Galfar Engineering & Contracting SAOG (under transformation)
Postal Address : P.O.Box 533, P.C: 113, Ruwi, Sultanate of Oman Ghala Industrial Area, Al Omaran Street, Building # 760, Way # 5222 Tel: 2452 5000 Fax: 24591676
PROSPECTUS
Initial Public Offering of 100,000,000 Ordinary Shares
Offer price: RO 0.602 per share (comprising nominal value of Baisas 100, premium of Baisas 500 and Issue Expenses of Baisas 2 per share)
Financial Advisor Lead Issue Manager Gulf International Bank B.S.C. The Financial Corporation Co. SAOG Al-Dowali Building, P.O. Box 782, P.O.Box 1017, Manama, Postal Code:131, Bahrain Sultanate of Oman Tel: 973 17 534 000 Fax: 973 17 522 633 Tel: 24816655 Fax: 24816611 Issue Manager Oman Arab Bank SAOC Investment Management Group P.O. Box 2010, Postal Code: 112, Sultanate of Oman Tel: 24790462 Fax: 24793953
Underwriters BankMuscat SAOG National Bank of Oman SAOG Oman Arab Bank SAOC The Financial Corporation Co. SAOG
Collecting Banks BankMuscat SAOG Oman Arab Bank SAOC National Bank Of Oman SAOG Bank Dhofar SAOG
OFFERING PERIOD Opening Date : 12th August 2007 Closing Date : 10th September 2007
The Capital Market Authority (CMA) assumes no responsibility for the accuracy and adequacy of the statements and information contained in this Prospectus nor shall it have any liability for any damage or loss resulting from the reliance upon or use of any part of the same by any person. This Prospectus has been prepared in accordance with the requirements as prescribed by the CMA. This is an unofficial English translation of the original Prospectus prepared in Arabic and approved by the CMA in accordance with the Administrative Decision no. E24/2007 dated 31st July 2007. Important Notice to Investors
The aim of this Prospectus is to present material information that may assist investors to make an appropriate decision as to whether or not to invest in the securities offered.
This Prospectus contains all material information and data and does not contain any misleading information or omit any material information that would have positive or negative impact on the decision of whether or not to invest in the offered securities.
The Promoters/Selling shareholders of the issuer entity are jointly and severally responsible for the integrity and adequacy of the information contained and confirm that to their knowledge that due diligence had been observed in the preparation of this Prospectus and further confirm no material information has been omitted, the omission of which would render this Prospectus misleading.
All investors should examine and carefully review this Prospectus in order to decide whether it would be appropriate to invest in the securities offered by taking into consideration all the information contained in this Prospectus in the context. Investors should not consider this Prospectus a recommendation by the issuer entity of the offered securities to buy the offered securities. Every investor shall bear the responsibility of obtaining independent professional advice on the investment in the offered securities and conduct independent valuation of the information and assumption contained herein using whatsoever analysis or projections he/she sees fit as to whether or not to invest in the securities offered.
It is noteworthy that no person has been authorized to make any statements or provide information on the company or the offered securities other than the persons whose names are indicated herein. Where any person makes any statement or provide information it should not be taken as authorized by the issuer entity or the issue manager.
ADDITIONAL POINTS TO BE NOTED
This Prospectus includes relevant information that is deemed important and does not include any misleading information nor exclude any principal information, the omission of which may materially influence any investor’s decision pertaining to the investment in Shares through this Prospectus. All summaries of documents or provisions of documents provided in this Prospectus should not be relied upon as being comprehensive statements in respect of such documents and are only to be seen as being a brief summary of such documents.
All equity investments carry market risks to varying degrees. The value of any security can fall as well as rise depending on the market conditions.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, including realistic statements about Galfar’s beliefs and expectations. These statements are based on Galfar’s current plans, estimates and achievable projections as well as its expectations of external conditions and events. Forward-looking statements involve inherent risks and uncertainties and speak only as at the date they are made. Galfar cautions investors that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements. These factors include, but are not limited to, the following:
O the level of demand for Galfar’s services
O the actions of Galfar’s competitors
O regulatory, legal and fiscal developments
O the success of Galfar’s investments and capital expenditure programs
O the performance of the Omani economy and
O the other factors described under "Risk Factors and Mitigants"
2 Table of Contents
IMPORTANT NOTICE...... 2
CHAPTER 1 – General Information of Issue and Issuer...... 4
CHAPTER 2 – Share Split and its Effect ...... 8
CHAPTER 3 – Issue Expenses...... 10
CHAPTER 4 – Underwriting Arrangements...... 11
CHAPTER 5 – Objective of the Issue and Utilisation of proceeds...... 12
CHAPTER 6 – Objectives and Approvals...... 13
CHAPTER 7 – Shareholding details ...... 17
CHAPTER 8 – The Economy...... 24
CHAPTER 9 – Description of the company and business overview ...... 27
CHAPTER 10 – Unaudited Financial Statements for the Period ended 31st May 07 ...... 40
CHAPTER 11 – Summary Financials 2004-2006...... 56
CHAPTER 12 – Summary of the Projected Financials 2007-2009...... 83
CHAPTER 13 – Dividend Policy...... 104
CHAPTER 14 – Valuation and Price justification...... 105
CHAPTER 15 – Related party Transactions...... 109
CHAPTER 16 – Risk factors and Mitigants ...... 110
CHAPTER 17 – Corporate Governance...... 114
CHAPTER 18 – Rights and liabilities of Shareholders ...... 120
CHAPTER 19 – Subscription Procedures and Conditions...... 124
CHAPTER 20 – Undertakings...... 131
3 Chapter 1 General Information of Issue and Issuer
Name of the Issuing Body: Galfar Engineering & Contracting SAOG (Under Transformation)
Commercial Registration No: 1015133 dated 29/5/2007 issued by the Ministry of Commerce & Industry
Principal place of business Ghala Industrial Area, Al Omaran Street, Building # 760, Way # 5222 Postal Address: Post Box 533, Muscat, Postal Code 113, Sultanate of Oman.
Company’s duration: Unlimited
Financial Year: Financial year shall commence on 1st January and end on 31st December of each year
Ordinary Shares: Equity Shares carrying the right to one vote at the Constitutive General Meeting, any General Meeting including any Extraordinary General Meeting and otherwise ranking pari-passu with Shares with Preferential Voting Rights in all aspects including the dividend receipt.
Preferential Voting Rights Share Means Equity Shares carrying the Right to two votes at the Constitutive (PVRS): General Meeting, any General Meeting of shareholders including any Extraordinary General Meeting and, otherwise ranking pari-passu with Ordinary Shares in all aspects including the dividend receipt.
Authorised Share Capital of the The Authorised share capital of the Company shall be RO. 50,000,000, Company: divided into 500,000,000 shares with a face value of 100 Baisas each consisting of two classes of shares as follows:
(i) Ordinary Shares: 350,000,000 shares (representing 70% of the Authorised Capital) (ii) Preferential Voting Rights Shares: 150,000,000 shares (representing 30% of the Authorised Capital)
Issued and Paid up Share The Issued and Paid up share capital of the company shall be Capital of the Company RO. 25,000,000, divided into 250,000,000 shares with a face value of (Post IPO): 100 Baisas. Each consisting of two classes of shares as follows:
i) Ordinary Shares: 175,000,000 shares (representing 70% of the Issued and Paid up Capital). (ii) Preferential Voting Rights Shares: 75,000,000 shares (representing 30% of the Issued and Paid up Capital)
Nominal Value of the Shares: Baisas 100 per Share
Share Capital of the Company RO 21,000,000 (Omani Rial Twenty One Million) divided into 210,000,000 prior to IPO: (Two hundred Ten Million) Ordinary Shares at a nominal value of Baisas 100 per Share
Total Number of Shares 100,000,000 Ordinary Shares at an Offer price of Baisas 600 per Share offered for Subscription: (plus Issue Expenses of Baisas 2 per Share) aggregating to RO 60,200,000 (Omani Rial Sixty Million Two Hundred Thousand). The Offer comprises of two components: 1. Issue of 40,000,000 New Ordinary Shares by the Company representing an increase in Capital each with a nominal value of Baisas 100 and an Offer price of Baisas 600 (plus Issue Expenses of Baisas 2 per Share)
4 2. Offer for Sale of 60,000,000 existing Ordinary Shares by the Selling Shareholders of the Company each with a nominal value of Baisas 100 and an Offer price of Baisas 600 (plus Issue Expenses of Baisas 2 per Share)
Promoters/Selling The current partners/shareholders of the Company prior to the IPO. Shareholders: Current Shareholders who are offering a portion of their Shares through an Offer for Sale under this Prospectus to the extent of 60,000,000 Shares out of their combined holding of 210,000,000 Shares. Details of the number of Shares being offered by the Current Shareholders are set out in the Chapter 6 on Objectives and Approvals
Shares held by the Promoters 150 million Shares consisting of 75 million Ordinary shares and 75 million after the IPO: Preferential Voting Rights Shares of 100 Baisas nominal value of each Share. (Details of the individual holdings are set out in the Chapter 7)
Subscription Price of the Shares: Baisas 602 per Share consisting of Baisas 100 nominal value, Baisas 500 share premium and Baisas 2 towards Issue Expenses
Ratio of Offered Shares (100 million Shares) to post IPO issued and paid up Share Capital (250 million Shares) : 40% of the Issued Share Capital of the Company
Purpose for which the proceeds Proceeds from the New Issue of Ordinary Shares of the Subscription would be Issue proceeds under this category aggregating to RO 24 Million will utilized: accrue to the Company, and would be utilized by the Company for financing the ongoing capital expenditure and for meeting its long term working capital requirements
Proceeds from the shares sold by the Promoters/Selling Shareholders Issue proceeds under this category aggregating to RO 36 Million would accrue to the Selling Shareholders only and not to the Company.
The amount of RO 200,000 being collected towards part of the Issue Expenses from the total issue will accrue to the Company.
Persons qualified to subscribe Subscription shall be open to Omani, Non Omani Individuals and Corporate for the Shares Offered: bodies/Institutions/Investment Funds/Pension Funds.
Persons Prohibited from Sole Proprietorship Establishments/Trust Accounts/Multiple subscribing to the Shares Applications/Applications under joint names are prohibited to subscribe Offered for the Shares applied.
Permissible Level of Non-Omani Once the Shares are listed for trading on Muscat Securities Market, it Shareholding after Listing: would be permissible for non-Omanis to own up to 70% of the Share Capital of the Company in accordance with the Memorandum & Articles of Association of the Company.
Commencement Date of the 12th August 2007 Subscription:
Closing Date of the 10th September 2007 Subscription:
5 Listing: The Shares would be listed for trading on the Muscat Securities Market
Minimum Limit for the Individuals : 1,000 (One Thousand) Shares and in multiples of Subscription under 100 thereafter One Application: Non-Individuals : 10,100 (Ten Thousand One Hundred) Shares and in multiples of 100 thereafter
Maximum Limit for the Individuals and 10% of the total Issue size which works out to Subscription under One Non-Individuals : 10,000,000 (Ten Million) Shares Application:
Proposed Allocation Procedure: In case of over-subscription the Offering of 100,000,000 Ordinary Shares shall be split among the eligible investor groups, in the following portions:
O Category I: 60 million Ordinary Shares, being 60% of the Offering, for Individual applicants applying for a maximum of 10,000 (Ten thousand) Shares. Distribution of shares shall be on pro-rata basis.
OCategory II: 40 million Ordinary Shares, being 40% of the Offering, for Individual applicants applying for more than 10,000 shares and for Corporate bodies/ Institutions/ Investment Funds. Distribution of shares shall be on pro-rata basis.
Any under subscription in any Category shall be carried to the other Category.
Allotment for Non-Omani will be limited to a maximum of 40% of the total Shares offered. Non-Omani Individual is defined as an Individual applicant who is not an Omani National and a Non Omani Corporate Body/ Institution/ Investment Fund is defined as one which is not incorporated in the Sultanate of Oman.
The final allocation on the above basis will be decided by the Lead Issue Manager and the Company in consultation with the CMA.
Basis for Undersubscribed In case of shortfall in subscription Shares: i) shortfall to be adjusted against the 60 million Shares offered by the selling shareholders ii) remaining shortfall, if any, to be subscribed by the Underwriters as per Chapter 4 of the Prospectus
Underwriting Arrangements: The issue of 40 million New Ordinary Shares aggregating issue amount of RO 24 million is underwritten by BankMuscat SAOG, National Bank of Oman SAOG, Oman Arab Bank SAOC and The Financial Corporation Co. SAOG
Financial Advisor: Gulf International Bank B.S.C. Investment Banking, P.O. Box 1017, 3 Palace Avenue, Manama Kingdom of Bahrain http://www.gibonline.com/ Tel: +973-17534000 Fax: +973-17542790
6 Lead Issue Manager: The Financial Corporation Co. SAOG (FINCORP) P.O. Box 782, Al Hamriya. P.C. 131. Sultanate of Oman Email:[email protected] Tel: 24816655 Fax: 24816611
Issue Manager: Oman Arab Bank SAOC Investment Management Group P.O. Box 2010, PC 112, Ruwi Sultanate of Oman Email: [email protected] Tel: 24790462 Fax: 24793953
Reporting Accountants Ernst and Young (E&Y) (who have reviewed the P.O. Box 1750 Ruwi Postal Code 112 Historical and Projected Sultanate of Oman Financials): Email: [email protected] Tel: 24559559 Fax: 24566043
Statutory Auditors Deloitte & Touche (M.E.) (for years 2004 to 2006): P.O. Box 258. Ruwi, Postal Code 112 Sultanate of Oman Email: [email protected] Tel: 24817775 Fax: 24815581
Legal Advisor For IPO: Hassan Al Ansari Legal Consultancy Al Safa House, PO Box 331, Ruwi 112 Sultanate of Oman Email: [email protected] Tel: 24701601 Fax: 24785185
In House Legal Counsel Mr. Abdelbagi Dafalla Abdul Rauf P.O.Box 533, Postal Code 113, Sultanate of Oman Email: [email protected] Tel: 24479489 Fax: 24478491
Collecting Banks: BankMuscat SAOG Oman Arab Bank SAOC National Bank Of Oman SAOG Bank Dhofar SAOG
.
7 Chapter 2 Share Split And Its Effect
Introduction
The Company has split the nominal value of the shares from RO 1.000 to Baisas 100 resulting in splitting each share into ten shares. This chapter elaborates on the effect of this decision. It is recommended that each subscriber read and understand it.
Definition of Share split
Share split refers to the intention of a Company to split its existing shares to number of shares by reducing the nominal value of the share and increasing the number of shares without any effect on the total value of the Company’s paid up Capital, or the total market capitalization of the shares owned in the Company, even if the total of the number of shares will increase as a result of this division.
Objectives of Share split
The Company is of the view that share split will achieve the following goals:
O Reduce the nominal value of the share making it affordable for a larger number of retail investors.
O Increase liquidity by multiplying the number of shares available for trading; and
O Facilitate a larger participation by the small/individual shareholders
Impact of share split
The decision of share split will not have any impact on the shareholding or the extent of each shareholders’ liabilities in the Company. The only direct impact is an increase in the number of shares. The Company considers that the benefits gained from the share split such as increase in liquidity and the shares that will be available for trading for all investors and participants in the Muscat Securities Market, will be in the best interests of the public.
The following table presents the impact of share split for the Company according to the financial statement for the year ended 31st December, 2006:
Before Split After Split Nominal value per Share RO 1 Baisas 100
Number of issued capital shares 20,000,000 shares 200,000,000 shares
Paid up capital RO 20,000,000 RO 20,000,000
Shareholders’ Equity RO 30,072,000 RO 30,072,000
Book Value per share RO 1.504 RO 0.150
Net Annual profit RO 16,512,000 RO 16,512,000
Earning per share RO 0.830 RO 0.083
Effect of share split
The decision to split shares does not have any impact on the total market capitalization of the shares. In fact, share split is dividing the nominal value of the share in the same percentage.
8 The following is an explanation:
Assume,
- number of shares before split: 100 shares
- share price in MSM on the date of the general meeting: RO 6.020
Therefore after dividing one share into 10 shares, the result will be as follows:
Before Split After Split Number of shares 100 shares 1000 shares Share price RO 6.020 RO 0.602 Total nominal shares value RO 602 RO 602
Share split effects on dividend:
The decision of share split will not affect the Company’s policy regarding dividend distribution or dividend ratio. The dividend distribution system in the Sultanate of Oman is based upon accounting dividend as a percentage of nominal paid up value per share. Thus the nominal paid up value per share will be Baisas 100 after split and not RO 1.000; e.g. if the Company declared previously (before share split) dividend distribution of Baisas 100 per share (10% of nominal value before split), and presumably the Company decided to maintain this policy, this dividend will be after share split Baisas 10 per share (10% of the nominal value after split). For instance, if the shareholder holds 100 shares before share split, dividend distribution will be as follows:
Before share split After share split Number of holding shares 100 shares 1000 shares Nominal value of the share RO 1.000 Baisas 100 Dividend per share Baisas 350 Baisas 35 Dividend ratio to nominal value 35% 35% Total distributed dividend RO 35 RO 35
9 Chapter 3 Issue Expenses
The costs of the Issue are estimated at RO 970,000 (Rial Omani Nine hundred seventy thousand) only, which equates to approximately 1.61% of the total proceeds of the Offering. The breakdown of the estimated expenses is contained in the table below:
Estimated Cost and Expenses Amount (RO) Advisors 294,500 Issue Managers 75,000 Collecting Banks 350,000 Underwriting fees 60,000 CMA & MDSRC Fees 52,500 Legal Advisor 6,500 Reporting Accountant 5,500 Marketing, advertising and publicity 80,000 Mailing and postage 7,000 Other expenses and contingencies 39,000 Total Issue Expenditure 970,000 Issue Expenses collected @ 2 Baisas per share 200,000
Difference between estimated expenses & the collection of issue expenses 770,000
The costs of the Issue will be partially met out of additional subscription amount of Baisas 2 per Share paid by the applicants towards Share Issue Expenses.
The actual costs of the Issue less Issue expenses collected, estimated at RO 770,000, will be charged to the Shareholders’ Equity of the Company.
10 Chapter 4 Underwriting Arrangements
In case of shortfall in subscription: i) shortfall to be adjusted against the 60 million Shares being offered by the selling shareholders ii) remaining shortfall, if any, to be subscribed by the Underwriters as set out in this chapter
The Issue of New Ordinary Shares, being 40 million equity shares of nominal value 100 Baisas each, is underwritten as under:
Amount Underwritten Number of Ordinary Underwriter @ 600 Baisas per share shares underwritten (Million Rial Omani) BankMuscat SAOG 16,666,667 10 National Bank of Oman SAOG 15,000,000 9 Oman Arab Bank SAOC 5,000,000 3 The Financial Corporation Co. SAOG 3,333,333 2 Total 40,000,000 24
The Company has entered into underwriting arrangements with the above entities. The underwriting fee is estimated at RO 60,000.
In the event of any devolvement, the underwriters will subscribe to the extent of the shortfall as stated above, at a price of Baisas 600 per share and the Company shall not claim the issue expense of Baisas 2 per share, from the underwriters on such devolved shares.
11 Chapter 5 Objectives Of The Issue And Utilisation Of Proceeds
Objectives of the Issue:
O Raising capital to fund the Company’s capital investment programme, and meet long-term working capital requirements.
O Listing the Company’s Shares on the MSM.
O Partial divestment of Shares by the Selling Shareholders
Utilization of the proceeds of the Issue
1. Of the aggregate proceeds from the Offering, an amount of RO 36 Million in consideration for 60,000,000 Shares will be distributed to the Selling Shareholders through this Offering, which is at an Offer Price of RO 0.600 (Baisas Six hundred) per share excluding Issue expenses .
2. The Baisas 2 per share collected towards Issue Expenses will cover a portion of the expenses incurred by the Company in relation to the IPO.
3. The Company will receive the proceeds amounting to RO 24 Million relating to Issue of New Shares, which will be utilized for the purpose of financing its ongoing capital expenditure and additional working capital requirements. The target timetable of the Company for the use of the Issue proceeds is as follows:
Nature of Use Amount RO TIme frame for utilization Capital expenditure 20,000,000 2007/2008 Working capital 4,000,000 2007 Total 24,000,000
12 Chapter 6 Objectives And Approvals
Overview
Galfar was registered in 1975 and subsequently was incorporated in 1986 as a limited liability company (“LLC”). Galfar is currently undergoing the due process of transformation into an open joint stock company (“SAOG”) organized under the laws of the Sultanate of Oman.
The Company holds the following material permits and licences:
Ministry of Commerce and Industry : Commercial Registration
Commercial Registration Number : 1015133 Headquarters : Muscat Governorate/ Bowshar/ Ghala Postal Address : P.O.Box 533, P.C: 113, Ruwi, Sultanate of Oman Telephone : 24525000 Fax : 24591676 Email : [email protected] Date of Registration : 24th August 1975
The Company is registered with the Oman Chamber of Commerce and Industry (Registration No. 317) as an ‘Excellent Grade’ contractor. The Company is also registered with the Tender Board, Sultanate of Oman and the Ministry of Defence, Sultanate of Oman as an ‘Excellent Grade’ contractor.
The Company is also approved by the Petroleum Development Oman (PDO) as a service vendor for various categories of services and by the Oman Refinery Company LLC as an approved vendor. Galfar is a member of the Oman Society for Petroleum Services (OPAL) who has certified the Company for health, safety and environment (HSE) management and for minimum employment standards.
The Company holds the following certifications:
O ISO 9001: 2000 certification for project management, design & engineering, procurement, fabrication, construction, and installation relating to oil & gas sector, roads & highways, process plants, pipelines, etc.
O ISO 14001: 2004 for environment management system; and
O OHSAS 18001: 1999 for occupational health safety & assessment.
Company Objectives
As per the Memorandum and Articles of Association of the Company, the main objectives of the Company are as under:
1- To work in the field of Engineering and Contracting, as Engineers and/or Main or Sub-contractors, to carry out all Engineering works in their different kinds and specializations of civil, mechanical, electrical and electronic engineering, including execution of works on Turnkey basis.
2- To carry out in particular, works of designing, drawing, excavating, filling-up, demolishing, exploding, dismantling, removing, building, constructing, installing, erecting, connecting, commissioning and maintenance of all kinds of Engineering works, which includes without limitation:
a) Civil Works to Projects of: Oil and gas, petrochemical, roads and high ways, bridges, flyovers, planes run ways, harbours, jetties, Corniche, dams and dyke, stadiums, educational premises, hospitals, commercial and/or housing complexes, prisons, mosques, public utilities and all other buildings and infrastructure projects.
13 b) Installation and Erection Works of: pipelines, turbines, power systems, insulation materials, refractory lining and corrosion resistant lining, steel structures, workshops and factories, equipments, storage facilities, depots and petrol service stations.
c) Electro-Mechanical and Cooling Works of: commercial and residential complexes, factories, cold stores, high and low tension lines, sub stations, cablings, building management and monitoring systems, fire alarm and smoke detection.
d) Water and Environment Hygiene Projects of: supply of water, desalination plants, sanitation and sewage system, water treatment plants, and solid waste management system.
3- To carry out in connection with its objects, the business of processing and manufacturing of ready-mix mortar, crusher, asphalt, blocks, interlock, tiles of its all kind and shape, various carpentry and metal products such as doors, windows, fences, grills and others, whether for the Company’s usage or for marketing purposes.
4- To carry out the business of heavy carriage and transportation of machineries, equipment and materials whether for the Company’s usage or for interest of other parties against charges.
5- To carry out the business of imports, exports, purchasing, selling, hiring of plants, machineries, equipment, building materials and others that related to its objects.
6- To conduct the business of general trading and to carry out in accordance with the Commercial Agencies Law, the business of agencies and commercial representation to international companies, corporations and manufacturers, and to give agencies and commercial representations to others to represent the Company locally and abroad.
Resolutions Passed
The Company has passed the following resolutions in its meeting of the shareholders held on 31st May 2007.
1. Approved that the proposal for conversion of the Company from Limited Liability Company (LLC) to Stock Associate Omani General (SAOG) as per provisions of the Commercial Companies Law 4/1974.
2. Approved that the new authorized share capital of the Company would be RO 50 million and the current paid-up share capital to be raised from RO 21 million to RO 25 million after transformation is divided into 250 million shares: out of which 175 million are Ordinary Shares of face value Baisas100 each and 75 million are Preferential Voting Rights Shares of face value Baisas100 each. The preferential voting rights shares will represent 30% of the issued and paid-up share capital of the company. It is further approved that the transformation would be part of the process of selling/issuing the shares of the Company to the public through an Initial Public Offering “IPO” for a number of 100 million Ordinary Shares. The IPO will comprise of two (2) components:-
i) Offer for sale of 60 million Ordinary Shares of face value Baisas 100 each and issue price of Baisas 602 per share to the public by the existing shareholders (Promoters).
ii) Fresh issue of 40 million new Ordinary Shares by the Company, to the public of face value Baisas 100 each and issue price of Baisas 602 per share
Further resolved that, post IPO, the current shareholders (promoters) will hold 60% of the issued share capital of the company and the public will hold the remaining 40%.
14 Further it was resolved according to Para 2 i), that the consent of the current Shareholders’ in the Company, to offer a portion of their ordinary shares to the public as part of the IPO is hereby approved. The number of shares to be offered by each of the promoter shareholders is as shown hereunder.
Number of ordinary Sl. Number of shares of face value No. Shareholder’s Name shares held of 100 Baisas each to be face value 100 offered by the promoters Baisas each for sale to Public as part of IPO 1 Said bin Said Hamed Al Fannah Al Araimi 63,000,000 18,000,000 2 P. Mohamed Ali 35,833,330 10,833,330 3 Al Siraj Investment & Project LLC 43,750,000 12,500,000 4 Aimaar United Investment & Project LLC 42,000,000 12,000,000 5 PMA International Ltd. (BVI Company) 16,666,670 4,166,670 6 Qhassya Projects & Investment LLC 8,750,000 2,500,000 Total 210,000,000 60,000,000
Further it was resolved that the said initial public offering shall be in compliance with statutory and regulatory requirements and approvals.
Further resolved and approved to form a constitutive committee consisting of three Promoters (i) Sheikh. Salim Said Al Fannah Al Araimi - Chairman (ii) Dr. P. Mohamed Ali - member (iii) Al Siraj Investment & Projects LLC represented by Miss Budoor Mohamed Rashid Al Araimi - Member and authorizing the Commitee to:
a) Finalize the terms and conditions of the Issue (including timing and pricing) as well as all other relevant issues. b) Take necessary decisions to enable the Company to finalize the IPO and its offer document and approve same on behalf of the Company and the promoter shareholders. c) Do all other acts and give any approvals on behalf of the Company and the Promoter Shareholders which may be deemed necessary in connection with the IPO, including change in the legal shape of the Company into a Joint Stock Company, listing its shares at MSM and authorized in general to have assistance of concerned persons in the Company as steering crew.
