the parent company”/“DH LLC”): Holding Name of entity Place of Principle activity percentage incorporation 2005 2004 Tatweer Dubai LLC UAE Real estate development/ leisure 100 100 (“Tatweer”) and entertainment Al Mada LLC UAE Infrastructure, real estate and 100 100 (“Al Mada”) licensing services Dubai Properties LLC UAE Real estate development 100 100 (“DP”) Dubai International UAE Real estate development 100 100 Properties LLC (“DIP”) Jumeirah Group LLC UAE Hospitality and leisure 100 - (“Jumeirah”)
The parent company has undertaken a group restructuring exercise. As a result of this process an intermediate holding company, Dubai Holding Commercial Operations Group LLC (“DHCO”) was incorporated on 1 October 2006 with a view to become the parent company of the five entities listed above (“the Group”).
Management have prepared these combined financial statements for the purpose of assessing the financial performance and position of this Group in connection with securing a formal credit-rating assessment for the Group and issuing debt securities on the Dubai International Financial Exchange. It is the intention of management to prepare consolidated financial statements of DHCO for the year ending 31 December 2006.
These combined financial statements do not represent a set of consolidated financial statements for a parent entity as defined by International Accounting Standard 27 (“IAS”) “Consolidated and Separate Financial Statements” since:
x DHCO was not in existence during the year ended 31 December 2005; and x not all entities held under the common control of the parent company have been included in these combined financial statements. Entities that are under the direct control of the parent company but have been excluded from these combined financial statements, since they are not expected to be under the direct control of the intermediate holding company, are as follows:
Holding Name of entity Place of Principle activity percentage incorporation 2005 2004 Dubai Holding LLC UAE Holding company 100 100 Dubai International Capital (“DIC”) UAE Private equity 100 100
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
1. BASIS OF PREPARATION (continued)
Furthermore, these combined financial statements do not comply with IAS 14 “Segmental Reporting” since they do not provide segment analyses which, under IAS 14 are required by all entities in the process of issuing debt securities in public securities markets.
The parent company’s registered address is PO Box 66000, Dubai United Arab Emirates. The activities of the subsidiaries, associates and joint ventures of the Group are set out in notes 2.2, 9 and 11.
On 1 February 2005, the assets, liabilities and businesses of Jumeirah Group LLC, which owns and manages luxury hotels, office and retail facilities in Dubai, London and New York, were transferred to the parent company by its majority shareholder (henceforth referred to as “the shareholder”). The assets and liabilities, which are listed below, were transferred at net book value.
1 February 2005 AED’000 ASSETS Non-current assets Property, plant and equipment 5,713,250 Investment property 1,068,375 ------6,781,625 ------Current assets Inventories 54,943 Trade and other receivables 185,450 Due from related parties 4,934 Cash and bank balances 644,221 ------889,548 ------Total assets 7,671,173 ------LIABILITIES Non-current liabilities Loans from parent company 3,348,505 Employees’ end of service benefits 39,428 Bank borrowings 689,961 ------4,077,894 ------Current liabilities Trade and other payables 715,056 Due to related parties 724 Bank borrowings 154,449 Loans from parent company 159,078 ------1,029,307 ------Total liabilities 5,107,201 ------NET ASSETS 2,563,972 ======
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
1. BASIS OF PREPARATION (continued)
The results of the business for the period from 1 February 2005 to 31 December 2005 are shown below: 1 February 2005 to 31 December 2005 AED’000
Revenue 1,998,580 ------Gross profit 1,175,684 ------Other operating income and expenses 4,015 ------Operating profit 408,116 Finance costs (net) (138,778) ------Profit before taxation 269,338 Taxation (50) ------Profit for the period 269,288 ======
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these combined financial statements are as follows:
2.1 Basis of combination
These combined financial statements relate to the aggregated results, assets and liabilities of the entities listed in Note 1. The combined financial statements have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value through profit or loss and government grants. Receivable and payable balances and sales and purchases between the entities included in these combined financial statements have been eliminated.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of combination (continued)
(a) Subsidiary undertakings
Subsidiaries are entities over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully combined from the date on which control is transferred to the Group. They are de-combined from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Identifiable net assets acquired, including separately identifiable intangibles e.g. brand and contingent liabilities assumed in a business combination, are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired is recorded as goodwill.
Transfer of businesses under common control is accounted for using the predecessor basis of accounting applied prospectively. The assets are transferred at their net book values at the date of the transfer.
A listing of the Group’s subsidiaries included in these financial statements is as follows:
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of combination (continued)
(a) Subsidiary undertakings (continued)
Name of the Holding Place of Nature of business Holding subsidiary company incorporation percentage 2005 2004 Dubai Towers Doha DIP Qatar Property 100 - LLC development The Lagoons LLC DIP UAE Property 100 - development Estithmaar Realty DP UAE Real estate 100 100 FZ-LLC development Business Bay LLC DP UAE Property 100 - development Dubai Hospitality DP UAE Property 100 - LLC development Dubai Land DP UAE Property 100 - Residences LLC development Business Bay Hotel DP UAE Property 100 - LLC development Idama LLC DP UAE Facilities 100 - management Jumeirah Beach Jumeirah UAE Hospitality and 100 - Resort LLC leisure Emirates Towers Jumeirah UAE Hospitality and 100 - LLC leisure Madinat Jumeirah Jumeirah UAE Hospitality and 100 - LLC leisure Jumeirah Beach Jumeirah UAE Hospitality and 100 - Club LLC leisure Jumeirah Jumeirah UAE Hospitality and 100 - International LLC leisure Jumeirah Jumeirah UAE Hospitality and 100 - Restaurants LLC leisure Jumeirah Retail Jumeirah UAE Hospitality and 100 - LLC leisure
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of combination (continued)
(a) Subsidiary undertakings (continued)
Name of the Holding Place of Nature of business Holding subsidiary company incorporation percentage 2005 2004 Jumeirah Jumeirah UK Hospitality and 100 - International (UK) leisure Limited Jumeirah Jumeirah USA Hospitality and 100 - Hospitality and leisure Leisure (USA) Inc Jumeirah Sales Jumeirah Ireland Hospitality and 100 - (Ireland) Limited leisure Dubailand LLC Tatweer UAE Leisure and 100 100 entertainment Dubai Healthcare Tatweer UAE Healthcare 100 100 City FZ-LLC infrastructure Dubai Industrial Tatweer UAE Real estate 100 - City LLC development Global Village LLC Tatweer UAE Real estate 100 - development, leisure and entertainment Center of Tatweer UAE Medical services 100 100 Excellence for Planning and Quality FZ-LLC Moutamarat (under Tatweer UAE Manage conferences 51 - formation) and exhibitions Tecom Investments Al Mada UAE Issue of licences, 100 100 FZ-LLC lease and develop property Arab Media Group Al Mada UAE Media, event and 100 - LLC distribution Tecom Investments Al Mada Cayman Islands International 100 - Overseas Ltd investments Al Mada LLC Al Mada UAE Local and regional 100 - investments Dubai Press Club Al Mada UAE Press club 100 - FZ-LLC
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of combination (continued)
(a) Subsidiary undertakings (continued)
Name of the Holding Place of Nature of business Holding subsidiary company incorporation percentage 2005 2004 JiWin FZ-LLC Al Mada UAE Public relations 100 - company E-Hosting DataFort Al Mada UAE Hosting and IT 100 100 FZ-LLC security services Arabian Radio Al Mada UAE Radio broadcasting 100 100 Network FZ-LLC Al Bayan Al Mada UAE Newspaper 100 - publisher Awraq LLC Al Mada UAE Publishing 100 - Done LLC Al Mada UAE Event management 100 - Shoof LLC Al Mada UAE Outdoor advertising 100 -
(b) Transactions eliminated on combination
Inter-company balances and transactions, and any unrealised gains/losses arising from transactions between Group companies being combined, are eliminated in preparing the combined financial statements.
