Qatar Real Estate Investment Company (QREIC) - Sukuk

Transcription

1. QREIC SUKUK LLC Registered number QFC No . 00012 having its registered address at c/o Ansbacher & Co Limited, (P O Box 23589), 11th Floor, Ministry of Economy & Commerce Doha, Qatar Authorised by the Qatar Financial Centre Regulatory Authority for the sole purpose of a single structured finance transaction US$270,000,000 Trust Certificates (Sukuk Al-Musharaka) due 2016 The US$270,000,000 Trust Certificates due 2016 (the “Sukuk Certificates”) will be issued by QREIC Sukuk LLC (the “Issuer”), a special purpose company incorporated in the Qatar Financial Centre (the “QFC”) and will be constituted by a declaration of trust (the “Declaration of Trust”) dated 31 August 2006 (the “First Funding Date”) entered into by the Issuer in its capacity as trustee. Pursuant to the Declaration of Trust, the Issuer will declare that it will hold certain assets upon trust absolutely for the registered holders of the Sukuk Certificates (the “Certificateholders”) pro rata according to the principal amount of the Sukuk Certificates held by each Certificateholder in accordance with the Declaration of Trust and the terms and conditions of the Sukuk Certificates (the “Conditions”). The Sukuk Certificates will be in registered form in the minimum denomination of US$100,000. The Sukuk Certificates may be held and transferred, and will be offered and sold, in the principal amount of US$100,000 and integral multiples of US$1,000 in excess thereof. The Sukuk Certificates will be represented by a global registered certificate (the “Global Certificate”) registered in the name of BT Globenet Nominees as nominee for, and deposited with, a common depositary for Euroclear Bank, S.A./N.V. as operator of the Euroclear System (“Euroclear”) and Clearstream Banking, société anonyme, Luxembourg (“Clearstream, Luxembourg”). Individual certificates (“Individual Certificates”) evidencing holdings of Sukuk Certificates will only be available in certain limited circumstances. See “Summary of Provisions relating to the Sukuk Certificates in Global Form”. The Sukuk Certificates represent an undivided beneficial ownership in the Trust Assets (as defined herein) held on trust for the Certificateholders by the Issuer in its capacity as Trustee. The Issuer will issue US$100,000,000 Sukuk Certificates on the First Funding Date which will be paid in full accordance with the Subscription Undertaking dated the First Funding Date and given by the Qatar Real Estate Investment Company, Qatar National Bank S.A.Q., Qatar National Bank Al Islami, Dubai Islamic Bank PJSC, Gulf International Bank and Standard Chartered Bank in favour of the Issuer (the “Subscription Undertaking”). The remaining Sukuk Certificates will be issued on Further Funding Dates (as defined herein) following the First Funding Date pursuant to the terms of the Subscription Undertaking. Only one Global Certificate in respect of the Sukuk Certificates will be issued on the First Funding Date up to the aggregate principal amount of US$100,000,000 and on each Further Funding Date, the Issuer and the Registrar shall note or procure that there be noted on the Schedule to the Global Certificate and in the Register (a) the aggregate principal amount of the payment made on such Further Funding Date and (b) the increased principal amount of the relevant Sukuk Certificates (which shall comprise the previous principal amount of Sukuk Certificates issued plus the aggregate principal amount of the Sukuk Certificates issued on that Further Funding Date). On each 31 August, 30 November, 28 February and 31 May or if any such day is not a Business Day (as defined herein) the following Business Day, unless it would thereby fall into the next calendar month, in which event such day should be the immediately preceding Business Day, commencing on 30, November 2006 (each a “Periodic Distribution Date”), Certificateholders will receive from proceeds received from and in respect of the Trust Assets, a periodic distribution equal to 1.2 per cent per annum plus LIBOR (as defined herein) calculated on the outstanding aggregate principal amount of the Sukuk Certificates as at the beginning of the relevant Periodic Distribution Period (as defined herein) on an actual/360 basis. Unless the Sukuk Certificates are previously redeemed or cancelled, they will be redeemed in 32 equal instalments on Scheduled Repurchase Dates (as set out in Condition 8 of the “Terms and Conditions of the Sukuk Certificates—Scheduled Repurchase”) at the Scheduled Repurchase Amounts (as set out in Condition 8 of the “Terms and Conditions of the Sukuk Certificates—Scheduled Repurchase”) with the last Scheduled Repurchase Date falling on 31 August 2016. However, the proceeds of the Trust Assets (as defined in Condition 4 of the “Terms and Conditions of the Sukuk Certificates—Summary of the Trust”) are the sole source of payment on the Sukuk Certificates and the net proceeds of the realisation of, or enforcement with respect to the Trust Assets may not be sufficient to make all payments due in respect of the Sukuk Certificates. However, the Sukuk Certificates may be redeemed in full either in the event of a Dissolution Event (see Condition 9 of the “Terms and Conditions of the Sukuk Certificates—Dissolution of Trust”) or in the event of an early redemption by the Issuer (see Condition 10 of the “Terms and Conditions of the Sukuk Certificates—Early Redemption at QREIC’s Option (“Call Option”)). Payments on the Sukuk Certificates will be made in US dollars without deduction for or on account of Qatar withholding taxes and the Issuer will pay additional amounts if any such taxes are imposed (as described under Condition 12 of the “Terms and Conditions of the Sukuk Certificates— Taxation”). The Sukuk Certificates will constitute obligations of the Issuer (as described in Condition 3 of the “Terms and Conditions of the Certificates—Status— Limited Recourse”). Application has been made for the Sukuk Certificates to be listed on the Official List of the Luxembourg Stock Exchange (the “Official List”) and admitted to trading on the Euro MTF market of the Luxembourg Stock Exchange (the “Luxembourg Stock Exchange”) but there can be no assurance that such listing will occur on or prior to the First Funding Date or at all. Investing in Sukuk Certificates involves certain risks as more fully described in “Risk Factors” section on page 26. The Sukuk Certificates have not been, and will not be, registered under the United States Securities Act of 1933 (the “Securities Act”). The Sukuk Certificates are being offered outside the United States by the Mandated Lead Managers and the Joint Lead Managers (together, the “Lead Managers”) (as defined in “Subscription and Sale”) in accordance with Regulation S under the Securities Act (“Regulation S”), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. The Issuer has been authorised by the Qatar Financial Centre Regulatory Authority (the “QFC Regulatory Authority”) as an Authorised Firm (as defined in the QFC Financial Services Regulations 2005) solely to participate in the transaction referred to in this Offering Circular. The QFC Regulatory Authority has no jurisdiction in respect of the transaction other than in respect of the Issuer as an Authorised Firm. Accordingly, the QFC Regulatory Authority has no responsibility for, and will not be, reviewing or supervising the transaction described in this Offering Circular or any offer to investors made in relation to it. The QFC Regulatory Authority also has no responsibility for reviewing, approving or verifying this Offering Circular or any Transaction Document and has not done so. Mandated Lead Managers Qatar National Bank S.A.Q. Qatar National Bank Al Islami Bookrunners Dubai Islamic Bank PJSC Gulf International Bank B.S.C Qatar National Bank S.A.Q. Standard Chartered Bank Joint Lead Managers Dubai Islamic Bank PJSC Gulf International Bank B.S.C. Standard Chartered Bank The Date of this Offering Circular is 29 August 2006
3. Qatar Real Estate Investment Company (“QREIC” or the “Obligor”) has confirmed to the Lead Managers named under “Subscription and Sale” that this Offering Circular contains all the information regarding QREIC, the Sukuk Certificates and the other Transaction Documents which is (in the context of the issue of the Sukuk Certificates) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in this Offering Circular on the part of QREIC are honestly held or made and are not misleading in any material respect; this Offering Circular does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in such context) not misleading in any material respect; and all proper enquiries have been made by QREIC to ascertain and to verify the foregoing. Accordingly, QREIC accepts responsibility for the information contained in this Offering Circular. The Issuer has confirmed to the Lead Managers that this Offering Circular contains all information regarding the Issuer, the Sukuk Certificates and the other Transaction Documents (as defined herein) which is (in the context of the issue of the Sukuk Certificates) material; such information is true and accurate in all material respects and is not misleading in any material respect; any opinions, predictions or intentions expressed in this Offering Circular on the part of the Issuer are honestly held or made and are not misleading in any material respect; this Offering Circular does not omit to state any material fact necessary to make such information, opinions, predictions or intentions (in such context) not misleading in any material respect; and all proper enquiries have been made by the Issuer to ascertain and to verify the foregoing. Accordingly, the Issuer accepts responsibility for the information contained in this Offering Circular. The Issuer accepts responsibility for the information contained in the section entitled “The Issuer” on page 33 of this Offering Circular. To the best of its knowledge and belief (having taken all reasonable care to ensure that such is the case) such information is in accordance with the facts and does not omit anything likely to affect the import of such information. The Issuer accepts no responsibility for any other information contained in this Offering Circular. QREIC accepts responsibility for the information contained in the Offering Circular other than the information contained in the section entitled “The Issuer” on page 33 of this Offering Circular. To the best of its knowledge and belief (having taken all reasonable care to ensure that such is the case) such information is in accordance with the facts and does not omit anything likely to affect the import of such information. Neither the Issuer, or QREIC have authorised the making or provision of any representation or information regarding the Issuer, QREIC or the Sukuk Certificates other than as contained in this Offering Circular or as approved for such purpose by the Issuer and QREIC (as the case may be). Any such representation or information should not be relied upon as having been authorised by the Issuer, QREIC or the Lead Managers. The delivery of this Offering Circular at any time does not imply that the information contained in it is correct at any date subsequent to the date hereof. Neither the delivery of this Offering Circular nor the offering, sale or delivery of any Sukuk Certificate shall in any circumstances create any implication that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the condition (financial or otherwise) of the Issuer and QREIC since the date of this Offering Circular. This Offering Circular does not constitute an offer of, or an invitation to subscribe for or purchase, any Sukuk Certificates. It is intended only to provide information to assist potential investors in deciding whether or not to subscribe for or purchase Sukuk Certificates in accordance with the terms and conditions specified by the Lead Managers. The Sukuk Certificates may not be sold, directly of indirectly, and this Offering Circular may not be circulated in any jurisdiction except in accordance with the legal requirements applicable to such jurisdiction. The distribution of this Offering Circular and the offering, sale and delivery of Sukuk Certificates in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Issuer, QREIC and the Lead Managers to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Sukuk Certificates and on the distribution of this Offering Circular and other offering material relating to the Sukuk Certificates, see “Subscription and Sale”. The Lead Managers have not separately verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Lead Managers or any of them as to the accuracy or completeness of the information contained in this i
4. Offering Circular or any other information provided by the Issuer or QREIC in connection with the Sukuk Certificates . Neither this Offering Circular nor any other information supplied in connection with the Sukuk Certificates is intended to provide the basis of any credit or other evaluation or should be considered as a recommendation by the Issuer, QREIC or the Lead Managers that any recipient of this Offering Circular should purchase any of the Sukuk Certificates. Any individual intending to invest in any investment described in this Offering Circular should consult his/her professional adviser and ensure he/she fully understands all the risks associated with making such an investment and has sufficient financial resources to sustain any loss that may arise from it. Notice to UK residents The Sukuk Certificates represent interests in a collective investment scheme (as defined in the Financial Services and Markets Act 2000 (“FSMA”)) which has not been authorised, recognised or otherwise approved by the U.K. Financial Services Authority (“FSA”). Accordingly, this Offering Circular is not being distributed to, and must not be passed onto, the general public in the United Kingdom. The distribution in the United Kingdom of this Offering Circular and any other marketing materials relating to the Sukuk Certificates (A) if effected by a person who is not an authorised person under FSMA, is being addressed to, or directed at, only the following persons: (i) persons who are Investment Professionals as defined in Article 19(5) of the FSMA (Financial Promotion) Order 2005 (the “Financial Promotion Order”) and (ii) persons falling within one of the categories of persons described in Article 49 (High net worth companies, unincorporated associations, etc) of the Financial Promotion Order and (B) if effected by a person who is an authorised person under FSMA, is being addressed to, or directed at, only the following persons: (i) persons falling within one of the categories of Investment Professional as defined in Article 14(5) of the FSMA (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (the “Promotion of CISs Order”), (ii) persons falling within any of the categories of person described in Article 22 (High net worth companies, unincorporated associations, etc.) of the Promotion of CISs Order and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Promotion of CISs Order. Persons of any other description in the United Kingdom may not receive and should not act or rely on this Offering Circular or any other marketing materials in relation to the Sukuk Certificates. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in Sukuk Certificates and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. The contents of this Offering Circular have not been approved by an authorised person in accordance with the rules of the FSA. In this Offering Circular, unless otherwise specified, references to “US$”, “U.S. dollars” or “dollars” are to United States dollars and references to “QR”, “QR” or “Qatari Riyal” are to the lawful currency for the time being of Qatar. The Jersey Financial Services Commission has given, and has not withdrawn, its consent under Article 8 and 9(1) of the Control of Borrowing (Jersey) Order 1958 as amended in respect of the Sukuk Certificates. It must be distinctly understood that, in giving this consent, the Jersey Financial Services Commission does not take any responsibility for the financial soundness of the Issuer or for the correctness of any statements made, or opinions, expressed with regard to it. The Jersey Financial Services Commission is protected by the Control of Borrowing (Jersey) Law 1947 as amended against any liability arising from the discharge of its functions under that law. Certain figures included in this Offering Circular have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. Certain Publicly Available Information Certain statistical data and other information appearing in the “Summary of the Offering”, “Summary of the Sukuk Certificates in Global Form” and “Overview of Qatar” sections in this Offering Circular have been extracted from public sources. Neither the Lead Managers, the Issuer nor QREIC accepts responsibility for the factual correctness of any such statistics or information but both the Issuer and QREIC accept responsibility for accurately extracting and transcribing such statistics and information and believe, after due inquiry, that such statistics and information represent the most current publicly available statistics and information from such sources at, and for the periods with respect to, which they have been presented. ii
5. TABLE OF CONTENTS FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ENFORCEABILITY OF JUDGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 PRESENTATION OF FINANCIAL AND OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 EXCHANGE RATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SUMMARY OF THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SUMMARY OF PROVISIONS RELATING TO THE SUKUK CERTIFICATES IN GLOBAL FORM . . . 22 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 PRONOUNCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 MUSHARAKA ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 TERMS AND CONDITIONS OF THE SUKUK CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 DESCRIPTION OF QREIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 OVERVIEW OF THE STATE OF QATAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 CLEARANCE AND SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SUBSCRIPTION AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 INDEX OF DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 APPENDIX 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 FINANCIAL STATEMENTS AND AUDITORS’ REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1 iii
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7. FORWARD-LOOKING STATEMENTS This Offering Circular includes , and any accompanying offering circular supplement may include, forwardlooking statements. All statements other than statements of historical facts included in this Offering Circular and any offering circular supplement regarding, among other things, QREIC’s financial condition, results of operations, business, future performance or prospects may constitute forward- looking statements. Forwardlooking statements generally can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “continue” or similar terminology. Although the Issuer and QREIC believe that the expectations reflected in its forward-looking statements are reasonable at this time, there can be no assurance that these expectations will prove to be correct. These forward-looking statements are based on assumptions that the management of QREIC have made in light of their experience in the industry in which they operate, as well as their perceptions of historical trends, current conditions, expected future developments and other facts which they believe are appropriate under the circumstances. Potential investors should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond the control of the management of QREIC) and assumptions. Although the management of QREIC believe that these forward-looking statements are based on reasonable assumptions, potential investors should be aware that many factors could affect QREIC’s actual financial condition or results of operations and cause actual results to differ materially from those in the forwardlooking statements. These facts include, among other things, those discussed under the section headed “Risk Factors” in this Offering Circular. Because of these factors, the management of QREIC caution that potential investors should not place undue reliance on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise from time to time, and it is impossible to predict these events or how they may affect QREIC. Except as required by law, the management of QREIC have no duty to, and do not intend to, update or revise the forward-looking statements in this Offering Circular after the date of this Offering Circular. 1
8. ENFORCEABILITY OF JUDGEMENTS The Issuer is organised under the regulations and rules of the Qatar Financial Centre (“QFC”) and QREIC is organised under the laws of the State of Qatar. While it is possible for the Qatari courts to declare a company bankrupt or insolvent, there are no substantive bankruptcy or insolvency laws under the domestic law of the State of Qatar. The Qatari court has discretion to grant a grace period for repayment of debts under Article 375 of the Civil Law No 22 of 2004. Under Article 474 of the Civil Law No. 16 of 1971 the law provides for a company to be declared ‘bankrupt” in certain circumstances including failure to pay debts. The Commercial Companies Law No. 5 of 2002 provides for the insolvency of companies and some direction as to what happens upon insolvency. The provisions particularly as regards the rights of all creditors are limited however. There is no text of law which expressly restricts or abrogates specific rights or obligations of contracting parties as a result of the initiation of bankruptcy or insolvency proceedings in respect of one of them. The Qatar Civil Law No 22 of 2004 provides under Article 269 that all creditors of a debtor are considered equal except those that have priority as a result of a provision of law. Creditors that have priority fall into two general groups: those that have priority by reason of having security over particular assets, and those that are generally preferred by reason of a statutory provision. Under the first group a creditor may therefore have priority to the extent assets are secured in accordance with a recognised security such as an assignment of rights under Qatar law. Under the second group the law does identify certain statutorily preferred creditors. Article (304) of the Commercial Companies Law No. 5 of 2002 provides that a liquidator of a company shall pay the debts of a company after deducting liquidation expenses including the remuneration of the liquidator by first paying amounts payable to the company’s employees, then amounts due to the State and then rents payable to the owner of any real estate leased to the company and then other due amounts in accordance with priorities according to law. These amounts are not defined further in the Commercial Companies Law No. 5 of 2002. In addition, the Labour Law No 14 of 2004, which came into force in January 2005, provides that all sums due thereunder to a worker shall have a preferential claim over all other debts and on the property, movable or immovable, of the employer, and that all such sums shall be preferred over debts owed by the employer to the State of Qatar. Article 168 of the Qatar Customs Law No. 40 of 2002 provides that Qatar Customs Department claims are to be considered as privileged debts. All previous exemptions granted to ministries, government bodies, general corporations or companies were abolished by this new customs law. There can be no assurances that a Qatari court would compel a liquidator of QREIC to perform or cause to be performed any of its respective obligations under any of the Transaction Documents during a winding-up period. Qatari domestic law relating to the enforcement of arbitral awards and foreign judgments is relatively undeveloped. Pursuant to Decree No. 29 of 2003 Approving the State of Qatar Joining the Agreement on Recognition and Implementation of Foreign Arbitration Awards, the State of Qatar acceded to and implemented the principles of the United Nations Convention on the Recognition and enforcement of Foreign Arbitral Awards (New York, 1958) on March 30, 2003. However, there have not been any foreign arbitral awards determined in accordance with the UNCITRAL Arbitration Rules that have been brought before Qatari courts for enforcement. As a matter of Qatari domestic law, Qatari courts will enforce a foreign judgment or arbitral award upon the conditions determined in the foreign jurisdiction for the enforcement of Qatari judgements and arbitral awards as long as (a) the foreign judgment or arbitral award is a final award that has been handed down by a court of competent jurisdiction or a duly constituted arbitral panel, (b) the party against whom the foreign judgment or arbitral award is to be enforced was properly served and represented in the proceedings in the foreign jurisdiction, (c) the foreign judgment or arbitral award does not violate the public policy of the State of Qatar, (d) the issue in questions was not res judicata in Qatar and (e) the subject matter was not reserved for the exclusive jurisdiction of the Qatari courts. There can be no assurance that any foreign arbitral award rendered against QREIC pursuant to the Transaction Documents would be enforced by the courts of Qatar. Under QFC law and regulations, foreign arbitral awards shall be recognised as binding and may be enforced by the QFC Tribunal within the QFC, subject to certain grounds for refusal in accordance with the QFC Arbitration Regulations 2005. Grounds for the QFC Tribunal to refuse recognition or enforcement include, if 2
9. evidence is provided , showing that a party to an arbitration agreement was under some incapacity, the arbitration agreement is not valid under the law to which the parties have subjected it, proper notice of the arbitration was not given, the award did not deal with a dispute contemplated in the agreement, the award is not yet binding under the law applying to the award, the arbitral procedure did not follow that agreed by the parties, or if the QFC Tribunal finds that the subject matter of the dispute would not have been capable of settlement by arbitration under the laws of the QFC or recognition of the award would be contrary to the public policy of the QFC. As the QFC Tribunal regulations have yet to be published it is not possible to be certain how the QFC Tribunal might consider such issues. Even if an arbitral award is effectively enforced in Qatar or the QFC, there can be no assurances that arbitration in respect of the Transaction Documents would protect the interests of the Certificateholders to the same extent, as would some foreign jurisdictions or Qatari courts or the QFC Tribunal in original proceedings. 3
10. PRESENTATION OF FINANCIAL AND OTHER INFORMATION Presentation of Financial Information The financial information set forth herein has , unless otherwise indicated, been extracted, without material adjustments, from the audited financial statements of QREIC as of and for the years ended 31 December 2004 and 31 December 2005 and from the unaudited financial statements of QREIC as of and for six months ended 30 June 2006, in each case prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board. The annual financial statements as of and for the year 31 December 2005 together with the audit opinions, are set out on pages F-6 through F-24 of this Offering Circular. The unaudited financial statements as of and for the six months ended 30 June 2006, are set our on pages F-1 through to F-5 of this Offering Circular. Auditors QREIC’s financial statements as of and for the year ended 31 December 2005 included in this document have been audited by Deloitte & Touche, independent auditors, who have expressed an unqualified opinion on those financial statements, as stated in their report appearing herein. QREIC’s financial statements as of and for the six months ended 31 March 2006 are unaudited. The address of Deloitte & Touche is 4th floor, Kamco Building, P.O. Box 431, Doha, Qatar. 4
11. EXCHANGE RATE INFORMATION The official currency of Qatar , where all of QREIC’s assets and operations are located, is the Qatari Riyal. The Qatari Riyal is pegged to the U.S. dollar. The rates of exchange of the Qatari Riyal to the U.S. dollar for the years 2003 to 2005 were as follows: Year Buying rate of U.S.$ Selling rate of U.S.$ 2003 2004 2005 QR3.6385 QR3.6385 QR3.6385 QR3.6415 QR3.6415 QR3.6415 The current buying rate for U.S.$ is QR 3.6385 and the current selling rate for U.S.$ is QR3.6415. 5
12. SUMMARY OF THE OFFERING The following summary does not purport to be complete and is qualified in its entirety by reference to , and must be read in conjunction with, the detailed information appearing elsewhere in this Offering Circular and related documents referred to herein. Potential investors should read the entire Offering Circular carefully, especially the risks of investing in the Sukuk Certificates discussed under “Risk Factors”. Reference to a Condition is to a numbered condition of the Terms and Conditions of the Sukuk Certificates. Parties Issuer . . . . . . . . . . . . . . . . . . . . . . . . . . . . QREIC Sukuk LLC (a limited liability company) incorporated in the QFC, with registered address at c/o Ansbacher & Co Limited, (P O Box 23589), 11th Floor, Ministry of Economy & Commerce, Doha, Qatar. Ownership of the Issuer . . . . . . . . . . . . . . The authorised and issued share capital of the Issuer is US$1,000 consisting of 1,000 shares with a nominal value of US$1 each. The shares are fully paid up and are held by Ansbacher Trustees (Jersey) Limited as trustee of the Al Ruwais Charitable Trust (See “The Issuer”). QREIC . . . . . . . . . . . . . . . . . . . . . . . . . . . Qatar Real Estate Investment Company (“QREIC”), a public corporation established by Emiri Decree No. 49 issued on 3 July 1995. Musharaka Partners . . . . . . . . . . . . . . . . . QREIC and the Issuer have entered into a Musharaka Agreement as partners in the Musharaka (each a “Musharaka Partner” and together the “Musharaka Partners”). Managing Partner . . . . . . . . . . . . . . . . . . QREIC (in such capacity, the “Managing Partner”) has been appointed by each of the Musharaka Partners to act as agent to provide certain services to the Musharaka, including management of the Musharaka Assets, pursuant to the terms of the Management Agreement. Obligor . . . . . . . . . . . . . . . . . . . . . . . . . . QREIC as obligor (“Obligor”) has executed the Musharaka Purchase Undertaking (as defined below) in favour of the Issuer, pursuant to which the Obligor will undertake to, in certain circumstances, purchase all of the Issuer’s Units (as defined below) in the Musharaka. Lessor and Lessee . . . . . . . . . . . . . . . . . . The Issuer as lessor (the “Lessor”) and QREIC as lessee (the “Lessee”) have executed a Forward Lease Agreement under which the Lessor shall lease (by way of forward lease) the Leased Assets (as defined below) to the Lessee in consideration for Rental Payments (as defined below). In addition, QREIC as Lessee has executed the Lease Purchase Undertaking (as defined below) in favour of the Issuer as Lessor, pursuant to which the Lessee will undertake to, in certain circumstances, purchase the Leased Assets. Procurer and Seller . . . . . . . . . . . . . . . . . QREIC as procurer and seller (the “Procurer and Seller”) shall enter into the Procurement Agreement with the Musharaka Partners (defined below) pursuant to which the Procurer agrees to procure the development and construction of the Assets (as defined below) (by way of an istisna) and under which the Assets shall be sold. 6
13. Mandated Lead Managers . . . . . . . . . . . . Qatar National Bank S.A.Q. (“QNB”) and Qatar National Bank al Islami (“QNBAI”). Bookrunners . . . . . . . . . . . . . . . . . . . . . . Dubai Islamic Bank PJSC, Gulf International Bank B.S.C., Qatar National Bank S.A.Q. and Standard Chartered Bank. Joint Lead Managers . . . . . . . . . . . . . . Dubai Islamic Bank PJSC, Gulf International Bank B.S.C. and Standard Chartered Bank (and, together with the Mandated Lead Managers, the “Lead Managers”). Trustee and Agent . . . . . . . . . . . . . . . . . . The Issuer will act as trustee in respect of the Trust Assets (as defined below) (the “Trustee”) for the benefit of Certificateholders in accordance with the Declaration of Trust and the Conditions. Pursuant to an Agency Declaration dated the First Funding Date made by the Issuer (the “Agency Declaration”), the Issuer will also act as agent for and on behalf of Certificateholders with respect to the Trust Assets. Security Agent . . . . . . . . . . . . . . . . . . . . . Qatar National Bank S.A.Q. has been appointed by the Issuer as a security agent for the purposes of inter alia, holding security granted or to be granted by QREIC. Account Bank . . . . . . . . . . . . . . . . . . . . . Qatar National Bank S.A.Q. has been appointed as account bank for the purposes of operating and maintaining the Procurement Account and/or QP Rentals Account. Transaction Administrator . . . . . . . . . . . Deutsche Bank AG, London Branch (the “Transaction Administrator”) has been appointed by the Trustee. The Transaction Administrator shall, in the circumstances set out in the Transaction Administration Deed, exercise the Issuer’s option under the Musharaka Purchase Undertaking and/or the Lease Purchase Undertaking. Principal Paying Agent, Calculation Agent, Transfer Agent and Replacement Agent . . . . . . . . . . . . . . . Deutsche Bank AG, London Branch Registrar, Listing Agent, Luxembourg Paying Agent and Luxembourg Transfer Agent . . . . . . . . . . . . . . . . . . . Deutsche Bank Luxembourg S.A. Summary of the Musharaka Musharaka Agreement . . . . . . . . . . . . . . Pursuant to the musharaka agreement (the “Musharaka Agreement”) dated on or about the First Funding Date and entered into between the Musharaka Partners, QREIC and the Issuer agree to enter into a joint venture (the “Musharaka”) established pursuant to the terms of the Musharaka Agreement. The Musharaka shall commence on the date of the Musharaka Agreement and shall terminate on the earlier to occur of (a) the date the Issuer notifies QREIC that it wishes to terminate the Musharaka Agreement; following the occurrence of an Event of Default or a Change in Circumstance, (as described therein) (b) the date the Musharaka Partners agree in writing to terminate the Musharaka; (provided that such date shall not be earlier than the day after the redemption and payment in full of the Sukuk Certificates) (c) the date falling 126 months after the commencement of the Musharaka Agreement; and (d) the date that all the Units are vested in a single Musharaka Partner (the “Musharaka End Date”). 7
14. Following the full contribution to be made by each Partner , the capital of the Musharaka shall be US$326,475,436. The Issuer shall contribute cash in the total amount of US$270,000,000 (the “Issuer’s Contribution”) payable in four instalments on each Funding Date as set out below: First Funding Date . . . . . . . . Second Funding Date . . . . . . Third Funding Date . . . . . . . Fourth Funding Date . . . . . . 31 August 2006 US$100,000,000 30 November 2006 US$50,000,000 28 February 2007 US$50,000,000 31 May 2007 US$70,000,000 QREIC shall make a contribution to the value of US$56,475,436, comprising (i) a contribution in kind by QREIC vesting into the Musharaka all of its rights, benefits and entitlements to the QREIC Usufruct Rights (with a valuation agreed between the Musharaka Partners of US$1,000,000), together with (ii) the total value of Assets already constructed at the date of the Musharaka Agreement (valued at US$55,475,436) (“QREIC’s Contribution” and together with the Issuer’s Contribution, the “Capital Contributions”) to the capital of the Musharaka. Musharaka Assets . . . . . . . . . . . . . . . . . . The capital of the Musharaka and all assets acquired after, from or through the application of the Capital Contributions shall be assets of the Musharaka (the “Musharaka Assets”). Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Musharaka Assets shall belong to the Musharaka Partners in the proportions in which each has contributed capital to the Musharaka. Each Musharaka Partner’s entitlement to the Musharaka Assets will be undivided and shall for the purpose of more particular determination constitute units (the “Units”). At the outset, after making their respective contributions, QREIC and the Issuer shall have Units in the Musharaka as set out below. Contributions and Share of Musharaka Units Issuer’s aggregate cash contribution Date First Funding Date . . . . . . . . Second Funding Date . . . . . . Third Funding Date . . . . . . . Fourth Funding Date . . . . . . Musharaka Objectives and Application of Capital Contributions . . . . . . . . . . . . . . . . . . . . 100 150 200 270 Units Issuer QREIC 63.91 95.86 127.81 172.54 36.09 36.09 36.09 36.09 Total number of Units 100 131.95 163.90 208.63 The objectives of the Musharaka shall be to construct two housing complexes to be located in Dukhan and Mesaieed in Qatar (“Assets”) in accordance with the musharaka business plan appended to the Musharaka Agreement (the “Musharaka Business Plan”). The Lead Managers are not responsible for the performance or the profitability of the Musharaka or the underlying Musharaka Assets or the share and amount of the distributions made to each Musharaka Partner. Further, the Lead Managers make no representation or accept no responsibility as to the feasibility of the Musharaka Business Plan or whether its objectives can or will be achieved. 8
15. Musharaka profit distribution . . . . . . . . . Notwithstanding the distribution of Units referred to above, the Musharaka Business Plan contemplates that the Musharaka profit will be distributed between the Musharaka Partners in accordance with the following proportions: QREIC Issuer 10 per cent 90 per cent. Financial Covenants of QREIC . . . . . . . . QREIC has made certain financial covenants under the Musharaka Agreement. It shall ensure that: 1. the ratio of Total Liabilities at any time to Consolidated Tangible Net Worth for the Relevant Period shall not at any time exceed 2.5:1; 2. the Consolidated Tangible Net Worth of QREIC and its Subsidiaries shall not be less than QR1,100,000,000 during any Relevant Period; 3. the Tangible Net Worth of QREIC shall not be less than QR1,100,000,000 during any Relevant Period; 4. no more than 30 per cent of its Consolidated Tangible Net Worth is invested in Approved Investments at any one time provided that QREIC shall be entitled to invest an additional 10 per cent of its Consolidated Tangible Net Worth in any real estate funds which are not based in the State of Qatar; and 5. no more than 10 per cent of its Consolidated Tangible Net Worth is invested in any single entity at any one time provided that this covenant shall not apply to any (i) real estate funds, real estate investment trusts and real estate related investments (whether (a) tradable or non-tradable (b) investments in closed companies, limited liability companies or joint ventures or (c) otherwise), in each case which are based in Qatar, (ii) Property Investments or (iii) Land Investments. The defined terms above shall have the following meanings: “Approved Investments” means any bond, debenture, note, stock, share, warrant, unit or other security, whether listed or not, and all moneys, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of them (and, whether constituted, evidenced or represented by a certificate or other document or by an entry in the books or any other permanent records of the issuer, a trustee or other fiduciary, or a clearance system) excluding, in each case, any (i) real estate funds, real estate investment trusts and direct real estate related investments (whether (a) tradable or non-tradable investments; (b) investments in closed companies, limited liability companies or joint ventures; or (c) otherwise), in each case which are based in Qatar, (ii) Property Investments or (iii) Land Investments. “Consolidated Tangible Net Worth” means the nominal paid-up capital of QREIC and its Subsidiaries plus the aggregate of amounts standing to the credit of reserves (including share premium account, capital redemption reserve, profit & loss account, subordinated shareholders’ loans and shareholders’ current account) less goodwill and other intangible assets, less dividends declared but not paid, and debit balances in the profit & loss account and the shareholders’ current account. 9
16. “Financial Indebtedness” means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with International Financial Reporting Standards, be treated as a finance or capital lease; (e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); (f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account); (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution excluding any performance bonds; (i) any amount of any liability under an advance or deferred purchase agreement if one of the primary reasons behind the entry into this agreement is to raise finance; (j) any obligations incurred by QREIC in respect of any Islamic financing arrangements; and (k) (without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above. “Land Investments” means the investments in land (including any references to land set out as a fixed asset) as set out in the financial statements delivered by QREIC in accordance with the Musharaka Agreement. “Property Investments” means any investments in property as set out in the accounts to be delivered by QREIC in accordance with the Musharaka Agreement. “Relevant Period” means each period of twelve months ending on the last day of QREIC’s financial year and each period of six months ending on the last day of the first half of QREIC’s financial year. “Subsidiary” means in relation to any company or corporation, a company or corporation: (a) which is controlled, directly or indirectly, by the first mentioned company or corporation; 10
17. (b) more than half the issued share capital of which is beneficially owned, directly or indirectly by the first mentioned company or corporation; or (c) which is a Subsidiary of another Subsidiary of the first mentioned company or corporation, and for this purpose, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct its affairs and/or to control the composition of its board of directors or equivalent body. “Tangible Net Worth” means the nominal paid-up capital of QREIC plus the aggregate of amounts standing to the credit of reserves (including share premium account, capital redemption reserve, profit & loss account, subordinated shareholders’ loans and shareholders’ current account) less goodwill and other intangible assets, less revaluation reserves, less dividends declared but not paid, and debit balances in the profit & loss account and the shareholders’ current account. “Total Liabilities” mean, at any date, all Financial Indebtedness relating to QREIC and its Subsidiaries on such date. Management Agreement . . . . . . . . . . . . . By a management agreement (the “Management Agreement”) to be entered into between QREIC as managing partner (the “Managing Partner”) and the Musharaka Partners, the Managing Partner shall be appointed as manager of the Musharaka. The management responsibilities of the Managing Partner shall be set out in the Management Agreement and shall entitle the Managing Partner to carry out all necessary action on behalf of the Musharaka to achieve the Musharaka’s objectives. The Musharaka’s operating costs, properly incurred by the Managing Partner in such capacity, shall be for the account of the Musharaka. Procurement Agreement . . . . . . . . . . . . . The Musharaka Partners will appoint the Procurer to construct (or procure the construction of) the Assets (by way of an istisna). The Procurement Agreement will set out the terms and conditions on which the Assets are to be constructed by the Procurer. If construction of the Assets is not completed by the Asset Completion Date (being a date falling 24 months after the date of the Procurement Agreement), liquidated damages shall be payable by the Procurer to the Issuer. The Procurement Agreement will also contain a longstop date being a date falling 30 months after the date of the Procurement Agreement (the “Longstop Date”) to allow the Issuer to terminate the Procurement Agreement if completion has not taken place by such date. Forward Lease Agreement . . . . . . . . . . . The Lessor and the Lessee have entered into a forward lease agreement (“Forward Lease Agreement”) under which the Lessor leases (by way of forward lease) the Leased Assets to the Lessee in consideration for the Rental Payments and the Lessee accepts the lease of the Leased Assets upon the terms and conditions of the Forward Lease Agreement. Lease Periods . . . . . . . . . . . . . . . . . . . . . . The first Lease Period will commence on, and include, the Commencement Date and end on, but exclude, the first Rental 11