3. Resolved Unanimously, that the draft of the Memorandum & Articles of Association of the Company as amended per requirements of the Commercial Companies Law No.4/74 and its subsequent amendments pertaining to SAOGs is hereby approved to be sanctioned by the competent authorities.
4. Resolved Unanimously, that Gulf International Bank (GIB), the Financial Corporation Co. SAOG (FINCORP),), and Oman Arab Bank (OAB) or their representatives are hereby authorized to complete the due diligence and all legal, financial and accounting matters pertaining to conversion and transformation of Galfar from LLC to SAOG company and preparation of IPO documents as required by the concerned official bodies.
15 Further Resolved that M/s Ernst & Young, be appointed as the reporting Accountants for the IPO and M/s. Hassan Al Ansari Legal Consultancy, be appointed as the legal Advisor for the IPO.
ARRANGEMENT BETWEEN THE COMPANY AND THE PROMOTERS
The following are the Minutes approved by the then Members of Galfar Engineering & Contacting LLC at the Promoters Assembly Meeting held on 29th March 2007 :
Agenda:
1. To consider the desire of the Promoters to protect the integrity and value of the name “Galfar” and all trademark and commercial indications upon changing status of the Company to an Omani Joint Stock Public Company.
After due consideration and discussion on the subject of Agenda, the existing Promoters, i.e. Salim Said Hamed Al Fannah Al Araimi, P. Mohamed Ali and Heirs of Late Mr. Mohamed Rashid Abdullah Al Fannah Al Araimi, unanimously resolved the following :
1. Hereby record that the overall goodwill of the Company including its trade name and trademarks and commercial indications, has been largely developed by the existing Promoters, and under their stewardship.
2. Hereby note that the trade name and trademarks relating to the name “Galfar” have over the years been used and continue to be used by several non-Omani entities in which the existing Promoters or some of them, have a shareholding along with local partners in Qatar, UAE, Brunei and India. Hereinafter termed “existing entities or interests”.
3. Resolved to maintain the status quo regarding the use of the name and mark “Galfar” as it is.
4. The existing Promoters irrevocably agree that the Joint Public Stock Company named Galfar Engineering & Contracting SAOG (“the Company”) to exercise its right in perpetuity, to continue and maintain its trade name “Galfar”, and use all trademarks and commercial indications related to such name and the Company’s commercial purposes as an exclusive right in the Sultanate of Oman. Further, the Company may operate subsidiaries bearing the name “Galfar” including joint ventures in any jurisdiction except where the Promoters have “existing entities or interests”.
In this regard, it may be noted that the Company’s business operations are located in Oman and its entire revenue is generated from the Omani market. Further, the financial projections contained in this Prospectus (and the corresponding equity valuation) have been prepared on the assumption that the Company’s business will be generated only in Oman.
It may be noted from the above resolution that the Promoters of the Company have incorporated other businesses in countries outside Oman, specifically in Brunei, United Arab Emirates, India and Qatar, that share the same name (“Galfar”) and are in similar lines of business. All these companies (including this Company) are envisaged to operate independent of each other in their respective markets and continue sharing the Galfar name.
16 Chapter 7 Shareholding Details
Promoters and Selling Shareholders of the Company (before transformation)
Sl. Promoters/Selling Nationality Nature Number of Share- Number No. Shareholders of share- shares of face holding % of shares holding value RO 1/- in the equivalent to one Rial each. Share the face value held in Galfar Capital of Baisas 100 LLC Company for each share held pre -offer
1. Salim bin Said Hamed Al Omani Individual 6,300,000 30.00 % 63,000,000 Fannah Al Araimi
Parambathekandi 2. Indian Individual 3,583,333 17.06 % 35,833,330 Mohamed Ali
Al Siraj Investment & Omani 3. Corporate 4,375,000 20.83 % 43,750,000 Project LLC Company
Aimmar United Omani 4. Investment & Projects Corporate 4,200,000 20.00 % 42,000,000 Company LLC
BVI 5. PMA International Ltd. Corporate 1,666,667 7.94 % 16,666,670 Company
Qhassya Projects & Omani 6. Corporate 875,000 4.17 % 8,750,000 Investment LLC Company
Total 21,000,000 100.00 % 210,000,000
During the current financial year, the share capital of the Company was increased from RO 20 million as at 31 December 2006 to RO 21 million through an issue of additional Shares of RO 1 million to the Promoters/Selling Shareholders for cash at par.
17 Post Offer Equity Structure
The Public shareholding and the minimum Promoters’/Current shareholders’ shareholding after the IPO is envisaged as under:
Promoter/Selling No. of Paid Shares Nominal Ratio to Sl Shareholder and Nationality Preferential Value by Capital Public Ordinary Voting RO Shares Salim bin Said 45,000,000 1. Hamed Al Fannah Al Omani 4,500,000 18.00% Araimi 22,500,000 22,500,000
Parambathekandi 25,000,000 2. Indian 2,500,000 10.00% Mohamed Ali 12,500,000 12,500,000
Al Siraj Investment Omani 31,250,000 3. 3,125,000 12.50% & Project LLC Company 15,625,000 15,625,000
Aimmar United Omani 30,000,000 4. Investment & 3,000,000 12.00% Company Projects LLC 15,000,000 15,000,000
PMA International BVI 12,500,000 5. 1,250,000 5.00% Ltd. Company 6,250,000 6,250,000
Qhassya Projects & Omani 6,250,000 6. 625,000 2.50% Investment LLC Company 3,125,000 3,125,000
150,000,000 Sub-Total 15,000,000 60.00% 75,000,000 75,000,000
100,000,000 7. Public -- 10,000,000 40% 100,000,000 --
Promoters’ Voting Rights
Pursuant to the IPO and conversion into a General Joint Stock Omani Company, the issued and paid-up share capital of the Company will be RO 25,000,000 (Rial Omani Twenty Five millions) divided into 250,000,000 (Two Hundred Fifty millions) Shares with a nominal value of Baisas One Hundred each, of which 175,000,000 (One Hundred Seventy Five millions) Shares are Ordinary Shares and 75,000,000 (Seventy-Five millions) Shares are Preferential Voting Rights Shares (PVRS).
The Promoters and Selling Shareholders will hold 75,000,000 Ordinary Shares and 75,000,000 Preferential Voting Rights Shares. As per the Articles of Association of the Company, the PVRS carry two votes at all General Meeting and otherwise ranking pari-passu with Ordinary Shares in all rights including the dividend receipt. Therefore, the Promoters and the Selling Shareholders will effectively have 69.23% of the voting rights.
18 Brief profile of the key Promoters:
Dr. Salim Said Hamed Al Fannah Al Araimi
Sheikh Salim born in Sur, Oman in 1940 belongs to the distinguished Al Fannah Al Araimi family. He is an astute businessman with an impeccable reputation within business community in the Sultanate of Oman. Furthermore, Sheikh Salim is widely respected for his entrepreneurial skills.
Sheikh Salim is the Chairman of Galfar and over the years has been involved in a number of prestigious projects in the Sultanate of Oman as a promoter and founder. In addition to Galfar, the following are the companies in Middle East where Sheikh Salim is involved either as a promoter or a board director :
Q National Drilling & Services LLC
Q United Gulf Energy Resources SAOC
Q Al Dastoor Contracting & Trading LLC
Q Al Khalij Heavy Equipment & Engg LLC
Q Al Harthy Al Araimi Travels LLC
Q Sea Pearls LLC
Q Oman Filling Station & Services LLC
Q Omani Packaging Co. SAOG
Q Musandam International General Trading LLC, Dubai
Q Al Araimi General Trading LLC, Dubai
Q Galfar Al Misnad Engg. & Cont. WLL – Qatar
Q Galfar Engg & Cont WLL- Abu Dhabi
Q Galfar Pembinan Dan Perusahaan (B) Sdn Bhd. (Brunei)
Sheikh Salim has also participated in developing educational institutions within the Sultanate. Some of the renowned ventures in which he actively participated include the Caledonian College of Engineering, and Oman Medical College.
Sheikh Salim has keenly played an active role in developing the business environment for the private sector in the Sultanate of Oman, and has served as the Vice President of Oman Chambers of Commerce and Industry, Board member of Franco-Arab Chamber of Commerce, France, and Board member of Arab-Belgium- Luxembourg Chambers of Commerce, Brussels. He is also conferred with an honorary degree of Doctor of Technology by the Glasgow Caledonian University, UK in July 2007.
Dr. Parambathekandi Mohamed Ali
Dr. P. Mohamed Ali is a respected businessman both in the Middle East and India. As the Managing Director of Galfar, he has led the development and growth of the Company since its beginning in 1972, and is one of the prime sources of its success. He has several business interests spanning the Middle East and India.
Dr. Mohamed Ali is currently on the board of the following Companies:
Q Al Dastoor Contracting & Trading LLC, Oman
19 Q Al Khalij Heavy Equipment & Engg LLC, Oman
Q Chemmanur Jewellers LLC, UAE.
Q Galfar Engg & Cont WLL- Abu Dhabi
Q Galfar Al Misnad Engg. & Cont. WLL –Qatar
Q Galfar Pembinan Dan Perusahaan (B) Sdn Bhd. (Brunei)
Q Golden Circles Development Ltd., UAE
Q National Drilling & Services Co. LLC, Oman
Q Tecton Engineering & Construction LLC, UAE
Q UTCC Wade Adams –UAE
Additionally, Dr. Mohamed Ali holds the position of Chairman/Director in several companies in India.
Q Cochin International Airport Ltd.
Q Galfar India (Pvt.) Ltd.
Q Indo German Carbons Ltd.
Q Mfar Constructions Ltd.
Q Mfar Hotel Ltd.
Q Mfar Holdings Pvt. Ltd.
In addition to his business interests, Dr. Mohamed Ali is actively involved in developing the educational sector, and is the promoter of several educational institutes in Oman and India, including: Indian School, Al Ghubra, Caledonian College of Engineering, and Oman Medical College.
He also sits on several high-powered committees in Oman, which include: Omanisation Joint Committee (Vice Chairman), Oman Petroleum Alliance (Founder Chairman), and Omani Society of Contractors (Deputy Chairman).
Dr. Mohamed Ali is conferred with many Awards like Oman Civil Order Award by His Majesty the Sultan of Oman in Jan 2002, Pravasi Bharatiya Samman Award by the Prime Minister of India in Jan 2004, honorary degree of Doctor of Science by the Glasgow Caledonian University, UK in July 2001.
Dr. P Mohamed Ali is an Indian national born in 1949.
Aimmar United Investment & Project LLC
Aimmar is an Omani Limited Liability Company incorporated in the Sultanate of Oman on 17-10-2006- CR/1007143- with a share capital of RO2,000,000/- and with a par value of RO 1/- for each share. The shareholders in the company are :
Sheikh Salim Said Hamad Al Fanah Al Araimi - 97% Mrs. Aliya bint Salim Ali Al Ghilani - 1% Rua Salim Said Al Fanah Al Araimi - 1% Samaa Salim Said Al Fanah Al Araimi- 1%.
The main objects of the company are to carry on the business of commercial agents, real estate and construction.
20 The registered office of the company is situated at Jalaan House, Building No.455, Way No.3534, Al Khuwair, and the address for communication is Post Box 599, Postal Code 130, Azaiba, Sultanate of Oman. Phone: (968) 24489226/ 24478946, Fax: 24478491
PMA International Ltd.
A Limited Liability BVI business company incorporated in the British Virgin Islands on 02-04-2007 under registration number 1395735 with a share capital of US$50,000/- and with par value of US$1.00 each. The shareholders in the company are:
P. Mohamed Ali - 51% Mohiuddin Mohamed Ali - 49%
The company is licensed to carry on or undertake any investment business and to enter into any transactions. The registered office of the company is situated at British Virgin Islands and the address for communication is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands, C/o Offshore Incorporations Limited.
Al Siraj Investments & Projects LLC
An Omani Limited Liability Company incorporated in the Sultanate of Oman on 10-01-2007, CR/1011251 with a share capital of RO2,000,000/- and with a par value of RO1/- for each share.
This company has purposely been formed by the legal heirs of Late Mr. Mohamed Rashid Al Fannah Al Araimi (the Ex-Vice Chairman and Partner who was involved in developing Galfar Engineering & Contracting LLC) to takeover the inherited shares of the wife, two adult daughters, two adult sons and two minor sons. The company was formed with the consent of the competent Court. Miss Budoor bint Mohamed Rashid Al Fannah Al Araimi, the lawful attorney of the said heirs and appointed trustee by the Court for the minors is managing Al Siraj Investment & Projects LLC. with the assistance of Miss Khalood bint Mohamed Rashid Al Fannah Al Araimi. The shareholding in Al Siraj is:
Khadija bint Hamad Hamood Al Araimi - 15% Budoor Mohamed Rashid - 8.5% Khalood Mohamed Rashid - 8.5% Badar Mohamed Rashid - 17% Khalid Mohamed Rashid - 17% Qees Mohamed Rashid - 17% Fahad Mohamed Rashid - 17%
The main objects of the company are to carry on the business of commercial agents, real estate, construction and general investment in securities. The registered office of the company is situated at Sur Centre, Mezzanine Floor, Al Khuwair Main Road and the address for communication is Post Box 72, Postal Code 130, Azaiba, Sultanate of Oman. Phone: (968) 24489360 / 24478052, Fax: 24479364.
Qhassya Projects & Investments LLC
An Omani Limited Liability Company incorporated in the Sultanate of Oman on 01-04-2007- CR/1016155- with a share capital of RO150,000/- and with a par value of RO1/- for each share.
21 This company is formed by the legal heiress Sheikha bint Himaid Rashid Al Araimi to takeover the shares inherited from her late son Mr. Mohamed Rashid Al Fannah Al Araimi, Ex-Vice Chairman and Shareholder in Galfar Engineering & Contracting LLC. The shareholding in Qhassya Projects & Investment LLC is:
Sheikha bint Himaid Rashid Al Araimi - 70% Salman bin Rashid Al Fannah Al Araimi - 10% Nasir bin Rashid Al Fannah Al Araimi - 10% Abdulla bin Rashid Al Fannah Al Araimi - 10%.
Mr.Salman Rashid, the lawful attorney of his mother Sheikha bint Himaid Al Fannah Al Araimi is managing the company as Signatory Manager. The main objects of the company are to carry on the business of commercial agents, real estate, import and export and construction. The registered office of the company is situated at South Al Ghubra and the address for communication is Post Box 1129, Postal Code 130, Azaiba, Sultanate of Oman. Phone: (968) 24446268/24446959, Fax: 24446227.
IMPORTANT NOTE CLARIFYING THE “GALFAR GROUP”:
The following may please be noted:
Q The Promoters of Galfar Engineering & Contracting S.A.O.G. (under transformation) in their own right, singly or jointly, hold controlling shares in other entities in the Sultanate of Oman and other countries such as UAE, Brunei, Qatar and India. These entities together are some times referred to as the “Galfar Group of Companies”.
Q Galfar Engineering & Contracting S.A.O.G. (under transformation) has no direct connection with such “Group companies” other than that of Related Parties.
Q The Shares on offer in terms of this Prospectus are Ordinary Shares of Galfar Engineering & Contracting S.A.O.G. (under transformation), the Omani entity only, and not those of any other companies in the Galfar Group either based in Oman or outside.
Particulars of other companies with the name “Galfar”, in which the Promoters/Selling Shareholders hold capital, are as follows:
Galfar Al Misnad Engineering & Contracting WLL (Qatar) Galfar Pembinan Dan Perusahaan (B) Sdn Bhd. (Brunei) Galfar Engineering & Contracting WLL (Abu Dhabi) Galfar India (Pvt. ) Ltd. (India)
Disclosure on the status of Galfar Al Misnad Engineering & Contracting WLL
The “Company” (Galfar Engineering & Contracting LLC, Oman) sold its entire investment in its subsidiary – Galfar Al Misnad Engineering & Contracting WLL, Qatar on 1st January 2005 to the then members of the “Company” .
However the divestment is yet to be reflected in the Commercial Register of the State of Qatar as the restructuring process as stipulated by the Commercial Company Law of Qatar is still under process.
22 Restrictions imposed on the Promoters:
In accordance with Article 77 of the Commercial Companies Law and its amendments thereof, the Promoters of the Company shall not withdraw from the Company or dispose of their Shares prior to publication of two Balance Sheets pertaining to two consecutive financial years, effective from the date of listing of the Shares on the Muscat Securities Market. Exception to this shall be the cases of assignment of the Shares amongst the Shareholders themselves and cases of inheritance. The period during which the Promoters are not permitted to withdraw or dispose of the Shares may be extended for further one year through a Decision to be passed by the Minister of Commerce & Industry, at the request of the Capital Market Authority, without prejudice to the right held by the Founders in executing mortgage of second Grade in such Shares.
If any defect has taken place in the procedures pertaining to incorporation of the Company, the party concerned may within a period of five years from the incorporation of the Company, serve notice to it for remedying such a defect. However, if the Company fails to take the initiative within one month of such notice for necessary remedial measures, the person concerned may have recourse to the competent court to pass a decision for dissolution of the Company. The Promoters, Members of the Board of Directors, First Auditors of Accounts shall be held liable severally and jointly for the damages arising from the dissolution of the Company for their negligence and default in the incorporation of the Company.
23 Chapter 8 The Economy
Overview
Oman has stable political, economic and social systems complemented by excellent relationships with its neighbouring countries. Spread over 309,500 sq km, Oman consists of eight regions/governorates. In October 2002 Oman became a member of WTO, and signed in January 2006 a Free Trade Agreement (FTA) with the USA. The agreement includes an immediate liberalisation in trade in the industrial and consumer goods sectors while tariffs on agricultural goods are to be lifted over a 10-year period.
Economic Growth
Oman’s economy grew by about 17 per cent in 2006 (preliminary estimates) as against a 24 per cent growth recorded in 2005. In terms of constant prices, GDP growth for 2006 was about 6%. Modest inflation, large surpluses in fiscal and balance of payments positions, easy domestic liquidity conditions with soft interest rates, comfortable level of foreign exchange reserves, significant progress on diversification and privatisation of the economy, and a sound banking system were the key elements that helped the economy grow and witness a robust macroeconomic performance in 2006.
The gross domestic product (GDP) at current prices grew by about 17 per cent to about RO 13.8 billion in 2006 as against RO 11.855 billion recorded in 2005. In 2006 petroleum sector, which contributes about 50 per cent of the country’s GDP, witnessed a significant growth of about 18 per cent, while the non-oil activities registered a growth of about 15 per cent.
Oman’s economic prospects in 2007 remain positive owing to high oil prices, ongoing infrastructure development projects and buoyant consumption. GDP per capita is projected to exceed $15,000 by year-end 2007, compared with less than $10,000 in 2004. Furthermore, an increase in Government expenditure on large infrastructure and industrial projects, driving the non-oil GDP growth, has led to increased investment opportunities which have buoyed the investors confidence.
Sector Growth in 2006 (% over 2005)
GDP 16.8%
Oil Sector 17.9%
Non-Oil Sector 15.6%
LNG 60.7%
Tourism 22.4%
Exports 15.4%
Oil Exports 8.2%
Non-Oil exports of Omani Origin 11.4%
Re-exports 21.6%
Imports 15.5%
Source: State General Budget 2007, Ministry of National Economy
24 Oil and Gas
Oil and gas sector, riding on high oil prices, continues to play a vital role in Oman’s economic growth. Average price of Omani crude was about $ 62 per barrel in 2006, representing a 23 per cent increase over the average price of $50.26 per barrel in 2005. Despite the declining trend in oil production, the price increase helped in providing a significant boost to income from oil exports. Production of natural gas witnessed a healthy growth in 2006, and export realisation from LNG sales during the period Jan-June 2006 registered a sharp growth of 40 per cent over the same period in 2005. Recognising the importance of diversification for long- term sustainable growth and also the scope for benefiting from the current phase of favourable oil prices, investments in both up-stream and down-stream oil and gas projects are currently given priority in Oman.
Government Finance
The fiscal status of Oman remained strong in 2006, with a surplus of around RO 2,400 million in the fiscal account (as against the budgeted deficit of RO 650 million), the highest ever in the country’s history. The Government has been prudently using the fiscal revenue in reducing the government debt, creating larger foreign assets, and expanding the development expenditure.
The improved macroeconomic environment of Oman was reflected in upgrading of Oman’s rating by S&P from A- to A in January 2007 while the short term sovereign rating was raised from A-2 to A-1.
The Omani Rial is pegged to the US dollar since 1973. Since 1986, the exchange rate has remained steady at 1 RO:US$ 2.6. The Omani Rial is divided into Baisas 1,000.
Budget and Outlook for 2007
The 2007 budget envisages a substantial increase in spending on social development, especially on education, health and infrastructure while emphasising fiscal consolidation. The state public revenue for fiscal 2007 is estimated to be about RO 4,490 million as compared to RO 3,587 million for fiscal 2006, an increase of 25 per cent. Oil and gas revenues represent 79 per cent of the overall revenue while current and capital revenue represent 21 per cent.
The budgetary estimate of the oil revenue is based on an average price of US$ 40 per barrel and a daily production rate of 730,000 barrels.
A notable feature of the 2007 budget is the growth in non-oil revenues. Revenues from taxes and fees are estimated at RO 360 million, a 46 per cent increase over the 2006 budget. Revenue from income taxes is expected to grow by 83 per cent from the RO 72 million in 2006 to RO 132 million budgeted for 2007. With an increase in non-oil revenues and lower oil prices anticipated for 2007, the share of oil revenue in the total Government revenues is expected to fall from 70 per cent (2006) to 67 per cent (2007).
The budget aims to maintain the level of spending on infrastructural facilities, and has allocated RO 500 million on infrastructure development and RO 135 million for the electricity sector.
Government’s Vision and Strategy for Economic Development
The Government’s vision for economic development of the country is based on achieving an average growth rate of 7.4% through to 2020, and adopting policies for the development of the private sector is a priority for optimum utilization of natural and human resources.
25 The Seventh Five Year Development Plan (2006-2010) outlines the strategy of the Government for achieving its economic development vision. The key features of the Fiscal Framework of the Seventh Five Year- Development Plan (2006-2010) are:
1- Striving to increase the non-oil revenue.
2- Realizing sustainable levels through expenditure rationalization.
3- In allocating public finance resources, highest priority shall be awarded to the processes that aim at increasing the productivity of various sectors, with oil and gas sectors at the forefront, and enhancing oil reserves through support and activation of new exploration operations.
4- Financing the deficit through borrowing and withdrawal from the reserves.
5- Maintaining Public debt within the levels acceptable by international agencies, and striving to reduce the debt servicing through restructuring.
6- The government institutions shall resolve any emergency and necessary increase in its expenditure by reorganizing its priorities, so as to meet such increase from allocated resources. However, the reprioritization processes shall not contradict with main objectives and its fiscal principles.
Key Economic Indicators Unit 2005 (1) 2004 2003 2002 2001 2000
Gross Domestic Products RO millions 11,855.6 9,516.0 8,375.9 7,815.1 7,670.4 7,639.2 at Current Prices Gross National Income(GNI) RO millions 11,279.6 9,085.0 8,017.9 7,523.1 7,325.3 7,302.2
GNI per Capita RO 4,497.0 3,760.0 3,440.0 2,964.0 2,957.0 3,041.0 % of Domestic Savings to % 45.5 34.6 34.2 33.5 35 39.2 GDP % of Private Capital % 4.7 5.4 4.8 3.8 4.4 4.4 Formation to GDP % of Private Capital % 26.2 26.3 30.5 30.4 34.7 37 Formation to Total Gross Capital Formation Total Government Revenue RO millions 4,510.5 4,040.2 3,305.3 3,009.5 2,539.8 2,289.9 Oil & Gas Revenue as a % of % 78.8 78.1 72.7 75.7 76.7 78.4 Total Government Revenue Total Government RO millions 4,207.6 3,809.9 3,188.9 2,939.5 2,860.2 2,656.2 Expenditure Average Daily Production 000 BBL 774.0 780.0 820.0 897.0 956.0 955.0 of Oil Average Oil Price US $ 50.3 34.42 27.84 24.29 23 26.71
Total Merchandise Exports RO millions 7,187.0 5,145.0 4,486.6 4,295.6 4,258.0 4,352.0
- Of which Non-Oil Exports RO millions 555.3 420.3 304.1 261.6 265.8 247.8 (Omani Origin) Total Merchandise Imports RO millions 3,449.0 3,381.9 2,615.0 2,420.8 2,281.3 1,972.8
General Price Index % 3.0 99.1 98.7 98.8 99.3 100.0
(1) Provisional Source: Ministry of National Economy
26 Chapter 9 Description Of The Company And Business Overview
Overview
Galfar is one of the largest, multi-discipline engineering, contracting and construction companies in the Sultanate of Oman. From its modest beginnings, Galfar has today grown into the largest infrastructure construction company in Oman and one of the leading construction companies in the Middle East.
Galfar relies on a highly experienced and professional management team having skills and expertise in project management, engineering, procurement and construction in areas such as, Oil & Gas, Civil, Electro-Mechanical, Roads & Bridges, Utilities & Services and Environmental projects. The Company has delivered a diversified range of projects including oil and gas pipelines, production, collection and processing facilities; service contracts in petroleum industry; commercial and residential complexes; educational institutions; industrial structures; ports and harbours; hospitals; stadiums; water retaining structures; bridges, roads, and dams; electro-mechanical works; HVAC systems, power transmission lines, and substations; O&M contracts for hospitals and universities; sewage treatment plants, R.O.Plants, water line networks, and sewage line networks.
Galfar employs over 17,000 employees including around 4,000 Omanis. The Company is the biggest employer of the national work force in the private sector.
The Company owns a fleet of 4,500 vehicles and equipment. Galfar’s operations are spread across all the parts of the Sultanate of Oman, and its construction, procurement and project management services cover major engineering disciplines. All operations of Galfar are ISO 9001 certified and the Company views safety, quality and reliability as the cornerstones of its business.
The management of Galfar has the vision to become one of the largest public joint stock companies in the Sultanate of Oman through its large-scale activities and diversification of operations that should enhance its position in the market.
History and Growth
Over the years, Galfar has established an impressive track record of delivering large and complex projects, especially in the oil & gas and infrastructure sectors. Some of the major clients of the Company include the Ministry of Regional Municipalities, Environment and Water Resources, Ministry of Defence, Ministry of Transport and Communication, Ministry of Health, Ministry of Housing and Electricity, Petroleum Development Oman (“PDO”), Diwan of Royal Court, Royal Oman Police, and Oman Refinery Company.