(c) Associates and Joint Ventures
Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.
A joint venture is a contractual arrangement between the Group and one or more other parties to undertake economic activity that is subject to joint control.
Investments in associates and joint ventures are accounted for using the equity method of accounting and are initially recognised at cost. The Group’s share of its joint ventures’/associates’ post-acquisition profits or losses is recognised in the combined statement of income and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.1 Basis of combination (continued)
(c) Associates and Joint Ventures (continued)
Unrealised gains on transactions between the Group and its associates and joint ventures are eliminated to the extent of the Group’s interest in the associates/joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred.
The Group’s associate and joint venture stakes considered in these combined financial statements are disclosed in Notes 9 and 11 respectively.
(d) Combination adjustments Uniform accounting policies are used for like transactions and events. Therefore, if a subsidiary, associate or joint venture uses different accounting policies from those applied in the combined financial statements, appropriate combination adjustments to align accounting policies are made when preparing these combined financial statements.
(e) Discontinued operations
During the year, the Group sold the telecommunications business of Tecom Investment FZ-LLC. The results of this business for the year, and the related profit on disposal, are classified as discontinued operations in the combined statement of income.
2.2 Foreign currency translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The combined financial statements are presented in United Arab Emirates Dirhams (“AED”), which is the Group’s functional and presentation currency. The balances and the transactions denominated in the US dollars (“USD”) have been translated into the presentation currency at a fixed rate as the exchange rate of AED to USD has been pegged since 1981.
(b) Transactions and balances
Transactions denominated in foreign currencies are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at exchange rates prevailing at the balance sheet date. The resulting exchange differences are dealt with in the combined statement of income, except when deferred in equity as qualifying cash flow hedges.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Foreign currency translation (continued)
(b) Transactions and balances (continued)
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in the combined statement of income as part of the fair value gain or loss.
(c) Subsidiaries
The results and financial positions of all the subsidiaries (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;
(ii) income and expenses for each income statement are translated at average exchange rates; and
(iii) all resulting exchange differences are recognised as a separate component of equity called “Translation reserve”.
On combination, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognised in the combined statement of income as part of the gain or loss on sale.
2.3 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, balances in current accounts, call accounts and term deposits with original maturity of less than or equal to three months, net of bank overdrafts. Bank overdrafts are included in borrowings within current liabilities in the combined balance sheet.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.4 Trade and other receivables
Trade receivables are carried at original invoice amount less provision for impairment, if any. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. A provision for impairment is made for the difference between the carrying amount and the recoverable amount. Bad debts are written off during the year in which they are identified. The amount of provision is recognised in the combined statement of income within “general and administrative expenses”.
2.5 Inventories
Inventories are stated at the lower of cost and estimated net realisable value. Cost includes all attributable costs and is determined using the weighted average method. Net realisable value is the estimated selling price in the ordinary course of business less selling expenses.
2.6 Property held for sale
Land and buildings identified as held for sale, including those under construction, are classified as such and are stated at the lower of cost and estimated net realisable value. The cost of work- in-progress comprises construction costs, infrastructure costs and other related direct costs. Net realisable value is the estimated selling price in the ordinary course of business, less cost of completion and selling expenses.
2.7 Financial assets and liabilities
The Group classifies its financial assets and liabilities in the following categories:
(i) Financial assets and liabilities at fair value through profit or loss
All investments in funds are designated as ‘financial assets at fair value through profit or loss’. Management determines the classification of its financial assets at initial recognition. Assets in this category are classified as non-current assets if they are expected to be realised after more than 12 months of the balance sheet date.
(ii) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date, which are classified as non-current assets. Loans and receivables are classified as trade and other receivables.
15
F-16 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.7 Financial assets and liabilities (continued)
Regular purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are initially recognised at fair value and transaction costs are expensed in the combined statement of income. Investments are derecognised when the rights to receive cash flows from the investments have expired or where the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category, including interest and dividend income, are presented in the combined statement of income within ‘Net investment income’ in the period in which they arise.
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. Impairment losses recognised in the combined statement of income, on equity instruments are not reversed through the combined statement of income.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models, making maximum use of market inputs and relying as little is possible on entity- specific inputs.
2.8 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of the fair value of recognised assets or liabilities (fair value hedge); or (2) hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow hedge).
The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
16
F-17 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Derivative financial instruments and hedging activities (continued)
The fair values of various derivative instruments used for hedging are disclosed in Note 12. The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months.
Fair value hedge
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the combined statement of income, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The gain or loss relating to the effective portion of interest rate swaps hedging fixed rate borrowings is recognised in the income statement within “finance costs (net)”. The gain or loss relating to the ineffective portion is recognised in the income statement within “Other gains/(losses)”. Changes in the fair value of the hedged fixed rate borrowings attributable to interest rate risk are recognised in the combined statement of income within “finance costs (net)”.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used, is amortised to profit or loss over the period to maturity.
Cash flow hedge
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the combined statement of income. Amounts accumulated in equity are recycled in the combined statement of income in the periods when the hedged item affects profit or loss (for instance when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging the variable rate borrowing is recognised in the combined statement of income within “finance costs (net)”.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the combined statement of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the combined statement of income.
17
F-18 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.8 Derivative financial instruments and hedging activities (continued)
Hedges used by the Group are:
(a) Foreign currency options
Foreign currency options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the obligation, either to buy (a call option) or sell (a put option) at or by a set date or during a set period, a specific amount of a foreign currency or a financial instrument at a predetermined price. The seller receives a premium from the purchaser in consideration for the assumption for foreign exchange risk. The Group is exposed to credit risk on purchased options only, and only to the extent of their carrying amount, which is their fair value. The Group has accounted for foreign currency options as fair value hedges.
(b) Currency and interest rate swaps
Currency and interest rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or interest rates (for example, fixed rate for floating rate) or a combination of all these (i.e. cross-currency interest rate swaps). No exchange of principal takes place, except for certain currency swaps. The Group’s credit risk represents the potential cost to replace the interest rate swap contracts if counterparties fail to perform their obligation. This risk is monitored on an ongoing basis with reference to the current fair value, a proportion of the notional amount of the contracts and the liquidity of the market. The Group has accounted for currency and interest rate swaps as cash flow hedges if they meet the following criteria:
(i) formal documentation setting out the hedging instrument, hedged item, hedging objective, strategy and relationship is prepared before hedge accounting is applied; (ii) the hedge is expected to be highly effective in offsetting the risk in the hedged item; (iii) the hedge is effective on an ongoing basis; and (iv) the hedge is reliably measurable. All other currency and interest rate swaps are classified as fair value hedges.
(c) High yield deposits
The interest applied to these deposits is dependent on the overall movement of exchange rates between two identified currencies. The interest is therefore subject to market risk and is fair valued based on the forecast pattern of the movement in the identified currencies.
18
F-19 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.9 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. The cost of property, plant and equipment is its purchase cost together with any incidental costs of acquisition.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the combined statement of income during the financial period in which they are incurred.
Depreciation is calculated on the straight-line method, at rates calculated to reduce the cost of assets to their estimated residual value over their expected useful lives, as follows:
Type of assets Years
Buildings and infrastructure 10 – 35 Leasehold improvements 2 – 4 Plant, equipment and machinery 3 – 7 Furniture, fixtures and office equipment 2 – 4 Computer hardware 3 Motor vehicles 3 Data centre and teleport 20 Other assets 3 – 5
Land is not depreciated.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These are included in the combined statement of income.
Capital work in progress is stated at cost and includes property that is being developed for future use. When commissioned, capital work in progress is transferred to either investment property or property, plant and equipment as appropriate, and depreciated in accordance with Group’s policy.