18. Payment Date falling after the Commencement Date . Each subsequent Lease Period shall commence on, and include, a Rental Payment Date and end on, but exclude, the following Rental Payment Date. The Lessee irrevocably undertakes to renew the lease for subsequent Lease Periods comprising three months each (each a “Lease Period”), the total of which shall be 32. A notice, will be given by the Lessor (or the Calculation Agent on its behalf) to the Lessee advising it of renewing the Lease Period and fixing the Rental Payments for each Lease Period. The notice will be given at least two Business Days prior to the start of the next Lease Period. Rental Payments . . . . . . . . . . . . . . . . . . . The Rental Payments for the first Lease Period shall consist of the following and shall be payable on the first Rental Payment Date: (a) Fixed Rental (defined below); and (b) Variable Rental (defined below), The Rental Payments for the second Lease Period shall consists of the following and shall be payable on the relevant Rental Payment Date: (a) Fixed Rental; (b) Variable Rental; (c) Lease Services Amount (defined below); and (d) Additional Rental (defined below), less the aggregate of any Advance Rental paid. The Rental Payments for the third and the subsequent Lease Periods will consist of the following: (a) Fixed Rental; (b) Variable Rental; and (c) Lease Services Amount. Advance Rental . . . . . . . . . . . . . . . . . . . . The Lessee shall pay Advance Rental from the date of signing the Forward Lease Agreement until the Commencement Date. The amount of Advance Rental, in respect of an Advance Rental Period, shall be an amount equal to: (a) the relevant Base Amount applicable to that Advance Rental Period multiplied by the aggregate of: (i) the Margin; and (ii) LIBOR for the relevant Advance Rental Period; (b) multiplied by the number of days in that Advance Rental Period, (c) divided by 360. The Advance Rental paid by the Lessee from the date of signing the Forward Lease Agreement until the Commencement Date shall be set-off against the Additional Rental payable in respect of the second Lease Period. At the end of the Lease Period and provided that the Lessee has successfully complied with all its obligations under the Forward 12
19. Lease Agreement , the Lessor promises to sell the Leased Assets to the Lessee, free and clear of any encumbrance for a nominal amount of US$10 plus the aggregate of any Servicing Agency Expenses incurred by the Managing Partner in respect of the final Lease Period. A separate sale and purchase agreement will be executed at that time to formalize the sale and purchase. Musharaka Purchase Undertaking . . . . . . The Obligor shall execute a musharaka purchase undertaking in favour of the Issuer as agent and trustee for the Certificateholders (the “Musharaka Purchase Undertaking”). Pursuant to the Musharaka Purchase Undertaking, the Obligor irrevocably undertakes to the Issuer that upon the Issuer exercising, at any time between the date of the Musharaka Purchase Undertaking and the date that the Musharaka is terminated or dissolved in accordance with the Musharaka Agreement, its option to oblige the Obligor to buy all of the Issuer’s Units as a result of the occurrence of a Dissolution Event (as defined in Condition 11 (Dissolution Events) (including any gross negligence or wilful default on the part of the Obligor which results in the occurrence of a Dissolution Event), the Obligor will buy such Units on an “as is, where is” basis (without warranty express or implied as to condition, fitness for purpose, suitability for use or otherwise and if any warranty is implied by applicable law, it shall be excluded to the fullest extent permitted by applicable law) from the Issuer at the Exercise Price (as defined below), on the terms and subject to the conditions of the Musharaka Purchase Undertaking. The Issuer may exercise such option, upon giving a notice to the Obligor under the Musharaka Purchase Undertaking (an “Exercise Notice”), and the relevant number of the Issuer’s Units shall be transferred to the Obligor by way of separate sale agreement. “Exercise Price” means a US Dollar sum equal to the Unscheduled Dissolution Distribution Amount (as defined in Condition 9 (Dissolution of Trust)) at the date falling two Business days after the date of the Exercise Notice. Musharaka Sale Undertaking . . . . . . . . . The Issuer shall execute a Musharaka sale undertaking (the “Musharaka Sale Undertaking”) pursuant to which the Issuer shall, at QREIC’s option, sell the Issuer’s Units at the Exercise Price (as defined above) on the fifth anniversary of the First Funding Date provided that QREIC may only exercise such option by giving not less than thirty days notice prior to the fifth anniversary of the First Funding Date and such notice shall be irrevocable. Lease Purchase Undertaking . . . . . . . . . . The Lessee shall execute a lease purchase undertaking in favour of the Lessor (the “Lease Purchase Undertaking”). Pursuant to the Lease Purchase Undertaking, the Lessee irrevocably undertakes to the Lessor that upon the Lessor exercising, at any time between the date of the Lease Purchase Undertaking and the Lease End Date, its option to oblige the Lessee to buy the Leased Assets as a result of the occurrence of a Dissolution Event as defined in Condition 11 (Dissolution Events) (including any gross negligence or wilful default on the part of the Lessee which results in the occurrence of a Dissolution Event), the Lessee shall buy such Leased Assets on an “as is, where is” basis (without warranty express or implied as to condition, fitness for purpose, suitability for use or otherwise and if any warranty is implied by applicable law, it shall be excluded to the fullest extent permitted by applicable law) at the Exercise Price (as defined below) on the terms 13
20. and subject to the conditions of the Lease Purchase Undertaking . The Lessor may exercise such option by giving a notice to the Lessee under the Lease Purchase Undertaking (an “Exercise Notice”). “Exercise Price” means a US dollar sum equal to (i) the Outstanding Fixed Rental; (ii) the accrued and unpaid Variable Rental; (iii) the actual Lease Services Amount; and (iv) any other costs incurred by the Lessor, in each case as at the date falling two Business Days after the date of the Exercise Notice. Lease Sale Undertaking . . . . . . . . . . . . . . The Issuer (as lessor) shall execute a lease sale undertaking (the “Lease Sale Undertaking”) in which the Issuer shall, at QREIC’s option sell the Leased Assets at the Exercise Price (as defined above) on the fifth anniversary of the First Funding Date provided that QREIC may only exercise such option by giving not less than thirty days notice prior to the fifth anniversary of the First Funding Date and such notice shall be irrevocable. Late Payments . . . . . . . . . . . . . . . . . . . . . If (in any capacity) QREIC fails to pay all or part of any payment then QREIC will irrevocably undertake to pay the Issuer (in the relevant capacity) a late payment amount in respect of the period from, and including, the due date for settlement to, but excluding, the date of full settlement, calculated on a daily basis, as the product of (a) LIBOR plus 2 per cent per annum, (b) the outstanding amount due, and (c) on the basis of 12 months of 30 days each. Any late payment received by the Issuer must be donated to the Red Crescent charity or, in the event that it is not practicable for the Issuer to donate such funds to the Red Crescent charity, to such charity as the Issuer may choose in accordance with the principles of Sharia. Security . . . . . . . . . . . . . . . . . . . . . . . . . . The following will be taken as security (the “Security”): (a) The rights of QREIC under the QP Lease and Construction Agreements entered into by QREIC and Qatar Petroleum (the “QREIC Usufruct Rights”) shall be assigned to the Security Agent under the Assignment Agreement. QREIC shall seek the Security Agent’s consent for any material amendments to the QP Lease and Construction Agreements. (b) The rights of QREIC under any performance bonds procured by QREIC as the Contractor shall be assigned to the Security Agent under the Assignment Agreement for the benefit of the Certificateholders. QREIC is required to provide notice to and obtain acknowledgements from each performance bond provider of such assignment. Failure to obtain such acknowledgements within 90 days of the date of the notice shall constitute a Dissolution Event. (c) The rights of QREIC pursuant to certain of the construction insurances shall be assigned to the Security Agent under the Assignment Agreement. The Security Agent shall use the amounts it recovers as a result of the enforcement of the Security to promptly satisfy all or part of QREIC’s obligations in respect of a payment due pursuant to and in accordance with the terms of the Lease Purchase Undertaking or the Musharaka Purchase Undertaking. In addition, QREIC is required to maintain the Minimum Balance with the Account Bank which can be invested into Permitted Investments provided that any such Permitted Investments 14
21. shall have a maturity ending at least 5 Business Days prior to the next Periodic Distribution Date . Definitions . . . . . . . . . . . . . . . . . . . . . . . . The defined terms used above shall have the following meanings: “Additional Rental” means the amount equal to the aggregate of the Advance Rental payable by the Lessee to the Lessor from the date of signing the Forward Lease Agreement until the Commencement Date. “Advance Rental Payment Date” means the 31 August, 30 November, 28 February and 31 May, or if any such day is not a Business Day, the following Business Day, unless it would thereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day, commencing on 30 November 2006 and up to and including the Commencement Date or any earlier date on which the Forward Lease Agreement is terminated by the parties thereto. “Advance Rental Period” means: (a) in the case of the first Advance Rental Period, the period beginning on (and including) the date of the Forward Lease Agreement and ending on (but excluding) the first Advance Rental Payment Date; and (b) subsequently, each period beginning on (and including) the previous Advance Rental Payment Date to (but excluding) the immediately following Advance Rental Payment Date. Assignment Agreement means the assignment agreement dated on or about 31 August 2006 and made between QREIC as Assignor and Qatar National Bank S.A.Q. as Security Agent. “Base Amount” means the following: (a) in respect of the first Advance Rental Period, US$100m; (b) in respect of the second Advance Rental Period, US$150m; (c) in respect of the third Advance Rental Period, US$200m; (d) in respect of the fourth Advance Rental Period, US$270m; and (e) thereafter, US$270m. “Business Day” means a day (other than a Friday) on which banks are open for general business in Doha, London and, if a payment in US Dollars is required to be made on such day, New York. “Commencement Date” means the date that Delivery occurs pursuant to the Procurement Agreement. “Constructed Assets” means the assets constructed pursuant to the QP Lease and Construction Agreements as at the date of the Musharaka Agreement as more particularly described in the Musharaka Business Plan. “Delivery” means the date on which a notification is sent by QREIC as Procurer in a satisfactory state as evidenced by the QP Completion Certificate and the Issuer accepts (in writing) delivery of the Assets, provided that Delivery shall not occur before the Asset Completion Date. 15
22. “Fixed Rental” means, in each case, US$8,437,500. “Leased Assets” means the Lessor’s 82.70% undivided beneficial share in the Musharaka Assets which shall include the Constructed Assets, together with the assets to be constructed in accordance with the Specifications. “Lease End Date” means the date falling 120 months after the date of the QREIC Lease. “Lease Services Amount” means in respect of a Lease Period, the amount paid or incurred by the Managing Partner during the immediately preceding Lease Period for the Services (as defined in the Management Agreement) and invoiced to the Lessor in accordance with the Management Agreement. “LIBOR” means the London inter-bank offered rate for three-month US dollar deposits determined in accordance with the Forward Lease Agreement. “Major Maintenance and Structural Repair” means all structural repair and major maintenance (including doing such acts or things and taking such steps to ensure that the Leased Assets suffers no damage, loss or diminution in value) whether in whole or in part (excluding Ordinary Maintenance and Repair) without which the Leased Assets could not be reasonably and properly used by the Lessee. “Margin” means 1.20 per cent per annum. “Minimum Balance” means, at any time, the US$ amount due to be paid by QREIC (i) as Lessee on the next Advance Rental Payment Date or Rental Payment Date or (ii) as Procurer on any Liquidated Damages Date (as defined in the Procurement Agreement). “Ordinary Maintenance and Repair” means all repairs, modifications, replacements, acts, maintenance and upkeep works reasonably required for the general use and operation of the Leased Assets or to keep, repair, maintain and preserve the Leased Assets in good order, state and condition. “Outstanding Fixed Rental” means US$270,000,000 less the aggregate amount of any Fixed Rental paid under the Forward Lease Agreement. “Permitted Investments” means, at any time and, in each case, Sharia compliant: (a) Dollar-denominated or Euro-denominated securities, time deposits and certificates of deposit or capital protected products: (i) which are repayable within 180 days; and (ii) which are for the time being rated at least A-1 by Standard & Poor’s or P-1 by Moody’s or which are time deposits and certificates of deposit or other investment instruments with a bank that has a credit rating of not less than BBB+ from Standard & Poor’s or Baa1 from Moody’s, provided that the total amount held with any such bank does not exceed 20 per cent of QREIC’s tangible net worth as evidenced in its latest audited annual accounts; 16
23. (b) any other Dollar-denominated or Euro-denominated investment that the Security Agent (on behalf of the Issuer) agrees in writing shall constitute a Permitted Investment; (c) with respect to Qatari Riyals: (i) securities issued or directly and fully guaranteed or insured by the government of Qatar or any agency or instrumentality thereof; (ii) time deposits and certificates of deposit, which are repayable within 180 days, of any Qatari bank; and any other Qatari Riyal investment that the Security Agent (on behalf of the Issuer) agrees in writing shall constitute a Permitted Investment. “QP Completion Certificate” means the certificate of completion to be provided by Qatar Petroleum in relation to the construction of the Assets, provided that where multiple certificates of completion are issued, the “QP Completion Certificate” shall mean the final completion certificate to be delivered by Qatar Petroleum in respect of the Assets (certified as such by Qatar Petroleum and the Procurer). “QP Lease and Construction Agreements” means: (a) the Dukhan Lease and Construction Agreements; and (b) the Mesaieed Lease and Construction Agreement. “Rental Payments” means each amount to be paid to the Lessor by the Lessee in accordance with the Forward Lease Agreement. “Rental Payment Date” means each 31 August, 30 November, 28 February and 31 May or if any such day is not a Business Day, the following Business Day unless it would thereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day, commencing on the Commencement Date and up to and including 31 August 2016 or any earlier date on which the Forward Lease Agreement is terminated by the parties thereto. “Specifications” has the meaning given to it in the Procurement Agreement; “Variable Rental” means an amount which is equal to the following: (a) the Outstanding Fixed Rental multiplied by the aggregate of: (i) Margin and (ii) LIBOR, multiplied by (iii) the number of days in that Lease Period divided by 360. Summary of the Sukuk Certificates Sukuk Certificates . . . . . . . . . . . . . . . . . . US$270,000,000 Trust Certificates due 2016 (as detailed in the Sukuk issue below) (the “Sukuk Certificates” or the “Sukuk”). First Funding Date . . . . . . . . . . . . . . . . . . 31 August 2006 Issue Price . . . . . . . . . . . . . . . . . . . . . . . . 100 per cent of the aggregate principal amount of the Sukuk Certificates. 17
24. Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . Each Sukuk Certificate evidences an undivided beneficial ownership in the Trust Assets (as defined in Condition 4.1 (Summary of the Trust) and will rank pari passu, without any preference, with the other Sukuk Certificates. Sukuk Issue . . . . . . . . . . . . . . . . . . . . . . . The Sukuk Certificates will be issued in an aggregate principal amount of US$100,000,000 on the First Funding Date in accordance with the Subscription Undertaking. The remaining Sukuk Certificates will be issued on Further Funding Dates as set out in the schedule below and in accordance with the Subscription Undertaking (the “Further Sukuk Certificates”): Further Funding Dates 30 November 2006 . . . . . . . . . . . . . . . . . . . . . . 28 February 2007 . . . . . . . . . . . . . . . . . . . . . . . 31 May 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . Principal Amount (US$) 50,000,000 50,000,000 70,000,000 The total amount of the Sukuk Certificates to be issued on the First Funding Date (being an aggregate principal amount of US$100,000,000) will be fully subscribed by the Lead Managers, on the First Funding Date subject to the terms of the Subscription Undertaking. The Further Sukuk Certificates will be subscribed by the Lead Managers on the Further Funding Dates and in the principal amounts as set out above, subject to the terms of the Subscription Undertaking. Periodic Distribution Dates . . . . . . . . . . . Distributions on the Sukuk Certificates will be made in arrear on 31 August, 30 November, 28 February and 31 May in each year or if any such day is not a Business Day, the following Business Day unless it would thereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day, commencing on 30 November 2006 (each a “Periodic Distribution Date”). The period from and including 31 August 2006 to but excluding the first Periodic Distribution Date and each successive period from and including a Periodic Distribution Date to the next succeeding Periodic Distribution Date is a “Periodic Distribution Period”. Periodic Distribution Amounts . . . . . . . . Subject to Condition 4.2 (Application of Proceeds from Trust Assets) on each Periodic Distribution Date holders of the Sukuk Certificates will be paid an amount equal to the product of (a) the Margin plus LIBOR (as each such term is defined in Condition 6 (Periodic Distributions); (b) the outstanding aggregate principal amount of the Sukuk Certificates; and (c) the actual number of days in the related Periodic Distribution Period divided by 360 (the “Periodic Distribution Amount”). Scheduled Repurchase Date . . . . . . . . . . Unless previously redeemed or cancelled, the Sukuk Certificates will be redeemed in 32 equal instalments on Scheduled Repurchase Dates, as further described in Condition 8 (Scheduled Repurchase), the first Scheduled Repurchase Date falling on 28 November 2008 and the final Scheduled Repurchase Date falling on 31 August 2016 (the “Scheduled Dissolution Date”). Redemption following a Dissolution Event or exercise of QREIC’s Call Option . . . . . . . . . . . . . . . . . . . . . . . . . The Sukuk Certificates may be redeemed in full prior to the Scheduled Dissolution Date upon the occurrence of a Dissolution Event, as further described in Condition 9.2 ( Dissolution of Trust) or upon the exercise of QREIC’s Call Option, as further described in Condition 10 (Early Redemption at QREIC’s Option (“Call Option”). 18
25. Each Sukuk Certificate will be redeemed at the outstanding aggregate principal amount of such Sukuk Certificate then outstanding plus any accrued and unpaid Periodic Distribution Amounts as at such date . Role of Transaction Administrator . . . . . The Transaction Administrator shall be appointed, pursuant to a transaction administration deed (the “Transaction Administration Deed”) to act as agent of the Issuer to: (a) deliver Exercise Notices on the Obligor or Lessee in accordance with the Musharaka Purchase Undertaking or the Lease Purchase Undertaking; and (b) following the occurrence of a Dissolution Event (other than in respect of Total Loss or Force Majeure (as each term is defined in Condition 11 (Dissolution Events)), take enforcement action in the name of the Issuer against the Obligor or Lessee in respect of the Issuer’s rights under the Musharaka Purchase Undertaking or the Lease Purchase Undertaking respectively. Form and Delivery of the Sukuk Certificates . . . . . . . . . . . . . . . . . . . . . The Sukuk Certificates will be issued in registered global form only. The Sukuk Certificates will be represented by interests in the Global Certificate deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Individual Certificates evidencing holdings of Sukuk Certificates will only be issued in exchange for interests in the Global Certificate in certain limited circumstances. (See “Summary of Provisions Relating to the Sukuk Certificates in Global Form” and “Clearance and Settlement”). Clearance and Settlement . . . . . . . . . . . . Holders of the Sukuk Certificates may elect to hold their interest in the Global Certificate in book-entry form through each of Euroclear or Clearstream, Luxembourg. Transfers within Clearstream, Luxembourg or Euroclear will be in accordance with the usual rules and operating procedures of the relevant clearance system. (See “Clearance and Settlement”.) Denominations . . . . . . . . . . . . . . . . . . . . The Certificates will be issued in minimum denominations of US$100,000 and integral multiples of US$1,000, in excess thereof. The Trust Assets . . . . . . . . . . . . . . . . . . . The Trust is the trust constituted by the Issuer under the Declaration of Trust. The “Trust Assets” consist of: (1) the Issuer’s undivided share in the Musharaka Assets (the “Coownership Interest”); (2) all of the Issuer’s rights, title, interest and benefit, present and future, in, to and under the Transaction Documents, and any other agreements and documents delivered or executed in connection therewith; (3) all of the Issuer’s rights, title, interest and benefit, present and future, in, to and under the insurances required to be taken out by QREIC under the Procurement Agreement and/or by QREIC under the Management Agreement, as the case may be; (4) all monies standing from time to time to the credit of the Transaction Account and which are the property of the Issuer; and (5) all proceeds of the foregoing. 19
26. Transaction Account . . . . . . . . . . . . . . . . The Paying Agent will maintain and operate the Transaction Account on behalf of the Trust. Distributions of monies deriving from the Trust Assets will be made to holders of the Sukuk Certificates from funds standing to the credit of the Transaction Account. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . All payments in respect of the Transaction Documents shall be made without withholding or deduction for Taxes (as defined in Condition 12 (Taxation)), unless the withholding or deduction of such Taxes is required by law. Under the Qatar Financial Centre Law No 7 of 2005 (“QFC Law”) there is currently no taxation of any QFC entity. Under the QFC Law, entities established in the QFC shall not be subject to any taxes or duties for a period of three years up to 30 April 2008. Thereafter the Minister of Economy and Commerce is authorized by the QFC Law to enact regulations imposing taxes on entities, individuals, corporates and businesses operating in the QFC and provide exemptions therefrom for such periods as may be deemed appropriate. The Issuer, QREIC and Qatar National Bank S.A.Q. for and on behalf of all of the Lead Managers requested comfort that no taxes would be applied to the Issuer in future by a letter (the “Letter”) addressed to the Chairman of the QFC Authority dated 28 June, 2006. The Issuer, QREIC and Qatar National Bank S.A.Q. have received a letter from the Chairman of the QFC Authority confirming that the Issuer, in respect of this transaction, itself will either not be subject to, or will be exempted by regulation from, any taxes or duties of any kind that may be imposed on any QFC entities, individuals, corporates and businesses (including but not limited to special purpose vehicles or transactions of the same or similar kind to QREIC Sukuk LLC in respect of this transaction) by any regulations that the Board may approve and recommend for enactment under Article 9 of the QFC Law or otherwise from time to time. Any such taxes and duties will not apply to make QREIC Sukuk LLC in respect of this transaction subject to QFC taxes and duties. Such exemption of QREIC Sukuk LLC in respect of this transaction from tax and duties will apply for the duration of the transaction, including any period by which the term of the transaction may be extended in accordance with its terms, up to and including, (i) the date on which QREIC Sukuk LLC proposes to redeem the sukuk certificates under the Transaction Documents delivered to the Qatar Financial Centre Regulatory Authority on or before the date of the Letter, and (ii) in respect of any payment default under the transaction by the QREIC Sukuk LLC, the date on which that payment default is remedied by the QREIC Sukuk LLC whether by any judicial action or otherwise. (See “Taxation” for a further description on tax considerations.) Use of Proceeds . . . . . . . . . . . . . . . . . . . . The proceeds of the issue of the Sukuk Certificates will be used by the Issuer to pay the Issuer’s Contribution to the Musharaka. Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . Application will be made to list the paid up Sukuk Certificates on the Official List of the Luxembourg Stock Exchange and to admission to trading on the Euro MTF Market of the Luxembourg Stock Exchange but there can be no assurances that such listing will occur on the First Funding Date, or at all. (See “General Information”.) Certificateholder Meetings . . . . . . . . . . . A summary of the provisions for convening meetings of Certificateholders to consider matters relating to their interests as such are set forth under Condition 16 (Meetings of Certificateholders, Modification, Waiver, Authorisation and Determination). 20
27. Transfer Restrictions . . . . . . . . . . . . . . . . Certain purchase and transfer restrictions applicable to the Sukuk Certificates are set forth under “Subscription and Sale”. Transaction Documents . . . . . . . . . . . . . . The “Transaction Documents” consist of the Declaration of Trust; the Conditions; the Sukuk Certificates; the Subscription Undertaking; the Agency Agreement; the Agency Declaration; the Costs Undertaking; the Transaction Administration Deed; the Global Certificate; the Musharaka Agreement; the Musharaka Purchase Undertaking; the Lease Purchase Undertaking; the Lease Sale Undertaking; the Forward Lease Agreement; the Musharaka Sale Undertaking; the Management Agreement; the Procurement Agreement; the QREIC Lease; the Accounts Agreement; the CP Side Letter; the Security Documents, this Offering Circular and any other agreements and documents delivered or executed in connection therewith (each as defined in the Conditions). The “Security Documents” means the Assignment Agreement and any other document designated as such by the Security Agent and QREIC as Managing Partner. Governing Law and jurisdiction . . . . . . . The Transaction Documents including the Sukuk Certificates (other than the Security Documents) will be governed by English law and subject to the non-exclusive jurisdiction of the English Courts. The Security Documents will be governed by the laws of Qatar. The courts of Qatar have non-exclusive jurisdiction to hear all disputes relating to each of those documents. Waiver of Sovereign Immunity . . . . . . . . Each of the Issuer and QREIC acknowledges in the Transaction Documents to which it is a party that: Private and Commercial Acts: it is subject to civil and commercial laws with respect to its obligations under the Transaction Documents, and the execution and delivery of the Transaction Documents constitute, and the exercise of its rights and the performance of its obligations hereunder and thereunder will constitute, private and commercial acts done or performed for private and commercial purposes rather than governmental or public acts; No immunity from suit: it can be sued in its own name and has no right of immunity from suit or the jurisdiction of the courts under the laws of Qatar (in the case of QREIC) or the QFC Tribunal (in the case of the Issuer); and Waiver of Immunity: to the extent that either of QREIC or the Issuer may in any jurisdiction claim for itself or its assets or revenues immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that such immunity (whether or not claimed) may be attributed to it or its assets or revenues, each of the Issuer and QREIC represents and agrees that it will not claim and irrevocably and unconditionally waives to the fullest extent possible under applicable law such immunity in relation to any proceedings. 21
28. SUMMARY OF PROVISIONS RELATING TO THE SUKUK CERTIFICATES IN GLOBAL FORM The Global Certificate contains the following provisions which apply to the Sukuk Certificates in respect of which they are issued while they are represented by the Global Certificate , some of which modify the effect of the Conditions. Terms defined in the Conditions have the same meaning in the paragraphs below. Holders The Sukuk Certificates will be represented by a Global Certificate, which will be registered in the name of BT Globenet Nominees as nominee for, and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg. For so long as all of the Sukuk Certificates are represented by the Global Certificate and such Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg, each person (other than another clearing system) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of such Sukuk Certificates (each, a “Holder”) (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg (as the case may be) as to the aggregate face amount of such Sukuk Certificates standing to the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of such aggregate principal amount of such Sukuk Certificates (and the expression “Certificateholders” and references to “holding of Sukuk Certificates” and to “holder of Sukuk Certificates” shall be construed accordingly) for all purposes other than with respect to payments on such Certificates, the right to which shall be vested, as against the Issuer and the Trustee solely in the Common Depositary in accordance with and subject to the terms of the Global Certificate. Each Holder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the Common Depositary. Cancellation Cancellation of any Sukuk Certificate following its redemption by the Issuer will be effected by the reduction in the aggregate principal amount of the Sukuk Certificates in the Register of Certificateholders and by the annotation of the appropriate schedule to the Global Certificate. Payments Payments of any Periodic Distribution Amount, Scheduled Repurchase Amounts or Unscheduled Dissolution Distribution Amount in respect of Sukuk Certificates represented by the Global Certificate will be made upon presentation or, if no further payment falls to be made in respect of the Certificate, against presentation and surrender of the Global Certificate to or to the order of the Principal Paying Agent or such other Agents as shall have been notified to the holder of the Global Certificate for such purpose. Distributions of amounts with respect to book-entry interests in the Sukuk Certificates held through Euroclear or Clearstream, Luxembourg will be credited, to the extent received by the Principal Paying Agent to the cash accounts of Euroclear or Clearstream, Luxembourg participants in accordance with the relevant system’s rules and procedures. A record of each payment made will be endorsed on the appropriate schedule to the Global Certificate by or on behalf of the Registrar and shall be prima facie evidence that payment has been made. Individual Certificates The Global Certificate will become exchangeable in whole, but not in part, for individual certificates (“Individual Certificates”) upon the occurrence of an Exchange Event. For these purposes, an “Exchange Event” occurs if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) a Dissolution Event occurs and is continuing. Whenever the Global Certificate is to be exchanged for Individual Certificates, such Individual Certificates will be issued in an aggregate principal amount equal to the principal amount of the Global Certificate within five business days of relevant Exchange Event upon the delivery, by or on behalf of the registered Certificateholder of the Global Certificate to the Registrar and the provision of such information as is required to complete and 22
29. deliver such Individual Certificates (including, without limitation, the names and addresses of the persons in whose names the Individual Certificates are to be registered and the principal amount of each such person’s holding) against the surrender of the Global Certificate at the Specified Office of the Registrar on any day (other than a Saturday or Sunday) on which banks are open for business in the city in which the Registrar has its office (a “business day”). Such exchange will be effected in accordance with the provisions of the Agency Agreement and the regulations concerning the transfer and registration of Sukuk Certificates scheduled thereto and, in particular, shall be effected without charge to any Certificateholder, but against such indemnity as the Registrar may require in respect of any tax or other duty of whatsoever nature which may be levied or imposed in connection with such exchange. If: (a) Individual Certificates have not been issued and delivered by 5.00 p.m. (London time) on the forty-fifth day after the date on which the same are due to be issued and delivered in accordance with the terms of the Global Certificate; or (b) any of the Sukuk Certificates evidenced by the Global Certificate has become due and payable in accordance with the Conditions or the date for final redemption of the Sukuk Certificates has occurred and, in either case, payment in full thereon has not been made to the Certificateholder of the Global Certificate on the due date for payment in accordance with the terms of the Global Certificate, then the Global Certificate (including the obligation to deliver Individual Certificates) will become void at 5.00 pm (London time) on such forty-fifth day (in the case of (a) above) or at 5.00 pm (London time) on such due date (in the case of (b) above) and the Certificateholder will have no further rights thereunder (but without prejudice to the rights which the Certificateholder or others may have under the Declaration of Trust). Notices Notwithstanding Condition 13 (Notices), so long as the Global Certificate is held on behalf of for Euroclear, Clearstream, Luxembourg or any other clearing system (an “Alternative Clearing System”), notices to Certificateholders represented by the Global Certificate may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or (as the case may be) such Alternative Clearing System; provided, however, that, so long as the Sukuk Certificates are listed on the Luxembourg Stock Exchange and its rules so require, notices will also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be d’wort) or on the website of the Luxembourg Stock Exchange, www.bourse.lu). 23
30. USE OF PROCEEDS The net proceeds of the issue of the Sukuk Certificates , expected to amount to US$270,000,000 after deduction of the expenses incurred in connection with the issue of the Sukuk Certificates, will be used by the Issuer to pay the Issuer’s capital contribution to the Musharaka. 24
31. PRONOUNCEMENT Copies of the pronouncement dated 2 July , 2006 (the “Pronouncement”) issued on behalf of the Executive Committee of the Sharia Supervision Board of Qatar National Bank Al Islami confirming that, in their view, the proposed issue of the Sukuk Certificates and the related structure and mechanism described in the Transaction Documents are in compliance with Sharia principles shall be distributed to prospective Sukuk Certificateholders upon request by the Lead Managers. An English translation of the material parts of the Pronouncement has been reproduced in Appendix I to this Offering Circular. Members of the Executive Committee of the Sharia Supervision Board of Qatar National Bank Al Islami are: (1) Dr. Ali Al Qaradagi; and (2) Dr. Sultan Al Hashimi Prospective Certificateholders should not rely on the pronouncement referred to above in deciding whether to make an investment in the Sukuk Certificates and should consult their own Sharia advisers as to whether the proposed transaction described in the pronouncement referred to above is in compliance with Sharia principles. 25
32. RISK FACTORS Prior to making an investment decision , prospective purchasers of the Sukuk Certificates should consider carefully, in light of the circumstances and their investment objectives, the information contained in this entire Offering Circular. Prospective purchasers should nevertheless consider, among other things, the investment considerations relating to Qatar, the Qatar Financial Centre, the Issuer and QREIC not normally associated with investments in other countries and other issuers, including those set out below. Prospective investors should note that the inability of the Issuer and QREIC to pay any amounts on, or in connection with, any Sukuk Certificates may occur for reasons other than those stated below and the Issuer and QREIC do not represent that such statements below regarding the risks of holding any Sukuk Certificates are exhaustive. Prospective investors should also read the detailed information set out elsewhere in this Offering Circular and reach their own views prior to making any investment decision. Prospective investors should also consult their own financial and legal advisers about risks associated with an investment in any Sukuk Certificates and the suitability of investing in such Sukuk Certificates in light of their particular circumstances, without relying on the Issuer, QREIC or the Lead Managers. Investors are advised to make, and will be deemed by the Lead Managers, the Issuer and QREIC to have made, their own investigations in relation to such factors before making any investment decisions in relation the Sukuk Certificates. Risk Factors relating to Qatar General Risk; Emerging Market Risk The Issuer and QREIC have all of their respective operations and all of their respective assets in Qatar and, accordingly, the Issuer’s and QREIC’s business may be affected by the financial, political and general economic conditions prevailing from time to time in Qatar and/or the Middle East generally. Moreover, investors should note that the Issuer’s and QREIC’s business and financial performance could be adversely affected by political, economic and related developments both within and outside countries in which the Issuer and QREIC operate because of the inter-relationship with global markets. Investors should also be aware that investments in emerging markets, such as Qatar and the Qatar Financial Centre, are subject to greater risks than investments in more developed markets, including in some cases significant legal, economic and political risks. Moreover, although economic conditions are different in each country, investors’ reactions to developments in one country may affect securities of issuers in other countries, including Qatar. Accordingly the market prices of Sukuk Certificates may be subject to significant fluctuations, which may not necessarily be related to the financial performance of the Issuer. Investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, an investment in Sukuk Certificates is only suitable for sophisticated investors who fully appreciate the significance of the risks involved. Political, Economic and Related Considerations While historically Qatar has enjoyed significant economic growth and relative political stability, particularly in light of regional strife and instability, there can be no assurance that such growth or stability will continue. QREIC may also be adversely affected generally by political and economic developments in or affecting Qatar or the region. Moreover, although the Qatari government’s policies have generally resulted in improved economic performance, no assurance can be given that the Qatari government will not implement regulations, fiscal or monetary policies, including policies or regulations, or new legal interpretations of existing policies or regulations, relating to or affecting taxation, interest rates or exchange controls, or otherwise take actions which could have a material adverse effect on such performance and, in turn, on QREIC’s business, financial condition, results of operations or prospects which could adversely affect the market price and liquidity of the Sukuk Certificates. In addition, much of the revenue of Qatar is generated by the delivery of oil and gas services. The flow of revenue could be disrupted or affected by the occurrence of events or circumstances such as war, terrorist activity, attacks on oil installations and other similar events. QREIC’s business may be affected if there are political, economic or social events that prevent QREIC from delivering its services. It is not possible to predict the occurrence of events or circumstances such as or similar to 26
33. war , terrorist activity or other regional conflict or turmoil or the impact of such events or circumstances and no assurance can be given that QREIC would be able to sustain its current profit levels if such events or circumstances were to occur. Risk Factors relating to QREIC’s business Rapid Growth QREIC continues to consolidate its position in the market by expanding its property investments and plans to acquire stakes in related sectors. See “Description of QREIC’s Business”. Such expansion may entail significant investment, as well as increased operating costs. There is no guarantee that QREIC will be able to achieve a positive return on the investment it makes in the development of its business. Overall growth in QREIC’s business will require greater allocation of management resources away from daily operations, continued development of QREIC’s financial and information management control systems, continued training of management and other personnel, adequate supervision and maintenance of consistency in the provision of client services. If QREIC fails to manage its growth in this fashion, this failure may have a material adverse effect on its business, financial condition, results of operations and prospects. Dependence on Key Personnel QREIC’s success in growing its business will depend, in part, on its ability to continue to attract, retain and motivate qualified and skilled personnel. QREIC relies on its senior management for the implementation of its strategy and its day-to-day operations. As competition for skilled personnel, especially at the senior management level, is intense due to a disproportionately low number of available qualified and/or experienced individuals compared to demand. If QREIC is unable to retain key members of its senior management and cannot hire new qualified personnel in a timely manner, this could have a material adverse effect on the business, results of operations, financial condition or prospects of QREIC and could, in turn, adversely affect the market price and liquidity of the Sukuk Certificates. Residual Value The liquidation value of the properties owned, completed and leased by QREIC may be adversely affected by risks generally incidental to interests in real property, including, but not limited to, (i) changes in political and economic conditions or in specific industry segments; (ii) a decline in property values; (iii) a decline in rental or occupancy rates; (iv) an increase in interest rates; (v) changes in governmental rules, regulations and fiscal and other policies; (vi) terrorism; (vii) flooding; and (viii) other factors which are beyond the control of QREIC. Insurance QREIC has obtained insurance covering fire, buildings, contents, burglary and workmen compensation (the “Insurance Policies”). The insured risks comprise, principally, typical property insurance risks for properties of the type owned by QREIC. The Insurance Policies are due to expire on varying dates depending on the policy with tacit renewal for a certain period thereafter. No assurances can be given that the Insurance Policies will be renewed on the same terms or will be renewed at all. The amount of cover provided under the Insurance Policies varies and deductibles apply. QREIC will covenant in the Transaction Documents that it will keep all Musharaka Assets insured in the aggregate to full replacement costs, excluding the relevant deductible, and provide insurance in respect of its assets with reputable insurers against loss of damage by, inter alia, fire and explosion and maintain such other insurances as are in accordance with sound and prudent commercial practice. No assurances can be given that the proceeds of any such insurance will be sufficient to pay, in full, all the amounts due from QREIC under the Transaction Documents and, hence the Sukuk Certificates. Certain types of risks and losses (for example, losses resulting from terrorism) are not economically insurable or are not covered by the required insurance policies. If an uninsured or uninsurable loss were to occur, QREIC might not have sufficient funds to repay in full all amounts owing by it under the Transaction Documents. Environment Risks If an environmental liability arises in relation to any project owned, operated or leased by QREIC and it is not remedied, or it is not capable of being remedied, this may adversely affect such project and the business of 27