Galfar’s revenue streams are well diversified across five key sectors: Oil & Gas, Roads and Bridges, Structures and Buildings, Utilities, and Environment. The Company’s oil and gas division has been the biggest revenue driver over the last five years, contributing around 35% to total income.
Corresponding to higher oil prices since the beginning of 2005, the Government of Sultanate of Oman has been increasing the yearly budget allocation on the development of the key areas of the economy, especially the infrastructure sector. The increasing significance of highly sophisticated projects favours large contractors such as Galfar that provides local expertise and a significant size of labour force. Galfar has been consistent in capitalizing on its competitive strengths, and successful in securing high value projects, particularly in the oil and gas and infrastructure sectors. Keeping in line with a growth in business, the Company has consistently achieved an improvement in its operating efficiency that is ultimately reflected in its profitability indicators.
27 Competitive Strengths
Galfar’s competitive strengths underpin its growth plans and vision of being one of the largest Engineering & Construction public joint stock companies in the Sultanate of Oman. The Company has consistently relied on its following competitive advantages in achieving a robust and sustainable performance:
O One of the largest engineering and construction companies in the Sultanate of Oman
O A major contractor for Petroleum Development Oman (PDO)
O Extensive experience in the local market
O Employer of the largest labour force in the engineering and construction industry in the Sultanate of Oman
O Experienced and professional management
O Diversified business capabilities
O Long term relationships with reputed clients
O Consistent track record of delivery schedules
O Large sophisticated and state of the art fleet of vehicles and construction equipment
O Strong financial base
O Highly committed Promoters
Business Strategy
Galfar’s strategy for achieving its business objectives and maintaining its growth targets is built around the following key factors:
O Continuing focus on high growth opportunities in the Omani market, particularly in the construction and infrastructure areas
O Increasing reliance on high value-added Engineering, Procurement, Construction (“EPC”) contracts as well as Design and Build Contracts
O Implementing measures towards attaining higher operating efficiency, and increasing profitability
O Balancing growth with enhancing shareholders’ value
O Unwavering focus on health, safety and the environment
O Developing and maintaining good relationship with Clients and Strategic partners
Competition
Galfar faces competition from local and other international construction companies operating in Oman. However, the multi-divisional advantages of Galfar have maintained its position as a leading Company among all the players in the engineering and contracting industry in Oman.
28 Business Units and Outlook
The company has seven Operating/ Business Units that are supported by seven centralised Support Units. The Management Systems are handled by five units. These are detailed below.
Business Units (BUs) i) Structures & Building
The Structures & Buildings is geared to handle large infrastructure projects. The Unit is one of the major local companies having extensive experience and specialization in construction of hospitals, fishery harbour/ports and marine facilities etc.
Major Projects completed by the Unit :
1. Major Hospitals & Specialised Health Care Centres : Hospitals at Ibri, Nizwa, Salalah as well as the MRI and Oncology Centres at Royal Hospital.
2. Muscat GateWay
3. Fishery Harbours at Sur, Dalqhut, Sohar, Lima, Kumzar and Hanna
4. Ash Sharqiyah Sands Main Water Supply Scheme
5. Khasab port Expansion, Phases 1 & 2
6. Al Mawallah Interchange which was completed within the target period of 300 days
7. The Toyota Car Showroom for Saud Bahwan Group (SBG) in Muscat – To be the largest in the world.
Major ongoing projects include the Sohar Fertilizer Civil Works and EPC for Fertilizer Operating Buildings, Suwaiq Water Supply Project, Buraimi Sewage Scheme and a hotel development at Sohar. The revenue of the unit for the year ended 31st December 2006 was RO 23.81 million. ii) Roads & Bridges
The principal activities of the Unit include:
Q Construction of roads in all terrains
QConstruction of bridges, interchanges, under passes and cross drainages structures
QRecharge dams
QIn house production of road building materials such as sub base, aggregate, aggregate base course and asphalt.
QIn house road marking activity
QIn house design team for road geometrics
Major achievements of the Unit include:
QCompletion of 950 km asphalt road in all type of terrain and covering most of the locations in Oman. Major road projects completed during 2006 include Dualization of Ibri Hafeet road (114 km), Rustaq Miskin road (76 km) and Sohar Yankul road (61 km)
29 QCompletion of all the projects within the original or extended contract duration
Q40 % growth in revenue and 17 % growth in contribution margin during 2006.
QAppreciated for excellent performance on the following projects:
i) Road leading to Jabal Akther hills, a challenging project through the rocky mountain terrain ii) 48 km fast track roads project in Suwaiq-Houquain and Hazam-Houquain, completed in record time of 6 months iii) Mawallah Inter-change
Major jobs in hand include the Rustaq Miskin Road Project, rehabilitation of Batinah Highway (Al Wajajah to Barkha), design & construction of Bausher Al Amerat Road, construction of Central Corridor from Madinat A’ Sultan Qaboos to Bausher, construction of PDO Airports at Fahud, Q’Alam, Marmul, Fahud- Lekhwair Road Project PDO and the development of Seeb International Airport.
Major clients include the Ministry of Transport & Communications, Muscat Municipality, Petroleum Development Oman and the Ministry of Regional Municipality.
The Unit’s strategic resource base, especially the asphalt plants, pavers and crusher plants offers it a competitive advantage in project execution. The revenue of the unit for the year ended 31st December 2006 was RO 30.16 million. iii) Oil & Gas
The Unit handles the design, procurement and construction of flow lines (oil and gas), pipeline construction works, EPC projects in tie up with other international companies, EPC of storage tanks and maintenance works, EMC contract with PDO, station shut down jobs, oil gathering stations works as well as de-bottlenecking/expansion work of oil and gas stations, transfer pumping/ booster pumping/pressure reducing stations and such other works.
Major clients include the Petroleum Development of Oman, Oman Gas Company and Daleel Petroleum. The unit has taken a sub-contract from M/s. Petrofac for execution of the EPC project for Kauther Gas Plant.
Major achievements include the qualifications in design and construction of PE lining of C.S. Pipes, Pipeline hydro testing and flow line design. The Unit successfully completed five year Design, Civil, Mechanical, Electrical & Instrumentation (DCME&I) contract with PDO, 7 years without Loss Time Injury (LTI) in Lekhwair DCME&I Contract, 10 million Man-hours without LTI in Yibal DCME&I and Off-plot Delivery Contract (ODC) , Lekhwair GRE Pipeline and Nimr Header Pipeline projects completed without LTI and two Million Man-hours without LTI in Kauther Gas Plant EPC Project.
Major ongoing projects include the Off Plot Delivery Contract (ODC)-North Oman; Kauther Gas Plant, Saih Nihayada/Shuiba Development, and Supply & Fabrication of MSV Skids. The revenue of the unit for the year ended 31st December 2006 was RO 62.89 millions. iv) Utility & Services
Galfar established its Utilities & Services Business Unit about 21 years ago to serve the growing demand of electromechanical services in Oman. The unit evolved as a technically savvy and commercially competitive business unit serving the needs of its clients. The turnover has grown steadily from RO 2 million in 1986 to an estimated RO 33 million in 2007. The strength of the unit lies with the long serving group of dedicated engineering professionals who have extensive experience both within and outside Oman. This unit also has a joint venture with Hitachi.
30 Major Activities of the unit include,
QBuilding Services/Automation works
QHVAC work of Industrial/Public Utility and Hospital Building.
QOverhead Line work up to 132 KV including Substation.
QLarge Sewage/Water Treatment Plants.
QBuilding Automation / Building Management / Electronic Surveillance and Security System.
QOperation and Maintenance of Power Plants/Hospital Services/Sewage & Reverse Osmosis (RO). Plants.
The revenue of the unit for the year ended 31st December 2006 was RO 16.92 million. v) Environment The Environment unit mainly handles sewerage networks, sewage treatment plants and other similar works. It has successfully completed sewage network project in Salalah, extended health centre at Salalah and Bait Al Mamurah new works. Major projects on hand include the Al Ansab Sewage Treatment Plant at Ghala, Muscat, Central Prison, Sumail and STP & SNS, Sur.
The Major clients include M/s Salalah Sanitary Drainage Services (S.A.O.C.), Royal Court Affairs, The Royal Estates, The Palace-Muscat, Ministry of Heath, Oman Waste Water Company S.A.O.C., Royal Oman Police and the Ministry of Regional Municipalities, Environment and Water Resources.
The revenue of the unit for the year ended 31st December 2006 was RO 8.35 million. vi) Southern Expressway Project
The unit is focussed on executing the Southern Expressway project on bahalf of its client, the Muscat Municipality. The project which commenced in September 2005 is scheduled for completion in September 2009, with an estimated value of RO 138 million.
Southern Expressway is a prestigious project that was secured against stiff international competition. It is the single largest highway project awarded in Oman and the first Expressway project in the country. It is also the largest construction project secured by Galfar so far.
The project consists of constructing 53.2 km long six-lane dual carriageway from Al Qurum Roundabout to Al Naseem Roundabout. The Expressway will be connected with other main arterial roads of Muscat city by means of grade-separated interchanges, slip roads, service roads and two way collector/frontage roads.
Some of the tasks to be performed in this project will be unique not only for Oman, but also globally, such as:
QSingle largest highway contract in the history of Oman.
QOne of the largest MSE wall areas in a single project in the world.
QSome MSE walls are tallest among the MSE structures in the world (nearing 60mtr).
QUse of post tensioned multi cell RCC box girders
QLargest fleet of construction equipments in a single highway project.
QSix full cloverleaf and six part cloverleaf interchanges have been introduced to ensure free flow of traffic.
QPre cast Arch bridges: Construction of grade separators/viaduct by using precast RCC arch panels is being done in Oman for the first time.
The revenue of the unit for the year ended 31st December 2006 was RO 16.03 million.
31 vii) Special Projects The Unit is currently engaged in the execution of the Harweel Cluster Phase 2 Facilities Project in Oman. The Harweel cluster comprises of seven oil reservoirs. Galfar is the nominated sub-contractor of M/s. Petrofac, who are the main contractors engaged by the client, PDO, Oman. The project comprises the facilities required for depletion of the oilfields including process systems to allow sweet gas and oil export, facilities for miscible gas injection and make up gas production as well as expansion of oil processing and export capacity from the cluster.
Galfar is responsible for the construction of main plants which includes all types of civil, mechanical, electrical, instrumentation & telecommunication work in Harweel main processing station, compressor station, Marmul booster station, remote manifold stations at Zalzala, Sakhiya, Dafaq & Rabab, GRE flowlines and field overhead lines at Zalzala, Sakhiya, Dafaq & Rabab, overhead line from Marmul to Harweel (80 km) and modification work of control room at Mina Al Fahal. All associated temporary facilities are also to be constructed such as camp facilities including accommodation and office facilities, Sewage Treatment Plant and Reverse Osmosis Plant.
The Harweel project started in December, 2005, and is expected to be completed in February 2010. The value of the contract relating to Galfar’s scope of work is estimated at about RO 77 million.
The revenue of the unit for the year ended 31st December 2006 was RO 5.85 million.
Ongoing Projects
The Company’s order book as at 31st December 2006 stood at around RO 450 million. The following table provides a listing of the major projects under execution by Galfar in the Sultanate of Oman:
Approx. % completed Expected Description Client value as on Completion (In mn RO) 31/12/06 date Petroleum Development North Oman ODC Contract 138 40% 30/4/2010 Oman Southern Expressway project Muscat Municipality 138 14% 3/8/2009 Harweel Camp (Utilities and Sewage Treatment) Petrofac 77 11% 18/7/2010 Central Prison at Sumail (Utilities and Civil) Royal Oman Police 53 12% 31/3/2008 Oman Waste Water Al Ansab (Sewage Treatment Plant) 32 40% 30/6/2008 Services Saud Bahwan Group Corporate Centre at Wattayah Saud Bahwan 20 80% 31/10/2008 Petroleum Development Fahud-Lekhwair Road Project 19 15% 9/7/2008 Oman Kauther Gas Plant Petrofac 18 62% 31/8/2007 Sohar Fertilizer Project Sohar International Urea 15 66% 30/9/2007 Ministry of Transport & SEEB International Airport Project 14 13% 31/1/2008 Comm Central Corridor Road Project Muscat Municipality 11 35% 30/6/2008 Water Supply Scheme of Wilayat Al Suwaiq Ministry of Housing 10 43% 28/2/2008 Petroleum Development Sahi Nihayda Compressor Work 10 0% 31/3/2008 Oman Ministry of Transport & Rehabilitation of Batinah Highway (Al Wajajah to Barakah) 10 78% 31/12/2007 Comm Petroleum Development Construction of PDO Airport 9 22% 30/10/2007 Oman Samco Trading & Hotel Development of Sohar 8 16% 31/3/2008 Contracting Note: Value of Contracts does not include variation order issued post award of contract
32 In addition to its above order book, the Company has been awarded the following major contracts in 2007:
Value (RO Expected Completion Description millions) Date
1) Qarm Alam Steam Project Service Facilities Off-Plot EPC 53 5/12/09
2) EPC contract of Fahud & Buraimi Compressor 7 18/3/2008
3) Supply and Fabrication of MSV Skids 9 9/3/11
4) Marine Fishery Harbour at Wilayat Al Seeb 8 3/7/08
Support Units
The following Support Units are centralised units at the Head Office that are responsible for their specific functional areas and operate in co-ordination with the respective Business/Operational Units. i) Centralised Plant Unit ii) Human Resources iii) Materials Management Unit (MMU): Centralised Material Management iv) Centralised Commercial Services (CCS): Centralised Tendering v) Contract Mangement Unit (CMU): Centralised sub-contracting vi) Business Development Unit (BDU) vii) Galfar Training Centre
Management Systems
The following units provide the planning, support and information systems for the overall management of the Company. i) Finance & Treasury ii) Strategic Planning iii) Quality & Health, Safety, Environment (HSE) iv) Internal Audit & Control v) Information Technology
Management Processes
Each of Galfar’s five Business Units and two Special Project Units are headed by a General Manager who reports to the CEO. BUs are supported by Support Units, which are headed by either a General Manager or Corporate Manager, reporting to the CEO. The CEO reports to Galfar’s Board of Directors. The Company’s business is conducted mainly by participating in tenders/bids for various projects and thus, its success is directly linked to the Company emerging as the preferred bidder in a competitive bidding process. The bids for project value exceeding RO 500,000 are bidded through the Central Tendering Unit in consultation with the respective BUs. Once the project is awarded, the Central Tendering Unit intimates to the concerned BU for immediate mobilization of the project as per the agreed contract document. The BU prepares a detailed Project Plan & Budget outlining the resources required for the project. A master list of materials is drawn and
33 forwarded to the Central Material Management Unit for planning the procurement process in consultation with the BU and the project team. Activities where the company does not have expertise, or for cost efficiency reasons, are identified for sub-contracting and submitted to the Central Sub-Contracting Unit for sourcing the sub-contractors. Manpower requirement is planned for skilled and unskilled workers, and forwarded to the Strategic Planning unit for an in-house mobilization i.e. from other BUs or listed out for recruitment, and sent to the Human Resources Unit. Recruitment is carried out in coordination with the BU for skilled and professional people. The required inventory of vehicle & equipment is drawn by the BU and submitted to the Central Plant Unit for timely mobilisation of equipment. Equipment not available in-house are hired from external sources through the Central Plant Unit. Quality and HSE are monitored at each project level through the Central Quality & HSE Unit. Each BU has its own accounting team for maintaining both accounts and financial transaction processing. Treasury functions, payment to suppliers, payroll etc. are managed by the Finance & Treasury Unit. Internal Audit & Control periodically carries out commercial / project performance audit and also audit of the support units. The Company has appointed M/s. Ernst & Young as the Internal Auditor from Jan 2007.
Business Planning and Resource Forecast:
Project Budgets and Annual Business Plan are prepared by each BU for projects on hand. Support Units also prepare their Annual Overhead Budgets. Business plans are approved by the Board, and all major expenditures are monitored against the approved business plan.
BUs prepare monthly projections for each project (both revenue and expenditure) and submit a variance review to the management. Operating costs relating to each project are captured on Activity Based Costing concept through Integrated Project Management System (IPMS) software developed in house and updated periodically, as per the requirement of the project and the management. Business Plans are revised, as necessary, on a quarterly basis and approved by the management.
34 Organisation Structure
The following chart provides the organisation set up of Galfar:
Board of Directors
Internal Audit & Financial Advisor Control
Chief Executive Officer
OPERATIONS SUPPORT MANAGEMENT SYSTEMS & CONTROL
General Manager General Manager General Manager (U&S) (O&G) (HR)
General Manager General Manager General Manager Corporate Manager (R&B) (S&B) (MMU) (F&T)
General Manager General Manager General Manager Corporate Manager (ENV) (SPU) (HO) (QHSE)
Deputy Project Director Corporate Manager Corporate Manager (SEW) (Plant) (SP) Corporate Manager (BD)
Corporate Manager (CCS)
Corporate Manager (CMU)
Corporate Manager (Contracts)
Legend : IA & C - Internal Audit & Control, U&S - Utilities & Services, R&B - Roads & Bridges, Env - Environment, SEW - Southern Expressway, O&G - Oil & Gas, S&B - Structures & Buildings, SPU - Special Projects Unit, HR - Human Resources, MMU - Materials Management Unit, BD - Business Development, CCS - Central Commercial Services, CMU - Contracts Management Unit, HO - Head Office, F&T - Finance & Treasury, QHSE - Quality & HSE, SP - Strategic Planning
Management Team and Employees
The Board of Directors guide the Company in setting policies and procedures. The day to day management of the Company would be the responsibility of the Chief Executive Officer assisted by qualified management staff.
Chief Executive Officer :
Dr. Hans Erlings joined Galfar in March 2006, following his service as General Manager of Shell, Nigeria. He has 26 years of experience holding senior management positions with Shell across different Continents and has vast and varied experience in the fields of Engineering & Management. Dr. Erlings in the past worked in Oman with PDO for seven years from 1995 to 2002. His last assignment with PDO was in the capacity of Engineering Director and Manager Contracts and Procurement. Dr. Erlings has a degree in Material Engineering from the University of Delft, Netherlands, and has also received his doctorate in Physical Chemistry from the same University.
35 The affairs of the company are managed by senior management having adequate experience in their respective fields contributing to the growth of the company. The qualifications and experience of the senior management team is given below:
Sl. Name Designation Nationality Age Academic Qualification Service Total No. in Galfar Service (Years) Experi- ence (Years)
Dr. of technical sciences 1 Dr. Hans Erlings Chief Executive Officer Dutch 53 130 and metallurgical engineer M.Sc., Diploma in 2 S K Agarwal Financial Advisor Indian 68 Management – UK, 943 AMP from IIM, Ahmedabad General Manager Dr. in Human Resource 3 Dr. Rashid Al Ghailani Omani 38 117 (Human Resources) Management General Manager 4 J K Salvi Indian 48 B.Sc. (Civil Engg) 16 26 (Structure & Building) General Manager 5 T V Vardharajan Indian 52 Diploma in Civil Engineering 18 32 (Roads & Bridges) General Manager (Oil B.Sc. Engg., Diploma in 6 T S Janardhanan Indian 60 20 37 & Gas) Business Management General Manager 7 J K Mitra Indian 62 B.E. Electricals 21 42 (Utility & Services) General Manager 8 S K Khuntia Indian 57 B.Sc.Engg (Mechanical) 15 35 (Special Projects)
9 Joginder Singh General Manager (HO) Indian 76 BE (Civil) 16 56
General Manager 10 K M Sageer Indian 51 Diploma in Civil Engg 26 28 (Environment Unit) General Manager 11 E A Sherif (Material Indian 61 B.E. (Civil), FIE 16 38 Management Unit) Corporate 12 Naushad A Manager (Business Indian 60 M.A. 16 30 Development) Corporate Manager B.Com, ACA, AICWA, 13 S. Muthukrishnan (Finance & Treasury) Indian 45 Management Programme 15 24 from IIM Corporate Manager Diploma in Mechanical 14 M.N. Pankajakshan Indian 66 20 44 (Plant) Engg Corporate Manager 15 T G Philip Indian 52 B.E. (Mechanical) 15 30 (Quality & HSE) Corporate 16 M. Venugopal Manager (Contract Indian 57 B.A.(Economics) 2 37 Management Unit) Corporate Manager 17 Sreedharan (Central Commercial Indian 64 Dipl. In Civil Engg. 22 45 Service) B.E. (Civil Engg), Dy. Project Director 18 A.S. Pandey Indian 44 M.E. (Construction 620 (Southern Expressway) Management) Corporate Manager 19 Ganasekaran N (Strategic Planning Indian 45 BE (Civil) 12 23 & IT) B.Sc. Construction Corporate Manager 20 N. Palmann British 48 Management Technology, 127 (Contracts) (Civil Engg.)
36 Employees
As at 31 December 2006, Galfar employed 17,247 personnel comprising 13,387 expatriates (78%) and 3,860 Omani nationals (22%). The Omanisation level as at 31st December 2006 was 22% as against the requirement set by the Ministry of Manpower of 27% of the total manpower. The company plans to achieve the Omanisation target by the first quarter of 2008.
Employees distribution under various divisions of the Company is as follows:
Sl. No. Unit Number of Employees 1) Structures & Buildings 2,836 2) Roads & Bridges 2,426 3) Oil & Gas 4,671 4) Environment 1,654 5) Utilities & Services 1,663 6) Southern Expressway 1,863 7) Special Projects 380 8) Plant Department 1,128 9) Head Office Departments 426 10) Training 200 Total 17,247
Details of Loans availed by the Company
As at 31 December 2006, the loans availed by the Company are as under:
Type of Lender Currency Interest Rate Total Principal Repayment Security Loans Outstanding at Schedule 31st December, 2006 Long Term Bank & US Dollar & Floating RO 24,217,144 Payable in Assignments of Loan Financial Rial Omani Libor+1.50 to 2007and Receivables, personal Companies Libor +1.85 balance over guarantees, joint the period registration of Fixed: 2008 to 2011 assets, commercial 5.85% to 8.5% mortgages Short Term Banks, US Dollar & Fixed: RO 1,950,000 Payable in Contract Receivable Loan Related Rial Omani 4.5% to 7.5% 2007 parties Bank Banks US Dollar & Fixed: RO 8,987,814 Payable in Contract Receivable Borrowing Rial Omani 7.0% to 8.0% 2007 and/or Revolving
Major Debt Covenants ( Based on the contract between the lenders & the Company, the Company commits the following): i) Dividend Payment
Q Company shall not declare or pay dividend if any of its obligations under the loan agreements are not met, or if any event of default has occurred and has not been remedied by the Company or waived by the lender.
Q Not to pay dividends or distribution of profits in excess of 50% of the annual net profit during any financial year without the prior written consent of the Lenders.
37 ii) Subordinate loan
Q Any existing or future borrowings from any shareholders of the Company shall remain at all times subordinated in priority to the rights of the Lenders. iii) Key Financial Covenants
Q Leverage (Debt/Net worth): Should not exceed the ratio 3.75:1
QNet Worth (Net Shareholder Equity): Should be at least RO 16 Million
QCurrent Ratio (Current Assets/Current Liabilities): The ratio should be at least 1:1
Land Details
Salalah Land
The Company’s land at Salalah of 5184 Sq. mt. having structural building is being used as a Project Office. The land, appearing in the Note No. 10 of the Historical Financial Statement regarding Property, Plant & Equipment, was registered in the name of Mr. Majid bin Salim bin Said Al-Fannah Al-Araimi and paid by the company. He has undertaken to transfer the title of the land to the Company on its transformation to an SAOG, without any further payment to him, provided that the Company shall bear the Government fee levied for such transfer. Further, in the event the transfer of the land in the name of the Company has become impossible for any reason, he has undertaken to pay to the Company the amount paid for the land as shown in the accounts.
The First Board of Directors will take necessary steps to complete the procedures as soon as the Company is registered in the Commercial Register after the convening of the Constitutive General Meeting.
Leased Land at Ghala
The Company’s Offices & Camps at Ghala are constructed on different leased land. The leased lands admeasuring 53,946 sq.mtrs. are leased in the names of the Promoters. Lease rents as per the individual lease agreements are being paid by the Company directly to the Government of Oman on behalf of the lease holders. The Promoters of the Company consider the lease to be renewable annually as long as the land is used by the Company for industrial purposes. As and when the leased lands become freehold land, the leaseholders hereby agree to transfer the freehold land, subject to Government approval to Galfar Engg. & Contracting SAOG (under transformation) for the said purposes and consideration payable to government. The potential market value of the leased land on becoming freehold is neither considered for the purpose of valuation nor reflected in the books of accounts under Assets.
The workshop building of the Plant Department is constructed on a leased land measuring 19,606 sq. mtrs. and the lease rental is paid directly to the Government on behalf of the lease holder.
38 Contingent Liabilities
The un-audited contingent liabilities of the company as on 29th July, 2007
Figures in Rial Omani As on 29th July, 2007
Bonds (Surety) and Guarantee 81,379,490
Letters of Credit 27,773,176
Capital Commitments 8,831,541
Total 117,984,207
Legal Proceedings
The Company does not have any major/material legal proceedings pending in a Court of Law in Oman or outside, either instituted by, or against the Company.
Impact of Cyclone Gonu
The damage to staff vehicles, household furniture and fittings, and a few equipment is estimated to be below RO 1 million. These assets are insured and the claims are being filed.
There is no material impact on the Company’s projected revenues and profits.
Claims enforced against the Company
There are no claims enforced against the Company including by way of invoking of performance guarantees or any other guarantees/bonds/encashment of retention amounts, in the last five years.
Material Contracts
The following material contracts may affect Galfar’s business (other than ongoing execution contracts, purchase/supply contracts, employment contracts and other general contracts of routine nature): a) Loan/Hire agreements with lenders (banks)/equipment financiers b) Joint Venture agreements c) Lease agreements d) Memorandum and Articles of Association of Galfar Engineering & Contracting SAOG (Under Transformation). A copy of the Memorandum and Articles of Association is available for perusal at the office of Galfar located at Ghala Industrial Area, Al Omaran Street, Building No. 760, Way No. 5222 Muscat during business hours (Website: www.galfar.com).