19
F-20 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.10 Intangible assets
a) Goodwill
The excess of the cost of an acquisition over the Group’s interest in the fair value of the net identifiable assets acquired as of the date of the exchange transaction is recorded as goodwill and recognised as an asset in the balance sheet under “Intangible assets”. Goodwill on acquisitions of associates is included in “investments in associates”. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
b) Brands
Brands are shown at historical cost. Brands have an indefinite useful life. Recognised brand cost is tested annually for impairment and carried at initial recognised cost less accumulated impairment losses.
c) Master plans
Master plans are shown at historical cost. Master plans have limited useful lives and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the master plans over their estimated useful lives of 3 years.
d) Long-term management contracts
Long-term management contracts comprise costs capitalised for a hotel management contract and are held at historical cost. Amortisation is calculated using the straight-line method to allocate the cost over the contract’s estimated useful life of 15 years.
2.11 Investment property
Investment property comprises property held for capital appreciation, rental yields or both, and is measured at cost less accumulated depreciation and impairment losses, if any. In addition, land held for undetermined use is classified as investment property and is not depreciated.
When the development of an investment property commences, it is transferred to capital work in progress until development is complete, at which time it is transferred either to investment property or to property, plant and equipment, as appropriate, and depreciated on a straight line method, at rates calculated to reduce the cost of assets to their estimated residual value over their expected useful lives, as follows:
20
F-21 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.11 Investment property (continued)
Type of assets Years
Buildings and infrastructure 20 – 35 Furniture, fixtures and office equipment 2 – 4
When investment property is sold, gains and losses on disposal are determined by reference to its carrying amount and is taken into account in determining operating profit.
2.12 Impairment of non-financial assets
At each balance sheet date an assessment is made as to whether there is any indication that the Group’s non-financial assets may be written down. If any such indication exists, an assessment is made to establish whether the recoverable amount of the assets has declined below the carrying amount of those assets as disclosed in the combined financial statements. When such a decline has occurred, the carrying amount of the assets is reduced to the recoverable amount. The amount of any such reduction is recognised immediately as an expense in the combined statement of income. Any subsequent increase in the recoverable amount of the assets is written back when the circumstances that led to the write-down or write-off cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.
The recoverable amount is determined as the higher of the net selling price of the assets and their value in use. The value in use of the assets is estimated based on forecast future cash inflows and outflows to be derived from continuing use of the assets and from the estimated net proceeds on disposal, discounted to present value using an appropriate discount rate.
2.13 Advances from customers
Instalments received from buyers prior to the transfer of title are recognised as advances from customers. These are considered a current liability as they are repayable on demand on cancellation of the contracts, subject to certain penalties.
2.14 Leases
When assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income.
Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the combined statement of income on a straight-line basis over the period of the lease.
21
F-22 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.15 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Increases in provisions due to the passage of time are recognised as interest expense.
2.16 Government grants
a) Land
Land granted to the Group by the Government of Dubai is initially recognised as government grant at the fair value determined by an independent valuer prevailing at the time of the grant. This is subsequently released to the combined statement of income as follows:
(i) Where land is held for sale without any further development, the grant is released when sale of the land is recognised.
(ii) Where land is held for development, the grant is released when development on the land, in accordance with master plans approved by the Group, has commenced.
(iii) Where land is held for leasing (of the land or of property developed on the land), the grant is released on commencement of the lease.
b) Other grants
All other forms of government grants are accounted for under the income approach in accordance with IAS 20 Accounting for Government Grants and Disclosure of Government Assistance (Note 26).
2.17 Borrowings
Borrowings are recognised initially at fair value net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the combined statement of income over the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
22
F-23 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.18 Employee benefits
(a) End of service benefits to non-UAE nationals
A provision is made for employees employed in the UAE for estimated liability for employees’ entitlement to annual leave and leave passage as a result of services rendered by the employees up to the balance sheet date. Provision is made for the full amount of end of service benefits due to non-UAE national employees working in the entities based in UAE, in accordance with the UAE Labour Law for their periods of service up to the balance sheet date.
The provision relating to annual leave and leave passage is disclosed as a current liability, while that relating to end of service benefits is disclosed as a non-current liability.
(b) Pension and social security policy within the UAE
The Group is a member of the pension scheme operated by the Federal Pension General and Social Security Authority. Accordingly contributions for eligible UAE National employees are made and charged to the combined statement of income, in accordance with the provisions of Federal Law No. 7 for 1999 relating to Pension and Social Security Law. An accrual has been made for past contributions relating to the services rendered by the eligible UAE national employees up to 31 December 2002.
2.19 Taxation
Provisioning is based on operating results arising from services rendered by subsidiaries operating in jurisdictions where corporate income is subject to tax and adjusted for any potential disallowances under the relevant taxation rates in accordance with the taxation regulations.
2.20 Revenue recognition
(a) Sales of land and buildings
Revenue from sales of land and buildings is recognised in the combined statement of income when the risks and rewards of ownership are transferred to the buyer, which is deemed to take place when legal title passes to the buyer. However, in certain circumstances equitable interest in the land and buildings may vest in the buyer before the legal title passes and therefore the risks and rewards of ownership are transferred at that stage. In such cases, provided that the Group has no further substantial acts to complete in connection with the sale of the land or buildings, revenue is recognised when equitable interest in the land or buildings passes to the buyer. When the aggregate of the payments received, including the buyer’s initial down payment or continuing payments by the buyer provide insufficient evidence of the buyer’s commitment to complete payment, revenue is recognised only to the extent cash is received.
23
F-24 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.20 Revenue recognition (continued)
(b) Sales of services
Sales are stated net of value added tax, discounts and municipality fees, where applicable. Sales of services are recognised in the accounting period in which the services are rendered.
(c) Rental income
Rental income from operating leases is recognised as income on a straight line basis over the lease term. When the Group provides operating lease incentives to its customers, the aggregate cost of incentives are recognised as a reduction of rental income over the lease term on a straight line basis.
(d) Sales of investments
Revenue from sales of investments is recognised in the combined statement of income when all risks and rewards of ownership are transferred to the buyer. The difference between the net disposal proceeds and the carrying amount is charged or credited to the combined statement of income.
(e) Interest income
Interest income is recognised in the combined statement of income on a time proportion basis using the effective interest method.
(f) Dividend income
Dividend income is recognised when the right to receive the dividend is established.
3. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and fair value interest rate risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.
24
F-25 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
3. FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Foreign exchange risk
The Group has investments in the USA, Europe and Middle East. The Group is not exposed to significant currency risk against the US dollar (“USD”), as the UAE Dirham (“AED”) is currently pegged to the USD. The Group is exposed to foreign exchange risks primarily with respect to the Euro and the British Pound (“GBP”). The Group finances overseas investments mainly through the use of foreign currency borrowings to hedge the foreign currency investment. The Group uses currency swaps, forward exchange contracts, plain vanilla and other structured derivatives to hedge and manage foreign exchange risks.
Cash flow and fair value interest rate risk
The Group is exposed to interest rate risk on its interest bearing assets and liabilities (floating notes and borrowings). Borrowings at variable rates expose the Group to cash flow interest rate risk. Borrowings at fixed rates expose the Group to fair value interest rate risk. The Group manages its interest rate risk by using derivative instruments like interest rate swaps.
Credit risk
The Group is exposed to credit risk in relation to its monetary assets, mainly trade receivables, advances to contractors, derivative assets and bank deposits.
Trade receivables and advances to contractors are either made to customers/contractors with an appropriate credit history or secured by bank guarantees. Advances to contractors are recovered over the length of the contracts (Note 14). The Group has no other significant concentration of credit risk.
Derivative assets and bank deposits are limited to high-credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution.
Liquidity risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, the Group aims to maintain flexibility in funding by keeping committed credit lines available.
Fair value estimation
The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price.
The fair value of financial instruments that are not traded in an active market is based on valuation techniques. Other receivables and payables approximate their fair values. 25
F-26 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
4. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
(a) Impairment charge on intangible assets
Management assesses the impairment of intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that are considered important which could trigger an impairment review include evidence that there are no profits and cash flows generated from the related asset.
