Tilal Sukuk Company Ltd (Tilal Development Co) USD137 Million 6.500% 12-Nov-2023 - Listing Particulars

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1. IMPORTANT NOTICE THESE LISTING PARTICULARS MAY ONLY BE DISTRIBUTED TO PERSONS WHO ARE NOT U .S. PERSONS (AS DEFINED IN REGULATION S (“REGULATION S”) UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)) AND ARE OUTSIDE OF THE UNITED STATES. IMPORTANT: You must read the following disclaimer before continuing. The following disclaimer applies to the Listing Particluars attached to this electronic transmission and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the attached Listing Particulars. In accessing these Listing Particulars, you agree to be bound by the following terms and conditions, including any modifications to them from time to time, each time you receive any information from Tilal Sukuk Company Limited (the “Issuer”) or Tilal Development Company S.A.O.C. (“Tilal”) as a result of such access. Restrictions: NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. ANY SECURITIES TO BE ISSUED HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT). THE ATTACHED LISTING PARTICULARS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON WITHOUT THE PRIOR WRITTEN CONSENT OF THE JOINT LEAD MANAGERS (AS DEFINED BELOW) AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. DISTRIBUTION OR REPRODUCTION OF THE ATTACHED LISTING PARTICULARS IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE SECURITIES LAWS OF OTHER JURISDICTIONS. UNDER NO CIRCUMSTANCES SHALL THESE LISTING PARTICULARS CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL. THESE LISTING PARTICULARS ARE NOT BEING DISTRIBUTED TO, AND MUST NOT BE PASSED ON TO, THE GENERAL PUBLIC IN THE UNITED KINGDOM. RATHER, THE COMMUNICATION OF THESE LISTING PARTICULARS AS A FINANCIAL PROMOTION IS ONLY BEING MADE TO THOSE PERSONS FALLING WITHIN ARTICLE 12, ARTICLE 19(5) OR ARTICLE 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2005, OR TO OTHER PERSONS TO WHOM THESE LISTING PARTICULARS MAY OTHERWISE BE DISTRIBUTED WITHOUT CONTRAVENTION OF SECTION 21 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000, OR ANY PERSON TO WHOM IT MAY OTHERWISE LAWFULLY BE MADE. THIS COMMUNICATION IS BEING DIRECTED ONLY AT PERSONS HAVING PROFESSIONAL EXPERIENCE IN MATTERS RELATING TO INVESTMENTS AND ANY INVESTMENT OR INVESTMENT ACTIVITY TO WHICH THIS COMMUNICATION RELATES WILL BE ENGAGED IN ONLY WITH SUCH PERSONS. NO OTHER PERSON SHOULD RELY ON IT. Confirmation of Your Representation: By accessing these Listing Particulars you confirm to Emirates NBD Bank PJSC and Maisarah Islamic Banking - Bank Dhofar (SAOG) as joint lead managers (together the “Joint Lead Managers”), Tilal and the Issuer that: (i) you understand and agree to the terms set out herein; (ii) you are not a U.S. person (within the meaning of Regulation S), or acting for the account or benefit of any U.S. person, and that you are not in the United States, its territories and possessions; (iii) you consent to delivery by electronic transmission; (iv) you will not transmit the attached Listing Particulars (or any copy of it or part thereof) or disclose, whether orally or in writing, any of its contents to any other person except with the prior written consent of the Joint Lead Managers; and (v) you acknowledge that you will make your own
2. assessment regarding any credit , investment, legal, taxation or other economic considerations with respect to your decision to subscribe or purchase any of the Certificates. You are reminded that the attached Listing Particulars have been delivered to you on the basis that you are a person into whose possession these Listing Particulars may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver these Listing Particulars, electronically or otherwise, to any other person and in particular to any U.S. person or to any U.S. address. Failure to comply with this directive may result in a violation of the Securities Act or the applicable laws of other jurisdictions. If you received these Listing Particulars by e-mail, you should not reply by e-mail to this announcement. Any reply e-mail communications, including those you generate by using the “Reply” function on your e-mail software, will be ignored or rejected. If you receive these Listing Particulars by e-mail, your use of this e-mail is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature. The materials relating to the offering do not constitute, and may not be used in connection with, an offer or solicitation in any place where such offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Joint Lead Managers or any affiliate of the Joint Lead Managers is a licensed broker or dealer in that jurisdiction the offering shall be deemed to be made by the Joint Lead Managers or such affiliate on behalf of the Issuer in such jurisdiction. Under no circumstances shall these Listing Particulars constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Recipients of the attached document who intend to subscribe for or purchase the Certificates are reminded that any subscription or purchase may only be made on the basis of the information contained in these Listing Particulars. These Listing Particulars have been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Joint Lead Managers, Tilal, the Issuer or any person who controls or is a director, officer, employee or agent of the Joint Lead Managers, Tilal, the Issuer or any affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between these Listing Particulars distributed to you in electronic format and the hard copy version available to you on request from the Joint Lead Managers. The distribution of these Listing Particulars in certain jurisdictions may be restricted by law. Persons into whose possession the attached document comes are required by the Joint Lead Managers, Tilal and the Issuer to inform themselves about, and to observe, any such restrictions.
3. TILAL SUKUK COMPANY LIMITED (incorporated as an exempted company in the Cayman Islands with limited liability) U.S.$137,000,000 TRUST CERTIFICATES DUE 2023 The U.S.$137,000,000 trust certificates due 2023 (the “Certificates”) of Tilal Sukuk Company Limited (in its capacity as Issuer, the “Issuer” and as trustee, the “Trustee”) will be constituted by a declaration of trust (the “Declaration of Trust”) dated 12 November 2018 (the “Closing Date”) entered into between the Trustee, Tilal Development Company S.A.O.C. (“Tilal”) and BNY Mellon Corporate Trustee Services Limited as donee of the powers and as the delegate of the Trustee pursuant to the Declaration of Trust (the “Delegate”). The Certificates confer on the holders of the Certificates from time to time (the “Certificateholders”) the right to receive certain payments (as more particularly described herein) arising from a pro rata ownership interest in the assets of a trust declared by the Trustee pursuant to the Declaration of Trust (the “Trust”) over the Trust Assets (as defined below) which will include, inter alia: (i) the Lease Assets (as defined herein); and (ii) the Transaction Documents (as defined herein). On 12 November and 12 May of each year and commencing on 12 May 2019 (each, a “Periodic Distribution Date”), the Trustee will pay Periodic Distribution Amounts (as defined herein) to Certificateholders calculated in accordance with Condition 8 (Periodic Distributions). The Trustee will pay such Periodic Distribution Amounts solely from the proceeds received in respect of the Trust Assets which include payments by Tilal in its capacity as lessee under the Lease Agreement (as defined herein). Unless previously redeemed in the circumstances described in Condition 14 (Capital Distributions of the Trust) and Condition 15 (Dissolution Events), the Certificates will be redeemed on 12 November 2023 (the “Scheduled Dissolution Date”) at the Dissolution Amount (as defined herein). The Trustee will pay the Dissolution Amount solely from the proceeds received in respect of the Trust Assets which include payments by Tilal under the Purchase Undertaking (as defined herein) and the Service Agency Agreement (as defined herein). The Trust Assets will include the proceeds of enforcement of the Transaction Security (as defined herein) granted by Al Madina Real Estate Company S.A.O.C. (“AMRE”) pursuant to the Security Documents (as defined herein). All payments in respect of the Certificates will be made in accordance with, and subject to the provisions of, the Conditions. The Certificates will be limited recourse obligations of the Trustee. An investment in the Certificates involves certain risks. For a discussion of these risks, see “Risk Factors”. Application has been made to the Irish Stock Exchange Plc trading as Euronext Dublin (“Euronext Dublin”) for the Certificates to be admitted to the Official List (the “Official List”) and trading on the Global Exchange Market, which is the exchange regulated market of Euronext Dublin. The Global Exchange Market is not a regulated market for the purposes of Directive 2004/39/EC. This document (“Listing Particulars”) constitutes listing particulars for the purpose of this application. Application has been made to Euronext Dublin for the approval of this document as listing particulars. Upon issue, the Certificates are expected to be assigned a rating of B1 by Moody’s Investors Service Ltd. (“Moody’s”). Tilal has been assigned ratings of B1 by Moody’s, with a stable outlook. Moody’s is established
4. in the European Union and is registered under Regulation (EC) No. 1060/2009 (as amended) (the “CRA Regulation”). As such, Moody’s is included in the list of credit rating agencies published by the European Securities and Markets Authority on its website in accordance with such Regulation. A rating is not a recommendation to buy, sell or hold the Certificates (or beneficial interests therein) and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. The Certificates may only be offered, sold or transferred in registered form in minimum face amounts of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof. The Certificates have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or with any securities regulatory authority of any state or other jurisdiction of the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S under the Securities Act (“Regulation S”)) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Certificates may be offered or sold solely to persons who are not U.S. persons outside the United States in reliance on Regulation S. Each purchaser of the Certificates is hereby notified that the offer and sale of Certificates to it is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Regulation S. Delivery of the Certificates in book-entry form will be made on the Closing Date. The Certificates will be represented by interests in a global certificate in registered form (the “Global Certificate”) deposited on or about the Closing Date with, and registered in the name of a nominee for, a common depositary (the “Common Depositary”) for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg”). Interests in the Global Certificate will be shown on, and transfers thereof will be effected only through, records maintained by Euroclear and Clearstream, Luxembourg. Definitive Certificates evidencing holdings of interests in the Certificates will be issued in exchange for interests in the Global Certificate only in certain limited circumstances described herein. The transaction structure relating to the Certificates (as described in these Listing Particulars) has been approved by Amanie Advisors L.L.C. Prospective Certificateholders should not rely on such approval in deciding whether to make an investment in the Certificates and should consult their own Shari’a advisers as to whether the proposed transaction described in such approval is in compliance with Shari’a principles. Sole Global Coordinator Emirates NBD Capital Joint Lead Managers and Joint Bookrunners Emirates NBD Capital Maisarah Islamic Banking - Bank Dhofar (SAOG) The date of these Listing Particulars is 3 December 2018
5. IMPORTANT NOTICES The Trustee and Tilal accept responsibility for the information contained in these Listing Particulars and each declares that , having taken all reasonable care to ensure that such is the case, the information contained in these Listing Particulars is, to the best of the knowledge of each of the Trustee and Tilal, in accordance with the facts and does not omit anything likely to affect the import of such information. Each of the Trustee and Tilal confirms that such information has been accurately reproduced and that, so far as it is aware, and is able to ascertain from information published by the relevant sources referred to, no facts have been omitted which would render the reproduced information inaccurate or misleading. None of the Joint Lead Managers (as defined herein), the Delegate, the Security Agent (as defined herein) or the Agents (as defined herein) has independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by any of them as to the accuracy, adequacy, reasonableness or completeness of the information contained or incorporated in these Listing Particulars or any other information provided by the Trustee or Tilal in connection with the Certificates. No person is or has been authorised by the Trustee or Tilal to give any information or to make any representation not contained in or not consistent with these Listing Particulars or any other document entered into in relation to the Certificates and, if given or made, such information or representation should not be relied upon as having been authorised by the Trustee, Tilal, the Delegate, the Security Agent or any of the Joint Lead Managers. None of the Joint Lead Managers, the Delegate, the Security Agent or the Agents, or any of their respective affiliates make any representation or warranty or accept any liability as to the accuracy or completeness of the information contained in these Listing Particulars. Neither the delivery of these Listing Particulars nor the offering, sale or delivery of the Certificates shall, in any circumstances, create any implication that the information contained in these Listing Particulars is correct subsequent to the date hereof or the date upon which these Listing Particulars have been most recently amended or supplemented or that there has been no adverse change, or any event reasonably likely to involve any adverse change, in the prospects or the financial or trading position of the Trustee or Tilal since the date hereof or, if later, the date upon which these Listing Particulars have been most recently amended or supplemented or that any other information supplied in connection with the Certificates is correct at any time subsequent to the date on which it is supplied or, if different, the date indicated in the document containing the same. No comment is made, or advice given by, the Trustee, Tilal or the Joint Lead Managers in respect of taxation matters relating to the Certificates or the legality of the purchase of the Certificates by an investor under applicable or similar laws. Any investor in the Certificates should be able to bear the economic risk of an investment in the Certificates for an indefinite period of time. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISER, LEGAL ADVISER AND BUSINESS ADVISER AS TO TAX, LEGAL, BUSINESS AND RELATED MATTERS CONCERNING THE PURCHASE OF CERTIFICATES. These Listing Particulars do not constitute an offer to sell or the solicitation of an offer to buy Certificates in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of these Listing Particulars and the offering, sale and delivery of the Certificates in certain jurisdictions may be restricted by law. None of the Trustee, Tilal, the Joint Lead Managers, the Delegate, the Security Agent or the Agents represents that these Listing Particulars may be lawfully distributed, or that Certificates may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Trustee, Tilal, the Joint Lead Managers, the Delegate, the Security Agent or the Agents which is intended to permit a public offering of the Certificates or distribution of these Listing Particulars in any jurisdiction where action for that purpose is required. Accordingly, the Certificates may not be offered or sold, directly or indirectly, and neither these Listing Particulars nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession these Listing Particulars come are required by the Trustee, Tilal and the Joint Lead Managers to inform themselves about and to observe any such restrictions. In particular, there are restrictions on the distribution of these Listing Particulars and the offer or sale of the Certificates in the United States, the United Kingdom, the Sultanate of Oman, the United Arab Emirates (excluding the -i-
6. Dubai International Financial Centre ), the Dubai International Financial Centre, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar (excluding the Qatar Financial Centre), Singapore, Hong Kong, the Cayman Islands, Malaysia and the State of Kuwait. For a description of the restrictions on offers, sales and deliveries of Certificates and on the distribution of these Listing Particulars and other offering material relating to the Certificates, see “Subscription and Sale”. These Listing Particulars do not constitute an offer or an invitation to subscribe for or purchase Certificates and should not be considered as a recommendation by the Joint Lead Managers, Trustee, Tilal, the Delegate, the Security Agent or the Agents or any of them that any recipient of these Listing Particulars should subscribe for, or purchase, Certificates. Each recipient of these Listing Particulars shall be taken to have made its own investigation and appraisal of the condition (financial or otherwise) of the Trustee and Tilal. None of the Joint Lead Managers, the Delegate, the Security Agent or the Agents accepts any liability in relation to the information contained in these Listing Particulars or any other information provided by the Trustee or Tilal in connection with the Certificates. The Certificates may not be a suitable investment for all investors. Each potential investor in 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 Certificates, the merits and risks of investing in the Certificates and the information contained in these Listing Particulars; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Certificates and the impact the 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 Certificates, including where the currency of payment is different from the potential investor’s currency; (d) understand thoroughly the terms of the 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. The Certificates are complex financial instruments. Sophisticated institutional investors generally do not purchase complex financial instruments as stand-alone investments. They purchase complex financial instruments as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in the Certificates unless it has the expertise (either alone or with a financial adviser) to evaluate how the Certificates will perform under changing conditions, the resulting effects on the value of the Certificates and the impact this investment will have on the potential investor’s overall investment portfolio. The investment activities of certain investors are subject to legal investment laws and regulations, or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent: (i) Certificates are legal investments for it; (ii) Certificates can be used as collateral for various types of borrowing; and (iii) other restrictions apply to its purchase or pledge of Certificates. Financial institutions should consult their legal advisers or the appropriate regulators to determine the appropriate treatment of Certificates under any applicable risk-based capital or similar rules. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS These Listing Particulars contain certain forward-looking statements (as such term is defined in the Securities Act) concerning Tilal. These forward-looking statements are projected on current information, expectations, estimates and projections about the economic environment, Tilal’s management’s beliefs, and assumptions made by Tilal’s management. Words such as “expects”, “anticipates”, “should”, “intends”, “plans”, “believes”, “will continue”, “will pursue”, “schedule”, “may”, “will”, “seeks”, “estimates”, “projects”, variations of such words and similar expressions are intended to identify such forward-looking statements. -ii-
7. These forward-looking statements are not historical facts or guarantees of future performance and involve certain risks , uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecast in such forward-looking statements. Moreover, forward-looking statements involve inherent risks and uncertainties and speak only as at the date they are made and should not be relied upon as representing Tilal’s estimates as of any subsequent date. Tilal and the Issuer cautions investors that a number of important factors could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements. These factors include, but are not limited to, the following: • level of demand for Tilal’s properties and related services; • the competitive environment; • regulatory, legal and fiscal developments or actions; • fluctuations in foreign exchange rates, equity prices or other rates or prices; • inability to estimate future performance; • impact of adverse developments in the region where Tilal and the Issuer are located; • performance of the economy of the Sultanate of Oman; and • other factors described in the section entitled “Risk Factors” of these Listing Particulars. Tilal cannot provide any assurance that any forward-looking statement will materialise. Tilal disclaims any intention or obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise unless required by applicable securities laws. For a description of material factors that could cause Tilal’s actual results to differ materially from the forward-looking statements in these Listing Particulars, see the section entitled “Risk Factors” in these Listing Particulars. The risk factors described in these Listing Particulars are not necessarily all of the factors that could cause actual results to differ materially from those expressed in the forward-looking statements. PRESENTATION OF CERTAIN FINANCIAL AND OTHER INFORMATION Presentation of Financial Information The selected financial information set forth in these Listing Particulars has been extracted from the Financial Statements (as defined below) set out elsewhere in these Listing Particulars and should be read in conjunction with “Operating and Financial Review” and the Financial Statements. The financial information relating to Tilal is consolidated with that of its subsidiary, Tilal Hotel Co LLC, which is dormant in nature and does not carry-out any business activities.. The historical financial information included in these Listing Particulars is derived as follows: (a) the financial information relating to Tilal as at and for the period ended 30 June 2018 and 30 June 2017 is derived from the unaudited consolidated financial statements of Tilal as at and for the period ended 30 June 2018 (the “Interim Financial Statements”); (b) the financial information relating to Tilal as at and for the year ended 31 December 2017 is derived from the audited consolidated financial statements of Tilal as at and for the year ended 31 December 2017 (the “2017 Financial Statements”); and (c) the financial information relating to Tilal as at and for the years ended 31 December 2016 and 31 December 2015 is derived from the audited financial statements of Tilal as at and for the year ended 31 December 2016 (the “2016 Financial Statements” and, together with the 2017 Financial -iii-
8. Statements , the “Annual Audited Financial Statements” and, together with the Interim Financial Statements, the “Financial Statements”). Tilal’s financial year ends on 31 December and references in these Listing Particulars to 2015, 2016 and 2017 are to the 12 month period ending on 31 December in each such year. The Annual Audited Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and have been prepared in accordance with the basis of preparation as disclosed in Note 2.2 to the Annual Audited Financial Statements. The Annual Audited Financial Statements have been audited in accordance with the standards of the International Auditing and Assurance Standards Board. The Annual Audited Financial Statements have been audited by PricewaterhouseCoopers LLC (Oman) (“PwC”), independent auditors, in accordance with International Standards on Auditing (“ISA”). PwC have issued audit reports on the Annual Audited Financial Statements without qualification. For the year ended 31 December 2018, Tilal’s auditors are KPMG – Muscat Branch (“KPMG”). KPMG has not undertaken an audit of the Interim Financial Statements. Presentation of Other Information Certain defined terms In these Listing Particulars, references to the “Conditions” are references to the terms and conditions of the Certificates as set out in “Terms and Conditions of the Certificates” below. Capitalised terms which are used but not defined in any section of these Listing Particulars will have the meaning attributed thereto in the Conditions or any other section of these Listing Particulars. Exchange rate and rounding The Omani Rial currently is, and since the mid-1970s has been, pegged to the U.S. dollar at a fixed exchange rate of U.S.$2.60 per 1 OMR and, accordingly translations of amounts from riyals to U.S. dollars have been made at this exchange rate for all periods in these Listing Particulars. All references in these Listing Particulars to “U.S. dollars”, “U.S.$” and “$” are to the lawful currency of the United States of America and all references to “Omani Rial” and “OMR” are to the lawful currency of the Sultanate of Oman. Translations of amounts from U.S. dollars to Omani Rial and vice versa in these Listing Particulars are solely for the convenience of the reader. Certain amounts included in these Listing Particulars have been subject to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. VOLCKER RULE The Volcker Rule, which became effective on 1 April 2014, but was subject to a conformance period for certain entities that concluded on 21 July 2015, generally prohibits “banking entities” (which is broadly defined to include U.S. banks and bank holding companies and many non-U.S. banking entities, together with their respective subsidiaries and other affiliates) from (i) engaging in proprietary trading, (ii) acquiring or retaining an ownership interest in or sponsoring a “covered fund”, and (iii) entering into certain relationships with “covered funds”. The general effects of the Volcker Rule remain uncertain; any prospective investor in the Certificates and any entity that is a “banking entity” as defined under the Volcker Rule which is considering an investment in the Certificates should consult its own legal advisors and consider the potential impact of the Volcker Rule in respect of such investment. If investment by “banking entities” in the Certificates is prohibited or restricted by the Volcker Rule, this could impair the marketability and liquidity of such Certificates. No assurance can be made as to the effect of the Volcker Rule on the ability of certain investors subject thereto to acquire or retain an interest in the Certificates, and accordingly none of the Trustee, Tilal, the Joint Lead Managers, the Delegate, the Security Agent or the Agents, or any of their respective affiliates makes any representation regarding (a) the status of the Trustee under the Volcker Rule -iv-
9. (including whether it is a “covered fund” for their purposes) or (b) the ability of any purchaser to acquire or hold the Certificates, now or at any time in the future. NOTICE TO UNITED KINGDOM RESIDENTS The Certificates constitute “alternative finance investment bonds” within the meaning of Article 77A of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 as amended by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010. Accordingly, these Listing Particulars are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The distribution in the United Kingdom of these Listing Particulars and any other marketing materials relating to the Certificates 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 Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”); (ii) persons falling within any of the categories of persons described in Article 49 of the Financial Promotion Order; and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Financial Promotion Order. Persons of any other description in the United Kingdom may not receive and should not act or rely on these Listing Particulars or any other marketing materials in relation to the 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 the Certificates and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. Any individual intending to invest in any investment described in these Listing Particulars should consult his professional adviser and ensure that he fully understands all the risks associated with making such an investment and that he has sufficient financial resources to sustain any loss that may arise from such investment. CAYMAN ISLANDS NOTICE No invitation may be made, directly or indirectly, to the public in the Cayman Islands to subscribe for the Certificates and these Listing Particulars shall not be construed as an invitation to any member of the public of the Cayman Islands to subscribe for the Certificates. NOTICE TO KINGDOM OF BAHRAIN RESIDENTS In relation to investors in the Kingdom of Bahrain, securities issued in connection with these Listing Particulars and related offering documents may only be offered in registered form to existing account holders and accredited investors as defined by the Central Bank of Bahrain (the “CBB”) in the Kingdom of Bahrain where such investors make a minimum investment of at least U.S.$100,000 or any equivalent amount in other currency or such other amount as the CBB may determine. This offer does not constitute an offer of securities in the Kingdom of Bahrain in terms of Article (81) of the Central Bank and Financial Institutions Law 2006 (decree Law No. 64 of 2006). These Listing Particulars and related offering documents have not been and will not be registered as a prospectus with the CBB. Accordingly, no securities may be offered, sold or made the subject of an invitation for subscription or purchase, nor will these Listing Particulars or any other related document or material be used in connection with any offer, sale or invitation to subscribe for or purchase securities, whether directly or indirectly, to persons in the Kingdom of Bahrain, other than to accredited investors for an offer outside the Kingdom of Bahrain. The CBB has not reviewed, approved or registered these Listing Particulars or related offering documents and it has not in any way considered the merits of the securities to be offered for investment, whether inside or outside the Kingdom of Bahrain. Therefore, the CBB assumes no responsibility for the accuracy and completeness of the statements and information contained in these Listing Particulars and expressly disclaims any liability whatsoever for any loss howsoever arising from reliance upon the whole or any part of the content of these Listing Particulars. No offer of securities will be made to the public in the Kingdom of Bahrain and these Listing Particulars must be read by the addressee only and must not be issued, passed to, or made available to the public generally. -v-
10. NOTICE TO KINGDOM OF SAUDI ARABIA RESIDENTS These Listing Particulars may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Rules on the Offering of Securities and Continuing Obligations issued by the Capital Market Authority of the Kingdom of Saudi Arabia (the “Capital Market Authority”). The Capital Market Authority does not make any representations as to the accuracy or completeness of these Listing Particulars and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of these Listing Particulars. Prospective purchasers of the Certificates should conduct their own due diligence on the accuracy of the information relating to the Certificates. If a prospective purchaser does not understand the contents of these Listing Particulars, he or she should consult an authorised financial adviser. NOTICE TO QATARI RESIDENTS These Listing Particulars do not and is not intended to constitute an offer, sale or delivery of the Certificates under the laws of the State of Qatar and has not been and will not be reviewed or approved by or registered with the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or the Qatar Central Bank. The Certificates are not and will not be traded on the Qatar Exchange. NOTICE TO MALAYSIAN RESIDENTS The Certificates may not be offered for subscription or purchase and no invitation to subscribe for or purchase the Certificates in Malaysia may be made, directly or indirectly, and these Listing Particulars or any document or other materials in connection therewith may not be distributed in Malaysia other than to persons falling within the categories set out in Schedule 6 or Section 229(1)(b), Schedule 7 or Section 230(1)(b) and Schedule 8 or Section 257(3) of the Capital Market and Services Act 2007 of Malaysia. The Securities Commission of Malaysia shall not be liable for any non-disclosure on the part of the Trustee or Tilal and assumes no responsibility for the correctness of any statements made or opinions or reports expressed in these Listing Particulars. NOTICE TO OMANI RESIDENTS The information contained in these Listing Particulars does not constitute an offer of securities in Oman as contemplated by the Commercial Companies Law of Oman (SD 4/74, as amended) or Article 3 of the Capital Market Law of Oman (SD 89/98, as amended). These Listing Particulars will only be made available to investors in Oman in accordance with Article 139 if the Executive Regulations of the Capital Market Law (SMA Decision 1/2009, as amended) by an entity duly licensed by the Capital Market Authority of Oman to market non-Omani securities. -vi-
11. CONTENTS OVERVIEW OF THE OFFERING ............................................................................................................................... 1 RISK FACTORS ........................................................................................................................................................... 8 STRUCTURE DIAGRAM AND CASHFLOWS ....................................................................................................... 28 SHARI’A PRONOUNCEMENT .................................................................................................................................. 30 TERMS AND CONDITIONS OF THE CERTIFICATES.......................................................................................... 31 GLOBAL CERTIFICATE........................................................................................................................................... 67 USE OF PROCEEDS .................................................................................................................................................. 69 DESCRIPTION OF THE TRUSTEE .......................................................................................................................... 70 SELECTED FINANCIAL INFORMATION .............................................................................................................. 72 OPERATING AND FINANCIAL REVIEW .............................................................................................................. 77 BUSINESS DESCRIPTION ....................................................................................................................................... 91 MANAGEMENT ...................................................................................................................................................... 112 OVERVIEW OF THE SULTANATE OF OMAN ................................................................................................... 119 OVERVIEW OF THE REAL ESTATE AND RETAIL INDUSTRY IN THE SULTANATE OF OMAN ............. 127 SUMMARY OF THE TRANSACTION SECURITY .............................................................................................. 134 TENDER AND EXCHANGE OFFER...................................................................................................................... 135 SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS ................................................................... 136 TAXATION .............................................................................................................................................................. 144 SUBSCRIPTION AND SALE .................................................................................................................................. 146 GENERAL INFORMATION .................................................................................................................................... 151 INDEX TO FINANCIAL STATEMENTS ............................................................................................................... 153 -vii-
12. OVERVIEW OF THE OFFERING The following overview should be read as an introduction to , and is qualified in its entirety by reference to, the more detailed information appearing elsewhere in these Listing Particulars. This overview does not contain all of the information that an investor should consider before investing in the Certificates. Each investor should read the entire Listing Particulars carefully, especially the risks of investing in the Certificates discussed under “Risk Factors”. Words and expressions defined in “Terms and Conditions of the Certificates” shall have the same meanings in this overview. Trustee: Tilal Sukuk Company Limited, an exempted limited liability company incorporated in the Cayman Islands under the Companies Law (2018 Revision). The Trustee has been incorporated solely for the purpose of participating in the transactions contemplated by the Transaction Documents to which it is a party. The Trustee shall, on the Closing Date, issue the Certificates to the Certificateholders. Risk Factors: There are certain factors that may affect the Trustee’s ability to fulfil its obligations under the Certificates and Tilal’s ability to fulfil its obligations under the Transaction Documents to which it is a party. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with the Certificates. These are set out under “Risk Factors”. Ownership of the Trustee: The authorised share capital of the Trustee is U.S.$50,000 consisting of 50,000 ordinary shares of a nominal or par value of U.S.$1 each, of which one share is fully paid up and issued. The Trustee’s entire issued share capital is held on trust by MaplesFS Limited under the terms of a trust for charitable purposes by MaplesFS Limited as share trustee under the terms of a share declaration of trust dated 23 October 2018 (the “Share Declaration of Trust”). Administration of the Trustee The affairs of the Trustee are managed by MaplesFS Limited (the “Administrator”), who provide, inter alia, certain management functions and provide certain clerical, administrative and other services for and on behalf of the Trustee pursuant to a corporate services agreement dated 23 October 2018 between the Administrator and the Trustee (the “Corporate Services Agreement”). Seller: Tilal. Lessee: Tilal. Service Agent: Tilal. Security Agent: Meethaq Islamic Banking bank muscat S.A.O.G. Sole Global Coordinator: Emirates NBD Bank PJSC. Sole Financial Advsisor and Coordinator Al Madina Real Estate Company SAOC. Joint Lead Managers and Joint Bookrunners: Emirates NBD Bank PJSC and Maisarah Islamic Banking - Bank Dhofar (SAOG) Principal Paying Agent: The Bank of New York Mellon, London Branch. 1
13. Registrar and Transfer Agent : The Bank of New York Mellon SA/NV, Luxembourg Branch. Summary of the Transaction Structure and Documents: An overview of the structure of the transaction and the principal cashflows is set out under “Structure Diagram and Cashflows” and a description of the principal terms of certain of the Transaction Documents is set out under “Summary of the Principal Transaction Documents”. Certificates: U.S.$137,000,000 Trust Certificates due 2023. Closing Date: 12 November 2018. Issue Price: 100 per cent. of the aggregate face amount of the Certificates. Periodic Distribution Dates: 12 November and 12 May in each year, commencing on 12 May 2019. Periodic Distributions: On each Periodic Distribution Date, Certificateholders will receive, from moneys received by the Trustee in respect of the Trust Assets, a Periodic Distribution Amount in U.S. dollars calculated in accordance with Condition 8 (Periodic Distributions). Return Accumulation Period: The period from and including the Closing Date to but excluding the first Periodic Distribution Date and each successive period from and including a Periodic Distribution Date to but excluding the next succeeding Periodic Distribution Date or, if earlier, the relevant Dissolution Date. Form of Certificates: The Certificates will be issued in registered form as described in “Global Certificate”. The Certificates will be represented on issue by ownership interests in a Global Certificate which will be deposited with, and registered in the name of a nominee of, a common depositary for Euroclear and Clearstream, Luxembourg. Ownership interests in the Global Certificate will be shown on, and transfers thereof will only be effected through, records maintained by each relevant clearing system and its participants. Definitive Certificates evidencing holdings of Certificates will be issued in exchange for interests in the Global Certificate only in limited circumstances. Clearance and Settlement: Holders of the Certificates must hold their interest in the Global Certificate in book-entry form through Euroclear or Clearstream, Luxembourg. Transfers within and between Euroclear and Clearstream, Luxembourg will be in accordance with the usual rules and operating procedures of the relevant clearance systems. Face Amounts of the Certificates: The Certificates will be issued in minimum face amounts of U.S.$200,000 and integral multiples of U.S.$1,000 in excess thereof. Status of the Certificates: Each Certificate evidences an undivided ownership interest of the Certificateholders in the Trust Assets, subject to the terms of the Declaration of Trust and the Conditions, and is a direct, unsubordinated, unsecured and limited recourse obligation of the Trustee. Each Certificate will rank pari passu, without any preference or priority, with the other Certificates. All amounts due from Tilal under the Transaction Documents to which it is a party will constitute direct, unconditional, unsubordinated and secured obligations of Tilal and will rank pari passu among themselves and at least pari passu with all other present and future unsubordinated obligations of Tilal, save for such obligations as may be preferred by 2
14. provisions of law that are both mandatory and of general application . Trust Assets: The Trust Assets are all of the Trustee’s rights, title, interest and benefit, present and future, in, to and under: (i) the Lease Assets; (ii) the Transaction Documents (other than: (A) in relation to any representations given to the Trustee and the Delegate by Tilal and AMRE pursuant to any of the Transaction Documents and any rights which have been expressly waived by the Trustee or the Delegate in any of the Transaction Documents; and (B) the covenant given to the Trustee pursuant to Clause 17.1 (Remuneration and Indemnification of the Trustee and the Delegate) of the Declaration of Trust); and (iii) all monies standing to the credit of the Transaction Account from time to time, and all proceeds of the foregoing listed in (i) to (iii) above (the “Trust Assets”), and such Trust Assets will be held upon trust absolutely for the Certificateholders pro rata according to the face amount of Certificates held by each Certificateholder. Security: By way of security for the payment obligations of Tilal and AMRE under the Transaction Documents, security will be created by AMRE in favour of the Security Agent for the benefit of Trustee (for and on behalf of the Certificateholders) (such security being the “Transaction Security”). See “Summary of the Transaction Security”. Redemption of Certificates: The Scheduled Dissolution Date of the Certificates is 12 November 2023. Unless the Certificates are previously redeemed or purchased and cancelled, the Certificates shall be redeemed by the Trustee at the Dissolution Amount and on the Scheduled Dissolution Date and the Trust will be dissolved by the Trustee. Dissolution Date: The Dissolution Date shall be, as the case may be: (i) the Scheduled Dissolution Date; (ii) following the occurrence of a Dissolution Event, the date on which the Certificates are redeemed in accordance with the provisions of Condition 15 (Dissolution Events); (iii) following the occurrence of a Tax Event or a Total Loss Event, the date on which the Certificates are redeemed in accordance with the provisions of Condition 14 (Capital Distributions of the Trust); or (iv) the Optional Dissolution Date. Dissolution Events: Upon the occurrence of any Dissolution Event, the Certificates may be redeemed in full on the Dissolution Date at the Dissolution Amount, (which shall include any accrued but unpaid Periodic Distribution Amount) and the Return Accumulation Period may be adjusted accordingly. See Condition 15 (Dissolution Events). Early Dissolution for Tax Reasons: Where the Trustee has or will become obliged to pay any additional amounts in respect of the Certificates pursuant to Condition 11 (Taxation) or Tilal has or will become obliged to pay any additional amounts in respect of amounts payable under the Lease Agreement or the Purchase Undertaking, in each case as a result of a change in the laws of a Relevant Jurisdiction (as defined in the Conditions) or a change in the interpretation of existing laws of a Relevant Jurisdiction and where such obligation cannot be avoided by the Trustee or Tilal, as applicable, taking reasonable measures available to it, the Trustee may, following receipt of an exercise notice from Tilal pursuant to the Sale, Substitution and Additional Assets Undertaking, redeem the Certificates in whole but not in part at their face amount together with any accrued but unpaid Periodic Distribution Amounts on the relevant Dissolution Date. 3
15. Total Loss Events : A “Total Loss Event” is: (i) the total loss or destruction of, or damage to the whole of, the Lease Assets or any event or occurrence that renders the whole of the Lease Assets permanently unfit for any economic use and (but only after taking into consideration any insurances payable or other indemnity granted by any third party in respect of the Lease Assets) the repair or remedial work in respect thereof is wholly uneconomical; or (ii) the expropriation, nationalisation, requisition, confiscation, attachment, sequestration or execution of any legal process in respect of the whole of the Lease Assets, in each case as determined by the Service Agent acting for and behalf of the Trustee. The Service Agent will irrevocably undertake with the Trustee, in relation to the Lease Assets to: (a) ensure that the Lease Assets are properly insured (and where insurance is procured to use reasonable endeavours to obtain such on a takaful basis if such takaful insurance is available or is available on commercially viable terms), and, accordingly, will effect such insurances in respect of the Lease Assets (the “Insurances”), through brokers and with such reputable insurance companies in good financial standing, including against a Total Loss Event and ensure that the insured amount relating to a Total Loss Event will, at all times, be at least equal to the “Full Reinstatement Value” (being the outstanding face amount of the Certificates together with Periodic Distribution Amount payable for a 30 day period); (b) a claim is promptly made in respect of each loss relating to the Lease Assets in accordance with the terms of the Insurances; and (c) following the occurrence of a Total Loss Event all the proceeds of any Insurances are paid in U.S. dollars directly into the Transaction Account by no later than the 30th day after the occurrence of the Total Loss Event and that the insurer(s) will be directed accordingly. If, following the occurrence of a Total Loss Event, the amount (if any) credited to the Transaction Account is less than the Full Reinstatement Value, the difference between such Full Reinstatement Value and the amount credited to the Transaction Account shall be the “Total Loss Shortfall Amount”. In the event that the Service Agent fails to comply with its obligations to insure the Lease Assets for an amount at least equal to the Full Reinstatement Value and to ensure that insurance proceeds are paid into the Transaction Account within 30 days of such Total Loss Event, it shall be liable to compensate the Trustee for any Total Loss Shortfall Amount, which will be payable (in same day, freely transferable, cleared funds) directly to the Transaction Account by no later than close of business in London on the 31st day after the Total Loss Event has occurred. Thereafter, and subject to the Service Agent’s strict compliance with such obligations, any insurance proceeds received from such insurer will be for the Service Agent’s sole account. Any breach of the Service Agent’s Lease Assets insurance obligations will not, however, constitute a Tilal Event. Dissolution at the Option of Tilal Tilal may, in its sole discretion, require the Trustee to redeem the Certificates in whole but not in part on 12 November 2019 or on any Optional Dissolution Date thereafter at the relevant Optional Dissolution Amount (Call) on the Trustee giving not less than 30 nor more than 60 days’ notice to the Certificateholders in accordance with Condition 18 (Notices). Cancellation of Certificates held by Tilal or a Subsidiary of Tilal: Pursuant to Condition 13 (Purchase and Cancellation of Certificates), Tilal or any Subsidiary of Tilal may at any time purchase Certificates in the open market or otherwise. If Tilal wishes to cancel such Certificates purchased by it or any Subsidiary of it, Tilal will procure 4
16. that those Certificates are delivered to the Principal Paying Agent for cancellation . Tilal may also exercise its option under the Sale, Substitution and Additional Assets Undertaking to require the Trustee to transfer to Tilal all of its rights, title, interests, benefits and entitlements in, to and under a portion of the Lease Assets with an aggregate value no greater than the aggregate face amount of the Certificates so delivered to the Principal Paying Agent for cancellation and, upon such cancellation, the Trustee will transfer that portion of the Lease Assets to Tilal in consideration for such cancellation. Lease Asset Substitution: Tilal may substitute Lease Assets in accordance with the relevant provisions of the Sale, Substitution and Additional Assets Undertaking, provided that the value of any substitute assets shall have an aggregate value which is not less than the aggregate value of the Lease Assets to be so substituted. Such substitution shall only take effect on a Periodic Distribution Date. Purchase of Additional Assets upon issuance of additional Certificates pursuant to Condition 21: In connection with the exercise by the Issuer of its rights under Condition 21 (Further Issues) to issue additional Certificates, Tilal may require the Trustee to purchase all of Tilal’s rights, benefits and entitlements in and to certain additional assets (the “Additional Assets”) in accordance with the Sale, Substitution and Additional Assets Undertaking in consideration for the payment by the Trustee (as purchaser) to Tilal (as seller) of a purchase price equal to the issue price of such additional Certificates, as specified in the relevant Sale Agreement. The value of the Additional Assets shall be at least equal to the aggregate face amount of the additional Certificates. On the date upon which any sale agreement is entered into in connection with the creation and issuance of additional Certificates pursuant to the provisions described in the preceding paragraph (being the relevant date on which such additional Certificates are issued), the Trustee will execute a declaration of commingling of assets for and on behalf of the holders of the existing Certificates and the holders of such additional Certificates so created and issued, declaring that the relevant Additional Assets and the Lease Assets in existence immediately prior to the creation and issue of the additional Certificates are commingled and shall collectively comprise part of the Trust Assets for the benefit of the holders of the existing Trust Certificates and the holders of such additional Trust Certificates as tenants in common pro rata according to the face amount of Certificates held by each Certificateholder, in accordance with the Declaration of Trust. Withholding Tax: All payments by Tilal under the Purchase Undertaking, the Sale, Substitution and Additional Assets Undertaking and the Lease Agreement and all payments by the Service Agent under the Service Agency Agreement shall be made without withholding or deduction for, or on account of, any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction. In the event that any such withholding or deduction is made, Tilal and/or the Service Agent, as the case may be, will be required to pay, and accordingly will undertake to pay, such additional amounts so that the Trustee will receive the full amounts that it would have received in the absence of such withholding or deduction. All payments in respect of the Certificates by the Trustee shall be made without withholding or deduction for, or on account of, any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant 5
17. Jurisdiction . In the event that any such withholding or deduction is made, the Trustee will, save in the limited circumstances provided in Condition 11 (Taxation), be required to pay additional amounts so that the holders of the Certificates will receive the full amounts that they would have received in the absence of such withholding or deduction. In the event that any such additional amounts are required to be paid by the Trustee to the holders of Certificates, Tilal has undertaken in the Declaration of Trust to pay an amount equal to the liability of the Trustee in respect of any and all such additional amounts. Negative Pledge Covenants: and other The Conditions contain a negative pledge and certain other covenants given by Tilal. Trustee Covenants: The Trustee has agreed to certain restrictive covenants as set out in Condition 7 (Covenants). Ratings: Upon issue, the Certificates are expected to be assigned a rating of by Moody’s. A rating is not a recommendation to buy, sell or hold the Certificates (or beneficial interests therein) and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Certificateholder Meetings: A summary of the provisions for convening meetings of the Certificateholders to consider matters relating to their interests as such is set out in Condition 19 (Meetings of Certificateholders, Modification, Waiver, Authorisation and Determination). Tax Considerations: See “Taxation” for a description of certain tax considerations applicable to the Certificates. Listing and Admission to Trading: Application has been made to Euronext Dublin for the approval of this document and for the Certificates to be admitted to the Official List and trading on the Global Exchange Market, which is the exchange regulated market of Euronext Dublin. We cannot assure you that this application will be accepted and that the Certificates will be listed or remain so listed. Transaction Documents: The Declaration of Trust, the Agency Agreement, the Sale and Purchase Agreement, the Lease Agreement, the Service Agency Agreement, the Purchase Undertaking, the Sale, Substitution and Additional Assets Undertaking, the Security Agency Agreement and the Security Documents (and, in each case, any document entered into in connection with the foregoing) are the “Transaction Documents”. Governing Law and Dispute Resolution: The Certificates and any non-contractual obligations arising out of or in connection with the Certificates will be governed by, and construed in accordance with, English law. The Declaration of Trust, the Agency Agreement, the Service Agency Agreement, the Purchase Undertaking, the Sale, Substitution and Additional Assets Undertaking, the Security Agency Agreement and any non-contractual obligations arising out of or in connection with the same will be governed by English law (the “English Law Documents”). Each of the Lease Agreement, the Sale and Purchase Agreement, each Sale Agreement entered into under the Purchase Undertaking, each Sale Agreement entered into under the Sale, Substitution and Additional Assets Undertaking and the Mortgage Agreement will be governed by the laws of the Sultanate of Oman (“Oman”) (the “Oman 6
18. Law Documents ”). In respect of any dispute under any English Law Document, Tilal has agreed to arbitration in the Dubai International Financial Centre (the “DIFC”) under the Arbitration Rules of the DIFC-LCIA Arbitration Centre (the “DIFC-LCIA Rules”). Tilal and the Trustee have also agreed to submit to the jurisdiction of the courts of the DIFC (the “DIFC Courts”) in respect of any dispute under the documents to which it is a party (subject to the right of the Delegate, the Agents or the Trustee, as the case may be, to require any dispute to be resolved by any other court of competent jurisdiction). In respect of any dispute under any Oman Law Document, Tilal has agreed to submit to the jurisdiction of the courts of Oman (subject to the right of the Delegate or the Trustee, as the case may be, to require any dispute to be resolved by any other court of competent jurisdiction). The Corporate Services Agreement and the Share Declaration of Trust are governed by the laws of the Cayman Islands and are subject to the non-exclusive jurisdiction of the courts of the Cayman Islands. Waiver of Immunity: Tilal has acknowledged in the Transaction Documents to which it is a party that to the extent that it may in any jurisdiction claim for itself or its assets or revenues immunity from suit, execution, attachment (whether in aid of execution, before judgement 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, Tilal will not claim and has irrevocably waived such immunity to the full extent permitted by the laws of such jurisdiction. Limited Recourse: Each Certificate represents solely an undivided ownership interest in the Trust Assets. No payment of any amount whatsoever shall be made in respect of the Certificates except to the extent that funds for that purpose are available for the Trust Assets (which shall, for the avoidance of doubt, include the proceeds of any enforcement of the Transaction Security in accordance with the provisions of the Security Agency Agreement and the Security Documents). See further, Condition 4 (Status and Limited Recourse). Selling Restrictions: There are restrictions on the distribution of these Listing Particulars and the offer or sale of Certificates in the United States, the United Kingdom, Oman, the United Arab Emirates (excluding the Dubai International Financial Centre), the Dubai International Financial Centre, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, the State of Qatar (excluding the Qatar Financial Centre), Singapore, Hong Kong, Malaysia, the Cayman Islands and the State of Kuwait. See “Subscription and Sale”. Use of Proceeds The proceeds of the issue of the Certificates will be paid to Tilal as described in “Use of Proceeds”. 7
19. RISK FACTORS The purchase of the Certificates may involve substantial risks and is suitable only for sophisticated investors who have the knowledge and experience in financial and business matters necessary to enable them to evaluate the risks and merits of an investment in the Certificates . Before making an investment decision, prospective purchasers of the Certificates should consider carefully, in the light of their own financial circumstances and investment objectives, all of the information in these Listing Particulars. Each of the Issuer and Tilal believes that the factors described below represent the principal risks inherent in investing in the Certificates and may affect Tilal’s ability to perform its obligations under the Transaction Documents. However, the inability of the Issuer to pay any amounts on or in connection with any Certificate and the inability of Tilal to perform its obligations under the Transaction Documents may occur for other reasons and none of the Issuer and Tilal represents that the statements below regarding the risks of holding any Certificate are exhaustive. There may also be other considerations, including some which may not be presently known to the Issuer or Tilal or which the Issuer or Tilal currently deems immaterial, that may impact any investment in the Certificates. Prospective investors should also read the detailed information set out elsewhere in these Listing Particulars and reach their own views prior to making any investment decision. Risk Factors relating to Tilal Tilal’s business interests, financial condition, results of operations and prospects are and will continue to be affected by economic conditions; therefore any deterioration in economic conditions in Oman could materially adversely impact Tilal. Tilal’s assets consist almost entirely of the Tilal Complex and Tilal’s financial performance is entirely dependent upon trading at the Tilal Complex. Tilal’s assets consist almost entirely of the Tilal Complex. In addition, the Tilal Complex comprises Tilal’s primary revenue generating asset and as such, any event that negatively affects the occupancy rate, rental yields or the performance of the Tilal Complex would ultimately have an adverse effect on Tilal’s financial performance. As a result, Tilal’s results of operations are, and will continue to be, significantly affected by financial, economic and political developments in or affecting Muscat and Oman, and the impact of such developments on the demand for units in the Tilal Complex, the rental rates Tilal is able to agree with their tenants for those units and on the footfall through the Tilal Complex. Poor economic conditions generally result in decreased consumer spending, and have in the past resulted, and may in the future result, in Tilal’s tenants seeking to renegotiate the terms of their leases in their favour. Tilal has in the past applied, and may elect in the future to apply, downward rent adjustments to retain and attract certain tenants and maintain occupancy levels at the Tilal Complex. Furthermore, substantially all of the leases to which the tenants of the Muscat Grand Mall are a party include turnover provisions pursuant to which they are required to pay the higher of the base rent stipulated in their lease contract (“contractual base rent”) and the product of a contractually agreed percentage multiplied by their actual annual sales revenue (“variable turnover rent”). The amount by which the aggregate variable turnover rent exceeded the aggregate contractual base rent (“net turnover rent”) contributed 4 per cent, 3.4 per cent and 3 per cent of Tilal’s total rental income from the Muscat Grand Mall for the years ended 31 December 2016, 31 December 2017 and for the six month period ended 30 June 2018 respectively. As the amount of net turnover rent recognised is dependent upon the trading performance of the tenants of the Muscat Grand Mall, any factors that adversely affect their revenues will reduce the amount, if any, of net turnover rent that Tilal receives which in turn may have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal may not be able to procure the renewal of leases of units of Muscat Grand Mall and the Tilal Offices. Approximately 29 of the 153 leased units of the Muscat Grand Mall are leased subject to leases that are due to expire within one year of the date of these Listing Particulars. There can be no assurance that these leases will be renewed. Furthermore, if these leases are not renewed, there can be no assurance that Tilal will be able to 8
20. attract suitable replacement tenants . Failure by Tilal to procure that leases of units in the Muscat Grand Mall are renewed or failure to procure replacement tenants will have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Approximately half of the total area of the Tilal Offices is occupied by Oman Qatari Telecommunication Company SAOG (Nawras) under a ten year lease that commenced in 2011. There can be no assurance that Nawras will renew this lease upon its expiry. Furthermore, if Nawras fails to renew its lease there can be no assurance that Tilal will be able to attract suitable replacement tenants. Failure by Tilal to procure that Nawras renews its lease of the relevant area of the Tilal offices or failure to procure replacement tenants will have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal’s results of operations and cash flows are dependent on the ability of the tenants of the Tilal Complex to meet their financial obligations. Tilal’s results of operations and cash flows are dependent on the Tilal Complex’s tenants’ liquidity, solvency and financial performance and their ability to meet their financial obligations. Many of the tenants of the Tilal Complex (and in particular the Muscat Grand Mall) were exposed to declining consumer spending as a consequence of the global financial crisis, local economic conditions and other factors. Although consumer spending levels globally and in Oman have recently recovered, there can be no assurance that this recovery will be sustained. Decreased consumer spending may affect the Tilal Complex’s tenants’ sales and their ability to make lease payments, and result in growing delinquencies in payment of rent and other charges due from such tenants. The bankruptcy or insolvency of one or more significant anchor tenants or large retail groups that lease multiple units in the Tilal Complex, or a substantial number of smaller tenants, would materially decrease Tilal’s revenues and available cash flows. Insolvent tenants may seek protection of applicable insolvency laws which could result in the early termination of their leases, resulting in decreases in Tilal’s rental income. A number of companies in the retail industry have declared bankruptcy or voluntarily closed certain of their stores in recent years, and the tenants of the Tilal Complex may declare bankruptcy or become insolvent in the future. The rental payment obligations under the leases of units of the Tilal Complex are not secured by any cash collateral other than security deposits and given that Tilal does not maintain insurance against lease defaults, Tilal is exposed to the credit risk of each of its tenants, whose creditworthiness can decline over a short period of time. As such, adverse developments in the Tilal Complex’s tenants’ financial health and credit standing may have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. The rental revenues from the Muscat Grand Mall depend on Tilal’s ability to maintain an appropriate mix of tenants. Tilal’s ability to maintain the current rental revenue from the Muscat Grand Mall depends on its ability to retain its current tenants or to find suitable replacement tenants. There can be no guarantee that Tilal will find or be able to retain suitable retailers to lease retail space in the Muscat Grand Mall. Similarly, Tilal may not be able to secure the appropriate mix of tenants in the future and may not be able to continue to lease retail space on the terms and conditions it seeks. Any failure by Tilal to retain tenants, secure replacements of departing tenants and/or maintain the current rental income would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal may not be able to increase rental income from the Tilal Complex. Tilal’s lease agreements with tenants provide it with the right to adjust rental rates during the term of the existing leases. Following the expiry of these leases, Tilal’s ability to increase such rental rates is dependent on market forces which will determine whether any increase or maintenance of current levels of rental revenue is achievable. Any downturn in the retail market or other macro-economic factors that have an adverse impact on the revenues of Tilal’s tenants would have an adverse impact on Tilal’s ability to maximise such rental revenue. Any failure to maximise such revenue would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. 9
21. Occupancy of the Muscat Grand Mall is dependent on certain anchor tenants . Shopping malls are typically anchored by department stores and other large nationally and internationally recognised brands. The Muscat Grand Mall’s anchor tenants include Apparel International (Tim Horton, Cold Stone, Skecher, R&B, Aeropostal, Beverly Hills, LVR, Shoe Studio, Aldo, Charles & Keith, THM, Nine Vest, Pedro, Inglot, Children Place, Spring), Lals International (Homes R Us), Sharaf Group (Sharaf DG), Majid Al Futtaim (Carrefour and Voax), Sundus Trading (Bow & Arrow, Mandi and Wow Kids) Oman Leisure (Hayyp Land) and Al Mana Fashion (Go Sport). Such anchor tenants lease in total 62.2 per cent of GLA as at 30 June 2018 and generated 21.2 per cent of the total rental income from the Muscat Grand Mall for the six month period ended 30 June 2018. Tilal’s business and results of operations could therefore be adversely affected if an anchor tenant fails to comply with its contractual obligations, seeks concessions in order to continue operations, or ceases or reduces their operations. In addition, anchor tenants often have significant bargaining power when negotiating rent and other lease terms. Should a conflict or a breakdown in commercial relations arise between Tilal and one of its anchor tenants or retail groups, Tilal may face delays in receiving rental payments or have difficulty in negotiating extensions to leases for many or all of the affected units. If any of the anchor tenants choose to or are forced to close some or all of their units at the same time, Tilal may not find suitable replacement tenants in a timely manner (or at all) and Tilal may have to incur substantial costs towards re-fitting the affected units for suitable replacement tenants. Anchor tenants may also experience financial difficulties or be subject to business restructurings or reorganisations or changes in corporate strategy. Any of these factors could affect their ability or willingness to continue operations in the Muscat Grand Mall. In an effort to retain retail groups or anchor tenants, Tilal may agree to lease adjustments, such as a decrease in rent, service charges or chilled water charges on terms that are unfavourable to Tilal. In addition, closures of anchor stores or of multiple stores of a large retail group may result in decreased footfall in the Muscat Grand Mall, which could lead to decreased sales at other stores in the Muscat Grand Mall, which may lead to a loss of the affected tenants. If the sales turnover of stores operating in the Muscat Grand Mall were to decline significantly due to these closures, rental income and/or occupancy rates could decline. To the extent that there is vacant space in the Muscat Grand Mall, rental rates could decline for all of its tenants, which could have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal may not be able to pursue claims against defaulting tenants. Tilal’s revenue could be adversely affected if tenants fail to comply with their contractual obligations, seek concessions in order to continue operations or cease their operations. Any decision to challenge a particular tenant would have to be considered in light of Tilal’s general client relationship with the retail group that owns the tenant in question. In the event of a default by a tenant, Tilal may experience delays and incur costs in enforcing its rights as landlord to recover amounts due to it under the terms of its agreements with those tenants. The legal process can be long, costly and uncertain and may render the pursuit of any claim not economically viable. An inability to pursue claims against multiple defaulting tenants would have an adverse impact on cash flow for the Muscat Grand Mall and would have a material adverse effect on the business, prospects, results of operations, cash flows and financial condition of Tilal and its ability to meet its payment obligations under the Transaction Documents. Tilal is dependent on third party operators for revenue from the Serviced Apartments. Tilal appointed a third party operator to manage the Serviced Apartments and the revenues that Tilal will receive are directly linked to the operator’s success. Any failure by such third party to generate expected revenues from the Serviced Apartments would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Under the terms of the appointment of the third party operator to manage the Serviced Apartments, the third party operator may in certain circumstances terminate its appointment. In such a scenario, there can be no assurance that Tilal will be able to appoint an alternative operator of at least comparable experience and competence which, in turn, may have a material adverse effect on Tilal’s business, prospects, its results of 10
22. operation , cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal is subject to the risk of unexpected losses arising from operational failure of its business and infrastructure, whether as a result of human error, systems failures, fraud or inadequate controls. Tilal is subject to the risk of unexpected losses arising from operational failure of its business and infrastructure, whether as a result of human error, systems failures, fraud or inadequate controls. Tilal has put in place insurance to protect itself against various losses which is in the process of being extended to cover loss of rent. However, any adverse impact on Tilal’s infrastructure could have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, financial condition and its ability to meet its payment obligations under the Transaction Documents. See further the Risk Factor “Tilal may not have adequate insurance” below. The continued success of Tilal’s business is dependent in part on disposable income and consumer spending and the continued appeal of the Sultanate of Oman as a tourist and business destination. The strong growth experienced in the Omani economy has resulted in an increase in disposable income and consumer spending in the Sultanate of Oman. A downturn in general economic conditions, a rise in the cost of living, loss of jobs, a decline in the expansion of the expatriate population in the region or other factors affecting the Sultanate of Oman that result in a decline in consumer spending and/or demand for retail and business accommodation would have an adverse effect on Tilal’s revenue. Similarly a decline in tourism to the Sultanate of Oman would have an adverse effect on the footfall at the Muscat Grand Mall. Any of the foregoing factors would reduce cash flow from the Tilal Complex and could have a material adverse effect on the business, prospects, results of operations, cash flows and financial condition of Tilal and its ability to meet its payment obligations under the Transaction Documents. Tilal relies on certain key personnel. Tilal depends on its senior management for the implementation of its business strategy and day-to-day operations. Accordingly, Tilal faces risks related to its ability to continue to attract, retain and motivate its senior management and other skilled personnel. If key personnel leave, it will take time to find appropriately qualified candidates to replace them. In addition, if Tilal is unable to retain key members of its senior management team in particular and cannot hire new qualified personnel in a timely manner, this could have a material adverse effect on the management of the Tilal Complex. This could, in turn, have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. In addition, Tilal depends on AMRE (a related third party) for extensive technical support. AMRE plays two significant roles for Tilal. AMRE fulfils a project management role for Phase 2 as well as carrying out certain corporate services for Tilal, such as procuring financing arrangements, assisting with the preparation of management and audited accounts and preparation of financial statements. See the section entitled “Management” below for further details. Although AMRE is an affiliate of Tilal, there can be no assurance that AMRE will continue to provide such support to Tilal in the future and the loss of such support from AMRE may have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal faces competition from a range of real estate investment and development companies. As further described in the section entitled “Business Description - Competition and Barriers to entry” below, Tilal faces competition from a range of real estate investment and development companies, some of which are large and well-established. Competitive pressures could affect the ability of Tilal to secure premiums on sales at satisfactory levels and acceptable margins. Such competition may affect Tilal’s ability to sell developed or completed properties at expected prices, if at all, or, in relation to investment properties, attract and retain tenants, resulting in lower than expected rents. Tilal’s competitors may lower their pricing or rental rates for properties which are comparable to those being sold or leased by Tilal, which may result in downward pressure on Tilal’s pricing and rental rates. In addition, the Government of Oman could decide to support new entrants or other property development companies to implement its development strategy, which would further increase competition. Any adverse impact on Tilal’s ability to maintain or increase its revenue levels or current charging 11