39 Chapter 10 Unaudited Financial Statement for the period Jan - May ’07
Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
40 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Income statement for the period ended 31st May ’07
Description Notes May 2007 RO’000
Contract income 95,932 Contract costs 16 (82,880)
Profit on contracts 13,052 General and administrative expenses 17 (2,669)
Profit from operations 10,383 Net financing costs (996) Other income 236
Profit for the year before tax 9,623
Income tax expense 15 (1280)
Profit for the year 8,343
41 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Balance sheet as at 31st May ’07 Notes 2007 RO’000 ASSETS Non-current assets Property, plant and equipment 1 79,805 Investment in subsidiary 2 600 Available for sale investments 3 125 Retentions receivable 10,657 Total non-current assets 91,187
Current assets Inventories 4 21,689 Trade and other receivables 5 69,794 Deposits with banks 6 9,433 Cash and cash equivalents 7 8,440 Total current assets 109,356 TOTAL ASSETS 200,543
EQUITY AND LIABILITIES Capital and reserves Share capital 8 21,000 Statutory reserve 9 4,861 Members Account 3,344 Retained earnings 7,509 Total equity 36,714
Non-current liabilities Term loans 10 23,926 Provision for employees’ end of service indemnity 11 3,200 Deferred tax liability 15(b) 3,124 Creditors for purchase of property, plant and equipment 11,039 Advances on contracts 3,514 Total non-current liabilities 44,803
Current liabilities Bank borrowings 12 18,515 Short term loans 13 3,450 Term loans – current portion 10 7,906 Trade and other payables 14 87,051 Provision for taxation 2,104 Total current liabilities 119,026 TOTAL EQUITY AND LIABILITIES 200,543
42 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Statement of changes in equity for the period ended 31st May ’07
Members Share Statutory Current Retained Total Capital Reserve Account Earnings (RO’000)
Balance at 1 January 2007 20,000 4,027 6,046 30,073
Increase in Share Capital 1,000 1,000
Profit for the period 8,343 8,343
Transfer to Statutory Reserve 834 (834) 0
Distribution/Withdrawal (2,702) (2,702)
Balance at 31 May 2007 21,000 4,861 3,344 7,509 36,714
43 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Statement of cash flows
Description May ’07
Net cash from operating activities 3,252
Net cash used in investing activities (14,332)
Net cash used in financing activities 15,943
Net increase in cash and cash equivalents 4,863
Cash and cash equivalents brought forward 3577
Cash and cash equivalents carried forward 8,440
44 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Summary of significant accounting policies
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) except for the non consolidation of the company’s subsidiary.
The following is a summary of significant accounting policies, which have been adopted consistently.
Basis of accounting
The financial statements are prepared on the historical cost basis modified for measurement of certain financial assets and liabilities at fair value.
Property, plant and equipment
All items of property, plant and equipment held for the use of Company activities are recorded at cost less accumulated depreciation and any identified impairment loss.
Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on the following bases:
Category Years Site Accommodation 4 Ghala Camp 15 Plant and Machinery 7 – 10 Lab Equipments 5 Furniture and Equipment 6 Software Development 7 Motor Vehicles 7 – 10
Sundry assets costing less than RO 100 are written off in the year of purchase.
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the income statement.
Capital work in progress
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognized impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Impairment
At the each balance date, the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and is recognised immediately in the income statement.
45 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.
Investments in subsidiary
Investments in subsidiaries are carried at cost less impairment losses, if any. Income from these investments is accounted for in the income statement as and when distributed.
Available-for-sale investments
Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried at fair value. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonably estimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost comprises purchase price and all direct costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realizable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognized on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.
The principal financial assets are cash and bank balances and trade and other receivables.
Trade and other receivables are stated at their nominal values as reduced by appropriate allowances for estimated impaired debts.
The principal financial liabilities are trade payables, term loans and bank borrowings.
Trade and payables are stated at their nominal value.
Interest-bearing loans and borrowings are recorded at the proceeds received, net of direct issue costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to set off the recognised amounts and the Company intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously.
Provision for employees’ benefits
Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.
46 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Provision for non-Omani employees has been made for termination gratuities, leave pay and passage in accordance with the terms of the Labour Law of the Sultanate of Oman.
Taxation
Taxation is provided for in accordance with the fiscal regulations of the Sultanate of Oman.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Provisions
Provisions are recognized when the Company has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated.
Foreign currencies
Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the balance sheet date. Gains and losses arising from foreign currency transactions are included in the profit or loss for the year.
Revenue recognition
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognized by reference to the stage of completion of the construction activity at the balance sheet date, as measured by surveys of work performed. Variation in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
Net financing costs
All interest costs incurred in connection with borrowings, net of interest received are recognised in the period in which they are incurred as net financing costs.
47 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Cash and cash equivalents
Cash and cash equivalents consist of bank balances and cash. For the purpose of the statement of cash flows, the Company considers all banks and cash balances with a maturity of less than three months from the date of placement.
Use of estimates
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year. Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities
48 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation) 0 progress -1,181,226 0 -47,185 -4,424 -162,371 -213,980 -15,184 -3,452 -78,857 -97,493 modation Camp* Machinery equipment Equipment Development Vehicles work-in- RO RO RO RO RO RO RO RO RO RO At 1 January 2007Transfer 332,139 11,808,791 2,868,878 53,760,001 57,376 6,487,808 254,419 38,959,011 475,286 115,003,709 1,181,226 Disposals At 1 January 2007 0 7,727,550 2,105,341 19,419,607 23,722 2,798,565 173,625 12,672,296 0 44,920,706 1. Property, plant and equipment At 31 May 2007 332,139 13,645,924 4,050,104 57,991,067 57,376 7,781,055 278,756 44,745,259 345,170 129,226,850 2007Cost Land Site accom- Ghala Plant & Lab Furniture & Software Motor Capital Total At 31 May 2007 332,139 5,235,312 1,876,356 36,664,309 27,780 4,630,707 92,973 30,598,804 345,170 79,803,549 At 31 December 2006 332,139 4,081,241 763,537 34,340,394 33,654 3,689,243 80,794 26,286,715 475,286 70,083,003 * This includes structural buildings constructed on leased land Accumulated depreciation Additions 0 1,837,133 4,278,251 0 1,297,671 24,337 5,948,619 1,051,110 14,437,121 At 31 May 2007 0 8,410,612 2,173,748 21,326,758 29,596 3,150,348 185,783 14,146,455 0 49,423,300 Disposals Charge for the year 0 683,062 68,407 1,922,335 5,874 355,235 12,158 1,553,016 0 4,600,087
49 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Depreciation of property, plant and equipment is allocated as follows May ’07 RO’000
Contract costs 4,501 General and administrative expenses 99
4,600
2. Investment in subsidiary May ’07 RO’000
Investment in subsidiary 600
During the year 2006, the Company has acquired 52.17% of the equity of Al Khaleej Heavy Equipment & Engineering LLC, for a total consideration of RO 600 K
Principal activities of the subsidiary acquired in 2006 are hiring out of cranes, equipment and other vehicles.
These financial statements do not include the results and operations of the subsidiary company.
3. Available-for-sale investments May ’07 RO’000
Unquoted local investments 125
The unquoted investments are valued at cost.
4. Inventories May ’07 RO’000
Materials and consumables 21,757 Less: Allowance for slow-moving inventories (68) 21,689
50 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
5. Trade and other receivables May ’07 RO’000
Contract receivables 60,040 Less: Allowance for impaired debts (212) 59,828 Retentions receivable 1,804 Due from related parties 964 Trade receivables 465 Deposits and prepaid expenses 3,633 Insurance claims 74 Due from employees 301 Other receivables 2,725 69,794
6. Deposits with banks May ’07 RO’000
Term deposits 9,268 Margin deposits 165 9,433
The term deposits carry interest rates of 3.25% to 4% per annum (2006 3.25% to 4% per annum) and are kept for a period of more than three months from the date of placement.
7. Cash and cash equivalents May ’07 RO’000
Cash on hand 230 Bank balances: Current accounts 8,210
8,440
51 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
8. Share capital May ’07 RO’000 Authorised 500,000,000 ordinary shares of par value RO 0.100 Baiza each Issued and fully paid: At 1 January 20,000,000 Increased during the period - Cash Brought in 1,000,000 At 31 May 2007 21,000,000
9. Statutory reserve
The statutory reserve, which is not available for distribution is calculated in accordance with Article 154 of the Commercial Companies Law. The annual appropriation shall be 10% of the profit after taxes for each year until such time as the reserve amounts to at least one third of the share capital.
10. Term loans May ’07 RO’000 Term loans: - from banks 23,521 - finance companies 8,311 31,832 Less: Current portion - from banks 6,044 - finance companies 1,862 7,906 Long term portion - from banks 17,477 - finance companies 6,449 23,926 11. Provision for employees’ end of service indemnity
Movements in the net liability were as follows: May ’07 RO’000
At 1 January 3,015 Charge for the year 431 Amounts paid (246) At 31 March 3,200
52 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
12. Bank borrowings May ’07 RO’000
Bank overdrafts 4,397 Loan against trust receipts 7,231 Bills discounted 6,887 18,515
Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary between 7% to 8% per annum (2006: 7% to 8% per annum). Bank borrowings are secured against the contract receivables.
13. Short term loans May ’07 RO’000 Short term loans: From banks 2,750 From a related party 700 3,450
a) The interest rates on bank loans vary from 4.5% to 7.5% per annum (2005 – 4.5% to 7.5% per annum). Bank loans are repayable within one year and are secured against the contract receivables of the Company. b) The loan from the related party carries interest at 7% per annum and is repayable within one year.
14. Trade and other payables May ’07 RO’000
Trade payables 50,987 Due to related parties 2,090 Due to subsidiary 201 Amount due to sub-contractors 4,344 Creditors for purchase of property, plant and equipment 5,261 Advances on contracts 14,467 Accrued expenses 6,862 Provision for employees’ leave pay and passage 2,839 87,051 15. Taxation
Income tax is provided as per the provisions of the “Law of Income Tax on Companies” in Oman after adjusting the items which are non-assessable or disallowed. Income tax is calculated @ 12% on the adjusted taxable income after deducting the statutory exemption of RO 30 K
53 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
a) Income tax expense May ’07 RO’000
Current tax charge 592 Deferred tax charge 688 1,280
The Company’s income tax assessment up to the year 2003 has been finalized by the Taxation Department. The management believes that any taxation for the un-assessed years will not be material to the financial position of the Company as at the balance sheet date.
b) Deferred tax liability May ’07 RO’000
Deferred tax liabilities on temporary differences 3,124
The movement for the year in the Company’s deferred tax position was as follows: May ’07 RO’000
At 1 January 2,436 Charge for the year 688 At 31 May 3,124
Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate of 12%.
The net deferred tax liability and deferred tax charge / (release) in the income statement are attributable to the following items:
01-Jan-07 Recognised May ’07 during the year RO’000 RO’000 RO’000
Property, plant and equipment 2,402 688 3,090 Trade receivables 26 - 26 Inventories 8 - 8 2,436 688 3,124
54 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
16. Contract costs May ’07 RO’000
Materials 33,745 Salaries and wages 18,966 Sub-contracting 13,913 Depreciation of property, plant and equipment 4,501 Hire of equipment and vehicles 3,644 Fuel 4,515 Camp maintenance 1001 Insurance 596 Repairs and maintenance 306 Rent of accommodation 311 Communication 189 Bank guarantee and other charges 328 Miscellaneous 865 82,880
17. General and administrative expenses May ’07 RO’000
Personnel costs 1671 Office maintenance (Includes Depr RO 46 K) 422 Depreciation of property, plant and equipment 53 Office expenses 264 Business promotion 76 Communication 23 Tender fees 55 Professional fees 21 Insurance 16 Repairs and maintenance 13 Printing and stationery 25 Travel 30 2,669
55 Chapter 11 Summary Financials 2004-2006
Report of the Reporting Accountant for Galfar Engineering & Contracting LLC
Galfar Engineering & Contracting LLC HISTORICAL FINANCIAL STATEMENTS
31 DECEMBER 2004 - 2006
56
Galfar Engineering & Contracting LLC
Income Statement Years ended 2004 to 2006
Notes 2006 2005 2004 RO’000 RO’000 RO’000
Contract income 164,492 98,344 78,681
Contract costs 3 (140,214) (86,492) (70,987)
Profit on contracts 24,278 11,852 7,694
General and administrative expenses 4 (4,975) (3,760) (4,028)
Net financing costs 5 (1,544) (1,229) (1,442)
Other income 6 1,466 1,481 3,539
Profit for the year before prior year adjustment 19,225 8,344 5,763
Prior year adjustment 7 - - (1,439)
Profit for the year before tax 19,225 8,344 4,324
Income tax expense 8 (2,713) (1,253) (508)
Profit for the year 16,512 7,091 3,816
Earnings per share 9 1.554 1.309 0.763
The attached notes 1 to 29 form part of these financial statements
59 Galfar Engineering & Contracting LLC
Balance Sheet At 31 December 2004 to 2006
Notes 2006 2005 2004 RO’000 RO’000 RO’000 ASSETS Non-current assets Property, plant and equipment 10 70,083 34,657 24,271 Investment in subsidiary 11 600 - 955 Available for sale investments 12 125 125 125 Retentions receivable 7,677 3,177 2,693 Total non-current assets 78,485 37,959 28,044
Current assets Inventories 13 13,998 4,848 3,344 Trade and other receivables 14 64,755 46,780 41,785 Deposits with banks 15 9,427 11,069 1,035 Cash and cash equivalents 16 3,577 5,521 732 Total current assets 91,757 68,218 46,896 TOTAL ASSETS 170,242 106,177 74,940
EQUITY AND LIABILITIES Equity Share capital 17 20,000 7,500 5,000 Statutory reserve 18 4,027 2,376 1,667 Retained earnings 6,045 6,538 3,192 Total equity 30,072 16,414 9,859
Non-current liabilities Loan from shareholders 19 - 4,300 4,300 Term loans 20 13,749 13,670 7,961 Provision for employees’ end of service indemnity 21 3,015 2,448 2,211 Deferred tax liability 8 2,436 1,343 868 Creditors for purchase of property, plant and equipment 9,861 3,233 - Advances on contracts 3,461 11,508 1,899 Total non-current liabilities 32,522 36,502 17,239
Current liabilities Bank borrowings 22 8,988 2,869 6,258 Short term loans 23 1,950 2,609 3,581 Term loans – current portion 20 10,467 7,657 7,063 Trade and other payables 24 84,731 39,526 30,940 Provision for taxation 1,512 600 - Total current liabilities 107,648 53,261 47,842 TOTAL EQUITY AND LIABILITIES 170,242 106,177 74,940
The attached notes 1 to 29 form part of these financial statements
60 Galfar Engineering & Contracting LLC
Statement of Changes in Equity Years ended 2004 to 2006
Share Statutory Revaluation Retained capital reserve Reserve earnings Total RO’000 RO’000 RO’000 RO’000 RO’000
Balance at 1 January 2004 5,000 1,637 2,928 1,244 10,809
Profit for the year - - - 3,816 3,816
Revaluation reserve utilised - - (2,928) - (2,928)
Transfer to statutory reserve - 30 - (30) -
Distribution during the year - - - (1,838) (1,838)
Balance at 31 December 2004 5,000 1,667 - 3,192 9,859 Increase in share capital (Note 17) 2,500 - - - 2,500 Profit for the year - - - 7,091 7,091 Transfer to statutory reserve - 709 - (709) - Distribution during the year - - - (3,036) (3,036)
Balance at 31 December 2005 7,500 2,376 - 6,538 16,414 Increase in share capital (Note 17) 12,500 - - (8,200) 4,300 Profit for the year - - - 16,512 16,512 Transfer to statutory reserve - 1,651 - (1,651) - Distribution during the year - - - (7,154) (7,154) Balance at 31 December 2006 20,000 4,027 - 6,045 30,072
The attached notes 1 to 29 form part of these financial statements
61 Galfar Engineering & Contracting LLC
Cash Flow Statement Years ended 2004 to 2006
2006 2005 2004 RO’000 RO’000 RO’000 OPERATING ACTIVITIES Profit for the year before tax and prior year adjustment 19,225 8,344 5,763 Adjustments for: Depreciation of property, plant and equipment 8,088 4,353 3,406 Profit on disposal of property, plant and equipment (190) (111) (2,492) Net transfer to employees end of service indemnity 567 237 172 Finance costs 2,167 1,810 2,132 Interest income (623) (581) (690) 29,234 14,052 8,291 Changes in working capital: Trade and other receivables (17,975) (1,347) 1,608 Inventories (9,150) (1,504) 34 Trade and other payables 41,400 6,273 (540) Net cash generated from operations 43,509 17,474 9,393 Change in retentions receivable-long term (4,500) (3,176) (2,693) Change in advances on contracts-long term (8,047) 11,508 1,899 Change in margin deposits 255 762 (726) Income tax paid (708) (178) (176) Net cash from operating activities 30,509 26,390 7,697
INVESTING ACTIVITIES Purchase of property, plant and equipment (33,129) (11,269) (9,025) Proceeds from sale of property, plant and equipment 238 309 2,689 Change in term deposits 1,387 (10,797) - Acquisition of subsidiary (600) - - Interest received 623 581 690 Net cash used in investing activities (31,481) (21,176) (5,646)
FINANCING ACTIVITIES Share capital raised - 2,500 - Change in bank borrowings 6,119 (2,534) (2,025) Change in term loans 2,889 6,303 2,767 Change in short term loans (659) (1,848) 1,137 Interest paid (2,167) (1,810) (2,132) Distribution to shareholders (7,154) (3,036) (1,838) Net cash used in financing activities (972) (425) (2,091) NET CHANGE IN CASH AND CASH EQUIVALENTS (1,944) 4,789 (40) Cash and cash equivalents, at the beginning of the year 5,521 732 772 CASH AND CASH EQUIVALENTS, AT THE END OF THE YEAR 3,577 5,521 732
The attached notes 1 to 29 form part of these financial statements
62 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements At 31 December 2004 to 2006
1 ACTIVITIES
Galfar Engineering and Contracting SAOG (under transformation) (the company) is in the process of registration as a joint stock company under the Commercial Companies Law of Oman. The company is presently registered as a limited liability company in the Sultanate of Oman under a trade license issued by the Ministry of Commerce and Industry. The registered office of the Company is at P O Box 533, Muscat, Postal Code 113, Sultanate of Oman.
The principal activities of the Company are civil and mechanical construction, public health engineering, road construction, electrical, plumbing and maintenance contracts.
These historical financial statements are presented in Rials Omani (RO) as it is the currency of the country in which majority of the Company transactions are denominated.
2 SIGNIFICANT ACCOUNTING POLICIES
The historical financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).
The following is a summary of significant accounting policies, which have been adopted consistently in the years presented in the historical financial statements.
Basis of accounting
The historical financial statements are prepared on the historical cost basis modified for measurement of certain financial assets and liabilities at fair value.
IASB Standards and Interpretations issued but not adopted
The following IASB Standards and Interpretations have been issued but are not yet mandatory, and have not yet been adopted by the company:
IFRS 7 Financial Instruments: Disclosures
FRIC 7 Applying the Restatement Approach under IAS 29, Financial reporting in hyperinflationary economies
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC 10 Interim Financial Reporting and Impairment
The management anticipates that the adoption of the above standards and interpretations in future periods will have no material impact on the financial statements of the Company.
Property, plant and equipment
All items of property, plant and equipment held for the use of Company activities are recorded at cost less accumulated depreciation and any identified impairment loss.
63 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
2 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on the following bases:
Years
Site accommodation 4 Ghala camp 15 Plant and machinery 7 – 10 Lab equipments 5 Furniture and equipment 6 Software development 7 Motor vehicles 7 – 10
Sundry assets costing less than RO 100 are written off in the year of purchase.
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
Capital work in progress
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Impairment
At the each balance date, the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and is recognised immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.
Investments in subsidiary
Investments in subsidiaries are carried at cost less impairment losses, if any. Income from these investments is accounted for in the income statement as and when distributed.
64 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
2 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Available-for-sale investments
Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried at fair value. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonably estimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment.
Inventories
Inventories are stated at the lower of cost and net recognised value. Cost comprises purchase price and all direct costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net recognised value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.
The principal financial assets are cash and bank balances and trade and other receivables.
Trade and other receivables are stated at their nominal values as reduced by appropriate allowances for estimated impaired debts.
The principal financial liabilities are trade payables, term loans and bank borrowings.
Trade and payables are stated at their nominal value.
Interest-bearing loans and borrowings are recorded at the proceeds received, net of direct issue costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to set off the recognised amounts and the Company intends to either settle on a net basis, or to recognise the asset and settle the liability simultaneously.
Provision for employees’ benefits
Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.
65 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
2 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Provision for non-Omani employees has been made for termination gratuities, leave pay and passage in accordance with the terms of the Labour Law of the Sultanate of Oman.
Taxation
Taxation is provided for in accordance with the fiscal regulations of the Sultanate of Oman.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be recognised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is recognised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated.
Foreign currencies
Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the balance sheet date. Gains and losses arising from foreign currency transactions are included in the income statement for the year.
Revenue recognition
Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the construction activity at the balance sheet date, as measured by surveys of work performed. Variation in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
66 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
2 SIGNIFICANT ACCOUNTING POLICIES (contd.)
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Net financing costs
All interest costs incurred in connection with borrowings, net of interest received are recognised in the period in which they are incurred as net financing costs.
Cash and cash equivalents
Cash and cash equivalents consist of bank balances and cash. For the purpose of the cash flow statement, the Company considers all bank and cash balances with a maturity of less than three months from the date of placement.
Use of estimates
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities at the date of the financial statements and the resultant provisions and changes in fair value for the year. Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated assets and liabilities.
3 CONTRACT COSTS 2006 2005 2004 RO’000 RO’000 RO’000
Materials 53,647 28,794 24,641 Salaries and wages 35,147 23,499 20,635 Sub-contracting 23,091 14,974 8,810 Depreciation of property, plant and equipment (Note 10 g) 7,843 4,050 3,211 Hire of equipment and vehicles 5,021 4,953 5,283 Fuel 8,033 5,184 3,767 Camp maintenance 1,427 1,030 1,134 Insurance 1,239 748 661 Repairs and maintenance 761 564 538 Rent of accommodation 935 613 513 Communication 457 360 358 Bank guarantee and other charges 835 348 469 Allowance for impaired debts - - 36 Miscellaneous 1,778 1,375 931 140,214 86,492 70,987
67 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
4 GENERAL AND ADMINISTRATIVE EXPENSES 2006 2005 2004 RO’000 RO’000 RO’000
Personnel costs 3,298 2,420 1,641 Bad debts - - 1,268 Office maintenance (including depreciation of RO 58 K (2005 – RO 65 K, 2004 – RO 99 K) (Note 10g) 745 451 369 Depreciation of property, plant and equipment (Note 10g) 96 143 53 Office expenses 307 260 310 Business promotion 224 213 140 Communication 95 63 64 Tender fees 52 74 62 Professional fees 12 28 24 Insurance 22 22 20 Repairs and maintenance 25 14 14 Printing and stationery 44 35 23 Travel 55 37 40
4,975 3,760 4,028
5 NET FINANCING COSTS 2006 2005 2004 RO’000 RO’000 RO’000
Interest costs 2,167 1,810 2,132 Interest income (623) (581) (690) 1,544 1,229 1,442
6 OTHER INCOME 2006 2005 2004 RO’000 RO’000 RO’000
Income from training center 752 678 831 Profit on disposal of property, plant and equipment 190 111 2,492 Insurance claims 342 485 115 Miscellaneous income 182 207 101 1,466 1,481 3,539
Income from training center is net of all expenses, including depreciation. (Note 10g)
68 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
7 PRIOR YEAR ADJUSTMENT 2006 2005 2004 RO’000 RO’000 RO’000 Deferred tax charge since the commencement Of operation - - 360 Reduction of gross amounts due from customers - - 1,079 - - 1,439
The following is a proforma statement of retained earnings for the year 2004 and 2003 assuming the previous year adjustments for the entire year was corrected in the respective periods.
2004 2003 RO’000 RO’000
Retained earnings at beginning of the year (52) 1,017 Provision for deferred tax upto 2002 - (139) Retained earnings at beginning of year (restated) (52) 878 Net income as reported, before tax 5,763 1,656 Effect of deferred tax adjustment - (221) Reduction of gross amounts due from clients - (1,079) Provision for current tax - (178) Deferred tax for current year (508) - Adjustment to statutory reserve (173) (4) Amortisation of revaluation reserve - 1,098 Distribution during the year (1,838) (2,202) Retained earnings at end of the year 3,192 (52)
8 INCOME TAX
Income tax is provided as per the provisions of the “Law of Income Tax on Companies” in Oman after adjusting the items which are non-assessable or disallowed. Income tax is calculated @ 12% on the adjusted taxable income after deducting the statutory exemption of RO 30 K.
a) Income tax expense 2006 2005 2004 RO’000 RO’000 RO’000
Current tax charge 1,512 600 - Deferred tax charge 1,093 475 508 Prior year income tax 108 178 - 2,713 1,253 508
The Company’s income tax assessment up to the year 2003 has been finalised by the Taxation Authorities. The management believes that any taxation for the unassessed years will not be material to the financial position of the Company as at the balance sheet date.
69 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
8 INCOME TAX (contd.)
b) Deferred tax liability 2006 2005 2004 RO’000 RO’000 RO’000
Deferred tax liabilities on temporary differences 2,436 1,343 868
The movement for the year in the Company’s deferred tax position was as follows:
2006 2005 2004 RO’000 RO’000 RO’000
At 1 January 1,343 868 - Prior year adjustment - - 360 Charge for the year 1,093 475 508 At 31 December 2,436 1,343 868
Deferred income taxes are calculated on all temporary differences under the balance sheet liability method using a principal tax rate of 12%.
9 EARNINGS PER SHARE 2006 2005 2004 RO’000 RO’000 RO’000
Profit for the year (RO’000) 16,512 7,091 3,816 Weighted average number of shares (in’ 000) 10,625 5,417 5,000 Basic earnings per share (RO) 1.554 1.309 0.763
The par value of each share is RO 1. The basic earnings per share is calculated by dividing the profit for the year by the weighted average number of shares outstanding during the years.