The Group tests annually whether the goodwill and brands have suffered any impairment. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (Note 6).
(b) Fair value of derivatives and other financial instruments
The fair value of financial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualified personnel independent of the area that created them. All models are currently vetted before they are used, and models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
26
F-27 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
5. PROPERTY, PLANT AND EQUIPMENT
Plant, Furniture, Data Buildings equipment fixtures and centre Capital and Leasehold and office Computer Motor and Other work-in- Land infrastructure improvements machinery equipment hardware vehicles teleport assets progress Total AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 AED’000
Cost At 1 January 2005 1,931 103,606 8,559 71,713 36,473 115,502 1,495 26,329 6,100 399,782 771,490 Acquisition of a subsidiary (Note 42) - 1,918 - - 2,217 - 84 - - - 4,219 Assets transferred (Note 1) 870,632 4,248,308 - - 2,095,986 - - - - 3,744 7,218,670 Transfers from/(to) investment
F-28 property (Note 7) 40,788 1,238 - - 1,315 - - - 2,858 (310,317) (264,118) Transfers from property held for sale (Note 8) - 14,951 ------177,106 192,057 Additions - 95,462 6,747 43,086 98,944 121,993 2,701 - 104 13,456,058 13,825,095 Disposals - (20,024) - (74,632) (14,955) (332,702) (555) (17,030) (54) (141,710) (601,662) Transfers - - - - 1,985 129,089 7,555 - - (138,629) - At 31 December 2005 913,351 4,445,459 15,306 40,167 2,221,965 33,882 11,280 9,299 9,008 13,446,034 21,145,751
Depreciation At 1 January 2005 - 6,130 1,874 18,949 18,508 86,862 938 7,654 4,656 - 145,571 Assets transferred (Note 1) - 710,215 - - 795,205 - - - - - 1,505,420 Charge for the year - 136,370 3,305 15,256 200,351 32,065 1,490 2,447 1,290 - 392,574 Disposals - (1,999) - (19,498) (14,771) (99,273) (223) (6,365) (35) - (142,164) Transfers from investment property (Note 7) - 941 - - 373 - - - 2,206 - 3,520 Transfers - - - - (1,460) - 1,460 - - - - At 31 December 2005 - 851,657 5,179 14,707 998,206 19,654 3,665 3,736 8,117 - 1,904,921
Net book value At 31 December 2005 913,351 3,593,802 10,127 25,460 1,223,759 14,228 7,615 5,563 891 13,446,034 19,240,830
27 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
5. PROPERTY, PLANT AND EQUIPMENT (continued)
Building interior improvements, Data Capital Buildings and Leasehold Equipment furniture and Computer Motor centre and Other work-in- Land infrastructure improvements machinery fixtures hardware vehicles teleport assets progress Total AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000 AED '000
Cost At 1 January 2004 - 72,619 3,125 44,359 25,159 100,678 1,145 26,482 5,896 16,298 295,761 Additions - 8 5,434 25,245 3,880 3,882 350 - 117 520,997 559,913 Transfers from investment property 12,697 12,568 ------25,265 F-29 Transfer to property held for sale (5,232) - - 70 6,565 1,284 - - 87 (49,402) (46,628) Transfer to investment property (5,534) ------(54,081) (59,615) Transfers - 18,760 - 2,039 869 12,350 - - - (34,018) - Disposals - (349) - - - (2,692) - (153) - (12) (3,206) At 31 December 2004 1,931 103,606 8,559 71,713 36,473 115,502 1,495 26,329 6,100 399,782 771,490
Depreciation At 1 January 2004 - 3,702 745 10,956 10,822 63,183 614 6,613 3,461 - 100,096 Charge for the year - 965 1,129 7,572 6,987 22,208 324 1,192 1,179 - 41,556 Transfers from investment property - 1,478 ------1,478 Transfers from property held for sale - - - 9 656 96 - - 16 - 777 Transfers - (15) - 412 43 2,654 - - - - 3,094 Disposals - - - - - (1,279) - (151) - - (1,430) At 31 December 2004 - 6,130 1,874 18,949 18,508 86,862 938 7,654 4,656 - 145,571
Net book value 1,931 97,476 6,685 52,764 17,965 28,640 557 18,675 1,444 399,782 625,919
28 Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 06 : 3621 Section 06
Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
5. PROPERTY, PLANT AND EQUIPMENT (continued)
Certain bank borrowings are secured by a registered mortgage of AED 675,000,000 (2004: AED 675,000,000) over land on which the Jumeirah Beach Hotel is located. The land on which the Madinat Jumeirah Resort is built on is not recorded in these combined financial statements. The land is held in the name of the shareholder. No amount is payable for the use of this land. Property, plant and equipment with a carrying amount of AED 3,997,913,000 (2004: Nil) is further secured against the loan payable to the parent company (Note 18). Capital work in progress includes land granted to the Group during the year of AED 12,515,000,000 and land contributed by the parent company valued at AED 189,172,000 (2004: Nil) (Note 21).
6. INTANGIBLE ASSETS
Long-term management Master Brands Goodwill contract plans Total AED’000 AED’000 AED’000 AED’000 AED’000
At 1 January 2004 - 2,398 - - 2,398 Additions - - - 8,858 8,858 ------At 1 January 2005 - 2,398 - 8,858 11,256
Additions 4,250 513 67,549 3,500 75,812 Amortisation charge - - - (3,795) (3,795) ------At 31 December 2005 4,250 2,911 67,549 8,563 83,273 ======
A Group subsidiary paid USD 18,390,746 to acquire the management contract of a hotel in New York. The management contract commences in 2006 and has a 15-year tenor with a termination clause. Jumeirah Hospitality & Leisure (USA) Inc assumed management of the Jumeirah Essex House Hotel on 15 January 2006.
The Group has tested impairment of the goodwill and the brands in relation to two subsidiaries and is of the opinion that no impairment should be recorded. This test was done by calculating the net present value of the underlying cash flows and comparing these to the carrying value. The key assumptions used were: Brands Forecast revenues based on past performance and expectations of market development Brand rate – 5% Discount factor – 10% Goodwill Forecast cash flows based on past performance and expectations of market development Growth rate – 1.8% Discount factor – 10% These assumptions have been used for each cash generating unit. Forecast revenues were determined based on past performance and future expectations of the market. The weighted average growth rates used are consistent with the forecasts included in their forecasts. The discount rates used are pre-tax and reflect specific risks relating to the cash generating units. 29
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
7. INVESTMENT PROPERTY
Furniture, Infra- fixtures and Land Buildings structure equipment Total AED’000 AED’000 AED’000 AED’000 AED’000 Cost At 1 January 2004 - - - - - Transfer of subsidiary 1,942,360 777,349 218,524 - 2,938,233 Transfer in 3,419,481 223,826 - - 3,643,307 Transfer out (169,515) (12,568) - - (182,083) Disposals (25,754) (2,270) - - (28,024) ------At 31 December 2004 5,166,572 986,337 218,524 - 6,371,433
Transfer of subsidiary (Note 1) 870,632 27,403 - 323,943 1,221,978 Additions 25,437,341 235,527 - 1,822 25,674,690 Transfer from property, plant and equipment (Note 5) 200,017 5,497 104,803 - 310,317 Transfer from property held for sale (Note 8) 353,904 - - - 353,904 Transfer to property held for sale (Note 8) (5,655,485) - (3,831) - (5,659,316) Transfer to property, plant and equipment (Note 5) (40,788) (4,096) - (1,315) (46,199) Disposals (69,610) (2,550) - - (72,160) ------At 31 December 2005 26,262,583 1,248,118 319,496 324,450 28,154,647 ------Depreciation At 1 January 2004 - - - - - Transfer of subsidiary - 53,573 - - 53,573 Charge for the year - 12,277 18,530 - 30,807 ------At 31 December 2004 - 65,850 18,530 - 84,380
Transfer of subsidiary (Note 1) - 79,988 - 73,615 153,603 Charge for the year - 50,842 11,227 26,819 88,888 Transfer to property, plant and equipment (Note 5) - (3,147) - (373) (3,520) Disposals - (2,539) - - (2,539) ------
At 31 December 2005 - 190,994 29,757 100,061 320,812 ------
Net book value at 31 December 2005 26,262,583 1,057,124 289,739 224,389 27,833,835 ======31 December 2004 5,166,572 920,487 199,994 - 6,287,053 ======A formal valuation of the investment property has not been undertaken at 31 December 2005, management believes that the fair value at that date is likely to be in the region of AED 86.14 billion (2004: AED 44.8 billion) based on comparable market transactions.