23. structure as a result of such competition would have a material adverse effect on Tilal ’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. The Tilal Complex could be exposed to catastrophic events or acts of terrorism. Tilal’s business operations could be adversely affected or disrupted by events outside of its control, including: • changes to predominant natural weather, hydrologic and climatic patterns, including sea levels; • earthquakes, tsunamis or other natural disasters; • major accidents, including chemical and radioactive or other material environmental contamination; • major epidemics affecting the health of persons in the region and travel into the region; and/or • criminal acts or acts of terrorism. The occurrence of any of these events affecting the GCC region, Muscat or, in particular, the Tilal Complex may cause material disruptions to Tilal’s operations, which would have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. The effect of any of these events on Tilal’s results of operations and financial condition may be exacerbated to the extent that any such event involves risks for which Tilal are uninsured or not fully insured. The Tilal Complex may also be vulnerable to, and adversely affected by, acts of terrorism because of the large numbers of people it attracts and the general public access provided. Furthermore, acts of terrorism in the GCC region or in Muscat could discourage consumers from shopping in public places like the Muscat Grand Mall, which could have a material adverse effect on Tilal’s tenants’ sales and, in turn, Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Lack of experienced contractors may affect expansion of the Muscat Grand Mall. Whilst Tilal has had access to experienced contractors for its completed and under-construction projects, there can be no guarantee that it will continue to have such access to experienced contractors in the future. Although Tilal intends to adopt a formal tender process for any new contractor, there can be no assurance that the quality of construction within Tilal’s completed and under-construction projects will also be maintained for its future projects. Any downgrade in the quality of any future part of the Tilal Complex would have an adverse impact on Tilal’s reputation and the ability of Tilal to attract buyers of residential units being developed as part of Phase 2 and/or tenants for the Tilal Complex which would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal is exposed to development and construction risks. Although Tilal does not act as a contractor itself, its projects are also exposed to a number of construction risks, including the following: • default or failure, for any reason, by Tilal’s contractors to finish projects on time and within budget; • financial difficulties, defaults and insolvencies encountered by Tilal’s contractors and subcontractors; • an inability to find a suitable contractor either at the commencement of a project or following a default by an appointed contractor, whether on favourable terms or at all. In the situation where an appointed contractor defaults and Tilal needs to find a replacement contractor, even if Tilal were able to find such a replacement in a timely manner, it is likely that the cost to Tilal would increase given that any new contractor would need time to familiarise itself with the ongoing project, which in turn would cause further delays to the completion of the project; 12
24. • disruption in service and access to third parties; • defective materials or building methods; • disputes between contractors and/or subcontractors and their employees; • shortages of, or defective, materials and/or equipment, labour shortages, adverse weather conditions, natural disasters, labour disputes, disputes with subcontractors, accidents, changes in governmental priorities and other unforeseen circumstances; and • escalating costs of construction materials and global commodity prices. Any of these factors, either alone or in combination, could materially delay the completion of a project or materially increase the costs associated with a project, which could have a material adverse effect on Tilal’s business, financial condition, cash flows and results of operations and may affect Tilal’s ability to make the relevant payments under the Transaction Documents which are necessary in order for the Trustee to pay the amounts due under the Certificates. Project may overrun and incur further costs. There is a number of construction, financing, operating and other risks associated with project development. If the Muscat Grand Mall expansion suffers any delays or cost overruns it will take longer to generate the revenue and cash flows originally projected and may not generate the revenue and cash flow which may have been expected. In addition, the target return on the investment in Phase 2 may not be realised. Any such delay or failure to generate revenue from the Muscat Grand Mall expansion would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal’s operating expenses and maintenance capital expenditures may be higher than expected, and all of these costs may not be recoverable. Tilal is required to incur operational and maintenance capital expenditures to maintain the Tilal Complex. Tilal’s operating expenditure could increase as a result of a number of factors, including but not limited to, an increase in subcontracted costs, labour costs, repair and maintenance costs, insurance premiums and/or utility costs. Not all of these expenses are or can be passed on to tenants of the Tilal Complex. The service charges are built into the gross rental income and although Tilal has the limited contractual right to raise the service charges payable by its tenants under the terms of their leases, Tilal’s ability to introduce across-the-board increases is limited. In addition, if Tilal is required to make unanticipated operational or maintenance capital expenditures that it is unable to recover from tenants of the Tilal Complex, or if Tilal fails to make such expenditures, with the result that the value or marketability of the Tilal Complex is negatively impacted, this could have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal may not have adequate insurance. Although (as detailed above and in the section entitled “Business Description - Insurance” below) Tilal seeks to ensure that its projects and developed properties are appropriately insured, no assurance can be given that any existing insurance policies will be renewed on equivalent terms, at an acceptable cost or at all. The current insurance policy lists Tilal, Al Madina Real Estate Company S.A.O.C., Modern Sukuk SAOC and bank muscat SAOG, being the provider of certain credit facilities to Tilal as beneficiaries and, prior to the release payment in respect of any claim, the insurance company will require a no objection certificate (an “NOC”) from Al Madina Real Estate Company S.A.O.C., Modern Sukuk SAOC and bank muscat SAOG. If a party were to fail to issue an NOC (for whatever reason) the insurance company would not release the funds to Tilal in respect of an insurance claim. Any failure to obtain or maintain insurance at acceptable commercial terms or any delay in any pay out would have a material adverse effect on Tilal’s business, prospects, its results of operation, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. 13
25. In addition , Tilal’s properties could suffer physical damage from fire or other causes, resulting in losses (including loss of rent) that may not be fully compensated by insurance. Further, certain types of risks and losses (for example, losses resulting from terrorism, acts of war or certain natural disasters) are not economically insurable or generally insured. If an uninsured or uninsurable loss were to occur or if insurance proceeds were insufficient to repair or replace a damaged or destroyed property, this could have a material adverse effect on Tilal’s business, financial condition, cash flows and results of operations and may affect Tilal’s ability to make the relevant payments under the Transaction Documents which are necessary in order for the Trustee to pay the amounts due under the Certificates. Renovation, asset enhancement works, physical damage or latent building or equipment defects to the Tilal Complex may disrupt the operations of the Tilal Complex and collection of rental income or otherwise adversely affect Tilal’s business. The quality and design of the Tilal Complex affects the demand for space in, and the rental rates of, the Tilal Complex, as well as its ability to attract footfall. While the Tilal Complex is relatively new and has a number of unique and prominent attractions, it will need to undergo renovation or asset enhancement works from time to time to retain its attractiveness to tenants as well as shoppers. It will also require unforeseen ad hoc maintenance or repairs in respect of faults or problems that may develop or because of new planning laws or regulations. The costs of maintaining a retail property and the risk of unforeseen maintenance or repair requirements tend to increase over time as the building ages. The business and operations of the Tilal Complex may suffer some disruption and Tilal may not be able to collect the full rate of any rental income from space affected by these renovation works. Footfall may also be adversely affected by these renovation or repair works. In addition, physical damage to the Tilal Complex resulting from fire or other causes, and design, construction or other latent defects in the Tilal Complex may lead to additional capital expenditure, special repair or maintenance expenditure, business interruption, or payment of damages or other obligations to third parties, which may in turn have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. A default by one of Tilal’s contractors with respect to any liability relating to workmanship or structural defects may adversely affect Tilal’s reputation. Tilal has subcontracted the construction of Phase 2 and intends to subcontract any future development work on the Tilal Complex to third-party contractors. The third party contractors typically give a one-year warranty on their workmanship and remain liable for structural defects for a period of ten years. If a contractor defaults on its warranty to correct a workmanship-related or structural defect which is discovered during the relevant period, Tilal may be unable to replace such defaulting contractor in a timely manner or at all and may not be able to recover the cost of such repair from the defaulting contractor. If a significant number of the tenants of the Tilal Complex encounter workmanship or structural defects and these are not addressed in a timely manner or at all, Tilal’s reputation may be negatively affected, which may in turn have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal is required to comply with applicable laws and regulations and to maintain licences and permits to operate its businesses, and its failure to do so could adversely affect its results of operations and prospects. Changes in law affecting Tilal and/or its business could result in such business having to assume additional or increased liability and/or having increased exposure to litigation by customers and other third parties. Any such increase in liability and/or exposure would adversely affect the revenues of Tilal and therefore its ability to meet its payment obligations under the Transaction Documents. Tilal is obliged to comply with numerous laws and regulations and requires the maintenance and renewal of licences and permits to conduct its businesses in Oman. Because of the complexities involved in procuring and maintaining numerous licences and permits, as well as in ensuring continued compliance with different licensing regimes, there can be no assurance that Tilal will at all times be in compliance with all of the requirements imposed on the Tilal Complex. A failure by Tilal to comply with applicable laws and regulations or to obtain and maintain requisite approvals, certifications, permits and licences, whether intentional or unintentional, could lead to substantial sanctions, including criminal, civil or administrative penalties, revocation of Tilal’s licences and/or increased regulatory scrutiny, and liability for damages. It could also trigger a default under one or more of Tilal’s financing 14
26. arrangements or result in contracts to which Tilal is a party being deemed unenforceable . For the most serious violations, Tilal could be required to suspend its operations until it obtains requisite approvals, certifications, permits or licences or otherwise bring its operations into compliance. In addition, any adverse publicity resulting from any such non-compliance, particularly as regards the safety of the leisure and entertainment venues located in the Tilal Complex, could have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal is subject to third-party litigation risk by visitors, contractors and tenants of the Tilal Complex which could result in significant liabilities and damage Tilal’s reputation. As a landlord, owner and manager of properties, Tilal is exposed to the risk of litigation or claims by visitors, contractors and tenants of the Tilal Complex. Claims against Tilal may arise for a variety of reasons, including accidents or injuries that visitors may suffer while at the Tilal Complex, tenants’ inability to enjoy the use of the properties in accordance with the terms of their lease and Tilal’s failure to perform any of its obligations under any lease. Disputes may also arise in connection with construction or other contracts or agreements entered into with contractors, tenants or other third parties. If Tilal is required to bear all or a portion of the costs arising out of litigation or dispute as a result of a lack of, or inadequate, insurance proceeds, this may have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal outsources certain services to third party contractors. Tilal outsources various services to third-party contractors, including housekeeping, cleaning services general building maintenance, pest control, lift and elevator maintenance, fire and smoke detection and building management system and firefighting management, security service and waste management. The third-party contractors providing these services must be appropriately skilled to provide a high quality service and may require licences or permits to carry out these services. If Tilal’s relationship with a contractor deteriorates, or if a contractor becomes insolvent or is otherwise unable to satisfy its contractual obligations, Tilal would have to appoint new contractors, some of which may require licences or permits to work for Tilal. There can be no assurance that a successor contractor could be found with the requisite approvals, licences, resources and willingness to perform the services for a commercially reasonable fee or at all. If this occurs, there may be a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal may not be able to procure future financings or to satisfy obligations under any future financing arrangements. Tilal may need to enter into credit facilities/raise financing to fund expansion. The extent of any such financings, and the terms thereof, will depend on Tilal’s ability to obtain such financings and the lenders/financiers’ view of the stability of Tilal. Any delay in obtaining or failure to obtain suitable or adequate financing from time to time may impair Tilal’s ability to expand and/or improve the Tilal Complex, which is likely to have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. In the event that Tilal enters into credit facilities in the future, Tilal may not be able to service profit payments and principal repayments or comply with other requirements of such financings, all of which are likely to result a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Furthermore, the terms of any credit facilities entered into in the future are likely to contain covenants that limit Tilal’s ability to engage in specific types of transactions. Such covenants are likely to require Tilal to, among other things, comply with certain financial covenants, as well as negative covenants that limit Tilal’s ability to, among other things, incur additional financial indebtedness, guarantee or maintain guarantees in respect of the financial indebtedness of any other person, grant security or create any security interests over its assets, dispose of assets, make substantial changes to the nature of its business, enter into mergers, amalgamations and other similar transactions, acquire businesses or undertakings other than any mall or retail units or interests related thereto, or make loans to third parties. The covenants and restrictions included in the terms of any indebtedness that Tilal may enter into in the future may prevent Tilal from engaging in transactions that Tilal may otherwise 15
27. find desirable . This may have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal expects to meet its payment obligations under the Transaction Documents upon the maturity of the Certificates from the proceeds of further debt financings, debt capital market issuances or equity issuances. If Tilal is unable to raise sufficient funds by way of debt financings, debt capital market issuances or equity issuances on the maturity date of the Certificates, Tilal might not be able to meet its payment obligations under the Transaction Documents upon the maturity of the Certificates. Tilal is exposed to risks caused by fraudulent behaviour of employees and customers. As the Tilal business grows in size, complexity and geographical spread, the risk and occurrence of fraudulent behavior by its employee’s increases. Tilal is also exposed to customer fraud. Any incidence of fraudulent behavior by one of Tilal’s employees or customers would damage the reputation of Tilal or its group as a whole and could lead to a loss of trust and confidence in Tilal. This could result in a decline in Tilal’s customer base and could have a material adverse effect on the business, prospects, its results of operations, cash flows and the financial condition of Tilal which could adversely impact its ability to meet its payment obligations under the Transaction Documents. Risk Factors relating to the Real Estate Industry Macroeconomic factors beyond Tilal’s control can reduce demand for retail space and rooms within the Tilal Complex. Macroeconomic and other factors beyond Tilal’s control can reduce demand for retail space, including demand for rooms at the Tilal Complex and for sales of ownership properties. These factors include: • changes and volatility in general economic conditions, including the severity and duration of any downturn in Oman or global economy and financial markets; • war, terrorist activities or threats and heightened travel security measures instituted in response to these events; • outbreaks of pandemic or contagious diseases; • natural disasters, such as earthquakes, tsunamis, tornados, hurricanes and floods; • low consumer confidence; • depressed housing prices; • oil prices; • domestic and international political and geo-political conditions; • cyclical over-building in the malls industry; and • organised labour group activities, which could cause a diversion of business from properties involved in labour group negotiations and loss of group business. In particular, potential investors should note that the economies of Oman and most other countries in the Middle East are dependent on oil and gas and related industries, as well as the prices and production quantities of these commodities. For example, oil and gas revenues accounted for approximately 33.9 per cent of Oman’s GDP at current market prices for the twelve month period ended 31 December 2017 as compared to 28.2 per cent of Oman’s GDP at current market prices for the year ended 31 December 2016 as compared to 36.4 per cent for the year ended and 34 per cent of Oman’s GDP at current market prices for the year ended 31 December 2015 as compared to 47 per cent for the year ended 31 December 2014 according to the CBO. This decrease was primarily the result of the sustained period of low oil prices which commenced in the middle of 2014. The price 16
28. of Dubai Mercantile Exchange ’s Oman Crude Oil Futures Contract (“DME Oman”) crude oil fell from a monthly average of U.S.$104.99 per barrel in June 2014 to U.S.$55.09 per barrel in May 2015. Prices then recovered briefly, reaching a monthly average of U.S.$63.62 in July 2015 before falling to a further low of U.S.$27.40 in March 2016. During 2017, the monthly average price per barrel of DME Oman crude oil was U.S.$52, while, more recently, the monthly average price of DME Oman crude oil was U.S.$66.23 for January 2018 and U.S.$63.46 for February 2018. As a result of falling crude oil prices, Oman’s fiscal balance, which depends primarily on oil and gas revenues, has deteriorated. In connection with Oman’s Article IV IMF Consultation in May 2016, the International Monetary Fund noted that the Omani authorities have taken bold measures to limit the impact of the fall in oil prices on the fiscal deficit, including cutting spending on wages and benefits, subsidies, defence, and capital investment by civil ministries. Oman’s public expenditures decreased to U.S.$14.5 billion in 2017 from U.S.$15.9 billion in 2016. The sustained impact of these measures, combined with the increase in corporate income tax on 2017, recovering oil prices and the proposed introduction of VAT in 2018 or 2019, will narrow the fiscal deficit over the medium-term. The current account deficit, estimated at 14.30 per cent. of GDP in 2017, is also expected to persist, though declining, through the medium-term. If low crude oil prices are sustained for a significant period, this will likely have a significant adverse impact on Oman’s economy and its revenues and financial condition. These effects would be likely to materially adversely affect Tilal by reducing the demand from tenants for retail space, thus potentially increasing impairment losses and so reducing profitability. In addition, to the extent that low crude oil prices have a negative impact on the government’s spending, this could affect Tilal’s financial position indirectly through its impact on the oil and gas, banking, trade, construction, logistics, real estate, hospitality, travel and tourism sectors in particular. This is likely to have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition and its ability to meet its payment obligations under the Transaction Documents. Tilal’s financial performance could be adversely affected if the demand for residential or commercial property in the Sultanate of Oman were to decrease. The results of operations of Tilal can be significantly affected by changes in the fair value of the Tilal Complex which, although would not represent actual cash movements, is recorded within Tilal’s balance sheet and the comprehensive statement of income. Any significant decline in the fair value of the Tilal Complex could lead to Tilal recording an overall loss in its statement of comprehensive income which may have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. See section entitled “Operating and Financial Review - Real estate market conditions” below for further information. Tilal’s ability to generate its desired returns on its investment properties will also depend on its ability to either lease or dispose of its properties to appropriate tenants or purchasers on appropriate terms. Tilal’s ability to implement its strategy and achieve its desired returns may be limited by its ability to lease the units of the Tilal Complex to, and manage them for (together with providing related services to), appropriate tenants on satisfactory terms. Revenue earned from, and the value of, the units in the Muscat Grand Mall held by Tilal may be adversely affected by a number of factors, including: • vacancies in tenanted properties that lead to reduced occupancy rates which would reduce Tilal’s revenue and its ability to recover certain operating costs such as local taxes and service charges and may also result in it incurring additional expenses until the property is re-let, including legal and surveying fees and marketing costs, as well as Tilal’s ability to obtain adequate management, maintenance or insurance services on commercial terms or at all. Accordingly, such reduced occupancy would result in a shortfall of projected taxes and service charges without a corresponding reduction in Tilal’s obligations for operation or maintenance of common parts and infrastructure; • Tilal’s ability to collect rent and service charge payments from tenants and other contractual payments under real estate outsourcing contracts on a timely basis or at all; 17
29. • tenants seeking the protection of bankruptcy laws which could result in delays in receipt of rental and other contractual payments, inability to collect such payments or the termination of a tenant’s lease, all of which could hinder or delay the sale of a property; • the amount of rent and the terms on which lease renewals and new leases are agreed being less favourable than current leases; • a competitive rental market which may affect rental levels or occupancy levels at the Muscat Grand Mall; • changes in operating costs, including, but not limited to, energy, food, workers’ compensation, benefits, insurance and unanticipated costs resulting from force majeure events; • significant increases in cost for healthcare coverage for employees and potential government regulation in respect of health coverage; and • changes in laws and governmental regulations in relation to real estate, including those governing permitted and planned usage, taxes and government charges. Such changes may lead to an increase in management expenses or unforeseen capital expenditure to ensure compliance. Rights related to particular properties may also be restricted by legislative actions, such as revisions to existing laws or the enactment of new laws, such as laws relating to the right to acquire freehold title to properties. Any of the above could have a material adverse effect on Tilal’s business, prospects, results of operations, cash flows and financial condition which could adversely impact its ability to meet its payment obligations under the Transaction Documents. The illiquidity of real estate investments could significantly limit Tilal’s ability to respond to adverse changes in the performance of its properties and harm its financial condition. Given that real estate investments in general are relatively illiquid, Tilal’s ability to promptly sell one (1) or more of its properties in the Tilal Complex in response to changing political, 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 Tilal’s control. The management of Tilal cannot predict whether Tilal 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. Tilal’s management also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Any failure by Tilal to sell its properties on acceptable terms or at all would have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows and financial condition and therefore its ability to meet its payment obligations under the Transaction Documents. Real estate valuation is inherently subjective and uncertain. Property assets are inherently difficult to value. The judgement of Tilal’s management as well as the independent appraisers who perform valuations on Tilal’s behalf significantly impact the determination of the fair value of Tilal’s properties, particularly with respect to development land and projects. As a result, valuations, including those contained in these Listing Particulars, are dated as at a certain (historic) date, are subject to substantial uncertainty and are made on the basis of assumptions, which may prove to be incorrect. The real estate market is in turn affected by many factors such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond Tilal’s control and may adversely impact properties after their most recent valuation date. As a result, any material decline in the real estate market in the Sultanate of Oman would have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows and financial condition and therefore its ability to meet its payment obligations under the Transaction Documents. 18
30. Tilal depends on contractors and subcontractors to complete projects on schedule and to maintain a consistent standard of quality . Tilal relies on contractors and subcontractors to construct its development projects, who in turn rely on suppliers of construction materials. The ability of contractors and subcontractors to perform their obligations is subject to numerous factors, including the insolvency of such contractors and subcontractors, which are beyond the control of Tilal, such as their ability to hire adequate labour and to otherwise manage their own businesses efficiently. In addition, the ability of suppliers of construction materials to perform their obligations is subject to periodic shortages and price volatility in raw materials. A failure to complete projects on time or to maintain a consistent standard of quality may lead to difficulties in marketing Tilal’s products, rescissions of sales or rental contracts and increased liabilities pursuant to customer warranty claims, each of which could have a material adverse effect on Tilal’s business, financial condition, cash flows and results of operations and may affect Tilal’s ability to make the relevant payments under the Transaction Documents. The Sultanate of Oman may introduce value added tax. Certificateholders should be aware that if the Government of the Sultanate of Oman does proceed with its plans to implement a value added tax regime in the Sultanate of Oman (which, as of the date of these Listing Particulars, is expected to be introduced at the rate of 5 per cent with effect from 1 January 2019), this could have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Risk Factors relating to Oman and the GCC Region Emerging markets such as Oman are subject to greater risks than more developed markets, and financial volatility in emerging markets could negatively impact Tilal’s business interests. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in emerging markets. Investors should also note that emerging markets such as Oman are subject to rapid change and that the information set forth in these Listing Particulars may become outdated relatively quick. Moreover, financial turmoil in any emerging market country tends to adversely affect confidence in other emerging market countries and may cause investors to move their money to more developed markets. As has happened in the past, financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Oman and adversely affect its economy. In addition, during such times, companies that operate in emerging markets can face severe liquidity constraints as foreign funding sources are withdrawn. Thus, even if Oman’s economy remains relatively stable, financial turmoil in any other emerging market could adversely affect Tilal’s business interests, as well as result in a decrease in the price of Certificates. Companies located in emerging markets may be particularly susceptible to disruptions in the capital markets and the reduced availability of credit or the increased cost of debt, which could result in them experiencing financial difficulty. In addition, the availability of credit to entities operating within the emerging markets is significantly influenced by levels of investor confidence in such markets as a whole and so any factors that impact market confidence (for example, a decrease in credit ratings or state or central bank intervention) could affect the price or availability of funding for entities within any of these markets. Specific country risks that may have a material impact on Tilal’s business interests, operating results, cash flows and/or financial condition include: • regional political instability, including government or military regime change, riots or other forms of civil disturbance or violence, including through acts of terrorism; • military strikes or the outbreak of war or other hostilities involving nations in the region; • a material curtailment of the industrial and economic infrastructure development that is currently underway across the MENA region; • government intervention, including expropriation or nationalisation of assets or increased levels of protectionism; 19
31. • limited overall market liquidity; • an increase in inflation and the cost of living; • cancellation of contractual rights, expropriation of assets and/or inability to repatriate profits and/or dividends; • increased government regulations, or adverse governmental activities, with respect to price, import and export controls, the environment, customs and immigration, capital transfers, foreign exchange and currency controls, land and water use and foreign ownership; • arbitrary, inconsistent or unlawful government action; • changing tax regimes, including the imposition or increase of taxes in tax favourable jurisdictions such as Oman; • difficulties in staffing and managing operations; • difficulties in enforcing collateral; • difficulties and delays in obtaining governmental and other approvals for operations or renewing existing ones; • inability to repatriate profits or dividends and restrictions on the right to convert or repatriate currency or export assets; and • potential adverse changes in laws and regulatory practices, including legal structures and tax laws. There can be no assurance that either the economic performance of, or political stability in, Oman or other countries in which Tilal may in the future operate can or will be sustained. Investors should note that a worsening of current financial market conditions, instability in certain sectors of the Omani economy or a major political upheaval in Oman could lead to decreased investor and consumer confidence, market volatility, economic disruption, and declines in real estate markets and, as a result, could have a material adverse effect on Tilal’s business, prospects, its results of operations, cash flows, and financial condition and its ability to meet its payment obligations under the Transaction Documents. Oman is located in a region that is subject to ongoing political and security concerns. His Majesty Sultan Qaboos bin Said Al Said has ruled Oman since 1970. His Majesty has focused successfully on widespread economic and political reform, resulting in significantly increased stability and economic growth in the country. However, there can be no assurance that such stability and growth will continue. Any shift in the political priorities within Oman or strife within the region could have a material adverse effect on Tilal’s business. No assurance can be given that the government will not implement regulations or fiscal or monetary policies, including policies, regulations, or new legal interpretations of existing regulations, relating to or affecting taxation, interest rates or exchange controls, or otherwise take actions which could have a material adverse effect on Tilal’s business. Tilal’s business may also be adversely affected if there are geo-political events in or affecting Oman that prevent Tilal from delivering its services. Since early 2011 there has been political unrest in a range of countries in the MENA region. For example, there has been significant political change in Tunisia and Egypt, armed conflict in Iraq, Libya, Syria and Yemen, and protests and related activities in a number of other countries in the MENA region. This unrest has given rise to increased political uncertainty across the region and, in certain cases, regime changes. It is not possible to predict the occurrence of events or circumstances such as, or similar to, a war or the impact of such occurrences and no assurance can be given that Tilal would be able to sustain its current profit levels if such events or circumstances were to occur. 20
32. Investors should also note that Tilal ’s business and financial performance and its ability to make payments due under the Transaction Documents could be adversely affected by political, economic and related developments both within and outside the countries in which it operates because of such countries’ inter-relationships with global financial markets. Risk Factors relating to the Certificates The Certificates are limited recourse obligations. The Certificates are not debt obligations of the Trustee. Instead, the Certificates represent an undivided ownership interest solely in the Trust Assets. Recourse to the Trustee in respect of the Certificates is limited to the Trust Assets and the proceeds of such Trust Assets are the sole source of payments on the Certificates. Upon the occurrence of a Dissolution Event, the sole rights of each of the Delegate and, through the Delegate, the Certificateholders, will be against Tilal to perform its obligations under the Transaction Documents to which it is are party, failing which to instruct the Secuirty Agent to enforce the Transaction Security for the benefit of the Trustee (for and on behalf of the Certificateholders). Certificateholders will have no recourse to any assets of the Trustee or Tilal (other than the Transaction Secuirty) in respect of any shortfall in the expected amounts due under the Trust Assets. Tilal is obliged to make certain payments under the Transaction Documents to which it is a party directly to the Trustee, and the Delegate will have direct recourse against Tilal to recover such payments due to the Trustee pursuant to the Transaction Documents to which it is a party. In the absence of default by the Delegate, investors have no direct recourse to Tilal and there is no assurance that the net proceeds of any enforcement action with respect to the Trust Assets (including any proceeds of enforcement of the Transaction Security) will be sufficient to make all payments due in respect of the Certificates. After enforcing the rights in respect of the Trust Assets (in the manner described above) and distributing the net proceeds of such Trust Assets in accordance with Condition 6.2 (Application of Proceeds from the Trust Assets), the obligations of the Trustee in respect of the Certificates shall be satisfied and neither the Delegate nor any Certificateholder may take any further steps against the Trustee to recover any further sums in respect of the Certificates and the right to receive any such sums unpaid shall be extinguished. Furthermore, under no circumstances shall the Trustee, the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Transaction Documents. Consents are required in relation to the variation of Transaction Documents and other matters. The Conditions of the Certificates contain provisions for calling meetings of Certificateholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Certificateholders including Certificateholders who did not attend and vote at the relevant meeting and Certificateholders who voted in a manner contrary to the majority. The Declaration of Trust contains provisions permitting the Delegate from time to time, in its absolute discretion and at any time without any consent or sanction of the Certificateholders to make any modification to the Declaration of Trust if, in the sole opinion of the Delegate, such modification: (a) is of a formal, minor or technical nature; or (b) is made to correct a manifest error; or (c) is not materially prejudicial to the interests of the Certificateholders and is other than in respect of a Reserved Matter (as defined in the Declaration of Trust). Unless the Delegate otherwise agrees, any such modification shall as soon as practicable thereafter be notified to the Certificateholders and shall in any event be binding upon the Certificateholders. The Certificates may be subject to early redemption. If the amount payable on the Certificates is required to be increased to include additional amounts in certain circumstances and/or Tilal is required to pay additional amounts pursuant to certain Transaction Documents, in each case as a result of certain changes affecting taxation in the Cayman Islands or Oman or in each case any political subdivision or any authority thereof or therein having power to tax, the Trustee may redeem all but not some only of the Certificates upon giving notice in accordance with the Conditions. The exercise of such early redemption option is likely to limit the market value of the Certificates. During any period when the Trustee may elect to redeem the Certificates, the market value of the Certificates generally will not rise substantially above the Dissolution Amount payable. The Trustee may be expected to redeem the Certificates when Tilal is able to raise funds at a cost of financing which is lower than the profit rate (including such additional amounts as are referred to above) on the Certificates. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective profit rate as high as the profit rate on the 21
33. Certificates and may only be able to do so at a significantly lower rate . Potential investors should consider reinvestment risk in light of other investments available at that time. Certificates with a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. As the Certificates have a denomination consisting of the minimum Specified Denomination (as defined in the Conditions) plus a higher integral multiple of another smaller amount, it is possible that the Certificates may be traded in amounts in excess of such minimum Specified Denomination that are not integral multiples of such minimum Specified Denomination. In such a case a Certificateholder who, as a result of trading such amounts, holds a face amount of less than the minimum Specified Denomination would need to purchase an additional amount of Certificates such that it holds an amount equal to at least the minimum Specified Denomination to be able to trade such Certificates. Certificateholders should be aware that Certificates which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. If a Certificateholder holds an amount which is less than the minimum Specified Denomination in his account with the relevant clearing system at the relevant time, such Certificateholder may not receive a Definitive Certificate in respect of such holding (should Definitive Certificates be printed) and would need to purchase a face amount of Certificates such that its holding amounts to at least a Specified Denomination in order to be eligible to receive a Definitive Certificate. If Definitive Certificates are issued, holders should be aware that Definitive Certificates which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. No assurance can be given as to Shari’a rules. Amanie Advisors L.L.C. have confirmed that the Transaction Documents are, in their view, Shari’a-compliant. However, there can be no assurance that the Transaction Documents or the issue and trading of the Certificates will be deemed to be Shari’a-compliant by any other Shari’a board or Shari’a scholars. None of the Trustee, Tilal, the Delegate, the Security Agent, the Agents or the Joint Lead Managers makes any representation as to the Shari’a compliance of the Certificates and/or any trading thereof and potential investors are reminded that, as with any Shari’a views, differences in opinion are possible. Potential investors should obtain their own independent Shari’a advice as to the compliance of the Transaction Documents and the issue and trading of the Certificates with Shari’a principles. Shari’a requirements in relation to interest awarded by a court. In accordance with applicable Shari’a principles, the Trustee will waive all and any entitlement it may have to interest awarded in its favour by any court in connection with any dispute under any of the Transaction Documents. Should there be any delay in the enforcement of a judement given against Tilal, judgment interest may accrue in respect of that delay and, as a result of the waiver referred to above, Certificateholders will not be entitled to receive any part of such interest. Certificateholders must rely on Euroclear and Clearstream, Luxembourg procedures. The Certificates will be represented on issue by a Global Certificate that will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg. Except in the circumstances described in the Global Certificate, investors will not be entitled to receive Certificates in definitive form. Euroclear and Clearstream, Luxembourg and their respective direct and indirect participants will maintain records of the ownership interests in the Global Certificate. While the Certificates are represented by the Global Certificate, investors will be able to trade their ownership interests only through Euroclear and Clearstream, Luxembourg and their respective participants. While the Certificates are represented by the Global Certificate, the Trustee will discharge its payment obligation under the Certificates by making payments through the relevant clearing systems. A holder of an ownership interest in the Global Certificate must rely on the procedures of the relevant clearing system and its participants to receive payments under the Certificates. The Trustee has no responsibility or liability for the records relating to, or payments made in respect of, ownership interests in the Global Certificate. 22
34. Holders of ownership interests in the Global Certificate will not have a direct right to vote in respect of the Certificates so represented . Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system and its participants to appoint appropriate proxies. Risk Factors relating to the Lease Assets Ownership of the Lease Assets. The Shari’a analysis is as follows: an ownership interest in the Assets will pass to Tilal Sukuk Company Limited under the Sale and Purchase Agreement and Tilal Sukuk Company Limited will lease the Lease Assets to Tilal under the Lease Agreement. Tilal Sukuk Company Limited will declare a trust in respect of the Lease Assets and the other Trust Assets in favour of the Certificateholders. Accordingly, from a Shari’a perspective Certificateholders will, through the ownership interest obtained by Tilal Sukuk Limited pursuant to the terms of the Sale and Purchase Agreement, have an ownership interest in the Lease Assets. However, no investigation or enquiry will be made and no due diligence will be conducted in respect of the Lease Assets. The Lease Assets will be selected by Tilal and the Certificateholders, Tilal Sukuk Company Limited and the Delegate will have no ability to influence such selection. Only limited representations will be obtained from Tilal in respect of the Lease Assets. No steps will be taken to perfect the legal transfer of the ownership interest (including registration if required as a matter of law) in the Lease Assets with any relevant regulatory authority in Oman and, therefore, in relation to any Assets or Lease Assets which require perfection in order to legally transfer any ownership interest, Certificateholders shall not have any interest in any such Asset or Lease Assets. Risk Factors relating to the Transaction Security. Registration of the Transaction Security will occur after the Closing Date. On 30 October 2013, Modern Sukuk S.A.O.C. issued OMR50,000,000 aggregate nominal amount of trust certificates due 30 October 2018 (the “Existing Trust Certificates”), the proceeds of which were paid to Tilal (as obligor) under the terms of the transaction documents relating to the Existing Trust Certificates. The Existing Trust Certificates were due to be redeemed on 30 October 2018; however, the redemption price in respect of the Existing Trust Certificates was not paid on such date. On or around 7 November 2018, Tilal offered to redeem all of the outstanding Existing Trust Certificates, with the consideration for such purchase being (i) U.S.$2.60 aggregate face amount of Certificates for each OMR1.00 in aggregate face amount of Existing Trust Certificates (“Exchange Consideration”), or (ii) cash at par (the “Cash Consideration”) (the “Tender and Exchange Offer”). On issue, the Existing Trust Certificates had the benefit of security, comprising a first ranking legal mortgage over the Muscat Grand Mall (see “Summary of the Transaction Security” for a description of the Muscat Grand Mall) (“Existing Trust Certificates Security Interest”). In connection with the Tender and Exchange Offer, each holder of Existing Trust Certificates was requested to instruct the trustee of the Existing Trust Certificates, to in turn instruct the security agent appointed under the Existing Trust Certificates (“Existing Trust Certificates Security Agent”), to release the first ranking security interest over the Muscat Grand Mall (the “Security Release Instruction”), so that a new first ranking legal mortgage could be granted to the Security Agent for the Trustee (for and on behalf of the Certificateholders). As a result of the above, (i) Certificates in an aggregate nominal amount of U.S.$130,500,000 were issued to the holders of the Existing Trust Certificates, attributable to the Exchange Consideration and any additional Certificates subscribed by the holders of Existing Trust Certificates over and above the Exchange Consideration owed to them, and (ii) the remaining Certificates, in an aggregate nominal amount of U.S.$6,500,000, were issued to new investors, the proceeds of which (together with the proceeds of the subscription of Certificates by holders of Existing Trust Certificates over and above the Exchange Consideration owed to them) will be used by Tilal to (x) pay the Cash Consideration to the holders of the Existing Trust Certificates who elected to receive the Cash Consideration on the Closing Date, and (y) for Tilal’s general corporate purposes. On the Closing Date, the Existing Trust Certificates Security Agent delivered an irrevocable undertaking to, among others, the Trustee and the Delegate, to release the Existing Trust Certificates Security, conditional upon it receiving the Security Release Instruction. However, Certificateholders will not have the benefit of the 23
35. Transaction Security immediately on the Closing Date , and will continue not to do so until: (i) the formalities for discharging the Existing Trust Certificates Security Interests have been completed; and (ii) the steps to effect the Transaction Security in favour of the Certificateholders under Omani law have also been taken. The Transaction Documents provide that all formalities required to put the Transaction Security into effect be completed by no later than the date falling 90 calendar days following the Closing Date, and failure to do so would constitute a Dissolution Event. If the Transaction Security is not put in place by such date, or otherwise if a Dissolution Event occurs prior to the Transaction Security being put into effect, neither the Trustee nor the Certificateholders would be able to claim under the Transaction Security for any shortfall in payment of the relevant Exercise Price. As a result, Certificateholders may not receive payment of the relevant Dissolution Amount in full. The terms of certain leases with anchor tenants may impact the rights of the Certificateholders following enforcement of the Mortgage Agreement. The terms of certain leases with certain anchor tenants of the Muscat Grand Mall require that any mortgagee provide confirmation to those tenants that the mortgagee will continue to honour the terms of the lease with that anchor tenant following enforcement of that mortgage. Prior to entering into the Mortgage Agreement, the Security Agent will be required to provide a comfort letter to one of the anchor tenants of the Muscat Grand Mall confirming that it will honour the terms of that tenant’s lease. Whilst only one (1) lease requires this confirmation to be provided, in the event that the Security Agent were to enforce under the terms of the Mortgage Agreement and become holder of the legal title to the Muscat Grand Mall the Security Agent would be required to honour the terms of that comfort letter. The existence of such comfort letter may have an adverse impact on the ability of the Security Agent to sell or otherwise dispose of the Muscat Grand Mall on favourable terms or at all, which in turn may result in Certificateholders not receiving the Dissolution Amount in full. Upon a default, the Trustee, Security Agent and/or Delegate may not be able to enforce the Transaction Security or realise all of the Transaction Security and, if realised, the realisation proceeds of the Transaction Security may not be sufficient to cover all loss suffered by the Certificateholders by reason of the relevant default. It may be costly and time consuming for the Security Agent to enforce the Transaction Security under the laws of Oman. Even if the Security Agent is able to enforce all its rights under the Security Documents and dispose of the Secured Assets (as defined in the Conditions), the proceeds of such disposal may not be sufficient to meet all amounts payable by Tilal under the Transaction Documents. In particular, the Transaction Security is granted over unique and significant assets for which, upon enforcement, there would be a limited pool of potential purchasers and, in relation to which, a purchaser would be required to possess specific expertise in order to operate and manage the assets. Accordingly, investors should not place undue reliance on the Transaction Security and there can be no assurance that Certificateholders will recover all their loss in the event of default. Risk relating to Enforcement Investors may experience difficulties in enforcing arbitration awards and foreign judgments in the Sultanate of Oman. The payments under the Certificates are dependent upon Tilal making payments to the Trustee in the manner contemplated under the Transaction Documents. If Tilal fails to do so, it may be necessary to bring an action against Tilal to enforce its obligations and/or to claim damages, as appropriate, which may be costly and time consuming. Tilal has agreed (where the arbitration arrangements described below are not applied) to submit to the exclusive jurisdiction of, at the option of the Trustee, the courts of the DIFC in respect of any dispute, claim, difference or controversy arising out of or in connection with the English Law Documents, subject to the right of the Trustee (or the Delegate on behalf of the Certificateholders) to elect to bring proceedings in any other court or courts of competent jurisdiction. However, since Tilal is incorporated in Oman, there may be insufficient asset of Tilal located outside Oman to satisfy in whole any DIFC judgments obtained in relation to the Certificates and/or the relevant Transaction Documents. 24
36. Although Omani law provides for the enforcement of foreign judments in Oman subject to the condition set out in Articles 352 to 355 of Oman Civil and Commercial Procedure Law (SD 29/2002), as amended) (the “Oman Civil Procedure Law”) being met, Tilal is not aware is not aware of a foreign judgment (other than one subject to a GCC reciprocity treaty) ever having been enforced in Oman. Accordingly, in the absence of the conditions set out in Articles 352 to 355 of the Oman Civil Procedure Law being met, it may be the case that a DIFC judgment against Tilal would not be enforced by the courts of Oman without a re-examination of the merits and that such a judgment would be of evidential value only in any such proceedings filed before the courts of Oman. If any proceedings were brought in Oman in relation to the Certificates and/or the relevant Transaction Documents (whether in connection with the enforcement of a DIFC judgment or otherwise), pursuant to the Civil Transactions Law (SD 29/2013) (the “Civil Code”), the Omani court would recognise and give effect to the choice of English law as the governing law, unless any provision of DIFC law were considered to be contrary to a mandatory provision of law, public order or morality in Oman or Islamic Shari’a principles. In addition, there is no established system of precedent that would be binding on the courts in Oman. If it was sought to enforce the Certificates and/or the relevant Transaction Documents before the courts in Oman, it is difficult to forecast in advance with any degree of certainty how some of the provisions would be interpreted and applied by those courts and whether all of the provisions of the Certificates and/or the Transaction Documents would be enforceable. The parties to each of the English Law Documents have agreed to refer any unresolved dispute in relation to such documents to arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre in the Dubai International Financial Centre. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the “New York Convention”) entered into force in Oman on 25 February 1999. Foreign arbitration awards may be enforced in Oman pursuant to: (a) treaty obligations; (b) the Oman Civil Procedure Law; or (c) the Law of Arbitration (SD 47/1997, as amended). Oman has acceded to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (SD 36/1998) (the “New York Convention”), and ratified the Riyadh Arab Convention of 1983 (SD 34/1999). Any arbitration award rendered in the DIFC should therefore be enforceable in Oman in accordance with the terms of the New York Convention. Under the New York Convention, Oman has an obligation to recognise and enforce foreign arbitration awards, unless the party opposing enforcement can prove one of the grounds under Article V of the New York Convention to refuse enforcement, or the Omani courts find that the subject matter of the dispute is not capable of settlement by arbitration or enforcement would be contrary to the public policy of the Oman. When considering enforcement of arbitral awards, Oman courts will need to be satisfied that the following conditions have been met (reading “judgment” as “award”): (i) that the foreign judgment was given by a competent arbitration tribunal in accordance with the law of the country the judgment was given in: (ii) that the parties to the action in which the foreign judgment was rendered were summoned to appear and were validly represented; and (iii) that the judgment or order contained nothing involving a violation of any law in force in Oman, and that it does not conflict with a judgment or order previously rendered by a court in Oman, and includes nothing which offends morals or public order. The Oman Civil Procedure Law also requires that the matter in which the award is rendered is competent to be arbitrated under Omani law and that the award is enforceable in the country in which it is issued. Enforcement of foreign arbitral award in Oman is also directly available under the provisions of the Law of Arbitration, where the awards in question has been rendered: (x) in Oman; or (y) in an international commercial arbitration (for example, an arbitration under London Court of International Arbitration or International Chamber of Commerce rules) in which parties have specified that the Law of Arbitration shall apply. However, although Oman is a party to the New York Convention. Tilal is aware of only one case which has come before the courts of Oman where a claimant has sought to enforce a foreign arbitral award issued by a contracting state (in this case, the kingdom of Denmark), being Co Ro Foods AS and National Beverages Company. Tilal has no reason to believe that the courts of Oman would not enforce such an arbitral award (without the need to re-examine or re-litigate), subject only to no valid argument being put forward that the enforcement of that arbitral award should be refused on one or more of the grounds set out in Article V of the 25
37. New York Convention or such matter is against public order or morality in Oman . It should be noted, however, that there is no doctrine of binding precedent under Omani law, although decisions of the Supreme Court of Oman should be persuasive. The uncertainty regarding the interpretation and application of the New York Convention provisions by the Courts is further reinforced by the lack of a system of binding judicial precedent in the Oman. There is therefore no guarantee that the Courts will take the same approach in similar proceedings in the future. Claims for specific enforcement. In the event that Tilal fails to perform its obligations under any Transaction Document to which it is a party, the potential remedies available to the Trustee and the Delegate include obtaining an order for specific enforcement of Tilal’s obligations or a claim for damages. There is no assurance that a court will provide an order for specific enforcement which is a discretionary matter. The amount of damages which a court may award in respect of a breach will depend upon a number of possible factors including an obligation on the Trustee and the Delegate to mitigate any loss arising as a result of the breach. No assurance is provided on the level of damages which a court may award in the event of a failure by Tilal to perform its obligations set out in the Transaction Documents to which it is a party. No assurance can be given as to any change of law. The structure of the issue of the Certificates is based on English law and Omani law, in each case in effect as at the date of these Listing Particulars. No assurance can be given as to the impact of any possible change to English or Omani law or administrative practices in such jurisdictions after the date of these Listing Particulars, nor can any assurance be given as to whether any such change could adversely affect the ability of the Trustee to make payments under the Certificates or of Tilal to comply with its obligations under the Transaction Documents to which it is a party. Oman is currently in the process of developing its legal and regulatory institutions into institutions that are characteristic of more developed markets. As a result, procedural safeguards as well as formal regulations and laws may not be applied consistently. In some circumstances it may not be possible to obtain the legal remedies provided under the relevant laws and regulations in a timely manner. Any unexpected changes in the legal system in Oman may have a material adverse effect on the rights of holders of the Certificates or on Tilal’s business, results of operations, financial conditions or prospects. Risks related to the Market Generally Set out below is a brief description of the principal market risks, including liquidity risk, credit risk, exchange rate risk and interest rate risk: Absence of secondary market/limited liquidity. There is no assurance that a secondary market for the Certificates will develop or, if it does develop, that it will provide the Certificateholders with liquidity of investment or that it will continue for the life of the Certificates. Accordingly, a Certificateholder may not be able to find a buyer to buy its Certificates readily or at prices that will enable the Certificateholder to realise a desired yield. The market value of the Certificates may fluctuate and a lack of liquidity, in particular, can have a material adverse effect on the market value of the Certificates. Accordingly, the purchase of Certificates is suitable only for investors who can bear the risks associated with a lack of liquidity in the Certificates and the financial and other risks associated with an investment in the Certificates. An investor in the Certificates must be prepared to hold those Certificates for an indefinite period of time or until their maturity. An application has been made for the Certificates to be admitted to the Official List and trading on the Global Exchange Market, but there can be no assurance that any such listing will occur, or, if it does occur, that it will enhance the liquidity of the Certificates. Credit ratings may not reflect all risks. Moody’s has assigned a credit rating to the Certificates. These ratings may not reflect the potential impact of all risks related to structure, market, additional factors discussed above, and other factors that may affect the value of the Certificates. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or 26
38. withdrawn by the rating agency at any time . Any adverse change in an applicable credit rating could adversely affect the trading price for the Certificates. In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued by a credit rating agency established in the EU and registered under the CRA Regulation (and such registration has not been withdrawn or suspended). Such general restriction will also apply in the case of credit ratings issued by non-EU credit rating agencies, unless the relevant credit ratings are endorsed by an EU-registered credit rating agency or the relevant non-EU rating agency is certified in accordance with the CRA Regulation (and such endorsement action or certification, as the case may be, has not been withdrawn or suspended). The list of registered and certified rating agencies published by the European Securities and Markets Authority (“ESMA”) on its website in accordance with the CRA Regulation is not conclusive evidence of the status of the relevant rating agency included in such list, as there may be delays between certain supervisory measures being taken against a relevant rating agency and publication of an updated ESMA list. Exchange rate risks and exchange controls. The Trustee will make all payments on the Certificates in the Specified Currency. This presents certain risks relating to currency conversions if an investor’s financial activities are denominated principally in a currency or currency unit (the “Investor’s Currency”) other than the Specified Currency. These include the risk that exchange rates may significantly change (including changes due to devaluation of the Specified Currency or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls which could adversely affect an applicable exchange rate. The Trustee does not have any control over the factors that generally affect these risks, such as economic, financial and political events and the supply and demand for applicable currencies. In recent years, exchange rates between certain currencies have been volatile and volatility between such currencies or with other currencies may be expected in the future. An appreciation in the value of the Investor’s Currency relative to the Specified Currency would decrease: (i) the Investor’s Currency-equivalent yield on the Certificates; (ii) the Investor’s Currency equivalent value of the principal payable on the Certificates; and (iii) the Investor’s Currency equivalent market value of the Certificates. Government and monetary authorities may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate as well as the availability of a specified foreign currency at the time of any payment of any Periodic Distribution Amount or Dissolution Amount on a Certificate. As a result, investors may receive less amounts under the Certificates than expected, or no such amounts. Even if there are no actual exchange controls, it is possible that the Specified Currency for any particular Certificate may not be available at such Certificate’s maturity. Interest rate risks. Investment in fixed rate debt instruments, such as the Certificates, involves the risk that subsequent changes in market interest rates may adversely affect the value of such fixed rate debt instruments. 27
39. STRUCTURE DIAGRAM AND CASHFLOWS Set out below is a simplified structure diagram and description of the principal cash flows underlying the Certificates . Potential investors are referred to the terms and conditions of the Certificates and the detailed descriptions of the relevant Transaction Documents set out elsewhere in these Listing Particulars for a fuller description of certain cash flows and for an explanation of the meaning of certain capitalised terms used below. Structure Diagram Principal Cash Flows Payments by the Certificateholders and the Trustee On the Closing Date, the Trustee will collect the proceeds from investors to purchase from Tilal pursuant to a sale and purchase agreement (the “Sale and Purchase Agreement”) the beneficial interest in certain real estate assets (the “Assets”). On the Closing Date, the Assets (the “Lease Assets”) shall be leased by the Trustee (in such capacity, the “Lessor”) to Tilal (in such capacity, the “Lessee”) pursuant to a lease agreement (the “Lease Agreement”) in return for periodic payment of rent by Tilal to the Trustee (the “Rental”). On each date on which any additional Certificates are issued pursuant to Condition 21 (Further Issues) (the “Additional Certificates Issue Date”), the Trustee will collect the proceeds from investors to purchase from Tilal pursuant to a sale agreement entered into pursuant to the Sale, Substitution and Additional Assets Undertaking the beneficial interest in certain Additional Assets. On the Additional Certificates Issue Date, the Additional Assets and the Lease Assets in existence immediately prior to the creation and issue of the additional Certificates will be commingled and shall collectively comprise part of the Trust Assets for the benefit of the holders of the Certificates. 28
40. The Trustee will appoint Tilal as its service agent (the “Service Agent”) to provide certain services in respect of the Lease Assets pursuant to a service agency agreement (the “Service Agency Agreement”). Lease Asset Substitution Tilal may substitute Lease Assets in accordance with the relevant provisions of the Sale, Substitution and Additional Assets Undertaking, provided that the value of any substitute assets shall have an aggregate value which is not less than the aggregate value of the Lease Assets to be so substituted. Such substitution shall only take effect on a Periodic Distribution Date. Periodic Distribution Payments Prior to each Periodic Distribution Date in respect of the Certificates, the Rental in respect of the previous Rental Period will be paid to an account of the Trustee (the “Transaction Account”) in accordance with the Lease Agreement. Such Rental shall be sufficient to fund the amounts (other than the Dissolution Amount) payable under Condition 6.2 (Application of Proceeds from the Trust Assets) (including, but without limitation the Periodic Distribution Amounts payable by the Trustee in respect of the Certificates) and shall be applied by the Trustee for that purpose. Security Tilal and AMRE’s obligations under the Transaction Documents are or will be secured by the Transaction Security, as defined and further described in these Listing Particulars. See “Summary of the Transaction Security”. Dissolution Payments On the Scheduled Dissolution Date, the Trustee will have the right under the Purchase Undertaking to require Tilal to purchase all of the Trustee’s rights, title, interests, benefits and entitlements in, to and under the Lease Assets. The exercise price payable by Tilal is intended to fund the Dissolution Amount payable by the Trustee. The Trust may be dissolved prior to the Scheduled Dissolution Date for the following reasons: (i) redemption following a Dissolution Event; (ii) following the occurrence of a Tax Event; (iii) upon the occurrence of a Total Loss Event; and (iv) on an Optional Dissolution Date). In the case of sub-paragraphs (i) and (ii), the amounts payable by the Trustee on the Dissolution Date will be funded in a similar manner as for the payment of the Dissolution Amount. In the case of sub-paragraph (iii), the amounts payable to Certificateholders will be an amount equal to the sum of: (A) the proceeds of any insurance policies which the Service Agent has entered into for and on behalf of the Trustee in respect of the relevant Lease Assets; and/or (B) any Total Loss Shortfall Amount which the Service Agent is required to transfer to the Transaction Account by no later than the 31st day after the occurrence of a Total Loss Event, such amount being intended to be sufficient in order to redeem the Certificates in full. 29