70 Galfar Engineering & Contracting LLC Site Software Capital Software Site accommo- Ghala Plant & Furniture& Lab develop- Motor work-in- Land dation Camp Machinery equipment equipment ment vehicles progress Total vehicles ment equipment equipment Machinery Camp Land dation RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 Depreciation At 1 January 2006 Charge for the year Disposals At 31 December 2006Net book valueAt 31 December 2006 -6,726 - 1,918 1,003 16,153 - 187 - 7,728 15 3,526 332 2,301 (1) 2,105 157 4,081 9 10,707 19,420 - 499 764 (259) 16 - 24 34,34037,977 2,848 2,799 - 34 - 173 (1) 8,088 3,689 12,672 - 81 (883) 26,287 - - 44,921 (1,144) 475 70,083 Cost At1 January 2006 Additions Disposals At 31 December 200632,255 2,869 332 8,141 25,184 72,634 15 3,487 172 179 332 - 11,809 -3,668 2,869 53,760 - -21,772 At 31 December 58 43 2005 - 3,002 (267) 6,488 82 14,699 254 - 296 332 1,415 38,95916,102 43,562 951 (1) 1,186 -14,477 34,657 15 475 179 - 115,004 (924) -(1,192) Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006 10 PROPERTY, PLANT AND EQUIPMENT
71 Galfar Engineering & Contracting LLC - 37,977 - 1,186 15 14,477 179 34,657 -
Site Software Capital Software Site accommo- Ghala Plant & Furniture& Lab develop- Motor work-in- Land dation Camp Machinery equipment equipment ment vehicles progress Total vehicles ment equipment equipment Machinery Camp Land dation RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 At 31 December 2005 - 6,726 1,918 16,153 15 2,301 157 10,707 At 31 December 2005Depreciation 332 8,141 2,869 32,255At 31 December 2005At 31 December 2004 15 3,487 332 172 1,415 332 1,218 11,119 669 25,184 - 951452 10,042 24,271 22 179 417 16,102 72,634 Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006 10(contd.) PROPERTY, PLANT AND EQUIPMENT At 1 January 2005 Charge for the year Disposals -6,186 - 1,719 14,601 552 - 199 15 1,855 (12) 2,109 150 10,253 - - (303) 192 -35,033 7 - 1,548 - - 4,353 - (1,094) -(1,409) Net book value CostAt1 January 2005 Additions Transfers Disposals 25,720 2,388 332 7,404 20,295 59,304 15 2,561 172 417 - 735 466 6,589 - - - (12) 926 14 - -6,095 15 (389) 14,937 126 335 - - - - (1,206) - - (1,607) - - (364) -
72 Galfar Engineering & Contracting LLC 35,033 - 452 22 10,042 417 24,271 -
Site Software Capital Software Site accommo- Ghala Plant & Furniture& Lab develop- Motor work-in- Land dation Camp Machinery equipment equipment ment vehicles progress Total vehicles ment equipment equipment Machinery Camp Land dation
RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 At 1 January 2004Charge for the yearTransferDisposals - 5,796 - 1,534 428 17,217 185 1,483 - 18 - - 1,921 -(4,080) (38) 128 125 -- (5,206) 25 10,222 (1,126) -- 1,157 - - - - 36,833 3,406 (19) (3) 60 - - - - At 1 January 2004 Additions 332 6,940 2,373 28,601 - 19 514 2,327 15 170 3,333 17,713 134 - 58,609 150 2 4,728 390 9,132 Transfers Disposals Revaluation decrease - - - (50) - - - - (1,942) (30) - (4) - (4,242) 84 - - - - - (986) - - (107) (1,160) - (107) (2,928) - (5,402) At 31 December 2003 332 1,144 11,384 839 1 406 45 7,491 21,776 134 Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006 10(contd.) PROPERTY, PLANT AND EQUIPMENT At 31 December 2004Depreciation 332 7,404 2,388 25,720 15 2,561 172 20,295 417 59,304 At 31 December 2004Net book value At 31 December 2004 - 6,186 332 1,719 1,218 14,601 669 15 11,119 2,109 150 10,253 Cost
73 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
10 PROPERTY, PLANT AND EQUIPMENT (contd.)
a) Capitalwork-in-progress represents expenses incurred on improvements in the corporate office and other assets. b) Furnitureand equipment includes office furniture, staff accommodation furniture, dubai office assets, scaffolding and other miscellaneous assets. c) Siteaccommodation includes tools, site accommodation and porta-cabins. d) Ghalacamp includes plant buildings. e) Landconsists of 5,184 sq. mt. at Salalah and is registered in the name of one of the shareholders’ Mr. Majid bin Salim Al-Fannah Al-Araimi. f) TheCompany has pledged certain assets having a carrying value of RO 8,425 K in 2006 (2005 - RO 9,183 K, 2004 - RO 8,703 K) to secure credit facilities granted by finance companies. g) Depreciationof property, plant and equipment is allocated as follows:
2006 2005 2004 RO’000 RO’000 RO’000
Contract costs (Note 3) 7,843 4,050 3,211 General and administrative expenses (Note 4) 154 208 152 Income from training center (Note 6) 91 95 43 8,088 4,353 3,406
11 INVESTMENT IN SUBSIDIARY 2006 2005 2004 RO’000 RO’000 RO’000
Investment in subsidiary 600 - 955
During the year ended 31 December 2004, the Company has acquired 90% of the equity investments of Galfar Al Misnad – Qatar, for a total consideration of RO 955 K which was sold on 1 January 2005. As a result of not consolidating the subsidiary’s financial statements, the profit made during the year ended 31 December 2005 on the disposal amounting to RO 191,800 has not been accounted in these historical financial statements.
During the year ended 31 December 2006, the Company has acquired 52.17% of the equity of Al Khaleej Heavy Equipment & Engineering LLC, for a total consideration of RO 600 K. Principal activities of the subsidiary acquired in 2006 are hiring out of cranes, equipment and other vehicles.
These historical financial statements do not include the results and operations of the subsidiary company.
74 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
12 AVAILABLE FOR SALE INVESTMENTS 2006 2005 2004 RO’000 RO’000 RO’000
Unquoted local investments 125 125 125
The unquoted investments are valued at cost.
13 INVENTORIES 2006 2005 2004 RO’000 RO’000 RO’000
Materials and consumables 14,066 4,916 3,412 Less: allowance for slow-moving inventories (68) (68) (68) 13,998 4,848 3,344
14 TRADE AND OTHER RECEIVABLES 2006 2005 2004 RO’000 RO’000 RO’000
Contract receivables 46,370 25,571 19,545 Less: Allowance for impaired debts (212) (212) (212) 46,158 25,359 19,333 Amounts due from customers under construction contracts (Note 14b) 9,938 9,100 6,307 Retentions receivable 2,162 3,485 2,330 Due from related parties (Note 25) 591 4,546 6,562 Trade receivables 645 324 742 Deposits and prepaid expenses 2,634 1,491 288 Insurance claims - 92 58 Due from subsidiary - - 2,473 Due from employees 243 93 45 Other receivables 2,384 2,290 3,647 64,755 46,780 41,785
(a) Contracts in progress at the balance sheet date 2006 2005 2004 RO’000 RO’000 RO’000 Costs incurred plus recognised profits less recognised losses to date 187,330 178,639 139,393 Less: progress billings (183,798) (169,539) (133,086) 3,532 9,100 6,307
75 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
14 TRADE AND OTHER RECEIVABLES (contd.)
(b) Recognised and included in the financial statements as amounts due:
2006 2005 2004 RO’000 RO’000 RO’000
From customers under construction contracts 9,938 9,100 6,307 To customers under construction contracts (Note 24) (6,406) - - 3,532 9,100 6,307
(c) As on 31 December 2006, other receivables includes an amount of RO 955 K (2005 – RO 955 K) due from shareholders. (d) As on 31 December 2005, other receivables includes loan advances amounting to RO 613 K (2004 – RO 2,858 K). The interest rate on the loan is 8% (2004 – 8%) (e) As on 31 December 2005, due from related parties include loan advances amounting to RO 2,032 K (2004 – RO 3,907 K). The interest rate on the loan is 8% (2004 – 8%)
15 DEPOSIT WITH BANKS 2006 2005 2004 RO’000 RO’000 RO’000
Term deposits 9,410 10,797 - Margin deposits 17 272 1,035 9,427 11,069 1,035
The term deposits carry interest rates of 3.25% to 4% per annum (2005: 3.25% to 4% per annum) and are placed for a period of more than three months.
16 CASH AND CASH EQUIVALENTS 2006 2005 2004 RO’000 RO’000 RO’000
Cash on hand 146 140 105 Bank balances: Current accounts 2,104 1,627 627 Call deposits 1,327 3,754 - 3,577 5,521 732
76 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
17 SHARE CAPITAL 2006 2005 2004 RO’000 RO’000 RO’000 Authorised : 20,000,000 ordinary shares (2005 & 2004 - 7,500,000 shares) of par value of RO 1 each 20,000 7,500 7,500
Issued and fully paid up : At 1st January 7,500 5,000 5,000 Loan from shareholders converted to share capital (Note 19) 4,300 - - Transferred from retained earnings 8,200 - - Cash brought in - 2,500 - At 31 December 20,000 7,500 5,000
18 STATUTORY RESERVE
The statutory reserve, which is not available for distribution is calculated in accordance with Article 154 of the Commercial Companies Law. The annual appropriation shall be 10% of the profit after taxes for each year until such time as the reserve amounts to at least one third of the share capital.
19 LOAN FROM SHAREHOLDERS
During December 2002, a loan of RO 4,300 K was received from the shareholders to strengthen the financial position of the Company. The above loan carried interest at 7% per annum without any specific repayment terms. During the year ended 31 December 2006, the loan has been converted to share capital (Note 17).
20 TERM LOANS 2006 2005 2004 RO’000 RO’000 RO’000 Term loans: - from banks 17,155 14,385 9,426 - finance companies 7,061 6,942 5,598 24,216 21,327 15,024 Less: Current portion - from banks (7,711) (5,072) (4,587) - finance companies (2,756) (2,585) (2,476) (10,467) (7,657) (7,063) Long term portion - from banks 9,444 9,313 4,838 - finance companies 4,305 4,357 3,123 13,749 13,670 7,961
77 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
20 TERM LOANS (contd.)
The term loans are stated at the proceeds received net of repayments and amounts repayable within twelve months have been shown as a current liability. The term loans from banks are secured against the contract receivables. Certain loans are secured against personal guarantees of the shareholders of the Company. Term loans from finance companies are secured against the mortgage of assets [Note 10 (f)].
The interest rates on term loans were as follows: 2006 2005 2004 RO’000 RO’000 RO’000
Floating rate loans 1.50 + Libor 1.50+ Libor 1.50+ Libor to to 1.85 + Libor to1.85 + Libor 1.85 + Libor
Fixed interest rate loans 5.85% 5.85% 5.85% to 8.5% to 8.5% to 8.5%
The term loans are repayable as follows: 2006 2005 2004 RO’000 RO’000 RO’000
Within one year 10,467 7,657 7,063 In the second year 6,321 6,554 3,962 In the third to fifth year inclusive 7,428 7,116 3,999 24,216 21,327 15,024
21 PROVISION FOR EMPLOYEES’ END OF SERVICE BENEFITS Movements in the net liability were as follows: 2006 2005 2004 RO’000 RO’000 RO’000
At 1 January 2,448 2,211 2,039 Charge for the year 1,009 588 627 Amounts paid (442) (351) (455) At 31 December 3,015 2,448 2,211
22 BANK BORROWINGS 2006 2005 2004 RO’000 RO’000 RO’000
Bank overdrafts 2,081 1,019 3,554 Loan against trust receipts 3,600 22 - Bills discounted 3,307 1,828 2,704 8,988 2,869 6,258
78 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
22 BANK BORROWINGS (contd.)
Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary from 7% to 8% per annum (2005 & 2004: 7% to 8% per annum). Bank borrowings are secured against the contract receivables.
23 SHORT TERM LOANS 2006 2005 2004 RO’000 RO’000 RO’000 Short term loans: From banks 1,750 2,500 3,581 From a related party (note 25) 200 109 - 1,950 2,609 3,581
a) Theinterest rates on bank loans vary from 4.5% to 7.5% per annum (2005 & 2004 - 4.5% to 7.5% per annum). Bank loans are repayable within one year and are secured against the contract receivables of the company. b) Theloan from a related party carries interest at 7% per annum and is repayable within one year.
24 TRADE AND OTHER PAYABLES 2006 2005 2004 RO’000 RO’000 RO’000
Trade payables 41,244 16,945 17,424 Due to related parties (note 25) 3,680 679 728 Due to subsidiary 57 - - Amount due to sub-contractors 4,299 4,450 2,222 Creditors for purchase of property, plant and equipment 4,240 435 - Amounts due to customers under construction contracts (note 14b) 6,406 - - Advances on contracts 18,703 8,094 3,252 Accrued expenses 3,804 7,371 6,005 Provision for employees’ leave pay and passage 2,298 1,552 1,309 84,731 39,526 30,940
79 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
25 RELATED PARTY TRANSACTIONS
Related parties comprise the shareholders, key business persons and business entities in which they have the ability to control or exercise significant influence in financial and operating decisions.
The Company maintains significant balances with these related parties which arise in the normal course of business from commercial transactions, and are entered into at terms and condition which the management considers to be comparable with those adopted for arm’s length transactions with third parties.
The following is a summary of significant transactions with related parties which are included in the financial statements: 2006 2005 2004 RO’000 RO’000 RO’000 Transactions with other related parties
Contract income 106 139 925 Interest paid 33 7 - Interest received 140 455 690 Purchase of goods / services 6,093 1,875 1,947 Purchase of property, plant and equipment 435 1,097 - Sale of property, plant and equipment - - 2,427
Transactions with subsidiary Hire charges 789 654 128
The amounts outstanding are unsecured and will be settled in cash. No expense has been recognised in the period for bad or doubtful debts in respect of the amounts owed by related parties.
Compensation of key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any Director (whether executive or otherwise).
The remuneration of directors and other members of key management during the year was as follows:
2006 2005 2004 RO’000 RO’000 RO’000
Short term benefits to members of key management 882 - - Director’s remuneration 1,438 590 341 2,320 590 341
80 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
26 COMMITMENTS AND CONTINGENCIES 2006 2005 2004 RO’000 RO’000 RO’000
Bonds and guarantees 72,017 45,336 26,905 Letters of credit 25,332 12,611 5,402 Acceptances 574 284 268 Capital commitments 4,374 14,846 -
The above bonds and guarantees have been issued in the normal course of business.
27 BUSINESS AND GEOGRAPHICAL SEGMENTS
The Company operates in one business segment, namely construction, maintenance and related services. All the operations are transacted in the Sultanate of Oman.
28 FINANCIAL INSTRUMENTS
Credit risk
Financial assets, which potentially expose the Company to concentration of credit risk, comprise principally bank current accounts, trade and other receivables.
The Company’s bank accounts are placed with high credit quality financial institutions.
Trade and other receivables are stated at net of allowance for impaired debts.
The Company has no significant concentration of credit risk with exposure spread over a large number of customers.
Interest rate risk
The Company’s exposure to interest rate risk relates to its bank borrowings, and term loans.
Term loans of RO 20,381 K (2005 – RO 17,054 K and 2004 – RO 9,288 K) are recognised at fixed interest rates and expose the company to the fair value interest rate risk. The remaining term loans of RO 3,835 K (2005 – RO 4,273 K and 2004 – RO 5,736 K) are recognised at floating rates, exposing the company to cash flow interest rate risk.
Currency risk
Assets are typically funded in the same currency as that of the business being transacted to eliminate foreign exchange exposures. Management actively monitors their foreign exchange exposure.
Fair values The fair values of financial assets and liabilities at year end approximate their carrying amounts in the balance sheet.
81 Galfar Engineering & Contracting LLC
Notes to the Historical Financial Statements (contd.) At 31 December 2004 to 2006
29 COMPARATIVE AMOUNTS
The following amounts of prior years were reclassified to confirm to the presentation for year ended 31 December 2006:
Income statement
O Income from training centre for the year ending 31 December 2005 and 2004 amounting to RO 678 K and RO 831 K, respectively was reclassified from contract income and included under other income.
Balance Sheet
O Retention receivable amounting to RO 2,693 K as of 31 December 2004 was reclassified from trade and other receivables and disclosed as non-current asset.
O Deposits with banks amounting to RO 11,069 K and RO 1,035 K as of 31 December 2005 and 2004 were reclassified from cash and cash equivalents and disclosed separately under current assets.
O Shareholders’ current accounts as of 31 December 2005 and 2004 were reclassified as retained earnings.
O Loan from shareholders’ amounting to RO 4,300 K as of 31 December 2005 and 2004 were reclassified from equity and disclosed as non-current liability.
O Creditors for purchase of property, plant and equipment amounting to RO 3,233 K as of 31 December 2005 was reclassified from trade and other payables and disclosed as non-current liability.
O Advances on contracts as of 31 December 2004 amounting to RO 1,899 K was reclassified from trade and other payables and disclosed as non-current liability.
O Loan against trust receipts amounting to RO 22 K as of 31 December 2005 was reclassified from trade and other payables and disclosed as bank borrowings.
O Bills discounted amounting to RO 1,828 K and RO 2,704 K as of 31 December 2005 and 2004 were reclassified from short term loans and disclosed as bank borrowings.
82 Chapter 12 Summary of Projected Financial Statements
Report of the Reporting Accountant for Galfar Engineering & Contracting SAOG (under transformation)
Galfar Engineering & Contracting SAOG (Under transformation) FINANCIAL PROJECTIONS 31 DECEMBER 2007 - 2009
83
Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Income Statement Years ended 2007 to 2009
Notes 2007 2008 2009 RO’000 RO’000 RO’000
Contract income 240,263 259,484 280,243
Contract costs 5 (207,467) (223,985) (241,662)
Profit on contracts 32,796 35,499 38,581
General and administrative expenses (5,862) (6,695) (6,896)
Net financing costs (2,596) (1,816) (1,269)
Other income 250 250 250
Profit for the year before tax 24,588 27,238 30,666
Income tax expense (3,131) (3,265) (3,677)
Profit for the year 21,457 23,973 26,989
Earnings per share (RO) 11 0.099 0.096 0.108
The attached notes 1 to 14 form part of these financial projections.
85 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Balance Sheet At 31 December 2007 to 2009
Notes 2007 2008 2009 RO’000 RO’000 RO’000 ASSETS Non-current asset Property, plant and equipment 6 71,462 71,072 69,013 Investment in subsidiary 7 600 600 600 Available for sale investments 8 125 125 125 Retentions receivable 9,611 10,379 11,210 Total non-current assets 81,798 82,176 80,948
Current assets Inventories 15,381 16,566 17,940 Trade and other receivables 98,738 106,346 115,168 Cash and cash equivalents 19,388 24,309 34,911 Total current assets 133,507 147,221 168,019 TOTAL ASSETS 215,305 229,397 248,967
EQUITY AND LIABILITIES Equity Share capital 25,000 25,000 25,000 Share premium 20,000 20,000 20,000 Statutory reserve 6,173 8,333 8,333 Proposed dividend 8,750 8,750 8,750 Retained earnings 9,923 22,986 41,225 Total equity 69,846 85,069 103,308
Non-current liability Term loans 9 13,680 6,004 1,324 Provision for employees’ end of service indemnity 3,314 3,612 3,912 Deferred tax liability 3,905 5,168 5,587 Creditors for purchase of property, plant and equipment 7,396 4,931 2,465 Advances on contracts 12,013 12,974 14,012 Total non-current liabilities 40,308 32,689 27,300
Current liabilities Bank borrowings 5,683 6,119 6,628 Term loans - current portion 9 8,820 7,676 4,680 Trade and other payables 88,986 95,842 103,793 Provision for taxation 1,662 2,002 3,258 Total current liabilities 105,151 111,639 118,359 TOTAL EQUITY AND LIABILITIES 215,305 229,397 248,967
The financial statements were authorised for issue in accordance with a resolution of the directors on 22 July ‘07. Sd/- Sd/- Chairman Corporate Manager – Finance & Treasury
The attached notes 1 to 14 form part of these financial projections.
86 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Cash Flow Statement Years ending 2007 to 2009
2007 2008 2009 RO’000 RO’000 RO’000
OPERATING ACTIVITIES Profit before tax 24,588 27,238 30,666 Adjustments for: Depreciation of property, plant and equipment 10,620 11,390 12,059 Net transfer to employees end of service indemnity 299 298 300 Finance costs 2,596 1,816 1,269 38,103 40,742 44,294 Working capital changes: Trade and other receivables (33,983) (7,608) (8,822) Inventories (1,383) (1,185) (1,374) Trade and other payables 4,255 6,856 7,951 Cash from operations 6,992 38,805 42,049 Change in retentions receivable-long term (1,934) (768) (831) Change in advances on contracts-long term 8,552 961 1,038 Income tax paid (1,512) (1,662) (2,002) Net cash from operating activities 12,098 37,336 40,254
INVESTING ACTIVITIES Payments for purchase of property, plant and equipment (14,464) (13,465) (12,466) Change in term deposits 9,427 - - Net cash used in investing activities (5,037) (13,465) (12,466)
FINANCING ACTIVITIES Share capital raised 5,000 - - Share premium 20,000 - - Issue expense received 200 - - Issue expenses (838) - - Change in bank borrowings (3,305) 436 509 Change in term loans (1,716) (8,820) (7,676) Change in short term loans (1,950) - - Interest paid (2,596) (1,816) (1,269) Distribution to shareholders (6,045) (8,750) (8,750) Net cash used in financing activities 8,750 (18,950) (17,186)
NET CHANGE IN CASH AND CASH EQUIVALENTS 15,811 4,921 10,602
Cash and cash equivalents, at the beginning of the year 3,577 19,388 24,309
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 19,388 24,309 34,911
The attached notes 1 to 14 form part of these financial projections.
87 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Statement of Changes in Equity Years ending 2007 to 2009
Share Share Statutory Proposed Retained capital premium Reserve dividend earnings Total RO’000 RO’000 RO’000 RO’000 RO’000 RO’000
Balance at 1 January 2007 20,000 - 4,027 - 6,045 30,072 Increase in share capital – LLC shareholders 1,000 - - - - 1,000 Dividend paid – LLC shareholders - - - - (6,045) (6,045) Increase in share capital – IPO proceeds 4,000 - - - - 4,000 Increase in share premium – IPO proceeds - 20,000 - - - 20,000 Shortfall in issue expenses - - - - (638) (638) Profit for the year - - - - 21,457 21,457 Transfer to statutory reserve - - 2,146 - (2,146) - Proposed dividend - - - 8,750 (8,750) -
Balance at 1 January 2008 25,000 20,000 6,173 8,750 9,923 69,846 Dividend paid - - - (8,750) - (8,750) Profit for the year - - - - 23,973 23,973 Transfer to statutory reserve - - 2,160 - (2,160) - Proposed dividend - - - 8,750 (8,750) -
Balance at 1 January 2009 25,000 20,000 8,333 8,750 22,986 85,069 Dividend paid - - - (8,750) - (8,750) Profit for the year - - - - 26,989 26,989 Proposed dividend - - - 8,750 (8,750) -
Balance at 31 December 2009 25,000 20,000 8,333 8,750 41,225 103,308
The attached notes 1 to 14 form part of these financial projections.
88 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections At 31 December 2007 to 2009
1 ACTIVITIES
Galfar Engineering and Contracting SAOG (the parent Company/ the Company) (under transformation) is in the process of registration as a joint stock Company under the Commercial Companies Law of Oman. The Company is presently registered as a limited liability Company in the Sultanate of Oman under a trade license issued by the Ministry of Commerce and Industry. The registered address of the Company is at P O Box 533, Muscat, Postal Code 113, Sultanate of Oman.
The principal activities of the Company are civil and mechanical construction, public health engineering, road construction, electrical, plumbing and maintenance contracts.
These financial projections are presented in Rials Omani (RO) as it is the currency of the country in which majority of the Company transactions are denominated.
2 BASIS OF PREPARATION OF THE FINANCIAL PROJECTIONS
These illustrative financial projections of the Company have been prepared by independent financial advisors appointed by the Company’s management in accordance with the accounting policies set out in note 3 and the key assumptions set out in note 4.
The illustrative profit projections are intended to show a possible outcome based on the stated assumptions. Because of the length of the period covered by the illustrative profit projections, the assumptions are necessarily more subjective than would be appropriate for the profit forecast. The illustrative profit projections do not therefore constitute a forecast.
Since the projections relate to the future, actual results are likely to be different from the projected results because events and circumstances do not occur as expected, and the differences may be material
3 SIGNIFICANT ACCOUNTING POLICIES
The financial projections have been presented in accordance with International Financial Reporting Standards (IFRS).
The following is a summary of significant accounting policies, which have been adopted and applied consistently in the financial projections.
Basis of accounting
The financial projections are prepared on the historical cost basis modified for measurement of certain financial assets and liabilities at fair value.
International Accounting Standards Board (IASB) Standards and Interpretations issued but not adopted
The IASB Standards and Interpretations that have been issued but are not yet mandatory, and have not been adopted by the Company, are not expected to have a material impact on the Company’s financial projections.
89 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
3 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Property, plant and equipment
All items of property, plant and equipment held for the use of Company activities are recorded at cost less accumulated depreciation and any identified impairment loss.
Depreciation is charged so as to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, on the following bases:
Years
Site accommodation 4 Ghala camp 15 Plant and machinery 7 – 10 Lab equipments 5 Furniture and equipment 6 Software development 7 Motor vehicles 7 – 10
Sundry assets costing less than RO 100 are written off in the year of purchase.
The gain or loss on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
Capital work in progress
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Impairment
At the each balance date, the Company reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
The loss arising on an impairment of an asset is determined as the difference between the recoverable amount and carrying amount of the asset and is recognised immediately in the income statement.
Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount and the increase is recognised as income immediately, provided that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised earlier.
90 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
3 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Investments in subsidiary
Investments in subsidiaries are carried at cost less impairment losses, if any. Income from these investments is accounted for in the income statement as and when distributed.
Available-for-sale investments
Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in general, subsequently carried at fair value. Available-for-sale equity investments that do not have a quoted market price in an active market, and for which other methods of reasonably estimating fair value are inappropriate, are measured at cost, as reduced by allowances for estimated impairment.
Inventories
Inventories are stated at the lower of cost and net recognised value. Cost comprises purchase price and all direct costs incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net recognised value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s balance sheet when the Company becomes a party to the contractual provisions of the instrument.
The principal financial assets are cash and bank balances and trade and other receivables.
Trade and other receivables are stated at their nominal values as reduced by appropriate allowances for estimated impaired debts.
The principal financial liabilities are trade payables, term loans and bank borrowings.
Trade and payables are stated at their nominal value.
Interest-bearing loans and borrowings are recorded at the proceeds received, net of direct issue costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.
Offsetting
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet only when there is a legally enforceable right to set off the recognised amounts and the Company intends to either settle on a net basis, or to recognise the asset and settle the liability simultaneously.
91 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
3 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Provision for employees’ benefits
Termination benefits for Omani employees are contributed in accordance with the terms of the Social Securities Law of 1991.
Provision for non-Omani employees has been made for termination gratuities, leave pay and passage in accordance with the terms of the Labour Law of the Sultanate of Oman.
Taxation Taxation is provided for in accordance with the fiscal regulations of the Sultanate of Oman.