34. QREIC (either because of the cost implications for QREIC or because of disruption to services provided at the relevant project or property). It may also result in a reduction of the value of the relevant project or property or affect the ability of QREIC to dispose of such project or property. General Real property investments are subject to varying degrees of risk. Rental revenues, property values and the demands of tenants are affected by changes in the general economic climate and local conditions such as an over supply of space, a reduction in demand for residential or commercial property in an area, competition from other available space or increased operating costs. Rental revenues and property values are also affected by such factors as political developments, government regulations and changes in planning laws or policies or tax laws, interest rate levels, inflation, wage rates, levels of employment and the availability of credit. Further, the ability to attract the appropriate types of numbers of purchaser’s or tenants paying rent levels sufficient to allow QREIC to make payments under the Transaction Documents will be dependent, among other things, on the performance generally of the real property market in Qatar. Rental revenues and values are sensitive to such factors which can sometimes result in rapid, substantial increases and decreases in rental and valuation levels. Any resulting decline in market value may adversely affect the ability of QREIC to meet its obligations under the Transaction Documents. Strategy The growth strategy of QREIC is based on certain assumptions relating to, inter alia, economic conditions, market for rental properties and labour camps, and demographic conditions in Qatar. Although QREIC has no reason to believe that these assumptions are inappropriate, it cannot be excluded that these assumptions turn out to be incorrect. This could, for example, have an impact on the rental income available to QREIC and the value of its projects, which could affect its ability to make payments under the Transaction Documents. Regulatory QREIC is subject to varying degrees of local, regional and national regulation, covering environmental, safety and maintenance standards, and other factors that affect the property market. There can be no assurance that such laws or regulations or the interpretation or enforcement of or change in any such laws or regulations will not have an adverse effect on the value of the projects or require QREIC to incur additional costs or otherwise adversely affect the management of its projects, which could adversely affect the results of operations and financial condition of QREIC. Significant contributions from a major customer A significant proportion of QREIC’s revenue comes from QP and its affiliates which contributes significantly to QREIC’s business and revenue. Any loss of QP (or its affiliates) as a customer may adversely affect QREIC’s existing operations and thereby have a material adverse effect on its business, financial condition, operating results and the future prospects and could cause the price of the Sukuk Certificates to fall. QREIC is subject to project development and approval risks There are a number of construction, financing, operating and other risks associated with project developments in the jurisdictions in which QREIC operates. Projects of the types undertaken by QREIC typically require substantial capital expenditures during the construction phase and usually take many months, sometimes years, before they become operational and generate revenue. The time taken and the costs involved in completing construction can be adversely affected by many factors, including shortages of materials, equipment and labour, adverse weather conditions, natural disasters, labour disputes, disputes with sub-contractors, accidents, changes in governmental priorities and other unforeseen circumstances. Any of these could give rise to delays in the completion of construction and/or to cost overruns. In relation to some of QREIC’s projects, certain government approvals, permits, licences or consents may need to be obtained. Delays in the process of obtaining, or a failure to obtain, the requisite licences, permits or approvals from government agencies or authorities can also increase the cost or delay or prevent the commercial operation of a business, which could adversely affect the financial performance of QREIC’s business. Construction delays can result in the loss of revenues. The failure to complete construction according to its specifications may result in liabilities, reduced efficiency and lower financial returns. Although the majority of QREIC’s infrastructure projects have been completed on schedule, there can be no assurance that this will remain the case or that future infrastructure projects will be completed on time, or at all, and generate satisfactory returns. Finally, the acquisition or transfer of interests in such projects may be subject to governmental approvals, which can impact on QREIC’s ability to dispose of such projects. 28
35. QREIC ’s projects could be exposed to catastrophic events, including terrorist attacks, over which it has no control QREIC’s facilities may be exposed to effects of natural disasters and other potentially catastrophic events, such as major accidents and terrorist attacks. Although constructed, operated and maintained to withstand certain of these occurrences, QREIC’s facilities may not be adequately protected in all circumstances. Such occurrences may adversely affect QREIC’s business and operations. QREIC has significant construction and capital expenditure requirements. Many of QREIC’s developments are under construction or in the initial stages of development and have significant capital expenditure requirements. Additionally, there are certain investment properties that QREIC currently owns and leases to third parties. QREIC’s investment properties will need renovations and other capital improvements, including replacements, from time to time, of property, plant and equipment. Some of these capital improvements are mandated by health, safety or other regulations. Construction of new investment properties, which QREIC intends to own and operate and capital improvements of operating investment properties, which QREIC may own and operate, may give rise to the following risks: • possible structural and environmental problems; • construction cost over-runs and delays; • disruption in service and access to third parties causing reduced demand, occupancy and rents; • possible shortage of available cash to fund construction and capital improvements and the related possibility that financing for these capital improvements may not be available to QREIC on affordable terms; and • uncertainties as to market demand or a loss of market demand after construction capital improvements have begun. The cost of construction and capital improvements could have a material adverse effect on QREIC’s business, financial condition and results of operations. QREIC may be unable to complete its projects that are under construction or in initial stages of development. As of the date of this Offering Circular, QREIC had approximately 7 projects under construction or in initial stages of development. QREIC intends to continue to develop new properties in the markets in which it currently operates and in new markets. QREIC’s current and future development and construction activities involve a number of risks, including the following significant risks: • inability to obtain desirable property locations at moderate prices; • inability to obtain construction financing on favourable terms; • requirement to make significant current capital expenditures for certain properties without receiving revenue from these properties until future periods; • inability to complete development projects on schedule or within budgeted amounts; • delays or refusals in obtaining all necessary zoning, land use, building, occupancy and other required governmental permits and authorisations; and • fluctuations in occupancy rates at newly developed properties due to a number of factors, including market and economic conditions, that may result in QREIC’s investment not being profitable. There can be no assurance that QREIC’s current or future construction projects will be completed and QREIC’s inability to complete a project could have a material adverse effect on its business, financial condition and results of operations. The bankruptcy or insolvency of one of QREIC’s contractors or suppliers may adversely affect the construction of certain construction projects and impact QREIC’s ability to fulfil its obligations under its contracts with its customers. There has been a significant rise in the amount of property development in the Middle East-North Africa (MENA) region and the Indian sub-continent. As a result, the number of contractors and suppliers available to 29
36. meet demand is limited . Therefore, if one of QREIC’s contractors or suppliers declares bankruptcy or is declared to be insolvent while a project is being developed, there is a strong likelihood that QREIC will not be able to find a replacement contractor or supplier promptly. Further, even assuming that QREIC were able to find a replacement contractor or a supplier in a timely fashion, that contractor or supplier may need time to familiarize himself with the ongoing project or produce the needed product, thus causing a delay in the completion of the project. In addition, there is no guarantee that the replacement contractor or supplier that is retained will be one that QREIC has employed before and thus may not meet QREIC’s high standards for quality workmanship and product, respectively. If any of these events were to occur, it could have a material adverse affect on QREIC’s business, financial condition or results of operations. If QREIC’s contractors’ relationship with its employees were to deteriorate, QREIC may be faced with labour shortages or stoppages, which would adversely affect its ability to develop and/or operate its properties As of the date of this Offering Circular, QREIC has hired approximately 15 contractors in Qatar, each of who employs their own workers. QREIC’s contractors’ relations with their employees (including employees in various countries and employees represented by labour unions) could deteriorate due to disputes related to, among other things, wage or benefit levels or their response to changes in government regulation of workers and the workplace. QREIC’s business model relies heavily on contractors providing high-quality personal service, and any labour shortage or stoppage caused by poor relations between a contractor and its employees, including labour unions, could adversely affect QREIC’s ability to stay on schedule, which could impact its ability to abide by its promises to its customers and tarnish its reputation. The illiquidity of real estate investments and the lack of alternative uses of commercial and/or residential properties could significantly limit QREIC’s ability to respond to adverse changes in the performance of its properties and harm its financial condition Because real estate investments, in general, and real estate investments in Qatar, in particular, are relatively illiquid, QREIC’s ability to promptly sell one or more of its properties in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond QREIC’s control. The management of QREIC cannot predict whether QREIC will be able to sell any property for the price or on the terms set by it, or whether any price or other terms offered by a prospective purchaser would be acceptable to it. The management of QREIC also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. In addition, certain commercial and/or residential properties may not be readily converted to alternative uses if they were to become unprofitable due to competition, age of improvements, decreased demand or other factors. The conversion of such commercial and/or residential property to alternative uses would generally require substantial capital expenditures. In particular, QREIC may be required to expend funds to correct defects or to make improvements before a property can be sold. There can be no assurance that QREIC will have funds available to correct defects or to make improvements. These factors and any others that would impede QREIC’s ability to respond to adverse changes in the performance of its properties could have a material adverse effect on its business, financial condition and results of operations. Risks relating to the Issuer No operating history The Issuer is a newly formed entity and has no operating history. The Issuer will not engage in any business activity other than the issuance of the Sukuk Certificates, the acquisition of the Trust Assets as described herein and acting in the capacity as Trustee, Lessor or as otherwise required under the Transaction Documents. The Issuer’s only material assets are the Trust Assets which will be held on trust for the Certificateholders. These include the obligations of QREIC to make rental payments under the Forward Lease Agreement to the Issuer in its capacity as Lessor and to make other payments under the Musharaka Purchase Undertaking and the Lease Purchase Undertaking to the Issuer. Therefore, the Issuer is subject to all the risks to which QREIC is subject, to the extent that such risks could limit QREIC’s ability to satisfy in full and on a timely basis its obligations under the Forward Lease Agreement, the Musharaka Purchase Undertaking the Lease Purchase Undertaking, as the case may be. See “Risk Factors Relating to QREIC’s business” above for a further description of certain of these risks. The ability of the Issuer to pay amounts due on the Sukuk Certificates will primarily be dependent upon receipt by the Issuer from QREIC of all amounts under the Forward Lease Agreement, the Musharaka Purchase 30
37. Undertaking , the Lease Purchase Undertaking, the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be. In the event that the Issuer is unable: (i) on any Periodic Distribution Date, to pay the relevant Periodic Distribution Amount; (ii) on any Scheduled Repurchase Date, to pay the relevant Scheduled Repurchase Amount; (iii) on the occurrence of a Dissolution Event, to pay the Unscheduled Dissolution Distribution Amount for failure of QREIC to pay the Exercise Price (pursuant to the Musharka Purchase Undertaking or the Lease Purchase Undertaking, as the case may be); or (iv) upon the exercise of QREIC’s Call Option, to pay the Early Redemption Amount, for failure of QREIC to pay the Exercise Price (pursuant to the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be), the Security Agent shall use the amounts it recovers as a result of the enforcement of the Security to satisfy QREIC’s obligations in respect of the payment of the Exercise Price (whether under the Musharaka Purchase Undertaking, the Lease Purchase Undertaking, the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be). The resulting amount may still not be sufficient to pay to the Certificateholders the full amount due and payable to them. The Sukuk Certificates will represent entitlement solely to the Trust Assets. Accordingly, recourse in respect of the Sukuk Certificates is limited to the Trust Assets and the proceeds of the Trust Assets are the sole source of payments on the Sukuk Certificates. The Certificateholders will have no recourse to any assets of the Issuer, the Trustee, the Agents or the Lead Managers or any of their affiliates in respect of any shortfall in the expected amounts from the Trust Assets. QREIC is obliged to make the payments under the relevant Transaction Documents directly to the Trustee or the Transaction Administrator (pursuant to the Transaction Administration Deed) and the Trustee or the Transaction Administrator, will have direct recourse against QREIC to recover payments due to the Trustee or the Transaction Administrator from QREIC pursuant to such Transaction Documents. Risks that the assignment of the right to receive proceeds under the performance bonds may not be perfected Under Qatari law, the assignment of the right to receive proceeds under the performance bonds and advance payment guarantees is conditional upon the performance bond and advanced payment guarantee providers acknowledging the notices of assignment. Investors should therefore be aware of the risk that the assignment may not be perfected unless and until the performance bond and advanced payment guarantee providers acknowledge the assignments. Risks relating to the Sukuk Certificates No secondary market There can be no assurances that a secondary market for the Sukuk Certificates will develop, or if a secondary market does develop, that it will provide the Certificateholders with liquidity of investment or that it will continue for the life of the Sukuk Certificates. The market value of Sukuk Certificates may fluctuate. Consequently, any sale of Sukuk Certificates by Certificateholders in any secondary market that may develop could be at a discount from the original purchase price of such Sukuk Certificates and accordingly an investor in the Sukuk Certificates must be prepared to hold the Sukuk Certificates until the Sukuk Certificates have been redeemed or all amounts then due have been paid in full. Application has been made for the listing of the Sukuk Certificates on the Official List of the Luxembourg Stock Exchange and to admission to trading on the Euro MTF market of the Luxembourg Stock Exchange but there can be no assurance that such listings will occur on or prior to the First Funding Date or at all. Suitability of Investment The Sukuk Certificates may not be a suitable investment for all investors. Each potential investor in the Sukuk Certificates must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (a) have sufficient knowledge and experience to make a meaningful evaluation of the Sukuk Certificates, the merits and risks of investing in the Sukuk Certificates and the information contained in this Offering Circular; 31
38. (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Sukuk Certificates and the impact the Sukuk Certificates will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Sukuk Certificates or where the currency for principal is different from the potential investor’s currency; (d) understand thoroughly the terms of the Sukuk Certificates and be familiar with the behaviour of any relevant indices and financial markets; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. Foreign exchange movements may adversely affect profitability QREIC maintains its accounts, and reports its results, in Qatari Riyal (“QR”), while the Sukuk Certificates are denominated and payable in U.S. dollars or other foreign currencies. Although the QR has been ‘pegged’ at a fixed exchange rate to the U.S. dollar QREIC is exposed to the potential impact of any alternation to, or abolition of, this foreign exchange ‘peg’. Change in law The structure of the issue of the Sukuk Certificates is based on English law and the laws and administrative practice of Qatar and as at the date of this Offering Circular. No assurance can be given as to the impact of any possible change in such law or administrative practice after the date of this Offering Circular, nor can any assurance be given as to whether any such change could adversely affect the ability of the Issuer to make payments under the Sukuk Certificates. 32
39. THE ISSUER QREIC Sukuk LLC (registered number QFC No. 00012) was incorporated in the QFC as a limited liability company on 10 July 2006 in accordance with laws of the QFC, with its registered office at c/o Ansbacher & Co Limited, (P.O. Box 23589), 11th Floor, Ministry of Economy & Commerce, Doha, Qatar. The authorised and issued share capital of the Issuer is US$1,000 divided into 1,000 ordinary shares with a par value of US$1 each. The shares are fully paid up. (See “Summary of Offering”). The board of directors of the Issuer and their principal occupations are as follows: Director Principal Occupation Carola Nicola Breusch Company Director Jacqueline Sharen Goodwin Company Director Eric Lorentz Banker The Issuer has no employees and will have no employees as at the First Funding Date. The objects of the Issuer, as set out in its Articles of Association, includes the issue of the Sukuk Certificates, execution of the Transaction Documents to which it is a party and other agreements necessary for the performance of its obligations under the transactions contemplated thereby and undertake activities pursuant to or that are not inconsistent with the terms and conditions of the Sukuk Certificates. As of the First Funding Date, after giving effect to the transactions contemplated by the Transaction Documents, the total equity of the Issuer will be US$1,000, consisting of 1,000 issued and fully paid shares. Pursuant to the terms of the Transaction Documents, the Issuer may not issue and has not issued any securities other than the Sukuk Certificates or otherwise incur indebtedness, other than in connection with the Transaction Documents. The Issuer will appoint auditors within 3 months of the date of being granted authorisation by the QFCRA. Prior to its appointment, the auditors will have been approved by the QFC authority. Other than as described above, the Issuer does not have any loan, capital, borrowings or contingent liabilities and has not changed its equity capital. The Issuer has not produced any financial statements as at the date hereof. The Issuer will issue audited financial statements on an annual basis and the first audited financial statements will be for the period covering 10 July 2006 to 31 December 2007 and will be made available within the period of four months after the year end date of 31 December 2007. The Issuer will not issue any interim financial statements. 33
40. MUSHARAKA ASSETS The Musharaka Assets shall consist of the following : (a) following the final Funding Date: (i) US$270,000,000, (ii) US$55,475,436 (being the value of the Constructed Assets constituted as at the date of the Musharaka Agreement), (iii) US$1,000,000, (being the valuation agreed between the Issuer and QREIC of the QREIC Usufruct Rights), together the “Capital Contributions”; and (b) all assets acquired after the First Funding Date from or through the application of the Capital Contributions. “Constructed Assets” means the assets constructed pursuant to the QP Lease and Construction Agreements as at the date of the Musharaka Agreement, as more particularly described below. “QREIC Usufruct Rights” means the usufruct rights granted to QREIC for a period of 10 years pursuant to the QP Lease and Construction Agreements. The Capital Contributions will be employed in capital construction in the Dukhan construction project and the Mesaieed construction project, as described below, and the return on that capital from rental payments. Dukhan construction project The Dukhan construction project will be located at QP Township at Dukhan and will comprise a land area of 3,393,709.94 square feet. The project will include the construction of 520 flats for bachelors with related infrastructure and 400 flats for married couples with related infrastructure, each to be more particularly specified in relevant documentation to be issued/signed during the construction phase as described below. Mesaieed construction project The Mesaieed construction project will be located in Mesaieed Industrial City and comprise a land area of 11,000,270.80 square feet with 703 junior family units, 264 bachelor units, 177 senior family units and 100 senior bachelor units, all with related infrastructure, each to be more particularly specified in relevant documentation to be issued/signed during the construction phase as described below. QP Lease and Construction Agreements The QP Lease and Construction Agreements entered into between QP and QREIC have a tenor of 10 years after completion of each phase of the project (at Mesaieed and Dukhan). The rentals received by QREIC from the QP Lease and Construction Agreements will be used by QREIC to service the lease payments under the QREIC Lease (however, the Sukuk Certificates have an amortisation period of 8 years) and all lease payments under the QP Lease and Construction Agreements will flow through the QP Rentals Account held with the Account Bank. The combined return (by way of lease rentals) under the QP Lease and Construction Agreements is greater than twice the aggregate principal amount of the Sukuk Certificates. In the event that a QP Lease and Construction Agreement is terminated early by QP (following completion of the Project), a termination sum is payable by QP. Any such termination sum will represent a discounted value of the remaining lease payments under the QP Lease and Construction Agreements and will be used to repay the Sukuk Certificates. Total Cost The total cost required to complete the construction of the Dukhan and Mesaieed construction projects is US$270,000,000 (inclusive of any payments (to the value of US$44,390,672)) to be made by QREIC as Procurer by way of phase payments under the Procurement Agreement. 34
41. Constructed Assets The percentage towards completion for each of the projects , as at the end of May 2006, is as follows: (a) Dukhan: 35.47%; and (b) Mesaieed: 11.30%. Overall, the combined percentage towards completion for the projects is 18%. Consultants Maunsell are appointed as project consultants for each of the Dukhan and Mesaieed projects. Sources and application of funds The cost of the Dukhan construction project and Mesaieed construction project will be financed from the proceeds of Issuer’s sukuk issue, being the capital contribution by the Issuer, together with additional funds from QREIC (as required). Technical Specifications The technical specifications for each of the Dukhan and Mesaieed projects will follow the detailed specifications provided in Appendices A, B and D of the QP Lease and Construction Agreements. Construction Phase The construction phase of each of the Dukhan construction project and Mesaieed construction project will accord with Appendix A of the QP Lease and Construction Agreements. Scheduled Completion Dates The Dukhan construction project will be scheduled to complete in February 2007. The Mesaieed construction project will be scheduled to complete in January 2008. Leasing Return QREIC will take on lease, from the Issuer, the Leased Assets (i.e. the Issuer’s share in the Musharaka Assets) with rental payments being computed as provided in the QREIC Lease. Assignment of Rights QREIC will assign all its rights under the QP Lease and Construction Agreements to the Security Agent (on behalf of the Issuer) by way of security. Once constructed, the Musharaka Assets will be leased to Qatar Petroleum to service QREIC’s lease payments under the QREIC Lease. 35
42. TERMS AND CONDITIONS OF THE SUKUK CERTIFICATES The following is the text of the Terms and Conditions of the Sukuk Certificates which (subject to completion and amendment) will be endorsed on each Individual Certificate and will be attached and (subject to the provisions thereof) apply to the Global Certificate: There will appear at the foot of the Conditions endorsed on or (as the case may be) attached to each Individual Certificate and Global Certificate the names and Specified Offices of the Registrar, the Paying Agents and the Transfer Agents as set out at the end of this Offering Circular. The US$270,000,000 trust certificates due 2016 (the “Sukuk Certificates”) represent an undivided beneficial ownership in the Trust Assets (as defined in Condition 4.1 (“Summary of the Trust”)) for the registered holders from time to time of the Sukuk Certificates (“Certificateholders”) and are constituted by, subject to and have the benefit of a declaration of trust (as amended or supplemented from time to time, the “Declaration of Trust”) dated 31 August 2006 (the “First Funding Date”) made by the Issuer. QREIC Sukuk LLC (the “Issuer”) will issue Sukuk Certificates in the principal amount of US$100,000,000 (the “First Sukuk Certificates”) on the First Funding Date which will be funded in accordance with the Subscription Undertaking dated the First Funding Date between the Issuer, Qatar Real Estate Investment Company (“QREIC” or the “Obligor”), Qatar National Bank S.A.Q., Qatar National Bank Al Islami, Dubai Islamic Bank PJSC, Gulf International Bank and Standard Chartered Bank (as amended or supplemented from time to time, the “Subscription Undertaking”). The remaining Sukuk Certificates will be issued on 30 November 2006, 28 February 2007 and 31 May 2007 (the “Further Funding Dates”) in the principal amounts of US$50,000,000, US$50,000,000 and US$70,000,000 respectively (the “Further Sukuk Certificates”) which will be funded in accordance with the Subscription Undertaking. Pursuant to an agency declaration dated the First Funding Date made by the Issuer (the “Agency Declaration”), the Issuer is also acting as agent for and on behalf of Certificateholders. Each Certificateholder by its acquisition and holding of a Sukuk Certificate agrees to the appointment of the Issuer as its agent pursuant to the terms of the Agency Declaration. In these Conditions: (a) words and expressions defined, and rules of construction and interpretation set out in, the Declaration of Trust shall, unless defined herein or the context otherwise requires, have the same meanings herein; and (b) references to Sukuk Certificates shall be references to the Sukuk Certificates as represented by the Global Certificate as described in Condition 1. Payments relating to the Sukuk Certificates will be made pursuant to an agency agreement dated the First Funding Date (the “Agency Agreement”) made between the Issuer, Deutsche Bank AG, London Branch in its capacity as principal paying agent (the “Principal Paying Agent”) and paying agent, (the “Paying Agent” and, together with any further or other paying agents appointed from time to time in respect of the Sukuk Certificates, the “Paying Agents”), calculation agent (the “Calculation Agent” and, together with any further or other Calculation Agents appointed from time to time in respect of the Sukuk Certificates, the “Calculation Agents”) the transfer agents named therein (“Transfer Agent” and, together with any further or other transfer agents appointed from time in respect of the Sukuk Certificates, the “Transfer Agents”), the Replacement Agent named therein (the “Replacement Agent” and, together with any other further or other Replacement Agents appointed from time to time in respect of the Sukuk Certificates the “Replacement Agents”), Deutsche Bank AG, London Branch as transaction administrator (the “Transaction Administrator”) and Deutsche Bank Luxembourg, S.A. as registrar (the “Registrar” which expression includes any successor registrar appointed from time to time in connection with the Sukuk Certificates). References herein to the “Agents” are to the Registrar, the Calculation Agent, the Replacement Agent, Principal Paying Agent, the Paying Agent, the Transfer Agents and any reference to an “Agent” is to any one of them. The Trustee will only act upon the instructions of the Certificateholders in carrying out the activities of the Trust. To facilitate the giving of such instructions by the Certificateholders, it is a term of the Sukuk Certificates that Deutsche Bank AG, London Branch is appointed as transaction administrator pursuant to a transaction administration deed between the Issuer, the Trustee, QREIC and the Transaction Administrator dated on or about 36
43. the First Funding Date (the “Transaction Administration Deed”) to act as agent of the Issuer. Upon the occurrence of a Dissolution Event (as defined in Condition 11 (Dissolution Events)) the Transaction Administrator shall take such actions to enforce the rights of the Issuer, as described in the Transaction Administration Deed. Following the occurrence of a Dissolution Event (as defined in Condition 11 (Dissolution Events)), the Transaction Administrator shall be entitled to receive its properly incurred fees, costs, charges and expenses for acting as agent for the Certificateholders in the distribution of the Trust Assets ahead of the distributions to Certificateholders. Certain provisions of these Conditions are summaries of the Declaration of Trust and Agency Agreement, and are subject to their detailed provisions. The Certificateholders are bound by, and are deemed to have notice of all the provisions of the Declaration of Trust and the Agency Agreement applicable to them. Copies of the Transaction Documents are available for inspection by Certificateholders during normal business hours on any weekday (excluding Fridays and public holidays) at the registered offices of the Trustee, from (and including) the First Funding Date and until further notice and at the Specified Offices (as defined in the Agency Agreement) of each of the Agents. Each Certificateholder, by its acquisition and holding of its interest in a Sukuk Certificate, shall be deemed to authorise and direct the Trustee to apply the sums paid by it in respect of its Sukuk Certificates as the Issuer’s contribution to the capital of the Musharaka under the Musharaka Agreement, and to enter into each Transaction Document to which it is a party, subject to the terms and conditions of the Declaration of Trust and these Conditions. 1. FORM, DENOMINATION AND STATUS 1.1 Form, Denomination and Title The Sukuk Certificates are issued in registered form in the minimum denomination of US$100,000 and integral multiples of US$1,000 in excess thereof. A Sukuk Certificate will be issued to each Certificateholder in respect of its registered holding of Sukuk Certificates. Each Sukuk Certificate will be numbered serially with an identifying number which will be recorded on the relevant Sukuk Certificate and in the Register. 1.1.1 The Registrar will maintain a Register (the “Register”) in respect of the Sukuk Certificates in accordance with the provisions of the Agency Agreement. In these Conditions, “Certificateholder”, and in relation to a Certificate, “holder” means the person in whose name such Sukuk Certificate is from time to time registered in the Register (or, in the case of a joint holding, the first named thereof). 1.1.2 Title to the Sukuk Certificates passes only by registration in the Register. The registered holder of any Sukuk Certificate will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not any payment thereon is overdue and regardless of any notice of ownership, trust of any interest or any writing on, or the theft or loss of, the Sukuk Certificate issued in respect of it) and no person will be liable for so treating the Certificateholder. The holder of a Sukuk Certificate will be recognised by the Issuer as entitled to his Sukuk Certificate free from a set off or counterclaim on the part of the Issuer against the original or any intermediate holder of such Sukuk Certificate. 2. TRANSFERS AND ISSUE OF SUKUK CERTIFICATES 2.1 Transfers Subject to Condition 2.3 (Closed periods) and Condition 2.5 (Regulations concerning transfers and registration), a Sukuk Certificate may be transferred upon surrender of the relevant Sukuk Certificate, with the endorsed form of transfer duly completed and signed, at the Specified Office of the Registrar or any Transfer Agent, together with such evidence as the Registrar or (as the case may be) such Transfer Agent may reasonably require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided, however, that a Sukuk Certificate may not be transferred unless the principal amount of Sukuk Certificates transferred and (where not all of the Sukuk Certificates held by a Holder are being transferred) the principal amount of the balance of Sukuk Certificates not transferred are in the minimum denomination of US$100,000 and integral multiples of $1,000. Where not all the Sukuk Certificates represented by the 37
44. surrendered Sukuk Certificates are the subject of the transfer , a new Sukuk Certificate in respect of the balance of the Sukuk Certificates will within five business days of receipt by the Transfer Agent of the original Sukuk Certificates be mailed by uninsured mail at the risk of the holder of the Sukuk Certificates not so transferred to the address of such holder appearing on the Register or as so specified in the form of transfer. In this paragraph, “business day” means a day on which commercial banks are open for general business (including dealings in foreign currencies) in the city where the Registrar or (as the case may be) the relevant Transfer Agent has its Specified Office. 2.2 No Charge The transfer of a Sukuk Certificate will be effected without charge by or on behalf of the Issuer, the Registrar or any Transfer Agent but against such indemnity as the Registrar or (as the case may be) such Transfer Agent may require in respect of any tax or duty of whatsoever nature which may be levied or imposed in connection with such transfer. 2.3 Closed Periods No Certificateholder may require the transfer of a Sukuk Certificate to be registered during the period of fifteen calendar days ending on the due date for the payment of any Periodic Distribution Amount (as defined in Condition 6 (Periodic Distributions)) or Scheduled Repurchase Amount (as defined in Condition 8 (Scheduled Repurchase)) in respect of the Sukuk Certificates. 2.4 Regulations concerning transfers and registration All transfers of Sukuk Certificates and entries on the Register are subject to the detailed regulations concerning the transfer of Sukuk Certificates scheduled to the Agency Agreement. The regulations may be changed by the Issuer with the prior written approval of the Trustee and the Registrar. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Certificateholder who requests in writing a copy of such regulations. 3. STATUS; LIMITED RECOURSE 3.1 Status Each Sukuk Certificate evidences an undivided beneficial ownership in the Trust Assets and will rank pari passu, without any preference, with the other Sukuk Certificates and at least pari passu with all other present and future unsecured obligations of the Issuer, save for such obligations as may be preferred by provisions of law that are mandatory and of general application. Limited Recourse 3.1.1 Proceeds of the Trust Assets are the sole source of payments on the Sukuk Certificates. The Sukuk Certificates do not represent an interest in any of the Issuer, the Trustee, QREIC, the Lead Managers, the Agents, the Transaction Administrator or any of their respective affiliates. Accordingly, Certificateholders will have no recourse to any assets of the Issuer (other than the Trust Assets), the Trustee (including, in particular other assets comprised in other trusts, if any), QREIC (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Lead Managers, the Transaction Administrator, the Agents or any of their respective affiliates in respect of any shortfall in the expected amounts from the Trust Assets. However, QREIC is obliged to make the payments under the relevant Transaction Documents to which it is a party directly to the Issuer or, in certain cases, the Transaction Administrator. The Issuer, as trustee and/or agent for and on behalf of Certificateholders, or the Transaction Administrator, as the case may be, will have direct recourse against QREIC to recover payments due to the Issuer from QREIC pursuant to any Transaction Documents. 3.1.2 The net proceeds of the realisation of, or enforcement with respect to, the Trust Assets may not be sufficient to make all payments due in respect of the Sukuk Certificates. If, following distribution of such proceeds, there remains a shortfall in payments due under the Sukuk Certificates, subject to Condition 12 (Enforcement and Exercise of Rights), no Certificateholder will have any claim against the Issuer, the Trustee, the Lead Managers, the Transaction Administrator, the Agents or 38
45. QREIC (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates or other assets in respect of such shortfall and any unsatisfied claims of Certificateholders shall be extinguished. In particular, no Certificateholder will be able to petition for, or join any other person in instituting proceedings for, the reorganisation, liquidation, winding up or receivership of the Issuer, the Trustee, the Transaction Administrator, QREIC (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates as a consequence of such shortfall or otherwise. 3.2 Agreement By purchasing Sukuk Certificates, each Certificateholder agrees that notwithstanding anything to the contrary contained herein or in any other Transaction Document: 4. 3.2.1 no payment of any amount whatsoever shall be made by any of the Issuer, the Trustee or any of their respective agents on their behalf except to the extent funds are available from the Trust Assets and further agrees that no recourse shall be had for the payment of any amount owing hereunder or under any other Transaction Document, whether for the payment of any fee or other amount hereunder or any other obligation or claim arising out of or based upon the Declaration of Trust or any other Transaction Document, against any of the Issuer or the Trustee to the extent the Trust Assets have been exhausted following which all obligations of the Issuer and the Trustee shall be extinguished; and 3.2.2 prior to the date which is one year and one day after the date on which all amounts owing by the Issuer under the Transaction Documents to which it is a party have been paid in full, it will not institute against, or join with any other person in instituting against the Issuer or the Trustee, any bankruptcy, reorganisation, arrangement or liquidation proceedings or other proceedings under any bankruptcy or similar law. TRUST 4.1 Summary of the Trust 4.1.1 The Issuer will act as agent for and on behalf of Certificateholders pursuant to the Agency Declaration. 4.1.2 The Issuer and QREIC (in their capacity as Partners) shall enter into a Musharaka Agreement dated the First Funding Date pursuant to which the Partners have an undivided share in the Musharaka Assets which comprise of the capital of the Musharaka and all assets acquired from or through the application of the capital contributions of the Partners to the Musharaka, all as more particularly described in the Musharaka Agreement. 4.1.3 Pursuant to the Declaration of Trust, the Issuer will declare a trust over: (a) the Issuer’s undivided share in the Musharaka Assets (the “Co-ownership Interest”); (b) all of the Issuer’s rights, title, interest and benefit, present and future, in, to and under the Transaction Documents, and any other agreements and documents delivered or executed in connection therewith; (c) all of the Issuer’s rights, title, interest and benefit, present and future, in, to and under the insurances required to be taken out by QREIC under the Procurement Agreement and/or by QREIC under the Management Agreement, as the case may be; (d) all monies standing from time to time to the credit of the Transaction Account and which are the property of the Issuer; and (e) all proceeds of the foregoing, together, the “Trust Assets”. 4.2 Application of Proceeds from Trust Assets On, or immediately prior to, each Periodic Distribution Date, or on any date on which the Sukuk Certificates are to redeemed in accordance with Condition 9 (Dissolution of Trust) or the date set for the redemption of the 39
46. Sukuk Certificates following the exercise of the Call Option under Condition 10 (Early Redemption by QREIC (the “Call Option”) (in each case, the “Redemption Date”), the Principal Paying Agent shall apply the monies standing to the credit of the Transaction Account in the following order of priority: 4.2.1 first, to the Transaction Administrator in respect of all amounts owing to it under the Transaction Documents; 4.2.2 second, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts due and unpaid; 4.2.3 third, only if such payment is made in relation to a payment to be made on or after the Redemption Date, to the Principal Paying Agent in or towards payment pari passu and rateably of the Scheduled Dissolution Distribution Amount, the Unscheduled Dissolution Distribution Amount or the Early Redemption Amount, as the case may be; and 4.2.4 fourth, only if such payment is made in relation to a payment to be made on or after the Redemption Date, the Issuer or other persons so entitled. 4.3 The Principal Paying Agent shall apply the monies so received towards the payments set forth above and in accordance with the Agency Agreement. 5. COVENANTS OF THE ISSUER 5.1 The Issuer has covenanted in the Declaration of Trust that, among other things, for so long as any Sukuk Certificate is outstanding, it shall not: 5.1.1 sell, transfer, assign, participate, exchange or otherwise dispose of, or pledge, mortgage, hypothecate or otherwise encumber (by security interest, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever or otherwise) (or permit such to occur or suffer such to exist) any part of the Trust Assets except pursuant to the Transaction Documents; 5.1.2 subject to Clause 14 (Modifications) of the Declaration of Trust, amend or agree to any amendment of any Transaction Document, to which it is a party or its constitutional documents; 5.1.3 exercise its option under the Musharaka Purchase Undertaking or the Lease Purchase Undertaking except in its capacity as Trustee; 5.1.4 act as trustee in respect of any trust other than the Trust or in respect of any parties other than the Certificateholders; 5.1.5 have any subsidiaries or employees; 5.1.6 redeem any of its shares or pay any dividend or make any other distribution to its shareholders; 5.1.7 put to its directors or shareholders any resolution, or appoint any liquidator, for its winding up or any resolution for the commencement of any other bankruptcy or insolvency proceeding with respect to it; 5.1.8 enter into any contract, transaction, amendment, obligation or liability other than the Transaction Documents to which it is a party or as expressly permitted or required thereunder or engage in any business or activity (including acting as trustee of any other trust) other than: (a) as provided for or permitted in the Transaction Document; (b) the ownership, management and disposal of the Trust Assets as provided in the Transaction Documents; and (c) such other matters which are incidental thereto. 6. PERIODIC DISTRIBUTIONS 6.1 Periodic Distribution Dates Subject to Condition 4.2 (Application of Proceeds from Trust Assets) and Condition 9 (Dissolution of Trust), the Trustee shall instruct the Principal Paying Agent to distribute to holders of the Sukuk Certificates pro rata, out of amounts collected in the Transaction Account a distribution in relation to the Sukuk Certificates on each 40