41. SHARI ’A PRONOUNCEMENT Prospective Certificateholders should: (i) not rely on the reviews and pronouncements referred to below in deciding whether to make an investment in any Certificates; (ii) note that such reviews and pronouncements will not be updated; and (iii) consult their own Shari’a advisers as to whether the proposed transaction described in the pronouncements referred to above is in compliance with Shari’a principles. Pronouncement of Members of Amanie Advisors L.L.C. Copies of the pronouncement which has been issued by Amanie Advisors L.L.C. elating to the Certificates and confirming that, in its view, the proposed issue of the Certificates and the related structure and mechanism described in the Transaction Documents are in compliance with Shari’a principles (the “Pronouncement”), shall be distributed to prospective Certificateholders upon request to Tilal and/or the Issuer. Members of the Amanie Advisors L.L.C. Shari’a Board that issued the Pronouncement Dr. Mohamed Ali Elgari (Chairman) Dr. Mohamed Ali Elgari is a Professor of Islamic Economics and the former Director of the Centre for Research in Islamic Economics at King Abdul Aziz University in Saudi Arabia. Dr. Ali Elgari is an advisor to several Islamic financial institutions throughout the world and is also on the Shari’a board of the Dow Jones Islamic index. He is also a member of the Islamic Fiqh Academy as well as the Islamic Accounting & Auditing Organisation for Islamic Financial Institution. Dr. Elgari has written several books on Islamic banking. He graduated from the University of California with a Ph.D. in Economics. Dr. Mohd Daud Bakar (Executive Member) Dr. Mohd Daud Bakar received his first degree in Shari’a from University of Kuwait in 1988 and obtained his Ph.D. from University of St. Andrews, United Kingdom in 1993. In 2002, he went on to complete his external Bachelor of Jurisprudence at University of Malaya. He is currently the Chairman of the Shari’a Advisory Council at the Central Bank of Malaysia, the Securities Commission of Malaysia, the Shari’a Supervisory Board of the International Islamic Liquidity Management Corporation and the Council of Scholars, International Shari’a Research Academy. Dr Bakar has published a number of articles in various academic journals and has made many presentations in various conferences both local and overseas. Dr. Bakar was previously the Deputy Vice- Chancellor at the International Islamic University Malaysia. Dr. Mohd Daud Bakar is a Shari’a board member of Dow Jones Islamic Market Index (New York), Muzn Islamic Banking (The National Bank of Oman), Financial Guidance (USA), BNP Paribas (Bahrain), Morgan Stanley (Dubai), Bank Al Khair (Bahrain), Bank of London and Middle East (London), Noor Bank (Dubai), Islamic Bank of Asia (Singapore), and in other financial institutions. Dr. Muhammad Amin Ali Qattan Dr. Qattan has a Ph.D. in Islamic Banking from Birmingham University and is himself a lecturer as well as a prolific author of texts and articles on Islamic economics and finance. He is currently the Director of Islamic Economics Unit, Centre of Excellence in Management at Kuwait University. Dr. Qattan also serves as the Shari’a advisor to many reputable institutions such as Ratings Intelligence, Standard & Poors Shari’ah Indices, Al Fajer Retakaful amongst others. He is a highly regarded Shari’a Scholar and is based in Kuwait. Dr. Osama Al Dereai Dr. Osama Al Dereai is a renowned global Shari’a scholar and has extensive experience in teaching, consulting and research in the field of Islamic finance. He received his Bachelor’s degree specializing in the Science of Hadeth Al Sharef from the prestigious Islamic University of Madina. Dr. Al Dereai obtained his Masters degree from the International Islamic University (Malaysia) and was later conferred his Doctorate in Islamic Transactions from the University of Malaya. Dr. Al Dereai is a Shari’a board member of various financial institutions which include the First Leasing Company, Barwa Bank, First Investment Company and Ghanim Al Saad Group of Companies amongst others. 30
42. TERMS AND CONDITIONS OF THE CERTIFICATES The following is the text of the Terms and Conditions of the Certificates which (subject to modification and except for the text in italics) will be endorsed on each Certificate in definitive form and will apply to the Global Certificate. Each of the U.S.$137,000,000 Certificates due 2023 will represent an undivided ownership interest in the Trust Assets (as defined in Condition 6.1 (The Trust Assets)) which are held by Tilal Sukuk Company Limited (the “Trustee”) on trust (the “Trust”) for, inter alia, the benefit of the registered holders of the Certificates pursuant to a declaration of trust (the “Declaration of Trust”) dated 12 November 2018 (the “Closing Date”) and made between, inter alios, the Trustee, Tilal Development Company S.A.O.C. (“Tilal”) and BNY Mellon Corporate Trustee Services Limited in its capacity as donee of the powers and as delegate of the Trustee pursuant to the Declaration of Trust (the “Delegate”, which expression shall include any co-delegate or any successor). A sale and purchase agreement (the “Sale and Purchase Agreement”) will be entered into on the Closing Date between the Trustee (in such capacity, the “Purchaser”) and Tilal (in such capacity, the “Seller”), whereby the Trustee will purchase and accept the transfer and conveyance from the Seller of, all of the Seller’s interests, rights, title, benefit and entitlements, present and future, in, to and under certain assets identified in the Sale and Purchase Agreement (the “Assets”). The Assets (as may be amended from time to time pursuant to the terms of the Transaction Documents) (the “Lease Assets”) will be leased by the Trustee (in such capacity, the “Lessor”) to Tilal (in such capacity, the “Lessee”) pursuant to a lease agreement dated the Closing Date (the “Lease Agreement”). Pursuant to the Lease Agreement, the Lessee shall agree to make periodic rental payments (“Rental”) to the Lessor in respect of the Lease Assets. Payments relating to the Certificates will be made pursuant to an agency agreement dated the Closing Date (the “Agency Agreement”) made between the Trustee, the Delegate, Tilal, The Bank of New York Mellon, London Branch in its capacities as principal paying agent (in such capacity, the “Principal Paying Agent”, which expression shall include any successor and, together with any further or other paying agents appointed from time to time in accordance with the Agency Agreement, the “Paying Agents”, which expression shall include any successors) and The Bank of New York Mellon SA/NV, Luxembourg Branch in its capacities as registrar (in such capacity, the “Registrar”, which expression shall include any successor) and as transfer agent (in such capacity and together with the Registrar, the “Transfer Agents”, which expression shall include any successors). The Paying Agents and the Transfer Agents are together referred to in these Conditions as the “Agents”. Subject as set out below, copies of the documents set out below are available for inspection and obtainable free of charge by the Certificateholders (as defined below) during normal business hours at the specified office for the time being of the Principal Paying Agent. The holders of the Certificates (the “Certificateholders”) are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the documents set out below: (a) the service agency agreement between the Trustee and Tilal (in its capacity as service agent, the “Service Agent”) dated the Closing Date (the “Service Agency Agreement”); (b) the purchase undertaking made by Tilal for the benefit of the Trustee and the Delegate dated the Closing Date (the “Purchase Undertaking”); (c) the sale, substitution and additional assets undertaking made by the Trustee for the benefit of Tilal dated the Closing Date (the “Sale, Substitution and Additional Assets Undertaking”); (d) the security agency agreement between the Trustee, the Delegate, Tilal and Meethaq Islamic Banking bank muscat S.A.O.G (in its capacity as security agent, the “Security Agent”) dated the Closing Date (the “Security Agency Agreement”); (e) a mortgage agreement entered into between, inter alios, Al Madina Real Estate Company S.A.O.C. (“AMRE”) and the Security Agent dated the Closing Date the (the “Mortgage Agreement” and, together with any additional security document entered into from time to time pursuant to Condition 5.12 (Value of Transaction Security), the “Security Documents”; (f) the Sale and Purchase Agreement; 31
43. (g) the Lease Agreement; (h) the Declaration of Trust; and (i) the Agency Agreement. The documents listed above in (a) to (i) (inclusive) (together with any document entered into in connection with the same) are referred to in these Conditions as the “Transaction Documents”. The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Transaction Documents. Each initial Certificateholder, by its acquisition and holding of its interest in a Certificate, shall be deemed to authorise and direct the Trustee, on behalf of the Certificateholders, to: (i) apply the sums paid by it in respect of its Certificates to the Purchaser in accordance with the Sale and Purchase Agreement; and (ii) enter into each Transaction Document to which it is a party, subject to the provisions of the Declaration of Trust and these Conditions. 1. INTERPRETATION Words and expressions defined in the Declaration of Trust and the Agency Agreement shall have the same meanings where used in these Conditions unless the context otherwise requires or unless otherwise stated. In addition, in these Conditions: (i) any reference to Periodic Distribution Amounts shall be deemed to include any additional amounts in respect of profit distributions which may be payable under Condition 11 (Taxation) and Condition 14 (Capital Distributions of the Trust) and any other amount in the nature of a profit distribution payable pursuant to these Conditions; (ii) references to Certificates being “outstanding” shall be construed in accordance with the Declaration of Trust; and (iii) any reference to a Transaction Document (as defined above) shall be construed as a reference to that Transaction Document as amended and/or supplemented from time to time, and in these Conditions, the following expressions shall have the following meanings: “Additional Secured Assets” has the meaning given to it in Condition 5.12(c); “Additional Transaction Security” has the meaning given to it in Condition 5.12(c); “Affiliate” means, with respect to any specified Person: (i) any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; or (ii) any other Person that owns, directly or indirectly through one or more Subsidiaries, 20 per cent., or more of any class of such specified Person’s Capital Stock, and, for the purposes of this definition, control, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing; “Affiliate Transaction” has the meaning given to it in Condition 5.6(a); “Annual Valuation Report” has the meaning given to it in Condition 5.12(a); “Annual Valuation Report Date” has the meaning given to it in Condition 5.12(a); “Authorised Signatory” means any person who: (a) is a director of Tilal; or (b) is duly authorised and in respect of whom a certificate has been provided to the Delegate signed by a director or another duly authorised person of Tilal setting out the name and signature of such person and confirming such person’s authority to act; 32
44. “Asset Sale” means any sale, lease, sale and lease back, transfer or other disposition by any member of the Group of all or any of the legal or beneficial interest in any Capital Stock or any property or assets of any member of the Group (either in one transaction or in a series of related transactions at the same time or over a period of time) to any Person who is not a member of the Group; provided that the sale, transfer or other disposition of inventory, property, receivables, other current assets, investment properties and/or development properties by any member of the Group in the ordinary course of business (whether or not for cash consideration) shall not be “Asset Sales” for these purposes; “Average Life” means, as of the date of determination with respect to any Financial Indebtedness, the quotient obtained by dividing: (a) (b) the sum of the products of: (i) the numbers of years from the date of determination to the date or dates of each successive scheduled principal payment of such Financial Indebtedness; and (ii) the amount of each such principal payment; by the sum of all such principal payments; “Borrowings” means, at any time, the aggregate outstanding principal, capital or nominal amount of, and any fixed or minimum premium payable on prepayment or redemption of, any indebtedness for or in respect of Financial Indebtedness as determined by reference to the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Business Day” means a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in New York City, Muscat and London; “Calculation Date” means 30 June and 31 December in each year (provided that if Tilal were to change its financial year then such dates would be adjusted accordingly); “Call Date” means, with respect to any Financial Indebtedness, the date specified in the relevant documentation as the date on which the entire aggregate amount of principal in respect thereof may become due and payable at the option of the issuer thereof (where such option is only available to the issuer upon a specified date or dates or upon the occurrence of any contingency which has occurred, but excluding circumstances where such option forms part of a general right of repayment or prepayment); “Cancellation Assets” means the Lease Assets specified as such in a cancellation notice served pursuant to the Sale, Substitution and Additional Assets Undertaking, the identity of which shall be determined by Tilal in its sole and absolute discretion (but without prejudice to the interests of the Trustee), subject only as provided in paragraph (c) of Clause 2.1 of the Sale, Substitution and Additional Assets Undertaking; “Capital Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person’s equity, including any preferred stock of such Person, whether outstanding at the Closing Date or issued after the Closing Date, including without limitation, all series and classes of such Capital Stock; “Certificates” means the U.S.$137,000,000 trust certificates due 2023 (representing undivided ownership interests in the Trust Assets) to be issued on the Closing Date and constituted by the Declaration of Trust together with any additional Certificates which (a) are expressed to be consolidated with such Certificates, and (b) have the same terms and conditions or terms and conditions which are the same in all respects as such Certificates save for the amount and date of the first payment of periodic distribution amounts thereon and the date from which the periodic distribution amounts start to accrue, and includes any replacements for Certificates issued pursuant to Condition 17 (Replacement of Definitive Certificates) being in definitive or global form, as the context may require; “Collateralisation Requirement” has the meaning given to it in Condition 5.12(b); 33
45. “Consolidated Finance Expense” means, for any Measurement Period, the aggregate amount of the accrued interest/profit, commission, fees, discounts, prepayment fees, premiums or charges, principal/capital repayments and other finance payments in respect of Financial Indebtedness (whether, in each case, paid or payable by any member of the Group (calculated on a consolidated basis)) in respect of that Measurement Period, as determined by reference to the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Consolidated Net Income” means the consolidated net income or loss of Tilal determined in accordance with IFRS by reference to the most recently available consolidated financial statements of Tilal; “Consolidated Total Gross Indebtedness” means the aggregate amount of all obligations of the Group for or in respect of Borrowings as at and as determined by reference to the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Corporate Services Agreement” means the corporate services agreement dated 23 October 2018 between the Trustee and the Trustee Administrator pursuant to which certain corporate administration services are provided to the Trustee; “Definitive Certificate” means a trust certificate in definitive registered form issued by the Trustee in accordance with the provisions of the Declaration of Trust in exchange for the Global Certificate, such trust certificate substantially in the form set out in the Schedules to the Declaration of Trust; “Dispute” has the meaning given to it in Condition 23.2 (Agreement to Arbitrate); “Dissolution Amount” means, in relation to each Certificate, the aggregate face amount of that Certificate, together with any accrued but unpaid Periodic Distribution Amount, provided that, on any Optional Dissolution Date, the Dissolution Amount shall be the Optional Dissolution Amount (Call); “Dissolution Date” means, the earlier to occur of: (a) the Scheduled Dissolution Date; (b) the Tax Dissolution Date; (c) the Total Loss Dissolution Date; (d) the Optional Dissolution Date; (e) the date on which all of the Certificates are cancelled following the purchase of such Certificates by or on behalf of Tilal and/or any Subsidiary of Tilal pursuant to Condition 13.1 (Purchases); and (f) the Dissolution Event Redemption Date; “Dissolution Event” has the meaning given to it in Condition 15 (Dissolution Events); “Dissolution Event Redemption Date” has the meaning given to it in Condition 15 (Dissolution Events); “Dissolution Notice” has the meaning given to it in Condition 15 (Dissolution Events); “Dissolution Request” has the meaning given to it in Condition 15 (Dissolution Events); 34
46. “EBIT” means, in respect of any Measurement Period, the consolidated operating profit of the Group before taxation: (a) before deducting any interest/profit, commission, fees, discounts, prepayment fees, premiums or charges and other finance payments whether paid, payable or capitalised by any member of the Group (calculated on a consolidated basis) in respect of that Measurement Period; (b) not including any accrued interest/profit owing to any member of the Group; (c) before taking into account any Exceptional Items; (d) before taking into account any unrealised gains or losses on any financial instrument (other than any derivative instrument which is accounted for on a hedge accounting basis); (e) before taking into account any gain or loss arising from an upward or downward revaluation of any other asset, in each case, to the extent added, deducted or taken into account, as the case may be, for the purposes of determining operating profits of the Group before taxation, and: (f) including the operating profit of a member of the Group or business or assets acquired during that Measurement Period for the part of that Measurement Period when it was not a member of the Group and/or the business or assets were not owned by a member of the Group; but (g) excluding the operating profit attributable to any member of the Group or to any business or assets sold during that Measurement Period; “EBITDA” means, in respect of any Measurement Period, EBIT for that Measurement Period after adding back any amount attributable to the amortisation, depreciation or impairment of assets of members of the Group, as determined by reference to the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Exceptional Items” means any exceptional, one off, non-recurring or extraordinary items; “Exercise Notice” means an exercise notice served pursuant to the Purchase Undertaking or the Sale, Substitution and Additional Assets Undertaking (as the case may be); “Exercise Price” means the amount set out in the relevant Exercise Notice; “Extraordinary Resolution” has the meaning given to it in Condition 19.1 (Meetings of Certificateholders, Modification, Waiver, Authorisation and Determination); “Fair Market Value” means, with respect to any Capital Stock, asset or property, the sale value or aggregate rent amount (as the case may be) that would be paid in an arm’s-length transaction between an independent, informed and willing seller or lessor (as the case may be) under no compulsion to sell and an independent, informed and willing buyer or lessee (as the case may be) under no compulsion to buy or lease (as the case may be); “Financial Indebtedness” means any indebtedness for or in respect of: (a) moneys borrowed and debit balances at banks or other financial institutions; (b) any amount raised by acceptance under any acceptance credit or bill discount 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; 35
47. (d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with 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 nonrecourse basis except for recourse by reference to a breach by the selling company of any standard representations relating to the relevant receivables (but not as to the creditworthiness of the debtor or the collectability of the receivables)); (f) 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 by way of support for borrowings under paragraphs (a) to (e) (inclusive) and (g) to (k) (inclusive) of this definition; (g) shares which are expressed to be redeemable shares or any amount raised by the issue of such shares which are redeemable on or prior to the Scheduled Dissolution Date; (h) any amount of any liability under an advance or deferred purchase agreement if one of the primary reasons behind the entry into the agreement is to raise finance or to finance the acquisition or construction of an asset or service; (i) any amount raised under any other transaction (including any forward sale or purchase agreement, sale and leaseback arrangement, sale and saleback arrangement or securitisation) having the commercial effect of a borrowing; (j) 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); (k) obligations incurred in respect of any Islamic financing arrangement; and (l) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (k) (inclusive) above; “Fitch” means Fitch Ratings Ltd; “Group” means Tilal and its Subsidiaries; “IFRS” means International Financial Reporting Standards as published by the International Accounting Standard Board; “Incur” or, as appropriate, an “Incurrence” has the meaning given to it in Condition 5.2 (Limitations on Indebtedness (Tilal)); “Independent Appraiser” means (i) for the purposes of assets comprising interests in real estate and/or leases, an independent international registered firm of chartered surveyors and (ii) for the purposes of any assets other than those described in (i), any independent firm of appraisers or internationally recognised investment banking firm or firm of public accountants, in the case of (i) and (ii) being of international standing, selected by Tilal and in the case of (i) accepted by the statutory auditors of Tilal; “Investment” in any Person means any direct or indirect advance, loan or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Financial Indebtedness or other similar instruments issued by, such Person; “Investment Grade Rating” means a rating equal to or higher than: (i) Baa3 (or the equivalent) by Moody’s; (ii) BBB- (or the equivalent) by Standard & Poor’s; and (iii) BBB- (or the equivalent) by Fitch; 36
48. “Investment Grade Status” means that the Certificates have an Investment Grade Rating from any two Rating Agencies; “Material Subsidiary” means any Subsidiary of Tilal: (a) whose EBITDA (consolidated in the case of a Subsidiary of Tilal which itself has Subsidiaries) or whose total assets (consolidated in the case of a Subsidiary of Tilal which itself has Subsidiaries) represent in each case (or, in the case of a Subsidiary of Tilal acquired after the end of the financial period to which the then latest audited consolidated accounts of Tilal and its Subsidiaries relate, are equal to) not less than 5 per cent. of EBITDA or, as the case may be, consolidated total assets of Tilal and its Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited consolidated accounts of Tilal and its Subsidiaries, provided that in the case of a Subsidiary of Tilal acquired after the end of the financial period to which the then latest audited consolidated accounts of Tilal and its Subsidiaries relate, the reference to the then latest audited consolidated accounts of Tilal and its Subsidiaries for the purposes of the calculation above shall, until consolidated accounts for the financial period in which the acquisition is made have been prepared and audited as aforesaid, be deemed to be a reference to such firstmentioned accounts as if such Subsidiary had been shown in such accounts by reference to its then latest relevant audited accounts, adjusted as deemed appropriate by Tilal; (b) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of Tilal which immediately prior to such transfer is a Material Subsidiary, provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a Material Subsidiary and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this paragraph (b) on the date on which the consolidated accounts of Tilal and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited as aforesaid but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of paragraph (a) above or, prior to or after such date, by virtue of any other applicable provision of this definition; or (c) to which is transferred an undertaking or assets which, taken together with the undertaking or assets of the transferee Subsidiary, generated (or, in the case of the transferee Subsidiary being acquired after the end of the financial period to which the then latest audited consolidated accounts of Tilal and its Subsidiaries relate, generate EBITDA equal to) not less than 5 per cent. of EBITDA, or represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the consolidated total assets, of Tilal and its Subsidiaries taken as a whole, all as calculated as referred to in paragraph (a) above, provided that the transferor Subsidiary (if a Material Subsidiary) shall upon such transfer forthwith cease to be a Material Subsidiary unless immediately following such transfer its undertaking and assets generate (or, in the case aforesaid, generate EBITDA equal to) not less than 5 per cent. of EBITDA, or its assets represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the consolidated total assets of Tilal and its Subsidiaries taken as a whole, all as calculated as referred to in paragraph (a) above, and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this paragraph (c) on the date on which the consolidated accounts of Tilal and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of paragraph (a) above or, prior to or after such date, by virtue of any other applicable provision of this definition. A report signed by two Authorised Signatories of Tilal (whether or not addressed to the Delegate) that in their opinion a Subsidiary of Tilal is or is not or was or was not at any particular time or throughout any specified period a Material Subsidiary may be relied upon by the Delegate without further enquiry or evidence (without any liability to any person for so relying) and, if relied upon by the Delegate, shall, in the absence of manifest error, be conclusive and binding on all parties; “Measurement Period” means each period of 12 months ending on a Calculation Date; 37
49. “Moody’s” means Moody’s Investors Service, Inc.; “Net Worth” means, at any time, the amount at that time paid up or credited as paid up on the issued share capital of Tilal, plus the consolidated reserves, plus the consolidated retained earnings (or less the amount standing to the debit of the consolidated profit and loss account), less any amount included in the above which is attributable to (a) intangibles (calculated in accordance with IFRS and excluding goodwill) and (b) deferred taxation, as at and as determined by reference to the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “New Assets” means the assets specified as such in a substitution notice served pursuant to the Sale, Substitution and Additional Assets Undertaking, the identity of which shall be determined by Tilal in its sole and absolute discretion subject only as provided in paragraph (b) of Clause 2.1 of the Sale, Substitution and Additional Assets Undertaking; “Non-recourse Project Financing” means any financing of all or part of the costs of the acquisition, construction or development of any project, provided that: (a) any Security Interest given by Tilal or the relevant Material Subsidiary or Subsidiary of Tilal (as the case may be) is limited solely to assets of the project; (b) the person providing such financing expressly agrees to limit its recourse to the project financed and the revenues derived from such project as the principal source of repayment for the moneys advanced; and (c) there is no other recourse to Tilal or the relevant Material Subsidiary or Subsidiary of Tilal (as the case may be) in respect of any default by any person under the financing; “Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee and the Delegate. The counsel may be an employee of or counsel to Tilal, the Trustee or the Delegate; “Optional Dissolution Amount (Call)” means, in relation to each Certificate: (a) if the Optional Dissolution Date falls on 12 November 2019, 103.5000 per cent. of the aggregate face amount of that Certificate; (b) if the Optional Dissolution Date falls on 12 May 2020, 103.5000 per cent. of the aggregate face amount of that Certificate; (c) if the Optional Dissolution Date falls on 12 November 2020, 103.5000 per cent. of the aggregate face amount of that Certificate; (d) if the Optional Dissolution Date falls on 12 May 2021, 103.5000 per cent. of the aggregate face amount of that Certificate; (e) if the Optional Dissolution Date falls on 12 November 2021, 103.2500 per cent. of the aggregate face amount of that Certificate; (f) if the Optional Dissolution Date falls on 12 May 2022, 102.4375 per cent. of the aggregate face amount of that Certificate; (g) if the Optional Dissolution Date falls on 12 November 2022, 101.6250 per cent. of the aggregate face amount of that Certificate; (h) if the Optional Dissolution Date falls on 12 May 2023, 100.8125 per cent. of the aggregate face amount of that Certificate; together with, in each case, any accrued but unpaid Periodic Distribution Amount; “Optional Dissolution Date” means 12 November 2019 or any Periodic Distribution Date thereafter (save, for the avoidance of doubt, the Scheduled Dissolution Date) as specified in the applicable Exercise Notice; 38
50. “Payment Business Day” means: (a) in the case where presentation and surrender of a Definitive Certificate is required before payment can be made, a day on which banks in the relevant place of surrender of the Definitive Certificate are open for presentation and payment of securities and for dealings in foreign currencies; and (b) in the case of payment by transfer to an account, a day on which banks are open for general business (including dealings in foreign currencies) in New York City, Muscat and London; “Periodic Distribution Amount” has the meaning given to it in Condition 8.1 (Periodic Distribution Amounts and Periodic Distribution Dates); “Periodic Distribution Date” has the meaning given to it in Condition 8.1 (Periodic Distribution Amounts and Periodic Distribution Dates); “Permitted Investment” means any one or more of the following: (a) demand or time deposits, certificates of deposit (including for the avoidance of doubt any monies on deposit in any bank account) and other short-term unsecured debt obligations (including for the avoidance of doubt, money market funds rated at least investment grade by Moody’s or Standard & Poor’s or Fitch) provided that, in each case, at the time the deposit is made or the certificate or obligation is acquired the then current rating of the unsecured and unguaranteed debt obligations of that institution (or, where the investment in question is guaranteed, of the guaranteeing institution) is at least investment grade rated by Moody’s or Standard & Poor’s or Fitch; or (b) short-term unsecured debt obligations (including commercial paper) issued by a body corporate provided that the then current rating of the unsecured and unguaranteed debt obligations of that body corporate (or where the debt obligations in question are guaranteed, of the guaranteeing institution) is at least investment grade rated by Moody’s or Standard & Poor’s or Fitch; or (c) any Investment in another Person if, as a result of such Investment, such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, Tilal or a Subsidiary of Tilal; provided, however, that such Person’s primary business is a Related Business; or (d) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses for accounting purposes and that are made in the ordinary course of business; or (e) loans or advances to employees made in the ordinary course of business consistent with past practices of Tilal or the relevant Subsidiary of Tilal; or (f) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to Tilal or the relevant Subsidiary of Tilal or in satisfaction of judgments; or (g) any Investment in a Person solely for the purposes of facilitating the conduct by Tilal or the relevant Subsidiary of Tilal of its real estate and property development activities in the ordinary course of business, including the acquisition of land, and whether through a joint venture arrangement or otherwise; or (h) any Investment in a Person to the extent such Investment exists on the Signing Date, and any extension, modification or renewal of any such Investments existing on the Signing Date, but only to the extent not involving additional advances, contributions or other Investments of cash or other assets or other increases thereof (other than as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities, in each case, pursuant to the terms of such Investment as in effect on the Signing Date); 39
51. “Permitted Restriction” means any one or more of the following: (a) (b) with respect to Condition 5.8(i), (ii) and (iii): (i) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the Signing Date; (ii) any encumbrance or restriction existing at the time that the relevant Person is merged into, or consolidated with, Tilal or the relevant Subsidiary of Tilal, as the case may be, provided that such encumbrance or restriction was not created in contemplation of such merger or consolidation; (iii) any encumbrance or restriction pursuant to any Refinancing Financial Indebtedness Incurred pursuant to an agreement referred to in paragraph (i) above or an arrangement referred to in paragraph (ii) above or contained in any amendment to an agreement referred to in paragraph (i) above or an arrangement referred to in paragraph (ii) above; provided, however, that the encumbrances and restrictions with respect to Tilal or the relevant Subsidiary of Tilal contained in any such refinancing agreement or amendment are no less favourable to the Certificateholders than encumbrances and restrictions, taken as a whole, with respect to Tilal or such Subsidiary contained in such predecessor agreements; (iv) any encumbrance or restriction with respect to a Subsidiary of Tilal imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Subsidiary pending the closing of such sale or disposition; (v) any encumbrance or restriction contained in the terms of any Financial Indebtedness permitted to be Incurred pursuant to Condition 5.2 (Limitations on Indebtedness (Tilal)) or any agreement pursuant to which such Financial Indebtedness was issued if (x) either (A) the encumbrance or restriction applies only in the event of and during the continuance of a payment default or a default with respect to a financial covenant contained in such Financial Indebtedness or agreement or (B) Tilal determines at the time any such Financial Indebtedness is Incurred (and at the time of any modification of the terms of any such encumbrance or restriction) that any such encumbrance or restriction will not adversely affect Tilal’s ability to fulfil its payment obligations under the Transaction Documents and any other Financial Indebtedness that is an obligation of Tilal; and (y) the encumbrance or restriction is not materially more disadvantageous to the holders of the Certificates than is customary in comparable financings or agreements (as determined by Tilal in good faith); (vi) any encumbrance or restriction that is as a result of applicable law or regulation; and (vii) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in paragraphs (i) through (vi) above; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Board of Directors of Tilal, not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the dividends or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing; and with respect to Condition 5.8(iii) only: (i) any encumbrance or restriction consisting of customary non-assignment provisions in leases governing leasehold interests to the extent such provisions restrict the transfer of the lease or the property leased thereunder; and 40
52. (ii) any encumbrance or restriction contained in security agreements or mortgages securing Indebtedness of a Subsidiary of Tilal to the extent such encumbrance or restriction restricts the transfer of the property subject to such security agreements or mortgages; “Permitted Security Interest” means any one or more of the following: (a) any Security Interest securing Relevant Indebtedness or a Relevant Sukuk Obligation of a Person and/or its Subsidiaries existing at the time that such Person is merged into, or is consolidated with, or is acquired by, Tilal or any Subsidiary of Tilal, provided that such Security Interest was not created in contemplation of such merger or consolidation or acquisition and does not extend to any other assets or property of Tilal or any Subsidiary of Tilal; (b) any Security Interest granted to secure a Non-recourse Project Financing or to secure any Relevant Indebtedness incurred in connection with a Securitisation; (c) any Security Interest existing on any assets prior to the acquisition thereof by Tilal or any Subsidiary of Tilal and not created in contemplation of such acquisition; (d) any Security Interest granted in connection with Refinancing Financial Indebtedness; or (e) any renewal of or substitution for any Security Interest permitted by paragraph (a), (b), (c) or (d) of this definition, provided that the amount of Relevant Indebtedness or Relevant Sukuk Obligation secured has not increased and the Security Interest has not been extended to any additional assets (other than the proceeds of such assets); “Person” means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; “Proceedings” has the meaning given to it in Condition 23.4(c) (Effect of Exercise of Option to Litigate); “Rating Agency” means Fitch, Moody’s or Standard & Poor’s or any of their successors; “Record Date” means: (i) (where the Certificate is represented by the Global Certificate), at the close of the business day (being for this purpose a day on which Euroclear and Clearstream, Luxembourg are open for business) before the Periodic Distribution Date or Dissolution Date, as the case may be; or (ii) (where the Certificate is in definitive form), in the case of the payment of a Periodic Distribution Amount, the date falling on the fifteenth day before the relevant Periodic Distribution Date and, in the case of the payment of the Dissolution Amount, the date falling two Payment Business Days before the Dissolution Date, as the case may be; a Certificateholder’s “registered account” means the account maintained by or on behalf of such Certificateholder with a bank that processes payments in U.S. dollars, details of which appear on the Register at the close of business on the relevant Record Date; a Certificateholder’s “registered address” means its address appearing on the Register at that time; “Refinancing” means, in respect of any Financial Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Financial Indebtedness in exchange or replacement for, such Financial Indebtedness, and “Refinances” and similar terms are to be construed accordingly; “Refinancing Financial Indebtedness” means Financial Indebtedness that Refinances any Financial Indebtedness of Tilal or any Subsidiary of Tilal, including Financial Indebtedness that Refinances Refinancing Financial Indebtedness; provided, however, that: (a) such Refinancing Financial Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the Financial Indebtedness being Refinanced; 41
53. (b) such Refinancing Financial Indebtedness has an Average Life at the time such Refinancing Financial Indebtedness is Incurred that is equal to or greater than the Average Life of the Financial Indebtedness being Refinanced; (c) such Refinancing Financial Indebtedness has an aggregate principal amount (or if Incurred with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if Incurred with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium) under the Financial Indebtedness being Refinanced; and (d) if the Financial Indebtedness being Refinanced is subordinated in right of payment to Tilal’s payment obligations under the Transaction Documents, such Refinancing Financial Indebtedness is subordinated in right of payment to Tilal’s payment obligations under the Transaction Documents at least to the same extent as the Financial Indebtedness being Refinanced, provided further, however, that Refinancing Financial Indebtedness shall not include Financial Indebtedness of a Subsidiary of Tilal that Refinances Financial Indebtedness of Tilal; “Related Business” means any business in which Tilal and/or any of its Subsidiaries was engaged on the Signing Date and any businesses related, ancillary or complementary to such business; “Relevant Date” means, in relation to any payment, whichever is the later of: (i) the date on which the payment in question first becomes due; and (ii) if the full amount payable has not been received in the principal financial centre of the currency of payment by the Principal Paying Agent on or prior to such due date, the date on which the full amount has been so received; “Relevant Indebtedness” means any present or future indebtedness which is in the form of, or which is represented or evidenced by, bonds, notes, debentures, loan stock or other securities which for the time being are, or are intended to be or are capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market; “Relevant Jurisdiction” means the Cayman Islands and the Sultanate of Oman and, in either case, any political subdivision or authority thereof or therein having the power to tax; “Relevant Period” has the meaning given to it in Condition 8.2 (Calculation of Periodic Distribution Amounts payable other than on a Periodic Distribution Date); “Relevant Sukuk Obligation” means any present or future undertaking or other obligation to pay any money given in connection with any issue of trust certificates or other securities intended to be issued in compliance with the principles of Shari’a, whether or not in return for consideration of any kind, which for the time being are, or are intended to be or are capable of being, quoted, listed or dealt in or traded on any stock exchange or over-the-counter or other securities market; “Reserved Matter” has the meaning given to it in Schedule 4 of the Declaration of Trust; “Restricted Payments” has the meaning given to it in Condition 5.5(d) (Restricted Payments); “Return Accumulation Period” has the meaning given to it in Condition 8.2 (Calculation of Periodic Distribution Amounts payable other than on a Periodic Distribution Date); “Sale Agreement” means an agreement substantially in the form set out in Schedule 5 (Form of Sale/Transfer Agreement) to the Sale, Substitution and Additional Assets Undertaking; “Scheduled Dissolution Date” means 12 November 2023; “Secured Assets” means the land and building known as “Muscat Grand Mall”, registered in the name of Al Madina Real Estate Company S.A.O.C. under title number 882/1/1 RM/1/05/062/02/397/1 and situated on Plot 17/2, Al Khuwair, Oman with a total aggregate area of 94,375.25 sq/m, and any Additional Secured Asset(s) granted pursuant to Condition 5.12 (Valuation of Transaction Security) 42
54. from time to time , but excluding any assets released from the Transaction Security in accordance with Condition 5.12 (Valuation of Transaction Security). “Securitisation” means any securitisation of existing or future assets and/or revenues, provided that (i) any Security Interest given by Tilal or any Subsidiary of Tilal in connection therewith is limited solely to the assets and/or revenues which are the subject of the securitisation, (ii) each Person participating in such securitisation expressly agrees to limit its recourse to the assets and/or revenues securitised as the principal source of repayment for the moneys advanced or payment of any other liability and (iii) there is no other recourse to Tilal or any Subsidiary of Tilal in respect of any default by any Person under the securitisation; “Security Interest” means any mortgage, charge, pledge, lien or other security interest including, without limitation, anything analogous to any of the foregoing under the laws of any jurisdiction; “Signing Date” means 9 November 2018; “Specified Denomination” has the meaning given to it in Condition 2.1 (Form and Denomination); “Standard & Poor’s” means Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies Inc.; “Stated Maturity” means, with respect to any Financial Indebtedness, the date specified in the relevant documentation as the fixed date on which the final payment of principal in respect thereof is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such Financial Indebtedness at the option of the holder thereof upon the happening of any contingency unless such contingency has occurred); “Subsidiary” means, in relation to any Person (the “First Person”) at any particular time, any other Person (the “Second Person”) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, contract, or the power to appoint or remove members of the governing body of the second Person; “Substituted Assets” means the Lease Asset(s) specified as such in a substitution notice served pursuant to the Sale, Substitution and Additional Assets Undertaking, the identity of which shall be determined by Tilal in its sole and absolute discretion (but without prejudice to the interests of the Trustee), subject only as provided in paragraph (b) of Clause 2.1 of the Sale, Substitution and Additional Assets Undertaking; “Successor Company” has the meaning given to it in Condition 5.10(a) (Merger and Consolidation); “Taxes” means any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction; “Tax Dissolution Date” has the meaning given to it in Condition 14.2 (Capital Distributions of the Trust – Early Dissolution for Tax Reasons); 14.4 “Tax Event” has the meaning given to it in Condition 14.2 (Early Dissolution for Tax Reasons); “Total Assets” means the total assets of the Group as at and as shown in the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Total Liabilities” means the aggregate of all Borrowings of the Group and all other obligations of the Group for the payment or repayment of moneys, whether present or future as at and as shown in the most recently available consolidated financial statements of Tilal prepared in accordance with IFRS; “Total Loss Dissolution Date” means the date falling 31 days after a Total Loss Event; “Total Loss Event” means: (i) the total loss or destruction of, or damage to the whole of, the Lease Assets or any event or occurrence that renders the whole of the Lease Assets permanently unfit for any 43
55. economic use and (but only after taking into consideration any insurances payable or other indemnity granted by any third party in respect of the Lease Assets) the repair or remedial work in respect thereof is wholly uneconomical; or (ii) the expropriation, nationalisation, requisition, confiscation, attachment, sequestration or execution of any legal process in respect of the whole of the Lease Assets in each case as determined by the Service Agent acting for and on behalf of the Trustee; “Total Loss Shortfall Amount” has the meaning given to it in Condition 14.3 (Dissolution following a Total Loss Event); “Transaction Account” means, the non-interest bearing transaction account established by the Trustee and held with the Principal Paying Agent denominated in U.S. dollars into which, among other things: (i) the Lessee will deposit the amounts of Rental due to the Trustee; and (ii) the Delegate will deposit all the proceeds of any action to enforce or realise the Trust Assets taken in accordance with Condition 16 (Enforcement); “Transaction Security” means the Security Interests constituted by the Mortgage Agreement and any Additional Transaction Security granted pursuant to Condition 5.12 (Valuation of Transaction Security) from time to time; “Trust Assets” has the meaning given to it in Condition 6.1 (The Trust Assets); and “Trustee Administrator” means MaplesFS Limited; “Value” means: (i) in respect of any Lease Asset (including, for the avoidance of doubt, any Substituted Asset or Cancellation Asset) the amount in U.S. dollars paid by the Trustee to Tilal in accordance with the terms of the Sale and Purchase Agreement or, where such Lease Asset was acquired by the Trustee pursuant to the exercise of the Sale, Substitution and Additional Assets Undertaking, the amount specified as such in the relevant Sale Agreement as the “Value” of that asset; and (ii) in respect of any New Asset (which is not a Lease Asset), the amount in U.S. dollars determined by Tilal as being the value of that New Asset on the date of the relevant Sale Agreement and specified as such in the relevant Sale Agreement. 2. FORM, DENOMINATION AND TITLE 2.1 Form and Denomination The Certificates are issued in registered form in face amounts of U.S.$200,000 and integral multiples of U.S.$1,000 (each a “Specified Denomination”) in excess thereof. A Certificate will be issued to each Certificateholder in respect of its registered holding of Certificates. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Certificateholders (the “Register”) which the Trustee will cause to be kept by the Registrar in accordance with the provisions of the Agency Agreement. Upon issue, the Certificates will be represented by beneficial interests in the Global Certificate, in fully registered form, which will be deposited with, and registered in the name of a nominee for, a common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg”). Ownership interests in the Global Certificate will be shown on, and transfers thereof will only be effected through, records maintained by Euroclear and Clearstream, Luxembourg (as applicable), and their respective participants. 2.2 Title Title to the Certificates passes only by registration in the Register. Subject to the terms of the Global Certificate, the registered holder of any Certificate will (except as otherwise required by law) be treated as the absolute owner of the Certificates represented by the Certificate for all purposes (whether or not any payment thereon is overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft or loss of, the Certificate) and no person will be liable for so treating the holder of any Certificate. The registered holder of a Certificate will be recognised by the Trustee as entitled to his Certificate free from any equity, set-off or counterclaim on the part of the Trustee against the original or any intermediate holder of such Certificate. 44
56. The Trustee and the Delegate may call for and shall be at liberty to accept and place full reliance on as sufficient evidence thereof and shall not be liable to any Certificateholder by reason only of either having accepted as valid or not having rejected an original certificate or letter of confirmation purporting to be signed on behalf of Euroclear or Clearstream , Luxembourg to the effect that at any particular time or throughout any particular period any particular person is, was or will be shown in its records as having a particular nominal amount of Certificates credited to his or her securities account. 3. TRANSFERS OF CERTIFICATES 3.1 Transfers Subject to Condition 3.4 (Closed Periods), Condition 3.5 (Regulations) and the provisions of the Agency Agreement, a Certificate may be transferred whole or in an amount equal to the Specified Denomination(s) or any integral multiple thereof by depositing the Certificate, with the form of transfer on the back, duly completed and signed, at the specified office of 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 individuals who have executed the forms of transfer. Transfers of interests in the Certificates represented by a Global Certificate will be effected in accordance with the rules of the relevant clearing system through which the interest is held. 3.2 Delivery of New Certificates Each new Certificate to be issued upon any transfer of Certificates will, within three (3) business days of receipt by the Transfer Agent of the duly completed form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Certificate to the address specified in the form of transfer. For the purposes of this Condition, “business day” shall mean a day (other than a Saturday or Sunday) on which banks are open for business in the city in which the specified office of the Transfer Agent with whom a Certificate is deposited in connection with a transfer is located. Where some but not all of the Certificates in respect of which a Certificate is issued are to be transferred, a new Certificate in respect of the Certificates not so transferred will, within five (5) business days of receipt by the Transfer Agent of the original Certificate, be mailed by uninsured mail at the risk of the holder of the Certificates not so transferred to the address of such holder appearing on the Register or as specified in the form of transfer. Except in the limited circumstances described in the Global Certificate, owners of interests in the Global Certificate will not be entitled to receive physical delivery of Certificates. 3.3 Formalities Free of Charge Registration of any transfer of Certificates will be effected without charge on behalf of the Trustee by the Registrar or the Transfer Agent but upon payment (or the giving of such indemnity as the Trustee, Registrar or Transfer Agent may reasonably require) by the transferee in respect of any stamp duty, tax or other governmental charges which may be imposed in relation to such transfer. 3.4 Closed Periods No Certificateholder may require the transfer of a Certificate to be registered during the period of fifteen (15) days ending on (and including) the due date for any payment of the Dissolution Amount or any Periodic Distribution Amount or any other date on which payment of the face amount (or any part thereof) or payment of any profit in respect of a Certificate falls due. 3.5 Regulations All transfers of Certificates and entries on the Register will be made subject to the detailed regulations concerning transfers of Certificates scheduled to the Declaration of Trust. 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. 45
57. Unless otherwise requested by him , each Certificateholder shall be entitled to receive, in accordance with Condition 2.1 (Form and Denomination), only one Certificate in respect of his or her entire holding of Certificates. In the case of a transfer of a portion of the face amount of a Certificate, a new Certificate in respect of the balance of the Certificates not transferred will be issued to the transferor in accordance with Condition 3.2 (Delivery of New Certificates). 4. STATUS AND LIMITED RECOURSE 4.1 Status Each Certificate evidences an undivided ownership interest in the Trust Assets, subject to the terms of the Declaration of Trust and these Conditions, and is a direct, unsubordinated, unsecured and limited recourse obligation of the Trustee. Each Certificate ranks pari passu, without any preference or priority, with the other Certificates. The obligations of Tilal and AMRE under the Transaction Documents are secured by the Transaction Security pursuant to the Security Documents. 4.2 Limited Recourse The proceeds of the Trust Assets are the sole source of payments on the Certificates. Save as provided in the next sentence, the Certificates do not represent an interest in or obligation of any of the Trustee, Tilal, the Delegate, the Security Agent, the Agents or any of their respective affiliates. Accordingly, Certificateholders, by subscribing for or acquiring the Certificates, acknowledge that: (a) they will not have recourse to any assets of the Trustee, the Delegate, the Security Agent, the Agents, or any of their respective affiliates in respect of any shortfall in the expected amounts from the Trust Assets to the extent the Trust Assets have been exhausted following which all obligations of the Trustee shall be extinguished; and (b) any recourse to the assets of Tilal shall be limited to the Trust Assets, which include the obligations of Tilal under the Transaction Documents. Tilal is obliged to make certain payments under the Transaction Documents directly to the Trustee (for and on behalf of the Certificateholders), and the Delegate (acting in the name of and on behalf of the Trustee) will have direct recourse against Tilal to recover such payments. The net proceeds of realisation of, or enforcement with respect to, the Trust Assets may not be sufficient to make all payments due in respect of the Certificates. If, following the distribution of such proceeds (including after enforcement of the Transaction Security), there remains a shortfall in payments due under the Certificates, subject to Condition 16 (Enforcement), no holder of Certificates will have any claim against the Trustee, Tilal (to the extent that it fulfils all of its obligations under the Transaction Documents), the Delegate, the Security Agent, the Agents or any of their respective affiliates or against any assets (other than the Trust Assets to the extent not exhausted) in respect of such shortfall and any unsatisfied claims of Certificateholders shall be extinguished. In particular, no holder of Certificates will be able to petition for, or join any other person in instituting proceedings for, the reorganisation, liquidation, winding-up or receivership of the Trustee, Tilal (to the extent that it fulfils all of its obligations under the Transaction Documents), the Delegate, the Security Agent, the Agents or any of their respective affiliates as a consequence of such shortfall or otherwise. 4.3 Agreement of Certificateholders By purchasing Certificates, each Certificateholder is deemed to have agreed that notwithstanding anything to the contrary contained in these Conditions or any Transaction Document: (a) no payment of any amount whatsoever shall be made by any of the Trustee, the Delegate (acting in the name and on behalf of the Trustee) or any of their respective agents on their behalf except to the extent funds are available therefor from the Trust Assets; 46
58. 5 . (b) no recourse shall be had for the payment of any amount owing hereunder or under any relevant Transaction Document, whether for the payment of any fee, indemnity or other amount hereunder or any other obligation or claim arising out of or based upon the Transaction Documents, against the Trustee (and/or its shareholders, members, officers, agents, directors or corporate services providers), Tilal (and/or its officers) (to the extent that it fulfils all of its obligations under the Transaction Documents to which it is a party), the Delegate, any Agent or any of their respective agents or affiliates to the extent the Trust Assets have been exhausted following which all obligations of the Trustee, the Delegate, Tilal, any Agents and their respective agents or affiliates shall be extinguished; (c) prior to the date which is one year and one day after the date on which all amounts owing by the Trustee 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 Trustee any bankruptcy, reorganisation, arrangement or liquidation proceedings or other proceedings under any bankruptcy or similar law; (d) no recourse under any obligation, covenant or agreement contained in any Transaction Document shall be had against any shareholders, members, officers, agents, directors or corporate services providers of the Trustee, by the enforcement of any assessment or by any proceeding, by virtue of any statute or otherwise. The obligations of the Trustee under the Transaction Documents to which it is a party are corporate or limited liability obligations of the Trustee and no personal liability shall attach to or be incurred by the shareholders, members, officers, agents, directors or corporate services providers of the Trustee; and (e) it shall not be entitled to claim or exercise any right of set-off, counterclaim, abatement or other similar remedy which it might otherwise have, under the laws of any jurisdiction, in respect of such Certificate. No collateral is or will be given for the payment obligations by the Trustee under the Certificates (without prejudice to the Transaction Security). NEGATIVE PLEDGE AND OTHER COVENANTS Tilal agrees that, so long as any Certificate remains outstanding, it shall comply with the following covenants. 5.1 5.2 Negative Pledge (a) In relation to the Secured Assets, Tilal will not, and it will procure that no Material Subsidiary will, create, or have outstanding, any Security Interest, other than the Transaction Security. (b) Without prejudice to Condition 5.1(a), Tilal will not, and it will procure that no Material Subsidiary will, create, or have outstanding, any Security Interest, other than a Permitted Security Interest, upon the whole or any part of its present or future undertaking, assets or revenues to secure any Relevant Indebtedness or Relevant Sukuk Obligation, or to secure any guarantee or indemnity in respect of any Relevant Indebtedness or Relevant Sukuk Obligation, without at the same time or prior thereto (x) securing all amounts payable by it to the Trustee under the Transaction Documents to which it is a party (in whatever capacity) equally and rateably therewith or (y) providing such other security for the payment of such amounts as either: (A) the Delegate shall in its absolute discretion deem not materially less beneficial to the interests of the Certificateholders; or (B) shall be approved by an Extraordinary Resolution. Limitation on Indebtedness (Tilal) Tilal will not (and will procure that none of its Subsidiaries) create, issue, incur, assume, guarantee or in any manner become directly or indirectly liable with respect to or otherwise become responsible for, contingently or otherwise, the payment of (individually and collectively, to “Incur” or, as appropriate, an “Incurrence”) any Financial Indebtedness if on the date of such Incurrence and after giving effect thereto on a pro forma basis: 47
59. 5 .3 (a) a Dissolution Event has occurred and is continuing or would occur as a consequence of such Incurrence; or (b) the ratio of EBITDA to Consolidated Finance Expense for the immediately preceding Measurement Period is less than 1.2:1. Financial Covenants Tilal will maintain, or procure the maintenance of, the following financial covenants: 5.4 (a) the Consolidated Total Gross Indebtedness shall not at any time exceed 2x of Tilal’s Net Worth; (b) the Total Assets must not at any time be less than U.S.$350,000,000; and (c) the Total Assets minus Total Liabilities must at all times be equal to or greater than U.S.$125,000,000. Disposals Tilal will not, and will ensure that none of its Subsidiaries will, directly or indirectly enter into an Asset Sale, unless the consideration received by Tilal or its Subsidiary (as the case may be) is at least equal to the Fair Market Value of the assets sold or disposed of. In the case of each of (a), (b) and (c) below, the determination as to whether such Asset Sale complies with this Condition 5.4 shall be made by an Independent Appraiser at the time of such Asset Sale (which, for the avoidance of doubt, shall in the case of paragraph (c) below also require a determination of the Fair Market Value of the non-cash consideration received): 5.5 (a) any Asset Sale other than to an Affiliate of Tilal in respect of an asset with a book value (as determined by reference to the most recently available consolidated financial statements of Tilal or the most recently available consolidated financial statements of its relevant Subsidiary (as the case may be) prepared in accordance with IFRS) that exceeds 3 per cent. of the Total Assets at the time of any such proposed Asset Sale; (b) any Asset Sale to any Affiliate of Tilal (other than a Subsidiary of Tilal) in respect of any asset with a book value (as determined by reference to the most recently available consolidated financial statements of Tilal or the most recently available consolidated financial statements of its relevant Subsidiary (as the case may be) prepared in accordance with IFRS) that, when aggregated with all other Asset Sales to any Affiliate of Tilal (other than a Subsidiary of Tilal) during the calendar year in which the date of the relevant Asset Sale occurs, exceeds U.S.$5,000,000 (or its equivalent in any other currency or currencies) in aggregate; and (c) any Asset Sale where the consideration is other than in the form of cash and where the asset has a book value (as determined by reference to the most recently available consolidated financial statements of Tilal or the most recently available consolidated financial statements of its relevant Subsidiary (as the case may be) prepared in accordance with IFRS) that, when aggregated with all other Asset Sales where the consideration is other than in the form of cash during the calendar year in which the date of the relevant Asset Sale occurs, exceeds U.S.$1,000,000 (or its equivalent in any other currency or currencies) in aggregate. Restricted Payments Tilal will not, and will ensure that none of its Subsidiaries will, directly or indirectly: (a) declare or pay any dividend, in cash or otherwise, or make any other payment or distribution (whether by way of redemption, acquisition or otherwise) in respect of its share capital (other than dividends, payments or distributions payable to Tilal or any of its Subsidiaries and other than dividends or distributions payable in the form of shares of Tilal); or 48
60. (b) voluntarily purchase, redeem or otherwise acquire or retire for value any Capital Stock of Tilal or any of its Affiliates; or (c) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Financial Indebtedness of Tilal that is contractually subordinated to the obligations of Tilal under the Transaction Documents (excluding any intercompany Financial Indebtedness between or among Tilal and any of its Subsidiaries), except a payment of interest or principal (or equivalent amounts) at either the Stated Maturity thereof or on any Call Date in respect thereof; or (d) make any Investment (other than a Permitted Investment) in any Person, (all such payments and other actions set out in (a) to (d) (inclusive) above being together referred to herein as “Restricted Payments”), unless at the time of and after giving effect to such Restricted Payment: 5.6 (i) no Dissolution Event has occurred and is continuing or would occur as a consequence of such Restricted Payment; and (ii) such Restricted Payment when aggregated with all other Restricted Payments declared or made since the Signing Date is less than 66 per cent. of the Consolidated Net Income of Tilal for the period (taken as one accounting period) from the beginning of the first semi-annual period commencing after the Signing Date to the end of Tilal’s most recently ended semi-annual period for which financial statements are available at the time of such Restricted Payment (for the purposes of calculating 66 per cent. of the Consolidated Net Income for such period, 66 per cent. of the Consolidated Net Income for each semi-annual period will be aggregated, provided that where the Consolidated Net Income for any semi-annual period is a deficit, 100 per cent. of such deficit shall be subtracted from the total). Transactions with Affiliates (a) Tilal will not, and will ensure that none of its Subsidiaries will, directly or indirectly, conduct any business, enter into or permit to exist any transaction or series of related transactions (including, without limitation, the purchase, sale, transfer, assignment, lease, conveyance or exchange of any property or the rendering of any service) with, or for the benefit of, any Affiliate (an “Affiliate Transaction”) including, without limitation, intercompany loans, unless the terms of such Affiliate Transaction are no less favourable to such entity than those that could be obtained (at the time of such transaction or, if such transaction is pursuant to a written agreement, at the time of the execution of the agreement providing therefor) in a comparable arm’s length transaction with a Person that is not an Affiliate of such entity. (b) Condition 5.6(a) above does not apply to: (i) any Affiliate Transaction between Tilal and its Subsidiaries and/or between the Tilal’s Subsidiaries; or (ii) any Affiliate Transaction which, when aggregated with all other Affiliate Transactions in the calendar year in which the date of the relevant Affiliate Transaction occurs, involves payments or value over time of less than U.S.$5,000,000 (or its equivalent in any other currency or currencies) in aggregate (provided that such exception shall be without prejudice to the requirements of Condition 5.4 (Disposals) in respect of Asset Sales which are also Affiliate Transactions); or (iii) compensation or employee benefit arrangements with any employee, officer or director of Tilal or any of its Subsidiaries arising as a result of their employment contract; or 49
61. (iv) 5.7 any other arrangement existing on the Signing Date. Financial Information Tilal will (i) provide its latest unaudited semi-annual consolidated financial statements prepared in accordance with IFRS to the Delegate within a period of 60 days from the end of each relevant period; (ii) provide its audited annual consolidated financial statements prepared in accordance with IFRS to the Delegate within a period of 120 days from the end of each financial year; and (iii) provide to the Delegate within a period of 60 days from the end of each quarterly period of each financial year of Tilal the management accounts of Tilal (which shall include an analysis of the current state of the business of Tilal). 5.8 Limitation on Restrictions on Distributions from Subsidiaries Tilal it will not, and will ensure that none of its Subsidiaries will, create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of Tilal to (i) pay dividends or make any other distributions on its Capital Stock to Tilal or a Subsidiary of Tilal or pay any Financial Indebtedness owed to Tilal or a Subsidiary of Tilal, (ii) make any loans or advances to Tilal or a Subsidiary of Tilal or (iii) transfer any of its property or assets to Tilal or a Subsidiary of Tilal, except for a Permitted Restriction. 5.9 Limitation on Line of Business Tilal will not, and will not permit any Subsidiary of Tilal to, engage in any business other than a Related Business. 5.10 Merger and Consolidation Tilal will not consolidate with or merge with or into, or convey, transfer or lease, in one transaction or a series of transactions, directly or indirectly, all or substantially all its assets to, any Person, unless: (a) the resulting, surviving or transferee Person (the “Successor Company”) shall be a Person organised and existing under the laws of the Sultanate of Oman, any state which is a member of the European Union, Canada, the United States, any state thereof or the District of Columbia and the Successor Company (if not Tilal) shall expressly assume, by a guarantee supplemental thereto, executed and delivered to the Trustee and the Delegate, in form satisfactory to Trustee and the Delegate, all the obligations of Tilal under the Transaction Documents to which it is a party; (b) immediately after giving pro forma effect to such transaction (and treating any Financial Indebtedness which becomes an obligation of the Successor Company or any Subsidiary of Tilal as a result of such transaction as having been Incurred by such Successor Company or such Subsidiary at the time of such transaction): (i) no Dissolution Event has occurred and is continuing or would occur as a result; and (ii) Tilal shall have delivered to the Trustee and the Delegate an Officers Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental guarantee (if any) comply with the foregoing, provided, however, that sub-paragraph (i) above will not be applicable to (A) a Subsidiary of Tilal consolidating with, merging into or transferring all or part of its properties and assets to Tilal (so long as no Capital Stock of Tilal is distributed to any Person) or (B) Tilal merging with an Affiliate of Tilal solely for the purpose and with the sole effect of reincorporating Tilal in another jurisdiction. For the purposes of this Condition 5.10, the sale, lease, conveyance, assignment, transfer or other disposition of all or substantially all of the properties and assets of one or more Subsidiaries of Tilal, which properties and assets, if held by Tilal instead of such Subsidiaries, would constitute all or 50
62. substantially all of the properties and assets of Tilal on a consolidated basis , shall be deemed to be the transfer of all or substantially all of the properties and assets of Tilal. The Successor Company will be the successor to Tilal and shall succeed to, and be substituted for, and may exercise every right and power of, Tilal under the Transaction Documents to which Tilal is a party, and the predecessor Tilal, except in the case of a lease, shall be released from the obligation to pay all amounts in respect of the principal of and Periodic Distribution Amounts on the Certificates. 5.11 Officers Certificate Tilal will furnish to the Delegate an Officers Certificate together with each copy of its financial statements referred to in Condition 5.7 (Financial Information) and otherwise as soon as reasonably practicable following a request by the Delegate (and in any event within 10 Business Days of such request): (a) certifying compliance with the provisions of Condition 5 (Negative Pledge and Other Covenants); (b) listing its Material Subsidiaries (if any) as at such date; and (c) stating whether since the date of the last Officers Certificate or (if none) the Issue Date, any Dissolution Event has occurred and, if any such event shall have occurred, providing details in respect thereof and stating what action Tilal is taking or proposes to take with respect thereto; and 5.12 Valuation of Transaction Security (a) Tilal will furnish to the Delegate and the Security Agent, together with each copy of its audited annual financial statements referred to in Condition 5.7 (Financial Information) provided after the first anniversary of the Closing Date (the date of such delivery being an “Annual Valuation Report Date”), an independent valuation report prepared by an Independent Appraiser (the “Annual Valuation Report”). (b) If on any Annual Valuation Report Date the relevant Annual Valuation Report confirms that the aggregate Fair Market Value of the Secured Assets as of the date of the report is not at least equal to 100 per cent. of the then outstanding aggregate face amount of the Certificates (the “Collateralisation Requirement”), Tilal shall procure that the Collateralisation Requirement is so satisfied as soon as possible thereafter, and by no later than the date falling 90 calendar days from the date of the Annual Valuation Report Date, in accordance with paragraph (c) below. (c) In the event that the Collateralisation Requirement is not satisfied on any Asset Valuation Report Date, Tilal shall procure that Security Interests over additional asset(s) (any such asset(s), “Additional Secured Asset(s)” and any Security Interests granted in respect thereof pursuant to this Condition 5.12, the “Additional Transaction Security”) are granted to the Security Agent (for the benefit of the Certificateholders), provided that: (d) (i) the Additional Secured Assets are comprised of real estate asset(s) located in the Sultanate of Oman; (ii) written evidence is provided by Tilal to the Delegate and the Security Agent (by way of an independent valuation report from an Independent Appraiser or by such other written evidence as the Delegate may require) that the provision of such Additional Transaction Security to the Security Agent will result in the Collateralisation Requirement being satisfied on the date on which such Additional Transaction Security is granted to the Security Agent; and (iii) any security document which is proposed to constitute the Additional Transaction Security for the purposes of this Condition 5.12 is otherwise in form and substance satisfactory to the Delegate. Tilal shall, at any time, be entitled to request that the Delegate and the Security Agent consent to the release of any Security Interest created over and in respect of any Secured Asset (a “Proposed Release”), and the Delegate shall consent to such request, and shall instruct the Security Agent to consent to such request, provided that: 51