30
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
8. PROPERTY HELD FOR SALE Work-in- Land progress Total AED’000 AED’000 AED’000 Cost
At 1 January 2005 786,725 1,009,434 1,796,159 Additions 14,848,538 2,601,104 17,449,642 Transfer from investment property (Note 7) 5,655,485 3,831 5,659,316 Transfer to investment property (Note 7) (353,904) - (353,904) Transfer to property, plant and equipment (Note 5) (165,195) (26,862) (192,057) Disposals (22,093) - (22,093) ------At 31 December 2005 20,749,556 3,587,507 24,337,063 ======
9. INVESTMENT IN ASSOCIATES
2005 2004 AED’000 AED’000
At 1 January - - Investment during the year 2,078,359 - Share of loss (76,731) - Elimination of related interest in an associate (Note 41) (145,553) ------1,856,075 - Less: exchange differences (28,465) ------At 31 December 1,827,610 - ======
Investment in associates at 31 December 2005 includes goodwill of AED 244,702,000.
The Group’s share of the results of its principal associates, and its share of the assets, liabilities and revenue are presented on the following page:
31
F-32 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
9. INVESTMENT IN ASSOCIATES (continued)
31 Dec Name Nature of business Country of Assets Liabilities Revenues Profit/(loss) % interest 2005 incorporation AED’000 AED’000 AED’000 AED’000 held AED’000 Arady Developments LLC Real estate UAE 150 - - - 50.00 150 Axiom Telecom LLC Mobile phone retail, wholesale and services UAE 528,446 471,642 1,343,056 31,147 40.00 502,595 Interoute Telecom Dark fibre and
F-33 Holding Limited (UK) bandwidth services UK 469,187 313,321 107,354 (180,963) 30.00 479,547 Emirates Integrated Telecommunication Company (“Du”) Telecommunications UAE 1,001,827 10,955 - (9,128) 25.00 845,318
Total 1,827,610
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
10. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
2005 2004 AED’000 AED’000
At 1 January 357,156 321,754 Fair value gain (Note 33) 75,169 35,402 ------At 31 December 432,325 357,156 ======
Financial assets at fair value through profit or loss represent a fund managed by Dubai Investment Group LLC, a related party, having a diversified portfolio with a concentration in real estate. The return on these investments is linked to the performance of this fund. The Group’s share in the change in the net asset value of the fund amounting to AED 75,169,000 (2004: AED 35,402,000) is recorded in the combined statement of income as investment income (Note 33).
11. INVESTMENTS IN JOINT VENTURES
2005 2004 AED’000 AED’000
At 1 January 27,926 - Investment during the year 36,560 30,000 Loss for the year (3,675) (2,074) ------At 31 December 60,811 27,926 ======
33
F-34 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
11. INVESTMENT IN JOINT VENTURES (continued)
Details of current and non-current assets and liabilities and the profit/loss related to the Group’s interest in each joint venture are disclosed below:
2005 At 31 December 2005 Year ended 31 December 2005 Name of joint venture and Nature of business% Share of assets Share of liabilities Share of country of incorporation Interest Current Non-current Current Non-current revenue Share of loss AED’000 AED’000 AED’000 AED’000 AED’000 AED’000 Dubai Mercantile Exchange Operate physical 50 2,913 587 587 11 - (2,199) Holding Limited (Bermuda) commodities derivative exchange
F-35 Emirates Central Cooling System District cooling 50 38,050 201,848 37,866 155,041 6,394 (1,476) Corporation (“EMPOWER”) (UAE) services Total (3,675)
2004 At 31 December 2004 Year ended 31 December 2004 Emirates Central Cooling System District cooling Corporation (“EMPOWER”) services 50 25,297 72,433 26,596 43,208 952 (2,074)
Dubai Mercantile Exchange Holding Limited (Bermuda) The issued and fully paid up share capital at 31 December 2005 was: 1. 4.5 million category A shares (authorised: 22.2 million shares) with face value USD 1 per share; 2. 2.5 million category B shares (authorised: 9.8 million shares) with face value USD 1 per share; and 3. No category C shares have been issued (authorised: 1,000 shares) with face value USD 0.01 per share. EMPOWER Issued and fully paid up shares at 31 December 2005 were 100 million (authorised: 500 million shares) of AED 1 per share.
34 ee:8–Fo:8–Mna,Jnay2,20 :7a 5a4–32 eto 6:3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level: Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
12. DERIVATIVE FINANCIAL INSTRUMENTS
2005 2004 Contract amount Particulars Maturity Interest rates Assets Liabilities Assets Liabilities (millions) AED’000 AED’000 AED’000 AED’000 Designated as fair value hedges a) Foreign currency options Sep 2006 - USD 86 484 873 - -
b) Enhanced yield deposits Sep 2006 1.0% - 9.5% USD 23 3,119 - - -
F-36 Designated as cash flow hedges c) Interest rate swap contracts 2010 to 2013 3.0% - 4.06% USD 391 & AED 308 50,397 - 17,798 -
Total 54,000 873 17,798 - Less: current portion (3,603) (873) - Non-current portion 50,397 - 17,798 -
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
13. TRADE AND OTHER RECEIVABLES Trade and other receivables comprise:
2005 2004 AED’000 AED’000 Current Trade receivables, advances and prepayments (Note 14) 1,477,701 894,892 Loans receivable (Note 15) 12,130 1,841 Finance lease – net receivables (Note 16) 4,922 4,369 ------1,494,753 901,102 ======Non-current Trade receivables, advances and prepayments (Note 14) 439,034 213,320 Accrued income 122,180 106,522 Loans receivable (Note 15) 24,790 17,650 Finance lease – net receivables (Note16) 92,892 64,337 ------678,896 401,829 ======
14. TRADE RECEIVABLES, ADVANCES AND PREPAYMENTS 2005 2004 AED’000 AED’000 Current Trade receivables 450,365 153,243 Less: provision for impairment of receivables (54,567) (15,425) ------395,798 137,818 Retentions receivable - 4,025 Receivables from sale of land 364,164 153,835 Prepayments 58,445 22,249 Advances to contractors 597,316 552,915 Others 61,978 24,050 ------1,477,701 894,892 ======Non-current Advance to contractors 273,913 - Receivables from sale of land 164,747 213,320 Other 374 ------439,034 213,320 ======As at 31 December 2005, seven contractors accounted for 42% (2004: six contractors accounted for 96%) of the total advances paid to suppliers. Management does not consider this to be a risk as the advances are being recovered on a monthly basis in line with their contracts. The Group has a broad base of customers with no further concentration of credit risk at 31 December 2005.
36
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
15. LOANS RECEIVABLE
2005 2004 AED’000 AED’000
Loans receivable 36,920 19,491 Less: current portion (12,130) (1,841) ------Non-current portion 24,790 17,650 ======
During 2003, the Group extended a loan facility to a tenant for AED 19,491,000 for the purpose of constructing a building in the Free Zone. The interest on the loan is linked to 3-month LIBOR+1.5%, and is repayable over 40 quarterly instalments commencing on 30 June 2004.