47. Periodic Distribution Date an amount equal to the product of (a) the Margin plus LIBOR; (b) the outstanding aggregate principal amount of the Sukuk Certificates; and (c) the actual number of days in the related Periodic Distribution Period divided by 360 (the “Periodic Distribution Amount”). Distributions on the Sukuk Certificates will be made in arrear on 31 August, 30 November, 28 February and 30 May each year or if any such day is not a Business Day, the following Business Day unless it would thereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day, commencing on 30 November 2006 (each a “Periodic Distribution Date”). The period from and including 31 August 2006 to but excluding the first Periodic Distribution Date and each successive period from and including a Periodic Distribution Date to but excluding the immediately following Periodic Distribution Date is called a “Periodic Distribution Period”. In these Conditions, “Business Day” means a day (other than a Friday) on which commercial banks and foreign exchange markets are open for general business in Doha, London and if a payment in US dollars is required to be made on such day, New York. “LIBOR” means for each Periodic Distribution Date, the London inter-bank offered rate for three-month US dollar deposits determined in accordance with Condition 6.2 (LIBOR determination). “Margin” means 1.20 per cent per annum. 6.2 LIBOR Determination LIBOR for each Periodic Distribution Period shall be determined by or on behalf of the Issuer in accordance with the following provisions: 6.2.1 on each LIBOR Determination Date, the Calculation Agent, on behalf of the Issuer, will determine the Screen Rate at approximately 11.00 a.m. (London time) on such LIBOR Determination Date and such Screen Rate shall be the value of LIBOR for the succeeding Periodic Distribution Period; 6.2.2 if the Screen Rate is unavailable, the Calculation Agent shall request the principal London office of each Reference Bank to provide it with the rate at which deposits in US dollars are offered by it to prime banks in the London inter-bank market for a period of three months at approximately 11.00 a.m. (London time) on such LIBOR Determination Date and, so long as at least two of the Reference Banks provide such rates, the arithmetic mean of such rates (rounded if necessary to the fourth decimal place, with 0.00005 rounded upwards) as calculated by the Calculation Agent shall be the value of LIBOR for the forthcoming Periodic Distribution Period; 6.2.3 if LIBOR cannot be determined in accordance with the above provisions, the value of LIBOR for the forthcoming Periodic Distribution Period shall be as determined on the preceding LIBOR Determination Date. The terms used above have the meanings set forth below: “LIBOR Determination Date” means the second Business Day preceding the first day of each Periodic Distribution Period; “Reference Banks” means the banks which the Principal Paying Agent would customarily use; “Screen Rate” means in relation to LIBOR, the rate for three-month deposits in US dollars, which appears on Reuters screen page LIBOR 01 (or such replacement page on that service which displays the same information). 6.3 Notification of LIBOR and Periodic Distribution Amount Following determination of each of LIBOR and the Periodic Distribution Amount for the forthcoming Periodic Distribution Period and the related Periodic Distribution Date by the Calculation Agent, the Calculation Agent shall notify, or shall procure the notification to, the stock exchange on which the Sukuk Certificates are listed at the relevant time, as soon as practicable after the determination thereof but in no event later than the first day of the relevant Periodic Distribution Period, details of such LIBOR and Periodic Distribution Amount. The Principal Paying Agent shall arrange for such LIBOR and Periodic Distribution Amount to be published in accordance with Condition 15 (Notices) as soon as practicable after their determination but in no event later than the fourth Business Day thereafter. Each Periodic Distribution Amount and Periodic Distribution Date may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without notice in 41
48. the event of an extension or shortening of the related Periodic Distribution Period . In the event of any such amendment, the Calculation Agent shall, as soon as practicable thereafter, notify the stock exchange on which the Sukuk Certificates are listed at the relevant time of the amended Periodic Distribution Amount and Periodic Distribution Date. The Principal Paying Agent shall arrange for such amended Periodic Distribution Amount and Periodic Distribution Date to be published in accordance with Condition 15 (Notices) as soon as practicable after determination of such amendment but in no event later than the fourth Business Day thereafter. 6.4 Cessation of Accrual No further amounts will be payable on any Sukuk Certificate from and including its due date for redemption. 6.5 Calculation of Distribution in respect of Broken Periodic Distribution Amounts When a distribution is required to be calculated in respect of a period of less than a full Periodic Distribution Period, it shall be calculated on the basis of the actual number of days elapsed in such period and an actual/360 basis. 7. PAYMENTS 7.1 Payments in respect of Sukuk Certificates Payment of Periodic Distribution Amounts, Scheduled Repurchase Amounts, the Unscheduled Dissolution Distribution Amount or the Early Redemption Amount, as the case may be, (together the “Sukuk Payments”) will be made by the Paying Agent by cheque sent by prepaid first class post to the registered address of each Certificateholder or, if to the extent that applicable arrangements have been agreed from time to time between the Certificateholder and the Paying Agent by transfer to the registered account of the Certificateholder. All Sukuk Payments will be made to the person shown as the Holder in the register at the opening of business in the place of the Registrar’s Specified Office on the fifteenth day before the due date for payment (the “Record Date”). Payments of the Scheduled Dissolution Distribution Amount, the Unscheduled Dissolution Distribution Amount or the Early Redemption Amount, as the case may be and any Periodic Distribution Amount due otherwise than on a Periodic Distribution Date will only be made against the surrender of the relevant Certificate at the specified office of any of the Paying Agents. Where payment in respect of a Sukuk Certificate is to be made by cheque, the cheque will be mailed to the address shown as the address of the Holder in the Register at the opening of business on the relevant Record Date. For the purposes of this Condition, a Certificateholder’s registered account means the US Dollar denominated account maintained by or on behalf of it with a bank that processes payments in US Dollars and a Certificateholder’s registered address means its address appearing on the register of Certificateholders maintained by the Registrar at that time. 7.2 Payments subject to applicable laws Payments in respect of Sukuk Certificates are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 12 (Taxation). 7.3 Payment only on a Business Day 7.3.1 Where payment is to be made by transfer to a US Dollar account, payment instructions (for value the due date or, if that day is not a Payment Business Day, for value the next succeeding Payment Business Day) will be initiated on the Payment Business Day preceding the due date for payment or, in the case of a payment of the Scheduled Dissolution Distribution Amount, Unscheduled Dissolution Distribution Amount or the Early Redemption Amount, as the case may be, if later, on the Payment Business Day on which the relevant Sukuk Certificate is surrendered at the Specified office of the Paying Agent. 42
49. 7 .3.2 Certificateholders will not be entitled to any compensation or any other payment for any delay in payment resulting from: (a) the due date for payment not being a Payment Business day; or (b) a cheque mailed in accordance with this Condition arrives after the due date for payment or for any delays in obtaining cleared funds occasioned by, or in connection with, the clearance of any cheque through a banking system. 7.3.3 In these Conditions, “Payment Business Day” means a day (other than a Friday) on which commercial banks in Doha, London and New York are open for general business and, in the case of presentation of a Sukuk Certificate, in the place which the Certificate is presented. 7.4 Agents The names of the initial Agents and their initial Specified Offices are set out at the end of these Conditions. A Paying Agent and Transfer Agent will be maintained in Luxembourg. The Issuer reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents. Notice of any termination or appointment and of any changes in specified offices will be given to Certificateholders promptly by the Issuer in accordance with Condition 15. 8. SCHEDULED REPURCHASE Unless the Sukuk Certificates are previously redeemed or cancelled, the Sukuk Certificates will be redeemed in 32 equal instalments on each Periodic Distribution Date commencing on 28 November 2008 and ending on the Scheduled Dissolution Date (as defined below) (each such date being a “Scheduled Repurchase Date”) at an amount equal to 3.1250 per cent of the aggregate amount of the Sukuk Certificates outstanding as at the first Scheduled Repurchase Date (the “Scheduled Repurchase Amount”). 9. DISSOLUTION OF TRUST 9.1 Scheduled Dissolution Unless the Sukuk Certificates are redeemed in full (and the Trust is dissolved after such redemption) following the occurrence of a Dissolution Event (as defined in Condition 11 (Dissolution Events)) or upon the exercise of the Issuer’s Call Option (as defined in Condition 10 (Early Redemption by QREIC (the “Call Option”)) the Sukuk Certificates will be redeemed on the Scheduled Dissolution Date at the Scheduled Dissolution Distribution Amount and the Trust will thereafter be dissolved. The “Scheduled Dissolution Date” is the Periodic Distribution Date falling on 31 August 2016; and The “Scheduled Dissolution Distribution Amount” is the outstanding aggregate principal amount of the Sukuk Certificates plus any accrued and unpaid Periodic Distribution Amounts. 9.2 Summary of Unscheduled Dissolution If a Dissolution Event (as defined in Condition 11 (Dissolution Events)) occurs and an Exercise Notice is delivered to QREIC pursuant to the Musharaka Purchase Undertaking or the Lease Purchase Undertaking, as the case may be, the Issuer shall redeem the Sukuk Certificates at the Unscheduled Dissolution Distribution Amount in accordance with Condition 4.2 (Application of Proceeds from Trust Assets), upon the receipt of the Exercise Price (plus an amount equal to any applicable taxes) into the Transaction Account. In this Condition: “Exercise Notice” shall have the meaning given to it in the Musharaka Purchase Undertaking or the Lease Purchase Undertaking, as the case may be; “Exercise Price” shall have the meaning given to it in the Musharaka Purchase Undertaking or the Lease Purchase Undertaking, as the case may be; and “Unscheduled Dissolution Distribution Amount” means, as of any date, the outstanding aggregate principal amount of the Sukuk Certificates plus any accrued and unpaid Periodic Distribution Amounts as of such date. 43
50. 10 . EARLY REDEMPTION AT QREIC’S OPTION (“Call Option”) If, on the fifth anniversary of the First Funding Date, QREIC exercises its option (the “Call Option”) by delivering an Exercise Notice pursuant to the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be, the Issuer shall redeem the Sukuk Certificates at the Early Redemption Amount in accordance with Condition 4.2 (Application of Proceeds from Trust Assets), upon receipt of the Exercise Price (plus an amount equal to any applicable taxes) into the Transaction Account. QREIC shall only exercise the Call Option by delivering the Exercise Notice not less than thirty days prior to the fifth anniversary of the First Funding Date and such notice shall be irrevocable. In this Condition: “Early Redemption Amount” means the outstanding aggregate principal amount of the Sukuk Certificates then outstanding plus any accrued and unpaid Periodic Distribution Amount as of such date; “Exercise Notice” shall have the meaning given to it in the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be; and “Exercise Price” shall have the meaning given to it in the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case maybe. 11. DISSOLUTION EVENTS 11.1 Dissolution Events under the Musharaka Purchase Undertaking The following events are Dissolution Events under the Musharaka Purchase Undertaking: 11.1.1 A default is made in the payment of any Periodic Distribution Amount or Scheduled Repurchase Amount due in respect of any Sukuk Certificate and such default continues for a period of seven days; 11.1.2 Any of QREIC’s covenants set out in the Musharaka Agreement are not satisfied; 11.1.3 QREIC (in any capacity) does not comply with any provision of the Transaction Documents; 11.1.4 Any representation or statement made or deemed to be made by QREIC in any Transaction Document or any other document delivered by or on behalf of QREIC under or in connection with any Transaction Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made; 11.1.5 Any of the following events occur (the “Cross Default”): (a) Any Financial Indebtedness of QREIC is not paid when due nor within any applicable grace period; (b) Any Financial Indebtedness of QREIC is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described); (c) Any commitment for any Financial Indebtedness QREIC is cancelled or suspended by a creditor of QREIC, as a result of an event of default (however described); (d) Any creditor of QREIC becomes entitled to declare any Financial Indebtedness of QREIC, due and payable prior to its specified maturity as a result of an event of default (however described), provided that no Dissolution Event will occur under this paragraph if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within sub-paragraphs (a) to (d) above is less than US$2,500,000 (or its equivalent in any other currency or currencies); 11.1.6 QREIC is unable or admits inability to pay its debts, as they fall due, suspends making payments on any of its debts or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to a general rescheduling of any of its Financial Indebtedness; 11.1.7 QREIC takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration, bankruptcy or re-organisation (whether by way of 44
51. voluntary arrangement , scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of QREIC or of any or all of its revenues or assets, provided that this paragraph shall not apply to any corporate action, legal proceedings or other procedure presented by a creditor or any other person which is reasonably considered by QREIC to be a frivolous or vexatious claim and is being diligently contested in good faith; 11.1.8 It is or becomes unlawful for QREIC to perform any of its obligations under the Transaction Documents; 11.1.9 QREIC repudiates a Transaction Document or evidences an intention to repudiate a Transaction Document; 11.1.10 Any court or arbitration makes a final non-appealable judgment or arbitral award against QREIC and which QREIC fails to pay within 30 days of the date at which the obligation to pay arises; 11.1.11 By or under the authority of any government: (a) The board of directors of QREIC is displaced or the authority of QREIC in the conduct of its business is curtailed, in each case in any material respect; or (b) All or a majority of the issued share of QREIC or the whole or any substantial part (the book value of which is 40 per cent or more of the book value of the whole) of its revenues or assets is nationalised or expropriated; 11.1.12 Any event or circumstance occurs which could reasonably be expected to have a Material Adverse Effect. 11.1.13 A Total Loss occurs in respect of Musharaka Assets. 11.1.14 At any time the Government of Qatar, directly or indirectly, ceases to own at least twenty per cent of the issued capital in QREIC. 11.1.15 The occurrence of any Force Majeure event which has a Material Adverse Effect. 11.1.16 (a) Any QP Lease and Construction Agreement is terminated prior to the date that the Musharaka is dissolved pursuant to Clause 10 of the Musharaka Agreement. (b) Any payment falling due under any QP Lease and Construction Agreement is not paid within 60 days of such date. 11.2 Cure Period 11.2.1 Notwithstanding any of the above but subject to sub-clause 11.2.2, no Dissolution Event will occur under this Condition if the breach is capable of remedy and is remedied within five Business Days of QREIC becoming aware of the breach and the Issuer or Security Agent giving notice to QREIC. 11.2.2 No Dissolution Event under sub-clauses 11.1.3, 11.1.4 and 11.1.5 will occur if the breach is capable of remedy and is remedied within fifteen Business Days of the earlier of (i) QREIC notifying the Issuer of any Dissolution Event; and (ii) the Issuer or Security Agent giving notice to QREIC. In this Condition, the following definitions shall apply: “Business Day” means a day (other than a Friday) on which banks are open for general business in Doha, London and, if a payment in US Dollars is required to be made on such day, New York. “Dukhan Lease and Construction Agreements” means the two agreements dated (i) 20 February 2006 in respect of Phase IV of the Dukhan Housing Project and made between Qatar Petroleum and QREIC granting certain usufruct rights to QREIC; and (ii) 20 February 2006 in respect of Packages I, II and III of the Dukhan Housing Project Phase V. “Financial Indebtedness” means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; 45
52. (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with International Financial Reporting Standards (“IFRS”), be treated as a finance or capital lease; (e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); (f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account); (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution, excluding performance bonds; (i) any amount of any liability under an advance or deferred purchase agreement if one of the primary reasons behind the entry into this agreement is to raise finance; (j) any obligations incurred by QREIC in respect of any Islamic financing arrangements; and (k) (without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above. “Force Majeure” means any: (a) war (whether declared or undeclared), invasion, armed conflict or act of foreign enemy in each case involving or directly affecting Qatar; (b) revolution, riot, insurrection or other civil commotion, act of terrorism or sabotage in each case within and affecting Qatar; (c) nuclear explosion, radioactive or chemical contamination or ionising radiation, in each case involving or directly affecting the land subject to the QP Lease and Construction Agreements; (d) strikes, working to rule, go-slows and/or lockouts which are widespread, nation-wide or political; (e) any effect of the natural elements, including lightning, fire, earthquake, tidal wave, flood, storm, cyclone, typhoon or tornado; (f) explosion (other than a nuclear explosion or an explosion resulting from an act of war); (g) epidemic or plague; or (h) any event or circumstances of a nature analogous to any of paragraph (e), (f) or (g) above. “Material Adverse Effect” means a material adverse effect on: (a) the business, operations, property, condition (financial or otherwise) or prospects of QREIC; or (b) the ability of QREIC to perform its payment obligations under the Transaction Documents; or (c) the validity or enforceability of the Transaction Documents or the rights or remedies of the Issuer or the Security Agent under the Transaction Documents. “QP Lease and Construction Agreements” means: (a) the Dukhan Lease and Construction Agreements; and (b) the Mesaieed Lease and Construction Agreement. “Total Loss” means the total loss or destruction of, or damage to the whole (or a substantial part) of the assets or any event or occurrence that renders the whole (or a substantial part) of those assets permanently unfit for any economic use and (but only after taking into consideration the proceeds of any insurances received and the period of time required to reinstate the assets) the repair or remedial work in respect thereof is wholly uneconomical. 46
53. “Mesaieed Lease and Construction Agreement” means the agreement (undated) in respect of Packages 1, 2, 3 and 4 of the Mesaieed Housing Project Phase I and made between Qatar Petroleum and QREIC granting certain usufruct rights to QREIC. 11.3 Dissolution Event under the Lease Purchase Undertaking A Dissolution Event will only occur under the Lease Purchase Undertaking if the Lessee fails to make any Rental Payment on the date it falls due. “Rental Payments” means each amount payable by QREIC (as “Lessee”) to the Issuer (as “Lessor”) under the Forward Lease Agreement. 12. TAXATION All payments in respect of the Sukuk Certificates shall be made without withholding or deduction for, or on account of, any present or future taxes, levies, duties, fees, assessments or other charges or withholding of whatever nature, imposed or levied by or on behalf of the Relevant Jurisdiction (defined below), and all charges, penalties or similar liabilities with respect thereto (“Taxes”), unless the withholding or deduction of the Taxes is required by law. In this Condition: “Relevant Jurisdiction” means Qatar, or any political subdivision or any authority thereof or therein having power to tax. 13. PRESCRIPTION No sum shall be payable in respect of any Sukuk Certificates once ten years have elapsed following the due date for the applicable payment. 14. ENFORCEMENT AND EXERCISE OF RIGHTS 14.1 Upon the occurrence of any Dissolution Event (except an event under sub-clauses 11.1.13 (Loss) and 11.1.15 of Condition 11 (Dissolution Events)), to the extent that the amounts payable in respect of the Sukuk Certificates have not been paid or delivered in full, the Trustee or the Transaction Administrator shall (acting on behalf of the Certificateholders) take one or more of the following steps: 14.1.1 enforce the provisions of either the Musharaka Purchase Undertaking or the Lease Purchase Undertaking against the Obligor; or 14.1.2 take such other steps as the Trustee or the Transaction Administrator may consider necessary to recover amounts due or deliverable to the Certificateholders. 14.2 Upon the occurrence of an event specified in sub-clauses 11.1.13 and 11.1.15 of Condition 11 (Dissolution Events), to the extent that the amounts payable in respect of the Sukuk Certificates have not been paid or delivered in full, the Trustee or the Transaction Administrator (acting on behalf of Certificateholders) may only take the steps specified in Condition 14.1 where the Leased Assets are not lost, damaged or destroyed beyond economic repair. If the Leased Assets are lost, damaged or destroyed beyond economic repair, the Obligor must pay to the Trustee or the Transaction Administrator a sum equal to all amounts payable by it to the Issuer under the Musharaka Purchase Undertaking or the Lease Purchase Undertaking. 14.3 Following the distribution of the proceeds of the Trust Assets in respect of the Sukuk Certificates to the Certificateholders in accordance with these Conditions, the Declaration of Trust or the Agency Agreement, neither the Trustee nor the Principal Paying Agent will be liable for any further sums, and accordingly Certificateholders may not take any action against the Trustee, the Principal Paying Agent or any other person to recover any such sum in respect of the Sukuk Certificates or Trust Assets. 14.4 Subject to the Transaction Administration Deed, the Trustee may take any action to enforce or to realise the Trust Assets or take any action against the Obligor under any Transaction Document to which the Obligor is a party without the consent of Certificateholders where the matter or action is a Dissolution Event (as defined in Condition 11 (Dissolution Events) or in the reasonable opinion of 47
54. the Trustee is in respect of an administrative matter or is otherwise not prejudicial to the interests of the Certificateholders provided that the Trustee shall take such action if directed or requested to do so (a) by an Extraordinary Resolution or (b) in writing by the holders of at least 25 per cent in aggregate principal amount of the Sukuk Certificates then outstanding and in either case then only if it shall be indemnified to its satisfaction against all liabilities to which it may thereby render itself liable or which it may incur by so doing. Following the notification to the Transaction Administrator by the Issuer , the Trustee or the Security Agent to the Transaction Administrator of any Dissolution Event under the Transaction Administration Deed, the Transaction Administrator may, at its discretion or, if required under the Transaction Administration Deed, upon receipt of a direction by the Certificateholders in the form of (i) an Extraordinary Resolution or (ii) a written direction by Certificateholders holding at least 25 per cent. in aggregate principal amount of the Sukuk Certificates then outstanding, (a “Certificateholders’ Direction”) take any action for the enforcement of any rights in the name of the Issuer against the Managing Partner, the Obligor or the Lessee for all amounts due to be paid under the Management Agreement, Musharaka Purchase Undertaking, Lease Purchase Undertaking or the Forward Lease Agreement (as applicable), provided that the Transaction Administrator may, in its absolute discretion, dispense with the requirement to obtain a Certificatetholders Direction. However, the Transaction Administrator shall not be required to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties or functions or in the exercise of any of its rights, discretions or powers (including any action required to be taken in connection with any Certificateholders Direction), if it determines, in its sole discretion, that the repayment of such funds or adequate security or indemnity against such risk or liability is not reasonably assured to it. 14.5 In all other cases, the Trustee must not take any action in respect of the Trust unless directed or requested to do so (a) by an Extraordinary Resolution or (b) in writing by the holders of at least 25 per cent in aggregate principal amount of the Sukuk Certificates then outstanding and in either case then only if it shall be indemnified to its satisfaction against all liabilities to which it may thereby render itself liable or which it may incur by so doing. 14.6 Under no circumstances shall the Trustee or the Transaction Administrator have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to either the Musharaka Purchase Undertaking or the Lease Purchase Undertaking, and the sole right of the Trustee or the Transaction Administrator against QREIC shall be to enforce the obligation of QREIC to pay an amount equal to the Unscheduled Dissolution Distribution Amount. 14.7 The foregoing paragraphs in this Condition 14 are subject to this paragraph. After distributing the net proceeds of the Trust Assets in accordance with Condition 4.2 (Application of Proceeds from Trust Assets), the obligations of the Trustee in respect of the Sukuk Certificates shall be satisfied and no Certificateholder may take any further steps against the Trustee to recover any further sums in respect of the Sukuk Certificates and the right to receive any such sums unpaid shall be extinguished. In particular, no Certificateholder shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Issuer or the Trustee nor shall any of them have any claim in respect of the Trust Assets of any other trust established by the Trustee. 15. NOTICES All notices to Certificateholders will be valid if mailed to them by first class pre-paid registered mail (or its equivalent) or (if posted to an overseas address) by airmail at their respective addresses in the register of Certificateholders maintained by the Registrar. Any notice shall be deemed to have been given on the seventh day after being so mailed or on the date of publication or, if so published more than once or on different dates, on the date of the first publication. In addition, so long as the Sukuk Certificates are listed on the Luxembourg Stock Exchange and the rules of that Exchange so require, notices to Sukukholders will be published on the date of such mailing in a daily newspaper of general circulation in Luxembourg (which is expected to be the d’wort) or, if such publication is not practicable, in a leading English language daily newspaper having general circulation in Europe. 16. MEETINGS OF CERTIFICATEHOLDERS, MODIFICATION, WAIVER, AUTHORISATION AND DETERMINATION 16.1 The Declaration of Trust and the Transaction Administration Deed contain provisions for convening meetings of Certificateholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of these Conditions or the provisions of the 48
55. Declaration of Trust . The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than two-thirds in aggregate principal amount of the Sukuk Certificates for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Sukuk Certificates held or represented by him or them. An Extraordinary Resolution passed at any meeting of Certificateholders will be binding on all holders of the Sukuk Certificates, whether or not they are present at the meeting. 16.2 Subject to the Transaction Administration Deed, the Trustee may agree, without the consent of Certificateholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Declaration of Trust, or determine, without any such consent as aforesaid, that any Dissolution Event under Condition 11 (Dissolution Events) shall not be treated as an Unscheduled Dissolution Distribution Event, which in any such case is not, in the opinion of the Trustee, materially prejudicial to the interests of Certificateholders or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest error. 16.3 In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation or determination), the Trustee shall have regard to the Transaction Administration Deed and the general interests of Certificateholders as a class but shall not have regard to any interests arising from circumstances particular to individual Certificateholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Certificateholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political subdivision thereof and the Trustee shall not be entitled to require, nor shall any Certificateholder be entitled to claim, from the Trustee or any other person any indemnification or payment in respect of any tax consequence of any such exercise upon individual Certificateholders. 16.4 Any modification, abrogation, waiver, authorisation or determination shall be binding on Certificateholders and any modification, abrogation, waiver, authorisation or determination shall be notified by the Trustee to Certificateholders as soon as practicable thereafter in accordance with Condition 15. 17. INDEMNIFICATION AND LIABILITY OF THE TRUSTEE 17.1 The Declaration of Trust contains provisions for the indemnification of the Trustee in certain circumstances and for its relief from responsibility, including provisions relieving it from taking action unless indemnified to its satisfaction. In particular, in connection with the exercise of any of its rights in respect of the Trust Assets, the Trustee shall in no circumstances take any action except in accordance with Condition 14.4 or unless directed to do so in accordance with Condition 14.5, and then only if it shall have been indemnified to its satisfaction. Subject thereto, the Trustee waives any right to be indemnified by the Certificateholders in circumstances where the Trust Assets are insufficient therefor. 17.2 The Trustee makes no representation and assumes no responsibility for the validity, sufficiency or enforceability of the obligations of QREIC under any Transaction Document to which QREIC is a party and shall not under any circumstances have any liability or be obliged to account to the Certificateholders in respect of any payment which should have been made by QREIC, but is not so made, and shall not in any circumstances have any liability arising from the Trust Assets other than as expressly provided in these Conditions or in the Declaration of Trust. 17.3 The Trustee is excepted from (i) any liability in respect of any loss or theft of the Trust Assets or any cash, (ii) any obligation to insure the Trust Assets or any cash and (iii) any claim arising from the fact that the Trust Assets or any cash are held by or on behalf of the Trustee or on deposit or in an account with any depository or clearing system or are registered in the name of the Trustee or its nominee, unless such loss or theft arises as a result of default or misconduct of the Trustee. 18. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of these Conditions, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 49
56. 19 . GOVERNING LAW AND SUBMISSION TO JURISDICTION 19.1 The Declaration of Trust, the Agency Agreement and the Sukuk Certificates are governed by, and will be construed in accordance with, English law. 19.2 The Issuer has in the Declaration of Trust irrevocably and unconditionally agreed for the benefit of the Trustee and Certificateholders that the courts of England are to have nonexclusive jurisdiction to settle any disputes which may arise out of or in connection with the Declaration of Trust or the Sukuk Certificates and that accordingly any suit, action or proceedings arising therefrom or in connection therewith (together referred to as proceedings) may be brought in the courts of England. 19.3 The Issuer has in the Declaration of Trust irrevocably and unconditionally waived and agreed not to raise any objection which it may have now or subsequently to the laying of the venue of any proceedings in the courts of England and any claim that any proceedings have been brought in an inconvenient forum and has further irrevocably and unconditionally agreed that a judgement in any proceedings brought in the courts of England shall be conclusive and binding upon the Issuer and may be enforced in the courts of any other jurisdiction. Nothing in this Condition shall limit any right to take proceedings against the Issuer in any other court of competent jurisdiction, nor shall the taking of proceedings in one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. 19.4 The Issuer has in the Declaration of Trust irrevocably and unconditionally appointed an agent for service of process in England in respect of any proceedings and has undertaken that in the event of such agent ceasing so to act it will appoint such other person as the Trustee may approve as its agent for that purpose. In the event that no such replacement agent for service of process in England has been appointed by the Issuer within 14 days, the Trustee shall have the power to appoint, on behalf of and at the expense of the Issuer, a replacement agent for service of process in England. 50
57. DESCRIPTION OF QREIC Overview Qatar Real Estate Investment Company (Q.S.C.) (“QREIC” or the “Company”) was incorporated as a Qatari public shareholding company by Emiri Decree No. 49 issued on 3 July 1995. QREIC’s term was set for a period of fifty calendar years, in accordance with its articles of incorporation, commencing from the issuance date of its establishment and renewable for a similar period. The Government of Qatar owns a stake of approximately 27 per cent in the Company. QREIC was one of the first Qatari companies listed on the Doha Securities Market (the “DSM”) since the inception of the DSM in May 1997. The Company’s Articles of Association do not permit any other single shareholder to hold any more than 5 per cent of the shares in QREIC. QREIC’s share capital is QR600 million made up of 60 million shares of QR10 each. Currently QREIC has no subsidiaries. QREIC’s primary business activity involves the development of long-term rental housing projects for Governmental and corporate entities in Qatar. The vast majority of operating revenue (87 per cent for 2005) comes from projects on account of Qatar Petroleum and its affiliates. QP is a national corporation 100 per cent owned by State of Qatar, is responsible for managing Qatar’s considerable petroleum and natural gas resources and is rated A+ by S&P. QREIC is also focusing on developing real estate projects within housing areas of the industrial belts in Qatar. Since its establishment, QREIC has focused on developing and catering to the real estate needs of QP in major industrial areas in Qatar, such as Al Khor, Dukhan and Mesaieed. It has taken advantage of Qatar’s property boom and has been responsible for nine significant construction projects in Qatar over the last ten years, primarily consisting of the establishment of residential and industrial housing projects, commercial complexes and other facilities. Over the next twenty-four months, six large projects are due for completion together with other projects in Doha City. Qatar is now experiencing strong economic growth, particularly in the oil and gas sectors. QP has been actively involved in several large projects and has entered into a significant number of joint ventures with international companies to develop Qatar’s oil and gas sector. The entrance of these companies has promoted the development of other industrial areas where the supplementary industries to the oil and gas sectors are located. Such developments in Qatar’s oil, gas and industrial sectors has generated the demand and necessity for housing and residential facilities in those developing industrial areas. QREIC has stepped in to satisfy that demand and has been able to take advantage of QP’s success and expansion. In addition, the Qatar real estate market has opened up to foreign investment with the implementation of new legislation (Law No.17 of 2004) which allows GCC residents and foreigners to own real estate in Qatar. This opening up of the Qatar real estate market will only generate further growth and QREIC, having taken advantage of the property boom several years ago, is now well placed to take advantage of this development by assessing commercially viable locations in Qatar. Strategy The Company aims to continue to maintain its position as the leading property development company in Qatar with a focus on constructing residential projects in industrial zones in Qatar, possessing real estate and in such industrial zones, managing residential compounds and commercial complexes in Qatar. To achieve these objectives, the strategy of the Company is to: (i) Build strong alliances with QP—the Company has always had a strong relationship with QP whose success in the oil and gas sector has increased the demand for the development of residential and commercial projects in industrial zones. The Company’s contracts with QP have enabled it to become a major player in the real estate development market; and (ii) Build alliances with other large companies: The Company has also started to expand alliances with other large companies within Qatar. In February 2006, it signed a memorandum of understanding with Barwa (a new public shareholding company listed on the Qatar Stock Exchange as a real estate company) and Gulf Warehousing Company (a Qatari shareholding company) to develop a QR2.5 billion project to build truck parking and maintenance facilities. In June 2006, QREIC and QIPCO (a Qatari holding company) signed a memorandum of understanding to develop and own several projects in Qatar. Competitive Strengths The following factors give QREIC a competitive advantage in the construction industry in Qatar: (i) Strategic alliance with QP: QREIC has an established track record of completing housing projects with QP and its subsidiaries in a timely and satisfactory manner. A majority of operating revenue, 51
58. almost 87 per cent for 2005 , comes from projects on account of QP and its affiliates and comprise 66 per cent of QREIC’s total revenues. In 2006 it is expected to comprise approximately 78 per cent of operating revenues and 52 per cent of total revenues. QREIC’s historic and present partnership with QP signifies that it is well positioned to win new projects with QP. Given that QP is now experiencing considerable activity and growth, this promises to be a substantial new opportunity for QREIC. (ii) Sovereign counter party credit risk: Since a significant source of QREIC’s projects come from QP and its affiliates, there is a relatively low counter party credit risk. Both the Government of Qatar and QP have been given an A+ rating by Standard and Poor’s. QREIC, over the course of its eleven year history, has had to make provision for QR200,000 worth of bad debts. (iii) Governmental support: Apart from direct government ownership (currently approximately 27 per cent) , QREIC also enjoys a relationship with and access to Governmental bodies such as Qatar Post, the Ministry of Finance and the Ministry of Energy and Industry to develop their major projects. In 1994, the Government of Qatar granted QREIC an exclusive right to use and develop a parcel of land of approximately 2,600,000 m2 located in the Al Khor area. QREIC has this right for so long as QREIC continues to exist. This land was utilized to build the Qatar Gas and Ras Gas housing projects. QREIC is currently constructing Al Khor Project phases 1 and 2, and will start constructing phases 3 and 4 later this year. These new projects will be leased to QP subsidiaries and other oil and gas companies operating within the Al Khor area. QREIC will continue to develop new projects on the remaining tracts of land not yet utilized. (iv) Track record: As the first Qatari Real Estate Public Shareholding Company, established since 1995, QREIC has a proven track record and the Company is well positioned to take advantage of real estate growth in Qatar. In the last eight years, QREIC worked closely with QP to develop a number of large residential projects. These achievements have given QREIC a clear advantage and the unique position of being the market leader in the field of residential and infrastructure development. (v) Strong portfolio of real estate: A strong portfolio of real estate covering 5 projects with a budgeted construction cost of QR850 million strengthens QREIC’s balance sheet credentials and provides QREIC with added security as the owner of its property. In 2004, QREIC purchased a parcel of land in the Al Sadd area with a total area of 29,851m2 for the purpose of building new residential, commercial and administration towers. Currently, QREIC owns four land sites with a combined surface area of 62,000 m2 acquired at a total cost of QR215 million. (vi) Diversity of investments: Although QREIC was initially established for the purpose of providing housing facilities for the industrial areas in Qatar, it has employed a policy of diversifying its investments by: (a) acquiring founder shares in major companies such as the National Leasing Co, the Qatar Quarries and Building Materials Co. and Al Rayyan Islamic Bank as well as investing in low risk real estate funds. These investments provide a further source of revenue to the Company; and (b) investing directly in the DSM in selected companies. (vii) Low Risk Operating Strategy: Given that most of its projects are for QP and QP affiliates, QREIC has been able to follow a low risk operating strategy. The pricing of the majority of QREIC projects is based primarily on cost considerations and a fixed rate of return. (viii) Access to Sharia-compliant debt financing: QREIC enjoys strong relationships with financial institutions that enables easy access to Islamic finance (a growing source of finance in the Middle East) to meet its future expansion and growth. This facilitates QREIC’s recourse to the loan and capital markets. Business Model Key contracts QREIC typically enters into turnkey contracts for a period of between ten and twenty years for housing projects, covering the construction of buildings, public utilities, roads, landscaping and water and drainage networks. Qatari Government joint venture entities and state-owned entities such as Qatar Gas, Ras Laffan Liquified Natural Gas Company Limited and QP are all key off-take customers for QREIC, with total revenues 52