63. 5 .13 (i) on the date of such request and on the date of any Proposed Release, no Dissolution Event has occurred and is continuing; and (ii) written evidence is provided by Tilal to the Delegate and the Security Agent (by way of an independent valuation report from an Independent Appraiser or by such other written evidence as the Delegate may require) that immediately after such Proposed Release, the Collateralisation Requirement would (on a pro forma basis) be satisfied, and such evidence is acceptable to the Delegate. Rating Tilal will maintain a corporate rating with at least one Rating Agency. 5.14 Listing If the Certificates are listed on any stock exchange, Tilal will use its best efforts to maintain the listing of the Certificates on such stock exchange. 6. THE TRUST 6.1 The Trust Assets Pursuant to the Sale and Purchase Agreement, the Trustee will purchase from Tilal the Assets using the proceeds of the issue of the Certificates. Pursuant to the Lease Agreement, the Lessor will lease the Lease Assets to the Lessee in consideration for periodic payment of Rental by the Lessee. The Trustee has also entered into the Service Agency Agreement with Tilal as service agent in respect of the Lease Assets. Tilal has entered into the Purchase Undertaking in favour of the Trustee and the Delegate under which it has granted the Trustee the right to require Tilal to purchase all of the Trustee’s rights, title, interests, benefits and entitlements in, to and under the Lease Assets on the Scheduled Dissolution Date or, if earlier, on the due date for dissolution in accordance with Condition 14 (Capital Distributions of the Trust) at the Dissolution Amount. Pursuant to the Sale, Substitution and Additional Assets Undertaking, subject to the Trustee being entitled to redeem the Certificates early pursuant to Condition 14.2 (Early Dissolution for Tax Reasons), Tilal may, by exercising its option under the Sale, Substitution and Additional Assets Undertaking and serving notice on the Trustee no later than 60 days prior to the Tax Dissolution Date (as defined in Condition 14.2 (Early Dissolution for Tax Reasons)), oblige the Trustee to sell all of its rights, title, interests, benefits and entitlements in, to and under the Lease Assets on the Tax Dissolution Date at the Dissolution Amount. Pursuant to the Sale, Substitution and Additional Assets Undertaking, pursuant to Condition 14.4 (Dissolution at the Option of Tilal), Tilal may, by exercising its option under the Sale, Substitution and Additional Assets Undertaking, oblige the Trustee to sell all of its rights, title, interests, benefits and entitlements in, to and under the Lease Assets on the Optional Dissolution Date at the Optional Dissolution Amount (Call). Following any purchase of Certificates by or on behalf of Tilal or any of its Subsidiaries pursuant to Condition 13.1 (Purchases), the Sale, Substitution and Additional Assets Undertaking may be exercised in respect of the purchase by Tilal of the Trustee’s rights, title, interests, benefits and entitlements in, to and under a portion of the Lease Assets with an aggregate Value no greater than the aggregate face amount of the Certificates so purchased in consideration for the cancellation of such Certificates. The Sale, Substitution and Additional Assets Undertaking also grants Tilal the right to substitute any Lease Asset for another asset, which has a value that is at least equal to the Value of the Lease Asset being substituted. Such a substitution may only occur on a Periodic Distribution Date. 52
64. The obligations of Tilal and AMRE under the Transaction Documents will be secured by the Transaction Security granted to the Security Agent (for the benefit of the Trustee) pursuant to the Security Documents. Pursuant to the Declaration of Trust, the Trustee holds the Trust Assets upon trust absolutely for the holders of the Certificates pro rata according to the face amount of Certificates held by each holder. The term “Trust Assets” means: (a) all of the Trustee’s rights, title, interest and benefit, present and future, in, to and under the assets from time to time constituting the Lease Assets; (b) all of the Trustee’s rights, title, interest and benefit, present and future, in, to and under the Transaction Documents (excluding: (i) any representations given by Tilal and AMRE to the Trustee and the Delegate pursuant to any of the Transaction Documents and any rights which have been expressly waived by the Trustee or the Delegate in any of the Transaction Documents; and (ii) the covenant given to the Trustee pursuant to Clause 17.1 (Remuneration and Indemnification of the Trustee and the Delegate) of the Declaration of Trust); and (c) all monies standing to the credit of the Transaction Account, and in each case all proceeds of the foregoing which are held by the Trustee upon trust absolutely for the Certificateholders pro rata according to the face amount of Certificates held by each holder in accordance with the terms of the Declaration of Trust and the Conditions. 6.2 Application of Proceeds from the Trust Assets On each Periodic Distribution Date, on the Dissolution Date and on any other date on which any amount is due and payable pursuant to these Conditions, the monies standing to the credit of the Transaction Account shall be applied by the Principal Paying Agent in the following order of priority: (a) first, (to the extent not previously paid) to pay the Delegate all amounts owing to it under, or which it is entitled to receive pursuant to, the Transaction Documents in its capacity as Delegate in accordance with the terms of the Declaration of Trust and to any receiver, manager or administrative receiver or any other analogous officer and any agent appointed or employed in respect of the Trust by the Delegate in accordance with the Declaration of Trust; (b) second, (to the extent not previously paid) to pay the Security Agent all amounts owing to it under, or which it is entitled to receive pursuant to, the Transaction Documents in its capacity as Security Agent in accordance with the terms of the Security Agency Agreement and to any receiver, manager or administrative receiver or any other analogous officer and any agent appointed or employed in respect of the Transaction Security by the Security Agent in accordance with the Security Agent Agreement and/or the Security Documents; (c) third, (to the extent not previously paid) to pay pro rata and pari passu: (i) the Trustee in respect of all amounts properly incurred and documented (each in the sole opinion of the Delegate) owing to it under the Transaction Documents in its capacity as Trustee; (ii) each Agent in respect of all amounts owing to such Agent on account of its fees, costs, charges and expenses and the payment or satisfaction of any liability properly incurred by such Agent pursuant to the Agency Agreement or the other Transaction Documents in its capacity as Agent; and (iii) the Trustee Administrator in respect of all amounts owing to it under the Transaction Documents and the Corporate Services Agreement in its capacity as Trustee Administrator; (d) fourth, only if such payment is due on a Periodic Distribution Date, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts which are due but unpaid; (e) fifth, only if such payment is made on the Dissolution Date, to the Principal Paying Agent for application in or towards payment pari passu and rateably of the Dissolution Amount or the amount payable as a result of a Total Loss Event, as the case may be; and 53
65. (f) 7. sixth, only if such payment is made on the Dissolution Date, to the Service Agent to retain as an incentive payment in accordance with the Service Agency Agreement. COVENANTS The Trustee covenants that, for so long as any Certificate is outstanding, it shall not (without the prior written consent of the Delegate): (a) incur any indebtedness, in respect of borrowed money whatsoever (including any Islamic financing), or give any guarantee or indemnity in respect of any obligation of any person or issue any shares (or rights, warrants or options in respect of shares or securities convertible into or exchangeable for shares) or any other certificates except, in all cases, as contemplated in the Transaction Documents; (b) save as permitted by the Transaction Documents, grant or permit to be outstanding any lien, pledge, charge or other security interest upon any of its present or future assets, properties or revenues (other than those arising by operation of law); (c) sell, lease, 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 its interest in any of the Trust Assets, except pursuant to the Transaction Documents; (d) use the proceeds of the issue of the Certificates for any purpose other than as stated in the Transaction Documents; (e) amend or agree to any amendment of any Transaction Document to which it is a party (other than in accordance with the terms thereof); (f) act as trustee in respect of any trust (other than pursuant to the Declaration of Trust); (g) have any subsidiaries or employees; (h) redeem or purchase any of its shares or pay any dividend or make any other distribution to its shareholders; (i) prior to the date which is one year and one day after the date on which all amounts owing by the Trustee under the Transaction Documents to which it is a party have been paid in full, put to its directors or shareholders any resolution for, 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; or (j) enter into any contract, transaction, amendment, obligation or liability other than the Transaction Documents to which it is a party or any permitted amendment or supplement thereto or as expressly permitted or required thereunder or engage in any business or activity other than: (i) as provided for or permitted in the Transaction Documents; (ii) the ownership, management and disposal of the Trust Assets as provided in the Transaction Documents; and (iii) such other matters which are incidental thereto. 54
66. 8 . PERIODIC DISTRIBUTIONS 8.1 Periodic Distribution Amounts and Periodic Distribution Dates Subject to Condition 6.2 (Application of Proceeds from the Trust Assets) and Condition 9 (Payments), the Principal Paying Agent shall distribute to holders of the Certificates, pro rata to their respective holdings, out of amounts transferred into the Transaction Account, a distribution in relation to the Certificates on each Periodic Distribution Date equal to the applicable Periodic Distribution Amount. The Periodic Distribution Amount payable on each Periodic Distribution Date shall be U.S.$32.5 per U.S.$1,000 in face amount of Certificates (the “Periodic Distribution Amount”). For this purpose, “Periodic Distribution Date” means the 12th day of November and the 12th day of May in each year commencing on 12 May 2019 and, subject to Condition 8.3 (Cessation of Accrual), ending on the Scheduled Dissolution Date. 8.2 Calculation of Periodic Distribution Amounts payable other than on a Periodic Distribution Date If a Periodic Distribution Amount is required to be calculated in respect of a period of less than a full Return Accumulation Period (the “Relevant Period”), it shall be calculated as an amount equal to the product of: (a) 6.50 per cent. per annum; (b) the face amount of the relevant Certificate; and (c) the number of days in such Relevant Period calculated on the basis of a year of 12 30-day months divided by 360 (with the result being rounded to the nearest U.S.$0.01, U.S.$0.005 being rounded upwards). The period from and including the Closing Date to but excluding the first Periodic Distribution Date and each successive period from and including a Periodic Distribution Date to but excluding the next succeeding Periodic Distribution Date is called a “Return Accumulation Period”. 8.3 Cessation of Accrual No further amounts will be payable on any Certificate from and including its due date for redemption, unless default is made in payment of the Dissolution Amount, in which case Periodic Distribution Amounts will continue to accrue in respect of the Certificates in the manner provided in this Condition 8 (Periodic Distributions), provided that, in respect of such accrual, no sale agreement has been executed or a Total Loss Event has occurred. 9. PAYMENTS 9.1 Payments in respect of the Certificates Subject to Condition 9.2 (Payments subject to Applicable Laws), payment of any Dissolution Amount and any Periodic Distribution Amount will be made by transfer to the registered account of each Certificateholder. Payments of any Dissolution Amount will only be made against surrender of the relevant Certificate at the specified office of any of the Paying Agents. The Dissolution Amount and each Periodic Distribution Amount will be paid to the holder shown on the Register at the close of business on the relevant Record Date. 9.2 Payments subject to Applicable Laws All payments in respect of the Certificates will be subject in all cases to: (i) any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 11 (Taxation); and (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the “Code”) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, any official interpretations thereof, or (without prejudice to the provisions of Condition 11 (Taxation)) any law implementing an inter-governmental approach thereto. No commissions or expenses shall be charged to the Certificateholders in respect of such payments. 9.3 Payment only on a Payment Business Day Where payment is to be made by transfer to a registered account, payment instructions (for value on the due date or, if that is not a Payment Business Day, for value on the first following day which is a Payment Business Day) will be initiated on the due date for payment or, in the case of a payment of the 55
67. Dissolution Amount , if later, on the Payment Business Day on which the relevant Definitive Certificate is surrendered at the specified office of a Paying Agent for value as soon as practicable thereafter. Certificateholders will not be entitled to any additional payment for any delay after the due date in receiving the amount due if the due date is not a Payment Business Day or if the relevant Certificateholder is late in surrendering its Definitive Certificate (if required to do so). If the amount of the Dissolution Amount or Periodic Distribution Amount is not paid in full when due, the Registrar will annotate the Register with a record of the amount in fact paid. 10. AGENTS 10.1 Agents of Trustee In acting under the Agency Agreement and in connection with the Certificates, the Agents act solely as agents of the Trustee and (to the extent provided therein) the Delegate and do not assume any obligations towards or relationship of agency or trust for or with any of the Certificateholders or any other party to the Transaction Documents. The Agency Agreement contains provisions permitting any entity into which any Agent is merged or converted or with which it is consolidated or to which it transfers all or substantially all of its assets to become the successor agent. 10.2 Specified Offices The names of the initial Agents and their initial specified offices are set out in the Agency Agreement. The Trustee reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents provided, however, that: (a) there will at all times be a Principal Paying Agent; (b) there will at all times be a Registrar; and (c) so long as any Certificates are admitted to listing, trading and/or quotation on any listing authority, stock exchange and/or quotation system, there will at all times be a Paying Agent and a Transfer Agent having its specified office in such place (if any) as may be required by the rules of such listing authority, stock exchange and/or quotation system. Notice of any termination or appointment and of any changes in specified offices will be given to the Certificateholders promptly by the Trustee in accordance with Condition 18 (Notices). 11. TAXATION All payments in respect of the Certificates shall be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes, unless the withholding or deduction of the Taxes is required by law. In such event, the Trustee will pay additional amounts so that the full amount which otherwise would have been due and payable under the Certificates is received by the parties entitled thereto, except that no such additional amount shall be payable in relation to any payment in respect of any Certificate: (a) the holder of which is liable for such Taxes in respect of such Certificate by reason of having some connection with a Relevant Jurisdiction other than the mere holding of such Certificate; or (b) presented for payment (where presentation is required) more than 30 days after the Relevant Date except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on such thirtieth day assuming that day to have been a Payment Business Day. Tilal has covenanted in the Declaration of Trust that in the event that the Trustee fails to comply with any obligation to pay additional amounts pursuant to this Condition 11 (Taxation), it will 56
68. unconditionally and irrevocably (irrespective of the payment of any fee), as a continuing obligation, pay to the Delegate (for the benefit of the Certificateholders) an amount equal to the liability of the Trustee in respect of any and all additional amounts required to be paid by it in respect of the Certificates pursuant to this Condition 11 (Taxation). The Purchase Undertaking and the Sale, Substitution and Additional Assets Undertaking provide that payments and transfers thereunder by Tilal shall, in each case, be made free and clear of and without withholding or deduction for, or on account of, any present or future Taxes, unless the withholding or deduction of the Taxes is required by law and, in such case, provide for the payment or transfer, as the case may be, by Tilal of additional amounts so that the full amount which would otherwise have been due and payable or transferable, as the case may be, is received by the Trustee. 12. PRESCRIPTION The right to receive distributions in respect of the Certificates will be forfeited unless claimed within a period of 10 years (in the case of the Dissolution Amount) and a period of five years (in the case of Periodic Distribution Amounts) from the Relevant Date in respect thereof, subject to the provisions of Condition 9 (Payments). 13. PURCHASE AND CANCELLATION OF CERTIFICATES 13.1 Purchases Tilal or any of its Subsidiaries may at any time purchase Certificates at any price in the open market or otherwise. 13.2 Cancellation of Certificates held by Tilal and/or any of its Subsidiaries Following any purchase of Certificates by or on behalf of Tilal or any of its Subsidiaries pursuant to Condition 13.1 (Purchases), the Sale, Substitution and Additional Assets Undertaking may be exercised by Tilal to oblige the Trustee to transfer its rights, title, interests, benefits and entitlements in, to and under a portion of the Lease Assets with an aggregate Value not greater than the aggregate face amount of the Certificates so purchased against cancellation of such Certificates pursuant to Condition 14.6 (Cancellations). 13.3 Dissolution of the Trust upon Cancellation of all Outstanding Certificates In the event that Tilal and/or any of its Subsidiaries purchases all the outstanding Certificates and all such Certificates are subsequently cancelled by the Trustee, the Trust will be dissolved and the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 14. CAPITAL DISTRIBUTIONS OF THE TRUST 14.1 Scheduled Dissolution Unless the Certificates are previously redeemed, or purchased and cancelled, in full, the Trustee will redeem each Certificate on the Scheduled Dissolution Date at the Dissolution Amount (which, for the avoidance of doubt, shall include any Periodic Distribution Amounts payable). Upon payment in full of such amounts to the Certificateholders, the Trust will be dissolved, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 14.2 Early Dissolution for Tax Reasons The Certificates may be redeemed by the Trustee in whole, but not in part at any time (such date, the “Tax Dissolution Date”) on giving not less than 30 nor more than 60 days’ notice to the Certificateholders in accordance with Condition 18 (Notices) (which notice shall be irrevocable), at the 57
69. Dissolution Amount (which, for the avoidance of doubt, shall include any accrued but unpaid Periodic Distribution Amounts), if a Tax Event occurs where “Tax Event” means: (a) the determination by Tilal that: (1) the Trustee has or will become obliged to pay additional amounts as provided or referred to in Condition 11 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the Signing Date; and (2) such obligation cannot be avoided by the Trustee taking reasonable measures available to it; or (b) the receipt by the Trustee of notice from Tilal that: (i) Tilal has or will become obliged to pay additional amounts pursuant to the terms of the Lease Agreement or the Purchase Undertaking as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the Signing Date; and (ii) such obligation cannot be avoided by Tilal taking reasonable measures available to it, provided, however, that no such notice of redemption shall be given unless an Exercise Notice has been received by the Trustee from Tilal under the Sale, Substitution and Additional Assets Undertaking and no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which: (i) (in the case of (a) above) the Trustee would be obliged to pay such additional amounts if a payment in respect of the Certificates were then due; or (ii) (in the case of (b) above) Tilal would be obliged to pay such additional amounts if a payment to the Trustee under the Lease Agreement or the Purchase Undertaking (as the case may be) was then due. Prior to the publication of any notice of redemption pursuant to this paragraph, the Trustee shall deliver to the Delegate: (i) a certificate signed by one director of the Trustee (in the case of (a) above) or two authorised signatories of Tilal (acting on behalf of Tilal) (in the case of (b) above) stating that the Trustee is entitled to effect such dissolution and redemption and setting forth a statement of facts showing that the conditions precedent in (a) or (b) above to the right of the Trustee so to dissolve have occurred; and (ii) an opinion of independent legal advisers of recognised standing to the effect that the Trustee or, as the case may be, Tilal has or will become obliged to pay such additional amounts as a result of such change or amendment. The Delegate shall be entitled to accept (without further investigation) any such certificate and opinion as sufficient evidence thereof without incurring any liability to any person in which event it shall be conclusive and binding on the Certificateholders. Upon the expiry of any such notice as is referred to in this Condition 14.2 (Early Dissolution for Tax Reasons), the Trustee shall be bound to redeem the Certificates at the Dissolution Amount (which, for the avoidance of doubt, shall include any accrued but unpaid Periodic Distribution Amount) and, upon payment in full of such amounts to the Certificateholders, the Trust will be dissolved, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. 14.3 Dissolution following a Total Loss Event Upon the occurrence of a Total Loss Event, the Certificates shall be redeemed and the Trust dissolved on the Total Loss Dissolution Date. The Certificates will be redeemed using the proceeds of insurance payable in respect of the Total Loss Event which are required to be paid into the Transaction Account by no later than the 30th day after the occurrence of the Total Loss Event. Upon such redemption, the Trust will dissolve, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. Under the Service Agency Agreement, the Service Agent undertakes to be responsible for ensuring that the Lease Assets are properly insured (on a takaful basis if at all possible) against total loss in an amount equal to its full reinstatement value (which value will be a sum not to be less than the aggregate outstanding face amount of the Certificates, together with a provision for 30 days’ of profit). If, following the occurrence of a Total Loss Event, the amount (if any) credited to the Transaction Account is less than the Full Reinstatement Value, the difference between such Full Reinstatement Value and the amount credited to the Transaction Account shall be the “Total Loss Shortfall Amount”. In the event that the Service Agent fails to comply with its obligations to insure the Lease 58
70. Assets for an amount at least equal to the Full Reinstatement Value and to ensure that insurance proceeds are paid into the Transaction Account within 30 days of such Total Loss Event , it shall be liable to compensate the Trustee for any Total Loss Shortfall Amount, which will be payable (in same day, freely transferable, cleared funds) directly to the Transaction Account by no later than close of business in London on the 31st day after the Total Loss Event has occurred. Upon the occurrence of a Total Loss Event, all of the Rental that has accrued pursuant to the Lease Agreement shall be credited to the Transaction Account by the Lessee. The aggregate of such amounts and any insurance proceeds and/or Total Loss Shortfall Amount are intended to be equal to the aggregate face amount of the Certificates together with all accrued and unpaid Periodic Distribution Amounts. 14.4 Dissolution at the Option of Tilal Tilal may, in its sole discretion, deliver to the Trustee a duly completed Exercise Notice under the Sale, Substitution and Additional Assets Undertaking and, on receipt of such notice, the Trustee shall redeem the Certificates in whole but not in part on the Optional Dissolution Date at the relevant Optional Dissolution Amount (Call) on the Trustee giving not less than 30 nor more than 60 days’ notice to the Certificateholders in accordance with Condition 18 (Notices) (which notice shall be irrevocable and shall oblige the Trustee to redeem the Certificates on the relevant Optional Dissolution Date). 14.5 No other Dissolution The Trustee shall not be entitled to redeem the Certificates or dissolve the Trust, otherwise than as provided in Condition 13 (Purchase and Cancellation of Certificates), this Condition 14 (Capital Distributions of the Trust) and Condition 15 (Dissolution Events). 14.6 Cancellations All Certificates which are redeemed, and all Certificates purchased by or on behalf of Tilal or any of its Subsidiaries and delivered by Tilal to the Principal Paying Agent for cancellation, will forthwith be cancelled and accordingly such Certificates may not be held, reissued or resold. 15. DISSOLUTION EVENTS Upon the occurrence and continuation of any of the following events (each a “Dissolution Event”): (a) default is made in the payment of the Dissolution Amount on the date fixed for payment thereof or default is made in the payment of any Periodic Distribution Amount on the due date for payment thereof and, in the case of the Dissolution Amount, such default continues unremedied for a period of seven (7) Business Days and, in the case of a Periodic Distribution Amount, such default continues unremedied for a period of fourteen (14) Business Days; or (b) the Trustee fails to perform or observe any one or more of its other duties, obligations or undertakings under the Certificates or the Transaction Documents, which failure is, in the sole opinion of the Delegate (acting reasonably), incapable of remedy or, if in the opinion of the Delegate capable of remedy, is not, in the sole opinion of the Delegate (acting reasonably), remedied within the period of thirty (30) days following the service by the Delegate of a notice on the Trustee requiring the same to be remedied; or (c) Tilal fails to procure that: (i) any existing Security Interest over or in respect of the Secured Assets is released, and (ii) the Mortgage Agreement is registered with the Ministry of Housing in the Sultanate of Oman, in each case on or prior to the date falling 90 calendar days following the Closing Date; or (d) a Tilal Event (as defined in the Purchase Undertaking) occurs; or (e) the Trustee repudiates the Declaration of Trust or does or causes to be done any act or thing evidencing an intention to repudiate the Declaration of Trust; or (f) at any time it is or will become unlawful or impossible for the Trustee to perform or comply with any or all of its obligations under the Certificates or the Transaction Documents or any of 59
71. the obligations of the Trustee under the Certificates or the Transaction Documents are not or cease to be legal , valid, and binding; or (g) either: (i) the Trustee is (or is deemed by law or a court to be) insolvent or unable to pay its debts as they fall due; or (ii) an administrator or liquidator of the whole or substantially the whole of the undertaking, assets and revenues of the Trustee is appointed (or application for any such appointment is made); or (iii) the Trustee takes any action for a readjustment or deferment of any of its obligations or makes a general assignment or an arrangement or composition with or for the benefit of its creditors or declares a moratorium in respect of any of its indebtedness or any guarantee of any indebtedness given by it; or (iv) the Trustee ceases or threatens to cease to carry on all or substantially the whole of its business (otherwise than for the purposes of or pursuant to an amalgamation, reorganisation or restructuring whilst solvent); or (h) an order or decree is made or an effective resolution is passed for the winding-up, liquidation or dissolution of the Trustee; or (i) any event occurs which under the laws of the Cayman Islands has an analogous effect to any of the events referred to in paragraph (g) and (h) above, the Delegate, upon receiving notice thereof under the Declaration of Trust or otherwise becoming aware of a Dissolution Event and subject to it being indemnified and/or secured and/or prefunded to its satisfaction, shall promptly give notice of the occurrence of such Dissolution Event to the holders of Certificates in accordance with Condition 18 (Notices) with a request to such holders to indicate to the Trustee and the Delegate if they wish the Certificates to be redeemed and the Trust to be dissolved. Following the issuance of such notice, the Delegate in its sole discretion may, and if so requested in writing by the holders of at least one-fifth of the then aggregate face amount of the Certificates outstanding or if so directed by an Extraordinary Resolution of the holders of the Certificates (each a “Dissolution Request”) shall, (subject in each case to being indemnified and/or secured and/or prefunded to its satisfaction) give notice (a “Dissolution Notice”) to the Trustee, the Security Agent, Tilal and the holders of the Certificates in accordance with Condition 18 (Notices) that the Certificates are immediately due and payable at the Dissolution Amount, on the date of such notice (the “Dissolution Event Redemption Date”), whereupon they shall become so due and payable. If it has not already done so, (so long as a Total Loss Event has not occurred), the Trustee (or the Delegate acting on behalf of the Certificateholders) shall exercise its rights under the Purchase Undertaking by serving an Exercise Notice on Tilal. Upon payment in full of such amounts, the Trust will be dissolved, the Certificates shall cease to represent undivided ownership interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Trustee shall have no further obligations in respect thereof. For the purposes of paragraph (a) above, amounts shall be considered due in respect of the Certificates (including for the avoidance of doubt any amounts calculated as being payable under Condition 8 (Periodic Distributions) and Condition 14 (Capital Distributions of the Trust)) notwithstanding that the Trustee has at the relevant time insufficient funds or Trust Assets to pay such amounts. 16. ENFORCEMENT 16.1 Transaction Security The obligations of Tilal and AMRE under the Transaction Documents are secured by the Transaction Security pursuant to the Security Documents. The Transaction Security will become enforceable upon the delivery by the Delegate of a Dissolution Notice in accordance with Condition 15 (Dissolution Events), subject to Condition 16.2 (Enforcement). All monies received as a result of such enforcement shall be applied in accordance with Clause 16 (Application of Payments) of the Security Agency Agreement. 60
72. 16 .2 Enforcement Upon: (i) the occurrence of a Dissolution Event and the delivery of a Dissolution Notice by the Delegate pursuant to Condition 15 (Dissolution Events), to the extent that the amounts payable in respect of the Certificates have not been paid in full pursuant to Condition 15 (Dissolution Events); or (ii) the failure to pay the Dissolution Amount on the Total Loss Dissolution Date, subject to Condition 16.3 (Delegate not obliged to take action), the Delegate (acting on behalf of Certificateholders) shall (subject to being indemnified and/or secured and/or prefunded to its satisfaction), take one or more of the following steps: 16.3 (a) enforce the provisions of the Purchase Undertaking against Tilal and/or the Service Agency Agreement against the Service Agent; and/or (b) direct the Security Agent to enforce the Transaction Security pursuant to the Security Documents; and/or (c) take such other steps as the Delegate may consider necessary in its absolute discretion to protect the interests of the Certificateholders. Delegate not obliged to take action The Delegate shall not be bound in any circumstances to take any action, proceeding or step to enforce or to realise the Trust Assets or take any action against the Trustee and/or Tilal under any Transaction Document unless directed or requested to do so: (i) by an Extraordinary Resolution; or (ii) in writing by the holders of at least one-fifth of the then aggregate face amount of the Certificates outstanding and in either case then only if it shall be indemnified and/or secured and/or prefunded to its satisfaction against all costs, losses, damages, expenses or liabilities to which it may thereby render itself liable or which it may incur by so doing, provided that the Delegate shall not be liable for the consequences of taking any such action and may do so without having regard to the effect of such action on individual Certificateholders. 16.4 Direct Enforcement by Certificateholder No Certificateholder shall be entitled to proceed directly against the Trustee or Tilal or provide instructions (not otherwise permitted by the Declaration of Trust) to the Delegate to proceed against the Trustee and/or Tilal under any Transaction Document unless: (i) the Delegate, having become bound to proceed pursuant to Condition 16.3 (Delegate not obliged to take action) fails to do so within a reasonable period of becoming so bound and such failure is continuing; and (ii) the relevant Certificateholder (or such Certificateholder together with the other Certificateholders who propose to proceed directly against any of the Trustee or Tilal as the case may be) holds at least one-fifth of the then aggregate face amount of the Certificates outstanding. Under no circumstances shall the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets (other than pursuant to the Transaction Documents) and the sole right of the Delegate and the Certificateholders against the Trustee and Tilal shall be to enforce their respective obligations under the Transaction Documents. 16.5 Limited Recourse Conditions 16.1 (Transaction Security) to 16.3 (Delegate not obliged to take action) (inclusive) above are subject to the provisions of Condition 4.2 (Limited Recourse). 17. REPLACEMENT OF DEFINITIVE CERTIFICATES Should any Definitive Certificate be lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Registrar (and if the Certificates are then admitted to listing, trading and/or quotation by any competent authority, stock exchange and/or quotation system which requires the appointment of a Paying Agent or Transfer Agent in any particular place, the Paying Agent or Transfer Agent having its specified office in the place required by such competent authority, stock exchange and/or quotation system), subject to all applicable laws and competent authority, stock exchange and/or quotation system requirements, upon payment by the claimant of the expenses incurred in connection 61
73. with the replacement and on such terms as to evidence and indemnity as the Trustee , Tilal, the Registrar, the Paying Agent or the Transfer Agent may require. Mutilated or defaced Certificates must be surrendered before replacements will be issued. 18. NOTICES All notices to Certificateholders will be valid if: (a) published in a daily newspaper having general circulation in London (which is expected to be the Financial Times); or (b) 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 registered addresses. Until such time as any Definitive Certificates are issued, there may, so long as the Global Certificate representing the Certificates is held on behalf of one or more clearing systems, be substituted for such publication in such newspaper(s) and/or mailing in accordance with paragraph (b) above the delivery of the relevant notice to the relevant clearing systems for communication by them to the Certificateholders. Any such notice shall be deemed to have been given to the Certificateholders on the day after the day on which the said notice was given to the relevant clearing systems. The Trustee shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any listing authority, stock exchange and/or quotation system (if any) by which the Certificates have then been admitted to listing, trading and/or quotation. Any notice shall be deemed to have been given on the 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. Notices to be given by any Certificateholder shall be in writing and given by lodging the same with the Principal Paying Agent. Whilst the Certificates are represented by a Global Certificate held on behalf of one or more clearing systems, such notice may be given by any holder of a Certificate to the Principal Paying Agent through the clearing system in which its interest in the Certificates is held in such manner as the Principal Paying Agent and the relevant clearing system may approve for this purpose. 19. MEETINGS OF CERTIFICATEHOLDERS, MODIFICATION, WAIVER, AUTHORISATION AND DETERMINATION 19.1 The Declaration of Trust contains provisions for convening meetings of Certificateholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or the provisions of the Declaration of Trust or any other Transaction Document. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing more than half of the aggregate face amount of the outstanding Certificates, or at any adjourned such meeting one or more persons present whatever the outstanding face amount of the Certificates held or represented by him or them, except that at any meeting the business of which includes the modification of certain provisions of the Certificates (including, among others, modifying the Scheduled Dissolution Date, reducing or cancelling any amount payable in respect of the Certificates or altering the currency of payment of the Certificates, amending the covenant given by the Trustee and the Delegate in Clause 13.1 (Application of Moneys) of the Declaration of Trust or Condition 6.2 (Application of Proceeds from the Trust Assets), modifying the provisions contained in the Conditions and the Declaration of Trust concerning the quorum required at any meeting of the Certificateholders or the majority required to pass an Extraordinary Resolution or changing any of Tilal’s covenants set out in the Purchase Undertaking or any of its covenants to make a payment under any Transaction Document to which it is a party), the quorum shall be one or more persons present holding or representing three quarters in the outstanding face amount of the Certificates, or at any adjourned such meeting one or more persons present holding or representing one quarter in the outstanding face amount of the Certificates. The expression “Extraordinary Resolution” is defined in the Declaration of Trust to mean either: (i) a resolution passed at a meeting duly convened and held by a majority consisting of not less than three-quarters of the votes cast; or (ii) a resolution in writing signed by or on behalf of the holders of the Certificates representing in the 62
74. aggregate not less than 90 per cent . in the outstanding face amount of the Certificates who are entitled to receive notice of the meeting. 19.2 The Delegate may agree, without the consent or sanction of the 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 any other Transaction Document, or determine, without any such consent or sanction as aforesaid, that any Dissolution Event or an event which, with the giving of notice, lapse of time, determination of materiality or fulfillment of any other applicable condition (or any combination of the foregoing), would constitute a Dissolution Event shall not be treated as such if, in the sole opinion of the Delegate: (i) such modification is of a formal, minor or technical nature; (ii) such modification is made to correct a manifest error; or (iii) such modification, waiver, authorisation or determination is not, in the sole opinion of the Delegate, materially prejudicial to the interests of the Certificateholders and is other than in respect of a Reserved Matter. No such direction or request will affect a previous consent, waiver, authorisation or determination. 19.3 In connection with the exercise by it of any of its powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation or determination), the Delegate shall have regard to the general interests of the 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 sub-division thereof and the Delegate shall not be entitled to require, nor shall any Certificateholder be entitled to claim from the Delegate or any other person, any indemnification or payment in respect of any tax consequence of any such exercise upon individual Certificateholders. 19.4 Any modification, abrogation, waiver, authorisation or determination shall be binding on all the Certificateholders and shall be notified to the Certificateholders as soon as practicable thereafter in accordance with Condition 18 (Notices). 20. INDEMNIFICATION AND LIABILITY OF THE DELEGATE AND THE TRUSTEE 20.1 The Declaration of Trust contains provisions for the indemnification of each of the Delegate and the Trustee in certain circumstances and for their respective relief from responsibility, including provisions relieving the Delegate from taking action unless indemnified and/or secured and/or prefunded to its satisfaction as well as provisions entitling the Delegate to be paid its costs and expenses in priority to the claims of the Certificateholders. 20.2 Neither the Delegate nor the Trustee makes any representation and assumes no responsibility for the validity, sufficiency or enforceability of the Trust Assets other than as expressly provided in the Declaration of Trust. 20.3 Each of the Trustee and the Delegate is exempted from: (i) any liability in respect of any decline in value or loss realised upon any sale or other disposition of any of the Trust Assets or any cash; (ii) any obligation to insure the Trust Assets pursuant to the Declaration of Trust and these Conditions; and (iii) any defect or failure in the right or title over any of the Trust Assets, unless such decline in value or loss, defect or failure arises as a result of the gross negligence, willful default or fraud by the Trustee or the Delegate, as the case may be. 20.4 The Declaration of Trust also contains provisions pursuant to which the Delegate is entitled, inter alia: (a) to enter into business transactions with Tilal and/or any of its Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to Tilal and/or any of its Subsidiaries; (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Certificateholders; and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith. 20.5 Neither the Trustee nor the Delegate shall be responsible for monitoring or ascertaining whether or not a Dissolution Event, Tax Event or Total Loss Event has occurred or exists and, unless and until it shall 63
75. have received express notice to the contrary , it will assume that no such event or circumstance exists or has occurred. 20.6 Neither the Trustee nor the Delegate has any duty to monitor the performance by the parties to the Transaction Documents of their obligations nor is it obliged (unless indemnified and/or secured and/or prefunded to its satisfaction) to take any other action, proceeding or step which may involve the Trustee or the Delegate in any personal liability or expenses. 21. FURTHER ISSUES The Issuer shall be at liberty from time to time without the consent of the Certificateholders to create and issue additional Certificates having the same terms and conditions as the outstanding Certificates or terms and conditions which are the same in all respects save for the date and amount of the first payment of the Periodic Distribution Amount and the date from which Periodic Distribution Amounts start to accrue and so that the same shall be consolidated with the outstanding Certificates. Any additional Certificates so issued shall be constituted by a deed supplemental to the Declaration of Trust. References in these Conditions to the Certificates include (unless the context requires otherwise) any other trust certificates issued pursuant to this Condition. 22. 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. 23. GOVERNING LAW AND DISPUTE RESOLUTION 23.1 Governing Law The Declaration of Trust, the Certificates and these Conditions (including the remaining provisions of this Condition 23 (Governing Law and Dispute Resolution)) and any non- contractual obligations arising out of or in connection with the Declaration of Trust, the Certificates and these Conditions are governed by, and shall be construed in accordance with, English law. 23.2 Agreement to Arbitrate Subject to Condition 23.3 (Option to Litigate), any dispute, claim, difference or controversy arising out of, relating to or having any connection with the Declaration of Trust, the Certificates and these Conditions (including any dispute as to the existence, validity, interpretation, performance, breach or termination of the Declaration of Trust, the Certificates and these Conditions or the consequences of the nullity of any of them or a dispute relating to any non-contractual obligations arising out of or in connection with them) (a “Dispute”) shall be referred to and finally resolved by arbitration under the Arbitration Rules of the DIFC-LCIA Arbitration Centre (the “Rules”), which Rules (as amended from time to time) are incorporated by reference into this Condition 23 (Governing Law and Dispute Resolution)). For these purposes: (a) the place of arbitration shall be the Dubai International Financial Centre; (b) there shall be three arbitrators, each of whom shall be disinterested in the arbitration, shall have no connection with any party thereto and shall be an attorney experienced in international securities transactions; and (c) the language of the arbitration shall be English. Within 15 days from the receipt by the DIFC-LCIA registrar of the response to the request for arbitration, the claimant(s), irrespective of number, shall nominate jointly one arbitrator and the respondent(s), irrespective of number, shall nominate jointly the second arbitrator. A third arbitrator, who shall serve as chairman, shall be nominated by the two party-nominated arbitrators within 15 days of the last of their appointments. 64
76. 23 .3 Option to Litigate The Delegate may irrevocably elect that a Dispute be heard by a court of law and not determined by arbitration. The Delegate must make the election before commencing arbitration or by giving written notice to the Trustee and Tilal within 28 days of receipt of the document by which the Trustee and Tilal commenced arbitration. If an election is made, the Dispute shall then be determined in accordance with Condition 23.4 (Effect of Exercise of Option to Litigate). 23.4 Effect of Exercise of Option to Litigate Subject to an election having been made under Condition 23.3 (Option to Litigate), the following provisions shall apply: 23.5 (a) subject to paragraph (c) below, the courts of the Dubai International Financial Centre (the “DIFC”) shall have exclusive jurisdiction to settle any Dispute and the Trustee and Tilal submits to the exclusive jurisdiction of such courts; (b) the Trustee and Tilal agree that the courts of the DIFC are the most appropriate and convenient courts to settle any Dispute and, accordingly, that it will not argue to the contrary; and (c) this Condition 23.4(c) is for the benefit of the Delegate only. As a result, and notwithstanding paragraph (a) above, the Delegate may take proceedings relating to a Dispute (“Proceedings”) in any other courts with jurisdiction. To the extent allowed by law, the Delegate may take concurrent Proceedings in any number of jurisdictions. Process Agent Each of the Trustee and Tilal has in the Declaration of Trust appointed Maples and Calder of Level 14, Burj Daman, Subia International Financial Centre, PO Box 119980, Dubai, United Arab Emirates, as its agent for service of process and has undertaken that in the event of Maples and Calder ceasing so to act or ceasing to be registered in the DIFC appoint another person approved by the Delegate as its agent for service of process in the DIFC in respect of any Proceedings or Disputes. Nothing herein shall affect the right to serve proceedings in any other manner permitted by law. 23.6 Waiver of Immunity Under the Declaration of Trust, Tilal has agreed that, to the extent that it may claim for itself or its assets or revenues immunity from jurisdiction, enforcement, prejudgment proceedings, injunctions and all other legal proceedings and relief and to the extent that such immunity (whether or not claimed) may be attributed to it or its assets or revenues, it will not claim and has irrevocably and unconditionally waived such immunity to the full extent permitted by the laws of that jurisdiction in relation to any Proceedings or Disputes. Further, Tilal has irrevocably and unconditionally consented to the giving of any relief or the issue of any legal proceedings, including, without limitation, jurisdiction, enforcement, prejudgment proceedings and injunctions in connection with any Proceedings or Disputes. 23.7 Waiver of Interest The Trustee, the Delegate and Tilal has agreed in the Declaration of Trust that, if any arbitration or Proceedings are commenced in relation to a Dispute and/or any arbitration or Proceedings are brought by or on behalf of a party under the Declaration of Trust, it will: (a) not claim interest under, or in connection with, such arbitration and/or Proceedings; and (b) to the fullest extent permitted by law, waive all and any entitlement it may have to interest awarded in its favour by any arbitrator as a result of such arbitration and/or by any court as a result of such Proceedings. 65
77. For the avoidance of doubt , nothing in this Condition 23.7 (Waiver of Interest) shall be construed as a waiver of rights in respect of Rental, Periodic Distribution Amounts or profit of any kind howsoever described payable by Tilal or the Trustee pursuant to the Transaction Documents or the Conditions, howsoever such amounts may be described or re-characterised by any court or arbitral tribunal. 66
78. GLOBAL CERTIFICATE The Global Certificate contains the following provisions which apply to the Certificates whilst they are represented by the Global Certificate , some of which modify the effect of the Conditions. Unless otherwise defined, terms defined in the Conditions have the same meaning below. Form of the Certificates The Certificates will be in registered form and will be issued outside the United States to persons who are not U.S. Persons in reliance on Regulation S. The Certificates will be represented by beneficial interests in a global certificate in registered form the Global Certificate. The Global Certificate will be deposited with a common depositary for Euroclear and Clearstream, Luxembourg and will be registered in the name of a nominee for the common depositary. Persons holding ownership interests in the Global Certificate will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of Definitive Certificates in fully registered form. Holders For so long as the Certificates are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and/or Clearstream, Luxembourg, the registered holder of the Global Certificate shall, except as ordered by a court of competent jurisdiction or as required by law, be treated as the owner thereof (the “Registered Holder”). Each of the persons (other than another clearing system) who is for the time being shown in the records of either such clearing system as the holder of a particular aggregate face amount of such Certificates (the “Accountholders”) (in which regard any certificate or other document issued by a clearing system as to the aggregate face amount of such Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be deemed to be the Certificateholder in respect of the aggregate face amount of such Certificates standing to its account in the records of Euroclear or Clearstream, Luxembourg, as the case may be, other than for the purpose of payments in respect thereof, the right to which shall be vested solely in the Registered Holder, as against the Trustee and an Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the Registered Holder, and the expressions “Certificateholder” and “holder of Certificates” and related expressions shall be construed accordingly. In addition, holders of beneficial interests in the Global Certificate will not have a direct right to vote in respect of the relevant Certificates. Instead, such holders will be permitted to act only to the extent that they are enabled by the relevant clearing system and its participants to appoint appropriate proxies. Cancellation Cancellation of any Certificate represented by the Global Certificate will be effected by reduction in the aggregate face amount of the Certificates in the Register. Payments Payments of any amount in respect of the Global Certificate will, in the absence of any provision to the contrary, be made to the person shown on the Register as the registered holder of the Global Certificate at the close of the Business Day (being for this purpose, a day on which Euroclear and Clearstream, Luxembourg are open for business) before the relevant due date for such payment. None of the Trustee, the Delegate, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in the Global Certificate or for maintaining, supervising or reviewing any records relating to such ownership interests. Payments of the Dissolution Amount in respect of Certificates represented by the Global Certificate will be made upon presentation and surrender of the Global Certificate at the specified office of the Registrar or such other office as may be specified by the Registrar subject to and in accordance with the Conditions and the Declaration of Trust. Distributions of amounts with respect to book-entry interests in the Certificates held through Euroclear or Clearstream, Luxembourg will be credited to the cash accounts of participants in the relevant clearing system in accordance with the relevant clearing system’s rules and procedures. A record of 67
79. each payment made in respect of the Certificates will be entered into the Register by or on behalf of the Registrar and shall be prima facie evidence that payment has been made . Notices So long as all the Certificates are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and/or Clearstream, Luxembourg, notices may be given by delivery of the relevant notice to those clearing systems for communication to their Accountholders rather than by publication and delivery as required by the Conditions except that, so long as the Certificates are listed on any stock exchange, notices shall also be published in accordance with the rules of such stock exchange. Any such notice shall be deemed to have been given on the day on which such notice is delivered to the relevant clearing systems. Whilst any of the Certificates held by a Certificateholder are represented by the Global Certificate, notices to be given by such Certificateholder may be given (where applicable) through Euroclear and/or Clearstream, Luxembourg and otherwise in such manner as the Registrar and Euroclear and Clearstream, Luxembourg may approve for this purpose. Registration of Title The Registrar will not register title to the Certificates in a name other than that of a nominee for the Common Depositary for a period of seven calendar days preceding the due date for any payment of any Periodic Distribution Amount or the Dissolution Amount in respect of the Certificates. Record dates will be determined in accordance with the standard practices of Euroclear and Clearstream, Luxembourg. Transfers Transfers of book-entry interests in the Certificates will be effected through the records of Euroclear or Clearstream, Luxembourg and their respective direct and indirect participants in accordance with their respective rules and procedures. Exchange for Definitive Certificates Interests in the Global Certificate will be exchangeable (free of charge), in whole but not in part, for Definitive Certificates only upon the occurrence of an Exchange Event. The Trustee will promptly give notice to Certificateholders in accordance with Condition 18 (Notices) if an Exchange Event occurs. For these purposes, “Exchange Event” means that: (i) a Dissolution Event (as defined in Condition 15 (Dissolution Events)) has occurred; or (ii) the Trustee has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of legal holiday) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no successor clearing system satisfactory to the Trustee is available. In the event of the occurrence of an Exchange Event, any of the Trustee or Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in the Global Certificate) may give notice to the Registrar requesting exchange. In such circumstances, the Global Certificate shall be exchanged in full for Definitive Certificates and the Trustee will, at the cost of the Trustee (but against such indemnity as the Registrar or any relevant Transfer Agent may require in respect of any tax or other duty of whatever nature which may be levied or imposed in connection with such exchange), cause sufficient Definitive Certificates to be executed and delivered to the Registrar within 10 days following the request for exchange for completion and dispatch to the Certificateholders. A person having an interest in the Global Certificate must provide the Registrar with a written order containing instructions and such other information as the Trustee and the Registrar may require to complete, execute and deliver such Definitive Certificates. In these Listing Particulars, “Definitive Certificate” means a trust certificate in definitive registered form issued by the Trustee in accordance with the provisions of the Declaration of Trust in exchange for the Global Certificate, such trust certificate substantially in the form set out in the Schedules to the Declaration of Trust. 68
80. USE OF PROCEEDS The net proceeds of the issuance of the Certificates will be utilised by the Issuer to purchase the Leased Assets . The proceeds received by the Seller from the sale of the Leased Assets are intended to be utilised as follows: • U.S.$22,100,000 will be used to pay the Cash Consideration to the holders of the Existing Trust Certificates who elected to receive the Cash Consideration on the Closing Date; and • the balance of the proceeds from the sale of the Leased Assets, after application in accordance with the above, shall be used by Tilal for its general corporate purposes. 69
81. DESCRIPTION OF THE TRUSTEE General The Trustee was incorporated in the Cayman Islands on 3 May 2018 as an exempted limited liability company under the Companies Law (2018 Revision) under the name Tilal Sukuk Company Limited and with registered number 336563. The Trustee’s registered office address is c/o MaplesFS Limited, P.O. Box 1093, Queensgate House, Grand Cayman KY1-1102, Cayman Islands and its telephone number is +1 345 945 7099. Business of the Trustee The Trustee has no prior operating history or prior business and will not have any substantial liabilities other than in connection with the Certificates to be issued. The Certificates are the obligations of the Trustee alone and not the Share Trustee. The objects for which the Trustee is established are set out in clause 3 of its Memorandum of Association as registered or adopted on 2 May 2018. Share Capital of the Trustee The authorised share capital of the Trustee is U.S.$50,000 divided into 50,000 ordinary shares of U.S.$1.00 par value each, 250 of which have been issued. All of the issued shares (the “Shares”) are fully-paid and are held by MaplesFS Limited as share trustee (in such capacity, the “Share Trustee”) under the terms of the Share Declaration of Trust under which the Share Trustee holds the Shares in trust until the Termination Date (as defined in the Share Declaration of Trust) and may only dispose or otherwise deal with the Shares in accordance with the Share Declaration of Trust. Prior to the Termination Date, the trust is an accumulation trust, but the Share Trustee has power to benefit Qualified Charities (as defined in the Share Declaration of Trust). It is not anticipated that any distribution will be made whilst any Certificates are outstanding. Following the Termination Date, the Share Trustee will wind up the trust and make a final distribution to charity. The Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share Trustee) from, its holding of the Shares. Financial Statements Since the date of incorporation, no financial statements of the Trustee have been prepared. The Trustee is not required by Cayman Islands law, and does not intend, to publish audited financial statements. Directors of the Trustee The directors of the Trustee and their other principal activities as at the date hereof are as follows: Name John Curran .............................. Other principal activities Assistant Vice President, Fiduciary at Maples Fund Services (Middle East) Cleveland Stewart ..................................... Senior Vice President at MaplesFS Limited The business address of John Curran is c/o Maples Fund Services (Middle East) Limited, Liberty House, 6th Floor, Office 616, Dubai International Financial Centre, P.O. Box 506734, Dubai, United Arab Emirates. The business address of Cleveland Stewart is c/o MaplesFS Limited, P.O. Box 1093, Queensgate House, Grand Cayman, KY1-1102, Cayman Islands. The Trustee's Articles of Association provide that the board of directors of the Trustee will consist of at least one director. Conflicts There are no potential conflicts of interest between the private interests or other duties of the Directors listed above and their duties to the Issuer. 70
82. Financial Statements Since the date of its incorporation , no financial statements of the Trustee have been prepared. The Trustee is not required by Cayman Islands law, and does not intend, to publish audited financial statements. The Trustee’s financial year ends on 31 December. The Administrator MaplesFS Limited also acts as the administrator of the Trustee (in such capacity, the “Trustee Administrator”). The office of the Trustee Administrator serves as the general business office of the Trustee. Through the office, and pursuant to the terms of the Corporate Services Agreement, the Trustee Administrator has agreed to perform in the Cayman Islands, the UAE and/or such other jurisdiction as may be agreed by the parties from time to time various management functions on behalf of the Trustee and to provide certain clerical, administrative and other services until termination of the Corporate Services Agreement. The Trustee Administrator will also provide registered office services to the Trustee in accordance with its standard terms and conditions for the provision of registered office services as published at http://www.maplesfidudciaryservices.com/terms (the “Registered Office Terms”). In consideration of the foregoing, the Trustee Administrator will receive various fees payable by the Trustee at rates agreed upon from time to time, plus expenses. The terms of the Corporate Services Agreement and the Registered Office Terms provide that either the Trustee or the Trustee Administrator may terminate such appointments upon the occurrence of certain stated events, including any breach by the other party of its obligations under such agreements. In addition, the Corporate Services Agreement and the Registered Office Terms provide that either party shall be entitled to terminate such agreements by giving at least three months' notice in writing to the other party and, in the case of the Corporate Services Agreement, with a copy to any applicable rating agency. The Trustee Administrator will be subject to the overview of the Trustee's board of directors. The Trustee Administrator's principal office is P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands. The directors of the Trustee are all employees or officers of the Trustee Administrator or an affiliate thereof. 71
83. SELECTED FINANCIAL INFORMATION The selected financial information set out in the tables below shows certain balance sheet data of Tilal as at 30 June 2018 , 31 December 2017 and 31 December 2016 and certain statement of comprehensive income, statement of cash flows data and statement of changes in equity data of Tilal as of and for the six month periods ended 30 June 2018 and 30 June 2017 and for the years ended 31 December 2017 and 31 December 2016. Unless otherwise indicated, the balance sheet, statement of comprehensive income and statement of cash flows data included in these Listing Particulars relating to Tilal have been extracted from the Financial Statements. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME The table below sets out the statement of consolidated comprehensive income data relating to Tilal for the six month periods ended 30 June 2018 and 30 June 2017 and for the years ended 31 December 2017 and 31 December 2016. 30-Jun-18 U.S.$ 30-Jun-17 U.S.$ 31-Dec-17 U.S.$ 31-Dec-16 U.S.$ 12,897,849 12,408,701 24,594,891 25,000,882 12,897,849 23,265 12,431,966 44,167 24,639,058 259,740 9,995 25,270,617 (7,560,836) - (5,805,019) - (11,277,316) (513,730) (9,601,908) - (62,179) (47,301) (96,951) (167,275) Total expenses (7,623,015) (5,852,320) (11,887,997) (9,769,183) Operating profit Share of result of associates Sukuk al ijara profit rentals and finance cost Profit before taxation 5,274,834 (33,774) (2,494,556) 2,746,504 6,579,646 15,642 (2,470,283) 4,125,005 12,751,061 (60,899) (4,985,500) 7,704,662 15,501,434 (457) (4,876,018) 10,624,959 (453,517) 2,292,987 (4,918,966) (793,961) (5,417,130) 2,287,532 (325,151) 10,299,808 (4,145) (4,145) (793,961) (140,743) (140,743) - 2,288,842 (793,961) 2,146,789 10,299,808 2,293,099 (112) 2,292,987 (793,881) (80) (793,961) 2,287,628 (96) 2,287,532 10,299,870 (62) 10,299,808 2,288,954 (112) 2,288,842 (793,881) (80) (793,961) 2,146,885 (96) 2,146,789 10,299,870 (62) 10,299,808 0.13 (0.04) 0.05 0.02 Income Rental income from investment properties Net gain from fair value adjustment on investment properties Other income Total income Expenses General and administrative expenses Impairment loss on trade and receivables Depreciation other Taxation Net profit for the year Other comprehensive income Items that will be reclassified subsequently to profit and loss; Deferred tax on revaluation reserve Total other comprehensive loss Total comprehensive income and net profit for the year Net profit / (loss) attributable to : Owner of the parent Non-Controlling interest Total comprehensive income attributable to : Owner of the parent Non-Controlling interest Earnings Per Share (EPS) / (loss) 72
84. The earnings per share shown above has been calculated by dividing the profit and total comprehensive income for the period /year (as applicable) by the weighted average number of shares outstanding during the period/year (as applicable). CONSOLIDATED STATEMENT OF FINANCIAL POSITION The table below sets out the statement of condensed consolidated statement of financial position data relating to Tilal as of and for the six month period ended 30 June 2018 and for the years ended 31 December 2017 and 31 December 2016. 30-Jun-18 U.S.$ 31-Dec-17 U.S.$ 31-Dec-16 U.S.$ 407,899,472 1,681,755 206,961 409,788,188 399,552,540 1,625,267 240,735 401,418,542 365,576,964 1,569,647 301,633 367,448,245 3,762,171 1,397,823 8,495,532 1,618,007 15,273,533 4,006,851 1,236,412 5,245,115 4,021,249 14,509,627 3,992,878 1,456,725 3,562,896 8,708,598 17,721,097 Total assets 425,061,721 415,928,169 385,169,342 EQUITY Capital and reserves Share capital General reserve Legal reserve Revaluation reserve Retained earnings Total equity attributable to owner of the company Non-controlling interest 46,753,247 163,753 13,465,965 668,338 93,430,018 154,481,321 46,753,247 163,753 13,236,655 680,779 91,357,933 152,192,367 46,753,247 163,753 12,956,519 854,709 93,992,579 154,720,807 6,224 6,336 6,432 Total Equity 154,487,545 152,198,703 154,727,239 74,800,304 178,488 2,345,618 20,311,490 97,635,900 76,208,674 154,813 2,155,255 19,859,270 98,378,012 129,870,130 68,544,857 105,719 2,019,455 14,669,904 215,210,065 129,870,130 6,983,171 129,870,130 6,983,171 917,636 12,013,579 8,706,380 15,297,218 67,798 172,938,276 9,054,586 6,700,457 12,297,219 445,891 165,351,454 2,265,236 5,156,208 6,289,541 603,416 15,232,037 Total liabilities 270,574,176 263,729,466 230,442,102 Total equity and liabilities 425,061,721 415,928,169 385,169,342 8.58 8.46 8.60 ASSETS Non-current assets Investment properties Property and equipment Investment in associates Current assets Trade and other receivables Advances, deposits and prepayments Due from related parties Cash and bank balances LIABILITIES Non-current liabilities Finance under Sukuk al ijara Finance under diminishing musharika End of service benefits Advances and security deposits Deferred tax liability Current liabilities Finance under Sukuk al ijara Current portion of finance under diminishing musharika Current portion of advances and security deposits Trade and other payables Due to related parties Tax payable Net asset value per share 73
85. The NAV per share shown above has been calculated by dividing the NAV for the period /year (as applicable) by the weighted average number of shares outstanding during the period/year (as applicable). CONSOLIDATED STATEMENT OF CASH FLOWS The table below sets out the statement of condensed consolidated statement of cash flows data relating to Tilal for the six month period ended 30 June 2018 and for the years ended 31 December 2017 and 31 December 2016. 30-Jun-2018 U.S.$ 31-Dec-17 U.S.$ 31-Dec-16 U.S.$ 2,746,504 7,704,662 10,624,959 33,774 62,179 23,675 2,494,556 60,899 513,730 96,951 50,852 4,985,500 (259,740) 457 167,275 41,353 4,876,018 5,360,688 13,412,594 15,450,322 244,680 (161,411) (3,250,417) 3,149,356 2,005,923 2,999,999 10,348,818 (527,703) 220,311 (1,682,218) 6,925,150 1,302,658 6,007,678 25,658,470 913,366 1,569,055 125,309 (8,047) (1,067,160) 1,696,579 18,679,424 (383,535) 9,965,283 (1,758) (526,031) 25,130,681 (27,644) (407,896) 18,243,884 (118,667) (152,571) (93,003) (5,213,774) (27,159,712) (27,312,283) (32,888,021) (129,870) (33,100,894) 29,255,153 (4,675,325) (9,604,548) 6,494 14,981,774 Operating activities Profit before taxation Adjustments for: Net gain from fair value adjustment on investment properties Share of result of associates Impairment loss on trade and other receivables Depreciation Charge for end of service benefits Sukuk al ijara profit rentals and borrowings costs Cash flows before working capital changes and payment of sukuk al ijara profit rentals, income tax and end of service benefits Working capital changes: Trade and other receivables Advances, deposits and prepayments Due from related parties Advances and security deposits Trade and other payables Due to related parties Cash generated from operations End of service benefits paid Income tax paid Net cash generated from operating activities Investing activities Purchase of property and equipment Cost incurred on investment property under construction Investment in associates Net cash used in investing activities (5,332,441) Financing activities Finance under diminishing musharaka obtained Dividend paid Sukuk al ijara profit rentals and finance cost paid Impact of non-controlling interest in subsidiaries Net cash generated from financing activities (1,408,370) (5,627,714) (7,036,084) 13,729,352 (4,675,325) (11,559,774) (2,505,747) Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year (2,403,242) (4,687,349) 114,764 4,021,249 8,708,598 8,593,834 1,618,007 4,021,249 8,708,598 74
86. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY The table below sets out the statement of condensed consolidated statement of changes in equity relating to Tilal for the six month period ended 30 June 2018 and for the years ended 31 December 2017 and 31 December 2016 . Share capital U.S.$ General reserve U.S.$ Revaluation reserve Legal Reserve U.S.$ U.S.$ At 1 January 2018 Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve At 30 June 2018 46,753,247 46,753,247 163,753 163,753 13,236,655 229,31013,465,965 680,779 (4,145) (4,145) (8,296) 668,338 At 1 January 2017 Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve Cash dividend Paid At 31 December 2017 46,753,247 46,753,247 163,753 163,753 12,956,519 280,136 13,236,655 854,709 (140,743) (140,743) (33,187) 680,779 75 Retained earnings U.S.$ Total U.S.$ Noncontrolling interest U.S.$ Grand Total U.S.$ 91,357,933 2,293,099 2,293,099 8,296 (229,310) 93,430,018 152,192,367 2,293,099 2,288,954 154,481,321 6,336 (112) (112) 6,224 152,198,703 2,292,987 (4,145) 2,288,842 154,487,545 93,992,579 2,287,628 2,287,628 33,187 (280,136) (4,675,325) 91,357,933 154,720,807 2,287,628 (140,743) 2,146,885 (4,675,325) 152,192,367 6,432 (96) (96) 6,336 154,727,239 2,287,532 (140,743) 2,146,789 (4,675,325) 152,198,703
87. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY The table below sets out the statement of condensed consolidated statement of changes in equity relating to Tilal for the year ended 31 December 2016 . Share capital U.S.$ At 1 January 2016 Profit for the year Total comprehensive income Transfer to legal reserve Transfer if incremental depreciation Impact of Subsidiary formation Cash Dividend Paid At 31 December 2016 46,753,247 46,753,247 General reserve U.S.$ Legal Reserve U.S.$ 163,753 163,753 11,926,532 1,029,987 12,956,519 Revaluation reserve U.S.$ 887,896 (33,187) 854,709 76 Retained earnings U.S.$ 89,364,834 10,299,870 10,299,870 (1,029,987) 33,187 (4,675,325) 93,992,579 Total U.S.$ 149,096,262 10,299,870 10,299,870 (4,675,325) 154,720,807 Noncontrolling interest U.S.$ (62) (62) 6,494 6,432 Grand Total U.S.$ 149,096,262 10,299,808 10,299,808 6,494 (4,675,325) 154,727,239