During 2005, the Group provided a loan facility to another tenant for AED 26,700,000 for the purpose of constructing facilities in the Free Zone. The loan bears interest at 5% per annum and is repayable over 29 monthly instalments commencing February 2006.
16. FINANCE LEASE RECEIVABLES
Finance lease receivables relate to land and building leases with an option given to investors to buy the properties at the end of the period. The lease period varies between 30 and 50 years. At the end of the first period (usually 10 years) the investors have the right to buy the properties at a bargain option price. The lease carries interest linked to LIBOR.
2005 2004 AED’000 AED’000
At 1 January 68,706 - Additions 33,473 73,227 Repayments (4,365) (4,521) ------At 31 December 97,814 68,706 Less: current portion (4,922) (4,369) ------Non-current portion 92,892 64,337 ======A summary of the repayment schedule for the finance lease receivables is presented below: Within one year 8,131 5,055 After one year but not more than five years 32,913 25,276 More than 5 years 79,782 40,178 ------120,826 70,509 Unearned future finance income on finance leases (23,012) (1,803) ------Net investment in finance leases 97,814 68,706 ======
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
16. FINANCE LEASE RECEIVABLES (continued)
The net investment in finance leases is analysed as follows:
2005 2004 AED’000 AED’000
Within one year 5,982 4,591 After one year but not more than five years 28,055 23,984 More than 5 years 63,777 40,131 ------97,814 68,706 ======
17. INVENTORIES
Goods held for sale 51,425 - Engineering spares and other consumables 5,074 ------56,499 - Less: Provision for slow moving inventories (2,711) ------53,788 - ======
18. RELATED PARTY BALANCES AND TRANSACTIONS
Related parties comprise of the shareholders, key management personnel, associates, joint ventures, directors and businesses which are controlled directly or indirectly by the shareholders or directors or over which they exercise significant management influence. Related party transactions are entered into in the normal course of business. a) Significant transactions with related parties during the year include: 2005 2004 AED’000 AED’000
Associates Profit on sale of discontinued operation (Note 41) 460,696 - ======Parent company Interest income on funds advanced (Note 38) 6,862 - ======Interest expense on loans from parent company (Note 38) 118,275 - ======
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
18. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
a) Significant transactions with related parties (continued)
2005 2004 AED’000 AED’000 Other related parties Management fees earned (Note 34) 2,853 - ======Investment income (Note 10) 75,169 35,402 ======Administration charges (Note 36) 66,132 38,054 ======Services rendered 8,719 4,929 ======Services received 26,233 - ======Dividend declared (Note 30) - 262,093 ======
During the year, the Group approved the sale of the assets of its telecommunication operations to Emirates Integrated Telecommunication Company (“du”). The resultant gain on the sale is disclosed in Note 41.
b) Remuneration of key management personnel
2005 2004 Compensation to key management personnel comprises: AED’000 AED’000
Salaries and other short term employee benefits 61,512 3,236 Termination benefits 387 196 Post employment benefits 251 2 ------62,150 3,434 ======c) Due from related parties comprises: Due from associates 1,167,886 - Due from joint ventures 62,506 47,886 Due from other related parties 15,346 71,006 Due from parent company 1,544,660 203,462 ------2,790,398 322,354 ======d) Due to related parties comprises: Due to associates 250,000 - Due to joint ventures 1,745 - Due to other related parties 214,583 122,084 Due to parent company 114,357 262,093 ------580,685 384,177 ======
39
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
18. RELATED PARTY BALANCES AND TRANSACTIONS (continued)
e) Loans from parent company 2005 AED’000
Balance at 1 January - Transferred in on acquisition of subsidiary (Note 1) 3,507,583 Repayment of interest - for current and previous periods (289,942) Repayment of loan principal (271,916) ------Balance at 31 December 2,945,725 ======Analysed as: Due within 1 year 307,194 Due after 1 year 2,638,531 ------Balance carried forward 2,945,725 ======
The loans carry interest at 0.2% per annum above the Emirates Inter Bank Offer Rate (“EIBOR”) capped at 4.5%. The loan balances are scheduled for repayment over a period of 12 years. Repayments commenced on 31 October 2005. Interest and capital payments are payable quarterly on 31 January, 30 April, 31 July and 31 October each year. The Group has an option to pre-pay if its cash flow permits. With effect from 1 February 2005, the interest payable on the loan is considered a current liability and hence accruals at 31 December 2005 include AED 22,278,322 of accrued interest.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
19. CASH AND CASH EQUIVALENTS
2005 2004 AED’000 AED’000
Cash and bank balances including call deposits 783,168 317,025 Fixed deposits 669,816 550,201 ------Cash and bank balances 1,452,984 867,226
Bank overdrafts (Note 25) (154,086) (50,944) Deposits with original maturity of three months or more (83,672) (130,000) ------Cash and cash equivalents 1,215,226 686,282 ======
Deposits maturing over three months represent USD 22,720,000 (2004: Nil) which is part of a structured transaction to convert Euros to US Dollars. The deposit matures on 26 September 2006.
Bank overdrafts carry interest at rates ranging from 4.39% to 4.99% (2004: 1.65% to 3.06%) per annum. Fixed and call deposits bear interest ranging from 0.5% to 4.95% (2004: 0.5% to 3.5%) per annum.
20. SHARE CAPITAL
The authorised and issued share capital of the Group companies is as follows:
Entity No of shares 2005 2004 Tatweer Dubai LLC 300 300 Al Mada LLC 500 500 Dubai Properties LLC 300 300 Dubai International Properties LLC 300 300 Jumeirah Group LLC 300 - Total 1,700 1,400
All shares are authorised, issued and fully paid up shares of AED 1,000 each.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
21. CAPITAL CONTRIBUTION
2005 2004 AED’000 AED’000 At 1 January - - Land contributed by the parent company (Note 5) 189,172 ------189,172 - ======
22. RESERVES Fair value reserve 50,397 17,798 Statutory reserve (Note 23) 1,323 - Translation reserve (Note 24) (28,671) - Other reserve 3,475,313 ------3,498,362 17,798 ======Other reserve arises from the transfer in of Jumeirah during the year (Note 1).
23. STATUTORY RESERVE In accordance with the Articles of Association, 10% of the profit for the year in each UAE limited liability registered company is transferred to a legal reserve, which is not distributable. Transfers to this reserve are required to be made until such time as it equals at least 50% of the paid up share capital of the respective companies.
24. TRANSLATION RESERVE The translation reserve arose on re-translation of the assets and liabilities of foreign subsidiaries, associates and joint ventures within the Group. Upon disposal of such subsidiaries, associates and joint ventures the reserve will be included within the gain or loss on disposal in the combined statement of income.