59. from these contracts comprising 87 per cent of QREIC ’s operating revenues for 2005. In addition, QREIC has concluded contracts with QP for the purposes of designing and constructing housing units in the Mesaieed and Dukhan Industrial Cities. Property Development The management of the Company believes that its business model of property development has been very successful. The central element of its business model is to secure long term contracts with reputable off-takers. Outsourcing The Company relies on third-parties for much of the design and all of the construction of its projects. The design of the Company’s real estate projects are done by third-parties which are companies graded by the Government of Qatar although all designs are ultimately approved by the Company. Further, the Company hires third-party construction companies which are also rated by the Government of Qatar to construct its real estate developments. The Company generally retains the aid of construction and supply companies that have previously proven the quality of their workmanship and supplies respectively, and has negotiated standard contracts with such third-party contractors and suppliers. By hiring third-parties who have proven themselves in other projects to construct the Company’s real estate developments, the management of the Company believes it is able to greatly reduce the risks associated with construction such as delays and cost overruns. Project Details The typical types of projects QREIC undertakes are as follows: (i) Build and Transfer For these type of projects, clients approach QREIC with their project needs such as specifications, capacity, space and other requirements. Land is dedicated by clients for this purpose. QREIC then prepares a concept plan for client approval before proceeding to the design stage. After the concept and design are approved, QREIC announces the project for tendering. Costs are determined based on approved contractors’ tenders. Contractors are selected on the basis of their Government grading, reputation, previous performance and their technical and commercial offers. The client approves the contractors and the cost. QREIC then signs the construction and lease agreement with the client. Rent is based on cost plus pre-agreed return to provide QREIC with a constant internal rate of return over the life of the project, with a rent period of usually between ten to fifteen years. After completing the construction phase, QREIC is only responsible for a four hundred day guarantee covering infrastructure works carried out by QREIC. QREIC is not responsible for any running costs. When the lease period matures, title to the buildings is transferred to the client. QREIC’s major clients are QP, Qatar Post and the Ministry of Finance. Mowasalat Company is also currently in the advanced stages of negotiating a housing project with QREIC. Since inception, QREIC has completed six Build and Transfer type projects. Revenue from this type of project represents 14 per cent of total operating revenue for the year ended 31 December 2005. Private projects (A) On QREIC controlled/owned land Due to the high demand for real estate, QREIC has acquired several parcels of land to construct several housing and commercial projects located in Doha City and the suburbs. QREIC has acquired such land either by purchasing it or by being granted exclusive rights by the Government of Qatar to use and develop the land, such rights lasting for so long as QREIC exists. To date, QREIC has undertaken projects to develop such land with reputable companies for long term lease periods, typically between five to twentyfive years. For example, it has undertaken projects with Ras Gas, Qatar Gas and Dolphin. (B) On QREIC leased land QREIC has obtained preferential status from the Qatari Government and QP whereby QREIC leases land for a twenty year term in industrial areas to build labour camps as well as residential and commercial units. Examples include Mesaieed and Dukhan. QREIC rents these projects to the private sector and individuals. These projects provide accommodation and retail services in these industrial areas for both oil and gas companies and their contractors. QREIC’s residential projects are currently 99 per cent occupied and its commercial projects are 90 per cent occupied. 53
60. Completed projects The following is a list of projects completed since the inception of the Company to date . None of these projects exceeded 5 per cent of their projected costs and there were no significant delays in their completion. Project Description Type Of Project Off-taker Project cost (QR) Dukhan Housing Phases 1, 2 and 3 315 residential units for QP Build and Transfer QP, for 10 years rent period 148 million QP Head Quarter Building at Dukhan 630 offices at 35,000m² built up area and 160,000m² development area Build and Transfer QP, for 10 years rent period 70 million Residential and Commercial Centre at Dukhan 67 units QREIC Leased Land N/A 6 million Qatar Gas Housing at Al Khor area 823 residential units and supporting infrastructure QREIC Controlled/Owned Land Qatar Gas, for 25 years rent period 280 million Ras Gas Housing at Al Khor area 696 residential units and supporting infrastructure QREIC Controlled/Owned Land Ras Gas, for 25 years rent period 350 million Mesaieed Labour Camps 1 and 2 Residential units for 5,000 personnel QREIC Leased Land N/A 63 million Mesaieed Commercial Centre 140 shops and a mall QREIC Leased Land N/A 20 million Mesaieed Medical Centre Medical centre at Mesaieed Industrial City Build and Transfer QP, for 10 years rent period 14 million Mesaieed Post Office Post Office building at Mesaieed Industrial City Build and Transfer Qatar Post, for 15 years rent period 7 million Total (i) 958 million Dukhan Housing Project QREIC commenced work on the Dukhan Housing Project in 1998. Dukhan was one of the main industrial areas in which QREIC first focused its efforts. The project plan, which covered a period of five to seven years, was formulated to meet Dukhan’s needs with respect to housing units and public services utilities. The plan not only provided for the construction of new housing units and villas, but also covered the redevelopment of some of the existing housing units in the area, the construction of a commercial complex and QP’s administration building. The development of the project covered three phases: (a) First Phase: Junior Staff Housing This was the first phase of the Dukhan Housing Project to be constructed and paved the way for future co-operation between QREIC and QP. This phase comprised 200 housing units distributed across 50 buildings for junior staff. The total building area amounted to approximately 145,000m² divided into two sections with each section comprised of 25 buildings in addition to infrastructure works, landscaping and an irrigation network. All the work was undertaken by local and national companies. The total cost of this phase was an estimated QR70 million and the work was completed in two years. (b) Second Phase: Married and Bachelors Senior Staff Housing This phase involved the construction of 34 villas for married senior staff and 40 villas for bachelors. Construction was completed in the last quarter of 2002. The phase also included the construction of related infrastructure and facilities. The total cost of this phase was QR40 million. 54
61. (c) Third Phase: Married and Bachelors Senior Staff Housing This QR38 million phase comprised the construction of 41 villas for married and single senior staff. Work on this phase commenced in mid 2003 and was completed in 2004. The lease term is for ten years commencing from the handover date of the units. (ii) QP operations headquarter building at Dukhan In 2004, an agreement between QREIC and QP was reached pursuant to which QREIC constructed an office complex consisting of 630 offices with a total built up area of 35,000m² and a development area of 160,000m² which included parking and green areas. The building was handed over and leased back to QP in the third quarter of 2005. The lease term is for 10 years. The total project cost was QR70 million. (iii) Residential and Commercial Centre at Dukhan To cater for the increasing demand for residential and commercial units in the Dukhan area, QREIC constructed a complex consisting of 40 shops and 27 flats in addition to infrastructure works such as sewage, water systems and electricity. This project was completed in the third quarter of 2004, with a total cost of QR6 million. (iv) Qatar Gas Housing Project Work on this project began in 1995 and took three years to complete at a cost of approximately QR280 million. The site allocated for this project was 812,000m². The Qatar Gas Housing Project was considered a unique project in Qatar with its approach to space, services and the use of a variety of construction models. The total area of constructed buildings and public utilities was an estimated 600,000m² and included infrastructure services such as roads and water networks, drainage systems, telephone lines, roads, lighting, landscapes, gardens and a children’s playground. The lease term which is for 25 years commenced from the handover date of the units. The project consisted of 823 housing units categorised into four different types: (a) housing for directors, comprising 17 villas with a total space of 295m² per villa; (b) senior staff family housing, comprising 246 villas with a total space of 295m² per villa; (c) junior staff family housing comprising 340 flats with a total space of 162m² per flat; and (d) bachelor accommodation comprising 220 flats with a total space of 50m² per flat. During the design of the general plan, care was taken to ensure that each housing unit was a unique entity. Gulf architecture, especially Qatari building styles, was incorporated into the design of the development. The project essentially aimed to deliver a unique, self-sufficient and self-contained development. General building services such as electricity substations, elevated water tanks and water pumping stations were provided to support the residential units. Social and educational infrastructure, such as social clubs and schools, were also constructed to cater for the staff and their families. It was one of the first projects that aimed to deliver residential housing that supported the development of a community and quality of life. (v) Ras Gas Housing Project The QR350 million Ras Gas Housing project, for management level staff at Ras Gas, was designed and developed in very much the same spirit as the Qatar Gas Housing Project. Like the Qatar Gas project, the development plan for Ras Gas included public service buildings and social and educational infrastructure. The design of the Ras Gas project was modelled closely on Qatar Gas. The site allocated for the project was an estimated 1,300,000m² with the total constructed area taking up 201,000m² and comprising: (a) 8 villas, model (A+) for directors and general managers with a total area of 412m² per villa; (b) 46 villas, model (A) for managers and senior staff with a total area of 390m² per villa; and (c) 160 villas, model (B) for married senior staff with a total area of 300m² per villa. The project also comprised of 316 model C flats and 166 model D flats which were completed during 2000 and 2001. The project was completed in mid 2003. The lease term is for 25 years. (vi) Mesaieed Labourers’ Housing Complex (a) First Phase: Construction work on this complex started at the end of 2000. This complex was the first stage of the development programme planned by the Mesaieed City Administration. The labourers’ housing 55
62. complex consists of housing facilities for 2 ,056 persons in addition to supporting facilities such as dining rooms, mosques, laundry areas, and social activity areas. The total cost of this project was QR23 million and construction was completed in the first quarter of 2002. (b) Second Phase: Phase two of the labourers’ housing project has a capacity of 2,992 persons and, as with the first phase, has all the supporting facilities. The construction started in mid 2004 and was completed by mid 2005. The total cost of this phase exceeded QR40 million. (vii) Mesaieed Commercial Complex Along with the construction of the labourers’ housing complex, QREIC also began work on a commercial complex in 2000. The first and the second parts of the commercial complex consisted of trading stores in addition to a shopping mall. The total project cost was QR20 million and work on the 140 commercial shops and the mall was completed in 2002. The plan for the commercial complex included an open space for the possible development of a third phase of the project. (viii) Mesaieed Medical Centre An agreement was reached between the Mesaieed City Administration and QREIC for the construction and lease of a medical centre in Mesaieed for QP. Work on the centre commenced in 2002 and was completed in 2003. The lease term is for ten years. The total project cost was QR14 million. (ix) Mesaieed Post Office An agreement was reached between Qatar Post and QREIC, for the construction and leasing of a post office building in Mesaieed for Qatar Post. Work on the post office commenced in 2004 and was completed in 2005. The total project cost was QR7 million and the lease term is for fifteen years. Existing Projects under construction The following is a list of projects under construction as of June 2006: Project Description Type of project Off-taker Started and Expected Completion Percentage completed as 30 May 2006 Budgeted Cost (QR) Dukhan Housing Project Phases 4 and 5 920 residential Build and QP for a 10 units and Transfer year rent infrastructure period. Started in June 2005 and is expected to be completed within 18-20 months 27% Al Khor Housing Project Packages 1 and 2 172 residential units, facilities and infrastructure Package 1 started in November 2004 and is expected to be completed within 18-20 months. Package 2 started in April 2005 and is expected to be completed by within 20 months. Package 1 is QR95 100% million complete and Package 2 is 40% complete Mesaieed Housing Project for QP, Packages 1,2,3 and 4 Build and QP for a 10 1,244 Transfer year rent residential period. units, facilities and infrastructure. Started Jan 2006 and is expected to be completed within 22-24 months 6% 820 million Mesaieed Labour camps Phase 3 Residential QREIC units for 6500 Leased personnel Land Started May 2005 and is expected to be completed within 16 months. 73% 85 million QREIC Controlled/ Owned Land Part to Dolphin (66%) for 5 years, remaining 34% is still under discussions with other oil & gas companies. N/A 56 QR308 million
63. Project Description Type of project Off-taker Started and Expected Completion Percentage completed as 30 May 2006 Budgeted Cost (QR) Staff accommodation at Abusamra Residential units and infrastructure on 23,000m² of land. Build and Ministry of Started January 2006 Transfer Finance and is expected to be (Qatar) completed within 22 months 11% 95 million Al Sadd Towers 4 commercial towers to provide approximately 64,000m² commercial rentable space and 5 residential buildings to provide 300 apartments. QREIC N/A Controlled/ Owned Land Design and enabling work completed. Construction is scheduled to start in January 2007 and is expected to be completed by within 22 months. N/A 760 million (including land cost at 115 million) QREIC N/A Controlled/ Owned Land Expected to be 52% completed by the end of 2006 Other Projects in Doha City Total (i) 60 million 2.223 billion Dukhan Housing Project Phases 4 and 5 As part of a QP plan to develop the Dukhan area, QREIC completed the first 3 phases of the Dukhan development. QP and QREIC signed an agreement in June 2005, pursuant to which QREIC commenced the development of phases 4 and 5 which will be leased back to QP upon completion for a period of ten years. The design stage was completed by QREIC in 2004. The project will provide for a total of 920 residential units (126 building blocks) for bachelor, married senior and junior QP staff. The project also provides for the necessary infrastructure works including roads, water and irrigation systems, electricity supply networks, street lighting, fire fighting installations, landscaping, sewage systems and networks, parking and telecommunication works. The project is divided into 4 packages with a total expected cost of QR308 million. Mobilisation started in mid 2005 for all packages simultaneously and the project duration is 18-20 months. Construction works have been allocated to 4 “A” graded contractors and the supervision and consultation was assigned to an international office. By the end of May 2006, 27 per cent of the project had been completed. (ii) Al Khor Housing Project packages 1 and 2 QREIC started a new development of the Al Khor area on QREIC owned land. This development provides for 60 new villas, 72 three bedroom apartments and 40 single bedroom apartments to be built on 224,000m². The project provides for a recreation centre, clubhouses and guardrooms. The infrastructure work includes the installation of sewage systems, road works, water and irrigation systems, fire fighting and detection installations, electrical supply networks and street lighting, telecommunication works and landscaping. The total expected project cost is QR95 million. Construction has been assigned to 2 “A” graded contractors and the supervision and consultation was assigned to an international office. Package 2 started mid 2005 and is expected to be complete by the end of 2006. At the end of May 2006, Package 1 was completed, and Package 2 was 40 per cent complete. In July 2005, QREIC signed a lease agreement with Dolphin for 5 years with an option to renew for a similar term. Under this agreement, Dolphin undertakes to rent from QREIC (upon completion of construction) 30 villas, 40 single bedroom flats and 60 three bedroom flats. Currently, QREIC is looking into several demands by other oil and gas companies to lease the remaining units of the project not leased by Dolphin. 57
64. (iii) Mesaieed Housing Project for QP, packages 1, 2, 3 and 4 In order for QP to meet its own and its contractors’ demand for residential units in the Mesaieed area, QREIC reached an agreement with QP in January 2006 to construct a housing development project and lease it back to QP for a period of ten years. The project provides for 177 senior family villas, 703 family town homes and 364 bachelor residential units. The project includes the necessary infrastructure works such as sewage networks, drainage and soakaway systems, road works, water supply installation, irrigation systems, electrical systems, street lighting, telecommunication works and landscaping. The project is divided into 4 packages, with an expected total cost of QR820 million. Construction work has been assigned to 4 “A” graded contractors and the supervision and consultation was assigned to an international office. Contractors started mobilisation in January 2006, and the project is expected to complete within 22-24 months. (iv) Mesaieed labourers’ housing complex Phase 3 Construction work on this complex started in mid 2005. The complex is the third stage of the development programme planned by the administration of Mesaieed Industrial City. The labourers’ housing complex consists of housing facilities for 4,176 persons in addition to supporting facilities such as dining rooms, mosques, laundry areas and social activity areas. In addition, there are parking spaces for 284 cars and 140 buses. The total cost of this project is expected to be QR65 million. The project is currently 64 per cent complete and is expected to be handed over by September 2006. The project also includes temporary labour camps consisting of fabrication, procurement and the setup of temporary units (porta-cabins) to accommodate 2,400 persons. The project estimated cost is QR20 million, and is currently 99 per cent complete. (v) Staff Accommodation at Abusamra QREIC reached an agreement with the Ministry of Finance to develop a residential complex at the new Abusamra customs post on the Qatar—Saudi Arabia border. The project provides a built up area of 23,000m² of senior staff accommodation, labour accommodation and associated ancillary buildings, a mosque, retail buildings, service buildings and a sewage treatment plant. The external works are extensive and comprise roads, parking, paving, landscaping, irrigation, external sports courts and lighting. Construction works have been assigned to an “A” graded contractor and the supervision and consultation was assigned to an international office. The contractor started mobilisation in January 2006 and the project is expected to be complete within 22 months. The total expected project cost is QR95 million. (vi) Al Sadd Towers At the end of 2004, QREIC acquired a piece of land with a surface area of 29,851m² which it plans to develop by constructing commercial and residential zones. The land was acquired at a cost QR115 million; recent appraisals, based on fair market value, put the market value at above QR380 million. The proposed project consists of two major components, the residential zone and commercial zone and is located in one of the most luxurious areas in Doha. The commercial built up area will be 110,689m² and will include offices and retail shops. The location of the commercial zone is a prime location for establishing retail shops which will be located on the road thereby increasing the visibility and accessibility to customers passing by Al Saad. The commercial offices will include 4 towers with a rentable area of approximately 51,728m². The retail outlets rentable area will be approximately 12,182m². The residential zone will include five low rise buildings and a recreation and clubhouse building over an area of 58,980m². This will include 151 two bedroom apartments and 152 three bedroom apartments. The enabling works (land, grading and demolition) started in early 2006 and the selection of contractors is expected to be finalised by mid 2006. 58
65. QREIC may develop this project jointly with QIPCO as per the memorandum of understanding signed in June 2006 . (vii) Other Projects in Doha City QREIC has started two projects on its own land, both residential and commercial. The expected total cost including the cost of the land itself is QR60 million, and construction work is expected to be completed by the end of 2006. The project has an off-taker and the other project is intended to be available on leasehold terms. Pipeline projects The following is a list of projects currently under negotiation by QREIC. Project Description Type of project Dukhan Housing Project Phases 6 and 7 586 residential units Build and Transfer Al Khor expansion master plan project 1,800 residential units Mesaieed Housing project packages 5, 6 and 7 Different projects at Doha City and the suburbs QP Expected cost (QR) Status 280 million Design stage QREIC QREIC is Controlled/Owned currently in Land negotiations with oil and gas companies 750 million Tendering Mosques, schools, local activity centres and multi purpose buildings Build and Transfer QP 130 million Design stage Residential and commercial QREIC Controlled/ Owned Land N/A 100 million Tendering Total (i) Off-taker 1.260 billion Dukhan Housing Project Phases 6 and 7 The design stage of Phase 6 has been completed. QREIC is currently in the tendering stage. Phase 7 is in the design stage and is expected to be completed in the third quarter of 2006. The project provides for 560 housing units of junior staff and 26 housing units for senior staff with the related infrastructure. The estimated project cost is QR280 million. (ii) Al Khor expansion master plan project This is an expansion of the previous projects within the Al Khor area (Qatar Gas, Ras Gas and Al Khor housing projects 1 and 2). The project provides for a development of 1,800 housing units, schools, gardens, parking lots, clubs, in a total area of 500,000 m², in addition to the related infrastructure work including sewage systems, road works, water and irrigation systems, fire fighting and detection installations, electrical supply networks, street lighting, telecommunication works and landscaping. The design stage has been completed and the tendering process started in the second quarter of 2006. QREIC is currently in negotiations with major off-takers and is expected to sign long-term lease agreements. The total expected project cost is QR750 million. (iii) Mesaieed Housing Project Packages, 5, 6 and 7 The design stage has been finalised for Package 5 and the tendering process has commenced. For Packages 6 and 7, design is expected to be finalized during the third quarter of 2006. The project provides for the construction of mosques, kindergartens, schools, local activity centres and the related infrastructure support at the Mesaieed industrial area. The total expected project cost is QR130 million. 59
66. (iv) Different projects at Doha City and the suburbs QREIC has finalised the design of 3 residential and commercial projects both inside and outside Doha City. Contractors’ selection started during the second quarter of 2006. The total expected cost of these projects exceeds QR100 million. Organisational structure of the Company The Company has divided its organisational structure into seven departments; Human Resources, IT, a Finance Department, a Projects Department, a Services Department responsible for purchasing, maintenance and tenant affairs, a Marketing Department and an Investment Department. The Company has three further sections covering public relations, legal matters and a section responsible for monitoring the performance of the Company. The organisational structure of the Company is shown in the following chart: Employees As at December 31, 2003, 2004 and 2005, the Company had 40, 56 and 95 employees, respectively. The following table sets forth the average number of employees as at December 31, 2003, 2004 and 2005 by their function: As at December 31, 2003 2004 2005 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Engineers and project department . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operations / facility management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 19 10 8 8 23 17 9 11 55 20 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 56 95 The management of the Company believes that none of the Company’s employees belongs to trade unions, labour or workers’ syndicates. There are no collective bargaining agreements between any members of the Company and its employees. Suppliers The Company’s principal suppliers of design and architectural services are: Keo International Consultants, Qatar Design Consortium and Maunsell Consultancy. The Company’s principal supplier of construction services in Qatar are: Gettco Contracting, Genco Contracting, Badr Contracting, Shannon Contracting, Al Saraiya Contracting and Al Attiya Contracting. Due to the 60
67. large amount of construction currently taking place in Qatar , construction services are in high demand. Therefore the management of the Company has entered into formal agreements with several Qatar construction companies. The management of the Company believes that the loss of any single supplier would not have a material adverse affect on the Company’s business because of the availability of alternative suppliers. Recent Developments (i) Joint Venture with Barwa—in 2006, QREIC, Barwa and Al Imtiaz Investment Company formed a closed limited liability company based in Qatar called “Barwa Al Khor”. The purpose of Barwa Al Khor is to acquire and develop the Al Khor Resort Project. The Al Khor Resort Project is located on a beachfront strip in the Al Khor area in northern Qatar, occupying a total area of 7.99 million m2. The development will spread over a phased five year period and the expected cost is QR5 billion. The project envisages the creation of an integrated site offering hotels and luxury residential apartments, beach chalets, sports facilities, an 18-hole golf course, exclusive residential villas, in addition to bungalows and large residential properties in a village setting. Al Khor is the third project in Qatar that has been officially granted the right to offer freehold property to buyers of any nationality, the others being The Pearl Qatar and the Qutaifiya Lagoon in the West Bay. The project is seen as an opportunity to channel foreign investment from international companies into Qatar, especially given its strategic location close to Ras Laffan which is expected to house a large population as the oil and gas industry develops in Qatar over the next few years. (ii) New subsidiary—QREIC and an international services company signed a memorandum of understanding to form a limited liability company specialising in real estate services. QREIC’s experience in the Qatari real estate market coupled with this international partner’s expertise will allow the new subsidiary to secure a reasonable market share of real estate services within Qatar. The new company is expected to start operations early in 2007. (iii) MOU with QIPCO—QREIC signed a memorandum of understanding with QIPCO in June 2006. As a result of QREIC entering into the joint venture and the memorandum of understanding referred to in items (i) and (iii) above, as at the date of this Offering Circular, QREIC’s long term liabilities increased by QR 375 million (payable over 5 years in equal instalments) and its future commitments amount to QR 280 million. Risk Management Corporate Governance There are several committees both at the Board level and at the general management level, each with a defined authority and responsibility. These committees constitute QREIC’s internal risk management system which undertakes risk assessments and monitors QREIC’s performance. The composition and responsibilities of the various committees are set out below: (A) Board Level Committees (i) Investment Committee The Investment Committee comprises the Chairman and Managing Director and 2 Directors. The committee meets frequently and is responsible for: (a) setting, approving and updating QREIC investment objectives and procedures; (b) monitoring and evaluating QREIC’s investment performance; and (c) approving any new investment decision before presenting it before the Board of Directors for their approval. (ii) Finance Committee The Finance Committee comprises the Chairman and Managing Director, the Vice Chairman, and 2 Directors. The committee meets frequently and is responsible for: (a) setting and overseeing QREIC’s liquidity status and plans; 61
68. (b) monitoring QREIC’s performance and profits; (c) approving budgets and forecasts before presenting them to the Board of Directors for their approval; and (d) reviewing QREIC’s quarterly financials. (B) Management Level Committee The Management Committee comprises the functional heads of the senior management team. The Management Committee meets on a monthly basis and is responsible for the day to day management of QREIC. The Management Committee is headed by the General Manager, who reports directly to the Chairman and Managing Director. (C) Asset Liability Management Committee The Asset Liability Management Committee comprises of the General Manager and the respective heads of the finance and investment departments. The committee meets on a weekly basis and is responsible for the management of QREIC’s liquidity, investment returns, foreign exchange and interest rate risks. The committee is also responsible for making recommendations for hedging and investment strategies and decisions. Risk management policies (A) Operational Risks QREIC is acutely aware of the operational risks arising through fraud, unauthorised activities, error, omission, inefficiency, system failure or from external events. It manages this risk through a controls-based environment in which duties are clearly assigned and processes are well-documented. These measures are supported by independent reviews undertaken by internal audits which have been outsourced to Ernst & Young. QREIC also evaluates its employees’ performance and standards on an annual basis. This mitigates against employee misconduct and encourages accountability and transparency within QREIC. The Company has, to date, not experienced any material incidences of employee misconduct. Currently, QREIC is in the process of re-engineering its policies and procedures by engaging an independent and reputable firm to review and improve upon its current policies and procedures. It also aims to be ISO (International Standards Organisation) certified by the end of 2006. QREIC also undertakes a stringent selection of major suppliers and contractors to ensure compliance with its high standards. QREIC’s selection criteria primarily includes governmental grading of the company, its record of previous experience and its technical skills. Contractors are always requested to provide adequate performance guarantees and insurance coverage. Contractors are also occasionally requested to provide advance payment guarantees. (B) Liquidity Risk Liquidity risk is the risk that the Company may be unable to meet its funding requirements. To guard against liquidity risk, QREIC’s management aim is to diversify the Company’s funding sources. It also works to ensure that its financial arrangements are made with reputable banks and financial institutions, its assets are managed to ensure continued liquidity and a healthy balance of cash and cash equivalents are maintained. (C) Credit Risk Credit risk is the risk that a customer or counter party will fail to meet its commitment, resulting in financial loss to the Company. QREIC’s credit risk is mitigated by its entering into lease contracts with well-known reputable off-takers, such as QP, and its subsidiaries Qatar Gas and Ras Gas. Where QREIC is dealing with other off-takers, QREIC will mandatorily obtain adequate security in the form of bank guarantees or post dated cheques. QREIC’s management has also put in place formal procedures to monitor credit risk. The Management Committee regularly reviews the status of receivables and also ensures that provisions are made for any specific balances where recovery is doubtful. 62
69. (D) Currency Risk QREIC mitigates this risk by ensuring that a large proportion of its assets (and liabilities) are in Qatari Riyals and US dollars. If assets and liabilities are in currencies other than Qatari Riyals and/or US dollars, QREIC will hedge such assets and liabilities. (E) Interest Rate Risk Interest rate risk arises from the possibility that changes in interest rates will affect future profitability. QREIC mitigates this risk by adopting favourable hedging arrangements. Insurance QREIC currently has project specific insurance for all of its projects through Qatar Islamic Insurance Co. These include insurance against public liability, fire and burglary. Furthermore, all QREIC staff have insurance cover and policies in respect of workmen’s compensation. There have been no significant claims made under any of these insurance policies since inception. Environment and safety All of QREIC’s completed projects are located in areas controlled by QP authorities. Compliance with QP health, safety and environmental (“HSE”) policy is mandatory for these projects. In all contracts for design, construction and supervision, there are clauses making the contractor and consultants responsible for fulfilling the regulating authority’s HSE policy. Each contractor has to submit its HSE plan at the start of the project which is reviewed by the supervision consultant. Each contractor has to appoint the required number of safety officers and safety engineers to the satisfaction of the governing authority. In most of the projects there will be safety engineers staffed by the supervision consultant overseeing HSE matters and the compliance of the contractors with HSE regulations. Each project is managed with a tailor made HSE plan prepared by the contractor and approved by the consultant. Compliance with the HSE plan is reviewed by the supervision consultants regularly and monitored by both QREIC and the end user. Board of Directors • Khalid Bin Khalifa Bin Jassim Al-Thani (Chairman and Managing Director) has an MBA from Pacific Lutheran University, USA. He started his career with QP in 1991, where he held many key positions in several departments including material and procurement, projects, logistics, budgeting and planning. He participated in the setting up, planning and monitoring of many QP projects, especially within the Mesaieed industrial area. He was seconded for one year by QP to Mobile Oil International Company in Dallas, Texas, USA. He is currently the head of the Business and Investors Department in QP, Mesaieed Industrial City Directorate. Sheikh Khalid represents the Government of Qatar on the Board of Directors. • Saud Bin Nasser Bin Jassim Al-Thani (Vice Chairman) has a Bachelor of Science degree (“BSC”) in accounting and business administration from the University of Oklahoma, USA. He is the head of the general budgeting section in the Ministry of Finance in Qatar. He joined the Ministry of Finance in 1997 and held several positions in the tax department and the inspection and tax payers affairs department. He previously held several positions in the finance department of QP between 1989 and 1996. Sheikh Saud represents the Government of Qatar on the Board. • Mohammed Abdulattif Al Menah (Board Member) has a BSc in Sharia and Islamic Jurisprudence. He currently holds numerous positions at Qatar Islamic Bank, being its Deputy Chairman, member of its board and Head of its Executive Committee. He is also Chief Executive Officer of Aqar Real Estate Development and Investment Company and a member of the Board of Tadhamon International Islamic Bank, Al Jazeera Islamic Co. and Ritage Co. Previously, he was also the Minister of Endowment and Islamic affairs in Qatar and the Chairman of the Qatar Zakat Fund. • Mohammed Ali Al Kubaisi (Board Member) has a BSc in engineering from the University of Qatar. He is currently the director of QIPCO Holding Company and the Managing Director of the Investment House, a 63
70. Qatari Private Shareholding Company specialising in investments , wealth management and investment advisory services as well as a board member of the National Leasing Co. (Q.S.C.). He previously held several leading positions in the Government sector and other organisations such as Ras Laffan Liquefied Natural Gas Co. • Mohammed Ismail Mandani (Board Member) has a BSc in banking from Holley Names College in California, USA. After graduating, he started his career in 1983 as a banker with Qatar Commercial Bank and has since held several positions including head of risk management, head of the banking group, head of the operations department and head of the commercial services department. He is now the Deputy General Manager of Qatar Commercial Bank, and is also the Managing Director of Qatar Cinema and Film Distribution Co. (Q.S.C.). Mr Mandani is a former board member of Qatar Shipping Co. and Doha Securities Market. • Prof. D. Abdulaziz Abdulrahman Kamal (Board Member) holds a PhD from Minnesota University, USA. He is a businessman and a lecturer at Qatar University. He is a former member of the Islamic Parliament Union and is a former head of academic affairs of the Qatari Shora Council. • Abdullah Bin Ahmed Al Suwaidi (Board Member) is a Qatari businessman. He is the Managing Director of the Al Suwaidi Group of companies. Other Senior Management • Mohamed Bin Misnad Al Misnad (General Manager) holds a BSc from the University of Colorado, USA. He has fourteen years of experience in the construction, engineering, banking and finance industries and held several managerial positions in various Governmental departments where he supervised and managed several large projects including Al Eidid air base and the Northern area military camps. He has also held several leading managerial positions in large institutions in the private sector, where he was most recently assistant general manager for the First Finance Company and assistant general manager (real estate) for Qatar Islamic Bank. • Mohammed A. Al-Saad (Head of Investment Department) holds a BSc from the University of Colorado, USA. He has eight years of experience in the investment industry and in project management. He has a distinguished track record in contracts management including extensive experience with the budgeting of significant public projects. As a wealth management professional and investment expert, he has managed portfolios exceeding a total of QR1 billion. He is a Chartered Financial Analyst candidate and member of the Project Management Institute. • Osama Abu Baker (Head of Finance Department) holds a BSc in Economics and Accounting. He is a certified public accountant under the jurisdiction of the state of Illinois, USA. He has eleven years of experience in financial management, consulting and auditing and held several managerial positions in international companies such as Deloitte & Touche and Saipem International. He is a Certified Management Accountant candidate and a member of the American Institute of Certified Public Accountants. • Murad Al Ghoul (Head of Support Services Department) holds a high diploma in Urban Planning (Hons) from Qatar University and a BSc from the University of North Carolina, USA. He has twenty-one years’ experience in engineering, construction, project management, logistics and maintenance. • Asmat Ali (Head of Projects Department) holds a BSc from the NWFP University, Pakistan. He has twenty-two years of experience in engineering and construction and held managerial positions in large construction companies (such as Bukhari Engineering and ECTA Contracting Co.) in Pakistan and the GCC where he managed and supervised a wide range of residential and commercial projects. • Abdallah Nassar (Head of Administration and HR Department) holds a masters degree in law from Saint Joseph University, Lebanon. He has twenty-five years of experience in administration, human resource management, law and consultation. He has held several managerial positions in large institutions in Lebanon and the GCC. These include Alfardan Group, Bin Daher Group, Trans Orient Bank, Intra Investment Group and Cedars International Management Corporation. 64
71. SELECTED FINANCIAL INFORMATION The following tables set out in summary form the balance sheet and income statement information relating to Qatar Real Estate Investment Company (Q.S.C.). Such information is extracted without material adjustment from the audited financial statements of Qatar Real Estate Investment Company (Q.S.C.) as at and for the years ended 31 December 2005 and 31 December 2004. Such financial statements, together with the auditors’ reports of Deloitte & Touche and the accompanying notes, appear elsewhere in this Offering Circular. The financial information presented below should be read in conjunction with such financial statements, reports and the notes thereto. Profitability 31 December 2005 QR’000 31 December 2004 QR’000 Statement of Income Rental Income: From QP affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . From Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Rental Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,642 16,210 110,852 94,969 7,402 102,371 Finance Lease Income, from QP & Government Bodies . . . . . . . . . . . . . . . . . Total Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Income and expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General & Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,932 128,784 (19,961) (23,736) 85,087 33,449 17,342 (9,507) 11,736 114,107 (10,755) (22,648) 80,704 2,202 (12,287) (5,168) Finance Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,851) (9,210) Net Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,520 56,241 The following table sets out the performance indicators for the Company for the financials years ended December 31, 2005 and December 31, 2004: Profitability Ratios Return on Average Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Return on Average Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income to Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Cost to Total Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Growth of Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Year Cumulative Growth of operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Growth of Operating Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Year Cumulative Growth of operating Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 2004 7.6% 12.7% 75.6% 15.5% 13% 95% 5% 96% 6.1% 15% 96.2% 9.4% 6% 7% In the financial year ended December 31, 2005, the Company recorded growth in total operating income of 13 per cent (QR14.7 million) over the previous financial year. In the meantime, investment income, which is the income derived from investments in quoted and unquoted securities, as well as real estate funds, increased by 14.19 per cent (QR31.2 million) over the previous year. Overall, the growth in operating income coupled with the increase in investment income caused QREIC’s profits to grow by 100 per cent (QR56.3 million) during the previous year. Asset Profile 31 December 2005 QR’000 31 December 2004 QR’000 Asset Categories Cash at Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real Estate Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments (Current & Non-current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance Lease Receivables (Current & Non-current) . . . . . . . . . . . . . . . . . . . . Property and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,986 594,396 414,382 265,945 368,674 48,539 89,275 578,314 28,522 147,993 172,633 62,423 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,895,922 1,079,160 65
72. During the financial year ended 31 December 2005 , total assets increased by 76 per cent (QR816.8 million) to QR1.9 billion. Within total assets, the increase has primarily registered in Investments, Finance Lease Receivables, and Property and Equipment. Real Estate Investments (31 per cent of total assets) as of December 31, 2005, are stated at cost less accumulated depreciation and any impairment losses. The fair value is determined on the basis of management’s estimate of the market value, which in the opinion of the management is in excess of their carrying amounts. They include building and infrastructure, and are built on land owned by third parties with the exception of Qatar Gas Housing and Ras Gas Housing Projects where the land is owned by the Government of Qatar and QREIC was granted an exclusive right to utilize the land for the company duration. Property and Equipment primarily include land and projects under construction. Land, with a book value of QR277 million, comprises 75 per cent of property and equipment. Liquidity and Funding Profile 31 December 2005 QR’000 31 December 2004 QR’000 Cashflow Analysis Net Cash From Operating Activities, Finance Lease, and before changes in Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes In Working Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash from Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash From Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Increase in Cash at Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash at Banks at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136,747 42,239 (696,230) 631,955 114,711 89,275 102,765 (3,799) (214,262) 178,588 63,292 25,983 Cash at Banks at the end of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,986 89,275 QREIC’s cash from operations (including finance lease collections) for the year ended December 31, 2005 was robust at 106 per cent of operating income, i.e. an increase from QR103 million in 2004 to QR137 million in 2005. The cashflow statement above demonstrates the Company’s utilization of cash during 2005, in the purchase of investment property and property and equipment (QR312 million), as well purchase of investments (QR384 million). The funding for the financing activities came from the Company issuing additional shares for QR950 million during 2005. The Company has 11 per cent of total assets in liquid cash. The increase in liquidity is primarily due to the cash inflow resulting from the additional shares issued by the Company. QREIC’s total indebtedness, in respect of short-term and long-term loans, as at December 31, 2005 is QR315 million representing 17 per cent of total assets. The loans can be divided into Istisna’a financing of QR148 million, Murabaha financing of QR100 million, and Ijarah financing facilities of QR 67 million. During 2005, the funds received from increase in the Company’s authorized share capital were used to repay debt. Total debt decreased from QR 595 million as at December 31, 2004 to QR 315 million in 2005. Ratios 31 December 2005 Total Shareholders’ Equity (QR’000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity to Total Assets (%) . . . . . . . . . . . . . . . . . . . . . . . . Debt to Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 December 2004 1,395 74% 0.22 16.6% 2.4 x 383 36% 1.55 55.1% .5 x The QR 1 billion increase in shareholders’ equity during 2005 is primarily due to the increase in share capital. Additionally, during the year 2006, the company increased its capital by distributing QR 100 million dividends as bonus shares, which classified as proposed dividends in 2005 financial statements. Dividends Distribution Over the past five years QREIC’s average dividends (both cash and bonus shares) have been between 15 per cent and 25 per cent of the paid up capital. For the year ended December 31, 2005, the company distributed QR 100 million as bonus shares. 66