88. OPERATING AND FINANCIAL REVIEW The following discussion and analysis should be read in conjunction with the information set out in “Presentation of Financial and Other Information”, “Selected Financial Information” and the Financial Statements included elsewhere in these Listing Particulars. The following discussion of Tilal’s financial condition and results of operations is based upon the Financial Statements, which have been prepared in accordance with IFRS. This discussion contains forward-looking statements that involve risks and uncertainties. Tilal’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in these Listing Particulars, particularly under the headings “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors”. Overview Tilal is a leading real estate company in Oman, which is primarily engaged in real estate investment, development, leasing and the maintenance of commercial and residential real estate properties. Tilal’s primary business consists of the development and management of a mixed use real estate development known as the “Tilal Complex”. Tilal was established on 22 November 2006 in Oman as a closed joint stock company with commercial registration number 1008901; it is managed by its board of directors (the “Board of Directors”), supported by its executive management team. Tilal also benefits from additional management support from specific members of the management team of AMRE, a related party of Tilal and a leading real estate developer in Oman. Tilal’s primary revenue generating asset, Tilal Complex, is being developed in two phases. Phase 1 of the development of Tilal Complex (“Phase 1”) has been completed and consists of the following assets (such assets and the land on which they sit being the “Phase 1 Assets”): • a shopping mall constructed on two floors above two floors of indoor parking with a total floor area of approximately 66,000 square meters, which houses world class shopping facilities with food courts, restaurants and recreational areas (the “Muscat Grand Mall”); • offices on five (5) levels situated above the Muscat Grand Mall (“Tilal Offices”). Originally these offices were comprised of three Buildings (Buildings 4, 5 and 6). Building 6 has been sold, whilst Buildings 4 and 5 have been retained by Tilal for the purpose of generating rental income; and • 115 serviced apartments on five (5) levels above the Muscat Grand Mall with access to a roof-top garden and recreational facilities (the “Serviced Apartments”). The Serviced Apartments are operated by Millennium & Copthorne Middle East Holding Limited. Phase 2 has been commenced by Tilal and is more particularly detailed in the section entitled “Business Description - Construction of Phase 2 Assets” below. Tilal attained a net profit of U.S.$2.747 million for the six month period ended 30 June 2018, U.S.$2.288 million for the year ended 31 December 2017 and U.S.$10.300 million for the year ended 31 December 2016. Tilal had total assets of U.S.$425.06 million, U.S.$415.928 million and U.S.$385.169 million as at 30 June 2018, 31 December 2017 and 31 December 2016, respectively. Key Factors affecting Financial Condition and Results of Operations The financial condition and results of the operations of Tilal are affected by a variety of factors. Set out below is a discussion of the most significant factors that have affected the financial condition and results of operations of Tilal during the periods under review or which Tilal believes may affect its financial condition and results of operations in the future. Although Tilal believes that the factors set out below are the main factors that may affect its future performance, there may be factors that are currently unknown or are currently less significant, other than those set out below, that could also have a significant impact on the future financial condition and the results of operations of Tilal. 77
89. Real estate market conditions The results of operations of Tilal can be significantly affected by changes in the fair value of Tilal Complex which , although they do not represent actual cash movements, are recorded within Tilal’s balance sheet and the comprehensive statement of income. Any significant decline in the fair value of the Tilal Complex could lead to Tilal recording an overall loss in its statement of comprehensive income which may have an adverse effect on the financial condition and results of operations of Tilal. Tilal Complex is valued by an independent property valuer at least every 12 months. The value attributed to Tilal Complex is restated to its fair value on Tilal’s balance sheet with any movements in value recorded in Tilal’s statement of comprehensive income, based on the independent property valuation. Tilal has asked the relevant independent valuer to prepare each valuation on a long term sustainable basis and fair value reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under market conditions prevailing at the relevant time. The fair value estimates of both land and building within the Tilal Complex as listed in the Financial Statements are based on valuations conducted by a recognised independent valuer in Oman (ERA Al Osool Real Estate LLC). The date of the most recent valuation was 17 January 2018 and that valuation was completed using comparable sales methodology. According to such valuation, the Muscat Grand Mall was valued at OMR60 million (U.S.$155.84 million), the Tilal Offices were valued at OMR22.4 million (U.S.$58.18 million) and the Serviced Apartments were valued at OMR15 million (U.S.$38.96 million). For the purposes of the Certificates, the fair value estimates of both land and buildings within the Tilal Complex were also valued by Cavendish Maxwell. The date of this valuation is 7 May 2018 and that valuation was completed using income methodology. According to such valuation, the Muscat Grand Mall is valued at OMR61.3 million (U.S.$159.22 million), the Tilal Offices are valued at OMR22.27 million (U.S.$57.84 million) and the Serviced Apartments have been valued at OMR15.75 million (U.S.$40.91 million). Rental income The ability of Tilal to grow its rental income from Tilal Complex is affected by a number of other factors including: • the ability to increase rental rates for units within Tilal Complex; and • changes in the level of committed occupancy and lease renewal rates. Tilal’s aggregate rental income from the Muscat Grand Mall decreased by U.S.$0.686 million from U.S.$8.209 million for the six month period ended 30 June 2017 to U.S.$7.522 million for the six month period ended 30 June 2018. Tilal’s aggregate rental income from the Muscat Grand Mall decreased by U.S.$0.425 million from U.S.$16.613 million for the year ended 31 December 2016 to U.S.$16.188 million for the year ended 31 December 2017. The principal factor driving this decrease in rental income was lower realisation of turnover rental and discounts offered to tenants. Footfall at the Muscat Grand Mall decreased to 8,110,975 visitors for the year ended 31 December 2017, down from 8,685,072 visitors for the year ended 31 December 2016, although footfall at the Muscat Grand Mall has increased to 5,940,060 visitors for the six months period ended 30 June 2018, up from 4,680,471 visitors for the six month period ended 30 June 2017. With regard to the Muscat Grand Mall, the average monthly rental rate per square meter for the six month period ended 30 June 2018 was U.S.$35.04, an increase of U.S.$1.38 (4.1 per cent) from the average monthly rental rate per square meter for the six month period ended 30 June 2017 of U.S.$33.66. The average monthly rental rate per square meter for the year ended 31 December 2017 was U.S.$33.66 a decrease of U.S.$0.962 (2.6 per cent) from an average monthly rental rate per square meter of U.S.$37.62 for the year ended 31 December 2016. With regards to the Tilal Offices, the average monthly rental rate per square meter for the six month period ended 30 June 2018 was U.S.$21.63, a decrease of U.S.$1.05 (4.6 per cent) from U.S.$22.68 for the year ended 31 December 2017. The average monthly rental rate per square meter for the year ended 31 December 2017 was U.S.$22.68 an increase of U.S.$0.872 (4 per cent) from an average monthly rental rate per square meter of U.S.$21.81 for the year ended 31 December 2016. 78
90. Strength of the Hospitality industry Tilal also earns income through the operation of the Serviced Apartments . The financial condition, results of operations and prospects of Tilal in respect of the Serviced Apartments are significantly affected by general economic conditions and by the condition and performance of the hospitality industry in Oman, as well as a variety of other external factors outside of the control of Tilal. These factors include economic trends, competition and market rate and supply. These external market conditions and trends may affect, amongst other things, the ability of Tilal to maintain or grow income and occupancy levels in Tilal Complex. See further section entitled “Muscat Hospitality Overview” below and risk factor entitled “Macroeconomic factors beyond Tilal’s control can reduce demand for retail space and rooms within the Tilal Complex”. Property operating expenses Operating expenses in respect of Tilal Complex comprise staff costs, security, marketing, municipal fees, insurance other property operating expenses such as utilities, maintenance and other general upkeep costs including fees for cleaning services, lift maintenance, water tanks, pumps and plumbing equipment maintenance, security camera and system maintenance, landscaping, repairs and renovation works. The comparisons in this paragraph exclude the costs of rebates and concessions as such costs are relevant only to the year ended 31 December 2017 as no such costs were incurred for the year ended 31 December 2016. The most significant cost for Tilal in operating the Tilal Complex are (a) staff costs, which represented U.S.$3.065 million (or 32 per cent of total property operating expenses) for the year ended 31 December 2017 (as compared with U.S.$2.870 million (or 30 per cent of total property operating expenses) for the year ended 31 December 2016; (b) cost of utilities (water, electricity and district cooling), which represented U.S.$2.763 million (or 28 per cent of total property operating expenses) for the year ended 31 December 2017 (as compared with U.S.$2.599 million (or 27 per cent of total property operating expenses) for the year ended 31 December 2016; (c) maintenance expenses, which represented U.S.$1.538 million (or 16 per cent of total property operating expenses) for the year ended 31 December 2017 (as compared with U.S.$1.600 million (or 17 per cent of total property operating expenses) for the year ended 31 December 2016 and (d) municipal fees, which represented U.S.$0.664 million (or 7 per cent of the total property operating expenses) for the year ended 31 December 2017 (as compared to U.S.$0.524 million (or 5 per cent of total operating expenses) for the year ended 31 December 2016. The most significant cost for Tilal in operating the Tilal Complex for the six month period ended 30 June 2018 as compared to the previous six month period ended 30 June 2017 are (a) staff costs, which represented U.S.$1.450 million (or 19.2 per cent of total property operating expenses) for the six month period ended 30 June 2018 (as compared with U.S.$1.750 million (or 30.2 per cent of total property operating expenses) for the six month period ended 30 June 2017; (b) cost of utilities (water, electricity and district cooling), which represented U.S.$2.291 million (or 30.3 per cent of total property operating expenses) for the six month period ended 30 June 2018 (as compared with U.S.$1.452 million (or 25 per cent of total property operating expenses) for the six month period ended 30 June 2017; (c) maintenance expenses, which represented U.S.$0.924 million (or 12.2 per cent of total property operating expenses) for the six month period ended 30 June 2018 (as compared with U.S.$0.702 million (or 12.1 per cent of total property operating expenses) for the six month period ended 30 June 2017; (d) municipal fees, which represented U.S.$0.366 million (or 4.8 per cent of the total property operating expenses) for the six month period ended 30 June 2018 (as compared to U.S.$0.329 million (or 5.7 per cent of total property operating expenses) for the six month period ended 30 June 2017; (e) Rebate, concession and discounts which represented U.S.$1.272 million (or 16.8 per cent of total operating expenses) as compared U.S.$0.642 million (or 11.1 per cent of total property operating expenses) for the six month period ended 30 June 2017. Tilal actively manages and seeks to improve the operating efficiency of Tilal Complex. While Tilal seeks to pass on some of the costs of servicing Tilal Complex to its tenants by way of service charges (with such service charges typically being factored into the rent payable by tenants) and each tenant is obliged to pay for the cost of utilities directly consumed by that tenant, Tilal is not able to pass on all of the costs of servicing Tilal Complex to its tenants. Description of Certain Line Items from the Consolidated Income Statement Revenue recognition For the year 2014, IFRIC 15 (Agreements for the Construction of Real Estate) was followed for revenue recognition. As per this standard, revenue is recognised when it is probable that the economic benefits from an 79
91. asset sale will flow to Tilal , revenue and costs can be measured reliably and the risks and rewards of ownership of the relevant asset have been transferred to the buyer. At the point of revenue recognition Tilal retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the assets sold. Tilal has assessed the standard as permitted by IFRS 15 (Revenue from contracts with customers). IFRS 15 outlines a single comprehensive model of accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance found across several Standards and Interpretations within IFRS. It establishes a new five-step model that will apply to revenue arising from contracts with customers comprising the following: • Identify the contract with a customer: A contract is defined as an agreement between two or more parties that creates enforceable rights and obligations and sets out the criteria for each of those rights and obligations; • Identify the performance obligations in the contract: A performance obligation in a contract is a promise to transfer a good or service to the customer; • Determine the transaction price: Transaction price is the amount of consideration to which Tilal expects to be entitled in exchange for transferring the promised goods and services to a customer, excluding amounts collected on behalf of third parties; • Allocate the transaction price to the performance obligations in the contract: For a contract that has more than one performance obligation, Tilal will allocate the transaction price to each performance obligation in an amount that depicts the consideration to which Tilal expects to be entitled in exchange for satisfying each performance obligation; and • Recognise revenue as and when Tilal satisfies a performance obligation. Revenue is recognised to the extent that it is probable that the economic benefits will flow to Tilal and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. Rental income from investment properties The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the relevant inception date; whether fulfilment of the arrangement is dependent on the use of a specific asset or assets; or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Leases in which Tilal does not transfer substantially all the risks and benefits of ownership of the asset are classified as “operating leases”. Rental income arising from operating leases on investment property is accounted for on a straight-line basis over the lease term after the spreading of tenant incentives and fixed rental increases on such lease terms and is included in rental income in the statement of comprehensive income due to its operating nature. Contingent rents are recognised as revenue in the period in which they are earned. Other income Sources of revenue for Tilal, other than rental income from investment properties, are set out below: Service fee income Service fee income represents amounts receivable for property service charges that are payable by tenants to contribute towards the operation and maintenance expenses of the relevant property. Service fees are recognised on a time proportion basis in accordance with the terms of the relevant service agreements. 80
92. Cancellation fees In relation to defaulting customers , once all negotiations and communication channels with the customers for renegotiating or for future payments are exhausted and Tilal is of the view that it is appropriate to terminate contracts entered into with such defaulting customers, Tilal recognises any related cancellation fees in the condensed consolidated statement of comprehensive income. Management fee income Management fee income is earned by Tilal for management services that it provides in connection with properties other than the Tilal Complex. As at the date of these Listing Particulars, Tilal provides management services in relation to the Sawary Mall and the Oasis Mall, each of which is located in Oman. Revenue is recognised at the time Tilal has the right to receive a payment in accordance with the terms of the relevant management services contract. Sale of properties Revenue is recognised when the significant risk and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return on properties sold can be estimated reliable, and there is no significant continuing management involvement with properties sold. Revenue from the sale of properties is measured at the fair value of the consideration received or receivable. Revenue is recognised when the significant risk and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return on properties sold can be estimated reliable, and there is no significant continuing management involvement with properties sold. Transfer of risks and rewards vary depending on the individual terms of the contract of sales. For sale of properties, transfer usually occurs when the construction property has reached practical completion and is either handed over to the buyers for use or significant amount of sale proceeds have been received by Tilal against sale of properties. Deposits and advance payments made by buyers of residential units are accounted for as current liabilities. For the year ended 31 December 2017, U.S.$6.307 million collected by Tilal as advance payment against the sale of units in the Muscat Grand Mall expansion and was accounted for by Tilal as a current liability. Following the handover of a residential unit to the relevant buyer, the relevant sales revenue will be recognised in the consolidated income statement. When revenue on a property is recognised, the percentage of the purchase price is recorded as revenue in that period, the amount of “Advance from customers” recorded in respect of the property is reversed and any amounts still owing on the property are recorded as “Trade and other receivables”. Prior to the time at which revenue is recognised for a given project and unit, associated project costs are capitalised and recognised as an asset on the condensed consolidated statement of financial position under “development properties”. The value of development properties recognised is the lower of fair market value and actual cost. At the point when revenue from the sale of a unit is recognised, the corresponding value of the unit is removed from “Advance from customers”, and the aggregate incurred costs are recognised on the consolidated income statement as “cost of sales”. Units that are completed but unsold are treated as inventory and reflected as assets on the condensed consolidated statement of financial position under “development properties”. Under IFRS, those assets are required to be assessed for impairment at least annually; any adjustments to their value are reflected on the consolidated income statement under “provision for impairment of development properties”. In an environment of decreasing property value, where property prices falls below cost of the development of the property, any downward adjustments in the asset value of inventory can result in a non-cash cost in the consolidated income statement. In an environment of increasing property values, the reverse is true. Finance income Finance income comprises profit income on short-term investments and other bank deposits. Profit income is recognised as it accrues in the statement of comprehensive income, using the effective profit rate method. 81
93. Net gain from fair value adjustment on investment properties Tilal classifies property that is held for long-term rental yields or for capital appreciation , or both, and that is not occupied by Tilal, as “investment property”. Investment property also includes property that is being constructed or developed for future use as investment property. Gains or losses arising from changes in the fair values of investment property are recorded as profit or loss in the statement of comprehensive income in the period in which they arise. Investment property is de-recognised either when it has been disposed of or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recorded as profit or loss in the statement of comprehensive income during the period of derecognition. Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment property is stated at fair value, which reflects market conditions as at the reporting date. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment property under construction for which the fair value cannot be determined reliably, but for which Tilal expects that the fair value of the Property will be reliably determinable when construction is completed, is measured at cost less impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier. Fair value is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the specific asset. If this information is not available, Tilal uses alternative valuation methods, such as discounted cash flow projections. Valuations are performed by independent professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the Financial Statements. The realisable values of investment properties were determined by Tilal on a yearly basis based on valuations performed by qualified and independent chartered surveyors and property consultants. These valuations have been prepared in accordance with the Valuation Standards of RICS, and are reflective of the economic conditions prevailing as at the reporting date, and changes in the development plan of certain projects. The primary valuation method used was the residual land valuation method which is based on a discounted cash flow approach that determines the value of the property by deducting the estimated costs to complete the development from the estimated value on completion derived from the sales proceeds of the property. This method entails estimating the gross realisation from the projected sales price of the properties. From this is deducted the outstanding estimated cost to service the property including a developer’s margin to arrive at a residual value. The resultant value expressed in net present value terms represents the estimated price that a well-informed rational and efficient developer or investor would pay for the subject property. The method takes into account the time value of money concept where future cash flows are discounted at rates ranging from 7 per cent to 20 per cent The properties are expected to be developed over a period varying between 1 to 7 years. For impairment losses recognised in prior periods, Tilal has assessed, based on internal and external sources of information, and concluded that the carrying value of the related development property is appropriately stated as per IAS 2 (Inventories). General and administrative expenses These expenses include direct operating expenses arising from investment property that generates rental income during the year (such as maintenance expenses, utility charges, staff costs, insurance premiums, marketing and promotional costs) as well as sitting fees and other board meeting related expenses, legal & professional fees, donations and the costs of rebates & concessions. Impairment loss on trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment, if any. Tilal assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost. The impairment methodology applied 82
94. depends on whether there has been a significant increase in credit risk . To assess whether there is a significant increase in credit risk Tilal compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwardinglooking information. For trade receivables, Tilal applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivable. Depreciation Depreciation is charged to the consolidated statement of comprehensive income on a straight-line basis calculated over the estimated useful lives of each class of property and equipment. The estimated useful lives for (a) buildings is 25 years; (b) furniture and fixtures is 3 years; (c) office and computer equipment is 3 years; and (d) motor vehicles is 3 years. Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, from time to time. Share of results of associates An associate is an entity in which Tilal has significant influence, but no control, over the financial and operating policies. Significant influence is presumed to exist when Tilal holds between 20 to 50 per cent of the voting power of another entity; in such circumstance, Tilal considers such entity as an “associate” for reporting purposes. Investment in associates is accounted for under the equity method. Under the equity method, investment is initially recognized at cost and the carrying amount is increased or decreased to recognise Tilal’s share of profit and loss and Tilal’s share of movement in other comprehensive income of the investee after the date of acquisition. Tilal’s share of profit or loss of the investee is recognised in Tilal’s profit or loss and distributions received from the investee reduces the carrying amount of the investment. Finance costs Finance costs comprise sukuk al ijara rentals, bank charges, foreign currency losses and other levies imposed for banking related transactions. It also includes the general financing costs not directly attributable. General and specific borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised as profit or loss in the period in which they are incurred. Taxation Taxation is determined based on the taxable income for a particular year. Tax liability incurred by Tilal in relation to unrealised gains are deferred until such time as the relevant gain is realised and such deferred tax liability is accounted for as a non-current liability in in the statement of comprehensive income in the period in which they arise. Tilal’s income tax assessments for the tax years 2012 to 2016 have not yet been finalised by the Secretariat General for Taxation at the Ministry of Finance in Oman. Tilal considers that additional taxes, if any, that may become payable on finalisation of the assessments in respect of the open years would not be material to Tilal’s financial position as at 31 December 2017. Foreign currency translation The functional currency of Tilal is Omani Rial, being the currency of the economic environment in which Tilal operates. The presentation currency of the Financial Statements is U.S. dollar, translated at a rate of OMR0.385 to each U.S. dollar and are shown for the convenience of the reader only. The translation rate has remained constant throughout current and previous years. Transactions in foreign currencies are initially recorded by Tilal at their respective functional currency spot rates, as at the date the transaction first qualifies for recognition. 83
95. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange as at the relevant reporting date . Differences arising on settlement or translation of monetary items are recognised as profit or loss within the statement of comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item. Accounting Policies requiring Management Judgement and Discretion In preparing its IFRS financial statements, for certain line items Tilal is required to make judgements or to exercise discretion in determining the values to be recorded, as described in the notes to the Financial Statements. Different judgements taken by Tilal in determining these amounts could have a material effect on the amounts recorded in its consolidated statement of financial position or consolidated income statement. Significant accounting estimations made by management include impairment of non-financial assets and accounts receivable, and the determination of useful lives of property, plant and equipment. In making such estimates and assumptions, Tilal takes into account historical experience, advice from external experts and other relevant factors, including the consequences of future events that are believed to be reasonable under the circumstances. There is uncertainty attached to factors surrounding estimates and judgments used in the preparation of the Financial Statements and, as a result of these uncertainties, actual outcomes and consequences may vary from those estimated at the time. For further information on Tilal’s significant accounting policies and its critical accounting estimates and judgments, please see Note 2 (Summary of significant accounting policies) and Note 4 (Critical accounting estimates and judgments) to the 2016 Financial Statements and Note 3 (Summary of significant accounting policies) and Note 4 (Critical accounting estimates and judgments) to the 2017 Financial Statements. Dividend Policy Tilal decides whether to declare a dividend payment in relation to a particular financial year and, if so, the amount of such dividend payment on the basis of the profitability of Tilal for that financial year and the funding requirements and cash flows of Tilal. In April 2017, Tilal made a dividend payment of U.S.$4.68 million in relation to the financial year ended 31 December 2016. Tilal’s board has recommended that no dividend payment is made in relation to the financial year ended 31 December 2017. Quantitative and Qualitative Disclosures about Market Risk Tilal’s principal financial liabilities comprise Islamic financing facilities and trade payables. The main purpose of these financial instruments is to fund the purchase of investment property and to finance Tilal’s operations. Tilal has various financial assets such as trade receivables and bank balances and cash, which arise directly from its operations. The main risks arising from Tilal’s financial instruments are profit rate risk, foreign currency risk, credit risk and liquidity risk. Tilal reviews and agrees policies for managing each of these risks which are summarised below. Rental/profit rate risk Tilal’s exposure to the risk of changes in market rental or profit rates relates primarily to Tilal’s Islamic financing facilities with floating rates. For the year ended 31 December 2017, if the profit/rental rate on Tilal’s Islamic facilities had been higher by one per cent with all other variables held constant, Tilal’s total profit/rental cost would have increased by U.S.$0.779 million and this would have reduced Tilal’s net profit for the year to U.S.$1.509 million (as compared to U.S.$2.288 million). 84
96. Credit risk The credit risk faced by Tilal is the risk of a financial loss if : (i) tenants fail to make rental payments or meet other obligations under their leases; or (ii) a counterparty to a financial instrument or other financial arrangement fails to meet its obligations under that instrument or arrangement. Tilal maintains Tilal Complex under continual review to minimise tenant credit risk. Tenants are actively monitored for timely payment of rent and other obligations under their lease agreement. New tenants that commence occupation of a unit within Tilal Complex are assessed for creditworthiness at the time of entering a lease. Amounts of rental receivable but unpaid from tenants (including related parties) as at 30 June 2018 represented 18 per cent. of the total annulised rental income (U.S.$4.006 million) as compared to 16 per cent of the total rental income (U.S.$3.554 million) for the year ended 31 December 2017 and 11 per cent of the total rental income (U.S.$2.381 million) for the year ended 31 December 2016. Rent deposits are held in respect of all new leases and may be withheld by Tilal in part or in whole if rental due from the tenant is not settled or in case of other breaches of contract. Tilal only maintains fixed deposits with banks in Oman that are regulated by the Oman Central Bank and which are Shari’a compliant. As a result the credit risk in respect of those entities is assessed by Tilal to be relatively low. Liquidity risk The liquidity risk faced by Tilal is that it may have insufficient cash or cash equivalent resources to meet its financial obligations as they fall due. Tilal actively manages liquidity risk by monitoring actual and forecast cash flows and by maintaining adequate cash reserves. Analysis of Results of Operations for the Six Month Periods ended 30 June 2018 and 30 June 2017 and the Years Ended 31 December 2017 and 31 December 2016 Rental income from investment properties Tilal’s aggregate rental income from investment properties for the six month period ended 30 June 2018 increased to U.S.$12.898 million as compared to U.S.$12.409 million for the six month period ended 30 June 2017. Tilal’s aggregate rental income from investment properties for the year ended 31 December 2017 decreased to U.S.$24.595 million as compared to U.S.$25.001 million for the year ended 31 December 2016. Tilal’s rental income from the Muscat Grand Mall and the Tilal Offices for the six month period ended 30 June 2018 increased to U.S.$11.922 million as compared to U.S.$11.223 million for the six month period ended 30 June 2017. This increase was mainly due to new rental revenue streams being generated as a result of the expansion of Muscat Grand Mall. Tilal’s rental income from the Muscat Grand Mall and the Tilal Offices for the year ended 31 December 2017 decreased to U.S.$22.225 million as compared to U.S.$22.418 million for the year ended 31 December 2016. This decrease was mainly due to lower turnover rental received and discounts offered by Tilal to tenants of the Muscat Grand Mall, arising as a result of the general negative macro-economic conditions and consumer sentiment caused in part by sustained low oil prices, related government budget deficits and reductions in government expenditure. Tilal’s revenue income from the Serviced Apartments for the six month period ended 30 June 2018 decreased to U.S.$0.976 million as compared to U.S.$1.185 million for the six month period ended 30 June 2017. This decrease was mainly due to a reduction in room rates and occupany for the relevaant period. Tilal’s revenue income from the Serviced Apartments for the year ended 31 December 2017 decreased to U.S.$2.370 million as compared to U.S.$2.583 million for the year ended 31 Decemer 2016. This decrease was mainly due to a reduction in room rates for the Serviced Apartments during the relevant period. Other income For the year ended 31 December 2017, this represented Tilal’s income from the performance of certain property management services as well as finance income. Tilal’s other income increased to U.S.$0.044 million for the 85
97. year ended 31 December 2017 as compared to U .S.$0.01 million for the year ended 31 December 2016. This increase was due to higher management fees received by Tilal as well as an increase in finance income from Shari’a compliant fixed deposits. For the six month period ended 30 June 2018, Tilal had no other material income. General and administrative expenses Tilal’s general and administrative expenses increased to U.S.$7.561 million for the six month period ended 30 June 2018 as compared to U.S.$5.805 million for the six month period ended 30 June 2017. This increase was mainly due to the increase in the rebates and concessions provided to tenants of the Muscat Grand Mall and Tilal Offices and an increase in the cost of utilities, maintenance costs and marketing expenses. Tilal’s general and administrative expenses increased to U.S.$11.277 million for the year ended 31 December 2017 as compared to U.S.$9.602 million for the year ended 31 December 2016. This increase was mainly due to an increase in the municipal fee rate to 5 per cent from 3 per cent and increased employee costs as well as the cost to Tilal of rebates and concessions provided to tenants of the Muscat Grand Mall and the Tilal Offices. The cost to Tilal of rebates and concessions provided to tenants of the Muscat Grand Mall and the Tilal Offices for the year ended 31 December 2017 was U.S.$1.564 million whereas Tilal did not incur any such cost for the year ended 31 December 2016. Excluding the cost to Tilal of rebates and concessions provided to tenants of the Muscat Grand Mall and the Tilal Offices, general and administrative expenses increased to U.S.$9.713 million for the year ended 31 December 2017 as compared to U.S.$9.602 million for the year ended 31 December 2016. Impairment loss on trade and other receivables Tilal’s impairment loss on trade and other receivables increased to U.S.$0.514 million for the year ended 31 December 2017 as compared to nil for the year ended 31 December 2016. This increase mainly reflects provisioning made in accordance with IFRS 9 by Tilal with regards to rental amounts due from tenants of the Muscat Grand Mall and an increase in the credit risk of such tenants. For the six month period ended 30 June 2018 nil impairment provisioning has been provided. Depreciation Depreciation for the six month period ended 30 June 2018 increased to U.S.$0.062 million as compared to U.S.$0.047 million for the six month period ended 30 June 2017. This increase reflects the purchase of new assets during the years ended 31 December 2017 and 31 December 2016. For the year ended 31 December 2017, depreciation decreased to U.S.$0.097 million as compared to U.S.$.0.167 million for the year ended 31 December 2016. This decrease mainly reflects the fact that deprecation in relation to a substantial portion of the relevant assets of Tilal had been fully accounted for. Finance costs Finance costs for the six month period ended 30 June 2018 remained relatively stable at U.S.$2.495 million as compared to U.S.$2.470 million for the six month period ended 30 June 2017. Finance costs for the year ended 31 December 2017 increased to U.S.$4.985 million as compared to U.S.$4.876 million for the year ended 31 December 2016. This increase reflects the increase in the cost of Shari’a compliant facilities utilised by Tilal. Taxation Tilal’s tax charge was U.S.$5.417 million for the year ended 31 December 2017 as compared to U.S.$0.325 million for the year ended 31 December 2016. This increase was primarily due to deferred tax liabilities incurred by Tilal in connection with unrealised gains becoming payable and the increase in 2017 of the tax rate applicable to Tilal to 15 per cent from 12 per cent, with Tilal applying the higher tax rate to unrealised gains and tax depreciation claimed on investment property and fixed assets. During the six month period ended 30 June 2018 U.S.$0.454 million of provisioning was made in respect of taxation. Net profit for the year Profit before taxation for the six month period ended 30 June 2018 decreased to U.S.$2.747 million as compared to U.S.$4.125 million for the six month period ended 30 June 2017. For the reasons stated above, profit before taxation for the year ended 31 December 2017 decreased to U.S.$7.705 million as compared to U.S.$10.625 million for the year ended 31 December 2016 for the reasons stated above. 86
98. Historical Cash Flows Net cash (used in)/generated from operating activities Net cash generated from operating activities principally reflects cash received from rental income from the Muscat Grand Mall, Tilal Offices and the Serviced Apartments as well as the sale of certain residential units in any given year, offset by the movement in current assets, current liabilities and payments towards wages and end of service benefits. Net cash generated from operating activities for the six month period ended 30 June 2018 decreased to U.S.$9.965 million from U.S.$19.838 million for the six month period ended 30 June 2017 . This decrease was mainly due to changes in cashflows, working capital requirements and payments made towards meeting the costs of the expansion of the Muscat Grand Mall. Net cash generated from operating activities increased by U.S.$6.887 million for the year ended 31 December 2017 to U.S.$25.131 million, as compared to U.S.$18.244 million for the year ended 31 December 2016. This increase was primarily due to deposits and advance payments made by buyers of the residential units developed as part of Phase 2. During the year ended 31 December 2017, the sales program for residential units being developed as part of Phase 2 (129 residential units in total) was launched and by 31 December 2017 68 per cent of these residential units had been sold. Net cash (used in)/generated from investing activities Net cash used in investing activities principally reflects investment in the Tilal Complex. Net cash used in investing activities during the six month period ended 30 June 2018 was U.S.$5.332 million. Net cash used in investing activities reduced by U.S.$5.789 million for the year ended 31 December 2017 to U.S.$27.312 million as compared to U.S.$33.101 million for the year ended 31 December 2016. This decrease reflects the fact that Phase 2 is nearing completion and a substantial proportion of the costs of Phase 2 have now been met by Tilal. Net cash (used in)/generated from financing activities Net cash used in financing activities was U.S.$7.036 million for the six month period ended 30 June 2018. Net cash used in financing activities was U.S.$2.505 million for the year ended 31 December 2017 as compared to net cash generated of U.S.$14.982 million for the year ended 31 December 2016. This movement primarily reflects a reduction in the requirement for new bank financings to finance the costs of Phase 2. Expected Cash Requirements Construction costs Tilal seeks to fund the remaining construction costs relating to Phase 2 from the proceeds of the sale of certain residential units being developed as part of Phase 2, net operating income and debt financing. Financing arrangements As at the date of these Listing Particulars, Tilal has three different Shari’a compliant bilateral financing facilities, each of which has been provided by Meethaq Islamic Banking bank muscat SAOG: • a project financing facility for the purposes of funding the costs of Phase 2 with a profit rate of 6.15 per cent per annum above the one year fixed deposit rate published by bank muscat, repayable in 17 half yearly unequal instalments with repayments commencing from February 2018, and in connection with which U.S.$64.230 million was outstanding as at 30 June 2018; • a project financing facility for the purposes of funding the costs of developing the Serviced Apartments, with a profit rate of 6.15 per cent per annum above the one year fixed deposit rate published by bank muscat, repayable in 18 half yearly unequal instalments with repayments 87
99. commencing from April 2016 , and in connection with which U.S.$9.996 million was outstanding as at 30 June 2018; and • a project financing facility for the purposes of funding the costs of the Muscat Grand Mall expansion with a profit rate of 5.5 per cent per annum, with such profit rate re-calculated annually by Meethaq Islamic Banking bank muscat SAOG, repayable in 8 unequal instalments on a quarterly basis with repayments commencing from March 2018 and in connection with which U.S.$6.864 million was outstanding as at 30 June 2018. In October 2013, Tilal issued the Existing Trust Certificates. The proceeds from the issue of the Existing Trust Certificates were applied by Tilal towards the repayment of bank debt, the purchase of the land on which Phase 2 is being developed, the costs of Phase 2 and general corporate purposes. The issuance of the Certificates will be utilised by Tilal to redeem the Existing Trust Certificates pursuant to the Tender and Exchange Offer. Off-Balance Sheet and Contingent Obligations Tilal does not have off-balance sheet and contingent obligations. Tilal does have capital commitments of approximately U.S.$19.51 million relating to Phase 2. Key Line Items from the Consolidated Statement of Financial Position as at 31 December 2017 and 31 December 2016 and 30 June 2018 The majority of Tilal assets consist of investment properties and construction work in progress, trade and other receivables. The majority of Tilal liabilities consist of trade and other payables and advances from customers and bank and sukuk debt. Investment properties Tilal’s investment properties consist of the Tilal Complex. At 31 December 2017 and 31 December 2016, the aggregate recorded value of the investment properties was U.S.$289.190 million. At 30 June 2018, the aggregate recorded value of the investment properties was U.S.$289.190 million. Property under construction Property under construction is mainly the cost incurred in relation to Phase 2 which consists of the cost of construction works, professional fees and capitalised expenses including finance costs. As at 31 December 2017, the value of property under construction was U.S.$110.363 million as compared to U.S.$76.387 million as at 31 December 2016. As at 30 June 2018, the value of property under construction was U.S.$118.710 million. Trade and other receivables Trade and other receivables consist principally of amounts due from tenants and purchasers of units. The outstanding balance represents the total amount which is yet to be collected at the reporting date. Tenants and purchasers of units are allowed 30 days from the date of the relevant invoice to settle outstanding dues. At 31 December 2017 and 31 December 2016, trade and other receivables were U.S.$4.007 million and U.S.$3.993 million respectively. The reduction in the level of trade and other receivables as at each year end reflects mainly the collection of receivables from the sale of certain residential units comprising part of Phase 1, with Tilal typically having the benefit of post-dated cheques relating to such receivables. At 30 June 2018, trade and other receivables were U.S.$3.762 million. Trade and other payables Trade and other payables consist of deferred consideration payable for land acquisition, accruals, other payables and retention payable. 88
100. At 31 December 2017 and 31 December 2016 , trade and other payables were U.S.$6.700 million and U.S.$5.156 million respectively. The increase in trade and other payables at 31 December 2017 as compared to 31 December 2016 reflects mainly accrued sukuk financing costs, accrued utilities charges and other payables. At 30 June 2018 trade and other payables were U.S.$8.706 million. The increase in trade and other payables at 30 June 2018 as compared to 31 December 2017 reflects mainly accrued sukuk financing costs, accrued utilities charges and other payables. Advances and security deposits Advances consist principally of advance payment of rental amounts and advance payment of a portion of the purchase price of certain units by buyers. These funds are mainly used by Tilal to fund the cost of construction work in progress at the Tilal Complex. At 31 December 2017 and 31 December 2016, the value of such advances was U.S.$11.210 million and U.S.$4.285 million, respectively. This increase reflects the collection of rental deposits of U.S.$0.618 million and advance payments of U.S.$6.307 million made by purchasers of residential units developed as part of Phase 2. At 30 June 2018 the value of such advances was U.S.$14.359 million. This overall increase reflects the collection of advance rental and deposits of U.S.$0.270 million and advance payments of U.S.$3.419 million for purchase of the residential units developed as part of Phase 2. Sukuk certificates and bank debt Sukuk certificates relate to proceeds from the issuance of Existing Trust Certificates. As at 30 June 2018, 31 December 2017 and 31 December 2016, the carrying amount of the Existing Trust Certificates was constant at U.S.$129.870 million. Tilal intends to redeem the Existing Trust Certificates in full pursuant to the Tender and Exchange Offer. The aggregate amount outstanding under bank facilities made available to Tilal was U.S.$83.192 million as at 31 December 2017 compared to U.S.$69.462 million as at 31 December 2016. Related Party Transactions Related parties represent associated companies, major shareholders, directors and key management personnel of Tilal, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of the related party transactions are in accordance with the terms agreed with related parties and approved by the management of the Company. Tilal has entered into transactions in the ordinary course of business with other related parties in which certain directors have a significant influence and with senior management. The terms and conditions of these transactions are mutually agreed and management considers that the terms of provision of services are comparable with those that could be obtained from third parties. Transactions with related parties for the years ended 31 December 2017 and 31 December 2016 are as follows: Directors’ sitting fees ................................................................ Directors’ remuneration ............................................................. Key management remuneration .................................................. Purchase of Takaful Insurance .................................................... Cost of civil works carried out by Adhi Oman LLC ................... Management fee to project manager (capitalised)....................... Work Executed by Muscat Solution & System Co LLC ............. Sales commission to Edara Real Estate Co LLC ......................... Rental income earned from related parties .................................. 89 31-Dec-17 U.S.$ 31-Dec-16 U.S.$ 98,442 1,049,766 307,013 19,608,779 779,221 53,392 380,753 680,065 150,130 203,291 963,210 305,919 19,903,686 779,221 63,600 203,117 922,688
101. Transactions with related parties for the six month periods ended 30 June 2018 and 30 June 2017 are as follows : Directors’ sitting fees ................................................................ Directors’ remuneration ............................................................. Key management remuneration .................................................. Purchase of Takaful Insurance .................................................... Cost of civil works carried out by Adhi Oman LLC ................... Management fee to project manager (capitalised)....................... Work Executed by Muscat Solution & System Co LLC ............. Sales commission to Edara Real Estate Co LLC ......................... Rental income earned from related parties .................................. 30-Jun-18 U.S.$ 30-Jun-17 U.S.$ 67,013 532,756 332,330 3,164,530 389,610 77,174 52,592 231,774 47,273 524,883 299,740 14,979,530 389,610 41,948 306,995 340,032 In addition certain members of the AMRE management team provide high-level strategic advice as well as support in respect of the ongoing management of Tilal Complex (see further section entitled “Management”). Exposure to Financial Market Risk Tilal is not is exposed to financial market risk, such as fluctuations in interest rates. Price risk Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. As at the date of these Listing Particulars, Tilal does not hold such assets. Market price data Tilal has registered itself with the Oman Capital Market Authority (CMA) and the Muscat Securities Market (MSM) under Third Market Category. Being a Societe Anonyme Omaniaise Close or a SAOC the shares of Tilal are not listed, thus they do not have relevant market price tabulation. However, shares are allowed to be traded freely in the Third Market Category as per procedure laid down by MSM and generally traded at mutually agreed price between the parties. 90
102. BUSINESS DESCRIPTION Overview Tilal is a leading real estate company in Oman , which is primarily engaged in real estate investment, development, leasing and the maintenance of commercial and residential real estate properties. Tilal’s primary business consists of the development and management of a mixed use real estate development known as the Tilal Complex. Tilal was established on 22 November 2006 in Oman as a closed joint stock company with commercial registration number 1008901; it is managed by its Board of Directors, supported by its executive management team. Tilal also benefits from additional management support from specific members of the management team of AMRE (as detailed in the section entitled “AMRE management team”), a related party of Tilal and a leading real estate developer in Oman. Tilal’s primary revenue generating asset, Tilal Complex, is being developed in two phases. Phase 1 has been completed and the Phase 1 Assets consist of the: • Muscat Grand Mall, which for the year ended 31 December 2017 generated rental income of U.S.$16.188 million and U.S.$7.523 million for the six month period ended 30 June 2018; • Tilal Offices, which for the year ended 31 December 2017 generated rental income of U.S.$6.036 million and U.S.$3.026 million for the six month period ended 30 June 2018; and • Serviced Apartments, which for the year ended 31 December 2017 generated income of U.S.$2.370 million and U.S.$0.976 million for the six month period ended 30 June 2018. Phase 2 has been commenced by Tilal and is more particularly detailed in the section entitled “Construction of Phase 2 Assets” below. A substantial proportion of the construction work relating to Phase 2 has been completed, with fit outs now being completed in relation to the relevant property. Certain parts of Phase 2 have been opened to the public from December 2017. For the six month period ended 30 June 2018, Phase 2 generated rental income of U.S.$1.372 million. For the six month period ended 30 June 2018, Tilal has reported a net profit of U.S.$2.293 million as compared to net loss of U.S.$(0.794) million for the six month period ended 30 June 2017. For the year ended 31 December 2017, Tilal has declared a net profit of U.S.$2.288 million as compared to a net profit of U.S.$10.300 million for the year ended 31 December 2016. Tilal had total assets of U.S.$415.928 million and U.S.$385.169 million as at 31 December 2017 and 31 December 2016 respectively. History Tilal was founded on 22 November 2006 as a special purpose vehicle to develop and operate the Tilal Complex. The founding shareholders of Tilal are AMRE (which subscribed for 23.75 per cent of the issued share capital of Tilal) and Al Madina Investment SAOG (which subscribed for 2.5 per cent of the issued share capital of Tilal) along with other strategic investors, namely Qatar Investment Authority (which subscribed for 40 per cent shareholding of the issued share capital of Tilal), Oman Ministry of Defence Pension Fund (which subscribed for 5 per cent holding of the issued share capital of Tilal) and the Tilal Fund (which subscribed for 28.75 per cent of the issued share capital of Tilal) together contributing Tilal’s paid up capital of OMR16 million (U.S.$41.558 million). Following the liquidation of the Tilal Fund after its maturity date, Al Madina Investment SAOG and Ministry of Defence Pension Fund acquired some of the shares of Tilal held by the Tilal Fund at that time to increase their shareholding in Tilal to 9.6 per cent and 10.6 per cent respectively, with the remainder of the shares held by the Tilal Fund at that time being acquired by Qatar Oman Investment Co QSC (which now holds 16.1 per cent of the issued share capital of Tilal). For the year ended 31 December 2007, Tilal’s Board and its shareholders approved the issue of bonus shares representing an increase of 12.5 per cent of the then existing paid up share capital of Tilal resulting in an 91
103. increase of OMR2 million (U.S.$5.195 million) in the paid up capital of Tilal to OMR18 million (U.S.$46.753 million). Since its incorporation, Tilal has not conducted any significant commercial activity other than the development and operation of the Tilal Complex, the details of which are set out in these Listing Particulars. However, Tilal holds shares in the following related entities: • Edara Real Estate Co LLC, established on 19 January 2014, to manage sale and leasing of residential and office property and provide property management services to affiliates of Tilal. As at the date of these Listing Particulars, Tilal holds 40 per cent of the issued share capital of Edara Real Estate Co LLC (OMR0.060 million (U.S.$0.156 million)); • Tilal Hotels Co LLC, established on 31 December 2015 to manage the visa requirements relating to the operation of the Serviced Apartments. These services are now carried out by Al Madina Hotels and Resorts Development Co SAOC. and Tilal Hotels Co LLC is now a dormant company. Tilal holds 99 per cent of the issued share capital of Tilal Hotels Co LLC (OMR0.248 million (U.S.$0.643 million); and • Tilal International Trade Marks LLC, established on 27 April 2016 to acquire and manage franchise rights, mainly in the fashion and accessories sector. Tilal holds 50 per cent of the issued share capital of Tilal International Trade Marks LLC (OMR0.050 million (U.S.$0.130 million)). Strengths Tilal believes that its key competitive strengths are as follows: • Size of the Muscat Grand Mall and the variety of brands: Tilal Complex is currently the largest mixeduse development in Oman. The Muscat Grand Mall is the biggest mall in Oman, containing more stores than any of its other competitors. Tilal believes that the Muscat Grand Mall provides customers with a unique mix of brands with many of the brands being available in Oman only within the Muscat Grand Mall. The size and unique retail offering attracts greater footfall to the Muscat Grand Mall. This competitive strength has been enhanced by Phase 2, which Tilal believes has attracted a number of brands, including new entrants to the Oman retail market such as Five Guys, Riva, Le Soie, Choice, Riva Kids, Fauchon Paris, Defacto, Flo, Darling Touch, Cioccolat Italiani, Museum of Ellussion, Jumping clay, Wonder Room, Angelina and Katmar Baik, to lease units within the Muscat Grand Mall. In addition, Phase 2 has allowed existing tenants (in particular, Carrefour, Homes R Us and Vox Cinema) to rent out more space and thereby improve their retail offering which in turn has led to greater footfall throughout the Muscat Grand Mall. Footfall in the Muscat Grand Mall was 852,536 for the month of December 2017, which is the second highest recorded footfall in the Muscat Grand Mall for a calendar month (with the highest being 854,679 recorded in July 2015). The retail mix at the Muscat Grand Mall in terms of percentage and square meter area are set out in the table below: Category Mixed brands Home décor Unisex fashion Food and beverage Entertainment Bags, shoes, perfumes and accessories Electronics Hypermarket Children’s’ fashion Gross Leasable Area (per cent) 15 12.6 10.39 10 10 8.7 Gross Leasable Area (square meter) 5,560 4,616 3,807 3,654 3,688 3,190 8.7 8.62 3.79 3,187 3,160 1,387 92 Category of lease Fixed Fixed + Turnover Fixed Fixed Turnover Fixed Turnover Fixed Fixed
104. Category Services Cinema Ladies ’ fashion Men’s’ fashion Gross Leasable Area (per cent) 2.93 2.93 2.92 1 Gross Leasable Area (square meter) 1,077 1,074 1,068 372 Category of lease Fixed Fixed Fixed Fixed • Integrated use of retail, offices, residential and hospitality: Tilal Complex is a truly mixed use offering with the retail offering of the Muscat Grand Mall supported by footfall from office workers from the Tilal Offices and residents and holidaymakers staying in the Serviced Apartments and the residential units developed as part of Phase 1 and Phase 2. The blend of functional supermarkets and food service outlets combined with fashion and lifestyle offerings appeals to a broad range of customers. The Tilal Complex also appeals to family visitors due to the inclusion of leisure areas aimed at children and young adults. By blending retail, leisure and dining options Tilal believes it can capture a significant market share amongst Omani and Oman-based consumers who might otherwise travel to other shopping destinations within and outside of Muscat to meet their needs. • High quality assets in a strategic location: Tilal Complex is located in central Muscat, 15 kilometres from Muscat International airport. The population of Oman is approximately 4.5 million; of this total, over 1.3 million people live in the Greater Muscat area which comprises six governorates, all of which are within roughly 30 minutes driving time from Tilal Complex (with 0.8 million within 15 minutes). A further 0.5 million people live within an area with a driving time of an hour or less, with highway improvements steadily raising this figure. The location connects two major highways and is unique as commercial plots of such size are not easily found in the centre of the densely populated state of Baushar. Tilal Complex is also located within a ten minute drive of key residential areas of Muscat popular with high net worth individuals as well as being close to government ministries and embassies in Al Khuwair. Tilal is not aware of any other mixed-use or shopping mall developments with similar location characteristics and does not believe a suitable plot exists for such a development in the future. • Pipeline of tenants: The location and integrated use of retail, residential and hospitality offerings means that the Tilal Complex is of great appeal to “affordable luxury” brands in the middle to upper middle segment of the retail market. As a result, there is a strong pipeline of tenants that are seeking to rent space within the Tilal Complex. This pipeline is maintained and strengthened as a result of the good relationships that Tilal maintains with leasing agencies in Muscat. • Market leading management team: Tilal’s Executive Management Team have extensive and varied expertise that means that the Executive Management Team is well placed to identify and manage the risks to Tilal’s business as well as identify and exploit opportunities. Tilal also has the benefit of being able to rely on extensive technical support from AMRE. AMRE plays two significant roles for Tilal. AMRE fulfils a project management role for Phase 2 as well as carrying out certain corporate services for Tilal, such as procuring financing arrangements, assisting with the preparation of management and audited accounts and preparation of financial statements. See the section entitled “Management” below for further details. Strategies Tilal’s strategic goal is to deliver attractive returns by positioning the Tilal Complex as the leading mixed use development in Oman. To achieve this strategic goal, Tilal is focussed especially on the following: • Maintaining an ideal retail mix: Tilal aims to maintain a mix of retail segments as well as food and beverage options. Tilal’s strategy has been to attract tenants which represent brands in the mid to premium range categories that already have a presence in the Middle East but did not have a presence in Oman prior to the opening of the Muscat Grand Mall. Retail segments represented within the Muscat Grand Mall include furniture (HomesRus); entertainment (Happyland); food & beverage (Pauls, Tim Horton, Papa Roti, Curry & Hurry, Yogelato, 4stgioni, Mandi Express, Samson, Elevation Burger, Sizzilion, Booba, jefdiberg); fashion and accessories (Aeropostal, R&B, Shoe Studio, Charming 93
105. Charlie , Rituals, Berking Stocks, Beverly Hills, Build-a-bear); Electronics (Sharaf DG); and wellness (Premedian Health and Spa). • Flexible approach to commercial leases: Tilal seeks to attract and retain anchor tenants by adopting a flexible approach and strategy to the commercial terms of its leases. Rent is generally based on a mixture of base rent and turnover rent. Additionally, the rent is inclusive of all components such as marketing fees and services charges. This gives tenants certainty as to their monthly expenditure. Key tenants include Majid Al Futtaim Hypermarkets LLC which operates a Carrefour supermarket within the Muscat Grand Mall and Ooredoo which rents one building comprising part of the Tilal Offices. • Increasing brand recognition: Tilal seeks to raise awareness of the Tilal Complex and promote brand recognition of the Tilal Complex as the premium shopping, leisure, residential and office space in Oman. Tilal seeks to accomplish this in a number of ways including direct advertisement. Tilal is also in the final stages of launching a digital gift card (Mazaya Grand Gift Card) which allows holders to access discounts at retail outlets in the Muscat Grand Mall as well as discounts to be offered by key strategic partners such as Al Madina Insurance (Takaful) Company and Millennium Hotels. • Attracting and retaining talented employees: Tilal believes in attracting and retaining the best available talent in Oman and Tilal recognises the importance of the calibre and the motivation of the individuals it employs. Tilal has instituted a range of employee benefits such as providing health insurance and discretionary annual bonuses. Bonuses and rewards are linked with key performance indicators. Tilal has implemented a development plan for staff through quality training and establishing and maintaining standards of professional conduct. Development of employees is carried out through in-house training, but when specialist training is needed, local and internationally recognised external agencies are involved as partners. Shareholders As at the date of these Listing Particulars, the shareholders of Tilal are as follows: Name of the shareholders Nationality Number of shares Percentage Qatar Investment Authority Qatar 7,200,000 40 Al Madina Real Estate Company SAOC Oman 4,275,000 23.75 Qatar and Oman Investment Company Qatar 2,900,000 16.11 Ministry of Defence Pension Fund Oman 1,900,000 10.56 Al Madina Investment SAOG Oman 1,725,000 9.58 18,000,000 100 As at the date of these Listing Particulars, the shareholding structure of Tilal is as follows: Category Number of owners Number of shares Percentage Owners of more than 10 per cent holding 4 16,275,000 90.42 Owners of less than 10 per cent holding 1 1,725,000 9.58 94
106. Profile of the shareholders of Tilal Below is a profile of the shareholders of Tilal : Qatar Investment Authority Qatar Investment Authority (QIA) holds 13.26 per cent of the total issued share capital of Tilal. QIA is the Government of Qatar’s sovereign wealth fund which specialises in domestic and foreign investment. It was founded in 2005 to manage the oil and natural gas surpluses of the country. Al Madina Real Estate Company S.A.O.C. AMRE holds 23.75 per cent of the total issued share capital of Tilal and was the main developer of both Phase 1 and Phase 2. AMRE was established on 1 July 2005. AMRE’s activities include real estate development, real estate investment and property management. AMRE’s paid-up capital stands at OMR20 million (U.S.$51.948 million). The major shareholders of AMRE are set out below: Name Nationality Shareholding (percentage) Al Madina Investment SAOG Oman 20.86 Qatar Investment Authority Qatar 13.26 Mr. Abdulla Al Abdulla Qatar 10.00 Ministry Of Defence Pension Fund Oman 8.73 AMRE has a track record of successfully sponsoring and delivering several projects in Oman, including Tilal Complex. AMRE currently manages a property portfolio of assets valued at over U.S.$1.000 billion at various stages of development, including the Hotel Grand Millennium Muscat, Hotel Millennium Resort Salalah, Hotel City Center, Salalah Grand Mall, a mixed use development at Shaden Al Hail Complex including Hotel Studio M Muscat, Qurayyat integrated tourism freehold development, Nesto Hypermarket at Wadi Kabir, Al Seeb and Al Ansab, Wadi Kabir Lulu Hypermarket Vegetable Building and Horizon Fitness Centre at Mawaleh and Seeb. AMRE also has subsidiaries which undertake activities in construction, facilities management and lease management as well as representing and providing services to hotel owners. Qatar and Oman Investment Company (QSC) QSC holds 16.11 per cent of the total issued share capital of Tilal. QSC is a joint venture between the Governments of Qatar and Oman and is engaged in investment opportunities in such countries with an ultimate goal of contributing to the development of both countries. QSC is a public listed company on the Doha Stock Market. The Ministry of Defence Pension Fund (Oman) The Ministry of Defence Pension Fund (Oman) holds 10.56 per cent of the total issued share capital of Tilal. The Ministry of Defence Pension Fund was established under Omani Royal Decree 87/93. Al Madina Investment Company (S.A.O.G.) Al Madina Investment S.A.O.G. holds 9.58 per cent of the total issued share capital of Tilal. 95
107. Tilal Complex Muscat Grand Mall Overview The Muscat Grand Mall has been operational and open to the public since 1 March 2012 . Tilal has been successful in leasing the retail space in the Muscat Grand Mall. As of the date of these Listing Particulars, occupancy at the Muscat Grand Mall is approximately 98 per cent of the GLA. The Muscat Grand Mall has 161 lease agreements with tenors ranging between three and 20 years. Tilal screens potential tenants to ensure that each new tenant contributes towards achieving the right balance of brands and mix of retail uses. Retail mix Prior to the initial opening of the Muscat Grand Mall, Tilal engaged Asteco Property Management LLC and J C Williams Group Limited to advise on the appropriate occupational mix of tenants of the Muscat Grand Mall. Tilal has subsequently built up and utilised the expertise of its in-house teams to analyse the mix of tenants of the Muscat Grand Mall and to continually refine the formulation of the ideal mix of tenants for the Muscat Grand Mall with the aim of maximising footfall in the Muscat Grand Mall. The leasing team at Tilal has developed a pipeline of prospective tenants based on the required retail mix and the targeted rental income. Tilal’s strategy has been to attract tenants which represent brands in the mid to premium range categories that already have a presence in the Middle East but did not have a presence in Oman prior to the opening of the Muscat Grand Mall. Tilal intends to adopt a similar approach for the mall area within Phase 2 (the “Phase 2 Mall Area”). The Muscat Grand Mall has a total of 142 tenants operating from 153 leased units, which includes line or brand shops, a cinema, entertainment, food court outlets and fine dining (excluding kiosks and financial services and other adhoc leasing). The ground level of the Muscat Grand Mall has 60 leased tenants (being 42.25 per cent of the total number of tenants) and the first level of the Muscat Grand Mall has 82 leased tenants (being 57.75 per cent of the total number of tenants). As at the date of these Listing Particulars, the total leasable area of the Muscat Grand Mall is 35,823 square meters, with 1,152 square meters (3.21 per cent of the GLA) beingvacant, 9,618 square meters (26.85 per cent of the GLA) being let on leases due to expire in the next twelve months, 12,939 square meters (36.12 per cent of the GLA) being let on leases due to expire in between 2 and 3 years; and 12,114 square meters (33.82 per cent of the GLA) being let on leases due to expire in over 3 years. The 10 tenants paying the highest rental at the Muscat Grand Mall and the respective rental revenues from these tenants for the year ended 31 December 2017 are: Majid Al Futtaim - U.S.$680,360 per annum; Lals International (Homes R Us) - U.S.$606,420 per annum; Apparel International (R&B) - U.S.$367,208 per annum; Sharaf DG - U.S.$278,014 per annum; Salam Studio & Stores (4U) - U.S.$275,898 per annum; Oman Arab Cinema (City Cinema) - U.S.$260,270 per annum; Oman Telecommunication (Omantel) - U.S.$244,364 per annum, Bank Dhofar SAOG - U.S.$234,709 per annum; Omani Qatari Telecommunication (Ooredoo) U.S.$234,175 per annum and Internal Promotions (Monalisa) - U.S.$227,544 per annum. The 10 tenants occupying the largest units in terms of gross leasable area are: Lals International (Homes R Us) (3,684 square meters); Sharaf Group (Sharaf DG) (3,187 square meter); Majid Al Futtaim (Carrefour) (3,160 square meters); Apparel International (R&B) (2,644 square meters); Oman Family Leisure (Happy Land) (1,817 square meters); Apparel International (Shoe Studio/DSW) (1,222 square meters); Oman Arab Cinema (City Cinema) (1,074 square meters); Sundus Trading and Marketing (Bow & Arrow, Wow Kids) (1,074 square meters); Al Mana Fashion (Go Sport) (587 square meters) and International Promotion (Monalisa) (547 square meters). The Muscat Grand Mall features some prominent retail brands and outlets, including: • 4U; • Bank Dhofar SAOG (Bank branch); 96
108. • Capital Stores; • Carrefour Hypermarket; • City Cinema; • Daiso; • DSW; • Happy Land; • Homes R Us; • Monalisa; • Ooredoo; • Omantel; • R&B (Apparel Group) which retails the following brands: Aeropostal; Aldo; Beverly Hills; Charles & Keith; Children Place; Cold Stone; Inglot; LVR; Nine West; Pedro; R&B; Shoe Studio; Skecher; Spring; THM; and Tim Horton; and • Sharaf DG. Retail lease terms The key terms of the leasing arrangements entered into by Tilal with the tenants of the Muscat Grand Mall are summarised below: • Term: The vast majority of space within the Muscat Grand Mall is let to tenants on multi-year leases. Tilal intends to ensure leases of units in the Muscat Grand Mall are for a minimum of three years and a maximum of five years. Tilal will consider shorter leases for particular sectors or longer leases for certain key or “anchor” tenants, such as Majid Al Futtaim Hypermarkets LLC which operates the Carrefour franchise in Oman and with whom a long term lease of 20 years has been entered into. Tilal believes that this standard range of lease terms (i.e. three to five years) provides a sufficient level of certainty of tenure combined with the ability to change retail offerings to adapt to changes in customer demand and also incentivises tenants to meet turnover benchmarks. With regards to those units in the Muscat Grand Mall held on shorter term leases, Tilal takes advantage of such shorter term leases to amend, update and modernise the relevant shop areas to accommodate the requirements of potential new tenants and to continuously improve the retail mix in the Muscat Grand Mall. In terms of the number of leased units, as at the date of these Listing Particulars, 11 units (7.19 per cent) are vacant. These vacant units consist mainly of food court areas and a few line shops. The leases of 83 units (54.25 per cent) are due to expire within twelve months of the date of these Listing Particulars, the leases of 50 units (32.68 per cent) are due to expire within two or three years of the date of these Listing Particulars and the leases of 9 units (5.88 per cent) are due to expire over three years from the date of these Listing Particulars. • Rental levels: Approximately 90 per cent of the relevant leases entered into allow Tilal to recover the greater of a base rent or a turnover rent calculated as a percentage of sales turnover of the relevant tenant. The leases contain an ability to increase the base rent annually during the term to reflect the sales at the unit. The agreed percentage of turnover rent is applied on the total turnover declared on monthly/quarterly basis by the tenant, the monthly/quarterly number are reconciled and matched with the audited sales figures independently provided by the tenant’s auditor to Tilal. 97