25. BORROWINGS
2005 2004 AED’000 AED’000 Current Bank overdrafts (Note 19) 154,086 50,944 Bank borrowings 2,137,325 121,595 ------2,291,411 172,539 ======Non-current Bank borrowings 1,501,509 941,176 ======Details of interest rates, repayment terms and security are disclosed on the following page. 42
F-43 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
25. BORROWINGS (continued)
Particulars Currency Repayment terms Interest rate Security 31 December 2005 AED’000 [A] Bank overdrafts
Overdraft 1 USD On demand LIBOR+fixed margin Corporate guarantee of the 100,266 (4.39% - 4.99%) parent company
Overdraft 2 AED Book overdraft only Not applicable Not applicable 2,277
F-44 Overdraft 3 AED On demand 4.06% - 6.04% Unsecured 51,543 154,086 [B] Bank loans
Loan 1 AED Semi-annual payments over 13 years 3.26% - 5.24% 32,462 commenced 30 May 2000 Land valued at AED 675 million (Note 5) Loan 2 AED 19 semi-annual payments of AED 17.8 3.49% - 5.46% 71,052 million and a single payment of AED 337.5 million commenced 30 Sep 1998
Loan 3 USD 12 annual equal instalments commenced 3.26% - 5.24% Unsecured. Facility has been 757,658 31 December 2005 obtained by the parent company and assigned to a subsidiary
43 Dubai Holding - Commercial Operations Group 3621Section06 : 3621Section06 – g5mac4 – 7:07am – Monday,January22,2007 – 8 From: – 8 Level:
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
25. BORROWINGS (continued)
Particulars Currency Repayment terms Interest rate Security 31 December 2005 AED’000
Loan 4 USD 6 years commenced Sep 2005 2.64%-5.01% Unsecured 1,132,468
Loan 5 AED 7 years commenced Jun 2004 in equal 3.07%-4.62% Unsecured 150,000 quarterly instalments
Loan 6 AED 10 semi-annual instalments commenced 3.97%-5.00% Unsecured 1,365,194
F-45 Jan 2005 [C] Islamic financing AED 15 semi-annual payments of AED 8.6 2.55%-3.65% See below 130,000 million each plus rent at an agreed rate 3,638,834
TOTAL 3,792,920
[C] Musharaka agreements
Al Mada has entered into diminishing Musharaka agreements with an Islamic bank. The bank acquired a majority share in one property, which Al Mada has undertaken to purchase on a Musharaka loan over a period of seven years commencing from February 2006. The Musharaka diminishes over 15 semi-annual payments amounting to AED 8,666,000 each. Al Mada has also undertaken to pay an annual rent over the Musharaka period to the bank calculated at a floating rate linked to EIBOR. The Musharaka loan is secured against the property.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
25. BORROWINGS (continued)
The maturity of non-current borrowings is as follows:
2005 2004 AED’000 AED’000
Between 1 and 2 years 173,082 132,823 Between 2 and 5 years 959,077 512,511 Over 5 years 369,350 295,842 ------1,501,509 941,176 ======
26. GOVERNMENT GRANTS
(i) Land 2005 2004 AED’000 AED’000
At 1 January 5,687,877 434,500 Transfer - 1,826,330 Received during the year 52,643,797 3,515,646 Released to income during the year (671,344) (88,599) ------At 31 December 57,660,330 5,687,877 Less: current portion (5,805,997) ------Non-current portion 51,854,333 5,687,877 ======
The above government grants comprise land granted by the Government of Dubai to the Group.
(ii) Other grants
Other government grant income of AED 69,536,000 (2004: Nil) during the year included:
a) AED 55,364,000 relating to the business of Al Bayan Press, Printing and Publishing Establishment (“Al Bayan”), including all assets and liabilities, both actual and contingent granted on 1 August 2005 by Dubai Media Incorporated (DMI) to AMG, a wholly owned subsidiary of the Group. Assets and liabilities of Al Bayan were recorded in the combined financial statements at fair market value of AED 55,364,000 as of the date of the grant.
b) A cash grant of AED 8,700,000 received by Al Bayan during the year.
c) All other grants amounting to AED 5,472,000.
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2005 2004 AED’000 AED’000
27. RETENTIONS PAYABLE
Retentions payable 193,714 85,271 Less: current portion (102,275) (43,957) ------Non-current portion 91,439 41,314 ======
28. EMPLOYEES’ END OF SERVICE BENEFITS
As at 1 January 9,192 970 Transfers in 55,379 3,786 Charge for the year 26,561 4,812 Payments (6,812) (376) ------As at 31 December 84,320 9,192 ======
In accordance with the provisions of IAS 19, management has carried out an exercise to assess the present value of its obligations as at 31 December 2005, in respect of employees’ end of service benefits payable under the UAE labour law. The present value of the obligation as at 31 December 2005 is not materially different from the provision computed in accordance with the UAE labour law.
29. TRADE AND OTHER PAYABLES
2005 2004 AED'000 AED'000
Project related payables and accruals 1,091,003 396,393 Trade payables and accruals 756,056 47,613 Other payables 809,691 356,962 Deferred revenue 13,232 8,264 ------2,669,982 809,232 ======
30. DIVIDENDS
In the previous year, a final dividend of AED 262,093,000 for the year ended 31 December 2004 was declared on 18 December 2004. At 31 December 2005, AED 113,857,000 remains unpaid (Note 18).
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
31. ADVANCES FROM CUSTOMERS
Advances from customers represent instalments received from customers towards the purchase of property held for development and sale.
2005 2004 AED’000 AED’000
32. REVENUE
Room revenue 1,066,286 - Food and beverages 718,260 - Rental income 496,361 256,890 Others 364,299 131,373 ------2,645,206 388,263 ======
33. NET INVESTMENT INCOME
Unrealised gain on assets held at fair value through profit or loss (Note 10) 75,169 35,402 Unrealised net gain on fair valuation of derivatives (Note 12) 2,730 ------77,899 35,402 ======
34. OTHER OPERATING INCOME
Profit from sale of granted land 605,244 511,490 Write back of credit balances - 36,700 Land title transfer fees and late payment fees 33,299 4,641 Management fees (Note 18) 2,853 - Zoning fees 7,375 - Others 20,057 16,342 ------668,828 569,173 ======
35. PAYROLL AND OTHER BENEFITS
Salaries and allowances 503,710 132,535 End-of-service benefits and other benefits 274,687 24,600 ------778,397 157,135 ======47
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NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
2005 2004 AED’000 AED’000
36. GENERAL AND ADMINISTRATIVE EXPENSES
Payroll and related expenses 259,491 102,261 Utilities 85,563 - Administration charges (Note 18) 66,132 38,054 Bad debts and provision for impairment on receivables 52,830 7,556 Office rent 19,540 2,626 Donation 50,000 50,000 Communication expenses 762 1,141 Others 214,537 31,233 ------748,855 232,871 ======
37. MARKETING AND SELLING EXPENSES
Advertising 265,199 29,436 Promotions 44,697 39,497 Sales commissions 36,463 5,280 Others 6,026 29,179 ------352,385 103,392 ======
38. FINANCE COSTS (NET)
Interest expense: Bank borrowings 84,615 23,528 Loans from parent company (Note 18) 118,275 - Other items: Foreign exchange loss 5,385 ------208,275 23,528 Finance income: ------Term deposits (39,462) (12,662) Funds advanced to the parent company (Note 18) (6,862) ------(46,324) (12,662) ------Finance costs (net) 161,951 10,866 ======
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
39. COMMITMENTS
Capital commitments 2005 2004 AED’000 AED’000
Property, plant and equipment 387,000 - Real estate projects 6,524,873 4,244,166 ------6,911,873 4,244,166 ------Operating lease rentals
At 31 December 2005, commitments under non-cancellable operating leases were:
2005 AED'000
Not later than 1 year 8,568 Later than 1 year and not later than 5 years 15,911 5 years and above 1,212 ------25,691 ------
40. CONTINGENT LIABILITIES
As at 31 December 2005, Al Mada had an outstanding letter of guarantee for GBP 56,365 (2004: Nil).
41. DISCONTINUED OPERATIONS
On 1 May 2005, the Group acquired the telecommunications business and assets of Sahm Technologies LLC (“Sahm”) with the intention of combining the business with DIC Telecom (the telecommunications business of Tecom Investment FZ-LLC) and selling the combined business to du. The Sahm business contributed revenue of AED 41,732,000 for the period from 1 May 2005 up to 31 December 2005, which forms part of the revenue generated from the DIC Telecom business.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
41. DISCONTINUED OPERATIONS (continued)
In June 2005, the Group’s management and shareholders approved the sale of the business and assets which related to DIC Telecom to Du, an associate of the Group. The business and assets were sold on 31 December 2005. The revenue and net results of the DIC Telecom business in 2004 and 2005 are as follows:
2005 2004 AED’000 AED’000
Revenue 267,582 138,421 Operating costs (236,089) (118,294) ------Profit from DIC Telecom operations 31,493 20,127 ======
Information on the cash flows arising from the discontinued operations has not been provided since it is not practical to isolate the cash flow relating to these operations.