73. OVERVIEW OF THE STATE OF QATAR1 1 . GENERAL 1.1 Location, Area and Historical Background Qatar is an independent state in the Southern Arabian Gulf surrounded by Saudi Arabia, Bahrain, the United Arab Emirates and Iran. The country is situated midway along the western coast of the Arabian Gulf. The country extends over a peninsula approximately 185 kilometres long and between 55 to 100 kilometres wide and covers a total area of 11,521 square kilometres, including a number of islands. Doha is Qatar’s capital city, the seat of the Government and the country’s cultural, commercial and financial centre. It is also the location of Qatar’s main port and the international airport. Qatar has an arid desert climate with low annual rainfall and little vegetation or surface water. The highest geographical point in Qatar is Dukhan, in the north west of the country, with a maximum elevation of about 40 metres above sea level. Qatar relies almost exclusively upon two water desalination plants and one combined water and power project for domestic water supply. Qatar has vast hydrocarbons resources within its territory with both onshore and offshore oil fields and the third largest proven natural gas reserves in the world, including the North Field, the world’s largest single non-associated gas deposit in the world. 1.2 Population The population of Qatar as per the 1997 census was 522,023 representing a 41.4 per cent increase from the 1986 census of 369,079 and translating into an average annual increase of 3.7 per cent during 1986–1997. In December 2004, The Planning Council announced the final results of the new population census. According to the 2004 census, Qatar’s population reached 744,029 increasing by 42.5 per cent from the 1997 census of 522,023. According to the 2004 census, 45.7 per cent of the total population resided in Doha, while 36.7 per cent of the population resided in Al-Rayyan. The 2004 census shows an average annual increase of 5.3 per cent during the period from 1997 to 2004, compared to the annual average increase of 3.7 per cent during the period from 1986 to 1997. The rapid increase in population over the last few years is attributed to the strong performance of the economy, which has resulted in a large number of projects coming online, thereby leading to the influx of professionals, service and contracting sector staff and others. The official language of Qatar is Arabic and English is widely spoken. Nearly all Qatari citizens are Muslims. Among the Qatari residents, Hindus and Christians are the principal religious minorities. 1.3 Constitution and Legal System The National Constitution Committee, established by an emiri decree in July 1999 to draft a new permanent constitution, presented a final draft to His Highness the Emir in July 2002. One of the main provisions in the new constitution is the establishment of an elected parliament. The draft constitution received an overwhelming majority vote in the referendum held in April 2003, and became effective in June 2005. The Judiciary in Qatar was expressly established as an independent body by the provisional constitution and was formerly divided into two court systems; the Civil, Commercial and Criminal system and the Sharia Court system which administers Islamic laws. The Civil and Commercial system was formerly divided into the minor and major courts. The minor court had jurisdiction to consider only disputes not exceeding QR 30,000 presided by a single judge. All civil and commercial disputes in excess of that value were heard by the major courts, comprised of a panel of three judges. Appeals from the minor courts were raised to the major courts, and from the major courts to the Court of Appeal, which is the highest court of appeal in the country. 1 Unless otherwise stated the information contained in this section taken from the QNB Research Report dated December 2005 and updated in May 2006. 67
74. In October 2004 , the judicial system underwent a radical change with the establishment of the new Judiciary Law issued in 2003, which became effective in 2004. According to the new Judiciary Law, the previous two-court system has merged into one. A Higher Court called the Court of Cassation (Supreme Court) has been established. Appeals from the Court of Appeal can be raised to the Court of Cassation, which will be considered the highest court of appeal in the country. 1.4 Foreign Relations and International Organisations Qatar is a member of the Gulf Cooperation Council (“GCC”), whose members are Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates; the Organisation of Petroleum Exporting countries (“OPEC”), and other international multilateral organisations such as the United Nations, the International Monetary Fund, the International Bank for Reconstruction and Development and the World Trade Organisation. During the GCC summit held in December 2001, the supreme council of the GCC approved the establishment of a GCC customs union by 1st January 2003, which is currently in place. This agreement has accelerated the proposed customs union by two years, setting unified customs tariffs at 5 per cent for all imported goods into the region. The GCC summit also approved proposals for a monetary union and the introduction of a single GCC currency by 2010. 1.5 Government Organisations and Political Background Qatar is an absolute monarchy and has been ruled by the al-Thani family since the nineteenth century. In 1916, the al-Thanis entered into a treaty with the British pursuant to which Qatar became a British protectorate. Qatar declared independence on 3 September 1971. The current Emir, His Highness Sheikh Hamad bin Khalifa al-Thani, replaced his father as Emir and assumed his position on 27 June 1995. The Emir is the principal executive officer in Qatar, although the cabinet, appointed by the Emir, carries out the day-to-day administration of the country’s affairs. The Prime Minister is Sheikh Abdullah Bin Khalifa al-Thani. The son of the Emir, H.E. Sheikh Tamim bin Hamad bin Khalifa al-Thani, was designated the crown prince in 2003, replacing his brother, H.E. Sheikh Jassem bin Hamad bin Khalifa al-Thani, who had been designated crown prince in 1996. Under the new constitution, the Consultative Council will propose legislation, which is then to be reviewed by a committee and ratified by the Emir. This will replace the Cormer system whereby the Council of Ministers was responsible for proposing draft laws and decrees which were then approved by the Consultative Council and ratified by the Emir. As before, laws only come into effect one month after their publication in the Official Gazette, unless another date for effectiveness is stipulated in the law itself. The Emir will retain certain powers including the power to suspend the progress of proposed legislation in the national interest and to dissolve the Consultative Council. The Emir appoints the Prime Minister, the Deputy Prime Minister and the members of the Council of Ministers (together, the cabinet) and one-third of the Consultative Council. The Emir is advised by the Emiri Diwan, the office of the Emir, an executive staff member that assists both the Emir and the Council of Ministers in the performance of their respective duties. The Council of Ministers assists the Emir in the discharge of his duties and the exercise of his powers and is responsible for the administration of all the internal and external affairs which fall within its competence. The executive branch of government has been separated from the royal court and state finances have been separated from the private finances of the al-Thani family. 1.6 Credit Rating The State of Qatar has steadily improved its credit ratings over the last decade. Through a series of increases, its long-term credit rating by S&P has improved from “BBB” in February 1996 to “A+”, with a stable outlook, in September 2005. In the 2005 report, S&P affirmed the State of Qatar’s “A+” rating received in 2003 and noted that the ratings were supported by sustainable fiscal policy, substantial external liquidity, strong economic prospects, and high per capita income. Similarly, Moody’s long-term foreign currency senior unsecured debt rating for the State of Qatar has improved from “Baa2” in September 1999 to “A1” in May 2005. Moody’s attributed the upgrade in 2005 to Qatar’s continuing rapid economic expansion, improving debt ratios and ongoing political reform. Qatar has the highest combined ratings of any country in the Middle East. 2. THE ECONOMY OF QATAR Qatar’s economy has become one of the fastest growing economies in the world. Nominal Gross Domestic Product (“GDP”) growth was estimated at 24.8 per cent in 2004 and is estimated to show a further increase by 68
75. 29 .1 per cent in 2005. Moving the economy forward is the rapidly expanding Natural Gas sector, which continues to lead the economic diversification efforts of the Government and provides the basis for reshaping the economy. With the development of projects to produce and export natural gas in the form of Liquefied Natural Gas (“LNG”), piped gas, Gas to Liquid (“GTL”) projects and investments in petrochemical and fertiliser industries, Qatar has been successful in diversifying its revenue base by reducing its historic dependence on oil export revenues. Although economic performance is still relatively dependent on oil revenues, the contribution of LNG has increased significantly over the past few years. The share of the oil and gas sector in terms of overall GDP stood at 60 per cent in 2003, according to the Planning Council. Gross Domestic Product (“GDP”) Qatar’s nominal GDP growth has reached record levels, averaging 18.9 per cent over the past four years from 2000 to 2004. The primary attributes for this rapid growth come from the underlying increased exports of oil, LNG, petrochemicals and related industries, coupled with favourable prices. The final GDP figures for the year 2003 released by the Planning Council shows that nominal GDP grew by a substantial 20.3 per cent to reach QR 86.3 billion, compared to the preliminary estimate of QR 74.3 billion. In 2003, the oil and gas sector witnessed a growth of 28.0 per cent, while the non-oil sector grew by 10.1 per cent. For 2004, preliminary estimates from the Planning Council show GDP growth continuing at a rate of 20.0 per cent, to reach QR 103.6 billion. Qatar ‘s GDP has more than doubled since 1999, when it was at a level of QR 45.1 billion, to the current level in 2004 of QR 103.6 billion. For 2005, GDP figures are expected to show continued growth, underpinned by the following factors: • the price of Qatar’s crude oil increased by 30.7 per cent during the first half of 2005, averaging $46.0 p/b, from $35.2 p/b in 2004, according to MEES; • Qatar’s crude oil production averaged 775,000 bpd during the first half of 2005 compared to 759,000 bpd in 2004, according to MEES; and • LNG exports are set to reach around 24 million tons. (a) The Non-Oil and Gas Sector The Non-Oil and Gas Sector contributed 38.0 per cent of total GDP in 2004, recording a growth of 14.8 per cent over 2003. The main components of this sector are the following: (b) Other Services The “Other Services” sector, which includes government services, social services, household services, imputed bank service charges and import tariffs, makes the largest contribution to GDP of the non-oil and gas sectors, and in 2004 contributed QR 9,249 million (representing 8.9 per cent of total GDP), compared to QR 8,990 million in 2003. (c) Finance, Insurance and Real Estate The finance, insurance and real estate sector is comprised of five sub-sectors: banking, insurance, money exchange, real estate and business services. In terms of relative contribution to GDP, this sector contributed QR 6,910 million, the second highest among the non-oil and gas sectors and grew by 9.4 per cent at current prices in 2004. This sector represented 6.7 per cent of Qatar’s GDP in 2004. (d) Manufacturing industry In 2004, the manufacturing sector made the third largest contribution to GDP among non-oil and gas sectors. This sector grew by 32.3 per cent, contributing QR 6,512 million, which represented 6.3 per cent of total GDP. This sector is strongly supported by the Government as a part of a general policy to diversify income sources and to maximise the utilisation of Qatar’s natural resources. (e) Building and Construction This sector continues to be a major contributor to the GDP and employment of labour force. This sector witnessed a growth of 16.3 per cent in 2004, contributing QR 5,414 million to overall GDP. Credit facilities 69
76. extended by commercial banks to the land , housing and construction sector increased by 71.7 per cent during the year 2004 to reach QR 5,712 million, and at the current pace this trend is likely to continue in the coming years. Another major indicator showing the level of activity in the building and construction sector is the number of building permits issued. In 2004, the number of building permits issued increased by 23.3 per cent to reach 4,821. Public expenditure is a very important factor affecting the prospects for the building and construction sector, and the realisation of budgetary surpluses in the last five fiscal years has increased the level of public spending. Allocation for major public projects in the 2005/06 Budget increased by 32 per cent to reach QR 11.7 billion, which covers the areas of public services, infrastructure, social and health services, and education and youth welfare. (f) Trade, Restaurants and Hotels The trade, restaurants and hotels sector contributed QR 5,165 million to Qatar’s overall GDP in 2004, representing 5.0 per cent of total GDP. This sector grew by 18.8 per cent in 2004 and will be one of the most promising in the coming years, as business, cultural, sports, education and tourism events aimed at promoting Qatar, gathers momentum. According to the Qatar Tourism Authority (“QTA”), the average hotel occupancy rates stood at 65 per cent, from 62 per cent in 2002 and 55 per cent in 2001. Qatar’s hotel room capacity in the luxury sector is expected to increase by an additional 9,318 rooms in the coming years as a result of up-coming projects such as the West Bay Resort, the Doha Hilton, the Shangri-La, the Renaissance, the Al-Shaqr Village Resort & Spa, the Regency, the Marriott Courtyard and the Rotana amongst others. The QTA which was established in the year 2000, is actively promoting Qatar as a tourist destination. (g) Transport and Communications This sector contributed QR 3,422 million to the overall GDP in 2004, and witnessed a growth of 17.6 per cent. Qatar Airways is the principal airline operating from Qatar, designated as the “National Carrier”, and is a joint public and private sector enterprise (being 50 per cent owned by the government). It currently flies to over 65 destinations in the Middle East, North Africa, Europe, the Indian sub-continent and the Far East. (h) Electricity and Water The Electricity and Water sector witnessed a growth of 29.2 per cent in 2004, contributing QR 2,324 million to Qatar’s overall GDP. Most of Qatar’s electricity generation capacity comprises of gas turbines, which are fuelled by natural gas. Water desalination is achieved in tandem with electricity generation. Ras Abu Fontas-B Plant, Qatar’s largest power and water desalination plant, entered operation in 1996 and provided installed capacity of 610 megawatts (“MW”). The completion of the Phase 1 expansion at Ras Abu Fontas-B has seen an addition of 380 MW to Qatar’s power grid. Phase 2 of the expansion will see the addition of 27-30 million gallons a day of desalination capacity. (i) Agriculture and Fisheries The agriculture and fishing sector has traditionally played only a minor role in the modern Qatari economy because of unsuitable weather and environment conditions. Cultivable land accounts for only approximately 0.7 per cent of Qatar’s total surface area. This sector grew by a marginal 1.0 per cent in 2004, contributing QR 202 million to Qatar’s GDP. 3. KEY ECONOMIC SECTORS 3.1 The Oil Sector The State of Qatar conducts its principal oil operations through a State-owned entity, Qatar Petroleum (“QP”), which manages Qatar’s oil, gas, fertiliser, petrochemicals and refining enterprises in Qatar and abroad. The Government’s oil policy has the twin aim of replenishing proven reserves within currently producing fields and identifying additional new reserves. According to QP, Qatar’s oil reserves as at December 2004 stood at 14.5 billion barrels. Qatar’s oil reserves have substantially risen over the past six years, from 3.7 billion barrels in 1999 to 14.5 billion barrels as at December 2004. Given an average production of 700,000 bpd over the past five years, proven reserves would last approximately 56 years. QP has embarked upon an investment programme with the intention of expanding oil production capacity from its onshore and offshore fields from the current capacity of 800,000 bpd, to around 875,000 bpd by year-end 70
77. 2006 . QP has in its new five-year plan, starting 2005, budgeted an overall QR 185 billion for projects in crude oil, natural gas, and petrochemicals, with QR 6 billion allocated specifically for crude oil production, expansion and other oil related projects. QP Production QP produces oil on its own account from one onshore and two offshore fields and from other fields through Exploration/Development and Production Sharing Agreements (“EPSAs”/“DPSAs”) with major international partners. QP operates exclusively the Dukhan Field, which is Qatar’s oldest and largest field. The field comprises of three reservoirs for crude oil and one reservoir for non-associated gas. The Dukhan Field is Qatar’s only onshore field and has estimated reserves in excess of 2 billion barrels of oil, equivalent to around 20 years’ production at present production levels. QP also produces offshore crude oil for its own account from two fields within Qatar’s territorial waters: Maydan Mahzam and Bul Hanine, which currently have production capacities of 35,000 bpd and 70,000 bpd. QP’s oil production capacity accounted for 56 per cent of Qatar’s total oil production capacity as at December 2004. Oil Production, Price and Exports: Qatar’s oil production averaged 777,000 bpd during the second quarter of 2005, compared to 773,000 bpd during the first quarter of 2005 according to the MEES. In 2004, Qatar’s oil production increased by 6.3 per cent to average 759,000 bpd, compared to an average 714,000 bpd produced in 2003. Qatar’s oil price averaged $50.7 p/b during the second quarter of 2005, compared with $43.7 p/b during the first quarter of 2005, according to MEES. In 2004, Qatar’s oil price averaged $35.2 p/b, compared to $27.9 p/b during 2003. Qatar’s oil prices are based on the average of a basket of two crudes, mainly Dukhan and Marine. Qatar’s crude oil exports are directed mainly towards the Asian markets, with the region accounting for over 96.0 per cent of the total value of oil exports in 2005. In 2005, Japan received 60.0 per cent of Qatar’s total crude oil exports, followed by Singapore with 16 per cent, South Korea with 13 per cent, Thailand with 3.0 per cent, Taiwan with 2.0 per cent and the Philippines with 2.0 per cent. In 2004, Japan received 50.6 per cent of Qatar’s total crude oil exports, followed by Singapore with 17.1 per cent, South Korea with 9.7 per cent, Thailand with 4.6 per cent and India with 3.9 per cent. 3.2 The Natural Gas Sector Qatar’s North Gas Field, discovered in 1971, is the largest non-associated gas field in the world, with proven reserves currently estimated at over 910 trillion cubic feet (“tcf”), which is equivalent to about 164 billion barrels of oil. These reserves would translate into 14.4 per cent of the world total and will be sufficient to support planned production of natural gas for over 200 years. The North Field extends over an area of approximately 6,000 square kilometres, predominantly underlying the territorial waters of the State of Qatar. Associated gas reserves are currently estimated at 15 tcf. Within the Middle East, Qatar has the second highest proven gas reserves after Iran. QP has initiated and developed two major LNG projects with foreign shareholders for the purpose of utilising the North Field gas for exports in the form of LNG. These projects are Qatargas and Rasgas Expansion of LNG facilities through Rasgas II, Qatargas II, RasGas III, Qatargas III, and Qatargas IV is being pursued to meet additional export opportunities. Sales and Purchase Agreements (“SPA”) have been reached with a number of countries, which at their peak in 2011 will reach 34.5 million tons per annum (“mtpa”). Several Heads of Agreement (“HoA”) have also been signed, and should these turn into confirmed SPAs, total LNG exports would reach about 78.1 mtpa by 2011. The Qatar Gas Transport Company (Nakilat) was established as a Doha Securities Market listed company in early 2005, to meet the transportation needs of the various LNG export deals. QP has allocated QR 122 billion in its five-year plan, starting 2005, to meet the rapidly expanding needs of the Natural Gas sector. 4. INFLATION Inflation in Qatar has witnessed a slight increase in recent years, averaging 3.9 per cent over the period from 2001 to 2005, compared to an average of 3.3 per cent in the preceding period from 1996 to 2000. This increase in inflation over the past few years can be primarily attributed to the sustained increase in housing costs and the weakness of the US dollar, to which the Qatari Riyal is pegged. 71
78. Data released by the Planning Council for 2005 shows a continuation of the upward trend in inflation as the overall general index increased by 8 .8 per cent, compared to an increase of 6.8 per cent in 2004. The main inflation driver for 2005 was the housing sector, which witnessed a steep increase by 26.2 per cent, after an increase by 16.2 per cent in 2004 and a rise by 18.0 per cent in 2003. The supply gap in building materials in recent years has led to a premium surcharge and has resulted in a huge increase in construction costs, which has subsequently partly triggered rent increases. Among the other groups of commodities and services, the group food, beverages and tobacco, which has a relatively high weight on the consumer price index, witnessed an increase of 3.1 per cent in 2005, with the group medical care and medical services increasing 4.5 per cent. The group garments and footwear declined by 2.7 per cent during the first half of 2005. The Planning Council had conducted a Family Expenditure Survey (“FES”) of households in 2000/2001, so as to better assess the spending patterns of consumers, assigning the new base year at 2001 (2001=100). The previous FES was conducted in 1987/1988, with the base year at 1988 (1988-100). The Consumer Price Index (“CPI”) is based on the FES of households. The new weights for the groups of commodities and services on CPI, based on the FES conducted in 2000/2001 shows that the group “Transport and Communications” now forms the largest part of household expenditures, with a weight or part of total expenditures at 23.4 per cent, compared to 19.3 per cent in 1987/1988. The group “Housing” has also gained in relative importance and now accounts for 20.7 per cent of total expenditures from 12.4 per cent in 1987/1988. The percent spent for “Food, Beverages and Tobacco” declined to 18.1 per cent, from 28.7 per cent previously. 5. BALANCE OF PAYMENTS 5.1 Foreign Trade Qatar’s exports have grown significantly, averaging a growth rate of 18.8 per cent over the past five year period from 2001 to 2005. Qatar’s diversification efforts are being realised, with increased export revenues coming in from natural gas, chemicals and related products, and iron and steel. Qatar’s exports have grown by 61 per cent over the five year period from 2004 to 2005, to reach QR 93.8 billion (US$25.8 billion) in 2005, from QR 39.6.2 billion in 2001. The Balance of Payments situation has been equally impressive, with consecutive surpluses being recorded since 1999. 5.2 Exports Qatar’s Exports increased by 37.9 per cent in 2005, to reach QR 93.8 billion, from QR 68.0 billion in 2004. There has been a significant increase in export of crude oil, LNG, chemicals and related products, and iron and steel. The increase in crude oil export revenues was a result of better average crude oil prices and production. This trend has continued into 2006. Qatar’s principal export items in 2005 were mineral fuels and products, which accounted for 88.7 per cent of the total value of goods exported, followed by chemicals and related products. Qatar exported 22.9 mega tons (“mt”) of LNG in 2005 which accounted for 30.8 per cent of overall export earnings. LNG export revenues have increased by 109.9 per cent over the past five years to reach QR 28.9 billion in 2005, from QR 13.8 billion in 2001. With increased LNG production and exports it is anticipated that LNG export revenues will match that of oil by 2010. LNG export destinations have increased over the years with new SPA’s being signed with major international companies. Japan is the leading importer of LNG and in 2005 received 6.2 mt of LNG, followed by South Korea with 5.0 mt, Spain with 4.4 mt and India with 3.6 mt. Qatar’s leading export trade partner in 2005 was Japan, accounting for 40 per cent of the total value of exports. Exports to Japan has been on a steady increase over the years, mainly due to increased LNG exports. South Korea, Singapore, India and the United Arab Emirates were some of Qatar’s other main export trade partners during 2005. India has entered the top export trade partners list in 2004 for the first time, with exports to India increasing from QR 570 million in 2001, to QR 3,262 million in 2005, primarily due to increased quantities of LNG being shipped to India. 5.3 Imports Qatar’s imports free on board (“fob”) increased by 67.4 per cent in 2005 to reach QR 33.0 billion, from QR 19.7 billion. Details of imports release by the Planning Council show that Qatar’s main imports in 2005 consisted 72
79. of machinery and mechanical imports have nearly tripled over the past five years , from QR 12.3 billion in 2001, to QR 33.0 billion in 2005. This increase was broad-based and will continue to be driven by the rapid industrial and infrastructure expansion. In 2005, Qatar’s main import trade partner was Japan, accounting for 11.6 per cent of the total value of imports, followed by USA with 11.5 per cent and Saudi Arabia with 9.2 per cent. 5.4 Current Account Qatar’s trade balance grew sharply by 26 per cent in 2005 to reach QR 60.8 billion from QR 48.3 billion in 2004. Qatar’s trade balance has made significant gains over the past five years ending 2005 as a result of increased industrial exports in the form of oil, LNG, petrochemicals and fertilisers, with an accompanying rise in commodity prices. The new outflow of services and private transfers has steadily increased over the years and in 2005 reached QR 17.9 billion. Preliminary figures published by the Qatar Central Bank for the year 2005 indicates a current account surplus of QR 42.9 billion compared to a surplus of QR 27.5 billion in 2004. 5.5 Overall Balance of Payments Net capital transfers amounted to QR 10.0 billion in 2005, resulting in overall Balance of Payments surplus of QR 32.9 billion. The current trend in Balance of Payments surpluses are likely to continue on the back of strong exports and relatively high commodity prices. 6. MONETARY POLICY The monetary management in Qatar is implemented by the Qatar Central Bank (“QCB”) which was established by Law No. 15 in the year 1993, from what was formerly called the Qatar Monetary Agency (“QMA”). The main objective of the QCB is to regulate the monetary, credit and banking policies in accordance with the general plans of the State, in order to support the national economy and the stability of the currency. QCB has full powers over the monetary policies of the State, and supervises and controls banks and financial institutions. An effective monetary tool utilised by the QCB is the imposition of minimum reserve requirements for commercial banks. In February 2000, QCB instructed banks to maintain cash reserves equal to 2.75 per cent of total deposits (including foreign deposits) instead of 19 per cent of total demand deposits, previously in effect. Another important monetary tool used by the QCB is the loans-to-deposit ratio limit applied to commercial banks, which is set at 90 per cent of the total deposits base and any bank that exceeds this limit is subject to penalty by the QCB. 6.1 Domestic Liquidity Domestic Liquidity increased by 24.8 per cent during the first half of 2005 to reach a record level of QR 56.0 billion, compared to QR 44.9 billion as at year-end 2004. High domestic liquidity has resulted from an increase in energy prices. During the first half of 2005, narrow money supply (“M1”) increased by 39.7 per cent to reach QR 20.4 billion, from QR 14.6 billion at year-end 2004. The large increase in M1 resulted from an increase in demand deposits, which rose by 45.7 per cent to reach QR 17.5 billion. Savings and time deposits increased by 9.6 per cent to reach QR 22.6 billion, while foreign currency deposits increased by 34.5 per cent to reach QR 13 billion. 6.2 Exchange Rate Policy The Qatari Riyal is officially pegged to the US dollar at a rate of 1 US$ = QR 3.640. During the first half of 2005 the Qatari Riyal made moderate gains against most major currencies, further to the strengthening of the US dollar. QCB data for the first half of 2005 shows that the Qatari Riyal appreciated by 2.0 per cent against the Euro, by 0.7 per cent against the Sterling Pound, by 1.7 per cent against the Swiss Franc, and by 0.4 per cent against the Japanese Yen. In 2004, the Qatari Riyal declined by 12.1 per cent against the Sterling Pound, by 10.0 per cent against the Euro, by 8.3 per cent against the Swiss Franc, and by 7.2 per cent against the Japanese Yen. 73
80. 6 .3 Interest Rate Policy Until 1996, the QCB imposed a ceiling on interest rates offered by commercial banks on credits and deposits. In February 2001, the QCB removed its ceiling on interest rates for local currency deposits, freeing the banking system from all interest rate policy restrictions. In July 2001, the QCB introduced a new monetary instrument called the “Qatar Monetary Rate” (“QMR”), which allows banks in Qatar to deposit or borrow from the QCB over night funds of an amount not less than QR 2.0 million, at rates determined by the QCB, which are fixed on a daily basis. Short-term interest rates in Qatar follow closely those prevailing in the United States (“US”), with a slight positive differential. The US Federal Reserve raised interest rates seven times during the year 2005 and twice during the first quarter of 2006, and as at the end of March 2006 the US Federal Funds rate stood at 4.75 per cent. The QCB raised interest rates eight times during the year 2005 and twice during the year 2006 up to the first week of April, and as at April 2nd the QCB repo rate stood at 5.60 per cent. Domestic inflation has been a key concern for the QCB in recent years and additional policy manoeuvres could be likely in the short-medium term. 7. BANKING SECTOR The Qatari banking sector comprises of a combination of national and foreign banks. A total of 15 banks currently operate in Qatar, seven of which are Qatari owned institutions, including five commercial banks (ahlibank, Commercialbank, Doha Bank, International Bank of Qatar, and Qatar National Bank) and two Islamic institutions (Qatar Islamic Bank and International Islamic). Also represented are the local branches of seven foreign banks including Arab Bank, Bank Saderat Iran, HSBC, Mashreqbank, BNP Paribas, Standard Chartered and United Bank. A specialised government owned institution, Qatar Industrial Development Bank, was established in 1997 and provides financing to small and medium scale industries. In 2005, Islamic banking made significant inroads into the domestic banking system due to its tremendous growth potential and popularity, with commercial banks getting approval from QCB for the first time to set up fully compliant Islamic branches in Qatar. QNB was the first commercial bank to set up a full up compliant Islamic branch, followed by Commercialbank and Doha Bank. Another significant development in domestic banking was the entry of a commercial bank into the mutual fund arena. QNB was the first bank in Qatar to establish a mutual fund (the Al Watani Fund) for both locals and expatriates. 74
81. TAXATION The following is a general description of certain tax considerations relating to the Sukuk Certificates . It does not purport to be a complete analysis of all tax considerations relating to the Sukuk Certificates. Prospective purchasers of Sukuk Certificates should consult their own tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes and in particular, the tax laws of Qatar of acquiring, holding and disposing of Sukuk Certificates and receiving payments of interest, principal and/or other amounts under the Sukuk Certificates. This summary is based upon the law as in effect on the date of this Offering Circular and is subject to any change in law that may take effect after such date. Qatar The following is a general description of certain Qatari tax laws relating to the Sukuk Certificates and the Issuer and does not purport to be a comprehensive discussion of the tax treatment of the Sukuk Certificates or the Issuer. Prospective Certificateholders should consult their tax advisers as to applicable tax laws and specific tax consequences of acquiring, owning and disposing of the Sukuk Certificates. This general description of taxation in Qatar is based upon the tax law of the QFC and the regulations thereunder, each as in effect on the date of this Offering Circular. This general description is subject to any subsequent change in QFC law and regulations that may come into effect as of such date. All payments in respect of the Musharaka Purchase Undertaking and the Lease Purchase Undertaking shall be made without withholding or deduction for, Taxes, unless the withholding or deduction of such Taxes is required by law. Under the Qatar Financial Centre Law No 7 of 2005 (“QFC Law”) there is currently no taxation of any QFC entity. Under the QFC Law, entities established in the QFC shall not be subject to any taxes or duties for a period of three years up to 30 April 2008. Thereafter the Minister of Economy and Commerce is authorized by the QFC Law to enact regulations imposing taxes on entities, individuals, corporates and businesses operating in the QFC and provide exemptions therefrom for such periods as may be deemed appropriate. The Issuer, QREIC, and Qatar National Bank S.A.Q. for and on behalf of all of the Lead Managers requested comfort that no taxes would be applied to the Issuer in future by a letter (the “Letter”) addressed to the Chairman of the QFC Authority dated 28 June, 2006. The Issuer, QREIC and Qatar National Bank S.A.Q. have received a letter from the Chairman of the QFC Authority, confirming that the Issuer in respect of the transaction, and the transaction itself will either not be subject to, or will be exempted by regulation from, any taxes or duties of any kind that may be imposed on any QFC entities, individuals, corporates and businesses (including but not limited to special purpose vehicles or transactions of the same or similar kind to QREIC Sukuk LLC in respect of the transaction) by any regulations that the QFC Authority Board may approve and recommend for enactment under Article 9 of the QFC Law or otherwise from time to time, and any such taxes and duties will not apply to make QREIC Sukuk LLC in respect of this transaction or the transaction subject to QFC taxes and duties, and such exemption of QREIC Sukuk LLC in respect of this transaction and the Transaction from tax and duties will apply for the duration of the Transaction, including any period by which the term of the transaction may be extended in accordance with its terms, up to and including (i) the date on which QREIC Sukuk LLC should redeem the Sukuk Certificates under the transaction documents delivered to the Qatar Financial Centre Regulatory Authority on or before the date of this letter, and (ii) in respect of any payment default under the transaction by the QREIC Sukuk LLC, the date on which that payment default is remedied by the QREIC Sukuk LLC whether by any judicial action or otherwise. Such a letter would be issued on the basis that the transaction is as detailed in the Letter and that there are no material changes to the transaction and that QREIC Sukuk LLC is authorised as a QFC entity and remains so authorised, and would be limited to the taxation treatment of this transaction and of the QREIC Sukuk LLC in respect of the transaction, and does not create or purport to create any precedent or policy in respect of any other transactions or other entities established in the QFC. It would not create any legal recourse against the Minister of Economy and Commerce or the Chairman of the QFC Authority, the Government of the State of Qatar, the Qatar Financial Centre Authority or the Qatar Financial Centre Regulatory Authority. All payments in respect of the Sukuk Certificates shall be made without withholding or deduction for, or on account of, any present or future taxes, levies, duties, fees, assessments or other charges or withholding of 75
82. whatever nature , imposed or levied by or on behalf of the Relevant Jurisdiction (as defined in the “Terms and Conditions of The Sukuk Certificates—Taxation”), and all charges, penalties or similar liabilities with respect thereto (Taxes), unless the withholding or deduction of the Taxes is required by law. In the event that such a withholding or deduction for or on account of Taxes becomes applicable to payments to Certificateholders and in the event that any other withholding or deduction for or on account of Taxes becomes applicable on or before a Periodic Distribution Date, the Obligor will be required to pay to the Issuer additional amounts as may be necessary on amounts payable by the Obligor to the Issuer under the transaction documents so that the full amount which otherwise would have been due and payable by the Issuer to Certificateholders is paid. EU Savings Tax Directive The European Union has adopted a Directive regarding the taxation of savings income. Subject to a number of important conditions being met, it is proposed that Member States will be required from 1 July 2005 to provide to the tax authorities of other Member States details of payments of interest or other similar income paid by a person to an individual in another Member State, except that Austria, Belgium and Luxembourg will instead impose a withholding system for a transitional period unless during such period they elect otherwise. 76
83. CLEARANCE AND SETTLEMENT The information set out below is subject to any change in or reinterpretation of the rules , regulations and procedures of Euroclear or Clearstream, Luxembourg currently in effect. The information in this section concerning such clearing systems has been obtained from sources that the Issuer believes to be reliable, but neither the Issuer, QREIC nor the Lead Managers take any responsibility for the accuracy of this section. The Issuer and QREIC only takes responsibility for the correct extraction and reproduction of the information in this section. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. None of the Issuer and QREIC and any other party to the Agency Agreement will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Sukuk Certificates held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Clearing Systems Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the clearance and settlement of securities transactions by electronic book-entry transfer between their respective account holders. Euroclear and Clearstream, Luxembourg provide various services including safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securities markets in several countries through established depositary and custodial relationships. Euroclear and Clearstream, Luxembourg have established an electronic bridge between their two systems across which their respective participants may settle trades with each other. Euroclear and Clearstream, Luxembourg customers are world-wide financial institutions, including underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to Euroclear and Clearstream, Luxembourg is available to other institutions that clear through or maintain a custodial relationship with an account holder of either system. Registration and Form Book-entry interests in the Sukuk Certificates will be represented by the Global Certificate registered in the name of a common depositary for Euroclear and Clearstream, Luxembourg. Beneficial ownership of book-entry interests in the Global Certificate will be held through financial institutions as direct and indirect participants in Euroclear and Clearstream, Luxembourg. The aggregate holdings of book-entry interests in the Global Certificate in Euroclear and Clearstream, Luxembourg will be reflected in the book-entry accounts of each such institution. Euroclear or Clearstream, Luxembourg, as the case may be, and every other intermediate holder in the chain to the beneficial owner of bookentry interests in the Global Certificate will be responsible for establishing and maintaining accounts for their participants and customers having interests in the book-entry interests in the Global Certificate. The Registrar will be responsible for maintaining a record of the aggregate holdings of the Global Certificate registered in the name of a nominee for Euroclear and Clearstream, Luxembourg and/or, if Individual Certificates are issued in the limited circumstances described under the Global Certificate, holders of Sukuk Certificates represented by those Individual Certificates. The Paying Agent will be responsible for ensuring that payments received by it from the Issuer for holders of book-entry interests in the Global Certificate holding through Euroclear and Clearstream, Luxembourg are credited to Euroclear or Clearstream, Luxembourg, as the case may be. The Issuer will not impose any fees in respect of holding the Global Certificate; however, holders of bookentry interests in the Global Certificate may incur fees normally payable in respect of the maintenance and operation of accounts in Euroclear or Clearstream, Luxembourg. Clearance and Settlement Procedures Initial Settlement Upon their original issue, the Sukuk Certificates will be in global form represented by the Global Certificate. Interests in the Global Certificate will be in uncertified book-entry form. Purchasers holding book entry interests in the Global Certificate through Euroclear and Clearstream, Luxembourg accounts will follow the settlement procedures applicable to conventional eurobonds. Book-entry interests in the Global Certificate will 77
84. be credited to Euroclear and Clearstream , Luxembourg participants’ securities clearance accounts on the business day following the First Funding Date or any subsequent Funding Date against payment (value the First Funding or any subsequent Funding Date, as the case may be). Secondary Market Trading Because the purchaser determines the place of delivery, it is important to establish at the time of trading of any Sukuk Certificates where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date. Trading between Euroclear and/or Clearstream, Luxembourg participants Secondary market trading between Euroclear participants and/or Clearstream, Luxembourg participants will be settled using the procedures applicable to conventional Eurobonds in same-day funds. General Neither of Euroclear and Clearstream, Luxembourg is under any obligation to perform or continue to perform the procedures referred to above, and such procedures may be discontinued at any time. None of the Issuer, the Trustee or any of their agents will have any responsibility for the performance by Euroclear or Clearstream, Luxembourg or their respective participants of their respective obligations under the rules and procedures governing their operations or the arrangements referred to above. 78