109. 107 units are let or intended to be let on leases based on a combination of base rent plus turnover rental (of which, as at the date of these Listing Particulars, 11 units are vacant, the leases of 83 units are due to expire within one year of the date of these Listing Particulars; the leases of 50 units are due to expire between two and three years from the date of these Listing Particulars and the leases of 9 units are due to over three years from the date of these Listing Particulars). 3 units are let or intended to be let on leases with a rent only based on sales turnover (of which as at the date of these Listing Particulars the lease relating to 1unit is due to expire within one year of the date of these Listing Particulars and the lease of 2 units are due to expire in over three years from the date of these Listing Particulars). 43 units are let or intended to be let on leases with either a fixed rental or rental based on a combination of base rent plus turnover rental (of which as at the date of these Listing Particulars 11 unit is vacant, the leases of 5 units are due to expire within one year of the date of these Listing Particulars, the lease of 27 unit is due to expire in over 3 years from the date of these Listing Particulars).  Other standard lease terms: All of the retail leases other than the one entered into with Majid Al Futtaim Hypermarkets LLC are on substantially the same terms (other than terms relating to the quantum and calculation of rental amounts). A summary of the key provisions of each such lease is set out below:  Tilal has the right to receive compensation following the late payment of either rent or any service charge by the relevant tenant;  Tilal has the right to terminate the lease following the late payment of either rent or any service charge by the relevant tenant, the insolvency, bankruptcy, administration etc. of the relevant tenant or a material breach of the terms of the lease by the relevant tenant;  Tilal charges one lump sum rent which includes the service charges, marketing fees and other costs associated with operating the Muscat Grand Mall. Chilled water and utilities are charged to anchor tenants with larger leasable space (generally top 10) on a monthly basis by reference to actual amounts consumed;  each tenant is to provide a security deposit to Tilal ranging between five per cent and 25 per cent of the base rent. The security deposit can be applied by Tilal towards the cost of rectifying a default by the relevant tenant under the lease. Tilal has not previously needed to apply any security deposit to rectify a breach of the lease by a tenant; and  a rent free period is offered to the relevant tenant during the fit out of the relevant unit. The fit out period depends on the size of the unit and the brand, however, such period generally ranges from 15 days to six months. The business cycle of certain brands will be considered when determining the duration of a rent free period. For example, a fashion brand, which has a summer and winter cycle may be offered a longer rent free period. The cost of fit out is paid by the tenants without any contribution from Tilal. All leases have been executed by and registered in the name of Tilal, other than the lease with Majid Al Futtaim Hypermarkets LLC. Majid Al Futtaim Hypermarkets LLC has entered into a lease with AMRE and the tenor of this lease was amended to 20 years effective 28 June 2016 and the area subject to this lease has also recently extended from 34,018 square feet to 56,640 square feet. Furthermore, the terms of this lease means that Tilal must procure that the Security Agent (on behalf of the Certificateholders) provides Majid Al Futtaim Hypermarkets LLC with written confirmation that the Carrefour Lease will continue to be in full force and effect following the grant and any enforcement of any mortgage over the Muscat Grand Mall. Payment collections Some of the tenants of the Muscat Grand Mall are in arrears in payment of their rents (a total of U.S.$3.495 million as at 30 June 2018 as compared to U.S.$3.553 million as at 31 December 2017 and U.S.$2.073 million as at 31 December 2016). These arrears relate predominantly to the turnover rent payable under the relevant leases as some tenants struggle with adequate cash flow management required to ensure that cash is available to make payment of turnover rental (generally due in April of each calendar year) following the calculation of such turnover rental. Tilal’s leasing team engages with such tenants on a regular basis in order to ensure that such arrears are collected as soon as possible 98
110. Management Management of the retail units in the Muscat Grand Mall is carried out by the in-house teams at Tilal . Tilal’s current in-house team has now become a leading player in the mall leasing and mall management sector in Oman and has started offering management services to other owners of malls, such as the Sawary Mall, Oasis Mall and Salalah Grand Mall. Marketing plan Tilal prepares and implements on an annual basis an in-depth marketing plan to raise awareness of and promote the Muscat Grand Mall and Tilal Complex as a whole. As part of the marketing plan, Tilal will undertake promotions at regular intervals in a bid to ensure greater awareness of and a high level of footfall within the Muscat Grand Mall. There are various promotional events and activities at the Muscat Grand Mall catering to different festivals, cultures and initiatives. Some of these events and activities are highlighted below: • The Muscat Festival – The Muscat Festival promotion is linked to the yearly festival held in Muscat and arranged by the Muscat Municipality. Tilal and the Muscat Grand Mall have been sponsoring the festival since 2013. As a sponsor of the 2017 festival, Muscat Grand Mall was able to offer special discounts to customers and was also given advertising space around the city of Muscat. This is an important festival in Oman and the other member states of the Gulf Cooperation Council (“GCC”) and therefore ensures excellent exposure for both Tilal and the Muscat Grand Mall; • Ramadan/Summer Promotion – The summer promotion runs for eight weeks beginning on the first week of Ramadan and lasting for almost two months. The intention is to encourage customers to stay in Oman during Ramadan and promote business in the retail units and food courts in the evenings. In 2017 all customers who spent OMR20 in the Muscat Grand Mall during the term of the summer promotion were entered for a weekly raffle draw for winning a car. A similar promotion is planned for the summer of 2018; • Cultural, art and social events – Tilal organises a series of cultural, art and social events during the year at the Muscat Grand Mall, such as family day events for kids, Omani Women’s day events and various musical events; • Corporate Social Responsibility Events and Programs – Tilal organises a serious of events to promote social responsibility initiatives. For example, Tilal organised a Blood Donation campaign in conjunction with the Ministry of Health and Tilal continues to support activities related to health and society in conjunction with the Ministry of Health in Oman. Tilal also organised a number of events giving small and medium sized Omani enterprises the opportunity to promote their products and improve their brand recognition in the Omani market while Tilal has also allowed not for profit organisations to take advantage of space within the Muscat Grand Mall at no cost to these organisations. Such events and contributions attract a high degree of media coverage and generate good will for Tilal and the Muscat Grand Mall amongst the Omani population; • Sponsorship Programs – Tilal has offered sponsorships to a number of individuals to help nurture their talent in a particular field and contributes regularly to not for profit organisations and events such as GCC Cancer awareness, Bowsher Olympic Centre, Oman Real Estate Association and the third Duqum economic forum; and • Charitable donations – Tilal makes a number of charitable donations throughout the year. For example, Tilal (on behalf of the Muscat Grand Mall) has made donations to the Muscat Primary Court to facilitate the release of some prisoners from debtor’s jail. Tilal’s in-house team has developed a social media promotion plan and has an employee dedicated to implementing this plan. According to Facebook, Tilal and the Muscat Grand Mall achieved the highest level of popularity on the Omani pages of Facebook during February and March, June and July 2017. Tilal has appointed Edara Real Estate LLC (Edara) to provide sales and marketing services on an exclusive basis for Phase 2. Edara submitted a proposal, dated 26 February 2017, detailing the marketing initiatives that they envisage using for the promotion of Tilal Complex (such list to be finalised in due course), which include: 99
111. digital marketing , through Edara’s website; online portals; social media; and email and SMS messaging campaigns; and non-digital marketing, through radios stations, banners, signboards, newspapers, flyers and brochures. Edara also plans an open-house event for potential buyers of the residential space in Phase 2. For sales assistance, Edara are to be paid on a commission basis, calculated as three per cent of each sold unit. For marketing assistance, Edara are to be paid 10 per cent of all third party invoices. Footfall The footfall at the Muscat Grand Mall has been relatively stable from 2013 to 2017. Footfall at the Muscat Grand Mall was 8.11 million, 8.68 million, 9.18 million and 9.17 million for 2017, 2016, 2015 and 2014, respectively. During the six month period ended 30 June 2018 and subsequent to the opening of Phase 2, the footfall at the Muscat Grand Mall has increased to 5.941 million as compared to 4.680 million during the six month period ended 30 June 2017. Footfall generally remains constant throughout the year. There is a spike of 10 to 15 per cent during Ramadan, the Eid public holidays, the National Day holidays and around Christmas and New Year. This is set out in detail in the graph below: Rental income The rental income and the average rental rates per square meter from the Muscat Grand Mall has remained relatively stable, notwithstanding the general reduction in rents of retail spaces in Oman over the past four years. The rental income at the Muscat Grand Mall is largely in line with the footfall detailed above. The rental income on a year on year basis from 2014 is detailed below: 2017 U.S.$ Rental income of Muscat Grand Mall Average monthly rental rate per square meter Occupancy (percentage) Year end 31 December 2016 2015 U.S.$ U.S.$ 2014 U.S.$ 16,188,486 16,613,455 17,676,958 16,735,727 36.66 98.0 37.62 95.6 40.03 96.2 37.90 94.1 100
112. During the six month period ended 30 June 2018 , rental income from theMuscat Grand Mall decreased by U.S.$0.686 million to U.S.$7.523 million as compared to the six month period ended 30 June 2017, with the average monthly rental rate per square meter falling to U.S.$35.01 (decrease of 5.8 per cent) as compared to average montly rental rate per square meter as at 31 December 2017. Since opening, the Muscat Grand Mall has benefited from an extremely strong occupancy rate. As at the date of these Listing Particulars, occupancy rates in the Muscat Grand Mall are at 96.6 per cent. Tilal Offices Overview As part of Phase 1, office space was constructed. Originally these offices were comprised of three Buildings (Buildings 4, 5 and 6). Building 6 was sold on June 2010 whilst Buildings 4 and 5 (together, comprising Tilal Offices) have been retained by Tilal for the purpose of generating rental income. The buyers of the office units in Building 6 are obliged to pay service charges for common services such as the maintenance and cleaning of cooling services, lifts and communal lobbies in accordance with the sale and purchase agreements. The service charge is payable on a quarterly basis. Lease terms All of the leases relating to Tilal Offices are on substantially the same terms. The key terms of each lease entered into by Tilal with a tenant of Tilal Offices are summarised as follows: • Rent for Tilal Offices is payable on the basis of base rent; • Tilal has the right to receive compensation following the late payment of either rent or any service charge by the relevant tenant; • Tilal has the right to terminate the relevant lease following the late payment of either rent or any service charge by the relevant tenant, insolvency, bankruptcy, administration or analogous event relating to the relevant tenant or the material breach of the terms of the lease by the relevant tenant; • Tilal has the right to review the rent payable on an annual basis; • each tenant is to provide a security deposit to Tilal. The security deposit can be applied by Tilal towards the cost of rectifying a default by the relevant tenant under the lease. Tilal has not previously needed to apply any security deposit to rectify a breach of the lease by a tenant; and • a rent free period is offered for fit out works in correlation to the size of the office space being leased. Long-term tenants Similar to the approach adopted for the Muscat Grand Mall, Tilal encourages longer-term tenants in Tilal Offices. In this regard there is a split between Building 5 and Building 4 as follows: • as at 31 December 2017 in Building Number 5, 73.7 per cent of leases (calculated by reference to GLA) are granted for three years or more and no leases are due to expire within the next 12 months; and • as at 31 December 2017 in Building Number 4 25.52 per cent of leases (calculated by reference to GLA) are due to expire within 12 months. These offices are smaller and in accordance with market practice are renewed on a yearly basis. The total GLA of Tilal Offices held under leases due to expire within 12 months is approximately 11.94 per cent of the total GLA of Tilal Offices. Tilal is in negotiations with other prospective tenants in respect of the vacant 101
113. leasing space and spaces that will shortly become vacant . It is internally considering alternative use options to facilitate the leasing of vacant space at Tilal Offices. Anchor tenant Approximately half of the total area of Tilal Offices is occupied by Oman Qatari Telecommunication Company SAOG (Nawras), the leading telecom company in Oman. They have been granted a ten year lease, which commenced in 2011. Tilal believes that having one key tenant occupying 70 per cent of the office space over a long period has mitigated the risk posed by a potential oversupply of office space in the Muscat real estate market and that the benefits of this outweigh the concentration risk posed as a result. Occupancy levels As at the date of these Listing Particulars, occupancy remains at 100 per cent in Building 5, while only 109 square meters (1.6 per cent of the GLA in Building 4 and under half a per cent of the total GLA in Tilal Offices) is vacant. Rental income Notwithstanding the softening of the office rental market in Oman, the rental income generated from Tilal Offices has grown year on year since opening as shown in the table below: Year end 31 December 2016 2015 U.S.$ U.S.$ 2017 U.S.$ Rental income of Tilal Offices Average monthly rental rate per square meter Occupancy (percentage) 2014 U.S.$ 6,036,275 5,804,309 5,873,992 5,091,644 22.68 21.81 22.07 19.13 99.9 95.6 96.2 94.1 During the six month period ended 30 June 2018, rental income from the Tilal Offices was U.S.$3.026 million as compared to U.S.$3.014 million for the six month period ended 30 June 2017, with the average monthly rental rate per square meter falling to U.S.$21.63 (decrease of 4.6 per cent) from the average monthly rental rate per square meter as at 31 December 2017. The average ocuupancy of the Tilal Offices for the six month period ended 30 June 2018 was 97 per cent. As a comparison, general office rents in the Al Khuwair district of Muscat, Oman have reduced by 9.1 per cent in 2017 (Cluttons Property Market Outlook – Muscat, Winter 2017/18). The current office rental rates at Tilal Offices are approximately 65 per cent higher than the market average in the Al Khuwair district of Muscat, Oman (Cluttons Property Market Outlook – Muscat, Winter 2017/18). An element of service charge is also built into the rental price for Tilal Offices which accounts for 6 per cent of the rental price. Payment collections There are minimal rent arrears currently existing in connection with Tilal Offices (approximately U.S.$0.275 million as at 30 June 2018 as compared to U.S.$0.835 million in total as at 31 December 2017). Tenants pay their rents in advance through post-dated cheques. The rent arrears mainly relate to a few tenants with whom a rental collection schedule has been agreed for 2018. Management Management of the Tilal Offices is carried out by Tilal. 102
114. The Serviced Apartments Overview All construction and fit-out work relating to the Serviced Apartments was completed in early 2015 . The Serviced Apartments began operating in March 2015. Income During the six month period ended 30 June 2018, Tilal’s income from the Serviced Apartments was U.S.$0.976 million as compared to U.S.$1.185 million for the six month period ended 30 June 2017. The principal factors affecting this decrease were market conditions and lower realised room rates. The revenue per available room (“RevPAR”) during the six month period ended 30 June 2018 decreased by U.S.$10.32 (8.1 per cent) to U.S.$117.10 from U.S.$127.42 for the year ended 31 December 2017. Average occupancy during the six month period ended 30 June 2018 was 84.0 per cent as compared to 86.2 per cent for the six month period ended 30 June 2017 and 85.8 per cent for the year ended 31 December 2017. During the year ended 31 December 2017, Tilal’s rental income from the Serviced Apartments was U.S.$2.370 million. During the year ended 31 December 2016, Tilal’s rental income from the Serviced Apartments was U.S.$2.583 million. The principal factors affecting this decrease were market conditions and lower realised room rates. Occupancy levels The Serviced Apartments are generally let on a mixture of a daily, weekly and monthly basis and the Serviced Apartments Operator has rents for each of these periods. Some units are let for longer terms of between 3 to 6 months. The occupancy levels for the Serviced Apartments have grown year on year from 2015 to 2017 as follows: 2015 2016 2017 January (percentage) 11.50 84.07 81.65 February (percentage) 6.47 84.07 82.26 March (percentage) 77.96 82.72 91.02 April (percentage) 70.56 76.38 93.88 May (percentage) 69.65 89.83 91.47 June (percentage) 56.52 71.14 76.29 July (percentage) 56.52 82.33 78.51 August (percentage) 56.52 90.80 89.87 September (percentage) 56.52 81.71 83.45 October (percentage) 56.52 93.21 85.83 November (percentage) 56.52 83.12 83.74 December (percentage) 56.52 85.16 92.17 TOTAL 52.65 83.71 85.85 103
115. In this time the revenue per available room has reduced slightly as detailed in the table below : Year Ended 31 December 2017 2016 U.S.$ U.S.$ Rental income Apartments from Revenue per available room Occupancy (percentage) 2015 U.S.$ Serviced 2,370,130 2,583,117 1,007,878 146.67 159.84 62.36 85.85 83.71 52.65 Management Tilal has entered into a management and operation agreement with Millennium & Copthorne Middle East Holding Limited (the “Serviced Apartments Operator”) dated 27 March 2014 (the “Serviced Apartments Operation Agreement”) for an initial operating term of 15 years (effective from March 2015). Under and pursuant to the terms of the Serviced Apartments Operation Agreement, the Serviced Apartments Operator (as agent of Tilal) has undertaken to operate, manage and maintain the Serviced Apartments and all of its facilities and activities to the standard to be expected of a four star executive serviced apartment and to maintain the condition of the Serviced Apartments with the goal of maximising Tilal’s cash flows from the Serviced Apartments. The Serviced Apartments Operator is also responsible for advertising and marketing the Serviced Apartments as it deems fit (provided that such advertising and marketing does not damage the goodwill and reputation of Tilal). The terms of the Serviced Apartments Operation Agreement permit the Serviced Apartments Operator to terminate the Serviced Apartments Operation Agreement following the occurrence of a number of events, including the insolvency of Tilal, breach by Tilal of a material obligation under the Serviced Apartments Operation Agreement if such default is not cured within the relevant cure period and Tilal fails to procure that sufficient funds are credited to the relevant accounts to be used by the Serviced Apartments Operator as working capital pursuant to and in accordance with the terms of the Serviced Apartments Operation Agreement. Legal Title to Phase 1 Assets and the Phase 1 Head Agreement The legal title to the Phase 1 Assets is registered in the name of AMRE. Legal title is currently evidenced by way of four separate title deeds as follows: • title to the Muscat Grand Mall and the land surrounding Tilal Complex (including the car parking for the whole of Phase 1) is held under title number 01-04-010-02-025-001. This title includes five floors and has a total land area of 23,457.70 square meters. The registered built-up area is 94,375.25 square meters; • title to Building 4 forming part of Tilal Offices is held under title number 01-04-010-02-025-0004. This includes five floors and has a land area of 1,672.636 square meters. The registered built-up area is 9,161 square meters. Building 4 sits on top of the Muscat Grand Mall; • title to Building 5 forming part of Tilal Offices is held under title number 01-04-010-02-025-0005. This includes five floors and has a land area of 3,222.884 square meters. The registered built-up area is 17,462.46 square meters. Building 5 sits on top of the Muscat Grand Mall; and • title to the Serviced Apartments is held under title number 01-04-010-02-025-0003. This includes five floors and has a land area of 3,426.864 square meters. The registered built-up area is 18,672.40 square meters. The Serviced Apartments also sit on top of the Muscat Grand Mall. Under the terms of a head agreement dated 21 November 2006 as amended on 21 March 2007 between Tilal and AMRE (the “Phase 1 Head Agreement”) Tilal and AMRE agreed that AMRE would retain the freehold title to the Phase 1 Assets and Tilal would receive the beneficial interest in the Phase 1 Assets. Pursuant to the Phase 1 Head Agreement, Tilal has the right to sell the beneficial interest in and to the Phase 1 Assets and AMRE is obliged to enter into sale and leasing arrangements of units within Phase 1 on behalf of Tilal, provided that the 104
116. rent payable under such leasing arrangements is paid to Tilal . The terms of the Phase 1 Head Agreement also allow Tilal to direct AMRE to create security over Tilal Complex (or any part thereof) to secure the debt obligations of Tilal. In the event of termination of the Phase 1 Head Agreement for whatever reason (including the insolvency of AMRE), AMRE is (subject to any legal restrictions at that time) obliged to transfer title to the Phase 1 Assets to Tilal or its successor entity. Tilal is not aware of, and has not been notified of, any breach of the terms of the Phase 1 Head Agreement. Construction of Phase 2 Assets Tilal plans to use part of the proceeds of the Certificates to complete Phase 2. Construction of Phase 2 has been commenced by Tilal and will involve constructing a new building, adjacent to the existing Muscat Grand Mall, which will extend the current footprint of the Muscat Grand Mall (such asset and the land on which it sits being the “Phase 2 Assets”). The Phase 2 Assets will result in the addition of the following to Tilal Complex: • an expansion of the current shopping mall constructed on three and a half floors above five floors of indoor parking with a total floor area of approximately 99,000 square meters, which will house world class shopping facilities with food courts and restaurants at the podium level (the “Phase 2 Mall Area”); • approximately 34,000 square meters of office space over five (5) levels situated above the podium level of the expansion of the Phase 2 Mall Area (the “Phase 2 Office Space”). The Phase 2 Office Space comprise two buildings. It is planned that one of the buildings will be sold and one will be retained by Tilal for the purposes of generating rental income; and • approximately 16,000 square meters of Residential units comprising 125 separate residential units over five (5) levels situated above the podium level of the expansion of the Phase 2 Mall Area (the “Phase 2 Residential Units”). The Phase 2 Residential Units comprise two buildings. It is planned that one of the buildings will be sold and one will be retained by Tilal for the purposes of generating rental income. Following the completion of Phase 2, the total built up area of Tilal Complex will be as follows: Built up Area (in square meters) Existing Expansion Total Parking 67,261 59,119 126,380 Mall 66,118 39,395 105,513 Residential apartments 39,825 15,820 55,645 Offices 34,827 33,616 68,443 Serviced apartments 18,675 - 18,675 Total built up area in square meters 226,706 147,950 374,656 Number of car park spaces (covered) 1,750 1,504 3,254 The building contractor and other consultants for Phase 2 were appointed following a rigorous tender process. The main contractor employed for the construction of Phase 2 is Adhi Oman LLC (a related party to Tilal) who was employed on the Sultanate of Oman Standard Documents for Building and Civil Engineering Works 1981 and has provided the standard warranties in accordance with those conditions of contract (being a ten year warranty against material defects in the construction of the structure of Phase 2). All of the plant and machinery forming part of Phase 2 will have the benefit of a one year warranty. A completion certificate dated 15 June 2017 has been issued in relation to the completion of the Phase 2 Mall Area and it is expected that the construction of the remaining Phase 2 Assets will be completed around 30 June 2018. It is anticipated that all of the Phase 2 Assets will be ready for their intended use before the end of 2018. 105
117. As at the date of these Listing Particulars , 94 of 129 (approximately 72.9 per cent) of the Phase 2 Residential Units have been sold. This has generated sales revenue for Tilal of U.S.$17.909 million of which Tilal has received U.S.$8.791 million with the remaining amounts (in aggregate, U.S.$ 9.188 million) payable in due course to Tilal under and pursuant to the terms of the relevant sale agreements. The remaining unsold Phase 2 Residential Units, if sold at their market value as at the date of these Listing Particulars, would generate aggregate sale proceeds of approximately U.S.$7.025 million. Expected Occupancy Levels of the Phase 2 Mall Area As at the date of these Listing Particulars, the expected occupancy level of the Phase 2 Mall Area once opened (based on GLA of signed contracts) is 63.5 per cent. The initial vacancy levels for the Phase 2 Mall Area will therefore be approximately 36.5 per cent on opening. However, when Phase 1 and Phase 2 of the Muscat Grand Mall are considered collectively, the vacancy level is 15 per cent and in line with the relevant occupancy levels in 2014. The expectation is that occupancy of the Phase 2 Mall Area will grow so that average occupancy of the Muscat Grand Mall (including the Phase 2 Mall Area) will be 95 per cent from the year 2019 onwards. Phase 2 is expected to provide additional revenue of over U.S.$13 million per annum (assuming that Tilal is able to achieve a 95 per cent occupancy rate for Phase 2). Similar to the model used in Phase 1, Tilal will seek to attract long-term tenants to the Phase 2 Mall Area. Currently 99.5 per cent of tenants that have leased space within the Phase 2 Mall Area have signed leases with a tenor of three or more years. A number of retailers and brands have leased units developed as part of Phase 2, including new entrants to the Oman retail market such as Five Guys, Riva, Le Soie, Choice, Riva Kids, Fauchon Paris, Defacto, Flo, Darling Touch, Cioccolat Italiani, Museum of Ellussion, Jumping clay, Wonder Room, Angelina and Katmar Baik, to lease units within the Muscat Grand Mall. In addition, Phase 2 has allowed existing tenants (in particular, Carrefour, Homes R Us and Vox Cinema) to rent out more space and thereby improve their retail offering which in turn has led to greater footfall. Similarly, brands such as Pure Gold and GNC that were operating from kiosks in the Muscat Grand Mall have been able to move into retail units developed as part of Phase 2, and thereby improve their retail offering. The synergies between Phase 1 and Phase 2 are demonstrated by the fact that, following the soft opening of certain parts of Phase 2, footfall in the Muscat Grand Mall was 852,536 for the month of December 2017, which is the second highest recorded footfall in the Muscat Grand Mall for a calendar month (with the highest being 854,679 recorded in July 2015). Legal Title to Phase 2 Assets and Phase 2 Head Agreement The legal title of the land on which the Phase 2 Assets are being developed is registered in the name of AMRE under title number 882/17/2 RM/1/05/062/02/261. Tilal and AMRE have entered into a head agreement dated 23 October 2013 (the “Phase 2 Head Agreement”). The Phase 2 Head Agreement contains substantially the same terms as the Phase 1 Head Agreement. Pursuant to the Phase 2 Head Agreement, AMRE is permitted to enter into sale and leasing arrangements of Phase 2 Office Space and Phase 2 Residential Units on behalf of Tilal provided that the proceeds payable under such sale or leasing arrangements are paid to Tilal and Tilal has the right to sell the beneficial interest in and to the Phase 2 Mall Area. The terms of the Phase 2 Head Agreement also allow Tilal to direct AMRE to create security over the Phase 2 Assets (or any part thereof) to secure the debt obligations of Tilal. In the event of termination of the Phase 2 Head Agreement for whatever reason (including the insolvency of AMRE), AMRE is (subject to any legal restrictions at that time) obliged to transfer title to the Phase 2 Assets to Tilal or its successor entity. Tilal is not aware of, and has not been notified of, any breach of the terms of the Phase 2 Head Agreement. 106
118. Business Model Tilal ’s Philosophy Tilal is committed to business integrity, transparency, accountability and business propriety. The Board supports the highest standard of corporate governance and promotes a culture of compliance with such standards with the ultimate objective of increasing long term shareholder value and maximising the interest of other stakeholders. Tilal places a strong emphasis on audit and internal controls and has introduced suitable checks and balances to ensure sound integrity of operations. Tilal also places a strong emphasis on compliance with applicable laws and regulations as well as seeking to apply best practice and transparency to its business. Tilal also complies with and International Financial Reporting Standards. Overview of Business Model At present, the activities of Tilal are concentrated in the development and management of Tilal Complex. In an effort to diversify its business model, Tilal has committed to an equity investment of U.S.$4.932 million to acquire 15 per cent of the issued share capital in Salalah Grand Mall owned by Salalah Commercial Centres Co SAOC. Tilal has allocated U.S.$25 million for investment in opportunities in the GCC and further afield to enhance its portfolio and income. Given the specialised nature of Tilal’s business, its business objectives are limited to the successful development, management and leasing of Tilal Complex and achieving an optimal leasing mix and pricing for available GLA in Tilal Complex. The following are some of the key features of Tilal’s business model: • Generating rental income from the leasing of space at the Muscat Grand Mall and Tilal Offices: The core of Tilal business plan is to generate revenue from rental income through the leasing of both retail and office space in the Muscat Grand Mall and Tilal Offices. Tilal aims to maximise revenue from the Muscat Grand Mall by increasing footfall thereby creating competition for retail space, which it believes will lead to increased rental yields. This strategy will be complemented by Tilal’s leasing strategy for Tilal Offices, which it believes will increase revenue from office rents and help to increase footfall in the Muscat Grand Mall. • Attracting anchor tenants to the Muscat Grand Mall: Tilal has procured a number of key or anchor tenants to operate from the Muscat Grand Mall, which has encouraged other tenants to also operate from these facilities. Tilal will continue to maintain high-class standards of service and management to retain such tenants, whilst also trying to attract additional anchor tenants, which should add further value to the Muscat Grand Mall. One of these anchor tenants is Majid Al Futtaim Hypermarkets LLC, which operates the Carrefour Hypermarket at the Muscat Grand Mall. Majid Al Futtaim Hypermarkets LLC has entered into a lease the tenor of which was recently amended to 20 years (effective 28 June 2016) and has recently extended the area subject to such lease from 34,018 square feet to 56,640 square feet, being the whole of the ground floor of the Muscat Grand Mall (including the Phase 2 Mall Area). • Generating income from the leasing of the Serviced Apartments: While the operator of the Serviced Apartments is primarily responsible for the generation of income at the Serviced Apartments, Tilal aims to support the operator of the Serviced Apartments to maximise revenue. • Integrating mixed uses in Tilal Complex: Tilal believes that it has identified the right mix and integration of residential, office and retail space within Tilal Complex. This provides the Muscat Grand Mall with a captive market and the users of the residential and office units with additional facilities which should increase the value and appeal of these properties. • Additional Management Services: Tilal provides management services to other retail malls in Oman. Although the revenues from this additional service stream are not substantial at present, this provides Tilal with greater access to retailers and additional information in respect of the retail sector in Oman that ultimately helps and improves the operation of Tilal Complex. 107
119. • Marketing and public relations: As part of Tilal’s campaign to raise awareness of Tilal Complex, Tilal works with advertising agencies to promote Tilal Complex via newspapers and magazine campaigns. Tilal’s in-house team has developed a social media promotion plan and has an employee dedicated to implementing this plan. • Attracting and retaining talent: Tilal has continuously built the capabilities of its in-house teams by attracting and retaining talented individuals. For example, Tilal’s current in-house team has now become a leading player in the mall leasing and mall management sector in Oman and has started offering management services to other owners of malls, such as the Sawary Mall and the Oasis Mall. Competition and Barriers to Entry Competition (national) Currently there are two other main competitors in the mall development and management sector in Oman, being Majiid Al Futtaim LLC and the Lu-Lu Group International, both headquartered in the UAE. Apart from malls operated by these two groups, there is also the 92 outlet Bahja Centre operated by the Bahja Group. Lu-Lu Group International is, generally speaking, a hypermarket operator rather than a mall operator, with 11 hypermarkets in Oman, of which three are in the Muscat area (one of which is immediately adjacent to Tilal Complex). The Oman Avenues Mall is a project sponsored by Lu-Lu Group International with a GLA of 72,000 square meters and 205 outlets and is the largest mall in Oman. It comprises two floors of retail space, a further floor of food and beverage outlets and a top floor with a gym and a bowling centre. Majid Al Futtaim LLC owns and manages two retail spaces in the Muscat area, Qurum City Centre mall (“QCC”) which has a gross leasable area of 20,000 square meters and Muscat City Centre mall (“MCC”) which has a gross leasable area of 54,000 square meters, as well as a mixed use development called the Wave. Geographically, Tilal’s closest competitors are MCC, The Wave, QCC, the Zakher Mall (with a gross leasable area of 15,800 square meters) and the Al Araimi Mall (12,000 square meters). However of these, only MCC and The Wave are seen as true competitors in terms of size and variety of outlets. The Wave is located 25 kilometres from the Muscat Grand Mall and does not benefit from the same central location. MCC offers a retail space of approximately 60,484 square meters and is located in Seeb, which is approximately 22 kilometres from the Muscat Grand Mall. MCC offers a range of shopping and dining options and caters to several sectors such as fashion, furniture and electronics as well as other areas such as banking services, pharmacies and optical centres. MCC includes a Carrefour hypermarket, a Magic Planet family entertainment centre, a Home Centre store, E-Max and Max stores and a number of fashion brands. However, Tilal believes that the Muscat Grand Mall continues to maintain a broader offering and retail mix than the MCC. Tilal understands that Majid Al Futtaim LLC and Lu-Lu Group International have plans to expand their offerings in Oman while a new operator, Abdullah Al Futaim Group, is likely to enter the Omani market by opening Muscat Festival City. Based on Tilal’s experience, a new entrant into the Omani mall market would likely require at least five years before it would be in a position to open a mall given the time needed for regulatory approvals, planning and construction. There are several new mall projects at various stages to completion: • Panorama Mall – A gross leasable area of 21,000 square meters and 120 outlets developed by the Al Siyabi Group. Associated facilities are the 270-room Somerset Serviced Residences and a Millennium Copthorne Hotel. There is also a six floor offices tower; • Mall of Oman – Scheduled for completion in 2020 with 350 retail stores; and • Muscat Festival City and Palm Muscat – Currently at the design or concept stage and likely to open in 2020 at the earliest. 108
120. There are other smaller-scale retail offerings in Oman and in the Muscat area particularly . However, the small scale and narrow scope of those offerings means that Tilal does not view them as direct competitors to the Muscat Grand Mall. Competition (international) On the international front, Tilal faces competition from other GCC countries that are established in both the tourism and hospitality sectors. Tilal’s biggest international competitors are based in Dubai, United Arab Emirates, which is within a half-day’s travel of Muscat via road or air. Competition from Dubai’s mixed-use developments is focused mainly on its wide range of retail offerings which have developed a strong medium-term track record. Historically, this has led to a number of Omani residents travelling to Dubai to make use of those retail offerings. Tilal believes that Tilal Complex will now attract those Omani residents who would otherwise travel to Dubai. Oman is a relatively new market for shopping malls, but Tilal believes that there is no significant price difference between Dubai and Oman in the retail sector which should eliminate part of the incentive to travel (although Tilal believes Dubai offers a wider variety of choice through the number of malls and brands located there). Barriers to entry Tilal believes that there are a number of barriers to entry in the real estate market of Oman. Currently there is a requirement which stipulates that any foreign investor who wants to set up a company in Oman needs to have an Omani partner owning at least 30 per cent of the shares in such company. This requirement may deter foreign investors from investing in Oman’s retail sector due to the fact that they will not maintain 100 per cent control over their company from the outset. Additionally, it can be difficult to acquire freehold title in Oman and certain parcels of land can only be owned by Omanis or those from a GCC state. There can also be additional restrictions on the use of land in Oman as well as “Omanisation” requirements for companies. These barriers, Tilal believes, may restrict the number of opportunities for foreign companies to enter the market in Oman and thus become competitors of Tilal in the residential and retail sectors. In this section reference to a “foreign company” is reference to a company that is not wholly owned by GCC nationals and reference to a “foreign person” is reference to a natural person that does not have GCC nationality. Health and Safety Tilal has developed an internal building management system through the latest building technology available on the market, whereby Tilal controls all activities of building management through a central monitoring system to ensure that the highest safety standards are maintained. In all stores in the Muscat Grand Mall, each Tilal Office and each Serviced Apartment contains an evacuation plan which is to be followed in the event of a fire. Assembly points have also been allocated for such incidents. Saqar Al Badi is the security manager and oversees the Health and Safety function at Tilal Complex. He is supported by a team of professionals, who look after health and safety aspects, such as fire safety. Tilal follows all processes required of it by the Omani authorities and holds a yearly audit in accordance with such requirements to confirm that all policies have been followed. The in-house audit is then reviewed by an independent third party auditor. Tilal is working towards having an internal manual established. Tilal does not impose any obligations on tenants to have health policies, but generally commercial tenants do have such policies in place. From time to time, tenants conduct yearly audits in conjunction with Tilal. Tilal has also run internal physical evacuation tests twice in the past year. Environment Tilal is a supporter of “green” initiatives including the re-use of waste water for irrigation. The glass used in both the windows and exterior cladding of Tilal Complex is anti-radiation and works to save energy. Tilal also has its own sewage treatment plant and utilises both central cooling and a centralised gas systems to increase efficiency and reduce operating costs. 109
121. Insurance The existing areas of risk subject to insurance are covered by the following policies at the relevant Tilal or subsidiary level , as may be applicable for a particular type of cover: • life and personal accident insurance; • workmen’s compensation insurance; • medical insurance; • public liability insurance; • Property all risks insurance; • motor insurance; • business level insurance; • money insurance; • office content insurance; • fidelity guarantee insurance; and • D&O indemnity insurance. Tilal currently hold a “Property All Risk Insurance Policy” for a value of U.S.$165.88 million with Al Madina Insurance Company SAOG in respect of: the mall; loss of rent (12 months); furniture, fixture and fittings; Building 2; Building 7; Building 8; and the Serviced Apartments. The policy is for one year, valid until 30 April 2019. Tilal will renew this policy prior to its expiry. Tilal has sought advice from Al Madina Insurance Company SAOG as to the standard risks insured against for a mall of a similar size and type to Tilal Complex. Tilal currently hold a “Commercial General Liability Policy” with a limit of U.S.$5 million in relation to any one occurrence and in aggregate. The policy is for one year, valid until 30 April 2019. Tilal intends to renew this policy. AMRE currently hold a “Directors and Officers Liability Policy” with a limit of U.S.$5 million in relation to any one occurrence and in aggregate. The policy is for one year, valid until 30 April 2019. AMRE intends to renew this policy The premiums are paid by Tilal and the proceeds from any claim go to Tilal after the relevant insurance company obtains a no objection certificate from each beneficiary. Plant and Machinery All plant and machinery at Tilal Complex has been serviced and maintained in accordance with the recommendations of the manufacturers. Intellectual Property Tilal owns all of the intellectual property associated with its management know-how and its internal systems and procedures. It also owns all of the intellectual property rights associated with the name “Muscat Grand Mall” and all trademarks, service marks, trade names, logos, designs, symbols, emblems, insignia, slogans, copyrights, know-how, confidential information, drawings, plans and other identifying materials whether or not registered or capable of registration created or generated in association with the Muscat Grand Mall. 110
122. Employment As at 31 December 2017 , Tilal had 88 employees, including 38 employees in its head office and 50 employees in the security team. Litigation As at the date of these Listing Particulars, there are no outstanding governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened or of which Tilal is aware). 111
123. MANAGEMENT The Executive Management Team is responsible for the day-to-day management of Tilal ’s business and affairs, and the Executive Management Team is supervised by the Board. In addition to the Executive Management Team, specific members of the AMRE management team provide high-level strategic advice in respect of the ongoing management of Tilal Complex. Board of Directors The Board is responsible for reviewing, amongst other things, the periodic reports prepared by the Executive Management Team in relation to Tilal’s business plan, capital budgets and updates, the quarterly results of Tilal, minutes of, and recommendations to, the Audit Committee, related party transactions, project progress reviews and credit facility proposals. The Board meets at least three times a year. The business address for the Board is 2nd Floor, Tilal Office Complex, Muscat Grand Mall, Al Khuwair, Muscat, Sultanate of Oman / P O Box 22, PC 136, Muscat Grand Mall, Muscat, Sultanate of Oman. Board members’ nomination procedures Tilal complies with all of the circulars and instructions issued by the CMA regarding the nomination and election of the members of the Board and its committees, which all take place under the supervision of the legal department of the CMA and Tilal’s legal adviser. The terms and conditions of the Board’s nomination are included in Tilal’s Articles of Association. The current Board (detailed below) was appointed for a term of four years with effect from March 2016. Members The current board of directors of Tilal (the “Board”) is comprised of the following people: Name Position Eng. Khamis Mubarak Khamis Al Kiyumi Chairman Eng. Abdulla Ali Al Abdulla Vice chairman Eng. Abdul Rahman Awadh Abdullah Barham Omar Board Member Mr. Salim Abdullah Faraj Al Awadi Shiekh Khalid Hassan K A Al-Thani Shiekh Khalifa Khalid A A Al-Thani Mr. Majid Sulaiman Salim Al Farsi Board Member Board Member Board Member Board Member Representing Executive or Nonexecutive Al Madina Investment SAOG Al Madina Real Estate Company SAOC Al Madina Real Estate Company SAOC Independent Nonexecutive Nonexecutive Qatar Investment Authority Qatar Investment Authority Ministry of Defence Pension Fund Memberships in Societe Anonyme Omanaise Generale (SAOG) Companies 2 2 Nonexecutive 2 Nonexecutive Nonexecutive Nonexecutive Nonexecutive 3 - In the five years preceding the date of these Listing Particulars, none of the individuals set out in the table above have been convicted of any fraudulent offence, served as a director, partner, founder or senior manager of any organisation at the time of any bankruptcy, receivership, any official public incrimination or sanctions by any statutory or regulatory authorities, including designated professional bodies, or has been disqualified by a court from acting as a director of an issuer or from acting in the management or conduct of affairs of any issuer. 112
124. There are no potential conflicts of interest between the private interests and other duties of these individuals and their duties to Tilal . Any transactions with parties related to these individuals are carried out in ordinary course of business on an arms-length basis and are duly reported in the corporate governance report and financial reports of Tilal and are duly approved by shareholders at an annual general meeting. A short biography of each member of the Board is set out below: Engineer Khamis Mubarak Khamis Al Kiyumi, Chairman, an Omani national, is a prominent figure in the business community in Oman with a proven track record of successful investments over 30 years in a number of sectors, including the industrial, financial investments, real estate, manufacturing, banking and insurance sectors. He is considered a pioneer in the industrial sector in Oman and has previously held the positions of Under Secretary of Commerce & Industry and Directorate General of Industry. He holds membership and sits on the board of a number of groups and societies, such as Al Madina Real Estate Company SAOC, Al Madina Investment SAOG, Al Madina Insurance SAOG, Gulf Mushroom SAOG, Al Mutawer Hotels and Resorts SAOC. He holds a Bachelor Degree in Industrial Engineering from the King Abdul Aziz University, Jeddah, Kingdom of Saudi Arabia. Engineer Abdulla Ali Al Abdulla, Vice Chairman and Chairman of Technical Committee, a Qatari National, has a proven track record of successful investments over 35 years in a number of sectors including the real estate sector. He holds a degree in Industrial Engineering from Bradley University, USA. He served as Director of Industrial Affairs at the Ministry of Industry, Assistant Secretary General at the Gulf Organization for Industrial Consulting and held the position of CEO of Qatar Industrial Manufacturing Company for a period of 15 years since its establishment. He is also board member of a number of companies in Qatar and Oman such as United Development Company, Qatar Oman Investment Company, Qatar Industrial Manufacturing Company, Qatar Plastic Products Company, Al Madina Real Estate Company SAOC, Al Madina Investment SAOG, Al Madina Insurance SAOG, Shaden Development Company SAOC and Al Madina Hotels and Resorts Development Company SAOC. Engineer Abdul Rahman Awadh Abdullah Barham Omar, Board Member and Member of Technical Committee, an Omani National, is a leading private investor in Oman. At the date of these Listing Particulars, he also holds the position of Chief Executive Officer of AMRE. He has a proven track record of executive leadership and is a member or director of a number of groups and societies (including the Oman Business Group and the Oman Chamber of Commerce). He is the founding member of the Omani Engineering Association and a member of the American Association of Operative Millers & ASHRAE, as well as an active member of the Oman Private Public Partnership Committee. He holds a B.Sc. in Civil Engineering and Architectural Engineering from University of Miami and M.SC in Mechanical Engineering from Kings College University of London. Mr. Salim Abdullah Faraj Al Awadi, Board Member and Chairman of Audit Committee, an Omani national, is a management accountant and holds a degree in Business Administration and Post Graduate Diploma in Accountancy and an MBA from the University of Lincoln. He has over 29 years’ experience in a number of sectors, including banking and oil and gas. As at the date of these Listing Particulars, he also holds the position of Deputy CEO of Al Omania Financial Services Co SAOG and also serves on the board of a number of other companies. Shiekh Khalid Hassan K A Al-Thani, Board Member and Member of Technical Committee, a Qatari National and part of the royal family of Qatar, represents the Qatar Investment Authority. He is also on the board of various other companies. His wide experience across a number of different sectors has been a contributing factor in the strategy and success of Tilal. Shiekh Khalifa Khalid A A Al-Thani, Board Member and Member of Audit Committee, a Qatari National and part of the royal family of Qatar, represents the Qatar Investment Authority. He is also on the board of various other companies. His wide experience across a number of different sectors has been a contributing factor in the strategy and success of Tilal. Mr. Majid Sulaiman Salim Al Farsi, Board Member and Member of Technical Committee, an Omani national, holds an MSc, and Grade Diploma in Actuarial Science from the University of Kent and a BS in Management Information Systems from Sultan Qaboos University. As at the date of these Listing Particulars, he also holds the position of Deputy Manager of Statistics and Actuarial Studies at the Ministry of Defense Pension Fund as well as being on the board of a number of other companies. 113
125. Executive Management Management is undertaken by two management teams : the Executive Management Team (as defined below) and members of the management of AMRE. The executive management of Tilal and the management of Tilal Complex is undertaken by the following team (the “Executive Management Team”): Name Mr. Hassan Jaboub Mr. Shaikh Mohammed Akbar Mrs. Rachel Parry Mrs. Laila Al Oufi Mr. Saqar Al Badi Mr. Ramiz Cherayakat Mrs. Lina Banuelos Position General Manager (GM) Finance Manager Leasing Manager HR and Admin Manager Security Manager RDD Manager Marketing Manager Nationality Omani Indian British Omani Omani Indian Filipino Employed since June 2011 October 2012 October 2011 October 2011 September 2011 June 2013 December 2016 In the five years preceding the date of these Listing Particulars, none of the individuals set out in the table above have been convicted of any fraudulent offence, served as a director, partner, founder or senior manager of any organisation at the time of any bankruptcy, receivership, any official public incrimination or sanctions by any statutory or regulatory authorities, including designated professional bodies, or has been disqualified by a court from acting as a director of an issuer or from acting in the management or conduct of affairs of any issuer. There are no potential conflicts of interest between the private interests and other duties of these individuals and their duties to Tilal. A short biography of each member of the Executive Management Team is set out below: Hassan Jaboub Hassan Jaboub is the GM of Tilal. He was certified as a shopping centre manager by the International Council of Shopping Centres in New York and has 16 years’ experience in the field with six of those as the regional leader in the development of shopping malls for Majid Al Futtaim Shopping Malls. He is responsible for overseeing the entire operation of the Muscat Grand Mall and controls and delegates to all department heads to ensure and maintain the daily business functions of the mall. He is responsible for delivering the business plan and executing Board decisions to maximise profitability and tenant occupation. He holds a Bachelor’s degree in Commerce & Economics with a specialisation in Marketing from the Sultan Qaboos University, Oman. Shaikh Mohammed Akbar Shaikh Mohammed Akbar is the Finance Manager of Tilal. He has five years experience working in the finance department of Majid Al Futtaim Shopping Malls. His day-to-day responsibilities include monitoring cash flow, reporting on factors influencing business performance and audits. He holds a Bachelor’s Degree in Commerce from the University of Mumbai, India and has over 21 years’ experience in the retail industry. Rachael Parry Rachael Parry is the Leasing Manager of Tilal. She has 14 years’ experience working for Land Mark, a leading clothing retailer in the Middle East, and in Mercato Mall, a leading shopping mall in Dubai, United Arab Emirates. Her responsibilities include the leasing of retail and food and beverage outlets, maintaining strong relationships with tenants and trading houses and ensuring the appropriate mix and quality of the tenant representation within the Muscat Grand Mall is maintained. She holds a Bachelor of Arts (Hons) Degree in Hospitality and Tourism from Anglia Polytechnic University, City College, Norwich, United Kingdom. Laila Al Oufi Laila Al Oufi is the Human Resources Manager of Tilal. She previously worked in the human resources department of AMRE and has a strong working knowledge of local rules and regulations in Oman. She holds a combined experience of over 21 years in Oman catering to different fields such human resources as well as 114
126. accounts and administration . Her responsibilities include the development of an employee-oriented company culture that emphasises quality, continuous improvement, key employee retention, employee development and high performance. She holds the National Vocational Qualification Certificate in Administration –Level 1 & Level 2 from National Training Institute, Oman. Saqar Al Badi Saqar Albadi is the HSE & Security Manager of Tilal. He has over 16 years’ experience working in mall security in Oman including the Muscat City Centre. His responsibilities include minimising financial losses to retail operations caused by theft, vandalism, accidents and injuries. He holds a Higher Secondary (school) certificate from the United Arab Emirates and has also completed certification courses for firefighting and emergency. Ramiz Cherayakat Ramiz Rahman Cherayakat is the Retail Design & Delivery Manager of Tilal. He has 5 years’ experience working in the design and turnkey fit out department of Steadfast National Projects LLC and handled fitout works for major international brands such as KFC, Hardees, Pizza Inn, Costa Coffee, Pinkberry and Borders at Muscat. His responsibilities include reviewing tenant design submissions to ensure that they are in compliance with design criteria, coordination between tenant and contractors and Health and Safety. He holds a Bachelor of Engineering in Civil Engineering from Karnataka University and also Master Diploma in Interior Designing from Bangalore, India. Lina Banuelos Lina Banuelos is the Marketing and Promotion Manager of Tilal. She has over 11 years’ experience working as a Mall Marketing Manager in the Philippines. Her responsibilities include overall marketing functions for Tilal Complex and organising events and promotions to increase the footfall of the Muscat Grand Mall. She also oversees advertising, sponsorship, PR, social media and enhance digital marketing. She holds a Bachelor of Arts Degree in Mass Communication at Lyceum of the Philippines University and she also holds Master Degree in Management Technology from De Le Salle University Lipa. An organisational chart of Tilal is provided below: 115
127. AMRE Management Team In addition to the Executive Management Team , specific members of the AMRE management team provide high-level strategic advice in respect of the ongoing management of Tilal and Tilal Complex. Although AMRE provides general overall support, some of the key aspects of such support are summarised below. Technical Support AMRE has dedicated an in-house team of highly qualified professionals having cumulative experience of more than 150 years, in various disciplines in construction and real estate development projects, to provide technical support to Tilal Complex. The marketing and overall management of Tilal Complex remains with AMRE which subcontracts maintenance and property management to reputable firms. From the commencement of the construction of Tilal Complex, AMRE provided consultancy services, including preparation of preliminary Project Brief for Feasibility study; selection of the site on which Tilal Complex was to be constructed; preparation of the detailed Project Brief; preparation of the Cost Estimation and Preliminary Budget; financial analysis; and preparation of the technical proposal for the approval of the project. During the construction of Tilal Complex, the AMRE team was also involved in providing the following services: selection of the consultants; coordination with the consultants; review of designs and consultant’s proposals; evaluation of design proposals and provision of comments; drafting and negotiation of the agreements with the consultants; reviewing designs/documents submitted by the consultants for value engineering in order to optimise the investment and the maintenance/running cost of the systems; conduct design reviews and value engineering workshops and design coordinating meetings; and incorporate operational and maintenance issues in to the design process. AMRE also oversaw the fit-out of the Serviced Apartments and will provide similar technical services for Phase 2. Highly experienced external management AMRE appointed highly experienced professional project managers to co-ordinate all disciplines, departments, authorities and to report on the progress of the construction process. The construction management of Tilal Complex was also carried out by an experienced reputable firm appointed by AMRE. The same approach will be adopted for Phase 2. The project design and construction activities for Phase 2 will be executed on a fast track process under the management of AMRE. This includes AMRE doing the following: after finalisation of the ’Project Brief’ and the funding arrangements for Phase 2, seeking proposals for specialist consultancy services from local and international firms having experience in similar type of projects; and evaluating the competitive offers and proposals received from such firms and submitting to Tilal’s Board of Directors such offers and proposals for their approval. Project funding and book keeping AMRE also submitted proposals to local and GCC banks/institutions in respect of arranging the required funding for Tilal Complex. AMRE will continue this role for Phase 2 and will continue to manage and maintain the financial books and accounts of Tilal. AMRE plays two significant roles at Tilal Complex. It provides a project management role in Tilal’s development activities and a corporate finance role providing services to Tilal in terms of financing requirements, finalisation of books and preparation of financial statements. They also help to mitigate any gaps in the operation of Tilal or Tilal Complex. This function is led by the following individuals: Name Eng Abdulrahman Barham Eng Harith Al Brashdi Mr. Girish Koli Mr. Sanjay Singh Solanki Position CEO Chief Operating Officer Chief Financial Officer Chief Design Coordinator Nationality Omani Omani Indian Indian Working since June 2005 June 2007 May 2006 August 2006 In the five years preceding the date of these Listing Particulars, none of the individuals set out in the table above have been convicted of any fraudulent offence, served as a director, partner, founder or senior manager of any 116
128. organisation at the time of any bankruptcy , receivership, any official public incrimination or sanctions by any statutory or regulatory authorities, including designated professional bodies, or has been disqualified by a court from acting as a director of an issuer or from acting in the management or conduct of affairs of any issuer. There are no potential conflicts of interest between the private interests and other duties of these individuals and their duties to Tilal. Any such transactions with related parties are carried out in the ordinary course of business. Similarly, such transactions are duly reported in the corporate governance report and financial reports under related party transactions and also duly approved by shareholders in the annual general meetings. An overview of the background of these individuals is set out below: Eng. Abdulrahman Barham Eng. Abdulrahman Barham is the CEO of AMRE and has over 30 years’ experience in the field of real estate and manufacturing. Prior to joining AMRE he was the CEO for Salalah Mills Co SAOG for a period of nine years. He is responsible for overseeing the entire operation of AMRE’s real estate entities (including Tilal) and is responsible for strategies, business plans and executing board decisions to maximise profitability and value to shareholders. He is also a board member for several entities (including Tilal). On a day to day basis the CEO of Tilal reports to Eng. Barham and all operation and strategic workings are reviewed and approved by him. He holds membership to a number of groups and societies (including MECSC, Consul of Trustee at Salalah Technical College, Ministry of Labour, Industry & Standards Committee, Oman Chamber of Commerce & Industry, Founding Member of Omani Engineering Association and Members of American Association of Operative Millers & ASHRAE). He holds a Master of Science in Mechanical Engineering from King’s College, London, United Kingdom; a Bachelor of Science in Architectural Engineering from University of Miami, Florida, USA and Bachelor of Science in Civil Engineering from University of Miami, Florida, USA. Harith Al- Brashdi Harith Al- Brashdi is the Chief Operating Officer for AMRE. As Chief Operating Officer, he is responsible for the corporate operations of Tilal and managing all aspects of the business including budgeting, business development, design, construction, sales and marketing, administration and human resources. He is a seasoned executive in all critical phases of real estate investments with more than 18 years’ experience in international and local development and construction of successful large-scale real estate investment projects. Harith also holds a Bachelor’s Degree in Engineering (USA) and a Master Degree in Project Management (UK). Harith was/is involved in all technical aspects of Tilal Complex both during construction and post construction including its upgrading, making additions, designing and its layout. Girish Koli Girish Koli is the Chief Financial Officer of AMRE. He has 23 years’ experience in diverse industries such as financial services, commercial banks, manufacturing, trading, private family investment offices and real estate. He is responsible for overseeing the entire financial operations of the real estate entities (including Tilal) and setting up appropriate internal controls, MIS and managing both internal and statutory audits with the ‘big four’ audit firms on behalf of all entities in the AMRE group of companies. He also holds the post of the Audit Secretary for all the real estate entities in the group. He holds a Bachelor’s Degree in Commerce with specialisation in Accounts, Costing and Management and also holds a Masters of Management Studies with a specialisation in Finance from Mumbai University, India. Girish is responsible for producing Tilal’s quarterly financial reports, coordinating audits and working with functional heads to streamline the operational activities of Tilal and assists in setting up processes, internal controls and monitoring. Currently the Assistant Financial Managers report to Girish on the functions of the finance and accounts department. Girish is also responsible for managing the corporate finance affairs of the group including the financing facilities for Tilal Complex and Phase 2. Sanjay Singh Solanki Sanjay Singh Solanki is the Design and Development Manager at AMRE having 24 years of professional experience. Sanjay has been involved with Tilal Complex both during the construction and post construction phases on all technical aspects and coordinating with the in-house team including third party consultants. Sanjay has a Bachelor’s of Architecture (B.Arch.) from the National Institute of Technology of Bhopal, India, Construction Management (PGCPM) from Delhi University, India and Executive Post Graduate Diploma in 117
129. Business Management from Pune University , India. He is responsible for the management of the design aspects of all AMRE’s projects and ventures, including Tilal Complex, which include the following: studying and preparing initial design concepts and feasibility studies of architectural projects in accordance with site requirements and local norms; identifying, short-listing and awarding contracts to various design consultants; managing and coordinating the various consultants during the design, tender documentation and construction stages; coordination and review of design related queries from the construction team; and monitoring the performance of appointed consultants, managing the consultants fees and the approval of invoices. It is envisaged that the above four employees of AMRE will continue to provide the above services and activities for the operation of Tilal Complex and Phase 2. Corporate Governance To assist the Board of Directors, corporate governance is overseen by the Audit Committee and the Tender Committee. Audit Committee of Tilal The audit committee of Tilal (the “Audit Committee”) is comprised of the following people: Chairman Member Member Mr. Salim Abdullah Faraj Al Awadi Shiekh Khalifa Khalid A A Al-Thani Mr. Majid Sulaiman Salim Al Farsi The Audit Committee reviews the financial accounts/policies of Tilal, the adequacy of internal control systems and is also responsible for the licensing obligations of Tilal with the statutory and internal auditors. The Audit Committee also reviews the internal audit plans, audited and unaudited financial results, observes the internal and external auditors and follows up on reports of the Executive Management Team. Tender Committee of Tilal The tender committee of Tilal (the “Tender Committee”) is comprised of the following people: Chairman Member Member Eng. Abdulla Ali Al Abdulla Eng. Abdul Rahman Awadh Abdullah Barham Omar Mr. Salim Abdullah Faraj Al Awadi Mr Salim Al Awadi is invited to attend the Tender Committee in case of absence of any other member. The Tender Committee reviews the tender management process, opens the sealed bids received by Tilal and carries out the process of acceptance and rejection of bids, ranking bidders and handing over the shortlisted bids for complete review, recommendation and approval to the appropriate employee at Tilal, with appropriate notification to the Board wherever required. The Tender Committee reviews the tender management process, it opens the sealed bids, carries out process of acceptance and rejection of bids, ranking the bidders and handing over the shortlisted bids for complete review, recommendation and approval to Project Manager with appropriate notification to Board, wherever required. It is also resolved by the Board that due to travel and other prior commitments the overseas resident Tender Committee Members are not in a position to attend the scheduled tender committee meetings, that in such cases, local resident and available Directors shall be invited for concluding the proceedings of the tender committee. 118
130. OVERVIEW OF THE SULTANATE OF OMAN Located in the south-eastern quarter of the Arabian Peninsula , Oman is the only member of the GCC situated outside of the Gulf itself. Leveraging its strategic location, it has invested in infrastructure with the goal of becoming a global logistics centre. While less hydrocarbons-rich than its GCC neighbours, the Sultanate’s diversification efforts are a driving force behind its economic growth. Its long-term development strategy, Oman Vision 2020, emphasises industrialisation, privatisation and Omanisation. Logistics, tourism, mining, fisheries and industrial manufacturing have all been identified as potential future economic drivers, and will be the focus of development under Vision 2040. As of 31 December 2017, the total population of Oman was reported by the National Centre for Statistics and Information to be approximately 4.63 million, of which 55.91 per cent were Omani nationals and 44,09 per cent were expatriates. As of 31 December 2015, the life expectancy at birth was 76.9 years. As of 31 December 2017, 21.81 per cent of the population in Oman was under 15 years old and 2.36 per cent was 65 years and older. Government Structure Oman is an absolute monarchy. His Majesty Sultan Qaboos bin Said is the head of the Government of Oman and the Chief of State, and he has the power to issue laws by Royal Decree. Royal Decrees, international treaties, agreements and charters signed or approved by His Majesty become law from the date of their publication in Oman’s Official Gazette. On 6 November 1996, His Majesty issued Royal Decree No. 101/96 promulgating the Basic Law of the State (the Basic Law). The Basic Law serves as the constitution of Oman and sets forth its system of governance as well as establishing certain basic rights of Omani citizens. In addition, the Basic Law provides that all natural resources are the property of the State and that any concessions granted to exploit or otherwise invest in such natural resources may only be granted for a specified period. The Basic Law also provides for a Prime Minister, although this position, as well as the positions of Ministers of Defence, Finance and Foreign Affairs, Governor of the Central Bank and commander-in-chief of the armed forces, are currently held by His Majesty Sultan Qaboos. Oman pursues an independent foreign policy with the aim of fostering good relations with its neighbours as well as other countries. Oman’s approach to foreign relations is both non-confrontational and pragmatic. As a result, Oman has enjoyed political and economic stability for the last 40 years. Oman is a member of the United Nations, the World Bank, the International Bank for Reconstruction and Development and the International Monetary Fund. In November 2000, Oman became a full member of the World Trade Organisation, resulting in, amongst other developments, the liberalisation of its foreign investment and taxation laws. In October 2015, Oman became a founding member of the Asian Infrastructure Investment Bank. The Council of Oman, Majlis Oman, is a bicameral consultative council with advisory powers only. The upper chamber of the council is called the Majlis Al Dawla, or State Council, the members of which are appointed by the sultan. Members of the lower chamber, the Majlis Al Shura, are elected by popular vote for a four-year term. The Majlis Al Shura is authorised to draft legislation sanctioned by the sultan. Since 2002, citizens over 21 years of age have been eligible to vote in elections. The most recent elections took place on October 25, 2015, when 84 members of the Consultative Assembly were elected from 61 constituencies, 23 with two seats and 38 with one seat. Voter turnout reached 56.66 per cent, and the process was widely hailed by Oman observers as a success. Economic Overview Gross Domestic Product (“GDP”) Oman’s GDP at the end of the third quarter of 2017 increased by 10.1 per cent, recording prices at OMR20.335 billion. The GDP is expected to increase by 2.3 per cent in 2018 and 2.5 per cent in 2019, according to the world bank. It is currently at the level of 27.2 million, according to the National Centre for Statistics and Information (“NCSI”). The GDP is expected to gradually increase in 2020-22 as a result of rising oil output and the increasing contribution of the renewable energy sector in the economy. Oil activities rose 23.9 per cent to OMR6.248 billion compared with OMR5.042 billion at the end of the third quarter of 2016. The share of crude oil in oil activities at the end of the third quarter was valued as OMR5.264 billion, which is a rise of 27.8 per cent over the end of the third quarter of 2016, when it was at the level of OMR4.117 billion. The oil industry’s contribution to the GDP rose in the first half of 2017, to 32.5 per cent, The 119
131. growth was driven largely by a 42 .3per cent rise in oil production value, to OMR3.58 billion (U.S.$9.3 billion), or 27.6 per cent of GDP. Brent crude has reached U.S.$70 per barrel in early 2018. Natural gas increased by 6.3 per cent to OMR983.9 million from OMR925 million at the end of the third quarter of 2016. By the end of the third quarter of 2017, total non-oil activities valued to be at the level of OMR14.700 billion which is an increase of 4.9 per cent over the value at the end of the third quarter of 2016. The services activities which are at the forefront of non-oil activities was of OMR10.317 billion, which is an increase of 5.7 per cent over the end of the third quarter of 2016. The services activities were recorded to be at the level of OMR9.764 billion. A number of sub-sectors of service activities recorded an increase including: wholesale and retail trade (10.9 per cent); transport, storage and communications (7.3 per cent); hotels and restaurants (1.1 per cent); real estate and rental activities and business projects (6.5 per cent) and financial intermediaries (2.9 per cent). Public administration and Defence activities fell by 0.4 per cent, while other services increased by 9.8 per cent. The industrial sector as a whole recorded a rise of 2.8 per cent at the end of the third quarter of 2017 with a value of OMR3.992 billion compared with the end of the third quarter of 2016, when it was at the level of OR 3,882 billion. A number of sub-sectors in the industrial sector recorded an increase including: the chemicals sector (15 per cent); the manufacturing sector (11.9 per cent) and other manufacturing industries (9.3 per cent); Electricity and water supply increased by 6.6 per cent and the mining and quarrying sector increased by 1.1 per cent. The construction sector fell by 7 per cent. Agriculture and fishing related activities recorded an increase of 5.4 per cent to reach to OMR390 million compared with the end of the third quarter of 2016, when it was at the level of OR 370 million. Oman’s GDP increased by 2 per cent in 2016, down from 5.6 per cent in 2015. The fall in oil prices has been the most significant contributor to the slowdown in growth and has impacted both the oil and non-oil sector significantly. As the economy adjusts to lower oil prices and diversifies to cut its resilience on crude oil revenues through its economic diversification plan and enacts ambitious fiscal reforms, GDP growth is expected to gain momentum in 2017 (+2.1 per cent). However long run GDP growth will be dependent on the ability to stick to these reform plans and the veracity of cuts in production of oil. Source: Knight Frank, Macrobond and Oxford Economics 120