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which deductible temporary differences can be recognised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is recognised or the liability is settled. Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.
Provisions Provisions are recognised when the Company has a present obligation as a result of a past event which it is probable will result in an outflow of economic benefits that can be reasonably estimated.
Foreign currencies Transactions denominated in foreign currencies are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are translated at the rates prevailing on the balance sheet date. Gains and losses arising from foreign currency transactions are included in the income statement for the year.
Revenue recognition Where the outcome of a construction contract can be estimated reliably, revenue and costs are recognised by reference to the stage of completion of the construction activity at the balance sheet date, as measured by surveys of work performed. Variation in contract work, claims and incentive payments are included to the extent that they have been agreed with the customer.
92 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
3 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognised as expenses in the period in which they are incurred.
When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
Net financing costs
All interest costs incurred in connection with borrowings, net of interest received are recognised in the period in which they are incurred as net financing costs.
Cash and cash equivalents
Cash and cash equivalents consist of bank balances and cash. For the purpose of the cash flow statement, the Company considers all bank and cash balances with a maturity of less than three months from the date of placement.
Fair values
For investments traded in organised markets, fair value is determined by reference to quoted market bid prices.
The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar terms and risk characteristics.
The fair value of investment properties is determined by reference to their market values, based on valuations performed by external valuers.
Use of estimates
Impairment of accounts receivable
An estimate of the collectible amount of trade accounts receivable is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.
Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the income statement.
93 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
3 SIGNIFICANT ACCOUNTING POLICIES (contd.)
Impairment of inventories
Inventories are held at the lower of cost and net realisable value. Wheninventories become old or obsolete, an estimate is made of their net realisable value. For individually significant amounts this estimation is performed on an individual basis. Amounts which are not individually significant, but which are old or obsolete, are assessed collectively and a provision applied according to the inventory type and the degree of ageing or obsolescence, based on historical selling prices.
Any difference between the amounts actually realised in future periods and the amounts expected will be recognised in the income statement.
Percentage of completion
The Company uses the percentage of completion method when accounting for contract revenue. Use of the percentage of completion method requires the Company to estimate the costs incurred to date on contracts as a proportion of the total contract costs to be incurred. The accuracy of this estimate has a material impact on the amount of revenue and related profits recognised. Any revision to profit arising from changes in estimates is accounted for in the period when the change.
Estimation of total contract cost are necessarily based on assumptions about several factors involving varying and possibly significant degrees of judgement and uncertainty and actual costs may differ from management’s estimates resulting in future changes in amount of revenue and profits.
4 KEY ASSUMPTIONS
The illustrative financial projections of the Company’s activities for the year 2007 to 2009 have been prepared by the Company’s management in good faith and with due care and attention, based on assumptions, which they consider appropriate. A careful effort has been made to estimate the business and income generated by the Company to arrive at the illustrative statement of projected income. However, there can be no certainty as to the extent to which the actual results will match the projections or whether the assumptions will remain valid.
Contract revenue
The Company’s revenue streams comprise five key sectors Oil & Gas, Roads and Bridges, Structures and Buildings, Utility and Services and Environment. Corresponding to higher oil prices since the beginning of 2005, the government of Sultanate of Oman has been increasing the yearly budget allocations on the development of the key areas of the economy, especially the infrastructure sector. The Company has been successful in the past on capitalising on its competitive strengths and securing high value projects, particularly in the oil and gas and infrastructure sectors and expects to do so in the future also. The majority of these projects are long term and extend over a period of three years.
94 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
4 KEY ASSUMPTIONS (contd.)
The Company has projected its contract revenue for the years 2007 to 2009 on the basis of its ongoing projects, its current order book and anticipated future contracts. The revenue projections for 2007 comprise of revenue from contracts awarded prior to 1 January 2007 and in progress as of that date. The revenue projections for 2008 and 2009 include projected revenue from anticipated new projects amounting to 43.98% and 82.73% of the projected revenue of the respective years. Revenue from anticipated new projects are projected on the basis of contract tendering in progress and expected new projects in the Sultanate of Oman.
During 2006 the Company secured a number of high value projects e.g. Civil construction of main project at Harweel, Sahi Niyada Compressor works, Construction of Fahud Lekhwair road, Development of Seeb International airport. In addition other major contracts carried on by the Company are North Oman ODC contract, Southern express way, Al Ansab STP MEP works. These projects were only at the initial stages during 2006 and the main activities relating to these projects are expected to be carried out during 2007 and 2008. Accordingly the Company’s management has projected revenue growth of 46% in 2007. Thereafter for 2008 and 2009 the Company’s management has projected a moderate growth of 8% over the preceding year. The Company’s management views that the projected turnover is achievable considering the current economic development in the Sultanate of Oman, the Company’s varied experience in delivering diversified projects, its skilled employee strength, its fleet of vehicles and equipment and its operations spread across all parts of the country.
The sector wise projected revenue from contracts in hand and anticipated new projects for the next three years is set out on the next page.
95 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
4 KEY ASSUMPTIONS (continued)
Contract revenue (continued) 2007 2008 2009 RO’000 RO’000 RO’000 Projected revenue from contracts in hand Oil and gas 65,000 28,074 19,000 Roads and bridges 75,166 59,101 16,408 Structures and buildings 23,000 7,020 2,537 Utility and services 30,196 16,425 6,861 Environment 19,805 7,693 - Special and miscellaneous project 27,096 27,041 3,580 Total revenue from projects in hand 240,263 145,354 48,386
Projected revenue from anticipated new contracts Oil and gas - 29,306 49,261 Roads and bridges - 9,574 25,425 Structures and buildings - 39,753 68,650 Utility and services - 20,087 36,405 Environment - 8,883 18,755 Special and miscellaneous project - 6,527 33,361 Total revenue from future projects - 114,130 231,857
Total projected revenue Oil and gas 65,000 57,380 68,261 Roads and bridges 75,166 68,675 41,833 Structures and buildings 23,000 46,773 71,187 Utility and services 30,196 36,512 43,266 Environment 19,805 16,576 18,755 Special and miscellaneous project 27,096 33,568 36,941 240,263 259,484 280,243
Contract costs Contract costs comprise of operating costs and depreciation.
Operating cost is determined as a percentage of total revenue for each projected year, and is based on the historic trends and the business plan of the Company:
O Materials 33.38%
O Salaries and wages 20.00%
O Sub-contracting 18.84%
O Fuel 4.79%
O Miscellaneous 2.70%
O Hiring of equipment and vehicles 2.22%
96 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
4 KEY ASSUMPTIONS (contd.)
Depreciation is computed in accordance with the Company’s accounting policy.
General and administrative expenses
General and administrative expenses are semi-variable in nature, and forecast in line with the business plan of the Company. For 2007, the Company has budgeted general and administrative expenses of RO 5.9 million. For 2008 and 2009, general and administrative expenses are projected to be RO 6.7 million and RO 6.9 million respectively.
Finance costs
Interest rate on overdraft is assumed at 8% per annum for the projected years. The interest on existing short-term loans and existing term loans is computed on the basis of existing interest rates over the outstanding loan balances. It is assumed that new term debt negotiated with banks for the year 2007 shall carry an interest rate of 7.5%.
Other income
Other income is assumed to be RO 250 K each year. The financial projections does not include any income from the training centre as the Company is in the process of discontinuing its training activities.
Income tax
The tax rate applicable to the Company is 12%. For the purpose of determining the tax expense for the respective years, the accounting profit has been adjusted for tax purposes. Adjustments for tax purposes include items relating to both income and expense. After giving effect to these adjustments, the average effective tax rate is estimated to be 6.76%, 7.35%, 10.62% for the years 2007, 2008 and 2009 respectively.
The difference between the applicable tax rates of 12% and the effective rate arises due to the difference between tax base of property, plant and equipment, and its written down value in the books. The adjustments are based on the current understanding of the existing tax laws, regulations and practices.
The Company’s income tax assessments have been finalised by the taxation department up to the year 2003. The management believes that any taxation for the unassessed years will not be material to the Company’s financial position over the projected period.
Equity raising fees
The Company has projected public issue expense of RO 837.5 K, of which RO 200 K will recovered from the public. The shortfall towards issue expenses over their recovery is disclosed separately in the statement of changes in equity.
97 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
4 KEY ASSUMPTIONS (contd.)
Property, plant and equipment The Company has spend an amount of RO 43.5 million in 2006 on capital assets for enhancing its project execution capability, and achieving a substantial growth in revenue. Corresponding to its future growth plans, the Company has estimated capital expenditure towards plant and machinery and motor vehicles of RO 12 million, RO 11 million and RO 10 million in 2007, 2008 and 2009 respectively.
Investment in a subsidiary The Company holds 52.17% of the share capital of Al Khaleej Heavy Equipment & Engineering LLC. Investment in the subsidiary is stated at cost in the financial projections. The Company’s management consider that the operations of the subsidiary are not material and accordingly its projected results are not consolidated in the Company’s financial projections.
Available for sale investments The Company’s unquoted local investments are valued at cost.
Retentions receivable Long-term retentions receivable is assumed as 4% of the projected revenue of each year.
Inventories The average inventory holding is 69 days of annual material consumption during the last three years of operation (2004 to 2006). The Company has projected inventory holding of 70 days of annual material consumption over the projection period.
Trade and other receivables The Company has projected contract and retention receivables as 135 days, and other receivables as 15 days of projected contract income, consistent with past trends.
Cash and cash equivalents In the financial projections, the management has not considered any deployment of additional funds in deposits, accordingly the financial projections contemplate a nil balances in deposits with banks and thus no interest income is considered
Share capital The share capital of the Company shall increase from RO 20 million in 2006 to RO 25 million in the year 2007 through an issue of additional shares of RO 1 million at par prior to the proposed IPO and the issue of new shares at amounting to RO 4 million (nominal value) through the IPO. As a result of the IPO the Company will generate additional funds amounting to RO 20 million as share premium. The share capital is assumed to remain unchanged in 2008 and 2009.
98 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
4 KEY ASSUMPTIONS (contd.)
Statutory reserve As required by Commercial Companies Law of the Sultanate of Oman, 10% of the net profit for the year is required to be transferred to statutory reserve. In the year 2008, an amount of RO 2,160 K has been transferred to statutory reserve instead of 10% of profit for the year as the projected reserves totals one- third of the issued share capital. The reserve is not distributable.
Distribution to the shareholders The Company plans to distribute the retained earnings balance as of 31 December 2006 to its existing shareholders prior to the IPO. The Company is targeting to pay dividends of 35% of its paid up share capital subsequent to year end, subject to regulatory requirements and shareholders approval at the annual general meeting.
Term loans
The term loans as of 31 December 2006 are expected to mature as per the existing term loan agreements. The Company projects to draw down a new commercial loan amounting to RO 10 million at an interest rate of 7.50% per annum, repayable in semi annual installments of RO 1.25 million each with effect from 31 December 2007.
End of service benefits End of service benefits annual charge is estimated to be RO 600 K for 2007 and is expected to increase by 5% every year and it is assumed that 10% of the liability will be paid during the year.
Contract advances Advances on long term contracts is assumed as 5% of the projected revenue of each year.
Creditors for purchase of property plant and equipment Long-term creditors are expected to be paid off over the next four years as per the Company’s arrangement with the suppliers.
Trade and other payables
Payables are assumed to be 165 days of total operating cost for the projected years 2007-2009. It is the intention of the management to utilize part of the proceeds of the IPO towards reducing payables in 2007 and beyond.
Provision for future losses The Company’s management does not foresee the occurrence of any losses in bringing contracts to completion and accordingly no provision for future losses has been recognised in the projected financial statements.
99 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
5 Contract costs 2007 2008 2009 RO’000 RO’000 RO’000
Materials 80,200 86,616 93,545 Salaries and wages 48,053 51,897 56,049 Sub-contracting 45,266 48,887 52,798 Fuel 11,509 12,429 13,424 Depreciation of property, plant and equipment 10,620 11,390 12,059 Hire of equipment and vehicles 5,334 5,761 6,221 Miscellaneous costs 6,485 7,005 7,566 207,467 223,985 241,662
6 Property, plant and equipment
Property, plant and equipment include:
O Land of 5,184 sq. mt. at Salalah registered in the name of one of the shareholders’ Mr. Majid bin Salim Al-Fannah Al-Araimi.
O Certain assets with carrying cost of RO 8,425 K pledged to secure credit facilities granted by finance companies
O Ghala camp facilities with carrying cost of RO 764 K constructed on leasehold land. The lease agreement is renewable on 24 February 2008.
7 Investment in subsidiary 2007 2008 2009 RO’000 RO’000 RO’000
Investment in subsidiary 600 600 600
During 2006, the Company acquired 52.17% of the equity of Al Khaleej Heavy Equipment and Engineering LLC (AKHEE), for a total consideration of RO 600,000. The principal activities of the subsidiary are the hiring out of cranes, equipment and other vehicles. These financial projections do not include the results and operations of AKHEE.
8 Available-for-sale investments 2007 2008 2009 RO’000 RO’000 RO’000
Unquoted local investments 125 125 125
The unquoted investments are valued at cost.
100 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
9 Term loans 2007 2008 2009 RO’000 RO’000 RO’000
Term loans: 22,500 13,680 6,004 Less: Current portion (8,820) (7,676) (4,680) Long term portion 13,680 6,004 1,324
The term loans are stated at the proceeds received net of repayments. Amounts repayable within next twelve months have been shown as a current liability. All term loans from banks are secured against the contract receivables. Certain loans are secured against personal guarantees of the founding shareholders of the Company and the joint registration of assets and commercial mortgages.
As per the Company’s existing debt covenants with the banks the Company:
O shall not declare or pay dividend if any of its obligations under the loan agreements are not met, or if any event of default has occurred and has not been remedied by the Company or waived by the lender.
O shall not pay dividends or distribute profits in excess of 50% of its annual net profit during any financial year without the prior written consent of the banks.
O shall maintain minimum current ratio of 1, its tangible net worth should not be less than RO 16 million and leverage should not exceed 3.75.
O existing or future borrowings from any shareholders of the Company shall remain at all times subordinated in priority to the rights of the lenders
The interest rates on term loans are as follows: 2007 2008 2009 RO’000 RO’000 RO’000
Floating rate loans .50 + Libor 1.50+ Libor 1.50+ Libor to to 1.85 + Libor to1.75 + Libor 1.75 + Libor
Fixed interest rate loans 5.85% to 8.5% 5.85%to 8.5% 6.50%to 8.5%
10 Related party transactions
Related parties represent the subsidiary Company, major shareholders, directors and key management personnel of the Company, and companies of which they are principal owners. Pricing policies and terms of these transactions are approved by the Company’s management.
101 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
10 Related party transactions (contd.)
The following is a summary of significant transactions with related parties which are included in the projected financial statements: 2007 2008 2009 RO’000 RO’000 RO’000 Transactions with subsidiary Hire charges 1,180 1,260 1,310
Compensation of key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any Director (whether executive or otherwise).
The remuneration of directors and other members of key management during the year was as follows:
2007 2008 2009 RO’000 RO’000 RO’000
Short term benefits to members of key management 1,916 2,215 2,599
11 Earnings per share
The earnings per share have been derived by dividing the profit for the year attributable to the shareholders by the weighted average number of shares outstanding. As there are no potential dilutive shares, the diluted earnings per share is identical to the basic earnings per share.
12 Segmental reporting
The Company has only one business segment i.e. contracting and all the relevant information relating to the primary segment are disclosed in the balance sheet, income statement and notes to the financial statements.
Geographical segment
The Company’s operations are confined to the Sultanate of Oman.
102 Galfar Engineering & Contracting SAOG (Parent company) (Under transformation)
Notes to the Financial Projections (contd.) At 31 December 2007 to 2009
13 Risk management
Interest rate risk
The Company is exposed to interest rate risk on its interest bearing assets and liabilities (bank deposits, bank overdraft and term loan).
Credit risk
The Company seeks to limit its credit risk with respect to customers by setting credit limits for individual customers and monitoring outstanding receivables. Historically the Company has no significant concentration of credit risk with exposure spread over a large number of customers. Credit risk is limited to the carrying values of financial assets in the balance sheet.
Liquidity risk
The Company limits its liquidity risk by ensuring adequate bank facilities are available. The Company’s terms of sales require amounts to be paid within 120 days of the date of sale. Trade payables are normally settled within 180 days of the date of purchase.
Currency risk
Historically the Company’s assets are typically funded in the same currency as that of the business being transacted to eliminate foreign exchange exposures. The Company’s management also actively monitors its foreign currency exposures.
14 Fair values of financial instruments
Financial instruments comprise financial assets and financial liabilities.
Financial assets consist of cash and bank balances and receivables. Financial liabilities consist of bank overdrafts, term loans, obligations under finance leases, and payables.
The fair values of financial instruments, with the exception of certain available-for-sale investments carried at cost (see note 8), are not materially different from their carrying values.
103 Chapter 13 Dividend Policy
Dividends
The Offered Ordinary Shares will rank equally with all other Shares of Galfar for any rights to dividends that may be declared and paid in respect of the financial year ending in 31 December 2007 and any subsequent years. Following the Offering, the shareholders’ register of Galfar shall be amended to allow new shareholders to receive any declared dividends in future years.
In accordance with the CCL of Sultanate of Oman, 10% of the profits of every corporation incorporated in Oman must be transferred to a legal reserve until the reserve amounts to at least one third of the corporation’s share capital.
Dividend Policy
The Company proposes to follow a reasonable dividend payout policy, subject to debt repayments, working capital and capital expenditure requirements. The amount of annual dividends and the determination of whether to pay dividends in any year may be affected by a number of other factors including Galfar’s business prospects, financial performance, free cash availability, and the outlook for the construction sector. Galfar’s management will take into account dividend payout ratios within its industry/sector as well as dividend yields of other leading stocks on the MSM at the time of recommending dividends.
Proposed Dividend as per the Financial Projections 2007-2009 after compliance with the major debt covenants given in Chapter 9
DIVIDEND DIVIDEND PER FINANCIAL PAID UP CAPITAL AMOUNT* % ON CAPITAL SHARE YEAR In RO In RO In Baisas 2007 25,000,000 8,750,000 35% 35
2008 25,000,000 8,750,000 35% 35
2009 25,000,000 8,750,000 35% 35
* Subject to Shareholder Approval in the Annual General Meeting
104 Chapter 14 Valuation and Price Justification
Overview
The Financial Advisor, Gulf International Bank (“GIB”) has recommended a valuation range of Galfar’s equity share capital.
GIB was established in the Kingdom of Bahrain in 1975, and currently has branches in London, New York, Riyadh and Jeddah in addition to representative offices in Abu Dhabi and Beirut. The six GCC Governments own 72.5 per cent of GIB, while the Saudi Arabian Monetary Agency (SAMA) owns 27.5 per cent. By 30th June, 2007, GIB has become one of the largest capitalized banks in the Middle East, with total assets of more than US$ 27 billion and shareholders equity of US$ 2.3 billion.
GIB is a leading player in project and trade financing and the regional syndicated loan market. GIB also offers a range of investment banking products and services, including financial advisory services and underwriting of equity in connection with IPOs, equity private placements, mergers and acquisitions. GIB’s track record includes advising family businesses and corporate clients on restructuring and share listings. In recent years, GIB has concluded IPOs and stock market listings of noteworthy regional clients, such as Saudi Telecom Company, Jarir Marketing Company Ltd., Zamil Industrial Investment Company, Al Baraka Banking Group, Saudi Paper Manufacturing Company, and Bank Al Bilad.
Offer Price
The Financial Advisor has utilized a combination of valuation methodologies in determining the valuation and pricing of Galfar’s Shares. In particular, GIB has considered the following factors in recommending an offer price of Baisas 600 per Share in the Issue: a) The financial results of the Company for 2006, and the financial projections from 2007 to 2011; b) The prevailing price multiples of MSM; and c) The comparable price multiples of selected peer companies listed on the regional stock exchanges.
DCF Valuation Analysis
The DCF analysis is a commonly used valuation model relying on projected pre-financing or free cash flows (“FCF”) of the business, and calculating the net present value of projected FCF using the Weighted Average Cost of Capital (“WACC”) as the discount rate. In arriving at the DCF valuation of Galfar’s Shares, a forward looking financial model has been constructed over five years 2007-2011, on the basis of management’s assumptions underlying the business plan of the Company. To account for returns beyond the forecast horizon a perpetual growth rate of 3%, resulting in a terminal value multiple of 9.8 times, has been assumed over the FCF in the last year of the forecast period. For calculating the enterprise value of the Company the annual FCF determined over the forecast period plus the terminal value at the end of the forecast period is discounted using a WACC of 13.5%. The WACC is determined on cost of equity of 16% and cost of debt of 8%, which is applied to Galfar’s projected capital structure as at end of 2007. The current outstanding debt of Galfar is deducted from the enterprise value to obtain the equity value of the Company.
The DCF analysis is a fundamentally sound valuation methodology; however it has the following shortcomings in relation to determining the current pricing of shares:
O DCF is a forward looking valuation analysis, and its results are dependent upon the achievability of the financial projections;
O DCF valuation is highly sensitive to the components of WACC.
105 Therefore, the Financial Advisor has considered the price multiples as the primary methodology for recommending an offer price of Galfar’s Shares.
The operating results and the key financial data of Galfar are derived from the valuation model, and underpin the pricing of Shares in the Issue.
The key financial results and projections of Galfar are given in the following table:
RO millions Historic Projected Year ended December 2004 2005 2006 2007 2008 2009 Revenues 78.7 98.3 164.5 240.2 259.4 280.2 EBITDA # 10.6 13.9 28.9 37.8 40.4 44.0 Net Profit 3.8 7.0 16.5 21.5 23.9 26.9
Paid up Share Capital 5.0 7.5 20.0 25.0 25.0 25.0 Shareholders’ fund 14.2 20.7 30.1 69.8 85.1 103.3 Key Ratios Revenue Growth 19% 25% 67% 46% 8% 8% Gross Profit Margin 14.8% 16.7% 19.5% 18.0% 18.0% 18.0% Net Profit Margin 5% 7% 10% 9% 9% 10% (Nominal Value=Bzs. 100 per share) Earnings per share(Bzs.)* 76 93 83 86 96 108 EBITDA per share(Bzs.)* 212 185 145 148 162 176 Book value per share(Bzs.)* 284 276 151 279 340 413
*Figures based on Year-end Capital
# Earnings Before Interest, Tax, Depreciation & Amortisation
Galfar’s financial projections are based on realistic and achievable assumptions, with the following highlights:
Q Current order book of RO 450 million, bulk of which is spread across 20 major projects in Oman
Q 100% revenue forecast in 2007 is based on the ongoing jobs in hand, as the Company delivers a bulk of its currently running projects in the associated year
Q Around 57% of revenues projected over the three years 2007-2009 are based on Galfar’s current backlog value and completion schedule of the main projects
Q 2008 and 2009 project a moderate, single digit, revenue growth that should be revised upwards once new projects are announced
Q Enhanced operating efficiency and favorable pricing of the current jobs has contributed to increasing gross profitability margins
Q The Issue proceeds would support the financing of expanding working capital needs, thereby reducing the financing costs and improving the net profit margins
NOTE: The financial projections do not include:
O the revenue and income from the new jobs awarded to the Company in 2007. The revenue from the new jobs is anticipated at more than RO 75 million over 2007-2009
O the projected results of the subsidiary Company, Al Khalij Heavy Equipments & Engineering LLC.
106 Price Multiples
The Offer price of Baisas 600 per Share (excluding Baisas 2 of Issue Expenses) results in the following price multiples:
Price Multiples (trailing Price Multiples (forward 2006) 2007) Offer Price (Bzs.) per share 600 600
Price to earnings (PE) multiple 7.3 7.0
Price to EBITDA multiple 4.2 4.0
Price to book value multiple 4.0 2.1
The price multiples of stocks listed on the MSM based on 2006 financial results is given in the following table:
SECTOR PE Multiples
Banking & Finance 12.2
Industrial 10.7
Services 11.3
MSM Aggregate 11.6
Galfar 7.3
Premium/(Discount) (37%)
Source: FinCorp Research & MSM Index
The Offer price of Galfar’s shares compares favorably with the prevailing aggregate PE multiples of the MSM.
Comparative Analysis
Galfar is a diversified multi-disciplinary engineering and construction Company. In the absence of directly comparable companies listed on the regional stock exchanges, the Advisors have selected closely comparable companies operating in the construction and contracting industry in the region. A comparative analysis has been conducted for benchmarking the Offer pricing of Galfar against its regional peer group.
107 Peer Group Companies Arabtec Nass Al Hasan Galfar Galfar (UAE) (Bahrain) (Oman) (trailing) (forward) Year 2006 2006 2006 2006 2006 Current Financial Results Currency RO mn RO mn RO mn RO mn RO mn Revenue 294.7 70.6 45.0 164.5 240.3 Earnings before interest & 32.7 11.7 4.8 28.9 37.8 depreciation(EBITDA) Net earnings 23.0 7.3 2.9 16.5 21.5 Paid Up Share Capital 54.5 20.4 6.7 20.0 25.0 Shareholder’s equity 85.0 30.8 8.6 30.1 69.8 EBITDA margin % 11% 17% 11% 18% 15% Net Profit margin % 8% 10% 6% 10% 9% Number of shares millions 520.0 200.0 6.7 200 250 Currency RO RO RO RO RO Earning per share(EPS) 0.044 0.037 0.427 0.083 0.086 EBITDA per share 0.063 0.059 0.716 0.144 0.149 Book value per share 0.163 0.154 1.280 0.150 0.279 Price Multiples Share Price (June 2007) RO 0.598 RO 0.296 RO 4.100 RO 0.600 RO 0.600 PE multiple times 13.5x 8.1x 9.6x 7.3x 7.0x
EBITDA multiple times 9.5x 5.1x 5.7x 4.2x 4.0x
P/B multiple times 3.7x 1.9x 3.2x 4.0x 2.1x
For the purpose of comparision, the financial figures and share prices of Arabtec and Ness are restated in Rial Omani. The following conversion rates are used for denominating the respective currencies: 1 AED = 0.1049 RO 1 BHD = 1.0211 RO
O Number of shares and key ratios of Galfar are adjusted and restated on the basis of nominal value of Baisas 100 per share
The Offer price of Galfar’s shares results in a lower PE multiple as compared to the average PE multiple of its peer group companies. However, the investors should note that the difference may be due to certain industry specific factors, or particular financial status and prospects of the peer group companies.