No impairment had to be recorded since the sale price was above the carrying value of the assets sold. Profit from disposal was determined as follows:
2005 AED’000
Sale amount 1,200,000 Assumed liability (68,231) Net book value of Sahm and DIC Telecom assets sold (525,520) ------606,249 Elimination of profit related to the Group’s interest in the associate (145,553) ------Profit from sale of discontinued operations 460,696 ======
At 31 December 2005 the sale amount of AED 1.2 billion remained outstanding in respect of the above disposal.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
42. BUSINESS COMBINATIONS Global Village
On 31 May 2005, Global Village LLC acquired the assets and business of Global Village, a government entity established by an Emiri decree.
Details of the acquisition are as follows:
AED’000
Purchase consideration 9,639 Less: positive fair value of net assets (9,126) ------Goodwill at the date of acquisition 513 ======
The net assets acquired are as follows:
Acquiree’s carrying Fair value amount AED’000 AED’000
Brand 4,250 - Trade and other receivables 299 299 Due from related parties 358 358 Property and equipment 4,219 4,219 ------9,126 4,876 ======
Goodwill is attributable to future growth and profitability of the underlying business.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
42. BUSINESS COMBINATIONS (continued)
Al Bayan
On 1 August 2005, the assets, liabilities and businesses of Al Bayan were granted by the government (Dubai Media Incorporated “DMI”) to the company. The fair values of the assets and liabilities granted, which approximated their carrying values, are as follows:
2005 AED’000 Non-current assets Property and equipment 83,985 Investment property 16,739 ------100,724 ------Current assets Trade and other receivables 46,713 Cash and cash equivalents 2,652 ------49,365 ------Total assets 150,089 ------
Non-current liabilities Provision for employees’ end of service benefits 15,420 ------Current liabilities Bank overdrafts 22,606 Trade and other payables 44,794 Deferred revenue 11,905 ------79,305 ------Total liabilities 94,725 ======Net assets 55,364 ======
The granted business contributed revenues of AED 43,624,000 and a net loss of AED 8,517,000 for the period from 1 August 2005 to 31 December 2005. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the granted entity to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment had applied from the date of grant.
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
43. CASH GENERATED FROM OPERATIONS
2005 2004 Notes AED’000 AED’000
Profit for the year 1,608,971 504,785
Adjustments for: Depreciation and amortisation 5,6,7 485,257 77,714 Profit on sale of property, plant and equipment (586,166) (504,059) Profit on sale of property held for sale (6,763) - Write-off of investment property 7 69,621 15,463 Write off of projects costs - 6,266 Unrealised gain on valuation of derivative financial instruments (2,730) - Unrealised gain on assets held at fair value through profit or loss 33 (75,169) (35,402) Share of loss from associates and joint ventures 9,11 80,406 2,074 Government grants released to income 26 (740,880) (88,599) Gain on sale of discontinued operation 41 (460,696) - Tax 50 - Impairment write-downs on inventories and receivables 14,17 41,853 7,556 Provision for end of service benefits 28 27,092 4,812 Exchange movements 157 6 Interest income 38 (46,324) (12,662) Interest expense 38 208,275 23,528 ------602,954 1,482 ------
Increase in non-current trade receivables 14 (225,714) - Increase in other non-current receivables 13 (15,658) - Increase in non-current retentions payable 27 50,125 -
Changes in working capital Trade and other receivables before provisions and write-offs 13 389,489 (621,505) Inventories before provision 17 (1,556) - Due from related parties 18 (2,462,752) (322,791) Due to related parties 18 195,784 146,934 Trade and other payables excluding project accruals 29 394,385 316,947 Advances from customers 31 4,519,750 1,718,026 Retentions payable 27 58,318 (594) ------Cash generated from operations 3,505,125 1,238,499 ======
Significant non-cash transactions during the year include:
(i) Government grants of land received of AED 52,643,797,000 (2004: AED 3,515,646,000), of which AED 671,344,000 (2004: AED 88,599,000) was released to income during the year.
(ii) Other non-cash government grants amounting to AED 60,836,000, which have been released to income during the year.
(iii) Capital contributions of AED 189,172,000 (2004: Nil) received during the year. 53
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Dubai Holding - Commercial Operations Group
NOTES TO THE COMBINED FINANCIAL STATEMENTS for the year ended 31 December 2005 (continued)
44. SUBSEQUENT EVENTS
Al Mada has acquired 60% of the share capital of Maltacom (the Maltese telecommunications company) on 18 May 2006 for Euro 220 million and 35% share in Tunisie Telecom Company on 17 July 2006 for USD 2.25 billion through a subsidiary in which it holds a 58% interest. Management is still in process of determining the fair values of the assets (including intangible assets) and liabilities acquired.
Five percent of the Group’s shares in du have been sold through a public offering in the UAE market at a profit of AED 406 million.
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REGISTERED OFFICE OF
THE ISSUER Dubai Holding Commercial Operations MTN Limited West Wind Building Harbour Drive P.O. Box 1111 George Town Grand Cayman Cayman Islands
THE GUARANTOR Dubai Holding Commercial Operations Group LLC P.O. Box 66000 Dubai, United Arab Emirates
ARRANGER J.P. Morgan Securities Ltd. 125 London Wall London EC2Y 5AJ England
DEALERS ABN AMRO Bank N.V. Barclays Bank PLC 250 Bishopsgate 5 The North Colonnade London EC2M 4AA Canary Wharf England London E14 4BB England BNP PARIBAS Citigroup Global Markets Limited 10 Harewood Avenue Canada Square London NW1 6AA Canary Wharf England London E14 5LB England Dresdner Bank Aktiengesellschaft Emirates Bank International PJSC Jürgen-Ponto-Platz 1 P.O. Box 2923 60301 Frankfurt am Main Dubai, United Arab Emirates Germany HSBC Bank Middle East Limited J.P.Morgan Securities Ltd. P.O. Box 4604 125 London Wall Dubai, United Arab Emirates London EC2Y 5AJ England Mashreqbank psc Standard Chartered Bank Mashreqbank Building 6 Battery Road Omer Bin Al Khattab Street #03-00 Deira Singapore 049909 P.O. Box 1250 Dubai, United Arab Emirates The Royal Bank of Scotland plc 135 Bishopsgate London EC2M 3UR England Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 07 : 3621 Section 07
LEGAL ADVISERS
To the Issuer and the Guarantor as to English To the Issuer as to Cayman Islands’ law law and to the Guarantor as to UAE law
Clifford Chance LLP Maples and Calder 3rd Floor, The Exchange Building Dubai International Financial Centre Dubai International Financial Centre P.O. Box 119980 P.O. Box 9380 Dubai, United Arab Emirates Dubai, United Arab Emirates
To the Dealers and the Trustee as to English law To the Dealers and the Trustee as to UAE law
Linklaters Linklaters One Silk Street Suite 4, Third Floor London EC2Y 8HQ Gate Building 3 England Dubai International Financial Centre P.O. Box 506516 Dubai, United Arab Emirates
AUDITORS TO THE GUARANTOR
PricewaterhouseCoopers P.O. Box 11987 Dubai, United Arab Emirates
TRUSTEE PRINCIPAL PAYING AGENT
HSBC Trustee (C.I.) Limited HSBC Bank plc P.O. Box 88 8 Canada Square 1 Grenville Street London E14 5HQ St. Helier England Jersey JE4 9PF Channel Islands
PAYING AGENT
HSBC Bank Middle East Limited HSBC Middle East Building 312/35 Al Auq Road Dubai, United Arab Emirates Level: 8 – From: 8 – Monday, January 22, 2007 – 7:07 am – g5mac4 – 3621 Section 07 : 3621 Section 07
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