132. Consumer price inflation Consumer price inflation was recorded at 1 per cent in 2016 with the rate sitting around its long run average . In 2017 consumer price inflation is expect to reach 3.2 per cent in 2017 with a upward pressure from food and clothing, pushing everyday costs higher. In August 2018, the inflation rate was recorded at 1.1 per cent. The consumer price index in Oman rose 1.7 per cent year-on-year in December of 2017, up from a 1.3 per cent rise in the previous month. It was the highest inflation rate since May, driven by rising prices of food (1.84 per cent); transport (2.77 per cent); housing and utilities (1.52 per cent) and furniture and household equipment (3.61 per cent). On a monthly basis, consumer prices went up 0.07 per cent. Inflation Rate in Oman averaged 3.57 per cent from 2005 until 2017, reaching an all time high of 14.50 per cent in June of 2008 and a record low of -0.55 per cent in November of 2015. Source: Knight Frank, Macrobond and Oxford Economics Employment Employment is forecast to grow 0.5 per cent in 2017 and 2018. However with additional government employment announced in late 2017 and the likely increase in employment due to increased traffic through its port (due to diversions in trade due to the suspension of Qatar from the GCC) Knight Frank believe this forecast is conservative. Unemployment Rate in Oman increased to 17.50 per cent in 2016 from 17.30 per cent in 2015. Unemployment Rate in Oman averaged 18.34 per cent from 1991 until 2016, reaching an all time high of 19.50 per cent in 2000 and a record low of 16.80 per cent in 1995. 121
133. Source : Knight Frank, Macrobond and Oxford Economics Currency market The Omani Rial is currently pegged at an exchange rate of RO 0.39 to each U.S. dollar. Despite interest rate hikes by the Federal Reserve, the U.S. dollar has depreciated in 2017, for any foreign based income or demand sources this is likely to make Oman a more attractive location. 122
134. Source : Knight Frank, Macrobond and Oxford Economics Bank deposits and credits According to data from the Central Bank of Oman, as at August 2017 gross bank credit totalled OMR20.1 billion and commercial bank deposits totalled OMR18.8 billion. This represents a 3.2 per cent and 0.6 per cent increase in the year to August 2017, respectively. The Omani banking system remains well capitalized, deposits have increased, liquidity conditions appear to have eased, and credit to the private sector continues to grow. 123
135. Source : Knight Frank, Macrobond and Oxford Economics Tourist arrival The statistics released by the NCSI has said that the number of passengers at Muscat International Airport, including transfer and transit, reached 14,034,865 by the end of last December compared with 12,031,496 passengers by the end of December 2016. The number of flights was 114,258 by the end of December 2017 which is a 10.6 per cent increase compared with 103,326 by the end of 2016. The number of international flights at Muscat International Airport, by the end of December 2017, was 102,148, which is an increase of 8.9 per cent over 93,822 flights by the end of 2016, on which 12,824,294 passengers travelled which is also an increase of 16.5 per cent. According to these statistics, the domestic flights at Muscat airport increased by 27.4 per cent to reach 12,110 by the end of December 2017, from 9,504 by the end of 2016. The number of passengers also reached 1,210,571 from 1,023184 which is an increase 18.3 per cent during this period. Source: Knight Frank, Macrobond and Oxford Economics 124
136. Population The population of Oman is 4 ,653,880 as of reported on the Friday, February 2, 2018, based on the estimates of National Center for Statistics and Information of Oman, where Omanis are 2,553,193 (54.90 per cent) and Expatriate are 2,100,687 (45.10 per cent). Oman population is estimated and expected to grow on an average of above 5 per cent during 2017 and 2018 to close to 7 per cent by 2020. Source: Knight Frank, Macrobond and Oxford Economics Five year plan In Oman, which since the 1970s has seen a less-volatile growth trajectory than some of its neighbours, the response has been moderate. The country is in the early stages of deploying its ninth five-year-plan (“FYP”) covering 2016-2020, the final component of Vision 2020, a blueprint for social and economic development launched in 1995. The FYP was devised with an eye to the new economic reality, and its principal hallmarks as is the case with strategies across the region - are modest assumptions regarding medium-term growth and a greater emphasis on private sector participation. This ninth FYP continues the country’s drive towards social development, the economic diversification of many production sectors and the ideal utilisation of available natural resources. The national strategy targets an annual growth rate for the economy of three per cent, with a targeted oil price of U.S.$45 - U.S.$60 per barrel. Approximately OMR41 billion (U.S.$106.5 billion) of investments are planned during the five-year period by the government. The FYP also foresees the private sector playing a much more important role in driving economic growth, through planned privatisations, increased support for the development of small and mediumsized enterprises, a renewed focus on public-private partnerships and liberalisation of the country’s investment framework. The plan is based on an average oil price of U.S.$55 per barrel, compared to an actual average of U.S.$95.60 between 2011 and 2015. This projection accounts for what the government anticipates will be 2.8 per cent average annual GDP growth rate in constant prices over the five-year period, compared to 3.3 per cent over the previous five years. In past years, oil and gas revenues in Oman have usually accounted for around 90 per cent of state revenues, so the low-price scenario the government has planned for will place considerable constraints on its capacity to spend. More than half of the OMR41 billion (U.S.$106.5 billion) in targeted investment, therefore, is to be derived from the private sector, to be deployed in projects such as the South Batinah Logistics Area, the Oman National 125
137. Railway , tourism facilities within Port Sultan Qaboos, a number of fishery projects, Al Dhahirah Special Economic Zone and Port of Shinas. To mitigate future economic shocks from oil price volatility, the FYP sets a target of reducing oil’s contribution to GDP from an average of 44 per cent seen in the 2011-15 period to 26 per cent by 2020. To this end, institutional changes are afoot - notably the establishment of a general department within the Supreme Council for Planning tasked with coordinating with ministries and specialised institutions. The FYP also outlines several medium-term objectives, such as maintaining the inflation rate at an average of 2.9 per cent, and developing the contribution of small and medium-sized enterprises. Inflationary pressures in 2015 calmed considerably, with the consumer price index at 0.1 per cent for the year and an average of 2.5 per cent recorded in the 2010-14 period. Outlook Oman’s economic performance remains vulnerable to the direction of oil prices over the medium term. Although Brent crude has climbed above the U.S.$80 mark in 2018, the outlook from most observers is a cautious one; Saudi Arabian investment firm Jadwa foresees the possibility of oil prices edging higher, but with any increase being marked by volatility. Prices at this level would mean the continuation of Oman’s fiscal deficit, which it is expected to meet by dipping further into its reserves and issuing more sovereign debt. To bridge fiscal shortfalls in this manner over the medium term is the most critical challenge the government faces. Over the longer term, the Sultanate’s ability to reform its economic base will be central to its future stability. 126
138. OVERVIEW OF THE REAL ESTATE AND RETAIL INDUSTRY IN THE SULTANATE OF OMAN Retail While the long-term fundamentals remain strong , the retail market in Oman is presently under pressure due to the economic slowdown. The impact on the retail sector has been higher compared to its GCC counterparts. The country’s wholesale and retail trade stood at U.S.$4.9 billion in 2016 compared to U.S.$5.1 billion in 2012. Growth decelerated since 2014 and slumped by 18.2 per cent in 2016, according to the GCC Retail Industry Report. Oman’s retail landscape is concentrated in the hands of standalone retail outlets and has only a few regional and international retailers. As consumers look for a wholesome shopping experience combined with entertainment, the retail market in the country is transforming to accommodate large leisure shopping complexes. Supply of retail space has gained steam in the last two years, which saw the addition of large shopping centres like Avenues Mall (GLA of 80,000 sq m), Oasis Mall (GLA of 35,600 sq m) and Panorama Mall (GLA of 21,000 sq m), among others. Increasing population and international tourist arrivals have been the vital driving forces of the retail market in Oman. A high composition of young and working class has led to a shift in consumer preferences towards international foods and western products. This is further supported by an increase in household spending power over the years on account of the economic diversification and government-mandated pay increases for nationals. Such favourable factors have encouraged several retailers to open in Oman. Changing consumer preferences and proliferation of digital devices are further reforming the region’s retail landscape. The numerous mall developments in the pipeline and growing penetration of modern store formats are a testament to immense opportunities in the sector. The Omani Government has recently announced that it will delay the implementation of a 5 per cent VAT on selective goods to 2019 in order to allow the country’s businesses more time to prepare. This will undoubtedly aide the retail sector in the short term as neighbouring UAE implemented a 5 per cent VAT on goods from 1 January 2018. Oman will for a short period enjoy a 5 per cent competitive advantage which will appeal to tourists entering the country. Retail - Competition Muscat Grand Mall is located in what is would be considered the geographical centre of Muscat City. The area is well connected to other areas of the city with a number of main roads and junctions in close proximity to the development. Unlike other more established cities in the Middle East, Muscat has a relatively new shopping centre scene. Other retail outlets in Muscat include: • City Centre Muscat is located at Sultan Qaboos Road – Seeb consisting gross leasable area of 70,484 square meter on two levels with 2,500 car parks space for its valuable customers & providing home to more than 220 local and international brands many of which made their debut in the Omani market. This mall comes into operation in 2001 and annual Footfall of 10,200,000 customers / visitor made this mall “Destination Shopping Centre” for all. Major stores include Carrefour, Home Centre, Mark and Spencer’s, Zara and Sun Sea and Sand. There is also a 10 screen VOX cinema, 33 dining outlets and a newly modernized Magic Planet. The centre has recently undergone U.S.$90 million refurbishment which added 60 additional retail stores. The mall is owned and operated by Majid Al Futtaim. • City Centre Qurum is located at residential and commercial area of Qurum consisting gross leasable area of 23,200 square meter on two levels with 1,100 car parks space for its valuable customers & providing home to more than 82 local and international brands. This Centre comes in to operation in 2008 and annual footfall of 4,000,000 customers / visitors made this Centre as “Life Style Shopping Centre” for all. The Centre offers a mix of mid-market fashion brands along with convenience orientated stores such as Carrefour and H&M. There is also an integrated 7 screen Vox Cinema and Magic Planet including 14 dining outlets. The mall is owned and operated by Majid Al Futtaim. • Markaz Al Bahja is located at Al Mawaleh Interlink in Al Hail – Seeb consisting gross leasable area 19,000 square meter on two levels with 1,500 car parks space for its valuable customers & providing home to more than 100 stores aimed at the middle-income consumer. This mall comes in operation in 127
139. 2002 and annual footfall of 2 ,700,000 customers / visitors made this mall “Life Style Shopping Centre” for all. Some of the tenants include IDdesign, Novel and Redtag. There is a 2 screen cinema along with a 2,000 square meter children’s play area. • Oman Avenues Mall is located at Baushar consisting gross leasable area of 80,000 square meter spread out over 105,000 square meter land parcel on 5 levels with 3,400 car parks space for its valuable customers & providing home to 210 retail units, of which included a 20,000 sqm hypermarket. Some of the main tenants located in the mall include Lulu, H&M, Sun & Sand Sports, Empora and Gold Gym. Like the subject mall there is a catchment area that includes 892,256 people within 5 miles and 1,159,932 people in a 10 mile radius. This mall comes into operation in 2015 and annual Footfall of 16,380,000 customers / visitor made this mall “Destination Shopping Centre” for all. The mall is owned by Al-Taher Group and operated by Lulu Group International. • Panorama Mall is located at Bausher consisting gross leasable area of 21,000 square meter on 3 levels with 760 car parks space for its valuable customers & providing home to 116 retail units including Spinneys Supermarket. There are a number of restaurant options including Italian Pizzeria, Omani Crepe and Subway. This mall came into operation in 2015 and with its retail type this mall becomes “Destination Shopping Centre” for all. The mall is owned and operated by Allied Business Corporation LLC. • Sabco Commercial Centre is located at Qurum this centre is a boutique mall offering a mix of luxury shops and convenience stores. There are 80 retail units in addition to Souk shops. The mall is regarded as one of the most popular malls in Muscat and is popular with tourists seeking a different shopping centre. Retail - Upcoming developments Below is a selection of malls that are planned / proposed within Oman. • Al Khoud Grand Centre an 110,000 square meter development with approx. 33,500 square meter of retail accommodation on 3 levels and with 2,200 car parks space for customers. The mall is due to open in 2018 and aims to serve the local area with international and local brands. • City Centre Sohar will be the largest mall in the Sohar district consisting gross leasable area approx. 40,000 square meter with 1,100 car parks space with over 100 retails units, a VOX cinema, Magic Planet and an 8,000 square meter Carrefour Hypermarket. The Centre aims for a mix of leading local and international brands with a strong F&B line-up. The Mall is due to open in 2018. • Mall of Oman will be the largest mall in Oman upon completion with approx. total gross leasable area of 137,000 square meter on 4 levels with 5,000 car parks space for its customers. This Destination Shopping Centre aiming over 400 brands, a 19 VOX Cinema and a Carrefour Hypermarket, Family Amusement Destination and a snow park leisure offering. The mall will be home to a large range of local, national and international brands. The mall will be owned and operated by Majid Al Futtaim. A date of 2020 is provisionally penciled in for completion. • Muscat Festival City will be the first super regional mall in Oman consisting of gross leasable area 103,000 square meter on 2 levels with 4,500 car parks space for its customers & providing home to Oman’s first IKEA store. There will be approx. 270 units, 2 anchor tenants, family entertainment centre. The centre sits alongside the site for the Oman convention centre development. The mall will be owned and operated by the Al Futtaim. The shopping mall doors will be opened in 2019. • City Centre Sur will be the largest mall in the Sur district consisting gross leasable area approx. 16,000 square with over 50 retails units, a VOX cinema, Magic Planet and an 6,800 square meter Carrefour Hypermarket. The Centre aims for a mix of leading local and international brands with a strong F&B line-up. The Mall is estimated to be completed in 2018. 128
140. Office Market Overview Office rents have seen limited declines through 2017 . The Central Business District (CBD) has been the weakest performer in the city with rental declines of 14.3 per cent, followed by Al Khuwair (9.1 per cent). The areas of Qurum, Ghubra and Azaiba all registered rental declines in the region of 8 per cent. The average rent in these areas now stands at OMR5 per sq m. Despite the decline in rental levels occupiers still remain cautious with many failing to commit to relocating. This may be due to the fact many want to see clear evidence that the market has bottomed out. There may be also concerns about the high cost of relocating on issues such as fit out with some still weighing up their options. Rents across Muscat have remained largely stagnant with no increase in a number of years. Knight Frank do not envisage any upturn until at least 2019. Knight Frank have stated that the market may fall somewhat more yet and they do not believe there will be any major movement upward in the short to medium term. Muscat Hospitality Overview According to Knight Frank, hotel occupancy levels in Muscat witnessed a dip from 2014 to 2016, falling from 66 per cent to 56 per cent. Year to Date October 2017 has seen a rise of 500 basis points to 59 per cent compared to the previous year, however, it must be noted that this increase has come at the expense of a rate drop. Market wide ADRs (Average Daily Rates) dropped 18 per cent between 2014 and 2016 from U.S.$233 to U.S.$190. When looking at the year to date 2017 data compared to the previous year ADR has dropped a further 12 per cent. These data points in turn have had a knock on effect for the RevPAR (Revenue per Available Room) decreasing by 6 per cent during this period boosted by the increase in occupancy. 129
141. It should be noted that this downturn was felt throughout the GCC and was not specific to the hospitality market in Oman . The regional performance of the GCC Hotel Market is detailed in the chart below. 130
142. Supply As at the date of these Listing Particulars , the hospitality industry in Muscat consists of 10,056 keys, with 8,004 keys in Hotels and 2,052 keys in Serviced Apartments. Hotels in lower star categories are generally composed of owner operated or locally branded properties. When looking at the serviced apartment sector in Muscat, only 19 per cent of the keys are provided in the deluxe sector, which are operated by international brands. Alternatively, standard apartments in Muscat, are typically run by either unbranded or locally branded hotel operators. Looking towards the future of the Muscat market there is expected to be 2,755 additional keys that will come to market up to 2020, which will represent a supply increase of 27 per cent. As more quality internationally branded offerings come to market, it is expected that the locally operated and less centrally located properties will start to lose market share. This hotel supply will predominantly come in the upscale and upper upscale markets with developments such as Aloft Muscat, Shaza Village Plaza Hotel and Hilton Garden Inn Muscat under construction. The serviced apartment sector in Muscat is healthy with just 2,052 operational apartment keys in the Sultanate, with a reported 215 keys being provided by the Sundus Rotana Muscat appealing to the mainly GCC market sector of Muscat. Demand The market in Muscat is extremely seasonal with the peak periods between October and April predominantly. This reflects the key source markets of GCC nationals, hot desert climate in Oman and religious periods in the Hijiri calendar. Oman has one of the shorter average lengths of stay in the GCC due to its lack of leisure demand generators, and access to wider source markets. Residential Market Overview Rents show signs of increasing stability, while awaiting evidence of sustained economic growth, demand for residential rental accommodation in Muscat remains muted. 131
143. Overall , in the 12 months to the end of September 2017 average residential rents receded by a marginal 0.8 per cent; and by just 0.2 per cent in Q3. The latest change leaves average rents at about OMR690 per month, down OMR5 per month on Q3 2016. However, average rents in premium residential areas such as Muscat Hills, Al Mouj and Madinat As Sultan Qaboos have dropped by around 10 per cent in comparison over that period reflecting a dampening of demand for more expensive properties. As at September 2017, average rents in Muscat were generally 20 per cent to 25 per cent lower than they were during Q3 2014, right before oil prices plunged from highs of close to U.S.$110 per barrel, highlighting how intrinsically intertwined Oman’s economy and property markets are with the performance of oil prices. Cluttons reports that good buildings with amenities such as Hatat Complex, Al Assalah Towers. Muscat Grand Mall, Panorama Mall, etc. are highly sought after buildings in Muscat due to the quality of accommodation they offer, combined with their perceived value for money, facilities and highly rated property management services and that it is these buildings that have been able to ride out the current market weakness and continue operating at strong occupancy levels with minimal rental value reductions. Oman Demand Generators Oman has experienced considerable tourism growth in recent times and is considered one of the most competitive countries in the GCC. With a growing population and an economic development plan in place (Vision 2040) which is focused on industrial expansion, Tourism in Oman hopes to become one of the country’s largest industries by 2040. There are several key tourism demand generators in Muscat, Oman, which include: Sultan Qaboos Grand Mosque; The Royal Opera House; Muscat Grand Mall; Sultan’s Armed Forces Museum; Oman Oil and Gas Exhibition Centre; and Natural History Museum of Oman. Outlook The Vision 2040 strategy will see major investments and envisages the creation of over half a million jobs. The vision involves the provision of an estimated 80,000 rooms for accommodation, 33,373 hotel rooms, 29,287 vacation home rooms and 17,262 integrated tourism complex rooms. The vast majority of investment will be through the private sector. It is expected, at least 11.7m international and domestic tourists will visit Oman in 2040, a jump from 1.4m in 2013. The ministry expects the growing tourism industry to create 535,574 direct 132
144. and indirect jobs by 2040 compared to 89 ,413 now. The strategy will be implemented in three stages, the first of which was initiated in 2016; Preparation (2016-20), Growth (2021-30) and Stability (2031-40). The strategy has had major support from over 30 public and 50 private entities. 133
145. SUMMARY OF THE TRANSACTION SECURITY The initial Transaction Security will be created by AMRE in favour of the Security Agent for the benefit of the Trustee (for and on behalf of the Certificateholders). The initial Transaction Security will be created by way of the Mortgage Agreement and the obligations secured by way of the Mortgage Agreement and any additional security document entered into from time to time pursuant to Condition 5.12 (Value of Transaction Security) (the “Secured Obligations”) are all obligations at any time due, owing or incurred by Tilal to the Trustee (for and on behalf of the Certificateholders) under the Transaction Documents, whether present or future, actual or contingent (and whether incurred by Tilal alone or jointly and whether as principal or surety or in some other capacity). The Transaction Security will consist of a first ranking legal mortgage over the land and building known as “Muscat Grand Mall”, registered in the name of Al Madina Real Estate Company S.A.O.C. under title number 882/1/1 RM/1/05/062/02/397/1 and situated on Plot 17/2, Al Khuwair, Oman with a total aggregate area of 94,375.25 sq/m and, together with any additional secured assets granted pursuant to Condition 5.12 (Value of Transaction Security) from time to time, but excluding any assets released in accordance with Condition 5.12 (Value of Transaction Security), the “Secured Assets”. There are certain risks relating to the registration, enforcement and realisation of the Transaction Security — see “Risk Factors — Risk Factors relating to the Transaction Security”. 134
146. TENDER AND EXCHANGE OFFER On 30 October 2013 , Modern Sukuk S.A.O.C. issued the Existing Trust Certificates, the proceeds of which were paid to Tilal (as obligor) under the terms of the transaction documents governing the Existing Trust Certificates. The Existing Trust Certificates were due to be redeemed on 30 October 2018; however, the redemption price in respect of the Existing Trust Certificates was not paid on such date. On or around 7 November 2018, Tilal offered to redeem all of the outstanding Existing Trust Certificates, with the consideration for such purchase being (i) U.S.$2.60 aggregate face amount of Certificates for each OMR1.00 in aggregate face amount of Existing Trust Certificates (“Exchange Consideration”), or (ii) cash at par (the “Cash Consideration”) (the “Tender and Exchange Offer”). Holders of Existing Trust Certificates representing OMR8,500,000 in aggregate face amount of Existing Trust Certificates elected to receive Cash Consideration, with holders representing the remaining face amount of Existing Trust Certificates each signing a commitment letter with, inter alios, Tilal, pursuant to which they agreed to subscribe U.S.$130,500,000 of aggregate face amount of Certificates in aggregate (thereby agreeing to receive Exchange Consideration and, in some cases, agreeing to subscribe to Certificates over and above the Exchange Consideration). Consequently: (a) on the Closing Date, the Existing Trust Certificates were cancelled; (b) Certificates in an aggregate nominal amount of U.S.$130,500,000 were issued to holders of the Existing Trust Certificates on the Closing Date; and (c) Certificates in an aggregate nominal amount of U.S.$6,500,000 were issued to new investors. 135
147. SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS The following is a summary of certain provisions of the principal Transaction Documents and is qualified in its entirety by reference to the detailed provisions of the principal Transaction Documents . Copies of the Transaction Documents will be available: (i) electronically from the Principal Paying Agent; and (ii) for inspection at the offices of the Principal Paying Agent (as defined in the Conditions) during normal business hours. Sale and Purchase Agreement The Sale and Purchase Agreement will be entered into on the Closing Date between the Trustee (in its capacity as “Purchaser”) and Tilal (in its capacity as “Seller”) and will be governed by the laws of Oman. Pursuant to the Sale and Purchase Agreement, on the Closing Date, the Purchaser will purchase and accept the transfer and conveyance from the Seller of, all of the Seller’s interests, rights, title, benefit and entitlements, present and future, in, to and under certain assets identified in the Sale and Purchase Agreement (the “Assets”). Lease Agreement The Lease Agreement will be entered into on the Closing Date between Tilal Sukuk Company Limited (in its capacity as Lessor) and Tilal (in its capacity as Lessee). The Lease Agreement will be governed by the laws of Oman. Under the terms of the Lease Agreement, the Lessor will lease to the Lessee, and the Lessee has agreed to lease from the Lessor, the Lease Assets during the term of the Lease. The term of the Lease will commence on the Closing Date and end (subject to certain provisions in respect of the Additional Rental Period as more particularly described in the Purchase Undertaking) on the Dissolution Date. The Lessor and the Lessee have also agreed that if a substitution or reduction (in whole or in part) of the Lease Assets takes place or if Tilal exercises its right to sell Additional Assets to the Trustee in connection with the issue of additional Certificates pursuant to Condition 21 (Further Issues), in each case pursuant to the Sale, Substitution and Additional Assets Undertaking, the Lease Assets that are the subject of the Lease (as more particularly described in the schedule to the Lease Agreement) shall be amended to reflect such amendments, substitutions or additions to the Lease Assets. During the term of the Lease, the Lessee will agree to pay the Lessor the rent specified in the Lease Agreement for each rental period as specified in the Lease Agreement. The rental payments due under the Lease Agreement in respect of the Lease Assets will be sufficient to pay the relevant Periodic Distribution Amounts payable on the Periodic Distribution Dates in respect of the Certificates. All payments by the Lessee to the Lessor under the Lease Agreement shall be paid in full without any set- off (save as provided in the Service Agency Agreement) or counterclaim of any kind and without any deduction or withholding for or on account of tax unless the deduction or withholding is imposed or levied by or on behalf of any relevant taxing authority, in which event the Lessee shall forthwith pay to the Lessor such additional amount so that the net amount received by the Lessor will equal the full amount which would have been received by it had no such deduction or withholding been made. Under the terms of the Lease Agreement, the Lessee will agree that, from the date of commencement of the Lease, it shall bear the entire risk of loss or damage to (the whole or part of) the Lease Assets and no liability shall attach to the Lessor for any loss arising due to or in connection with the negligent or inappropriate usage of (the whole or part of) or operation or deliberate misuse of the Lease Assets by the Lessee. The Lessee shall, at its own cost and expense, be responsible for the performance of all ordinary maintenance and repair in respect of the Lease Assets. The Lessor shall be responsible for: (i) the performance of all major maintenance and structural repair; (ii) the payment of any proprietorship taxes; and (iii) insuring the Lease Assets, and the Lessee acknowledges that the Lessor will instruct the Service Agent, in accordance with the terms of the Service Agency Agreement, to perform, or to procure the performance of, the major maintenance and structural repair, the payment of any proprietorship taxes and the insurance of the Lease Assets, in each case on behalf of the Lessor. 136
148. If a Total Loss Event occurs with respect to the Lease Assets , the Lease Agreement and the Lease shall automatically terminate and the Lessor will be entitled to all insurance proceeds payable pursuant to the Service Agency Agreement as a result of the Total Loss Event, together with any accrued and unpaid rental to the date on which the Total Loss Event occurred. Service Agency Agreement The Service Agency Agreement will be entered into the Closing Date by Tilal Sukuk Company Limited (in its capacity as Lessor) and Tilal (in its capacity as Service Agent) and will be governed by English law. Under the terms of the Service Agency Agreement, the Service Agent will be responsible on behalf of the Lessor for: (i) ensuring that the Lease Assets are properly insured; (ii) the performance of all major maintenance and structural repairs; and (iii) the payment of any proprietorship taxes charged, levied or claimed in respect of the Lease Assets. Wherever the Service Agent is to procure insurances in accordance with the terms of the Service Agency Agreement, it will use its reasonable endeavours to obtain such insurances on a takaful basis if such takaful insurance is available or is available on commercially viable terms. Other than on the first Rental Payment Date (as defined in the Lease Agreement), the Lessor shall reimburse the Service Agent any Service Charge Amount that has been incurred on the Rental Payment Date falling at the end of the immediately following rental period in which the Service Charge Amount was incurred or, in the case of the final rental period, on the Lease End Date (as defined in the Lease Agreement). An amount equal to the Service Charge Amount to be paid by the Service Agent (as Lessee under the Lease Agreement) to the Lessor as part of any: (i) rental; or (ii) Exercise Price under the Purchase Undertaking or the Sale, Substitution and Additional Assets Undertaking (as the case may be) may be set-off against the Service Charge Amount to be paid by the Lessor to the Service Agent under the Service Agency Agreement. If, following the occurrence of a Total Loss Event, the amount (if any) credited to the Transaction Account is less than the Full Reinstatement Value, the difference between such Full Reinstatement Value and the amount credited to the Transaction Account shall be the “Total Loss Shortfall Amount”. In the event that the Service Agent fails to comply with its obligations to insure the Lease Assets for an amount at least equal to the Full Reinstatement Value and to ensure that insurance proceeds are paid into the Transaction Account within 30 days of such Total Loss Event, it shall be liable to compensate the Lessor for any Total Loss Shortfall Amount, which will be payable (in same day, freely transferable, cleared funds) directly to the Transaction Account by no later than close of business in London on the 31st day after the Total Loss Event has occurred. Purchase Undertaking The Purchase Undertaking will be executed as a deed on the Closing Date by Tilal in favour of Tilal Sukuk Company Limited (in its capacity as Trustee) and the Delegate and will be governed by English law. Pursuant to the Purchase Undertaking and subject to the provisions contained therein, the Trustee and/or the Delegate, as the case may be, may, by exercising their rights under the Purchase Undertaking, be able to oblige Tilal to purchase all of the Trustee’s rights, benefits and entitlements in and to the Lease Assets on the Dissolution Date at the Exercise Price which shall be an amount in U.S. dollars equal to the aggregate of: (a) the outstanding face amount of the Certificates; (b) an amount equal to all accrued and unpaid Periodic Distribution Amounts in respect of the Certificates; (c) without duplication or double counting, an amount equal to any accrued but unpaid Services Charge Amount; and (d) without duplication or double-counting, an amount representing any prior ranking claims (as described in items (i) and (ii) of Condition 6.2 (Application of Proceeds from Trust Assets)) in accordance with Condition 6.2 (Application of Proceeds from Trust Assets). In order to exercise the rights granted pursuant to the Purchase Undertaking, the Trustee (or the Delegate acting on its behalf) shall deliver an Exercise Notice to Tilal. 137
149. In addition , if Tilal fails to pay all or part of any Exercise Price that is due in accordance with the Purchase Undertaking and provided that no Sale Agreement has been entered into, then the Lease Term shall be deemed to be extended until the Exercise Price is paid in full and Tilal will agree in the Purchase Undertaking that it will irrevocably, unconditionally and automatically (without the necessity for any notice or any other action) continue to act as Service Agent for the provision of the Services in respect of the Lease Assets on the terms and conditions, mutatis mutandis, of the Service Agency Agreement. Tilal will expressly declare in the Purchase Undertaking that: (a) the relevant Exercise Price represents a fair price for the purchase of all of the Trustee’s rights, title, interests, benefits and entitlements in, to and under the Lease Assets; (b) it shall irrevocably and unconditionally fully accept all or any interest the Trustee may have in the Lease Assets and, accordingly, shall not dispute or challenge all or any interest the Trustee may have in any way; and (c) if it breaches any declaration or undertaking set out above or if it or any administrator, liquidator or receiver of it disputes or challenges the rights, benefits and entitlements of the Trustee in, to and under the Lease Assets, Tilal shall (as an independent, severable and separately enforceable obligation) fully indemnify the Trustee for the purpose of redemption in full of the relevant Certificates and, accordingly, the amount payable under any such indemnity claim will equal the relevant Exercise Price. Tilal will also agree in the Purchase Undertaking that all payments by it under the Purchase Undertaking will be made without any deduction or withholding for or on account of tax unless required by law and (save as set out therein) without set-off or counterclaim of any kind and, in the event that there is any deduction or withholding, Tilal shall pay all additional amounts as will result in the receipt by the Trustee of such net amounts as would have been received by it if no such deduction or withholding had been made. The payment obligations of Tilal under the Purchase Undertaking will be direct, unconditional, unsubordinated and secured obligations of Tilal which rank (save for certain obligations required to be preferred by law) at least equally with all other secured obligations of Tilal. Tilal has agreed in the Purchase Undertaking that it shall comply with the covenants more particularly described in Condition 5 (Negative Pledge and Other Covenants). Sale, Substitution and Additional Assets Undertaking The Sale, Substitution and Additional Assets Undertaking will be executed as a deed on the Closing Date by Tilal Sukuk Company Limited (in its capacity as Trustee) in favour of Tilal and will be governed by English law. Provided there has been no Total Loss Event or Dissolution Event and subject to the Trustee being entitled to redeem the Certificates for tax reasons in accordance with Condition 14.2 (Early Dissolution for Tax Reasons), Tilal may, by exercising its right under the Sale, Substitution and Additional Assets Undertaking and serving an exercise notice on the Trustee no later than 30 days prior to the Dissolution Date, be able to oblige the Trustee to sell all of its rights, title, interests, benefits and entitlements in, to and under the Lease Assets at the Exercise Price. For these purposes, the Exercise Price will have the same meaning as in the Purchase Undertaking. Tilal will be able to exercise its rights under the Sale, Substitution and Additional Assets Undertaking to effect the substitution of Lease Assets, subject to any New Assets being of a Value equal to or greater than the Value of the Substituted Assets (as defined in the Sale, Substitution and Additional Assets Undertaking). Tilal will also be able to exercise its rights under the Sale, Substitution and Additional Assets Undertaking (following any purchase of Certificates by Tilal or any subdivision of Tilal pursuant to Condition 14.6 (Cancellations)) to provide for the transfer of the Cancellation Assets (as defined in the Sale, Substitution and Additional Assets Undertaking) with an aggregate Value not greater than the aggregate face amount of the Certificates so purchased, in consideration for the cancellation of such Certificates by the Principal Paying Agent pursuant to the Conditions. Pursuant to the Sale, Substitution and Additional Assets Undertaking, the Trustee has granted to Tilal the right to require the Trustee to, in connection with the exercise by the Issuer of its rights under Condition 21 (Further 138
150. Issues ), purchase all of Tilal’s rights, benefits and entitlements in and to the Additional Assets in consideration for the payment by the Trustee (as purchaser) to Tilal (as seller) of the Additional Assets Purchase Price (as specified in the relevant Sale Agreement) provided that the Additional Assets are of a value which is equal to or greater than the aggregate face amount of the additional Certificates. Security Agency Agreement The Security Agency Agreement will be entered into on the Closing Date between Tilal, the Delegate and the Security Agent, and will be governed by English law. Pursuant to the Security Agency Agreement, the Security Agent shall hold the benefit of the Transaction Security constituted by the Security Documents for the benefit of the Trustee, and the rights of the Trustee thereof shall constitute part of the Trust Assets held on behalf of the Certificateholders. All monies received as a result of the enforcement of the Transaction Security shall be applied in accordance with Clause 16 (Application of Payments) of the Security Agency Agreement. Mortgage Agreement The Mortgage Agreement will be entered into on the Closing Date between AMRE, the Trustee, the Delegate and the Security Agent, and will be governed by the laws of Oman. Pursuant to the Mortgage Agreement, the obligations of Tilal and AMRE under the Transaction Documents are secured by the Transaction Security, comprising a first ranking legal mortgage over the initial Secured Assets. Each of Tilal and AMRE has undertaken in the Mortgage Agreement to procure that: (i) any existing Security Interest over or in respect of the Secured Assets is released, and (ii) the Mortgage Agreement is registered with the Ministry of Housing in the Sultanate of Oman, in each case on or prior to the date falling 90 calendar days following the Closing Date, failing which a Dissolution Event shall occur pursuant to Condition 15 (Dissolution Events). The Transaction Security will, pursuant to the terms of the Mortgage Agreement, become enforceable upon the delivery by the Delegate of a Dissolution Notice in accordance with Condition 15 (Dissolution Events), subject to Condition 16.2 (Enforcement). Declaration of Trust The Declaration of Trust will be entered into by way of a deed on the Closing Date between Tilal, Tilal Sukuk Company Limited (in its capacity as Trustee) and the Delegate and will be governed by English law. Upon issue of the Global Certificate initially representing the Certificates, the Declaration of Trust shall constitute the Trust declared by the Trustee in relation to the Certificates. The Trust Assets will comprise, inter alia: (a) all of the Trustee’s rights, title, interest and benefit, present and future, in, to and under the Lease Assets; (b) all of the Trustee’s rights, title, interest and benefit, present and future, in, to and under the Transaction Documents (excluding: (i) any representations given by Tilal to the Trustee pursuant to any of the Transaction Documents and any rights which have been expressly waived by the Trustee or the Delegate in any of the Transaction Documents; and (ii) the covenant given to the Trustee pursuant to Clause 17.1 (Remuneration and Indemnification of the Trustee and the Delegate) of the Declaration of Trust); and (c) all monies standing to the credit of the Transaction Account; and all proceeds of the foregoing, which are held by the Trustee upon trust absolutely for the Certificateholders pro rata according to the face amount of Certificates held by each holder in accordance with the terms of the Declaration of Trust and the Conditions. The Declaration of Trust will specify that, on or after the Dissolution Date, the rights of recourse in respect of the Certificates shall be limited to the amounts from time to time available and comprising the Trust Assets, subject to the priority of payments set out in the Declaration of Trust, the Certificates and the Conditions. The Certificateholders have no claim or recourse against the Trustee, the Delegate, the Security Agent, the Agents or any other person (including Tilal) in respect of any amount which is or remains unsatisfied and any unsatisfied amounts will be extinguished. 139
151. The Declaration of Trust will further specify that : (a) the Issuer may from time to time (but always subject to the provisions of the Declaration of Trust), without the consent of the Certificateholders, create and issue additional Certificates having the same terms and conditions as the outstanding Certificates (or in all respects save for the date and amount of the first payment of the Periodic Distribution Amount and the date from which Periodic Distribution Amounts start to accrue), and so that the same shall be consolidated with the outstanding Certificates, and that any additional Certificates which are to be created and issued shall be constituted by a deed supplemental to the Declaration of Trust; and (b) on the date upon which any Sale Agreement is entered into in connection with the creation and issuance of additional Certificates pursuant to the provisions described in paragraph (a) above and the Sale, Substitution and Additional Assets Undertaking (being the relevant issue date for that such additional Certificates), the Trustee will execute a declaration of commingling of assets for and on behalf of the holders of the existing Certificates and the holders of such additional Certificates so created and issued, declaring that the relevant Additional Assets and the Lease Assets in existence immediately prior to the creation and issue of the additional Certificates are commingled and shall collectively comprise part of the Trust Assets for the benefit of the holders of the existing Certificates and the holders of such additional Certificates as tenants in common pro rata according to the face amount of Certificates held by each Certificateholder, in accordance with the Declaration of Trust. Pursuant to the Declaration of Trust, the Trustee will, inter alia: (a) hold the Trust Assets on trust absolutely for the Certificateholders pro rata on an undivided basis according to the face amount of Certificates held by each such Certificateholder in accordance with the provisions of the Declaration of Trust; and (b) act as trustee in respect of the Trust Assets, distribute the income from the Trust Assets and perform its duties in accordance with the provisions of the Declaration of Trust. In the Declaration of Trust, the Trustee will, by way of security for the performance of all covenants, obligations and duties of the Trustee to the Certificateholders, irrevocably and unconditionally appoint the Delegate to be its attorney and in its name, on its behalf and as its act and deed to execute, deliver and perfect all documents, and to exercise all of the present and future duties, powers (including the power to sub-delegate), authorities (including, but not limited to, the authority to request directions from any Certificateholders and the power to make any determinations to be made under the Transaction Documents) and discretions vested in the Trustee by the Declaration of Trust, that the Delegate may consider to be necessary or desirable in order, upon the occurrence of a Dissolution Event (subject to it being indemnified and/or secured and/or prefunded to its satisfaction), to exercise all of the rights of the Trustee under the Transaction Documents and the Conditions (provided that no obligations, duties, liabilities or covenants of the Trustee pursuant to the Declaration of Trust or any other Transaction Document shall be imposed on the Delegate by virtue of this delegation). The appointment of such delegate by the Trustee is intended to be in the interests of the Certificateholders and will not affect the Trustee’s continuing role and obligations as trustee. The Delegate will undertake in the Declaration of Trust that upon the occurrence of a Dissolution Event and the delivery of a Dissolution Notice by the Delegate pursuant to Condition 15 (Dissolution Events), to the extent that the amounts payable in respect of the Certificates have not been paid in full pursuant to Condition 15 (Dissolution Events) and subject to Condition 16.3 (Delegate not obliged to take action), it shall (acting on behalf of Certificateholders and subject to being indemnified and/or secured and/or prefunded to its satisfaction) take one or more of the following steps: (a) enforce the provisions of the Purchase Undertaking against Tilal and/or the Service Agency Agreement against the Service Agent; and/or (b) direct the Security Agent to enforce the Transaction Security pursuant to the Mortgage Agreement; and/or (c) take such other steps as the Delegate may consider necessary in its absolute discretion to protect the interests of the Certificateholders. 140
152. The Declaration of Trust specifies , inter alia, that: (a) upon the Certificates having been declared due and payable in accordance with the Declaration of Trust (as specified above) and the Conditions, all payments in respect of the Certificates shall be made, and all rights of the Trustee and/or the Delegate (acting on behalf of the Certificateholders) under the Transaction Documents shall be exercised; (b) following the enforcement, realisation of the Trust Assets and ultimate distribution of the net proceeds of the Trust Assets in respect of the Certificates to the Certificateholders in accordance with the Conditions and the Declaration of Trust, the obligations of the Trustee in respect of the Certificates shall be satisfied and, the right of the Certificateholders to receive any further sums shall be extinguished and neither the Trustee nor the Delegate shall be liable for any such sums and, accordingly, Certificateholders may not take any action against the Trustee, the Delegate, the Agents or any other person (including Tilal, to the extent its obligations under the Transaction Documents have been satisfied) to recover any such sum or asset in respect of the Certificates or the Trust Assets. In particular, no holder of the Certificates shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Trustee; (c) Subject to (b) above, no Certificateholder shall be entitled to proceed directly against or provide instructions to the Delegate to proceed against, the Trustee or Tilal under any Transaction Document to which either of them is a party unless: (i) the Delegate fails to do so within a reasonable period of becoming so bound and such failure its continuing; and (ii) the relevant Certificateholder (or such Certificateholder together with the other Certificateholders who propose to proceed directly against any of the Trustee or Tilal as the case may be) holds at least one fifth of the then outstanding aggregate face amount of the Certificates. Under no circumstances shall the Delegate or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets, and the sole right of the Delegate and the Certificateholders against the Trustee and Tilal shall be to enforce their respective obligations under the Transaction Documents; (d) without prejudice to the other provisions of the Transaction Documents (including the Conditions), neither the Trustee nor the Delegate shall be bound in any circumstances to take any action, proceeding or step to enforce or to realise the Trust Assets or take any action against (in the case of the Delegate) the Trustee and/or Tilal and (in the case of the Trustee) Tilal under any Transaction Document to which either of the Trustee or Tilal is a party unless directed or requested to do so: (i) by an Extraordinary Resolution; or (ii) in writing by the holders of at least one fifth of the then outstanding aggregate face amount of the Certificates and in either case then only if it is indemnified and/or secured and/or prefunded to its satisfaction against all liabilities to which it may thereby render itself liable or which it may incur by so doing provided that neither the Trustee nor the Delegate shall be liable for the consequences of exercising its discretion or taking any such action and may do so without having regard to the effect of such action on individual Certificateholders; and (e) paragraphs (b), (c) and (d) above are subject to this paragraph (e). After distributing the proceeds of the Trust Assets in accordance with Condition 6.2 (Application of Proceeds from Trust Assets), the obligations of the Trustee and the Delegate in respect of such Certificates shall be satisfied and no Certificateholder may take any further steps against the Trustee or the Delegate to recover any further sums in respect of the Certificates and the right to receive any such sums unpaid shall be extinguished. In particular, no holder of the Certificates shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Trustee nor shall any of them have any claim in respect of the Trust Assets of any other trust established by the Trustee. Agency Agreement The Agency Agreement will be entered into on the Closing Date between the Trustee, Tilal, the Delegate, the Principal Paying Agent, the Registrar and the Transfer Agent. Agency Pursuant to the Agency Agreement, the Registrar has agreed to be appointed as agent of the Trustee and has agreed, amongst other things, to complete, authenticate and deliver the Global Certificate; the Principal Paying Agent has agreed to be appointed as agent of the Trustee and has agreed, amongst other things, to pay all sums 141
153. due under such Global Certificate ; and the Transfer Agent has agreed to be appointed as agent of the Trustee and has agreed, amongst other things, to effect requests to transfer all or part of the Definitive Certificate and issue Definitive Certificates in accordance with each request. Issue of Global Certificate On the Closing Date, the Registrar will: (i) authenticate the Global Certificate in accordance with the terms of the Declaration of Trust; and (ii) deliver, on the Closing Date, the Global Certificate to the Common Depositary. Payments The Trustee will pay in freely transferable, cleared funds to the Transaction Account opened by the Trustee with the Principal Paying Agent, any payment which becomes due in respect of a Certificate in accordance with the Conditions. The Principal Paying Agent will notify the Trustee and the Delegate if the Trustee has not made any payment or if it pays the full amount of any sum payable after the date specified for such payment. If the Principal Paying Agent decides in its discretion that the amounts are not sufficient to make a payment then neither the Principal Paying Agent nor any other Paying Agent is obliged to pay any sums to Certificateholders until the Principal Paying Agent has received the full amount. The Principal Paying Agent is entitled to treat the registered holder of any Certificate as the absolute owner for all purposes. Determinations and Notifications The Principal Paying Agent shall determine any Periodic Distribution Amount payable and the applicable Periodic Distribution Date in respect of each Return Accumulation Period. The Principal Paying Agent shall notify the Trustee, Tilal, the Delegate (if requested by it) and each Agent by facsimile of each Periodic Distribution Amount for each Return Accumulation Period and the related Periodic Distribution Date and any other amount(s) required to be determined by it together with any relevant payment date(s) as soon as practicable after the determination thereof, but in any event not later than the first date of the relevant Return Accumulation Period. Changes in Agents The Trustee may at any time terminate the appointment of any Agent and to appoint additional or other Agents in accordance with the Agency Agreement by giving, inter alia, such Agent at least 60 days’ prior written notice to that effect, provided that: (a) it will at all times maintain a Principal Paying Agent and a Registrar (which may be the same entity); and (b) so long as any Certificates are admitted to listing, trading and/or quotation on any listing authority, stock exchange and/or quotation system, there will at all times be a Paying Agent and a Transfer Agent having its specified office in such place (if any) as may be required by the rules of such listing authority, stock exchange and/or quotation system. Shari’a Compliance Each Transaction Document provides that each of Tilal Sukuk Company Limited (to the extent it is a party to the relevant Transaction Document) and Tilal (to the extent it is a party to the relevant Transaction Document), as the case may be, agrees that it has accepted the Shari’a compliant nature of the Transaction Documents to which it is a party and, to the extent permitted by law, further agrees that: (a) it shall not claim that any of its obligations under the Transaction Documents to which it is a party (or any provision thereof) is ultra vires or not compliant with the principles of Shari’a; (b) it shall not take any steps or bring any proceedings in any forum to challenge the Shari’a compliance of the Transaction Documents to which it is a party; and (c) none of its obligations under the Transaction Documents to which it is a party shall in any way be diminished, abrogated, impaired, invalidated or otherwise adversely affected by any finding, 142
154. declaration , pronouncement, order or judgment of any court, tribunal or other body that the Transaction Documents to which it is a party are not compliant with the principles of Shari’a. 143
155. TAXATION The following is a general description of certain tax considerations relating to the Certificates . It does not purport to be a complete analysis of all tax considerations relating to the Certificates. Prospective purchasers of the Certificates should consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes of acquiring, holding and disposing of Certificates and receiving payments under those Certificates. This summary is based upon the law as in effect on the date of these Listing Particulars and is subject to any change in law that may take effect after such date. Omani Taxation The following is a summary of the principal Omani tax consequences of ownership of the Certificates by beneficial owners which are not incorporated in or who are not residents of Oman for Omani tax purposes and do not conduct business activities in Oman (“Non-Omani Holders”). This summary does not purport to consider all of the possible Omani tax consequences of the purchase, ownership and disposition of the Certificates and is not intended to reflect the individual tax position of any Certificateholders. This summary is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change. This summary does not include any description of the tax laws of any state, local or foreign governments (other than Oman) that may be applicable to the Certificates or the holders thereof. This summary does not constitute legal or tax advice and prospective investors should be aware that the relevant fiscal rules and practice and their interpretation may change. Persons considering an investment in the Certificates should consult their own tax advisers concerning the application of Omani tax laws to their particular situation as well as any consequences of the purchase, ownership and disposition of the Certificates arising under the laws of any other taxing jurisdiction. While the payment of the Exercise Price by Tilal to the Trustee under the Purchase Undertaking will not be subject to Omani withholding tax, Rental payments by Tilal to the Trustee under the Lease Agreement (for onward payments of Periodic Distribution Amounts on the Certificates by the Trustee to Non-Omani Holders) may be subject to Omani withholding tax as a consequence of certain recent tax amendments (the “Tax Amendments”). The Tax Amendments also include applicability of withholding tax in respect of payments made to natural or juristic foreign persons in respect of dividends, interest and performance of services. Withholding tax at the rate of 10 per cent is applicable on the above payments, effective from 27 February 2017. Relief may be available for the payments made to tax residents of the countries, with which Oman has a double taxation treaty, upon satisfying certain conditions. Also, recent clarifications from the Oman Capital Market Authority and Secretariat General for Taxation in Oman state that withholding tax on dividends shall not be applicable if the payments are made to natural or juristic persons of the GCC member states. The Secretariat General for Taxation is expected to issue executive regulations to the amendments in due course. It is currently uncertain if transactions contemplated by the Transaction Documents would attract withholding tax in Oman. In any case, the Secretariat General for Taxation would be the ultimate authority to determine whether these payments would attract withholding tax. Payments of any amount by Tilal to the Trustee will not be subject to Omani income taxes in Oman. Furthermore, Non-Omani Holders are not subject to Omani tax on any capital gains derived from a sale of the Certificates. No Omani stamp duty will be imposed on Non-Omani Holders either upon the issuance of the Certificates or upon a subsequent transfer of the Certificates. Proposed Changes to Tax Law The GCC member states are in the process of developing a broad framework for the introduction of VAT. The framework agreement will set out the underlying principles of VAT laws for the six GCC countries, with the likelihood that there will be areas where member states will have some flexibility to determine their own requirements. Whilst there is no VAT applicable in Oman at the date of these Listing Particulars, the Secretariat General of Taxation has stated that VAT is expected to be implemented in Oman in 2018. As far as the Trustee and Tilal are aware, the proposed Tax Amendments have no impact on the position regarding the applicability of VAT to payments under the Certificates. 144
156. The Cayman Islands Prospective investors should consult their professional advisers on the possible tax consequences of buying , holding or selling any Certificates under the laws of their country of citizenship, residence or domicile. The following is a discussion on certain Cayman Islands income tax consequences of an investment in the Certificates. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law. The Trustee has been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and obtained an undertaking from the Governor in Cabinet of the Cayman Islands, pursuant to the Tax Concessions Law (2018 Revision), that for a period of 20 years from the date of the grant of that undertaking, no law which is thereafter enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Trustee or its operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by way of the withholding in whole or part, of any relevant payment (as defined in Section 6(3) of the Tax Concessions Law (2018 Revision)). Under existing Cayman Islands laws, payments on the Certificates will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of Periodic Distribution Amounts and principal, nor will gains derived from the disposal of the Certificates be subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax. No stamp duty is payable in respect of the issue of the Certificates. An instrument of transfer in respect of a Certificate is stampable if executed in or brought into the Cayman Islands. Subject as set out below, no stamp duty is payable in respect of the issue of the Certificates. An instrument of transfer in respect of a Certificate is stampable if executed in or brought into the Cayman Islands. An instrument transferring title to any Certificates, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty. An annual registration fee is payable by the Trustee to the Cayman Islands Registrar of Companies which is calculated by reference to the nominal amount of its authorised capital. At current rates, this annual registration fee is approximately U.S.$854. The foregoing is based on current law and practice in the Cayman Islands and this is subject to change therein. The Proposed Financial Transactions Tax On 14 February 2013, the European Commission published a proposal (the “Commission’s proposal”) for a Directive for a common financial transaction tax (“FTT”) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate. The Commission’s proposal has very broad scope and could, if introduced, apply to certain dealings in Certificates (including secondary market transactions) in certain circumstances. The issuance and subscription of Certificates should, however, be exempt. Under the Commission’s proposal, FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Certificates where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including: (i) by transacting with a person established in a participating Member State; or (ii) where the financial instrument which is subject to the dealings is issued in a participating Member State. However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Certificates are advised to seek their own professional advice in relation to the FTT. 145
157. SUBSCRIPTION AND SALE Pursuant to a subscription agreement (the “Subscription Agreement”) dated 9 November 2018 between the Trustee, Tilal, Emirates NBD Bank PJSC and Maisarah Islamic Banking - Bank Dhofar (SAOG) (together, the “Joint Lead Managers and Joint Bookrunners”), the Trustee has agreed to issue and the Joint Lead Managers have agreed to use their reasonable endeavours to procure subscribers for a certain portion of the aggregate face amount of the Certificates. The Subscription Agreement provides that the obligations of the Joint Lead Managers thereunder are subject to the approval of certain legal matters by their counsel and certain other conditions. The Joint Lead Managers and Joint Bookrunners will be paid certain commissions in respect of their services for managing the issue and sale of the Certificates. The Joint Lead Managers and Joint Bookrunners will also be reimbursed in respect of certain of their expenses, and each of the Trustee and Tilal has agreed to indemnify the Joint Lead Managers against certain liabilities incurred in connection with the issue of the Certificates. SELLING RESTRICTIONS General Each Joint Lead Manager has agreed that it will (to the best of its knowledge and belief) comply with all applicable securities laws, regulations and directives in force in any jurisdiction in which it purchases, offers, sells or delivers any Certificates or possesses or distributes these Listing Particulars and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of the Certificates under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and none of the Trustee, Tilal, the Delegate and any other Joint Lead Manager shall have any responsibility therefor. None of the Trustee, Tilal and any of the Joint Lead Managers represents that the Certificates may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating any such sale. United States The Certificates have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act. Each Joint Lead Manager has agreed that, except as permitted herein, it will not offer, sell or deliver Certificates: (i) as part of their distribution at any time; or (ii) otherwise until 40 days after the completion of the distribution of the Certificates, as certified to the Principal Paying Agent or the Trustee by such Joint Lead Manager (or, in the case of a sale of Certificates to or through more than one Joint Lead Manager, by each of such Joint Lead Managers as to the Certificates purchased by or through it, in which case the Principal Paying Agent, the Trustee or Tilal shall notify each such Joint Lead Manager when all such Joint Lead Managers have so certified) within the United States or to, or for the account or benefit of, U.S. persons, and such Joint Lead Manager will have sent to each Joint Lead Manager to which it sells Certificates during the distribution compliance period relating thereto a confirmation or other notice setting forth the restrictions on offers and sales of the Certificates within the United States or to, or for the account or benefit of, U.S. persons. In addition, until 40 days after the commencement of the offering of Certificates, any offer or sale of Certificates within the United States by any Joint Lead Manager (whether or not participating in the offering) may violate the registration requirements of the Securities Act. United Kingdom Each Joint Lead Manager has represented and agreed that: (a) 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, as amended (the “FSMA”)) received by it 146
158. in connection with the issue or sale of any Certificate in circumstances in which section 21 (1) of the FSMA does not apply to the Trustee or Tilal; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Certificates in, from or otherwise involving the United Kingdom. Sultanate of Oman Each Joint Lead Manager has represented and agreed that: (a) these Listing Particulars have not been filed with or registered as a prospectus with the Capital Market Authority of Oman pursuant to Article 3 of the Capital Market Authority Law SD 80/98 (Article 3), will not be offered or sold as an offer of securities in Oman as contemplated by the Commercial Companies Law) or Article 3, nor does it constitute a sukuk offering pursuant to the Sukuk Regulation issued by the Capital Market Authority of Oman (CMA Decision 3/2016); and (b) the Certificates have not been and will not be offered, sold or delivered, and no invitation to subscribe for or to purchase the Certificates has been or will be made, directly or indirectly, nor may any document or other material in connection therewith be distributed in Oman to any person in Oman other than by an entity duly licensed by the Capital Market Authority of Oman to market non-Omani securities in Oman and then only in accordance with all applicable laws and regulations, including Article 139 of the Executive Regulations of the Capital Markets Law (Decision No. 1/2009, as amended). United Arab Emirates (excluding the Dubai International Financial Centre) Each Joint Lead Manager has represented and agreed that the 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. Dubai International Financial Centre Each Joint Lead Manager has represented and agreed that it has not offered and will not offer the Certificates to any person in the Dubai International Financial Centre unless such offer is: (a) an “Exempt Offer” in accordance with the Markets Rules (MKT Module) of the Dubai Financial Services Authority (the “DFSA”); and (b) made only to persons who meet the Professional Client criteria set out in Rule 2.3.3 of the DFSA Conduct of Business Module. Kingdom of Saudi Arabia No action has been or will be taken in the Kingdom of Saudi Arabia that would permit a public offering of the Certificates. Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a “Saudi Investor”) who acquires Certificates pursuant to any offering should note that the offer of Certificates is a private placement under Part 3 of the “Rules on the Offering of Securities and Continuing Obligations” as issued by the Board of the Capital Market Authority resolution number 3-123-2017 dated 27 December 2017 (the “KSA Regulations”), through a person authorised by the Capital Market Authority to carry on the securities activity of arranging and following a notification to the Capital Market Authority under the KSA Regulations. The Certificates may thus not be advertised, offered or sold to any person in the Kingdom of Saudi Arabia other than to “Sophisticated Investors” under Article 9 of the KSA Regulations or by way of a limited offer under Article 11 of the KSA Regulations. Each of the Joint Lead Managers has represented and agreed, that the offer of the Certificates will be made in compliance with the KSA Regulations. Each offer of Certificates shall not therefore constitute a “public offer” pursuant to the KSA Regulations, but is subject to the restrictions on secondary market activity under Article 15 of the KSA Regulations. Any Saudi Investor who has acquired Certificates pursuant to a private placement under Article 9 or Article 11 of the KSA Regulations may not offer or sell those Certificates to any person unless the offer or sale is made through an 147
159. authorised person appropriately licensed by the Saudi Arabian Capital Market Authority and (a) the Certificates are offered or sold to a Sophisticated Investor (as defined in Article 9 of the KSA Regulations); (b) the price to be paid for the Certificates in any one transaction is equal to or exceeds Saudi Riyals 1 million or an equivalent amount; or (c) the offer or sale is otherwise in compliance with Article 15 of the KSA Regulations. Kingdom of Bahrain Each Joint Lead Manager has represented and agreed that it has not offered or sold, and will not offer or sell, any Certificates except on a private placement basis to persons in the Kingdom of Bahrain who are “accredited investors”. For this purpose, an “accredited investor” means: (a) an individual holding financial assets (either singly or jointly with a spouse) of U.S.$1,000,000 or more; (b) a company, partnership, trust or other commercial undertaking which has financial assets available for investment of not less than U.S.$1,000,000; or (c) a government, supranational organisation, central bank or other national monetary authority or a state organisation whose main activity is to invest in financial instruments (such as a state pension fund). State of Qatar (excluding the Qatar Financial Centre) Each Joint Lead Manager has represented and agreed that it has not offered, sold or delivered, and will not offer or sell or deliver at any time, directly or indirectly, any Certificates in the State of Qatar, except: (i) in compliance with all applicable laws and regulations of the State of Qatar; and (ii) through persons or corporate entities authorised and licensed to provide investment advice and/or engage in brokerage activity and/or trade in respect of foreign securities in the State of Qatar. Singapore Each Joint Lead Manager has acknowledged that these Listing Particulars have not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Joint Lead Manager has represented and agreed that it has not offered or sold any Certificates or caused such Certificates to be made the subject of an invitation for subscription or purchase and will not offer or sell such Certificates or cause such Certificates to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, these Listing Particulars or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Certificates, whether directly or indirectly, to persons in Singapore other than: (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”); (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to an offer referred to in Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where Certificates are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Certificates pursuant to an offer made under Section 275 of the SFA except: (i) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; 148