108 Chapter 15 Related Party Transactions
Related Party Transactions (including Group/ Associates)
For the financial year ended 31st December 2006 the following are classified as Related Party Transactions and brief details are given below:
Name of the party Nature of relationship Details of transaction Amount (RO)
1) Al Dastoor Contracting & Trading LLC Common partners Purchase of goods / services 5,587,170 2) Zenith Power Controls & Switchgear LLC Common partners Purchase of goods / services 10,000 3) Mushrif Enterprises & Trading LLC Common partners Purchase of goods / services 35,994 4) Musandum International General Trading LLC Common partners Purchase of goods / services 875,426 5) Oman Drilling & Soil Technology Co. LLC Common partners Purchase of goods / services 19,289 6) AL Khalij Heavy Equipment & Engineering LLC Subsidiary Hire of equipments 788,846 Interest on short term loan 7) Caledonian College of Engineering, Oman Common partners 33,322 availed 8) Caledonian College of Engineering, Oman Common partners Work done for college -106,039 9) Galfar Pembinaadan Perusahaan (B) SDN BHD Interest on fund facilities Common partners -139,982 Brunei extended
Related party transaction mentioned above are carried out on ordinary course of business at arm’s length.
Details of Subsidiary The Company has a subsidiary named Al-Khalij Heavy Equipment and Engineering LLC (“Al Khalij”) where the Company holds a 52.17% equity stake. The Company acquired 600,000 shares of RO 1/- each at the face value from the Shareholders of Galfar in January 2006. Al Khalij is an LLC registered in the Sultanate of Oman.
Al Khalij is engaged in the business of hiring of cranes, equipment and other vehicles. While a substantial portion of the subsidiary’s business is with Galfar, it also caters to other clients.
A summary of the financials details of Al Khalij for the years ended 31 December 2005 and 2006 are as under:
Figures in RO 2005 2006 Total Assets 3,117,521 3,561,225 Capital and Reserves (including accumulated losses) 639,617 1,360,263 Term Loans and Borrowings 1,060,000 1,222,729 Revenues 1,520,942 1,816,377 Profit after tax 65,942 121,466
Reasons for non-consolidation of the subsidiary historical and projected financials:
O The results of the subsidiary as mentioned above for the year 2006, and also for the projected period 2007-2009 may not have any material impact on the valuation of the parent Company.
O The Company will consolidate the subsidiary’s financials from the year 2007 after preparation of financial statements as per the International Financial Reporting Standards (IFRS).
Details of any guarantees extended by Galfar on behalf of the subsidiary: Nil
Details of major/material litigation/ claims against the subsidiary: Nil
109 Chapter 16 Risk Factors and Mitigants
Prospective investors should carefully consider the risks described below in addition to all other information presented in this Prospectus before deciding to purchase any of the Offer Shares. Investors may note that the risks and mitigating factors mentioned below are the Founders’ and Galfar management’s opinion based on their current knowledge and the information available with them. The actual risks and the impact of such risks could be materially different from that mentioned herein.
O Growth of Omani Economy and Construction business
Galfar’s business and revenue is derived from services it provides in the Sultanate of Oman, and therefore the performance of the Company is linked to the economic environment of Oman. Any downtrend in the economy of Oman could impact the growth of the Company. Further, as detailed under the Chapter on Objectives and Approvals, there are certain provisions governing the Company’s expansion into markets outside Oman.
O Oil Price Risk and Geo Political Risk
The GCC regional economies are heavily reliant on oil and accordingly, the future oil price scenario will determine to a large extent the economic conditions in the region. While oil prices are currently at historic highs and GCC economies have witnessed rapid growth on the back of high oil prices, any downturn in oil prices may have a dampening effect on regional growth and thereby on the growth of business. As the Company’s business emanates from the oil & gas and the infrastructure sector, such a fall in oil prices may impact the Company’s business and growth.
The political and international relationships/events in the region also significantly affect the regional economies and any increase in the political risks would affect the economic growth of the region in general.
O Demand risk
The performance of the Company is dependent on the demand for its construction and infrastructure services. A fall in demand due to economic downtrend or any other factor could affect performance of the Company.
However, in the short to medium term it is expected that the oil prices will move within the prevailing price band and development of infrastructure will continue to drive Oman’s economic growth. Given its track record and credentials, the Company believes it will continue to benefit from Oman’s economic growth.
O Industry/sector concentration
Construction contracts constitute a substantial portion of the Company’s business. Thus, any downturn in the Omani construction sector would affect the Company’s business adversely.
Over the years, the Omani construction industry has been expanding steadily. Corresponding to Oman economy’s robust growth in excess of 5% per annum, the Company anticipates the construction sector to continue growing in the foreseeable future.
O Failure to win Bids/Tenders
Almost all the Company’s business comes from participation in and winning of tenders for projects. However, there is an inherent risk that the Company may not be able to win sufficient number of projects due to competition from either other Omani companies or international Contracting Companies.
Based on a review of an excellent track record and proven expertise in its business, the Company is well placed for upcoming construction and engineering projects. The Company will continue bidding at competitive levels that are economically viable for its business. Despite high cumulative rate of growth
110 in the past, the Company has projected a fairly modest level of growth in the financial projection and is confident of achieving these levels.
O Cancellation of Projects/ Contracts Notwithstanding a robust order book of contracts on the basis of which the financial projections of Galfar are drawn, any cancellation of such projects/contracts would affect the Company adversely.
The Company does not envisage any major cancellation of its ongoing contracts as its clients are mainly Government organizations and reputed private organisations in Oman.
O Competition Risk, including entry of new competitors/international competitors The Company faces competition from existing as well as new entrants into the sector. Increased competition could potentially lead to pressures on the growth of business and revenue, which would affect profitability of the Company.
Galfar has one of the largest resource base in terms of equipment and workforce in Oman. The Company believes that it is well placed to face competition. The proven and enviable track record of successful completion of projects has allowed Galfar to build an excellent reputation. It is well regarded by the clients and has developed substantial local expertise in operating in the country.
O Performance Risk While the Company has a robust order book of ongoing projects/contracts under execution, the success and profitability of the Company primarily depends on its ability to successfully execute these contracts. Any shortfall in project execution will adversely impact the Company’s financial performance, reputation and future prospects. Failure to complete contractual work within the designated time schedule could potentially lead to monetary penalties or compensation to the client. Such failure may be on account of various factors including those on which the Company does not have any control, such as adverse weather conditions leading to delays.
The Company has a credible track record of timely delivery of projects, and at the same time maintaining quality and best practices relating to its services. It is focused on maintaining and developing its expertise, resources and technical skills to ensure that it is fully equipped to meet all its future commitments. Galfar’s project management teams have extensive experience, and use sophisticated tools in managing complex projects. Dedicated Units ensure efficient mobilization of manpower and technical resources, and the top management of the Company is closely involved in project monitoring. External factors that may lead to delays are considered at the initial planning stage, including contingencies for unforeseen situations. The Company takes out Contractors All Risk Insurance to cover some of the above risks. Furthermore, contract agreements have provisions addressing ‘force majeure’ situations.
O Sub-contractor/JV Partner Risks Some of the projects/contracts require Galfar to rely on sub contractors and joint venture partners for completion of projects and any delay, non-performance, or deficiency of its sub-contractor/partner would adversely affect the Company.
The Company carries out a detailed evaluation of the sub-contractors before engaging them. The performance of the sub-contractors is closely monitored. Further, for major Sub-contracts, performance guarantee is obtained.
O Profitability Risk The Company’s profitability is directly linked to its input costs of material, labour, fuel, and any unexpected
111 increase in these costs could potentially impact the Company’s profitability. Further, as a significant portion of the Company’s jobs is based on fixed price contracts, any increase in input cost will adversely affect profitability.
The Company factors such contingencies, while preparing its bids/tenders and normally enters into contracts with suppliers of the key inputs relating to the project. Moreover, in the event of cost increases on account of regulatory changes, the Company may negotiate with the client to suitably pass on such escalations.
O Resources Risk
The current boom in the construction sector in the region has led to a scarcity of equipments, materials and labour. Any constraint in the availability of equipments, materials and manpower could potentially result in delays in completion of contracts. In case of inadequate availability of hired equipment, the capital expenditure of the Company may go up accordingly.
The Company has dedicated Units responsible for procuring the required material, equipment and human resource. These Units analyse and project the Company’s requirements in advance and make suitable arrangement for procuring these in time. It may be mentioned that the Company has the largest equipment and manpower base in the Oman construction sector.
O Physical Hazard Risks
The Company executes various complex projects that expose its personnel and equipment to physical hazards. These may lead to loss of life and property through accidents in the workplace.
The Company places extreme importance to the safety of its personnel and puts in place a number of safety measures in project execution. Further, there is on-going training of the personnel in various safety programmes. The Company also has a separate workshop that handles the maintenance required for the equipment so as to keep these in proper condition. Suitable insurance cover is also maintained.
O Receivables Risk
Delays in realization of receivables may lead to liquidity constraint that would increase the Company’s financial expenses and also hinder its ability to pay its suppliers, which in turn would affect its project implementation and performance.
The Company monitors its receivables position closely and effectively follows up the recovery of its dues. Further, the Company’s financial position provides it the ability to withstand any temporary liquidity needs and the infusion of long term funding through this Issue will further strengthen the Company’s financial position.
O Delays in obtaining work visas
Expatriate Manpower constitute almost 80% of the Company’s work force, and their number is envisaged to increase further due to additional projects coming on stream. The Company has to obtain work visas for these expatriate workers in a timely manner, and any delay in obtaining or refusal of work visas would severely hamper the Company’s growth.
The Company effectively liaises with the Government authorities with the aim of facilitating its workforce requirements. Moreover, the Company is aiming through training programmes to induct additional Omani employees for meeting its Omanisation targets and reducing its need for expatriate personnel.
112 O Brand Risk
“Galfar” is not a registered trade mark.
Notwithstanding the above, the Founder Shareholders have resolved that the Company has the exclusive, irrevocable, perpetual right to use the Galfar name for its business in the Sultanate of Oman.
O Geographical Restriction Risk
The Company’s business and operations are currently located in the Sultanate of Oman
The financial projections contained in this Prospectus and the corresponding equity valuation are based on the Company’s business operations in the Sultanate of Oman.
O Possibility of competition with other “Galfar” companies
The Promoters/Selling Shareholders of the Company have incorporated other businesses in countries outside Oman, specifically in Brunei, United Arab Emirates, India and Qatar that share the same name (“Galfar”) and are in similar lines of business. All these companies are separate legal entities and operate independent of each other in their respective markets. While these companies are not presently competing with each other, in the future this possibility cannot be ruled out.
However, the management of the Company believes that this possibility is remote.
O Reputation Risk
As the Company shares the Galfar name with other companies in the Group, there is a possibility of its reputation being adversely affected due to negative developments in other companies sharing the name.
The management of the Company believes that such developments, if any, are not expected to materially affect its business.
O Share Price Risk
The Company’s Shares are to be listed for the first time on the Muscat Securities Market and accordingly there is no prior trading in the Company’s Shares that may provide a price history or trend. Further, the Company’s Shares are priced at a premium to its nominal value.
The Promoters/Selling Shareholders, Advisors, the Issue Managers based on the information provided by the Company believe that Galfar’s Shares are fairly priced in relation to the MSM and peer companies share trading multiples. The rationale underlying the pricing of the Shares is set out in the Chapter on Valuation and Price Justification which demonstrates the validity of the proposed pricing.
O Liquidity Risk
The Shares of Galfar may not have adequate liquidity in the stock market after listing, and investors may not be able to sell their Shares easily post listing.
The management of the Company believes that the pricing of the Shares in relation to the Company’s prospects has significant upside potential, which should lead to an adequate level of demand for its Shares post listing. Moreover, the public holding of 40% of the Company’s post-Issue share capital should also result in sufficient liquidity in the Shares in secondary market.
All equity investments carry market risks to varying degrees. The value of any security can fall as well as rise depending on market conditions.
113 Chapter 17 Corporate Governance
This section summarizes the Company’s corporate structure effective as at the date of this Prospectus and the proposed Articles of Association. The description provided hereafter is only a summary and does not purport to give a complete overview of the Articles, nor of relevant provisions of Omani law or the CMA circulars; neither should it be considered as legal advice regarding these matters. A copy of the Articles of Galfar is available from the registered office of Galfar or the CMA.
Management
Overview
The respective roles and responsibilities of the management bodies of Galfar are in large part governed by the provisions of CCL, the Articles and, after listing on the MSM, by the Code and circulars issued by the CMA in respect thereof.
The management of strategic issues of Galfar will be entrusted to the Board of Directors. The Board may perform all acts necessary or useful for achieving the corporate purposes of the corporate entity, with the exception of those acts that are by law or the Articles explicitly reserved for the shareholders general meeting.
The day-to-day management of Galfar is performed by the management team.
Board
The Board shall consist of 8 directors one of whom will be elected as the Chairman of the Board. The following are the main provision set out in the Company’s Articles of Association, concerning the Board of Directors.
The Company’s management shall be entrusted to a Board of Directors comprising of 8 (Eight) Members who will be elected by the general body of the Shareholders through secret ballot. The candidate for the Membership of the Board of Directors must be from the Shareholders or other individuals. In case he is a shareholder, he shall hold, either in his personal capacity or representing a legal person, a minimum number of 10,000 (Ten thousand shares) as on the date of application for his candidature for the Membership of Board of Directors. He shall submit an undertaking stating the number of shares held and that he will not exercise any action which might lead him to lose his capacity as a Shareholder, throughout the period of his Membership.
The duration of the Membership of the Board of Directors will be 3 (Three) years and their re-election is permitted for a similar period and this period will be calculated from the date of the General Body Meeting in which this election was done till the date of holding the third general body meeting. If the date of this general body exceeds the period of three years, the Membership will be extended by law till the date of such meeting but it should not exceed the period specified in the Article (120) for holding the general body meeting.
Subject to Article 95 of Commercial Companies Law no. 4/74 and its amendments, and without prejudice to the Articles of Association, nominees to the membership of the Board must:
1. Be of good conduct and sound reputation
2. Be at least 25 years
3. Not be unable to settle his indebtedness to the Company.
4. Not be declared insolvent or bankrupt unless the state of insolvency or bankruptcy has ceased pursuant to the law.
5. Not be convicted of a felony or dishonourable crime unless he has been discharged.
114 6. Not be a member or a representative of a juristic person in more than four public joint stock companies based in the Sultanate of Oman once appointed to the board in question. 7. Be authorized to nominate himself to the membership of the board of directors by the juristic person if he is nominated with such capacity 8. Not be a member of the board of directors of a public or closed joint stock Company which is based in the Sultanate of Oman and which is carrying out similar objectives to that of the Company which he intends to nominate himself to the membership of its board and 9. Present an acknowledgement which contains a statement of the number of his shares if he is a shareholder and that he will not dispose of them to the extent that he shall be deprived of his status as a shareholder in the Company, throughout the term of his office.
Without any prejudice to the regulations of the Commercial Companies Law mentioned above, the following conditions will be fulfilled while forming the Board of Directors of the Company.
1. The Board shall be comprised of a majority of non-executive directors. A non-executive director means “the member of the board who is not a whole time director (employee director) and/or does not draw any fixed monthly or annual salary from the Company”.
2. A minimum of 1/3rd of the total strength of the board (subject to a minimum of two) shall comprise of independent directors.
3. He does not represent more than one legal person in the Board
4. The roles of CEO/General Manager and Chairman shall not be combined.
The Members of the Board of Directors will be elected through a secret ballot by the Shareholders and each Shareholder will have the number of votes equivalent to the number of shares he owns and he will have the right to utilize it all for one candidate or divide it amongst the candidates of his choice by a vote card, the total number of votes should be equivalent to the number of shares he owns.
The Membership which is done in violation of the above regulations will be null and void from the date of election and the Board of Directors of the Company will call a general body meeting to elect another Member within a maximum of one month from the date of cancellation and the Company shall have the right to demand the compensation for the losses from the Member and everyone who facilitated his entry into the elections.
If the Member of the Board of Directors loses any of the conditions necessary for the Membership, he must inform the board about the same and his place will be considered vacant from the date of information, otherwise, his Membership will cease to exist from the date it was found out by the Company, without prejudice to his liability in accordance with law. And his place will be filled up in accordance with the regulations of the Article (98) of Commercial Companies Law.
The Board of Directors will elect Chairman and Vice Chairman from its Members. The Vice Chairman will officiate the Chairman when the latter is absent.
The Chairman of the Board of Directors shall implement the resolution of the Board of Directors and shall conduct the regular business of the Company under the supervision and control of the Board of Directors as per the authority specified in the Company’s Articles of Association and internal regulation.
If the office of a director becomes vacant, the Board of Directors will appoint a temporary Member who is fulfilling all the conditions of Membership stipulated in the previous Articles. In other case, regulations of Article (98) of Commercial Companies Law no.4/74 with regard to vacant seats, will be applied.
115 The Board of Directors, in the cases other than approving the balance sheet, profit and loss account, and reports of the Auditing Committee and Auditors may pass resolutions without the need to convene a meeting of the BOD if all members of the Board approve same in writing.
The general meeting shall determine the annual remuneration and sitting fees of the Board of Directors and sub committees, at not more than 5% of the net profits of the year after deducting the legal and optional reserves in accordance with Article (106) of the Law and setting aside or distributing the dividends to shareholders at not less than 5% of the capital. The maximum total over-all limit of entire remuneration and sitting fees paid by the Company shall be RO 200,000 (Two hundred thousand), with a sub-ceiling of RO 10,000 as sitting fee for each Director per annum. Where the Company makes loss or less profit to the extent that setting aside or distributing dividends to shareholders is not possible, remuneration and sitting fees shall be determined in accordance with the rules issued by the Capital Market Authority.
The remuneration will be distributed amongst the Members of the Board of Directors equally or in the manner prescribed by the Board.
The Board of Directors would be eligible for compensation for their services if he is assigned a job or travels or do something related to the Company’s work. These payments should be separately mentioned in the report of the Board, submitted to the Annual General Body.
Without prejudice to the regulations of Article (102) of the Commercial Companies Law, the Board of Directors shall have full authority to perform all acts required for the management of the Company in course of achieving its objectives and implementing the resolutions of the general meeting. i) Approving the business and financial policy of the Company to meet the objectives of the business and to maximize the shareholders value. ii) Reviewing and approving the Company’s financial objectives, plans and actions. iii) Approving the internal regulations of the Company regarding routine activities and specifying the responsibilities and authorities of the executive management iv) Approving and implementing the disclosure policy of the Company and monitoring its compliance with the regulatory requirements. v) Approving the delegation of power to the executive management. Delegation of power shall specify clearly the level of approving authority and modes of tendering with appropriate limits. Circumstances under which tender other than the lowest tender can be accepted shall be clearly spelt out. The management shall record reasons in writing for ignoring the lowest bid. vi) Reviewing the material transactions with the related party, which are not in the ordinary course of business prior to the same being brought before the general meeting of the Company. vii) Supervise the performance of the executive management and ensure good work performance in a manner that achieves the Company’s objectives and not contravene with the laws and systems in force. viii) Approving and implementing the disclosure policy of the Company in compliance of the regulatory requirements. ix) Reviewing the Company’s performance to evaluate whether the business is properly managed. x) Nominating the members of the subcommittees and specifying their roles, responsibilities and power. xi) Selecting the CEO/General Manager and other key executives and specifying their roles, responsibilities and power.
116 xii) Evaluating the functions of the sub-committees, CEO and Key employees. xiii) Approving interim and annual financial statements xiv) Reporting to the shareholders, in the annual report, about the going concern status of the Company with supporting assumptions and qualification as necessary.
The Board of Directors shall not perform the following acts unless expressly authorized to do so according to the Articles of Association or by a resolution of the general meeting: i) Donations, except donations required by the business wherever they are small and customary amounts. ii) To sell all or a substantial part of the Company’s assets. iii) Pledge or mortgage the assets of the Company, except to secure debts of the Company incurred in the ordinary course of the Company’s business. iv) Guarantee debts of third parties, except guarantees made in the ordinary course of business for the sake of achieving of the Company’s objectives.
The Board of Directors may appoint the Managing Director from the executive Members provided he is free for the Company’s works.
The Company shall be bound by all acts performed by it board of directors, its chairman, managing director and all other executives, if any as long as they act in the name of the Company and within the scope of their powers.
It is not permitted for any of the Directors or main Company employees to utilize the information that reaches them in the capacity of their positions or jobs, for achieving any benefit for them or their minor children or for any of their relatives till the 4th degree, as a result of transaction in the Company shares. It is also not permitted for any of them who have direct or indirect interest with any authority who is involved in activities which aimed at influencing the prices of shares issued by the Company and the regulations of Article 109 and 110 of Company law will be applied in case of violation.
A member of the board of directors or other related parties of the Company shall not have any direct or indirect interest in the transactions or contracts concluded by the Company for its account, except those concluded with them in accordance with the disclosure requirements of the Capital Market Authority.
The Members of the Board of Directors shall be liable to the Company, the shareholders and third parties for the damages caused by their acts in violation of the law and their acts which fall beyond the scope of their powers or by any fraud or negligence in the performance of their duties or by their failure to act as prudent men under certain circumstances.
Any provisions or stipulations limiting the liability of the members of the Board of Directors shall be null and void, and the Company shall reimburse any director the costs and sums adjudged in any civil or criminal case brought against him as a result of his activities as a member of the Board of Directors of the Company in the event that final judgment in such case shall absolve the director of liability.
The Company may institute an action against any director of the Company it deems liable for damages that have come upon it. The board of directors or the ordinary general meeting shall take a decision appointing a person to pursue the case on behalf of the Company and authorizing him to pay costs of the case from the funds of the Company. Any shareholder may propose suing the members of the Board of Directors, and if the ordinary general meeting does not adopt his proposal, he may himself file the case on behalf of the Company.
117 And if the case is successful, such shareholder shall be reimbursed the costs and expenses of the case out of the sums adjudged and the balance shall be paid to the Company.
It is not permitted to file a lawsuit on the Members of the Board of Directors or their heirs regarding the works they have done while discharging their duties, except in the case when the case is filed within 5 years from the date of holding the general body, wherein the Board of Directors submitted the accounts of the Company for the period including the act or the shortcoming which is the reason for the complaint. This period shall not apply to suits filed by the CMA.
First Board of Directors
A Constitutive General Meeting (CGM) of Galfar is to be held after finalization of the allotment of shares and Shareholders attending the meeting may vote and elect the new Board of Directors.
Announcement of the date and location for such shareholders general meeting shall be made in the major newspapers in Oman.
Internal Regulations
In accordance with the provisions set out in Article (68) of the Commercial Companies Law, the Company is required to lay down Internal Regulations for regulating the management of the Company, its business and personnel affairs through its Board of Directors, within one year from the date of transformation of the Company with the Commercial Registrar. These regulations shall cover at least the following apart form the rules laid down by the Capital Market Authority:
1) Organizational Structure of the Company stating therein the responsibilities related to the various posts of the Company and the reporting structure/ procedures.
2) Specifying the extent of the authority vested with each post with regard to approval of the financial expenditure.
3) Fixing the allowance for the meetings, remuneration and other privileges as prescribed in respect of the members of the Board of Directors and Committees constituted under its auspices and the basis for their calculation.
4) The policies related to the Purchases and Service Contracts.
5) The minimum level of information required to be submitted to the Board of Directors.
6) The authorities, duties and responsibilities relevant to the executive management and subcommittees constituted under the auspices of the Board of Directors of the Company.
7) The policies related to Human Resources including the salaries, appointment, development, training, promotions and termination of the services etc., covering other relevant aspects.
8) Investment Policies of the Company.
9) Policies for Related Parties Transactions.
10) Policies and measures for submission of material information in a transparent manner, to the Capital Market Authority and the Muscat Securities Market within the specified time including a definition of “material information”.
118 11) Any other regulations that the Board of Directors of the Company may deem necessary to add for achieving adequate level of Corporate Governance.
It may be mentioned that the Company has already put in place a number of these policies. The Company shall appropriately review the same in the light of its transformation into an SAOG Company and also formulate such additional policies and procedures that may be required in this context within the stipulated time period.
119 Chapter 18 Rights & Liabilities of Shareholders
I. Shareholder’s Responsibilities:
The responsibility of a Shareholder shall be confined to payment of the value of the Shares subscribed. He shall not be liable for the debts of the Company except to the limit of the nominal value of the Shares subscribed.
Any person whose shareholding along with his minor children’s shareholding, reaches 10% or more of the Company’s Share Capital, inform the Capital Market Authority about the same through a written communication. Further he shall inform the Authority regarding any transaction or dealing which leads to the increase of this percentage immediately after it happens.
No single person or related persons up to second degree shall hold 25% or more of the shares of a Joint Stock Company whose Shares are offered for public subscription, save in accordance with the holding rules set out by the Capital Market Authority.
Both the categories of Shares of the Company shall have the same nominal value, and a Share shall neither be divided nor shall it be owned by more than one person except when such ownership is by inheritance provided that the heirs are represented by the person whose name comes first in the register and the owners of the Share shall be responsible severally and jointly for the liabilities arising from such ownership. However, the transfer of the Share requires endorsement by all joint owners.
II. Shareholder’s Rights
Both the categories of Shares of a Joint Stock Company shall enjoy equal and inherent rights vested in their ownership, subject to the exception of the Preferential Voting Shares. Please find mentioned below the said rights in accordance with the Commercial Companies Law and Capital Market Law:
1. Right to receive dividends declared by the General Meeting.
2. Preferential Right to subscribe for new Shares.
3. Right to participate in the distribution of the assets of the Company in the event of liquidation.
4. Right to deal in the Shares in accordance with the Law.
5. Right to peruse the Balance Sheet, Profit & Loss Statement, and Shareholders’ Register of the Company.
6. Right to be notified of calling of General Meeting, participate and cast his vote in such meetings either personally or by proxy (He shall have one vote for each share owned by him other than the Preferential Voting Shares which carry two votes per share).
7. Right to apply for cancellation of any resolution adopted by the General Meeting or Board of Directors if it is noted to be in violation of the Law or Articles of the Company or its Internal Regulations.
8. Right to sue and proceed against the Members of the Board of Directors and Auditor of Accounts of the Company on behalf of the Shareholders or on behalf of the Company pursuant to Article (110) of the Commercial Companies Law.
9. If the Articles of Association provides certain privileges to certain types of the Shares in respect of voting or profits or proceeds of the liquidation, the Shares of the same nature shall carry similar rights, privileges or restrictions, The same shall not be amended except through a resolution to be
120 passed by the Extra Ordinary General Meeting and approval of two third of the holders of the shares which are relevant to such amendment.
10. The Board of Directors of the Authority, on the basis of serious grounds assigned by a number of the Shareholders who own at least 5% of the Shares of the Company, may suspend resolutions passed by the General Meeting of the Company if the same are observed to have been passed in favor of one class of the Shareholders or to cause damage to them or to secure special benefit to the members of the Board of Directors or others.