85. SUBSCRIPTION AND SALE Qatar National Bank S .A.Q., Qatar National Bank Al Islami (the “Mandated Lead Managers”), Dubai Islamic Bank PJSC, Gulf International Bank B.S.C and Standard Chartered Bank (together the “Lead Managers”) have, in a Subscription Undertaking dated on or about 31 August 2006 (the “Subscription Undertaking”) and made between the Issuer and the Lead Managers upon the terms and subject to the conditions contained therein, jointly and severally agreed to subscribe to the Sukuk Certificates at their issue price of 100 per cent of their principal amount. The Issuer has also agreed to reimburse the Mandated Lead Managers for certain of its expenses incurred in connection with the management of the issue of the Sukuk Certificates. The Lead Managers are entitled in certain circumstances to be released and discharged from their obligations under the Subscription Undertaking prior to the First Funding Date and any subsequent Funding Date of the issue of the Sukuk Certificates. United States of America The Sukuk Certificates have not been and will not be registered under the Securities Act. Subject to certain exceptions, Sukuk Certificates may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. Each Lead Manager has agreed that, except as permitted by the Subscription Undertaking, it will not offer or sell the Sukuk Certificates within the United States or to, or for the account or benefit of, U.S. persons. In addition, until 40 days after commencement of the offering, an offer or sale of Sukuk Certificates within the United States by a dealer whether or not participating in the offering may violate the registration requirements of the Securities Act. Terms used in this paragraph have the meaning given to them by Regulation S under the Securities Act. United Kingdom Each Lead Manager has further represented, warranted and undertaken that: (a) Financial Promotion: It has only communicated or caused to be communicated, and will only communicate or cause to be communicated, any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Sukuk Certificates in circumstances in which section 21(1) of the FSMA does not apply to the Issuer; and (b) General compliance: It has complied with all applicable provisions of the FSMA with respect to anything done by it in relation to any Sukuk Certificates in, from or otherwise involving the United Kingdom. Japan The Sukuk Certificates have not been and will not be registered under the Securities and Exchange Law of Japan (the “Securities and Exchange Law”) and each Lead Manager has agreed that it will not offer or sell any Sukuk Certificates, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organised under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations, and guidelines promulgated by the relevant Japanese governmental and regulatory authorities in effect at the relevant time. Jersey The investments described in this document do not constitute a collective investment fund for the purpose of the Collective Investment Funds (Jersey) Law 1988, as amended, on the basis that they are investment products designed for financially sophisticated investors with specialist knowledge of, and experience of investing in, such investments, who are capable of fully evaluating the risks involved in making such investments and who have an asset base sufficiently substantial as to enable them to sustain any loss that they might suffer as a result of making such investments. These investments are not regarded by the Jersey Financial Services Commission as suitable investments for any other type of investor. Any individual intending to invest in any investment described in this document should consult his professional adviser and ensure that he fully understands all the risks associated with making such an investment and has sufficient financial resources to sustain any loss that may arise from it. 79
86. The Sukuk Certificates may only be issued or allotted exclusively to : (1) a person whose ordinary activities involve him in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of his business or who it is reasonable to expect will acquire, hold, arrange or dispose of investments (as principal or agent) for the purposes of his business; or (2) a person who has received and acknowledged a warning to the effect that (a) the Sukuk Certificates are only suitable for acquisition by a person who (i) has a significantly substantial asset base such as would enable him to sustain any loss that might be incurred as a result of acquiring the Sukuk Certificates; and (ii) is sufficiently financially sophisticated to be reasonably expected to know the risks involved in acquiring the Sukuk Certificates and (b) neither the issue of the Sukuk Certificates nor the activities of any functionary with regard to the issue of the Sukuk Certificates are subject to all the provisions of the Financial Services (Jersey) Law 1998. Each person who acquires Sukuk Certificates will be deemed, by such acquisition, to have represented that he or it is one of the foregoing persons. The Sukuk Certificates may not be offered to, sold to or purchased or held by persons (other than financial institutions) resident for income tax purposes in Jersey. The United Arab Emirates Each Lead Manager has represented and agreed that Sukuk Certificates have not been and will not be offered, sold or publicly promoted or advertised by it in the United Arab Emirates other than in compliance with any laws applicable in the United Arab Emirates governing the issue, offering and sale of securities. Furthermore, the information contained in this Offering Circular does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No 8 of 1984 (as amended)) or otherwise, and is not intended to be a public offer and, the information contained in this Offering Circular is not intended to lead to the conclusion of any contract of whatsoever nature within the territory of the United Arab Emirates. Saudi Arabia Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a “Saudi Investor”) who acquires Sukuk Certificates pursuant to the offering should note that the offer of Sukuk Certificates is an exempt offer under sub-paragraph (3) of paragraph (a) of Article 16 of the “Offer of Securities Regulations” as issued by the board of the Capital Market Authority resolution number 2-11-2004 dated 4 October 2004 and amended by Resolution of the Board of the Capital Market Authority resolution number 1-33-2004 dated 21 December 2004 (the “KSA Regulations”). The Sukuk Certificates may be offered to no more than 60 Saudi Investors and the minimum amount payable per Saudi Investor must be not less than Saudi Riyal (“SR”) 1 million or an equivalent amount. The offer of Sukuk Certificates is therefore exempt from the public offer of the KSA Regulations, but is subject to the following restrictions on secondary market activity: (a) A Saudi Investor (the “transferor”) who has acquired Sukuk Certificates pursuant to this exempt offer may not offer or sell Sukuk Certificates to any person (referred to as a “transferee”) unless the price to be paid by the transferee for such Sukuk Certificates equals or exceeds SR 1 million. (b) If the provisions of paragraph (a) cannot be fulfilled because the price of the Sukuk Certificates being offered or sold to the transferee has declined since the date of the original exempt offer, the transferor may offer or sell the Sukuk Certificates to the transferee if their purchase price during the period of the original exempt offer was equal to or exceeded SR 1 million. (c) If the provisions of (a) and (b) cannot be fulfilled, the transferor may offer or sell Sukuk Certificates if he/she sells his entire holding of Sukuk Certificates to one transferee. (d) The provisions of paragraphs (a), (b) and (c) shall apply to all subsequent transferees of the Sukuk Certificates. Kuwait Each Lead Manager has represented and agreed that no marketing or sale of the Sukuk Certificates may take place in Kuwait unless the same has been duly authorised by the Kuwait Ministry of Commerce and Industry pursuant to the provisions of Law No. 31/1990 and the various ministerial regulations issued thereunder. 80
87. Bahrain Each Lead Manager has represented , warranted and undertaken that it has not offered and will not offer, Sukuk Certificates to the Public (as defined in Articles 162-146 of the Commercial Companies Law (decree Law No. 21/2001) of Bahrain) in Bahrain. Dubai International Financial Centre The Offering Circular relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). It is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this document nor taken steps to verify the information set out in it and has no responsibility for it. The securities to which this document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this document you should consult an authorised financial adviser. Malaysia Each of the Lead Managers has represented and agreed that the Sukuk Certificates may not be offered or sold, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia unless requisite regulatory approvals have been obtained. Each of the Lead Managers has acknowledged that: (a) residents of Malaysia are not permitted to purchase the Sukuk Certificates without first having had and obtained all the necessary approvals from all relevant regulatory authorities, including but not limited to all the necessary approvals from Bank Negara Malaysia; and (b) the onus of obtaining such approvals is on the residents concerned and none of the Trustee, the Lead Managers, QREIC or the Issuer accepts any responsibility for the purchase of any Certificate by the residents as aforesaid without the necessary approvals being in place. Malaysian residents are advised to seek independent professional advice as may be necessary before making any purchase of the Sukuk Certificates. For the purpose of this section “resident” means (a) in relation to a natural person, a citizen or permanent resident of Malaysia, or (b) in relation to any other person, a person who has established a place of business and is operating in Malaysia and includes a person who is declared to be a resident pursuant to Section 43 of the Exchange Control Act, 1953 of Malaysia. Singapore This Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act (SFA) and the Sukuk Certificates are offered by the Issuer pursuant to exemptions invoked under Sections 304 and 305 of the SFA. Accordingly, each of the Lead Managers has represented and agreed that it has not offered or sold and that it will not offer or sell and Sukuk Certificates or cause such Sukuk Certificates to be made the subject of an invitation for subscription or purchase, not will it circulate or distribute this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Sukuk Certificates, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person specified in Section 304 of the SFA, or (ii) pursuant to, and in accordance with the conditions, of any other applicable provision of the SFA. Hong Kong Each Lead Manager has represented and agreed or will represent and agree that: (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Sukuk Certificates other than (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (ii) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute to the public within the meaning of that Ordinance; and 81
88. (b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Sukuk Certificates, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Sukuk Certificates which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. General No action has been taken by the Issuer or any of the Lead Managers that would, or is intended to, permit a public offer of the Sukuk Certificates or possession or distribution of the Offering Circular or any other offering or publicity material relating to the Sukuk Certificates in any country or jurisdiction where any such action for that purpose is required. Accordingly, each Manager has undertaken that it will not, directly or indirectly, offer or sell any Sukuk Certificates or distribute or publish any offering circular, prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of Sukuk Certificates by it will be made on the same terms. The Lead Managers confirm that this Offering Circular is only intended to be distributed to persons who are not Retail Customers (as such term is defined in the QFC Regulatory Authority Interpretation and Application Rulebook, Glossary of Defined Terms). 82
89. GENERAL INFORMATION 1 . The creation and issue of the Sukuk Certificates has been authorised by a resolution of the Board of Directors of the Issuer dated 19 July 2006 and the Board of Directors of QREIC dated 20 June 2006. 2. Application has been made to list the Sukuk Certificates on the Official List of the Luxembourg Stock Exchange and to admission to trading on the Euro MTF Market of the Luxembourg Stock Exchange. 3. The Sukuk Certificates have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The ISIN for the Sukuk Certificates is XS0261662331. The Common Code for the Sukuk Certificates is 026166233. 4. There are no legal or arbitration proceedings against or affecting the Issuer or any of its assets, nor is the Issuer aware of any pending or threatened proceedings, which are or might be material in the context of the issue of the Sukuk Certificates. The address of Euroclear is 1 Boulevard du Roi Albert II, B-121- Brussels, Belgium and the address of Clearstream, Luxembourg is 42 Avenue JF Kennedy L-1855 Luxembourg. 5. There has been no adverse change, or any development reasonably likely to involve an adverse change, in the condition (financial or otherwise) or general affairs of the Issuer since the date of its incorporation that is material in the context of the issue of the Sukuk Certificates. 6. There has been no adverse change, or any development likely to involve an adverse change, in the condition (financial or otherwise) or general affairs of QREIC since 31 December 2005 that is material in the context of the issue of the Sukuk Certificates. 7. There are no legal or arbitration proceedings against or affecting QREIC or any of its assets, nor is the Issuer aware of any pending or threatened proceedings, which are or might be material in the context of the issue of the Sukuk Certificates. 8. For so long as any of the Sukuk Certificates are outstanding, copies of the following documents may be obtained during normal business hours at the Specified Office of each Paying Agent: (a) the Transaction Documents; (b) the Memorandum and Articles of Association of the Issuer; (c) published annual report and audited accounts of QREIC for the two financial years ended 31 December 2005; (d) the auditor’s report on QREIC for the three financial years ended 31 December 2005, 31 December 2004 and 31 December 2003; (e) the unaudited accounts of QREIC for the three months ended 30 June 2006; (f) the latest published audited year-end and unaudited interim financial statements of QREIC; and (g) this Offering Circular. 9. The auditors of QREIC are Deloitte & Touche, Chartered Accountants. The registered office of Deloitte & Touche in Qatar is 4th Floor, Kamco Building, P.O. Box 431, Doha, Qatar. Deloitte & Touche have audited QREIC’s financial statements, without qualification, in accordance with International Financial Reporting Standards for each of the two financial years ended 31 December 2004 and 31 December 2005. QREIC’s financial statements for the year ended 31 December 2003 were audited by KPMG Peat Marwick (Qatar Auditor’s Registry No: 105), without qualification and in accordance with International Standards on Auditing. The registered office of KPMG Peat Marwick is Arab Bank Branch Building, 25 C Ring Road, P.O. Box 4473 Doha, Qatar. QREIC’s audited financial statements in respect of the financial year ended 31 December 2005 were approved at the annual general meeting of shareholders of QREIC which took place on 14 March, 2006. 83
90. INDEX OF DEFINITIONS “Additional Rental” means the amount equal to the aggregate of the Advance Rental payable by the Lessee to the Lessor from the date of signing the Forward Lease Agreement until the Commencement Date. “Advance Rental Payment Date” means each 31 August, 30 November, 28 February and 30 May or if any such day is not a Business Day, the following Business Day unless it would thereby fall into the next calendar month, in which event shall be the immediately preceding Business Day, commencing on 30 November 2006 and up to and including the Commencement Date or any earlier date on which the Forward Lease Agreement is terminated by the parties thereto. “Advance Rental Period” means: (a) in the case of the first Advance Rental Period, the period beginning on (and including) the date of the Forward Lease Agreement and ending on (but excluding) the first Advance Rental Payment Date; and (b) subsequently, each period beginning on (and including) the previous Advance Rental Payment Date to (but excluding) the immediately following Advance Rental Payment Date. “Agency Declaration” means the declaration dated the First Funding Date made by the Issuer for and on behalf of the Certificateholders. “Agents” mean the Registrar, the Calculation Agent, the Replacement Agent, the Principal Paying Agent, any Paying Agent, the Transfer Agents and any reference to an “Agent” is to any one of them. “Alternative Clearing System” means any clearing system other than Euroclear or Clearstream, Luxembourg. “Approved Investments” means any bond, debenture, note, stock, share, warrant, unit or other security, whether listed or not, and all moneys, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of them (and, whether constituted, evidenced or represented by a certificate or other document or by an entry in the books or any other permanent records of the Issuer, a trustee or other fiduciary, or a clearance system) excluding, in each case, any (i) real estate funds, real estate investment trusts and direct real estate related investments (whether (a) tradable or non-tradable investments; (b) investments in closed companies, limited liability companies or joint ventures; or (c) otherwise), in each case which are based in Qatar, (ii) Property Investments or (iii) Land Investments. “Assets” means the two housing complexes to be located in Dukhan and Mesaieed in Qatar. “Assignment Agreement” means the assignment agreement dated on or about 31 August 2006 and made between QREIC as Assignor and Qatar National Bank S.A.Q. as Security Agent. “bpd” means Barrels per Day. “Base Amount” means the following: (a) in respect of the first Advance Rental Period, US$100m; (b) in respect of the second Advance Rental Period, US$150m; (c) in respect of the third Advance Rental Period, US$200m; (d) in respect of the fourth Advance Rental Period, US$270m; and (e) thereafter, US$270m. “Bookrunners” means Qatar National Bank S.A.Q., Dubai Islamic Bank PJSC, Gulf International Bank B.S.C and Standard Chartered Bank. “Business Day” means a day (other than a Friday) on which banks are open for general business in Doha London, and, if a payment in US Dollars is required to be made on such day, New York. “Calculation Agent” means Deutsche Bank AG, London Branch, and together with any further or other Calculation Agent’s appointed from time to time in respect of the Sukuk Certificates, the “Calculation Agents”). “Capital Contributions” means QREIC’s Contribution and the Issuer’s Contribution. “Call Option” has the meaning given to it in Condition 10 (“Early Redemption at QREIC’s Option (“Call Option”)). “Certificateholders” means registered holders of the Sukuk Certificates from time to time. 84
91. “Certificateholders’ Direction” means a direction by the Certificateholders in the form of (a) an Extraordinary Resolution or (b) a written direction by the Certificateholders holding at least 25 percent in aggregate principal amount of the Sukuk Certificates then outstanding. “Clearstream, Luxembourg” means Clearstream Banking, société anonyme, Luxembourg. “Commencement Date” means the date that Delivery occurs pursuant to the Procurement Agreement. “Company” means Qatar Real Estate Investment Company (Q.S.C.) “Conditions” means the terms and conditions of the Sukuk Certificates and any reference to a numbered condition is to a correspondingly numbered provision thereof. “Consolidated Tangible Net Worth” means the nominal paid-up capital of QREIC and its Subsidiaries plus the aggregate of amounts standing to the credit of reserves (including share premium account, capital redemption reserve, profit & loss account, subordinated shareholders’ loans and shareholders’ current account) less goodwill and other intangible assets, less dividends declared but not paid, and debit balances in the profit & loss account and the shareholders’ current account. “Constructed Assets” means the assets constructed pursuant to the QP Lease and Construction Agreements as at the date of the Musharaka Agreement, as more particularly described in the Musharaka Business Plan. “CPI” means Consumer Price Index. “Declaration of Trust” means declaration dated on the First Funding Date entered into by the Issuer in its capacity as trustee. “DPSA” means an Exploration Production Sharing Agreement. “Dissolution Event” has the meaning given to it in Condition 11 (Dissolution Events). “Dukhan Lease and Construction Agreements” means the two agreements dated (i) 20 February 2006 in respect of Phase IV of the Dukhan Housing Project and made between Qatar Petroleum and QREIC granting certain usufruct rights to QREIC and (ii) 20 February 2006 in respect of Packages I, II and III of the Dukhan Housing Project Phase V. “Early Redemption Amount” has the meaning given to it in Condition 10 (Early Redemption at Issuer’s Option (“Call Option”) “EPSA” means an Exploration Production Sharing Agreements. “Euroclear” means S.A./N.V. as operator of the Euroclear System “Exercise Notice” means the notice (i) given by the Issuer to QREIC pursuant to the Musharaka Purchase Undertaking or Lease Purchase Undertaking, as the case may be or (ii) given by QREIC to the Issuer pursuant to the Musharaka Sale Undertaking or the Lease Sale Undertaking, as the case may be. “Exercise Price” means: (a) in respect of the Musharaka Purchase Undertaking or the Musharaka Sale Undertaking, the US dollar sum equal to the Unscheduled Dissolution Distribution Amount at the date falling two Business Days after the date of the Exercise Notice (as such term is defined in the Musharaka Purchase Undertaking or the Musharaka Sale Undertaking respectively); and (b) in respect of the Lease Purchase Undertaking or the Lease Sale Undertaking, the US dollar sum equal to (i) the Outstanding Fixed Rental; (ii) the actual Lease Services Amount; and (iii) any other costs incurred by the Lessor, in each case as at the date falling two Business Days after the date of the Exercise Notice (as such term is defined in the Lease Purchase Undertaking or the Lease Sale Undertaking respectively); “Exchange Event” occurs if (a) Euroclear or Clearstream, Luxembourg is closed for business for a continuous period of 14 days (other than by reason of legal holidays) or announces an intention permanently to cease business or (b) a Dissolution Event occurs and is continuing. “FES” means Family Expenditure Survey. “Financial Indebtedness” means any indebtedness for or in respect of: (a) moneys borrowed; (b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent; 85
92. (c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument; (d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with International Financial Reporting Standards, be treated as a finance or capital lease; (e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis); (f) any amount raised under any other transaction (including any forward sale or purchase agreement) having the commercial effect of a borrowing; (g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of any derivative transaction, only the marked to market value shall be taken into account); (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution excluding performance bonds; (i) any amount of any liability under an advance or deferred purchase agreement if one of the primary reasons behind the entry into this agreement is to raise finance; (j) any obligations incurred by QREIC in respect of any Islamic financing arrangements; and (k) (without double counting) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (j) above. “Financial Promotion Order” means the FSMA (Financial Promotion) Order 2005. “First Funding Date” means 31 August 2006. “First Sukuk Certificates” means the Sukuk Certificates to be issued in the principal amount of US$100,000,000 on the First Funding Date. “Fixed Rental” means US$8,437,500. “Force Majeure” has the meaning given to it in Condition 11 (Dissolution Events). “Forward Lease Agreement” means the forward lease agreement dated on or about 31 August 2006 between the Issuer as lessor and QREIC as Lessee. “FSA” means Financial Services Authority. “FSMA” means Financial Services and Markets Act 2000. “Further Funding Dates” means the dates on which Further Sukuk Certificates will be issued, being 30 November 2006, 28 February 2007 and 31 May 2007. “Further Sukuk Certificates” means the Sukuk Certificates to be issued on Further Funding Dates. “GCC” means Gulf Cooperation Council. “GDP” means Gross Domestic Product “Global Certificate” means the global registered certificate which will represent the Sukuk Certificates and registered in the name of BT Globenet Nominees as nominee for, and deposited with, a common depositary for Euroclear and Clearstream. “GTL” means Gas to Liquid. “HoA” means Heads of Agreement. “Holder” means each person (other than another clearing system) who is for the time being shown in the records of Euroclear or Clearstream, Luxembourg as the holder of a particular aggregate principal amount of Sukuk Certificates. 86
93. “HSE” means health, safety and environmental “Individual Certificates” means Individual certificates evidencing holdings of Sukuk Certificates. “Issuer” means QREIC Sukuk LLC “Insurance Policies” means insurance QREIC has obtained covering fire, buildings, contents, burglary and workmen compensation. “Issuer’s Contribution” means the amount contributed by the Issuer in cash to the capital to the Musharaka and as set out in the “Summary of the Musharaka” herein. “Joint Lead Managers” means Dubai Islamic Bank PJSC, Gulf International Bank B.S.C and Standard Chartered Bank. “KSA Regulations” means the Resolution of the Board of the Capital Market Authority resolution number 1-33-2004 dated 21 December 2004. “Land Investments” means the investments in land (including any references to land set out as a fixed asset) as set out in the financial statements delivered by QREIC in accordance with the Musharaka Agreement. “Lead Managers” means Qatar National Bank S.A.Q., Qatar National Bank A1 Islami, Dubai Islamic Bank PJSC, Gulf International Bank B.S.C and Standard Chartered Bank; “Leased Assets” means the Lessor’s 82.70% undivided beneficial share in the Musharaka Assets which shall include the Constructed Assets, together with the Assets to be constructed in accordance with the Specifications. “Lease End Date” means the date falling 120 months after the date of the QREIC Lease. “Lease Period” means in respect of the first Lease Period, a period which will commence on, and include, the Commencement Date and end on, but exclude, the first Rental Payment Date falling after the Commencement Date. Each subsequent Lease Period shall commence on, and include, a Rental Payment Date and end on, but exclude, the following Rental Payment Date. “Lease Purchase Undertaking” means the undertaking executed by QREIC (as Lessee) in favour of the Issuer (as Lessor) dated on or about the First Funding Date. “Lease Sale Undertaking” means the Issuer undertaking executed by the Issuer (as Lessor) in favour of QREIC (as Lessee) dated on or about the First Funding Date. “Lease Services Amount” means in respect of a Lease Period, the amount paid or incurred by the Managing Partner during the immediately preceding Lease Period for the Services as defined in the Management Agreement) and invoiced to the Lessor in accordance with the Management Agreement. “Lessee” means QREIC. “Lessor” means the Issuer. “Letter” means the letter addressed to the Chairman of the QFC Authority dated 28 June, 2006. “LIBOR” means the London inter-bank offered rate for three-month US dollar deposits. “LIBOR Determination Date” means the second Business Day preceding the first day of each Periodic Distribution Period; “LNG” means Liquefied Natural Gas “Long-stop Date” means a day falling 30 months after the date of the Procurement Agreement. “Luxembourg Stock Exchange” means Euro MTF market of the Luxembourg Stock Exchange “Major Maintenance and Structural Repair” means all structural repair and major maintenance (including doing such acts or things and taking such steps to ensure that the Leased Assets suffers no damage, loss or diminution in value) whether in whole or in part (excluding Ordinary Maintenance and Repair) without which the Leased Assets could not be reasonably and properly used by the Lessee. 87
94. “Mandated Lead Managers” means Qatar National Bank S.A.Q. and Qatar National Bank Al Islami. “Management Agreement” means a management agreement entered into between QREIC as managing partner and the Musharaka Partners dated on or about the First Funding Date, appointing QREIC as Managing Partner of the Musharaka. “Managing Partner” means QREIC. “Margin” means 1.20 per cent per annum. “Material Adverse Effect” has the meaning given to it in Condition 11 (Dissolution Events). “MEES” means the Middle Eastern Economic Survey. “Mesaieed Lease and Construction Agreement” means the agreement (undated) in respect of Packages 1, 2, 3 and 4 of the Mesaieed Housing Project Phase I and made between Qatar Petroleum and QREIC granting certain usufruct rights to QREIC. “mt” means mega tons. “mtpa” means million tons per annum. “Musharaka” means joint venture. “Musharaka Agreement” means the agreement dated on or about the First Funding Date entered into between the Musharaka Partners, QREIC and the Issuer to enter into a joint venture. “Musharaka Assets” means all of the capital of the Musharaka, including, all assets acquired after, from or through the application of the Capital Contributions. “Musharaka Business Plan” means the musharaka business plan appended to the Musharaka Agreement. “Musharaka End Date” means the earlier to occur of (a) the date the Issuer notifies QREIC that it wishes to terminate the Musharaka Agreement; (b) the date the Musharaka Partners agree in writing to terminate the Musharaka provided that such date shall not be earlier than the day after the redemption and payment in full of the Sukuk Certificates; (c) the date falling 126 months after the commencement of the Musharaka Agreement; and (d) the date that all the Units are vested in a single Musharaka Partner. “Musharaka Partner” means each of the Issuer and QREIC as partners in the Musharaka pursuant to the Musharaka Agreement. “Musharaka Purchase Undertaking” means the undertaking executed by the Obligor in favour of the Issuer as agent and trustee for the Certificateholders dated on or about the First Funding Date. “Musharaka Sale Undertaking” means the undertaking executed by the Issuer in favour of the Obliger dated on or about the First Funding Date. “MW” means megawatts. “Obligor” means “Official List” means the Official List of the Luxembourg Stock Exchange. “OPEC” means Organisation of Petroleum Exporting countries. “Ordinary Maintenance and Repair” means all repairs, modifications, replacements, acts, maintenance and upkeep works reasonably required for the general use and operation of the Leased Assets or to keep, repair, maintain and preserve the Leased Assets in good order, state and condition. “Outstanding Fixed Rental” means US$270,000,000 less the aggregate amount of any Fixed Rental paid under the Forward Lease Agreement. “Minimum Balance” means, at any time, the US$ amount due to be paid by QREIC (i) as Lessee on the next Advance Rental Payment Date or Rental Payment Date or (ii) as Procurer on any Liquidated Damages Date (as defined in the Procurement Agreement). “Partners” means the Muskaraka Partners. “Payment Business Day” means a day (other than a Friday) on which commercial banks in Doha, London and New York are open for general business and, in the case of presentation of a Sukuk Certificate, in the place which the Certificate is presented. 88
95. “Paying Agent” means Deutsche Bank AG, London Branch and together with any further or other paying agents appointed from time to time in respect of the Sukuk Certificate, the “Paying Agents”. “Periodic Distribution Amount” means an amount equal to the product of (a) the Margin plus LIBOR (as such term is defined in Condition 6 (Periodic Distributions); (b) the outstanding aggregate principal amount of the Sukuk Certificates and (c) the actual number of days in the related Periodic Distribution Period divided by 360. “Periodic Distribution Dates” means 31 August, 30 November, 28 February, and 30 May in each year or if any such day is not a Business Day, the following Business Day, unless it would hereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day commencing on November 2006. “Periodic Distribution Period” means the period from and including 31 August 2006 to but excluding the first Periodic Distribution Date and each successive period from and including a Periodic Distribution Date to the next succeeding Periodic Distribution Date. “Permitted Investments” means, at any time and, in each case, Sharia compliant: (a) Dollar-denominated or Euro-denominated securities, time deposits and certificates of deposit or capital protected products: (i) which are repayable within 180 days; and (ii) which are for the time being rated at least A-1 by Standard & Poor’s or P-1 by Moody’s or which are time deposits and certificates of deposit or other investment instruments with a bank that has a credit rating of not less than BBB+ from Standard & Poor’s or Baa1 from Moody’s, provided that the total amount held with any such bank does not exceed 20 per cent of QREIC’s tangible net worth as evidenced in its latest audited annual accounts; (b) any other Dollar-denominated or Euro-denominated investment that the Security Agent (on behalf of the Issuer) agrees in writing shall constitute a Permitted Investment; (c) with respect to Qatari Riyals: (i) securities issued or directly and fully guaranteed or insured by the government of Qatar or any agency or instrumentality thereof; (ii) time deposits and certificates of deposit, which are repayable within 180 days, of any Qatari bank; and (d) any other Qatari Riyal investment that the Security Agent (on behalf of the Issuer) agrees in writing shall constitute a Permitted Investment. “Procurer and Seller” means QREIC “Promotion of CISs Order” means Promotion of Collective Investment Schemes (Exemptions) Order 2001 “Procurement Agreement” means the agreement dated on or about the First Funding Date entered into between QREIC as Procurer and the Partners under which the Partners have agreed to purchase, and the Procurer has agreed to sell, the Assets. “Property Investments” means any investments in property as set out in the accounts to be delivered by QREIC in accordance with the Musharaka Agreement. “QCB” means Qatar Central Bank. “QFC” means the Qatar Financial Centre. “QFC Law” means Qatar Financial Centre Law No 7 of 2005. “QFC Regulatory Authority” means the Qatar Financial Centre Regulatory Authority “QMA” means Qatar Monetary Agency. 89
96. “QMR” means Qatar Monetary Rate. “QNB” means Qatar National Bank S.A.Q. “QNBAI” means Qatar National Bank al Islami “QP” means Qatar Petroleum. “QP Completion Certificate” means the certificate of completion to be provided by Qatar Petroleum in relation to the construction of the Assets, provided that where multiple certificates of completion are issued, the “QP Completion Certificate” shall mean the final completion certificate to be delivered by Qatar Petroleum in respect of the Assets (certified as such by Qatar Petroleum and the Procurer). “QP Lease and Construction Agreements” means: (a) the Dukhan Lease and Construction Agreements; and (b) the Mesaieed Lease and Construction Agreement. “QREIC” means the Qatar Real Estate Investment Company. “QREIC’s Contribution” means a contribution to the value of US$56,475,436, comprising (i) a contribution in kind by QREIC vesting into the Muskaraka all of its rights, benefits and entitlements to the QREIC Usufruct Rights (with a valuation agreed between the Muskaraka Partners of US$1,000,000), together with (ii) the total value of Assets already constructed at the date of the Agreement (valued at US$55,475,436). “QREIC Usufruct Rights” means the rights of QREIC under lease and construction agreements entered into by QREIC and Qatar Petroleum. “QR” or “Qatari Riyal” mean the lawful currency for the time being of Qatar “QTA” means Qatar Tourism Authority. “Record Date” means the fifteenth day before the due date for payment of the Sukuk Payments “Reference Banks” means the banks which the Principal Paying Agent customarily uses. “Regulation S” means Regulation S under the Securities Act “Registrar” means Deutsche Bank, Luxembourg S.A. “Register” means the register in respect of the Sukuk Certificates. “Relevant Period” means each period of twelve months ending on the last day of QREIC’s financial year and each period of six months ending on the last day of the first half of QREIC’s financial year. “Rental Payments” means each amount to be paid to the Lessor by the Lessee in accordance with the Forward Lease Agreement. “Rental Payment Date” means each 31 August, 30 November, 28 February, and 30 May, or if any such day is not a Business Day, the following Business Day unless it would thereby fall into the next calendar month, in which event such day shall be the immediately preceding Business Day, commencing on the Commencement Date and up to and including 31 August 2016 or any earlier date on which the Forward Lease Agreement is terminated by the parties thereto. “Replacement Agents” means Deutsche Bank AG, London Branch and together with any further or other Replacement Agents of the Sukuk Certificates, the “Replacement Agents”). “Saudi Investor” means any investor in the Kingdom of Saudi Arabia or who is a Saudi person. “SPA” means Sales and Purchase Agreements. 90
97. “Scheduled Dissolution Date” is the Periodic Distribution Date falling on 31 August 2016. “Scheduled Dissolution Distribution Amount” means the outstanding principal amount of the Sukuk Certificates then outstanding plus any accrued and unpaid Periodic Distribution Amounts. “Scheduled Repurchase Amounts” has the meaning given to it in Condition 8 (“Scheduled Repurchase”). “Screen Rate” means in relation to LIBOR, the rate for three-month deposits in US dollars, which appears on Reuters screen page LIBOR 01 (or such replacement page on that service which displays the same information). “Securities Act” the United States Securities Act of 1933. “Security” means the following: (a) The right of QREIC under lease and construction agreements entered into by QREIC and Qatar Petroleum (the “QREIC Usufruct Rights”) which shall be assigned to the Security Agent under the Assignment Agreement; (b) The rights of QREIC to receive proceeds under any performance bonds and advanced payment guarantees procured by QREIC as the Contractor which shall be assigned to the Security Agent under the Assignment Agreement; and (c) The rights of QREIC pursuant to certain of the construction issuances which shall be assigned to the Issuer under the Assignment Agreement. “Specifications” means the specifications as set out in Appendix A of each QP Lease and Construction Agreement. “SR” means Saudi Riyal “Subsidiary” means in relation to any company or corporation, a company or corporation: (a) which is controlled, directly or indirectly, by the first mentioned company or corporation; (b) more than half the issued share capital of which is beneficially owned, directly or indirectly by the first mentioned company or corporation; or (c) which is a Subsidiary of another Subsidiary of the first mentioned company or corporation, and for this purpose, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct its affairs and/or to control the composition of its board of directors or equivalent body. “Subscription Undertaking” means the undertaking dated the First Funding Date and given by QREIC and the Lead Managers in favour of the Issuer. “Sukuk Certificates” means the US$270,000,000 Trust Certificates due 2016. “Sukuk Payments” means payments of all Periodic Distribution Amounts, Scheduled Repurchase Amounts, the Unscheduled Dissolution Distribution Amount or the Early Redemption Amount, as the case may be. “Tangible Net Worth” means the nominal paid-up capital of QREIC plus the aggregate of amounts standing to the credit of reserves (including share premium account, capital redemption reserve, profit & loss account, subordinated shareholders’ loans and shareholders’ current account) less goodwill and other intangible assets, less revaluation reserves, less dividends declared but not paid, and debit balances in the profit & loss account and the shareholders’ current account. “Total Liabilities” mean, at any date, all Financial Indebtedness relating to QREIC and its Subsidiaries on such date. “Total Loss” means the total loss or destruction of, or damage to the whole (or a substantial part) of the assets or any event or occurrence that renders the whole (or a substantial part) of those assets permanently unfit for any economic use and (but only after taking into consideration the proceeds of any insurances received and the period of time required to reinstate the assets) the repair or remedial work in respect thereof is wholly uneconomical. 91
98. “Transfer Agent” means Deutsche Bank AG, London Branch and, together with any further or other transfer agents appointed from time to time in respect of the Sukuk Certificates, (“Transfer Agents”). “Transaction Administration Deed” means the transaction administration deed between the Issuer, the Trustee, QREIC and the Transaction Administrator dated on or about the First Funding Date. “Transaction Documents” the Declaration of Trust; the Conditions; the Sukuk Certificates; the Subscription Undertaking; the Agency Agreement; the Agency Declaration; the Costs Undertaking; the Transaction Administration Deed; the Global Certificates; the Musharaka Agreement; the Musharaka Purchase Undertaking; the Musharaka Sale Undertaking the Lease Purchase Undertaking, the Lease Sale Undertaking; the Forward Lease Agreement; the Management Agreement; the Procurement Agreement; the QREIC Lease; the Accounts Agreement; the CP Side Letter; the Security Documents and any other agreements and documents delivered or executed in connection therewith (each as defined in the Conditions). “Trust Assets” has the meaning given to it in Condition 4 (Summary of the Trust). “Trustee” means QREIC Sukuk LLC. “Unscheduled Dissolution Distribution Amount” means, as of any date, the outstanding aggregate principal amount of the Sukuk Certificates then outstanding plus any accrued and unpaid Periodic Distribution Amounts as of such date. “Units” means each Musharaka Partner’s entitlement to the Musharaka Assets, as set out in the Muskaraka Agreement. “US” means United States. US$”, “U.S. dollars” or “dollars” means United States dollars “Variable Rental” means an amount which is equal to the following: (a) the Outstanding Fixed Rental multiplied by the aggregate of: (i) Margin and (ii) LIBOR, multiplied by (iii) the number of days in that Lease Period divided by 360. APPENDIX 1 Qatar National Islamic Bank – al islami QREIC SUKUK The Sharia Fatwa and Control Authority of Qatar National Bank Al Islami has examined the contracts, mechanism and prospectus of the proposed Qatar Real Estate Investment Sukuk Company, the “QREIC SUKUK” during all stages and introduced the required amendments thereto and added the means to control the permissibility of the offering, tradability, redemption and amortization thereof. As such, the final form under which these Sukuk Certificates are being issued is in conformity with the requirements for contracts permitted by Islamic Sharia. Therefore, the purchase and trading of these Sukuk Certificates is permissible by Sharia because they represent assets and benefits in kind (real estate). These Sukuk Certificates are also considered as a fundamental step in the development of finance modes by the Islamic banks. Executive Committee Shariaa Fatwa and Control Authority (signed) D. Ali Alqara Daghi Chairman of the Executive Committee (signed) D. Sultan Alhashimi Member of the Executive Committee 92
99. FINANCIAL STATEMENTS AND AUDITORS ’ REPORT Contents Interim condensed financial statements for Qatar Real Estate Investment Company (Q.S.C) for the period ended 30 June, 2006 together with Accountants’ Review Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Financial statements for Qatar Real Estate Investment Company (Q.S.C) for the year ended 31 December 2005 together with Auditors’ Report. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-13 F-1
100. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006 TOGETHER WITH ACCOUNTANTS’ REVIEW REPORT F-2
101. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006 TABLE OF CONTENTS Page Accountants’ Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4 Interim Condensed Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5 - F-6 Interim Condensed Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7 Interim Condensed Statement of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8 Interim Condensed Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 Notes to the Interim Condensed Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10 - F-12 F-3
102. ACCOUNTANTS ’ REVIEW REPORT To The Shareholders Qatar Real Estate Investment Company (Q.S.C.) Doha—Qatar We have reviewed the accompanying interim condensed balance sheet of Qatar Real Estate Investment Company (Q.S.C.), as of June 30, 2006 and the related interim condensed statements of income, changes in shareholders’ equity and cash flows for the six month period then ended. These interim condensed financial statements are the responsibility of the Company’s management. Our responsibility is to issue a report on these financial statements based on our review. We conducted our review in accordance with International Standards on Review Engagements 2400. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the interim condensed financial statements are free of material misstatement. A review is limited primarily to inquiries of Company’s personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed financial statements are not presented fairly, in all material respects, in accordance with International Accounting Standard No. (34), “Interim Financial Reporting”. For Deloitte & Touche Doha—Qatar August 1, 2006 Muhammad Bahemia License No. 103 F-4
103. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED BALANCE SHEET JUNE 30, 2006 Note ASSETS Current Assets: Cash at banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable and other debit balances . . . . . . . . . . . . . . Advances to contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease receivable—current . . . . . . . . . . . . . . . . . . . . . . . 4 Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease receivable—non-current . . . . . . . . . . . . . . . . . . . . . . . Property and equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Khalid Bin Khalifa Bin Jassim Al-Thani Chairman and Managing Director 3 4 5 June 30 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 December 31, 2005 (Audited) QR’s 000 68,772 55,504 165,220 94,642 32,405 550,246 15,047 157 136,864 16,734 203,986 20,641 820 161,980 36,626 416,543 719,048 424,053 1,032,428 387,452 — 23,764 214,384 486,878 600,247 98,013 2,673 34,438 121,081 258,304 591,723 252,402 2,673 27,078 229,319 368,674 2,561,449 1,833,804 1,895,922 Mohammed Misnad Al Misnad General Manager THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONDENSED FINANCIAL STATEMENTS F-5
104. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED BALANCE SHEET JUNE 30, 2006 Note June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 December 31, 2005 (Audited) QR’s 000 LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Accounts payable and other credit balances—current . . . . . . . . Loans—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned finance income—current . . . . . . . . . . . . . . . . . . . . . . 231,617 76,119 18,752 46,883 83,848 10,892 81,094 78,633 19,373 Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned finance income—non-current . . . . . . . . . . . . . . . . . . . . . . 326,488 375,000 348,331 76,597 141,623 — 275,651 44,591 179,100 — 236,043 85,873 Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,126,416 461,865 501,016 500,000 743,430 1,025 32,459 95,025 — — 500,000 743,430 1,025 7,736 40,965 100,000 1,750 Shareholders’ Equity: Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments fair value reserve . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed issue of bonus shares . . . . . . . . . . . . . . . . . . . . . . . . . Proposed directors remuneration . . . . . . . . . . . . . . . . . . . . . . . . 6 600,000 743,430 1,025 (19,578) 110,156 — — Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . 1,435,033 1,371,939 1,394,906 Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . 2,561,449 1,833,804 1,895,922 Khalid Bin Khalifa Bin Jassim Al-Thani Chairman and Managing Director Mohammed Misnad Al Misnad General Manager THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONDENSED FINANCIAL STATEMENTS F-6
105. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED STATEMENT OF INCOME FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006 Note Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease income . . . . . . . . . . . . . . . . . . . . . . . . . . Investment (loss) income . . . . . . . . . . . . . . . . . . . . . . . Real estate income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,495 11,613 (5,610) 55,650 1,454 Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operations cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation for investment properties and property and equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Impairment on available for sale investment . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . Foreign exchange income . . . . . . . . . . . . . . . . . . . . . . . Net Income for the Period / Year . . . . . . . . . . . . . . . . . . . Adjusted basic and diluted earning per share . . . . . . . . . . . . For the Six Month Period Ended June 30, 2006 June 30, 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 7 For the Year Ended December 31, 2005 (Audited) QR’s 000 53,448 7,445 28,344 — 1,456 110,852 17,932 33,449 273 7,748 121,602 90,693 170,254 (11,949) (9,893) (19,961) (12,359) (7,308) (14,900) (6,696) 801 (11,391) (9,622) — (4,058) 9,101 (23,736) (13,851) — (9,507) 9,321 69,191 64,830 112,520 1.15 1.08 1.88 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONDENSED FINANCIAL STATEMENTS F-7
106. F-8 743 ,430 Balance at June 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,025 1,025 — — — — (19,578) 7,736 — — (27,314) — 32,459 7,295 — — — 25,164 — — — 110,156 40,965 69,191 — — — 95,025 30,195 64,830 — — — — — — Retained Earnings (QR’000) Proposed Dividend (QR’000) — 100,000 — — — (100,000) — — — — — — — — 12,500 50,000 — — — (50,000) — — — — — — (12,500) — — — Proposed Issue of Bonus Shares (QR’000) The accompanying notes are an integral part of these interim condensed financial statements 600,000 743,430 — — — — Balance at January 1, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 Net income for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Directors remuneration paid for 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Movement in fair value reserve for available-for-sale investments . . . . . . . — Bonus shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 743,430 1,025 500,000 Balance at June 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General Reserve (QR’000) 1,025 — — — — — — — Legal Reserve (QR’000) Balance at January 1, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000 30,930 Net income for the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Dividends paid for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Directors remuneration paid for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — Movement in fair value reserve for available for sale investments . . . . . . . . — — Increase in share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,500 — Bonus shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500 — Premium on right issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 712,500 Share Capital (QR’000) Investments Fair Value Reserve (QR’000) INTERIM CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006 QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C) — 1,750 — (1,750) — — — 1,260 — — (1,260) — — — — Directors Remuneration (QR’000) 1,435,033 1,394,906 69,191 (1,750) (27,314) — 1,371,939 383,205 64,830 (50,000) (1,260) 25,164 237,500 — 712,500 Total (QR’000)
107. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR INTERIM CONDENSED STATEMENT OF CASH FLOWS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2006 For the Six Month Period Ended June 30, 2006 June 30, 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 Operating Activities: Net profit for the period / year . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for: Depreciation for investment properties and property and equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortisation of unearned finance income . . . . . . . . . . . Amortisation of deferred finance charges . . . . . . . . . . . . Foreign exchange gain, net . . . . . . . . . . . . . . . . . . . . . . . Impairment on available for sale investment . . . . . . . . . Unrealized loss (gain) on trading investments . . . . . . . . For the Year Ended December 31, 2005 (Audited) QR’s 000 69,191 64,830 112,520 12,359 (9,897) 3,314 (801) 14,900 23,058 11,391 (5,729) 3,996 — — (13,386) 23,736 (14,522) 7,934 (9,321) — (859) Accounts receivable and other debit balances . . . . . . . . . . . . Accounts payable and other credit balances . . . . . . . . . . . . . . 112,124 (199,263) 36,523 61,102 8,933 7,622 119,488 2,676 39,563 Net Cash (Used in )From Operating Activities . . . . . . . . . (50,616) 77,657 161,727 Investing Activities: Purchases of investment properties and property and equipments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from Islamic Walaklah arrangement . . . . . . . . . . . . Disposals of Investment in land . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred finance charges . . . . . . . . . . . . . . . . . . . . (119,768) 46,307 (181,791) 40,000 2,673 — (121,668) 19,256 (187,061) — — (148) (311,670) 76,624 (461,184) — — — Net Cash Used in Investing Activities . . . . . . . . . . . . . (212,579) (289,621) (696,230) Financing Activities: Capital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors remuneration paid . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 110,575 — (1,750) 19,156 — 237,500 712,500 (235,345) (50,000) (1,260) 10,178 (638) 237,500 712,500 (266,785) (50,000) (1,260) 17,259 — 127,981 672,935 649,214 (Decrease) Increase in Cash at Banks . . . . . . . . . . . . . . . . . . . . . . . Cash at banks at the beginning of the period / year . . . . . . . . . . . . (135,214) 203,986 460,971 89,275 114,711 89,275 Cash at Banks at the End of the Period / Year . . . . . . . . . . . . . 68,772 550,246 203,986 Net Cash From Financing Activities . . . . . . . . . . . . . . THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE INTERIM CONDENSED FINANCIAL STATEMENTS F-9
108. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005 1. Legal Status and Principal Activities: Qatar Real Estate Investment Company was founded as per the Amiri Decree no 49, of 1995 issued on July 3, 1995 and subject to the rules of Qatar Commercial Companies Law. The company is registered under the commercial registration number 18714. The company’s principal activity is the establishment of residential compounds and projects for rental purpose, purchase of land and developing it for resale. The company also deals in management of residential compounds. 2. Significant Accounting Policies: These interim condensed financial statements are prepared in accordance with IAS 34 “Interim Financial Reporting”. The accounting policies used in the preparation of these interim condensed financial statements are consistent with those used in the annual financial statements for the year ended December 31, 2005 and should be read in conjunction with the 2005 annual financial statements and the notes attached thereto. The interim condensed financial statements are prepared in accordance with the International Financial Reporting Standards, under the historical cost convention except for the investment which are carried at fair value. 3. Investment Properties: June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 December 31, 2005 (Audited) QR’s 000 Cost: At January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions during the period /year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers from project under construction . . . . . . . . . . . . . . . . . . . . . . 707,307 451,500 — 670,326 — 34,666 670,326 1,212 35,769 Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,158,807 704,992 707,307 Accumulated Depreciation At January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge for the period / year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,584 10,795 94,685 10,060 94,685 20,899 Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,379 104,745 115,584 Net Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032,428 600,247 591,723 F-10
109. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005 (continued) 4. Investments: June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 December 31, 2005 (Audited) QR’s 000 Current Investments: Investment under Islamic Wakalah arrangements . . . . . . . . . . . . . . . . . . . . . Investment held for trading in quoted shares at fair value . . . . . . . . . . . . . . . 40,000 54,642 — 136,864 80,000 81,980 Total Current Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,642 136,864 161,980 Non Current Investments: Available for sale investments in quoted at fair value shares . . . . . . . . . . . . Investments in real estate funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in unquoted companies at cost . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for impairment for unquoted local investment company . . . . . . . 218,589 109,764 60,099 (1,000) 92,013 — 7,000 (1,000) 136,638 109,764 7,000 (1,000) Total Non Current Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 387,452 98,013 252,402 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 482,094 234,877 414,382 5. Property and Equipments: Furniture, Fixtures & Electrical Equipment Projects under (Investments Land Equipments Furniture Vehicles Construction Projects) Total (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) Cost At January 1, 2006 . . . . . . . . . . . . . . 277,071 Additions during the period . . . . . . . . — Transfers . . . . . . . . . . . . . . . . . . . . . . . (26,847) Disposals . . . . . . . . . . . . . . . . . . . . . . . (34,595) At June 30, 2006 . . . . . . . . . . . . . . . . 215,629 884 752 — — 331 19 — — 1,260 608 — — 85,207 152,456 26,847 (87) 34,188 615 1,636 350 1,868 264,423 34,803 518,709 — 398,941 154,450 — (34,682) Depreciation At January 1, 2006 . . . . . . . . . . . . . . . Charge for the period . . . . . . . . . . . . . — — 541 111 188 20 765 155 — — 28,773 1,278 30,267 1,564 At June 30, 2006 . . . . . . . . . . . . . . . . . — 652 208 920 — 30,051 31,831 Net Book Value At June 30, 2006 . . . . . . . . . . . . . . . . 215,629 984 142 948 264,423 4,752 486,878 At December 31, 2005 . . . . . . . . . . . . 277,071 343 143 495 85,207 5,415 368,674 6. Share Capital: The Extraordinary General Assembly decided in their meeting held on March 27, 2006 to increase the Company’s authorized share capital to QR.600,000,000 of QR.10 per share through distribution of bonus shares of one share for every five shares held amounting to QR.100,000,000. F-11
110. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR NOTES TO THE INTERIM CONDENSED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005 (continued) 7. Earnings Per Share: Earnings per share are calculated by dividing the net income for the period / year by the weighted average number of ordinary shares outstanding during the period / year. June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 Net income for the period / year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2005 (Audited) QR’s 000 69,191 64,830 112,520 Adjusted average number of shares outstanding . . . . . . . . . . . . . . . . . . . 60,000,000 60,000,000 60,000,000 1.08 1.88 Earning per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.15 8. Capital Commitments: June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 Investment properties under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,054,861 Real Estate Investment commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000 372,928 — 9. Contingent Liabilities: June 30, 2006 2005 (Reviewed) (Reviewed) QR’s 000 QR’s 000 Letter of guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,700 50,900 10. Comparative Figures: Certain corresponding amounts have been reclassified to conform to the presentation adopted in the current period’s interim condensed financial statements. F-12
111. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2005 TOGETHER WITH AUDITORS’ REPORT F-13
112. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR DECEMBER 31, 2005 TABLE OF CONTENTS Page Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15 Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16 Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-17 Statement of Changes in Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18 Statement of Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19 Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20 - F-27 F-14
113. AUDITORS ’ REPORT To The Shareholders Qatar Real Estate Investment Company (Q.S.C.) Doha—Qatar We have audited the accompanying balance sheet of Qatar Real Estate Investment Company (Q.S.C.), as of December 31, 2005 and the related statements of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Qatar Real Estate Investment Company (Q.S.C.), as of December 31, 2005 and the results of its operations, changes in its shareholders’ equity and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Furthermore, in our opinion the financial statements provide the information required by the Commercial Companies’ Law No. 5 of 2002 and the Company’s Articles of Association. We are also of the opinion that proper books of account were maintained by the Company and the contents of the directors’ report are in agreement with the Company’s financial statements. To the best of our knowledge and belief and according to the information given to us, no contraventions of the Law or the Company’s Articles of Association were committed during the year which would materially affect the Company’s activities or its financial position. For Deloitte & Touche Doha—Qatar February 6, 2006 Samer Jaghoub License No. 88 F-15
114. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR BALANCE SHEET AS OF DECEMBER 31, 2005 Note Assets: Cash at banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable and other debit balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spare parts and appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease receivable—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 7 2005 (QR’000) 2004 (QR’000) 203,986 21,241 161,980 220 36,626 89,275 23,774 11,994 363 18,546 424,053 143,952 591,723 252,402 2,673 27,078 229,319 368,674 575,641 16,528 2,673 38,286 129,447 172,633 Total non current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,471,869 935,208 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,895,922 1,079,160 81,094 78,633 19,373 39,261 264,265 11,277 179,100 314,803 236,043 85,873 330,579 50,573 Total Non Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 321,916 381,152 Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501,016 695,955 500,000 743,430 1,025 7,736 40,965 100,000 — 1,750 250,000 30,930 1,025 7,295 30,195 12,500 50,000 1,260 Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,394,906 383,205 Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . 1,895,922 1,079,160 5 Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment in land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease receivable—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property and equipments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities and Shareholders’ Equity: Current Liabilities: Accounts payable and other credit balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned finance income—current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 5 8 10 9 11 Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unearned finance income—non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity: Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments fair value reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed issue of bonus shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed cash dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed Directors remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 11 19 20 21 19 These financial statements were approved by the Board of Directors and signed by the following on their behalf on—February 6, 2006. Khalid Bin Khalifa Bin Jassim Al Thani Chairman of The Board and Managing Director Mohammed Misnad Al Misnad General Manager The accompanying notes are an integral part of these financial statements F-16
115. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) DOHA—QATAR STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2005 Note Rental income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finance lease income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13 14 Total Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operations Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation for investment properties and property and equipments . . . . . . . Finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gain (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Income for the Year Before Prior Year Adjustments . . . . . . . . . . . . . . Prior year adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 16 17 Net Income for the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted basic and diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . 18 2005 (QR’000) 2004 (QR’000) 110,852 17,932 33,449 8,021 102,371 11,736 2,202 2,274 170,254 118,583 (19,961) (23,736) (13,851) (9,507) 9,321 — (10,755) (22,648) (9,210) (5,168) (8,837) (1,000) 112,520 — 60,965 (4,724) 112,520 56,241 2.44 1.65 The accompanying notes are an integral part of these financial statements F-17
116. F-18 250 ,000 — 12,500 Balance at December 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income for the year 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Issue of bonus share for the year 2004 . . . . . . . . . . . . . . . . . . . . . . . Dividends paid for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 743,430 — — 712,500 — — — — 30,930 — — — — — — 25,306 — 5,624 — Legal Reserve (QR’000) 1,025 — — — — — — — 1,025 — — — — — — 1,025 — — — General Reserve (QR’000) 7,736 — — — 441 — — — 7,295 — — — — — 389 6,906 — — — (12,500) 12,500 — 12,500 — — — — -— — — Proposed Issue of Bonus Shares (QR’000) 40,965 100,000 — — — — — — — — (100,000) 100,000 (1,750) — — 30,195 112,520 (12,500) (1,260) (50,000) — — 43,338 56,241 (5,624) — Retained Earnings (QR’000) The accompanying notes are an integral part of these financial statements Balance at December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 237,500 — — — — — — Proposed issue of bonus shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proposed directors remuneration for 2004 . . . . . . . . . . . . . . . . . . . . . 19 — Proposed cash dividend for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors remuneration paid for 2004 . . . . . . . . . . . . . . . . . . . . . . . . Increase in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium on shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Movement in fair value reserve for available for sale investments . . Proposed issue of bonus shares for the year 2005 . . . . . . . . . . . . . . . Proposed directors remuneration for 2005 . . . . . . . . . . . . . . . . . . . . . — — Directors remuneration paid for 2003 . . . . . . . . . . . . . . . . . . . . . . . . Movement in fair value reserve for available for sale investments . . 19 250,000 — — — Share Capital (QR’000) Balance at December 31, 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfer to legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid for 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Note Investments Fair Value Reserve (QR’000) STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEAR ENDED DECEMBER 31, 2005 QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) — — — — — — — — (50,000) 50,000 — — — 50,000 — — 37,500 — — (37,500) Proposed Dividend (QR’000) 1,750 (1,260) — — — — 1,750 — 1,260 — — 1,260 — (1,400) — 1,400 — — — Directors Remuneration (QR’000) 1,394,906 (1,260) 237,500 712,500 441 — — — (50,000) 383,205 112,520 — — — (1,400) 389 365,475 56,241 — (37,500) Total (QR’000)
117. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2005 Note 2005 (QR’000) 2004 (QR’000) 112,520 56,241 23,736 (14,522) 7,934 (9,321) (859) — 22,648 (8,304) 7,959 15,277 (2,035) 1,000 119,488 92,786 Decrease in spare parts and appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in accounts receivable and other debit balances . . . . . . . . . . . . . Increase in accounts payable and other credit balances . . . . . . . . . . . . . . . . . . . . . . . . 143 2,533 39,563 139 (19,749) 15,811 Net Cash from Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,727 88,987 Net income for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments for: Depreciation for investment properties and property and equipments . . . . . . . . . . . . Amortization of unearned finance income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign Exchange (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized gain on trading investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investing Activities: Purchase of investment properties and property and equipments . . . . . . . . . . . . . . . . Proceeds from sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (311,670) (198,019) 76,624 1,027 (461,184) (17,270) Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (696,230) (214,262) Financing Activities: Capital increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Directors remuneration paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Proceeds from finance lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred finance charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,500 712,500 (266,785) (50,000) (1,260) 17,259 — — — 218,970 (37,500) (1,400) 9,979 (1,482) Net cash from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 649,214 188,567 Net increase in cash at banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash at banks at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,711 89,275 63,292 25,983 203,986 89,275 Cash at Banks at End of the Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 The accompanying notes are an integral part of these financial statements F-19
118. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 1.1. Legal Status and Principal Activities: Qatar Real Estate Investment Company was founded as per the Amiri Decree no 49, of 1995 issued on July 3, 1995 and subject to the rules of Qatar Commercial Companies Law. The company is registered under the commercial registration number 18714. The company’s principal activity is the establishment of residential compounds and projects for rental purposes, purchase of land and developing it for resale. The company also deals in management of residential compounds. 1.2 Adoption of New and Revised International Financial Reporting Standards: The Company has adopted all new and revised Standards issued by the International Accounting Financial Reporting Standards Board (the IASB) that are relevant to its operations. The adoption of these new and revised standards has only affected the presentation and disclosures of the company’s financial statements. 2. Significant Accounting Policies: The financial statements of the company have been prepared in accordance with the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board. a. Basis of Preparation The financial statements are presented in Qatari Riyals, rounded to the nearest thousand. They are prepared on the historical cost basis except for the measurement at fair value of certain available-for-sale and trading investments. b. Cash at Banks Cash at banks comprises of current accounts, call accounts and deposits having a maturity of less than ninety days. c. Accounts Receivable Receivables are stated net of provision. Provision for doubtful accounts is based on a detailed review by management of the individual balances at the year-end. d. Spare Parts and Appliances These are stated at the lower of cost and net realizable value less provision for obsolescence estimated by management. Cost is determined under weighted average method. Cost includes expenditures incurred in acquiring the inventories and bringing them to their existing location and condition. e. Finance Lease Receivable Leases for which substantially all the risks and rewards of ownership are transferred to the lessee at the end of the lease are classified as finance lease receivable. Finance lease receivable is stated at an amount equal to the present value of the minimum lease payments at the inception of the lease. Lease payments are apportioned between the finance lease receivable and the unearned finance income so as to achieve a constant rate of interest on the remaining balance of the receivable. f. Investment Properties Investment properties comprise of investment in land and buildings in Qatar acquired or constructed to earn rental income from such properties. F-20
119. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) Investment properties are stated at cost less accumulated depreciation and any impairment losses. Depreciation is calculated on straight-line method. No depreciation is calculated on investments in land. The rates of depreciation used are based on the following estimated useful lives of the assets: Buildings (Investment property) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 - 33.3 years Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 years Gains or losses arising from the retirement or disposal of investment property are recognised as income or expense in the statement of income. g. Investments Investments held for trading are carried at fair value (market to market) with any gain or loss arising from the change in fair value included in the statement of income in the period in which it arises. Available-for-sale assets are financial assets that are not held for trading purposes, originated by the company, or held to maturity. Available-for-sale instruments include private equity investments. Quoted investments: Financial instruments are measured initially at cost, including transaction costs. Subsequent to initial recognition all available-for-sale assets are re-measured at fair value. Unquoted investments: These represent investments where there is no quoted market price. Unquoted investments are measured initially at cost, including transaction costs. Subsequent to initial recognition, the unquoted investments are re-measured at cost less any impairment losses. Gains and losses arising from a change in the fair value of available-for-sale quoted investments are recognised directly in equity. When the investments are sold, impaired, collected or otherwise disposed of the cumulative gain or loss recognised in equity is transferred to the income statement. h. Deferred Finance Charges Represents the cost of finance portion related to loans to be settled in future periods. Finance costs are expensed in the income statement unless incurred during the construction period in which case it is capitalised as part of the cost of properties. i. Property and Equipments Property and equipments are stated at cost less accumulated depreciation. Depreciation is calculated annually on the basis of the straight-line method. The estimated useful lives of the assets are: j. • Equipment and tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years • Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years • Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 years Accounts Payable and Other Credit Balances Liabilities are recognised for amounts to be paid in future for goods or services received whether or not billed to the company. k. Unearned Finance Income Unearned finance income is calculated as the difference between the present value of the minimum lease payments under a finance lease and the fair value of the leased property. l. Revenue Recognition Rental income is accounted for on an accrual basis and represents rents received and receivable. F-21
120. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) m. Impairment The carrying amounts of the Company’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the income statement in the year when such losses are first determined. n. Foreign Currencies Transactions in foreign currencies are recorded in Qatari Riyals at the rates of exchange prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated into Qatari Riyals at the rates of exchange prevailing at the balance sheet date. All differences arising from exchange are included in the income statement. 3. Cash at Banks: 2005 (QR’000) 2004 (QR’000) Current accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Call accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fixed Deposits—short term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,815 25,171 150,000 6,946 82,329 — Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,986 89,275 2005 (QR’000) 2004 (QR’000) Rent receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments and other debit balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,062 17,179 17,120 6,654 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,241 23,774 2005 (QR’000) 2004 (QR’000) Finance lease receivable—Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,626 18,546 Finance lease receivable—Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Between one and five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,772 79,547 83,672 45,775 More than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,319 129,447 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,945 147,993 2005 (QR’000) 2004 (QR’000) Cost At January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Transfers from work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 670,326 1,212 35,769 664,203 100 6,023 At December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707,307 670,326 Accumulated Depreciation At January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Charge for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,685 20,899 75,014 19,671 At December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,584 94,685 Net Book Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591,723 575,641 4. 5. 6. Accounts Receivable and Other Debit Balances: Finance Lease Receivable: Investment Properties: F-22
121. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) The fair value of investment properties is determined on the basis of management’s estimate of the market value, which in the opinion of management is in excess of their carrying amounts. Investment properties include buildings and infrastructure. Investment properties are built on land owned by third parties with the exception of the Qatar Gas Housing Project and Ras Gas Housing Project where the land was gifted by the Government and the title deed transfer is in progress. 7. Investments: 2005 (QR’000) 2004 (QR’000) Current Investments: Investments under Islamic Wakalah arrangements . . . . . . . . . . . . . . . . . . . . . . . Investments held for trading in quoted shares at fair value . . . . . . . . . . . . . . . . . 80,000 81,980 — 11,994 Total Current investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161,980 11,994 Non Current Investments: Available—for—sale investments in quoted shares at fair value . . . . . . . . . . . . . Investments in real estate funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investments in unquoted local companies at cost . . . . . . . . . . . . . . . . . . . . . . . . . Provision for impairment of unquoted local company investment . . . . . . . . . . . . 125,938 109,764 17,700 (1,000) 10,528 — 7,000 (1,000) Total Non Current Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252,402 16,528 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414,382 28,522 8. Property and Equipments: Furniture, Fixtures & Electrical Furniture EquipmentPorta Cabins and Office Projects under (Investments Land and Fences Equipment Vehicles Construction Projects) Total (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) (QR’000) Cost At January 1, 2005 . . . . . . . . 115,340 Additions during the year . . . 163,413 Transfers to investment properties and finance lease . . . . . . . . . . . . . . . . . . — Disposals . . . . . . . . . . . . . . . . (1,682) 1,067 45 721 323 1,260 — 50,506 148,881 31,169 960 200,063 313,622 — — — — — — (114,180) — 1,118 — (113,062) (1,682) At December 31, 2005 . . . . . 277,071 1,112 1,044 1,260 85,207 33,247 398,941 Depreciation At January 1, 2005 . . . . . . . . Charge for the year . . . . . . . . — — 1,016 18 510 100 520 244 — — 25,384 2,475 27,430 2,837 At December 31, 2005 . . . . . — 1,034 610 764 — 27,859 30,267 Net Book Value At December 31, 2005 . . . . . 277,071 78 434 496 85,207 5,388 368,674 At December 31, 2004 . . . . . 115,340 51 211 740 50,506 5,785 172,633 9. Loans: Estisna financing no.(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estisna financing no.(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Murabaha financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ijjarah financing facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Overdraft account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23 2005 (QR’000) 2004 (QR’000) 40,440 107,220 99,581 67,435 — 87,200 135,382 195,247 73,452 103,563 314,676 594,844
122. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) • The Estisna financing no. (1) of (Islamic Dinar) ID 16.3 million was drawn during the year 1999/2000 and is repayable in equal semi annual instalments of ID 1.5 million. The last instalment is payable in March 2008. • The Estisna financing no. (2) of (Islamic Dinar) ID 20.9 million was drawn during the year 2002/2003 and is repayable in equal semi annual instalments of ID 1.7 million. The last instalment is payable in July 2011. • The Murabaha Financing facilities amounting to USD 54 million was drawn during 2004. The outstanding balance as of December 31, 2005 is repayable in unequal semi-annual instalment up to April 2011. • The Ijjarah financing facilities amounting to QR 160 million represents financing facilities with local Islamic banks and is repayable over 4 to 6 years. 2005 (QR’000) 2004 (QR’000) Those loans are classified as: Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,633 236,043 264,265 330,579 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 314,676 594,844 2005 (QR’000) 2004 (QR’000) Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retentions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rent received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,836 15,472 — 8,229 40,557 15,055 9,104 3,330 4,681 7,091 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81,094 39,261 2005 (QR’000) 2004 (QR’000) Unearned finance income—Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,373 11,277 Unearned finance income—Non-current Between one to five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . More than five years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,643 15,230 41,951 8,622 85,873 50,573 105,246 61,850 10. Accounts Payable and Other Credit Balances: 11. Unearned Finance Income: Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Finance Lease Income: This represents lease income net of expenses for lease and sublease deals entered into by the Company with other local companies. 13. Investment Income: 2005 (QR’000) 2004 (QR’000) Income on sale of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tatheer provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate funds income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,552 (1,934) 1,967 1,005 859 168 — — — 2,034 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,449 2,202 F-24
123. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) 14. Other Income: 2005 (QR’000) 2004 (QR’000) Profit on bank deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Miscellaneous income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,590 431 1,860 414 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,021 2,274 2005 (QR’000) 2004 (QR’000) Staff cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Water and electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,270 5,635 10,632 2,424 789 3,281 5,323 1,362 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,961 10,755 15. Operation cost: 16. General and Administrative Expenses: 2005 2004 (QR’000) (QR’000) Staff cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,515 2,992 3,409 1,759 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,507 5,168 2005 (QR’000) 2004 (QR’000) 17. Prior Year Adjustments: Foreign exchange loss on Estisna financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecorded rent income for 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrecorded profit on bank deposits for 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 6,440 (809) (643) (264) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,724 18. Earning Per Share: Earning per share is calculated by dividing the net profit for the year by the weighted average number of ordinary shares during the year. 19. Share Capital: The shareholders in their extraordinary General Assembly meeting held on March 31, 2005 approved to increase the company’s authorized share capital to QR. 500,000,000 with nominal value of QR. 10 per share through distribution of bonus shares amounting to QR. 12,500,000 and by issuing 23,750,000 shares for the subscription of the shareholders of the company at QR. 40 per share of which QR. 30 relates to share premium. The amount of share premiums was credited to legal reserve. The Board of Directors decided in their meeting held on January 17, 2006 to propose to the forthcoming Extraordinary General Assembly to approve to increase the Company’s authorized share capital to QR.600,000,000 of QR. 10 per share through distribution of bonus shares of one share for every five shares held amounting to QR.100,000,000. 20. Legal Reserve: As per the Company’s Articles of Association and the provision of Commercial Companies’ Law No. 5 of 2002, an amount equivalent to 10% of the net income for the year is transferred annually to the legal reserve until it equals 50% of the capital. This reserve is not available for distribution except in circumstances stipulated in the Companies’ Law. F-25
124. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) 21. General Reserve: In accordance with Articles of Association of the Company the general assembly may allocate a portion of the net profit to a general reserve. No transfer was made to general reserve during 2005 and 2004. This reserve is freely distributable. 22. Key Sources of estimation uncertainty: Impairment of receivables An estimate of the uncollectible amount of receivables 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. At the balance sheet date, gross finance lease receivable were QR. 266 million (2004: 148 million) and the provision for doubtful debts was NIL (2004: NIL). At the same date, gross rent receivable was QR. 4 million (2004: 17 million) and the provision for doubtful debts was QR. 0.2 million (2004: NIL) Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the income statement. 23. Compensation of Key Management Personnel: The remuneration of key management personnel during the year was as follows: Short terms benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Post-employment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2005 (QR’000) QR. 2004 QR’000) QR. 2,299 169 1,472 115 2,468 1,587 In addition to the above amounts the board of directors’ are also given remuneration subject to shareholders’ approval as disclosed in the statement of changes in shareholders’ equity. 24. Capital Commitments: 2005 (QR’000) 2004 (QR’000) 2,200,000 143,000 2005 (QR’000) 2004 (QR’000) Banks Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,800 51,750 Guarantee cheque issued by the company for a third party . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723 723 Investment properties under construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Contingent Liabilities: 26. Financial Instruments: The financial assets of the company include balances with banks, accounts receivable and investments. The financial liabilities of the company include accounts payable and other payables and due to banks. a) Credit Risk Exposure Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company’s exposure to credit risk is as indicated by the carrying amount of its financial assets which consist primarily of bank balance and accounts receivable. Credit risk on bank balance is limited as it is placed with banks having good credit rating. Credit risk on accounts receivable is limited as these are shown after review of their recoverability and are stated net of provision for doubtful receivables. F-26
125. QATAR REAL ESTATE INVESTMENT COMPANY (Q.S.C.) NOTES TO THE FINANCIAL STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2005 (continued) b) Fair Values of Financial Assets and Liabilities Fair value is the amount for which an asset can be exchanged or a liability settled, between knowledgeable and willing parties transacting at an “arm’s length”. The accounting convention under which the financial statements have been prepared is disclosed in Note 2(a). The carrying value of the Company’s financial instruments as recorded could therefore be different from their fair value. However, in the management’s opinion, the fair values of the Company’s financial assets and liabilities approximate to their carrying amounts. 27. Comparative Figures: Certain corresponding amounts have been reclassified to conform to the presentation adopted in the current year’s financial statements. F-27
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127. REGISTERED OFFICE OF THE ISSUER QREIC Sukuk LLC C /o Ansbacher & Co Limited P O Box 23589 11th Floor, Ministry of Economy & Commerce Doha, Qatar REGISTERED OFFICE OF THE OBLIGOR Qatar Real Estate Investment Company P.O. Box 22311 Doha Qatar REGISTRAR LUXEMBOURG PAYING AGENT Deutsche Bank Luxembourg S.A. Deutsche Bank Luxembourg S.A. 2 Boulevard Konrad Adenauer L-1115 Luxembourg 2 Boulevard Konrad Adenauer L-1115 Luxembourg PAYING AGENT AND TRANSFER AGENT Deutsche Bank AG, London Branch Deutsche Bank Luxembourg S.A. Winchester House 1 Great Winchester Street London EC2N 2DB 2 Boulevard Konrad Adenauer L-1115 Luxembourg TRUSTEE QREIC Sukuk LLC C/o Ansbacher & Co Limited P O Box 23589 11th Floor, Ministry of Economy & Commerce Doha, Qatar LEGAL ADVISERS To QREIC as to English law To the Transaction Administrator as to English Law Denton Wilde Sapte Clifford Chance LLP 26th floor, API World Tower Sheikh Zayed Road P O Box 1756 Dubai United Arab Emirates 3rd floor, The Exchange Building Dubai International Financial Centre P O Box 9380 Dubai United Arab Emirates To the Lead Managers as to English law To the Lead Managers and the Issuer as to Qatari law Clifford Chance LLP 3rd floor, The Exchange Building Dubai International Financial Centre P O Box 9380 Dubai United Arab Emirates Law Office of Ahmed Abdel Latif Al Mohannadi, managed by legal consultant Gebran Majdalany 8th Floor, Kaamco Building, C Ring Road P.O. Box 4004 Doha, State of Qatar AUDITORS TO THE OBLIGOR Deloitte & Touche LISTING AGENT Deutsche Bank Luxembourg S.A. 4th Floor, Kamco Building P.O. Box 431 Doha, Qatar 2 Boulevard Konrad Adenauer L-1115 Luxembourg