11. As per the Articles of Association of the Company, each Preferential Voting Shares shall carry two votes at the Constitutive General Meeting, any General Meeting of shareholders including Extraordinary General Meeting and otherwise ranking pari-passu with Ordinary Shares in all rights including the dividend receipt.
III. Reports & Statements:
- TheBoard of Directors shall prepare un-audited Quarterly Financial Statements for the first, second and third quarter of each financial year. It shall also prepare an Annual Report within two months from the end of the financial year comprising of the audited Balance Sheet, Report of the Board of Directors, Report on the discussions held by the Board and their analysis and Report on the Organization & Management of the Company.
- Theun-audited Quarterly Financial Statements shall be forwarded to the Information Centre of Muscat Securities Market within thirty days from the end of each quarter or any other legal period prescribed by the disclosure rules and conditions issued by CMA through Electronic Transmission System of the Centre. The said Centre shall also be provided with two copies duly endorsed by the Board of Directors of the Company. The Company shall also have it published within the said period. Whereas, the audited Balance Sheet shall be forwarded, submitted and published two week in advance of convening of the Annual Ordinary General Meeting.
- TheBoard of Directors shall extend invitation to the Shareholders for the Annual Ordinary General Meeting within three months from date of ending of the financial year. The General Meeting for instance shall be responsible for the deliberation of the following:
1. Tostudy and approve of the Report of the Board of Directors. 2. Tostudy and approve of the Report on the Management and Organization. 3. Tostudy and approve of the Auditors Report on the Balance Sheet, Profit & Loss Account. 4. Toreview the report on declaration of dividend. However, such dividend shall be distributed only from the net Profit generated or from the Special Reserves Accounts subject always to the Provisions set out in Article (106) of the Commercial Companies Law. 5. Toreview the report on the Sitting Allowance for the meetings of the Members of Board of Directors and Committees constituted under it for the forthcoming financial year and approve the same. 6. Toreview the Annual Remuneration (if any) of the Members of the Board of Directors for the forthcoming financial year. 7. Tolook into the transparency of any transactions held with the Related Parties during the previous financial year (if any).
121 8. Tomake a note of any expected transactions with the Related Parties during the next financial year (if any). 9. Toappoint Auditors for the next financial year and fix their fees, taking into consideration the provisions laid down in the Law.
The Board of Directors may convene the general meeting at any time and such meeting shall be convened whenever required by the Law or the Company’s Articles of Association, or upon request of one or more shareholders who represent at least 25% of the capital of the Company.
The Board of Directors shall establish the agenda of the general meeting. If the meeting is convened by the auditors, the agenda shall then be established by them. The Board or the Auditors, if necessary shall include in the agenda any proposal put forward by the shareholders who represent more than 10% of the capital of the Company provided that such proposal is submitted for inclusion in the agenda at least one month before the date of the meeting.
The resolutions of the Ordinary meeting shall be void unless the meeting is attended by shareholders or their proxies who represent at least half the capital of the Company. If such a quorum is not formed, a second meeting shall be called to discuss the same agenda. The second ordinary meeting shall be notified to the shareholders in the same manner as the first meeting, at least one week prior to the date set for the second meeting. The resolution of the meeting shall be valid regardless of the number of shares represented, provided that such meeting is held within one month from the date of the first meeting. The resolution of the ordinary general meeting shall be adopted by relative majority of the vote.
An Extraordinary General Meeting shall be convened to decide on the following issues:
1) Company’s capital increase or decrease 2) Dissolution, liquidation or merger of the Company. 3) To sell all or substantial part of Company’s asset. 4) Amendment of Company’s Articles of Association.
However, these amendments shall be enforced only if approved by the Capital Market Authority and registered with the Commercial Registrar, Ministry of Commerce & Industry.
The resolution of the extraordinary general meeting shall not be valid unless the meeting is attended by shareholders and proxies representing at least three-quarters of the Company’s capital. Failing such a quorum, a second meeting shall be convened to discuss the same agenda. The shareholders shall be notified of the second extraordinary general meeting in the same manner as the first extraordinary general meeting, at least two weeks prior to the date set for the second meeting. The resolutions of the second meeting shall be valid if the meeting is attended by shareholders or proxies representing more than half of the Company’s capital, provided such meeting is held within six weeks of the date of the first meeting.
The resolution of the extraordinary general meeting shall be adopted by a majority of three-quarter of the votes cast in respect of a certain resolution, provided such resolution shall always receive votes representing more than fifty percent of the Company’s capital.
Any Shareholder or any interested party may refer to the Commercial Court (the competent department) within five years from the date on which the meeting was held, to decide on nullification of any decision if taken during the meeting in violation to the Commercial Companies rules or to the provisions of this Articles or by-laws or through deceit or mis-usage of authority.
122 IV. Transfer of ownership of the Shares:
The transfer of ownership of the Shares shall take place through disposition in accordance with the instructions laid down by Muscat Securities Market. The Shareholders may sell and transfer the Company’s Shares without restrictions in accordance with the Law, with the condition that the Foreign Equity shall not exceed 70% of the Share Capital of the Company under any circumstance.
Similarly, the shareholding of each individual shall not exceed the maximum limit prescribed and provided for in the Commercial Companies Law and Capital Market Law respectively, unless necessary approvals are secured.
V. Constitutive General Meeting:
- Thecalling of the Constitutive General Meeting of the Subscribers shall be treated as one of the requirements for the incorporation of a Joint Stock Company. This General Meeting would look into all the measures that have been taken for incorporation of the Company under convening of the meeting. The Promoters/Selling Shareholders shall, within thirty days from expiry of the Subscription period would invite the Subscribers to this meeting. The invitation and calling of this meeting shall be in accordance with the Provisions set out in the Commercial Companies Law and Articles of Association of the Company governing the Extra Ordinary General Meetings.
- ThePromoters/Selling Shareholders shall be required to submit to the Constitutive General Meeting a report furnishing therein-comprehensive information about all the measures taken, expenses incurred for incorporation of the Company, and also on all the obligations committed by the Promoters/Current Shareholders on behalf of the Company that is under formation, together with the supporting documents.
The Constitutive General Meeting shall have the authority to look into and pass resolution in respect of the following matters:
1. Toratify the Report submitted by the Promoters/Selling Shareholders with regard to the process of incorporation of the Company and expenses incurred by them. The Promoters/Selling Shareholders shall be liable severally and jointly for the expenses incurred and commitment made on behalf of the Company under transformation which have not been ratified by the Constitutive General Meeting.
2. Toverify and confirm whether necessary conditions governing incorporation of the Company have been complied with and notify the same.
3. Toapprove of the Memorandum & Articles of Association of the Company. The Meeting may effect changes in it if the matter warrants so. The said amendment shall not become valid and operative unless the Capital Market Authority accords its approval and have the same registered with the Commercial Registrar.
4. Toelect members of the first Board of Directors of the Company. This Board shall be responsible for registration of the Company with the Commercial Registrar within one month from convening of the Constitutive General Meeting. The members of the Board shall be liable severally and jointly for the damages arising from the failure to carry out this registration.
5. Toappoint the first Auditor of Accounts of the Company and fix his fees.
123 Chapter 19 Subscription Conditions and Procedures
Eligibility for the subscription of Shares offered
The subscription to one hundred million Ordinary Shares offered shall be open to Omani and non-Omani individuals. Likewise, it shall be open to Omani as well as Non-Omani corporates, institutions, investment funds, and pension funds which have their accounts with Muscat Depository & Securities Registration Co., as on the date and / or during the subscription period. It is pertinent to mention here that it would be permissible for non Omani individuals/corporates to own shares of the Company once listed with Muscat Securities Market, to an extent of 70% of the Share Capital, in accordance with the Articles of Association of the Company.
The offered shares are divided into two components:
First Category: includes the applications of only natural persons of a maximum of 10,000 (ten thousand) Shares. This category is allocated 60% of the total shares offered for subscription. If the shares are oversubscribed, distribution of shares will be on pro-rata basis.
Second Category: includes the applications of both natural and juristic persons of 10,100 (ten thousand one hundred) or more Shares. This category is allocated 40% of the total shares offered for subscription. If the shares are oversubscribed, distribution of shares will be on pro-rata basis.
In case of shortfall in subscription in any category, it shall be carried by the other category.
Non –Omanis shall not hold more than 40% of the total shares offered for the purpose of allocation.
Prohibitions with regard to the Applications for subscription :
The subscribers to the shares issued as mentioned hereunder shall not be permitted to participate in the subscription:
1) Sole Proprietorship Establishments: Whereas, owner of a Sole Proprietorship Establishment would be required to subscribe in his name only if he so desires.
2) Trust Accounts: Whereas, the Brokerage Companies would be required to address the Customers for the subscription in their personal names.
3) Multiple Applications for the subscription: Whereas, it is prohibited for any Person to submit more than one application for subscription in his personal name.
4) Applications made under joint names, including the applications made in the name of legal heirs. Whereas, they or their Legal Attorney would be required to apply in their personal names.
All such applications shall be rejected without contacting the applicant.
Subscription on behalf of Minor Children:
1) For the purpose of this issue, any person born after 12/08/1989 shall be treated as Minor.
2) Only father may subscribe on behalf of his Minor Children.
3) If the subscription is made on behalf of a Minor by any Person other than the father, he shall be required to attach a valid Sharia (Legal) Power of Attorney issued by the competent authorities authorizing him to deal in the funds of the Minor through sale, purchase and investment.
124 Shareholder’s (investor’s) Number with Muscat Depository & Securities Registration Co.
1) Any person who desires to subscribe to the issued shares has to have an account with Muscat Depository & Securities Registration Co. (SAOC) as per its working form, which may be obtained from the Company’s Head Office or its site on the World Wide Web or from brokerage companies. Each subscriber may open this account through the following outlets:
- HeadOffice of the Company based in the Ground Floor of the building of the Capital Market Authority, Commercial Business District.
- Branchof Muscat Securities Market based in Salalah.
- Officeof the Brokerage Companies that are licensed by Muscat Securities Market.
- Byfax no. 24817491.
2) With regard to the investors who presently hold accounts with Muscat Depository & Securities Registration Co., all investors shall be required, before the subscription, to confirm whether their accounts contain their basic particulars totally, that being the name in full, postal address, Civil Status No., as mentioned in the Personal Card (Civil) or Civil No., furnished in the Passport or Civil No., as provided for in the new Birth Certificate and details of the Bank Account. Every shareholder may update his particulars through the outlets mentioned above.
3) All correspondences including allocation notices and dividend cheques shall be sent to the subscriber at the address recorded at Muscat Depository & Securities Registration Co. Therefore, all subscribers shall verify the correctness of such addresses.
4) Each subscriber shall be required, after opening of the Account or updating of his particulars, to secure from Muscat Depository & Securities Registration Co., the right number so as to have it registered in the Application for the subscription. The investor himself shall be responsible for verification of the number furnished in the Application for the subscription. The applications not bearing the correct Account Numbers shall be rejected without contacting the subscriber.
For more information on these Procedures, requested to contact:
Muscat Depository & Securities Registration Co., SAOC Tel. 24814827 - Fax. 24817491 http: // www.csdoman.co.om/
Subscription Period:
The subscription shall commence on Sunday 12th August, 2007 and end on Monday 10th September, 2007 with the end of the official working hours of the Banks.
Minimum Limit of Public subscription:
The number of shares subscribed by each Person shall not be less than 1000 shares and in multiples of 100 thereafter. For juristic persons, corporates, investment funds, and pension funds, shares subscribed to shall not be less than 10,100 shares and in multiples of 100 thereafter.
125 Maximum Limit of Public subscription:
It shall not be permissible for any Person, himself and his Minor Children, to subscribe for more than 10% of the total issue size. In other words, the maximum limit for one subscriber and his Minor Children shall not exceed 10,000,000 (ten million) shares.
For the purpose of calculation of this percentage the application for the subscription of the father (or Guardian) shall be merged with the applications of the Minor Children. If the volume of the shares subscribed exceeds the said percentage, the shares registered under each application shall be reduced proportionately before making the allotment.
Particulars of the Bank Account :
1) Each subscriber shall be required to furnish the particulars of his Bank Account (Registered in the name of the Applicant). The subscriber shall not use the Bank Account Number of any other Person except in case of Minor Children only. 2) If the Bank Account of the subscriber is registered with a Bank other than the one receiving the subscription, he shall be required to submit a document in evidence of correctness of the Bank Account Particulars as provided for in the Application. This can be done by submitting any document from the Bank of the subscriber furnishing therein Number and Name of the Account Holder like the upper Portion of the Account Statement issued by the Bank containing these particulars only or a letter or any document issued by the said Bank containing the said information. The subscriber shall ensure that the evidence submitted is readable in a clear manner, containing Number and Full Name of the Account Holder. As additional clarification, it is made known that the subscriber is not obliged to submit the evidence with regard to correctness of his Bank Account if he is subscribing through the Bank wherein he is maintaining his account. In this case, the Bank shall be required to verify and confirm the correctness of the subscriber’s Account through its specific System and Procedure or through the evidence submitted to it by the subscriber. 3) In accordance with the instructions issued by the Authority, the particulars of the Bank Account referred to above shall be recorded in the Registers of Muscat Depository & Securities Registration Co., SAOC. This shall be used in the transfer of the excess funds of the subscription, distribution of the dividend payable to the shareholder available with the Authority issuing the Securities listed with Muscat Securities Market. Whereas, with regard to the subscribers who have their Bank Accounts registered presently with the Registers of the Depository, the Bank Account Number provided for in the Application for the subscription would be utilised only for the purpose of transfer of the excess sums. 4) The Application for subscription containing the Bank Account Number of a Person other than the subscriber shall be rejected, with the exception of the applications made on behalf of Minor Children that contain Bank Accounts particulars of their fathers.
Documentation Required:
1) Submission of a document confirming correctness of the Bank Account Number as provided for in the Application for subscription in one case only, that being subscription through a Bank other than the one with whom the subscriber has his account. 2) Copy of a valid Power of Attorney duly endorsed by the competent legal authorities in the event the subscription is on behalf of another Person (with the exception of the subscription made by a father on behalf of his Minor Children).
126 3) In case of applications by Juristic Persons (non-individuals), which are signed by a person in his/her capacity as an authorised signatory, a copy of adequate and valid documentation should be attached.
Mode of subscription:
1) The subscriber shall be responsible for furnishing all his particulars, ensuring correctness and validity of the information provided for in the application. While emphasizing on it, the Banks receiving the subscription have been instructed to accept the applications for subscription that comply with all the requirements as provided for in the Application for subscription and Prospectus.
2) The subscriber shall be required, before filling the Application Form for subscription, to peruse the Prospectus and read the conditions and procedures governing the subscription with total care and importance.
3) The subscriber shall be required to fill in the Application for the subscription and furnish all his particulars including the Shareholder Number available with Muscat Depository & Securities Registration Co., Civil Number/Passport Number, Date of Birth in case of Minor Children.
4) The subscriber shall be required to submit the application to one of the Banks receiving the subscription referred to in the Prospectus, making the payment towards the shares as specified in the Prospectus and ensuring that the documents in support of the information furnished referred to above are enclosed.
5) In case of payment of the value of the subscription by cheque/Demand Draft, it shall be in favour of “Galfar IPO”.
Banks receiving the subscription:
The applications for subscription shall be accepted by one of the following Commercial banks during the official working hours only:
1. BankMuscat SAOG 2. Oman Arab Bank SAOC 3. National Bank of Oman SAOG 4. Bank Dhofar SAOG
The Bank receiving the subscription shall be required to accept the application for subscription after confirmation of compliance of the procedure and subject mater in line with the requirements as provided for in the Prospectus. Hence, the Bank must instruct the subscribers to comply and fulfil any requirement that may appear in the application submitted.
The subscriber shall be responsible for submission of his application for subscription to one of the Banks receiving the subscription before closing of the period for subscription. In this regard, the Bank shall have the right not to accept any application for subscription that reaches it after the official working hours on closing date of the period for subscription.
Acceptance of the Applications for subscription:
The Banks receiving the subscription shall neither receive nor accept the Applications for subscription under the following circumstances:
127 1) If the Application for subscription does not bear the signature of the subscriber.
2) In case of failure to pay the value of the shares subscribed in accordance with the conditions provided for in the Prospectus.
3) If the value of the shares subscribed is paid through Cheque and if the same is dishonored for whatever be the reason.
4) If the Application for subscription is not bearing the Shareholder No., available with Muscat Depository & Securities Registration Co.
5) If the Applications for subscriptions are submitted under the joint names.
6) If the subscriber is a Sole Proprietorship or Trust Account.
7) If the shareholder Number furnished in the Application for subscription is noted to be incorrect.
8) If the subscriber submits more than one application in the same name, all of them shall be rejected.
9) If the Supporting Documents referred to in the Prospectus are not enclosed with the Application for subscription.
10) If the Application does not contain all the particulars of the Bank Account of the subscriber.
11) If all the Particulars of the Bank Account held by the subscriber as provided for in the Application are noted to be incorrect.
12) If the particulars of the Bank Account provided for in the Application are found to be not relevant to the subscriber, with the exception of the applications submitted in the name of Minor Children, who are allowed to make use of the particulars of the Bank Accounts held by their fathers.
13) In case of failure to have the powers of Attorney attached with the Application as provided for in the Prospectus in respect of the Person who subscribes and (sign) on behalf of another Person (with the exception of the fathers who subscribe on behalf of their Minor Children).
14) If the Application has not complied with the legal and organizational requirements as provided for in the Prospectus.
If the Bank observes, after receipt of the application and before expiry of the time schedule prescribed for handing over of the applications in a final manner to the Issue Manager, that the application has not complied with the legal requirements as provided for in the Prospectus, due effort would be taken for contacting the subscriber so as to correct the mistake detected. In case of failure to have the mistake corrected within the period referred to, the Bank receiving the subscription shall be required to return the application for the subscription together with the subscription Value before expiry of the period specified for handing over of the applications to the Issue Manager.
Refusal of subscription Applications:
The Issue Manager may reject the subscription Applications under any of the conditions referred to above, after securing the approval of the Capital Market Authority and submission of a comprehensive report furnishing the details of the subscription Applications that are required to be rejected and reasons behind such rejection.
128 Enquiry & Complaints:
The subscribers who intend to seek clarification or file complaints with regard to the issues related to the allotment or rejected applications or refund of the funds in excess of the subscription may contact the Branch of the Bank where the subscription was made. In case of absence of any response from the Branch, the subscriber may contact the person concerned as hereunder:
Bank Person in Charge Postal Address Phone No. Fax No. Email P.O. Box: 134, Ruwi, BankMuscat Postal Code: 112, Mr. Talal Al Zadjali 24768213 24788864 [email protected] SAOG Sultanate of Oman
P.O. Box: 2010, Ruwi, Oman Arab Postal Code: 112, Mr. Osama Al Qinna 24790462 24793953 [email protected] Bank SAOC Sultanate of Oman
P.O. Box: 751, Ruwi, National Bank of Postal Code: 112, Mr. Gopalakrishnan K 24778610 24778944 [email protected] Oman SAOG Sultanate of Oman
P.O. Box: 1507, Ruwi, Bank Dhofar Mr. Adil Abdullah A. Postal Code: 112, 24795517 24791131 [email protected] SAOG Razaq Al Hindi Sultanate of Oman
If the Bank receiving the subscription fails to arrive at a solution or settlement with the Person who has subscribed, it shall refer the subject matter to the Issue Manager, and keep the subscriber posted of the progress and development in respect of the subject matter of the dispute. The subscriber shall also keep in touch with the Bank receiving the subscription only so as to know the Decisions arrived at.
Overall Offering Split and Allotment Procedures:
In case of Over-subscription the Offering of 100,000,000 Ordinary Shares shall be split among the eligible investor groups, in the following portions:
O Category I:
60 million Ordinary Shares, being 60% of the Offering, for Individual applicants applying for a maximum of 10,000 (Ten thousand) Shares. Distribution of shares shall be on pro-rata basis.
O Category II:
40 million Ordinary Shares, being 40% of the Offering, for Individual applicants applying for more than 10,000 shares and for Corporate bodies/ Institutions/ Investment Funds. Distribution of shares shall be on pro-rata basis.
Any under subscription in any Category shall be carried to the other Category.
Allotment for Non-Omani will be limited to a maximum of 40% of the total Shares offered. Non-Omani Individual is defined as an Individual applicant who is not an Omani National and a Non Omani Corporate Body/ Institution/ Investment Fund is defined as one which is not incorporated in the Sultanate of Oman.
The final allocation on the above basis will be decided by the Lead Issue Manager and the Company in consultation with the CMA.
129 Basis for Undersubscribed Shares:
In case of shortfall in subscription i) shortfall to be adjusted against the 60 million shares offered by the selling shareholders ii) remaining shortfall to be subscribed by the Underwriters
Proposed Timetable
The following table shows expected time schedule for completion of the subscription procedures:
Procedure Date Commencement of subscription 12/8/2007 Closing of subscription 10/9/2007 Due Date for the Issue Manager to receive the subscription Data and Final Registers of the subscribers from the Banks receiving the subscription as per the understanding 20/9/2007 arrived at
Notifying the Capital Market Authority of the outcome of the subscription and Proposal 23/9/2007 with regard to the allotment Approval of the Capital Market Authority with regard to the proposal for the allotment 24/9/2007 Commencement of refund and dispatch of the notices regarding allotment and Constitutive General Meeting Invitation 25/9/2007
Constitutive General Meeting 9/10/2007 Registering the Company at the Commercial Registrar 20/10/2007 Listing of the shares with Muscat Securities Market 24/10/2007
Listing & Trading of the shares of the Company:
The shares of the Company shall be listed with Muscat Securities Market in accordance with the Laws and Procedures that are in force on the date application is made for the listing and registration. It may be noteworthy that the expected date of listing in the above table is subject to the completion of legal quorum of the Constitutive General Meeting for the first time.
Responsibilities & Obligations:
The Issue Manager, Banks receiving the subscription and Muscat Depository & Securities Registration Co., shall abide by the responsibilities and functions specified pursuant to the instructions and regulations laid down by the Authority. The said bodies shall also abide by any other responsibilities that are provided for in the agreements entered into between them and the body issuing the Securities.
The Parties concerned shall be required to take remedial measures with regard to the damages arising from any negligence committed in the performance of the functions and responsibilities assigned to them. The Issue Manager shall be the body responsible before the Surveillance Authorities in taking suitable steps and measures for repairing such damages.
130 Chapter 20 Undertakings
Issuing Company: Galfar Engineering & Contracting Company SAOG (under transformation)
The members of the Constituent Committee of Galfar Engineering & Contracting Company SAOG (under transformation) jointly and severally hereby confirm that:
1. The information provided in this Prospectus are complete, correct and sound and reasonable. Care has been taken so as to avoid omission of any important facts or information that would have made the expressions in the Prospectus misleading
2. To abide by all the provisions set out in the Capital Market Law, Commercial Companies Law, Rules and Regulations issued pursuant to them
Members of the Constitutive Committee on behalf of the Promoters:
Sr Name Signature
1 Dr. Sheikh Salim Said Al Fannah Al Araimi Sd/-
2 Dr. P. Mohamed Ali Sd/- Al Siraj Investment & Projects LLC represented by Miss Budoor Mohamed 3 Sd/- Rashid Al Araimi
131 II. Issue Manager:
In accordance with the responsibilities assigned to us pursuant to the Provisions laid down in Article 3 of the Capital Market Law, Executive Regulations and Instructions issued by the Capital Market Authority, we have reviewed all the relevant documents and other material required for the preparation of the Prospectus pertaining to the issue of shares of Galfar Engineering & Contracting SAOG (under transformation).
The Promoters/Current Shareholders of Galfar Engineering & Contracting SAOG (under transformation) shall bear the responsibility with regard to correctness of the information provide for in the Prospectus, and they have confirmed not to have deleted any material information from it, omission of which would have made the Circular misleading.
We do confirm that we have taken necessary due care as required by the profession with regard to the Prospectus that has been prepared under our supervision, on the basis of the review works referred to above and discussions held with the body issuing the Securities, represented by the Company issuing the Securities, Members of its Board of Directors and other officials, other Authorities concerned, and on the basis of the review carried out by us with these authorities concerned with regard to the subject matter of the Issue, Profit Projections, criteria and justifications for the pricing, and contents of the documents submitted to us,
We hereby confirm as hereunder;
1) We have taken necessary and reasonable care in ensuring that the information furnished to us by Galfar Engineering & Contracting SAOG (under transformation) and that contained in the Prospectus are consistent with the facts available in the documents, material and other documents pertaining to the Issue.
2) On the basis of our perusal and information made available to us by the body issuing the securities, it is hereby confirmed that the Body issuing the securities has neither concealed any fundamental information nor omitted any important information omission of which would have made the Prospectus misleading.
3) The Prospectus and Issue relevant to it are consistent with all the rules and conditions governing the transparency as provided for in the Capital Market Law and its amendments thereof, Executive Regulations of the Capital Market Law and its amendments thereof and applicable Specimen Prospectus available with the Authority. Also noted to be in conformity with the Commercial Companies Law and its amendments thereof and Executive Regulations of the Capital Market Law and other Decisions issued in this regard.
4) The data and information which have been presented in the Prospectus in Arabic (with its unofficial translation in English) are correct, reasonable and adequate as per our perusal so as to assist the investor in taking an appropriate decision whether or not to invest in the Securities issued for the subscription in accordance with the rules and conditions governing the transparency.
Lead Issue Manager Issue Manager Sd/- Sd/- The Financial Corporation Co. SAOG Oman Arab Bank SAOC Investment Management Group
132 III. Legal Advisor
The Legal Advisor, whose name appears below, confirms that all the procedures undertaken with regard to issue of the Securities, subject matter of the Prospectus, are consistent and in conformity with the provisions set out in the Laws and Statutes relevant to the activity of the Company, Commercial Companies Law, Capital Market Law, Regulations and Instructions issued as per the exigencies and requirement of the conditions governing the issue of the shares, applicable Specimen Prospectus available with the Authority and Articles of Association of the Company. Whereas, the Company has secured all the Licenses and official approvals that are required for engaging in the activities, subject matter of the Prospectus.
Sd/-
Hassan Al Ansari Legal Consultancy
IV. Underwriters
The underwriters, whose names appears below, confirm that they have agreed to underwrite the issue to the extend as specified in Chapter 4 of this prospectus.
Sd/- Sd/- BankMuscat SAOG National Bank of Oman SAOG
Sd/- Sd/- Oman Arab Bank SAOC The Financial Corporation Co. SAOG
133