160. (ii) where no consideration is or will be given for the transfer; (iii) where the transfer is by operation of law; (iv) as specified in Section 276(7) of the SFA; or (v) as specified in Regulation 32 of the Securities and Futures (Offer of Investments) (Shares and Debentures) Regulations 2005 of Singapore. Hong Kong Each Joint Lead Manager has represented and agreed that: (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Certificates, except for Certificates which are a “structured product” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”), other than: (a) to persons whose ordinary business is to buy or sell shares or debentures (whether as principal or agent); (b) to “professional investors” as defined in the SFO and any rules made under the SFO; or (c) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Winding Up and Miscellaneous Provisions) (Cap. 32) of Hong Kong (the “Companies Winding Up Ordinance”) or which do not constitute an offer to the public within the meaning of the Companies Winding Up Ordinance; and (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, in each case whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the 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 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 SFO and any rules made under the SFO. Malaysia Each Joint Lead Manager has represented and agreed that: (a) these Listing Particulars have not been registered as a prospectus with the Securities Commission of Malaysia (the “SC”) under the Capital Markets and Services Act 2007 of Malaysia (the “CMSA”); and (b) accordingly, the Certificates have not been and will not be offered or sold, and no invitation to subscribe for or purchase the Certificates has been or will be made, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia, other than to persons falling within any one of the categories of persons specified under Schedule 6 or Section 229(1)(b) and Schedule 7 or Section 230(1)(b) read together with Schedule 8 or Section 257(3) read together with Schedule 9 or Section 257(3) of the CMSA, subject to any law, order, regulation, or official directive of the Central Bank of Malaysia, the SC and/or any other regulatory authority from time to time. Residents of Malaysia may be required to obtain relevant regulatory approvals, including approval from the Controller of Foreign Exchange, to purchase the Certificates. The onus is on the Malaysian residents concerned to obtain such regulatory approvals and none of the Joint Lead Managers is responsible for any invitation, offer, sale or purchase of the Certificates as aforesaid without the necessary approvals being in place. Cayman Islands Each Joint Lead Manager has represented and agreed that no invitation, whether directly or indirectly, will be made to the public in the Cayman Islands to subscribe for the Certificates. 149
161. State of Kuwait Each Joint Lead Manager has represented and agreed that the Certificates have not been licensed for offering in the State of Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency . The offering of the Certificates in the State of Kuwait on the basis of a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990, as amended, and Law No. 7 of 2010 and the bylaws thereto, as amended governing the issue, offering and sale of securities. No private or public offering of the Certificates is being made in the State of Kuwait, and no agreement relating to the sale of the Certificates will be concluded in the State of Kuwait. No marketing or solicitation or inducement activities are being used to offer or market the Certificates in the State of Kuwait. 150
162. GENERAL INFORMATION Listing of the Certificates Application has been made to Euronext Dublin for the Certificates to be admitted to the Official List and trading on the Global Exchange Market , which is the exchange regulated market of Euronext Dublin. The Global Exchange Market is not a regulated market for the purposes of Directive 2004/39/EC. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in connection with the Certificates and is not istself seeking admission of the Certificates to the Official List of Euronext Dublin or to trading on the Global Exchange Market. Authorisation The issuance of the Certificates has been duly authorised by a resolution of the board of directors of the Trustee dated 23 October 2018. The issuance of the Certificates and the entry by Tilal into the Transaction Documents to which it is a party was duly authorised at a meeting of the board of directors of Tilal held on 21 October 2018. The entry by AMRE into the Transaction Documents to which it is a party was duly authorised at a meeting of the board of directors of AMRE on 22 September 2018. The Trustee, Tilal and AMRE have obtained all necessary consents, approvals and authorisations in connection with the issuance of the Certificates and entry into of the Transaction Documents (as applicable) to which each is a party. Clearing Systems The Certificates have been accepted for clearance through Euroclear and Clearstream, Luxembourg (which are the entities in charge of keeping the records) under common code 190099130 and ISIN XS1900991305. The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L1855 Luxembourg. Significant or Material Change There has been no significant change in the financial or trading position of the Trustee and no material adverse change in the prospects of the Trustee, in each case since 3 May 2018, being the date of its incorporation. There has been no significant change in the financial or trading position of Tilal since 30 June 2018 and there has been no material adverse change in the financial position or prospects of Tilal since 31 December 2017. Litigation The Trustee is not, nor has it been, involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Trustee is aware) which may have or have had since 3 May 2018 (being the date of incorporation of the Trustee) a significant effect on the financial position or profitability of the Trustee. Tilal has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Tilal is aware) which may have or have had during the twelve months prior to the date of these Listing Particulars a significant effect on the financial position of Tilal. Third Party Information Where information in these Listing Particulars has been sourced from third parties this information has been accurately reproduced and as far as Tilal and the Trustee are aware and are able to ascertain from the information published by such third parties no facts have been omitted which would render the reproduced information inaccurate or misleading. The source of third party information is identified where used. 151
163. Documents Available Copies of the following documents will be available in physical format and in English to be inspected during normal business hours at the specified office for the time being of the Principal Paying Agent for as long as the Certificates are listed on the Official List of Euronext Dublin and admitted to trading on the Global Exchange Market : (a) the Memorandum and Articles of Association of the Trustee; (b) the Memorandum of Association of Tilal; (c) a copy of these Listing Particulars; (d) the Transaction Documents (copies of which will also be delivered via email (upon request) by the Principal Paying Agent); and (e) the Financial Statements. The Trustee is not required to, and does not intend to, publish any annual financial or interim financial statements. Shari’a Approvals The transaction structure relating to the Certificates (as described in these Listing Particulars) has been approved by Amanie Advisors L.L.C. Prospective Certificateholders should not rely on such approvals in deciding whether to make an investment in the Certificates and should consult their own Shari’a advisers as to whether the proposed transaction described in such approvals is in compliance with Shari’a principles. Auditors KPMG (Muscat Branch) is Tilal’s auditor for the year ended 31 December 2018. Pricewaterhouse Coopers LLC (Oman) was formerly Tilal’s auditor and, in such capacity, audited the financial statements of Tilal as at and for the two years ended 31 December 2017 and 31 December 2016, as stated in each of the auditor’s reports appearing herein. There is no professional institute of auditors in Oman, and accordingly, neither PwC nor KPMG is a member of a professional body in Oman. All of PwC’s and KPMG’s audit partners are members of the institutes from where they received their professional qualification. Neither PwC nor KPMG has a material interest in the Trustee or Tilal. Since the date of its incorporation, no financial statements of the Trustee have been prepared. The Trustee is not required by Cayman Islands law, and does not intend, to publish audited financial statements, or appoint an auditor. Material Contracts There are no material contracts entered into other than in the ordinary course of the Trustee’s or Tilal’s respective business, which could result in the Trustee or Tilal being under an obligation or entitlement that is material to the Trustee or Tilal’s ability to meet its obligations to Certificateholders in respect of the Certificates being issued. Joint Lead Managers transacting with the Trustee or Tilal Certain of the Joint Lead Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services for, the Trustee or Tilal and in the ordinary course of business for which they have received, and for which they may in the future receive, fees. 152
164. INDEX TO FINANCIAL STATEMENTS Consolidated unaudited financial statements of Tilal as at and for the period ended 30 June 2018 ......................................................................................................................................... F-1 Consolidated audited financial statements of Tilal as at and for the year ended 31 December 2017 together with the audit report thereon ............................................................................. F-41 Consolidated audited financial statements of Tilal as at and for the year ended 31 December 2016 together with the audit report thereon ............................................................................. F-83 153
165. TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTHS PERIOD ENDED 30 JUNE 2018 Principal place of business Registered address 2nd floor , Building number 4 Muscat Grand Mall, Al Khuwair Muscat, Sultanate of Oman P. O. Box 147, Postal code 118 Al Harthy Complex Muscat, Sultanate of Oman F-1
166. TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 Content Page Independent auditors ’ review report 1 Consolidated statement of financial position 2 Consolidated statement of comprehensive income 3 Consolidated statement of changes in equity 4–5 Consolidated statement of cash flows 6 Notes to the consolidated financial statements 7 – 38 F-2
167. 2 TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 31-Dec-17 USD 399 ,552,540 1,625,267 240,735 401,418,542 4,006,851 1,236,412 5,245,115 4,021,249 14,509,627 415,928,169 30-Jun-18 USD ASSETS Non-current assets 407,899,472 Investment properties 1,681,755 Property and equipment 206,961 Investment in associates 409,788,188 Current assets 3,762,171 Trade and other receivables 1,397,823 Advances, deposits and prepayments 8,495,532 Due from related parties 1,618,007 Cash and bank balances 15,273,533 31-Dec-17 RO 4,7 5 6 157,041,296 647,476 79,680 157,768,452 153,827,727 625,728 92,683 154,546,138 8 9 22 10 1,448,436 538,162 3,270,780 622,933 5,880,311 1,542,638 476,019 2,019,369 1,548,181 5,586,207 163,648,763 160,132,345 18,000,000 63,045 5,184,396 257,310 35,970,558 18,000,000 63,045 5,096,112 262,100 35,172,805 59,475,309 2,396 59,477,705 58,594,062 2,439 58,596,501 15 16 17 18 28,798,117 68,718 903,063 7,819,924 37,589,822 29,340,339 59,603 829,773 7,645,819 37,875,534 14 50,000,000 50,000,000 15 2,688,521 2,688,521 17 19 22 18 4,625,228 3,351,956 5,889,429 26,102 66,581,236 3,486,016 2,579,676 4,734,429 171,668 63,660,310 425,061,721 Total assets 46,753,247 163,753 13,236,655 680,779 91,357,933 46,753,247 163,753 13,465,965 668,338 93,430,018 152,192,367 6,336 152,198,703 154,481,321 6,224 154,487,545 76,208,674 154,813 2,155,255 19,859,270 98,378,012 30-Jun-18 RO Note 74,800,304 178,488 2,345,618 20,311,490 97,635,900 EQUITY Capital and reserves Share capital General reserve Legal reserve Revaluation reserve Retained earnings Total equity attributable to owner of the company Non-controlling interest Total Equity LIABILITIES Non-current liabilities Finance under diminishing musharika End of service benefits Advances and security deposits Deferred tax liability 11 12 13 9,054,586 6,700,457 12,297,219 445,891 165,351,454 Current liabilities 129,870,130 Finance under Sukuk al ijara Current portion of finance under diminishing musharika 6,983,171 Current portion of advances and security deposits 12,013,579 8,706,380 Trade and other payables 15,297,218 Due to related parties 67,798 Tax payable 172,938,276 263,729,466 270,574,176 Total liabilities 104,171,058 101,535,844 415,928,169 425,061,721 Total equity and liabilities 163,648,763 160,132,345 3.30 3.26 129,870,130 6,983,171 8.46 8.58 Net asset value per share 23 The reviewed consolidated financial statements on pages 2 to 38 were approved by the board of directors on 2018 and were signed on their behalf by: DIRECTOR GENERAL MANAGER F-3
168. 5 TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AS AT 30 JUNE 2018 30-Jun-17 USD 12 ,408,701 23,265 12,431,966 (5,805,019) (47,301) 30-Jun-18 USD Note Income 12,897,849 Rental income from investment properties - Other income 12,897,849 Total income Expenses (7,560,836) General and administrative expenses Impairment loss on trade and other receivables (62,179) Depreciation (5,852,320) (7,623,015) Total expenses 6,579,646 15,642 (2,470,283) 4,125,005 5,274,834 (33,774) (2,494,556) 2,746,504 (4,918,966) (793,961) (793,961) (793,881) (80) (793,961) (793,881) (80) (793,961) (0.04) Operating profit Share of result of associates Sukuk al ijara profit rentals and finance cost Profit before taxation (453,517) Taxation 2,292,987 Net profit for the year Other comprehensive income (4,145) Deferred tax on revaluation reserve (4,145) Total other comprehensive loss Total comprehensive income and net 2,288,842 profit for the year Net profit / (loss) attributable to : 2,293,099 Owner of the parent (112) Non-Controlling interest 2,292,987 Total comprehensive income / (loss) attributable to : 2,288,954 Owner of the parent (112) Non-Controlling interest 2,288,842 0.13 Earning per share 30-Jun-18 RO 30-Jun-17 RO 20 4,965,672 4,965,672 4,777,350 8,957 4,786,307 21 (2,910,922) (2,234,932) 5 (23,939) (18,211) (2,934,861) (2,253,143) 2,030,811 (13,003) (960,404) 1,057,404 2,533,164 6,022 (951,059) 1,588,127 (174,604) 882,800 (1,893,802) (305,675) (1,596) (1,596) - 881,204 (305,675) 882,843 (43) 882,800 (305,644) (31) (305,675) 881,247 (43) 881,204 0.05 (305,644) (31) (305,675) (0.20) 6(a) 14 18 The notes and other explanatory information on pages 7 to 38 form an integral part of these consolidated financial statements. F-4
169. 4 TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 30 JUNE 2018 Share capital RO At 1 January 2018 Comprehensive income : Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve Cash Dividend Paid As at 30 June 2018 Legal reserve RO Revaluation reserve RO Retained earnings RO Total RO Noncontrolling interest RO Grand Total RO 18,000,000 63,045 5,096,112 262,100 35,172,805 58,594,062 2,439 58,596,501 18,000,000 63,045 5,096,112 88,284 5,184,396 (1,596) 260,504 (3,194) 257,310 882,843 36,055,648 3,194 (88,284) 35,970,558 882,843 (1,596) 59,475,309 59,475,309 (43) 2,396 2,396 882,800 (1,596) 59,477,705 59,477,705 Share capital USD At 1 January 2018 Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve Cash dividend Paid As at 30 June 2018 General reserve RO 46,753,247 46,753,247 General reserve USD 163,753 163,753 Legal Reserve USD 13,236,655 13,236,655 229,310 13,465,965 Revaluation reserve USD 680,779 (4,145) 676,634 (8,296) 668,338 Retained earnings USD 91,357,933 2,293,099 93,651,032 8,296 (229,310) 93,430,018 The notes and other explanatory information on pages 7 to 38 form an integral part of these consolidated financial statements. F-5 Total USD 152,192,367 2,293,099 (4,145) 154,481,321 154,481,321 Noncontrolling interest USD 6,336 (112) 6,224 6,224 Grand Total USD 152,198,703 2,292,987 (4,145) 154,487,545 154,487,545
170. 5 TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AS AT 30 JUNE 2018 Share capital RO At 1 January 2017 Comprehensive income : Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve Cash Dividend Paid At 31 December 2017 General reserve RO Revaluation reserve Legal reserve RO RO Retained earnings RO Total RO Noncontrolling interest RO Grand Total RO 18,000,000 63,045 4,988,260 329,063 36,187,143 59,567,511 2,476 59,569,987 18,000,000 63,045 4,988,260 107,852 5,096,112 (54,186) 274,877 (12,777) 262,100 880,737 37,067,880 12,777 (107,852) (1,800,000) 35,172,805 880,737 (54,186) 60,394,062 (1,800,000) 58,594,062 (37) 2,439 2,439 880,700 (54,186) 60,396,501 (1,800,000) 58,596,501 Share capital USD At 1 January 2017 Profit for the year Deferred tax on revaluation reserve Total comprehensive income Transfer of incremental depreciation Transfer to legal reserve Cash dividend Paid At 31 December 2017 (continued) 46,753,247 46,753,247 General reserve USD 163,753 - 163,753 Legal reserve USD 12,956,519 12,956,519- 280,136 13,236,655 Revaluation reserve USD Retained earnings USD 854,709 (140,743) 713,966 (33,187) 680,779 93,992,579 154,720,807 2,287,628 2,287,628 (140,743) 96,280,207 - 156,867,692 33,187 (280,136) (4,675,325) (4,675,325) 91,357,933 152,192,367 The notes and other explanatory information on pages 7 to 38 form an integral part of these consolidated financial statements. F-6 Total USD Noncontrolling interest USD 6,432 (96) 6,336 6,336 Grand Total USD 154,727,239 2,287,532 (140,743) 156,874,028 (4,675,325) 152,198,703
171. 6 TILAL DEVELOPMENT COMPANY SAOC CONSOLIDATED STATEMENT OF CASH FLOWS AS AT 30 JUNE 2018 30-Jun-17 USD 4 ,125,005 (15,642) 47,301 24,434 2,470,283 6,651,381 (2,367,261) (180,261) (216,974) 4,587,446 2,488,256 9,402,940 20,365,527 (1,758) (526,031) 19,837,738 (128,875) (21,459,532) (21,588,407) 30-Jun-18 USD Note Operating activities 2,746,504 Profit before taxation Adjustments for: 33,774 Share of result of associates 62,179 Depreciation 23,675 Charge for end of service benefits 2,494,556 Sukuk al ijara profit rentals and borrowings costs Cash flows before working capital changes and payment of sukuk al ijara profit rentals, income 5,360,688 tax and end of service benefits Working capital changes: 244,680 Trade and other receivables (161,411) Advances, deposits and prepayments (3,250,417) Due from related parties 3,149,356 Advances and security deposits 2,005,923 Trade and other payables 2,999,999 Due to related parties 10,348,818 Cash generated from operations - End of service benefits paid (383,535) Income tax paid 9,965,283 Net cash generated from operating activities Investing activities (118,667) Purchase of property and equipment 5 16 16 18(c) 5 Cost incurred on investment property under (5,213,774) construction - Investment in associates (5,332,441) Net cash used in investing activities 30-Jun-18 RO 30-Jun-17 RO 1,057,404 1,588,127 13,003 23,939 9,115 960,404 (6,022) 18,211 9,407 951,059 2,063,865 2,560,782 94,202 (62,143) (1,251,411) 1,212,502 772,280 1,155,000 3,984,295 (911,396) (69,400) (83,535) 1,766,167 957,979 3,620,132 7,840,729 (147,661) 3,836,634 (677) (202,522) 7,637,530 (45,687) (49,617) (2,007,303) (2,052,990) (8,261,920) (8,311,537) (542,222) - 2,470,700 (1,800,000) (2,166,670) (2,708,892) (1,835,432) (1,164,732) (925,248) 1,548,181 622,933 (1,838,739) 3,352,810 1,514,071 Financing activities 6,417,404 (4,675,325) (4,767,356) (3,025,277) (1,408,370) (5,627,714) (7,036,084) Finance under diminishing musharika obtained Dividend paid Sukuk al ijara profit rentals and finance cost paid Net cash used in financing activities (4,775,946) 8,708,598 3,932,652 (2,403,242) Net change in cash and cash equivalents 4,021,249 Cash and cash equivalents at the beginning of the year 1,618,007 Cash and cash equivalents at the end of the year 11 10 The notes and other explanatory information on pages 7 to 38 form an integral part of these consolidated financial statements. F-7
172. 7 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 1 Legal status and principal activities Tilal Development Company SAOC (the Parent Company or the Company) is a closed joint stock company incorporated on 22 November 2006 in the Sultanate of Oman. The Company is engaged in real estate investment, development, leasing and maintenance of the real estate properties. The Company has commenced the construction activities for the Tilal Development Complex, a mixed-use property, comprising a shopping mall, office blocks, residential apartments and a hotel. The registered office of the Company is situated at P. O. Box 147, postal code 118, Al Harthy Complex, Muscat, Sultanate of Oman. Currently the Company is in the process of development of Muscat Grand Mall expansion project. Currently, the project is under construction and expected to complete by 31 December 2018. The Company’s principal subsidiaries and associates at 30 June 2018 are set out below. Unless otherwise stated, they have share capital consisting solely of ordinary shares that are held directly by the Group, and the proportion of ownership interests held equals the voting rights held by the Group. The country of incorporation or registration is also their principal place of business. Name of the entity Place of business / country of incorporation Effective and actual Ownership interest held by the Group in percentage 2018 2017 99% 99% Tilal Hotels Company LLC Muscat, Oman Tilal International Trade Mark LLC Muscat, Oman 50% Edara Real Estate Company LLC Muscat, Oman 40% Nature of relationship Principal activities Subsidiary Licensed to develop and manage real estate but currently not active. 50% Associate Holding Trademarks, and franchisee licenses, leasing and real estate of the Group 40% Associate Properties facility management primarily for the properties being lease by Parent Company Tilal International Trade Mark LLC and Edara Real Estate Company LLC are considered as associates as the Parent Company has significant influence due to its current holding, but not control, over the financial and operating policies over these entities. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to each of the periods/years presented in these consolidated financial statements, unless otherwise stated. 2.1 Statement of compliance The special purpose financial statements (hereinafter consolidated financial statements) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as promulgated by the International Accounting Standards Board and the requirements of the Commercial Companies Law of 1974, as amended. 2.2 Basis of preparation These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of investment properties and building which are stated at fair value. These financial statements are prepared on historical cost basis and in accordance with International Financial Reporting Standards (IFRS). The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. The Group makes estimates and assumptions concerning the future. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements as disclosed in note 2.24 to these consolidated financial statements. F-8
173. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.2 Basis of preparation (continued) (a) Standards, amendments and interpretations which are effective but not adopted  IFRS 15, ‘Revenue from contracts with customers’ (effective on after 1 January 2018): The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18 which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that revenue is recognized when control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards. The Group’s revenue is only from rental income and therefore the Group does not expect any significant impact from the application of IFRS 15 on its consolidated financial statements. Certain new accounting standards and interpretations have been published that are not mandatory for the Group’s accounting periods beginning on or after 1 January 2019 and have not been early adopted by the Group.  IFRS 16, ‘Leases’ (effective on after 1 January 2019): This standard replaces the guidance in IAS 17 and is a far-reaching change in accounting by lessees in particular. Under IAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). IFRS 16 now requires lessees to recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under IFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group’s management does not expect any significant impact from the application of IFRS 16 on its consolidated financial statements. Other standards and interpretations that have been issued but are not yet mandatory, and have not been early adopted by the Group, are not expected to have a material impact on the Company’s consolidated financial statements. 2.3 Foreign currencies (a) Functional and presentation currency These consolidated financial statements are presented in Rial Omani, which is the functional currency of the Parent Company and its subsidiaries and also in US Dollars, for the convenience of the readers. The US Dollar amounts, which are presented in these consolidated financial statements have been translated from the Rial Omani amounts at an exchange rate of US Dollar 1 = RO 0.385. All financial information presented in Rial Omani and US Dollars unless otherwise stated. (b) Transactions and balances Transactions in foreign currencies are translated into Rial Omani and recorded at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Rial Omani at the foreign exchange rate ruling at the reporting date. Foreign exchange differences arising on translation are recognized in the statement of comprehensive income. Non-monetary assets and liabilities denominated in foreign currencies are translated into Rial Omani at the foreign exchange rate ruling at the date of the transaction. 2.4 Revenue Revenue from the sale of properties is measured at the fair value of the consideration received or receivable. Revenue is recognized when the significant risk and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return on properties sold can be estimated reliable, and there is no significant continuing management involvement with properties sold. F-9
174. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 2 .4 Summary of significant accounting policies (continued) Revenue (continued) Transfer of risks and rewards vary depending on the individual terms of the contract of sales. For sale of properties, transfer usually occurs when the construction property has reached practical completion and is either handed over to the buyers for use or significant amount of sale proceeds have been received by the Company against sale of properties. Rental income from the property is recognized in statement of comprehensive income on a straight-line basis over the term of the lease. Amount received from tenants to terminate leases are recognized in the statement of comprehensive income when the right to receive these have been established. Turnover rentals are variable rentals which are recognized based on turnover of the lessee over the period of lease. Tenant lease incentives are recognised as a reduction of rental revenue on a straight-line basis over the term of the lease. Property management income represents the net income earned for managing lease properties which is recognized on accrual basis. Income earned on deposits and finance related expenses are recognized on an accrual basis using the effective interest rate method. 2.5 Finance cost Finance cost comprises sukuk al ijara rentals, bank charges, foreign currency losses and other levy imposed for banking related transactions. It also includes the general financing cost not directly attributable. General and specific finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other finance costs are recognized in statement of comprehensive income in the period in which they are incurred. F-10
175. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.6 Investment properties Investment properties are properties held either to earn rental or for capital appreciation or for project development and is not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property also includes property that is being constructed or developed for future use as investment property. Investment property is measured initially at its cost, including related transaction costs and where applicable borrowing costs. Cost includes expenditures that are directly attributable to the project development and related activities. The cost of the project development includes consultancy fees, advertisement and promotion expenses, travelling expenses, registration and legal expenses, other costs and financing expenses directly attributable to the project. Subsequent expenditure is capitalized to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized. After initial recognition, investment property is carried at fair value. Investment property under construction is measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably, but for which the Group expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less impairment losses, if any, until the fair value becomes reliably determinable or construction is completed, whichever is earlier. As on 30 June 2018 and 2017 the fair value of property under construction is assumed to be equals to the carrying value as per financial statements. Fair value is based on active market prices, adjusted, if necessary, for differences in the nature, location or condition of the property. If this information is not available, the Group uses alternative valuation methods, such as recent prices on less active markets or discounted cash flow projections. Valuations are performed as of the reporting date by independent professional valuers who hold recognized and relevant professional qualifications and have recent experience in the location and category of the investment property being valued. These valuations form the basis for the carrying amounts in the consolidated financial statements. Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. The fair value of investment property reflects, among other things, rental income from current leases and other assumptions market participants would make when pricing the property under current market conditions. Changes in fair values are recognized in the statement of comprehensive income. Investment properties are derecognized when they have been disposed of. 2.7 Property and equipment Property and equipment other than building are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditure that is directly attributable to the acquisition of the items and any other cost that is directly attributable to brining the assets to its working condition for its intended use. Subsequent costs are included in the asset’s carrying amount or recognized as separate assets as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance expenses are charged to the statement of comprehensive income during the financial period in which they are incurred. Buildings are carried at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. Increases in carrying amounts arising from revaluation, including currency translation differences, are recognized in the revaluation reserve, unless they offset previous decreases in the carrying amounts of the same asset, in which case, they are recognized in profit or loss. Decreases in carrying amounts that offset previous increases of the same asset are recognized against the revaluation reserve. All other decreases in carrying amounts are recognized as a loss in the statement of comprehensive income. F-11
176. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.7 Property and equipment (continued) Depreciation is charged to the statement of comprehensive income on a straight-line basis calculated over the estimated useful lives of each class of property and equipment. The estimated useful lives are as follows: Years 25 3 3 3 Building Furniture and fixtures Office and computer equipment Motor vehicles Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each reporting date. Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount. Gains and losses on disposal of property and equipment are determined by comparing proceeds with carrying amount and are included in the statement of comprehensive income. When revalued assets are sold, the amount included in ‘revaluation reserve’ is transferred to the retained earnings. However, some of the surplus is transferred as the asset is used by an entity. The amount of the surplus transferred is the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost. Transfers from revaluation surplus to retained earnings are not made through profit or loss. 2.8 Investments in associate An associate is an entity in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 to 50 percent of the voting power of another entity. Investment in associate is accounted for under the equity method. Under the equity method investment is initially recognized at cost and the carrying amount is increased or decreased to recognise the investor’s share of profit and loss of investee after the date of acquisition. The investor’s share of profit or loss of the investee is recognised in investor’s profit or loss. Distributions received from the investee reduces the carrying amount of the investment. 2.9 Consolidation (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiary as at 30 June 2018 and 31 December 2017 (Tilal Development – Parent Company and Tilal Hotels Company LLC - Subsidiary). The non-controlling interest have only 1% percent interest to the subsidiary’s activities and cash flows. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:    Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee that significantly affect their returns) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:   The contractual arrangement with the other vote holders of the investee. Rights arising from other contractual arrangements. The Group’s voting rights and potential voting rights. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. F-12
177. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.9 Consolidation (continued) Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-Group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it:         derecognizes the assets (including goodwill) and liabilities of the subsidiary derecognizes the carrying amount of any non-controlling interests derecognizes the cumulative translation differences recorded in equity recognizes the fair value of the consideration received recognizes the fair value of any investment retained recognizes any surplus or deficit in profit or loss reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities (b) Transactions and non-controlling The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. The acquisition of an additional ownership interest in a subsidiary without a change of control is accounted for as an equity transaction in accordance with IFRS 10. Any excess or deficit of consideration paid over the carrying amount of the noncontrolling interests is recognised in equity of the Group in transactions where the non-controlling interests are acquired or sold without loss of control. When the Group ceases to have control or significant influence, any retained interest in the entity is measured to its fair value, with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate. 2.10 Financial assets 2.10.1 Classification The Group classifies its financial assets in the following measurement categories:  those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and  those to be measured at amortised cost. The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows. For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. F-13
178. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.10 Financial assets (continued) 2.10.1 Classification (continued) For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. The Group reclassifies debt investments when and only when its business model for managing those assets changes. 2.10.2 Measurement At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest. Debt instruments Subsequent measurement of debt instruments depends on the Group’s business model for managing the asset and the cash flow characteristics of the asset. There are three measurement categories into which the Group classifies its debt instruments:  Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A gain or loss on a debt investment that is subsequently measured at amortised cost and is not part of a hedging relationship is recognised in profit or loss when the asset is derecognised or impaired. Interest income from these financial assets is included in finance income using the effective interest rate method.  Fair value through other comprehensive income (FVOCI): Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in other gains/(losses). Interest income from these financial assets is included in finance income using the effective interest rate method. Foreign exchange gains and losses are presented in other gains and losses and impairment expenses in other expenses.  Fair value through profit or loss: Assets that do not meet the criteria for amortised cost or FVOCI are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognised in profit or loss and presented net in the statement of profit or loss within other gains/(losses) in the period in which it arises. Equity instruments The Group subsequently measures all equity investments at fair value. Where the Group’s management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. Changes in the fair value of financial assets at fair value through profit or loss are recognised in other gain/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at FVOCI are not reported separately from other changes in fair value. F-14
179. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 2 .10 Summary of significant accounting policies (continued) Financial assets (continued) 2.10.3 Impairment The Group assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and FVOCI. The impairment methodology applied depends on whether there has been a significant increase in credit risk For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivables. 2.10.5 De-recognition of financial instruments (a)Financial assets Financial assets are derecognised when the right to receive cash flows from the assets has expired or when the Company has transferred its contractual right to receive cash flows from the financial assets and either: • Substantially all the risks and rewards of the ownership have been transferred, or • Substantially all the risks and rewards have not been retained or transferred but controls have been transferred. (b)Financial liabilities Financial liabilities are derecognised when these are extinguished, that is when the obligation is discharged, is, cancelled or expired. 2.11 Impairment of non-financial assets Assets that have an indefinite useful life - for example, goodwill are not subject to amortisation or depreciation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. 2.12 Cash and cash equivalents For the purpose of the statement of cash flows, cash and bank balances, including deposits with a maturity of three months or less from the date of placement, are considered to be cash and cash equivalents. 2.13 Trade and other receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment, if any. The Group assesses on a forward looking basis the expected credit losses associated with its assets carried at amortised cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk. To assess whether there is a significant increase in credit risk the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. It considers available reasonable and supportive forwarding-looking information. For trade receivables, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from initial recognition of the receivable. The amount of the provision is recognised in the consolidated statement of comprehensive income. F-15
180. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.14 Advances and deposits Advances and deposits are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less provision for impairment, if any. The amount of the provision is recognised in the statement of comprehensive income. 2.15 Operating lease Payments made under operating lease are recognised in the statement of comprehensive income on straight line basis over the term of the lease. 2.16 Finance under sukuk ijara Finance under sukuk ijara is recognised initially at fair value, net of transaction costs incurred. These are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the sukuk ijara using the effective rental profit rate method. Fees paid on the establishment of financing facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity services and amortised over the period of the facility to which it relates. 2.17 Employees' end of service benefits End of service benefits are accrued in accordance with the terms of employment of the company's employees at the reporting date, having regard to the requirements of the Oman Labour Law 2003 as amended and in accordance with IAS19 ‘employee benefits’. Employee entitlements to annual leave are recognised when they accrue to employees and an accrual is made for the estimated liability for annual leave as a result of services rendered by employees up to the reporting date. Contributions to a defined contribution retirement plan for Omani employees, in accordance with the Oman Social Insurance Scheme, are recognised as expense in the statement of comprehensive income as incurred. 2.18 Trade and other payables Payables are recognised initially at fair value and subsequently stated at amortised cost using the effective interest rate method. 2.19 Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Increment costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. F-16
181. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.20 Taxation Income tax on the results for the year comprises current and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent it relates to items recognised directly in equity or other comprehensive income. Deferred tax on revaluation reserve is recognised in other comprehensive income and transfer of incremental depreciation in other comprehensive income is made net of deferred tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date and adjustments to tax payable in respect of previous years, if any. Deferred tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset will be realised or the liability will be settled, based on laws that have been enacted at the reporting date. Deferred tax assets are recognised for all deductible temporary differences and carry-forward of unused tax losses to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and the carry-forward of unused tax losses can be utilised. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities related to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on net basis. 2.21 Provisions Provisions are recognised when the Group has a present (legal or constructive) obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense. 2.22 Directors’ remuneration and sitting fees The directors’ remuneration is governed as set out in the Commercial Companies Law, regulations issued by the Capital Market Authority and the articles of association of the Company. The annual general meeting determines and approves the remuneration and the sitting fees for the board of directors and its sub-committees provided such fees, in accordance with article 106 of the Commercial Companies Law of 1974 as amended, shall not exceed 5% of the annual net profit after deduction of the legal reserve and the optional reserve and the distribution of dividends to the shareholders provided that such fees does not exceed RO 200,000. The sitting fee for each director does not exceed RO 10,000 in one year and expensed in the period incurred. 2.23 Dividend distribution Dividend distribution to the Company’s shareholders is recognised as a liability in the statement of financial position in the year in which the dividends are approved by the Company’s shareholders. F-17
182. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.24 Critical accounting estimates and judgments The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses and the resultant provisions and change in fair value for the year. Estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimates are revised and in any future period affected. Such estimates are necessarily based on assumptions about several factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual results may differ from management’s estimates resulting in future changes in estimated liabilities. (a) Valuation of investment properties and building An independent external valuer, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Company’s investment properties and building every year. In undertaking the valuation the external valuer has made a number of assumptions and relied upon various sources of information. Management reviews assumptions based on their reasonable knowledge and other information available about the properties. Fair values are based on current prices in an active market for similar properties in the same location and condition and subject to similar leases. (b) Operating or finance lease (i) Operating lease contracts – the company as lessor The Company entered into various lease contracts as lessor for its investment properties. The Company has determined this based on an evaluation of the terms and conditions of the arrangements, particularly duration of the lease term and minimum lease payments, that all the significant risks and rewards of ownership for these properties are retained by the Company and so accounts for the leases as operating lease. (ii) Operating lease contracts - the company as lessee The Company has entered into a property lease agreement for its millennium executive apartments. The Company has determined this based on an evaluation of the terms and conditions of the arrangements, particularly duration of the lease term and minimum lease payments, that all the significant risks and rewards of ownership for these properties are retained by the owner. Accordingly, the Company accounts for the leases as operating lease. (c) Estimations of future costs to be incurred on investment property Determination of cost of developed property requires judgment and estimation as to the future costs to be incurred to complete the property. The management determines the estimated future costs based on level of expected work to be carried to complete the property. This assessment takes into consideration various factors such as expected period to complete the property, contract values with contractors and sub-contractors, expected variations, borrowings and borrowings costs to be incurred and provisions for cost overruns which management expects in relation to delays in completion of the project activities. These costs are capitalised as part of cost of investment properties and are adjusted against fair value gains for completed property. (d) Impairment of receivables against sale of properties An estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. This determination of whether these receivables are impaired entails the Group evaluating, the credit and liquidity position of the counter parties, historical recovery rates and value of collaterals held. The difference between the estimated collectible amount and the carrying value is recognised as an expense in the statement of comprehensive income. Any difference between the amounts actually collected in the future periods and the amounts expected will be recognised in the statement of comprehensive income at the time of collection. As on 30 June 2018, the Group has not recognised any provision for impairment as the title of properties against sale of properties is not transferred to buyers. F-18
183. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 2 Summary of significant accounting policies (continued) 2.24 Critical accounting estimates and judgments (continued) (e) Impairment of financial assets The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. The Group is exposed to credit risk if counterparties fail to make payments as they fall due and if the Group does not have recourse to any tangible asset. 2.25 Borrowing cost Borrowing costs directly attributable to the acquisition or construction of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of finance cost and other costs that an entity incurs in connection with the borrowing of funds. The finance cost capitalised is calculated using the Group’s weighted average cost of borrowings after adjusting for borrowings associated with specific developments. Where borrowings are associated with specific developments, the amount capitalised is the gross finance cost incurred on those borrowings less any investment income arising on their temporary investment. Finance cost is capitalised as from the commencement of the development work until the date of practical completion, i.e., when substantially all of the development work is completed. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. Interest is also capitalised on the purchase cost of a site of property acquired specifically for redevelopment, but only where activities necessary to prepare the asset for redevelopment are in progress. During the period/year ended 30 June 2018 and 31 December 2017 the Group has no general borrowings as disclosed in note 15. The finance cost regarding the specific borrowings has been completely capitalised by the company. 2.26 Offsetting Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position when there is a legally enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously. Currently the company has no such offsetting arrangements. 2.27 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions. As of 30 June 2018 and 31 December 2017 the Group does not have such operating segments that qualified for segment reporting. The Directors are of the opinion that the Group is engaged in a single segment of the business being real estate development in Oman. The revenue, interest expense, depreciation, income tax expense and assets and liabilities are disclosed in the consolidated statement of comprehensive income and the consolidated statement of financial position. 3 Financial instruments and financial risk management 3.1 Financial risk factors The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including price risk, interest rate risk and exchange rate risk). The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The management identifies and evaluates the financial risks and takes measures to minimise the adverse effects, if any. F-19
184. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 Financial instruments and financial risk management (continued) 3.1.1 Credit risk 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 Group manages credit risk by only dealing with reputable banks and setting limits for individual correspondent banks and for geographical segment. The Group also monitors credit exposures, and continually assesses the creditworthiness of its counterparties. The Group limits its credit risk with regard to bank deposits by dealing mainly with reputable banks. The table below shows the bank balances with the counterparties analysed by rating as provided by Moody’s investor’s services: 31- Dec-2017 USD 4,020,330 30-Jun-2018 USD 1,616,932 Rating Cash at bank P-2 30-Jun-2018 RO 622,519 31- Dec-2017 RO 1,547,827 The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was: 31- Dec-2017 USD 30-Jun-2018 USD 4,020,330 4,006,851 3,896 5,245,115 13,276,192 1,616,932 3,762,171 3,896 8,495,532 13,878,531 Cash at bank Trade and other receivables Security deposits Due from related parties 30-Jun-2018 RO 31- Dec-2017 RO 622,519 1,448,436 1,500 3,270,780 5,343,235 1,547,827 1,542,638 1,500 2,019,369 5,111,334 Concentration of credit risk arises when a number of counter-parties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic political or other conditions. Currently the Group does not have any significant concentration of credit risk as the Group’s exposure to a single party or a Group is not significant. In considering the parties with whom the Group does business, management considers, where available, factors such as published ratings, market reputation, past experience and other relevant factors. Amounts due from a related parties, trade and other receivables and security deposits are held with reputed counter parties which management do not expect any loss from their non-performance. As at 30 June 2018 and 31 December 2017 none of the balance due from related parties are either past due nor impaired. The ageing of trade and other receivables including provision is disclosed in note 8. 3.1.2 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. In accordance with prudent liquidity risk management, the management aim to maintain sufficient cash balances to meet the Group’s working capital requirements and has adequate support from shareholders to manage its liquidity risk. The table below analyses the Group’s financial liabilities into relevant maturity Groupings based on the remaining period at the reporting date to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within twelve months equal their carrying balances, as the impact of discounting is not significant. F-20
185. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 Financial instruments and financial risk management (continued) 3.1.2 Liquidity risk (continued) As at 30 June 2018, the Group has current liabilities of RO 66,581,236 (2017: RO 63,660,310) which exceeds current assets by RO 60,700,925. The shareholders have confirmed their intention to continue to extend financial support to the company to enable the Group to continue to discharge its liabilities to other parties, as they fall due. Additionally to maintain appropriate level of liquidity, the Group intends to issue Sukuk of USD 135 million and is currently engaging underwriters for the issue. The following are the contractual maturities of the Group’s financial liabilities: Carrying amount RO 2018 Trade and other payables 3,351,956 Finance under diminishing musharika 31,486,638 Finance under sukuk al ijara 50,000,000 Security deposits 903,063 Due to related parties 5,889,429 As at 30 June 2018 91,631,086 Carrying amount USD 2018 Trade and other payables Finance under diminishing musharika Finance under sukuk al ijara Security deposits Due to related parties As at 30 June 2018 Contractual cash flow RO Less than 6 months RO 3,351,956 3,351,956 - - 40,294,910 50,854,167 903,063 5,889,429 101,293,525 1,557,754 50,854,167 5,889,429 61,653,306 2,665,925 2,665,925 36,071,231 903,063 36,974,294 Contractual cash flow USD Less than 6 months USD 6 to 12 Months USD More than 12 months USD 6 to 12 months RO More than 12 months RO 8,706,380 8,706,380 8,706,380 - - 81,783,475 129,870,130 2,345,618 15,297,218 238,002,821 104,662,104 132,088,745 2,345,618 15,297,218 263,100,065 4,046,114 132,088,745 15,297,218 160,138,457 6,924,481 6,924,481 93,691,510 2,345,618 96,037,128 Carrying amount RO Contractual cash flow RO Less than 6 months RO 6 to 12 months RO More than 12 months RO 2,579,676 2,579,676 - - 41,786,118 52,750,000 829,773 4,734,429 102,679,996 1,557,754 1,263,889 4,734,429 10,135,748 2,665,925 51,486,111 4,734,429 58,886,465 37,562,439 829,773 38,392,212 6 to 12 Months USD More than 12 months USD 2017 Trade and other payables 2,579,676 Finance under diminishing musharika 32,028,860 Finance under sukuk al ijara 50,000,000 Security deposits 829,773 Due to related parties 4,734,429 As at 31 December 2017 90,172,738 Carrying amount USD 2017 Trade and other payables 6,700,457 Finance under diminishing musharika 83,191,844 Finance under sukuk al ijara 129,870,130 Security deposits 2,155,255 Due to related parties 12,297,218 234,214,904 Contractual cash flow USD Less than 6 months USD 6,700,457 6,700,457 - - 108,535,371 137,012,987 2,155,255 12,297,218 266,701,288 4,046,114 3,282,829 12,297,218 26,326,618 6,924,480 133,730,158 140,654,638 97,564,778 2,155,255 12,297,218 112,017,251 F-21
186. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 Financial instruments and financial risk management (continued) 3.1.3 Market risk (a) Price risk Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. As the Group does not have any such assets which are actively traded and measured at fair value, hence, the Group is not subject to price risk. (b) Interest rate risk The Group’s interest rate risk arises from interest bearing assets and liabilities. Financial assets where the interest rates are repriced frequently expose the Group to cash flow interest rate risk. The Group analyses its interest rate exposure on a regular basis and reassesses the applicable market variable and interest rate mix and renegotiates interest rates at terms favorable to the Group, if required. Fixed interest rate USD Variable interest rate USD 129,870,130 - 129,870,130 81,783,475 211,653,605 - 81,783,475 211,653,605 Fixed interest rate USD Variable interest rate USD Fixed interest rate RO Total USD 30 June 2018 Financial liabilities Finance under Sukuk al ijara Finance under diminishing musharika - 129,870,130 83,191,845 213,061,975 - 83,191,845 213,061,975 Total RO 50,000,000 - 50,000,000 31,486,638 81,486,638 - 31,486,638 81,486,638 Fixed interest rate RO Variable interest rate RO 31 December 2017 Financial liabilities Finance under Sukuk al 50,000,000 ijara Finance under diminishing musharika 32,028,860 82,028,860 - 50,000,000 - 32,028,860 82,028,860 Total USD 129,870,130 Variable interest rate RO Total RO The above financial liabilities carry a fixed rate of interest and are therefore not subject to cash flow interest rate risk. (c) Foreign currency risk Exchange rate risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group is not exposed to any significant currency risk as all the foreign currency transactions are carried in USD. The Riyal Omani is pegged to the USD. 3.2 Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, or issue new shares to reduce debt. The Group is also required to make an annual appropriation of 10% of profit for the year to legal reserve in terms of Commercial Companies law until the legal reserve is one third of the share capital. This reserve is not available for distribution. F-22
187. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 Financial instruments and financial risk management (continued) 3.2 Capital management (continued) Gearing ratio The Group’s management reviews the capital structure on regular basis to ensure that project is financed within the acceptable debt equity ratio. During 2018, the Group’s strategy, which was unchanged from 2017, was to maintain a gearing ratio within the maximum permissible limit. The Group’s internal maximum permissible gearing is three times of total equity. There are no externally imposed capital and gearing ratio requirements. The gearing ratio at the year-end was as follows: 31- Dec-2017 USD 30-Jun-2018 USD 30-Jun-2018 RO 31- Dec-2017 RO 213,061,975 (4,021,249) 211,170,596 Sukuk al ijarah and finance under 211,653,605 diminishing musharika (1,618,007) Less: Cash and cash equivalents 210,035,598 Net debt 81,486,638 (622,933) 80,863,705 82,028,860 (1,548,181) 80,480,679 152,198,703 154,487,545 Total equity 59,477,705 58,596,501 363,369,299 364,523,142 Total capital employed 140,341,410 139,077,180 58% 3.3 58% Gearing ratio (percentage) 58% 58% Financial instruments by category The accounting policies for financial instruments have been applied to the line items below: 31-Dec-2017 USD 4,020,330 4,006,851 3,896 5,245,115 13,276,192 31-Dec-2017 USD 83,191,845 2,155,255 6,700,456 12,297,219 104,344,775 3.4 30- Jun-2018 USD 30-Jun-2018 RO Financial assets as per the statement of financial position Financial asset at amortised cost 1,616,932 Cash at bank 3,762,171 Trade and other receivables 3,896 Security deposits 8,495,532 Due from related parties 13,878,531 30- Jun-2018 Financial liabilities as per the statement of USD financial position Other liabilities at amortised cost - Finance under sukuk al ijara 81,783,475 Finance under diminishing musharika 2,345,618 Security deposits 8,706,380 Trade and other payables 15,297,218 Due to related parties 108,132,691 31- Dec-2017 RO 622,519 1,448,436 1,500 3,270,780 5,343,235 1,547,827 1,542,638 1,500 2,019,369 5,111,334 30- Jun-2018 31- Dec-2017 RO RO 31,486,638 903,063 3,351,956 5,889,429 41,631,086 32,028,860 829,773 2,579,676 4,734,429 40,172,738 Fair value estimation A number of accounting policies and disclosures require the determination of fair value, for both financial and nonfinancial assets and liabilities. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: F-23
188. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 3 .4 Financial instruments and financial risk management (continued) Fair value estimation (continued) • Level 1: Quoted market price (unadjusted) in an active market. • Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using quoted market prices in the active market for similar instruments, quoted market prices for identical or similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data. • Level 3: Valuation techniques using significant unobservable inputs. This category includes instruments that are valued based on quoted prices of similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Group’s borrowings, carry commercial rate of interest and accordingly, approximate their fair value. The face values less any estimated credit adjustments for financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values. Fair values of investment properties and building are determined by external independent valuers using market prices of the investment properties and building. The fair values of other financial and non-financial assets and liabilities at year end approximate their carrying amounts as stated in the statement of financial position. 3.5 Fair value measurement - investment properties and building The management that determines the Group’s valuation policies and procedures for property valuations comprises the Group chief financial controller and board of directors of the Group. Each year, they appoint an external valuer who is responsible for the external valuations of the Group 's properties. The selection criteria of the valuer include market knowledge, reputation, independence and whether professional standards are maintained. Each property is considered a separate asset class based on the unique nature, characteristics and the risks of the property. For each property, the latest valuation is also compared with the valuations in the two preceding annual periods. If the fair values changes (positive or negative) are more than the thresholds set, the changes are further considered by discussion with external valuer. The CFO initiates the process of appointing an approved valuer. The valuer has to be of good standing and be recognized by the banking institutions in Oman. Once appointed the valuer surveys the property and legal documents in relation to it. The valuer assess the most recent market transactions in the vicinity. In arriving at the valuation the valuer considers the following guidelines published in the Appraisal and Valuation Manual of the Royal Institute of Chartered Surveyors (RICS) U.K.: -That there is a willing seller -That, prior to the date of valuation, there would be a reasonable period for the proper marketing of the property -The state of the market, the level of values and other circumstances on earlier date of exchanges remain the same -That no account is taken for additional bids by a prospective buyer of special interest -That both parties acted knowledgably, prudently and without compulsion. The valuation of investment properties and buildings fall within level 3 of the fair value hierarchy. The valuation technique used to determine the fair value of the investment properties and buildings is sales comparison, which takes into account prices in an active market for similar properties adjusted using unobservable adjustments or assumptions to reflect differences between properties. The market in Oman is heavily reliant on the oil and gas industry. Given that the oil prices have been stable during the year the real estate prices have consequently remained stable. Based on this overall assessment the valuer arrives at a value per square meter (sale comparison) which is then applied to the total area of the property being valued. F-24
189. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 3 Financial instruments and financial risk management (continued) 3.4 Fair value estimation (continued) Highest and best use For all investment property that is measured at fair value, the current use of the property is considered the highest and best use. Fair value hierarchy The following table shows an analysis of the fair values of investment properties and building recognised in the statement of financial position by level of the fair value hierarchy. Level 3 fair value Level 3 fair value 31-Dec-2017 30-Jun-2018 31-Dec-2017 30-Jun-2018 USD RO USD Investment properties RO 193,506,494 193,506,494 56,722,236 56,722,236 38,961,039 289,189,769 38,961,039 289,189,769 1,459,582 290,649,351 1,459,582 290,649,351 Tilal Development Complex - Muscat Grand Mall [note 4(d)] Tilal Development Complex - offices [note 4(d)] Tilal Development Complex - service apartments [note 4(d)] Property and equipment Building (note 5) 74,500,000 74,500,000 21,838,061 21,838,061 15,000,000 111,338,061 15,000,000 111,338,061 561,939 111,900,000 561,939 111,900,000 Valuation techniques used to derive level 3 fair values The table in note 4 (d) and (e) below presents the following for each class of the investment properties carried under revaluation model:  The fair value measurements at the end of reporting period;  The level of the fair value hierarchy within which the fair value measurements are categorized in their entirety; and  A description of the valuation techniques applied. 4 Investment properties The Company entered into an agreement with Al Madina Real Estate Company SAOC (AMRE), a related party. Under the terms of the agreement:       AMRE was appointed as Developer and Project Manager for the construction of Tilal Development Complex and its expansion project. Title to the land is held in the name of AMRE beneficially for and on behalf of the Company. AMRE is authorised and entitled to enter into agreements with the contractors for the construction of Tilal Development Complex. In consideration of AMRE acting as the Developer and Project Manager for the Project, the Company agrees to bear the relevant costs for the contracts entered by AMRE in respect of the development including those relating to construction, professional fees, pre-operating expenses and local authority approvals. Upon the completion of the project AMRE shall transfer the land and developed units to the Company. The Company authorises AMRE to sell / lease and otherwise deal with its right to the land. F-25
190. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 4 Investment properties (continued) (a) Investment properties comprise the following: 31-Dec-2017 USD 87,892,208 201,297,561 110,362,771 399,552,540 (b) 30-Jun-2018 RO 87,892,208 Land (refer ‘b’ below) 201,297,561 Building 118,709,703 Property under construction 407,899,472 33,838,500 77,499,561 45,703,235 157,041,296 31-Dec-2017 RO 33,838,500 77,499,561 42,489,666 153,827,727 Movement in investment properties - land is as under: 31-Dec-2017 USD 87,892,208 87,892,208 (c) 30-Jun-2018 USD 30-Jun-2018 USD 30-Jun-2018 RO 87,892,208 At the beginning of the year - Effect of fair value adjustment 87,892,208 At end of the period/year 33,838,500 33,838,500 31-Dec-2017 RO 33,838,500 33,838,500 Investment property is analysed as below: 2018 Cost At 1 January and 30 June Mall RO Offices RO Apartments RO Total RO 51,261,637 8,545,175 12,040,000 71,846,812 Cumulative change in fair value At 1 January and 30 June 23,238,363 13,292,886 2,960,000 39,491,249 Net carrying value At 30 June 74,500,000 21,838,061 15,000,000 111,338,061 Mall USD Offices USD Apartments USD Total USD 133,147,109 22,195,260 31,272,727 186,615,096 60,359,384 34,526,977 7,688,312 102,574,673 193,506,493 56,722,237 38,961,039 289,189,769 2018 Cost At 1 January and 30 June Cumulative change in fair value At 1 January and 30 June Net carrying value At 30 June 2017 Cost At 1 January and 31 December Mall RO Offices RO Apartments RO Total RO 51,261,637 8,545,175 12,040,000 71,846,812 Cumulative change in fair value At 1 January and 31 December 23,238,363 13,292,886 2,960,000 39,491,249 Net carrying value At 31 December 74,500,000 21,838,061 15,000,000 111,338,061 F-26
191. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 4 Investment properties (continued) (c) Investment property is analysed as below (continued) 2017 Cost At 1 January and 31 December Mall USD Offices USD Apartments USD Total USD 133,147,109 22,195,260 31,272,727 186,615,096 Cumulative change in fair value At 1 January and 31 December 60,359,384 34,526,977 7,688,312 102,574,673 193,506,493 56,722,237 38,961,039 289,189,769 Net carrying value At 31 December (d) Following are the details related to the fair valuation estimation: Property description Plot No. 24, Phase-II, Al Khuwair (Project expansion land) Valuation RO Area in square meters 14,500,000 23,487 Sales comparison 725,000 Building number 1, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair 60,000,000 117,833 Sales comparison 3,000,000 Building number 5, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair 15,400,000 20,685 Sales comparison 770,000 Building number 4, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair 6,438,061 8,426 Sales comparison 321,903 Building number 3, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair (Millennium executive apartment land, building) Valuation technique Impact on SOCI by /+5% change in Sales price per square meter RO Sales comparison 15,000,000 111,338,061 F-27 22,099 750,000
192. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 4 Investment properties (continued) (d) Following are the details related to the fair valuation estimation (continued) Property description Plot No. 24, Phase-II, Al Khuwair (Project expansion land) Building number 1, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair Building number 5, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair Building number 4, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair Building number 3, Plot No. 25, Phase-I Tilal Development Complex, Al Khuwair (Millennium executive apartment land, building) Valuation USD Area in square meters Valuation technique Impact on SOCI by /+5% change in Sales price per square meter RO Sales comparison 37,662,338 23,487 1,883,117 Sales comparison 155,844,156 117,833 7,792,208 Sales comparison 40,000,000 20,685 2,000,000 Sales comparison 16,722,236 8,426 836,112 Sales comparison 38,961,039 289,189,769 22,099 1,948,052 (e) Valuation methodology and fair value hierarchy The valuation of investment properties and buildings fall within level 3 of the fair value hierarchy. The valuation technique used to determine the fair value of the investment properties and buildings is sales comparison which takes into account prices in an active market for similar properties. An independent valuation expert, Al Osool Real Estate LLC, in accordance with the relevant appraisals and valuation standards issued by the Royal Institute of Chartered Surveyors (RICS), has determined the fair value of all investment property. The basis for the determination of fair value are amounts for which the properties could be exchanged between willing parties in an arm’s length transaction, based on current prices in an active market for similar properties (sales comparison) in the same location and condition and subject to similar leases. Management reviews assumptions based on their reasonable knowledge and other information available about the properties. During the year ended 31 December 2017, no revaluation gain/loss was recognised on investment properties and building as the amount was insignificant. F-28
193. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 5 Property and equipment Building RO Furniture and fixtures RO Office and computer equipment RO Motor vehicles RO Total RO Cost At 1 January 2018 Additions during the period 614 ,387 - 357,144 457 160,466 45,230 44,247 - 1,176,244 45,687 As at 30 June 2018 614,387 357,601 205,696 44,247 1,221,931 Accumulated depreciation At 1 January 2018 Charge for the period (52,448) - (330,778) (7,083) (128,565) (14,169) (38,725) (2,687) (550,516) (23,939) As at 30 June 2018 (52,448) (337,861) (142,734) (41,412) (574,455) Net book value As at 30 June 2018 As at 31 December 2017 561,939 561,939 19,740 26,366 62,962 31,901 2,835 5,522 Building USD Furniture and fixtures USD 647,476 625,728 Office and computer equipment USD Motor vehicles USD Total USD Cost At 1 January 2018 Additions during the period 1,595,810 - 927,646 1,187 416,795 117,480 114,927 - 3,055,178 118,667 As at 30 June 2018 1,595,810 928,833 534,275 114,927 3,173,845 Accumulated depreciation At 1 January 2018 Charge for the period (136,228) - (859,164) (18,397) (333,935) (36,803) (100,584) (6,979) (1,429,911) (62,179) As at 30 June 2018 (136,228) (877,561) (370,738) (107,563) (1,492,090) 51,272 68,482 163,537 82,860 7,364 14,343 1,681,755 1,625,267 Net book value As at 30 June 2018 As at 31 December 2017 1,459,582 1,459,582 The revaluation of building is carried by an independent and recognised valuer using level 3 fair values. Valuation methodology has been explained in note 3.5 to these consolidated financial statements. F-29
194. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 6 Investment in associates 31-Dec-2017 USD 202 ,062 38,673 240,735 30-Jun-18 USD 30-Jun-18 RO 202,260 Edara Real Estate (Equity method) 4,701 Tilal International (Equity method) 206,961 77,870 1,810 79,680 31-Dec-17 RO 77,794 14,889 92,683 Break up of investment in an associates is as under: 31-Dec-17 USD 285,714 155,844 129,870 (44,979) 46,218 (91,198) 240,735 30-Jun-18 USD 30-Jun-18 RO 285,714 Cost - Edara Real Estate 155,844 - Tilal International 129,870 (78,754) Share of results - Edara Real Estate 46,415 - Tilal International (125,169) 206,961 110,000 60,000 50,000 (30,320) 17,870 (48,190) 79,680 31-Dec-17 RO 110,000 60,000 50,000 (17,317) 17,794 (35,111) 92,683 (a) Share of results from associates for the year 31-Dec-17 USD 15,919 29,221 (90,120) (44,980) 30-Jun-18 USD 30-Jun-18 RO (44,980) At 1 January 197 Share of results - Edara Real Estate LLC Share of results - Tilal International trade (33,971) Marks LLC (78,754) At 30 June 31-Dec-17 RO (17,317) 76 6,129 11,250 (13,079) (30,320) (34,696) (17,317) The results of all associates has been consolidated / equity accounted using uniform accounting policies for like transactions and other events in similar circumstances. Movement in carrying value of investment in associates is as follows; 31-Dec-17 USD 172,842 128,792 29,221 (90,120) 240,735 30-Jun-18 USD 30-Jun-18 RO Carrying value as at 1 January - Edara Real Estate LLC - Tilal International Trade Mark Share of results for the year - Edara Real Estate 197 - Tilal International trade Marks LLC (33,971) 206,961 At 30 June 202,062 38,673 31-Dec-17 RO 77,794 14,889 66,544 49,585 76 (13,079) 79,680 11,250 (34,696) (17,317) (b) In 2013, the Company invested 40% shares in Edara Real Estate LLC, a Company established in Sultanate of Oman and engaged in properties facility management business. (c) In 2016, the Company invested 50% shares in Tilal International Trade Marks LLC, a Company established in Sultanate of Oman and engaged in Franchisee business activities. There are no contingencies and commitments as at 30 June 2018 (2017: nil). F-30
195. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 6 Investment in associates (continued) (d) Reconciliation for carrying value of associates on the basis of net assets is as follows; Percentage holding of Net asset Value Company name Edara Real Estate Company ( refer Net assets value in note 6 (b) ) Tilal International Trade Mark LLC (refer Net assets value in note 6 (c) ) 40% Carrying value 2018 RO 77,870 Carrying value 2017 RO 77,794 Carrying value 2018 USD 202,260 Carrying value 2017 USD 202,062 50% 1,810 14,889 4,701 38,673 79,680 92,683 206,961 240,735 There is no difference between the carrying value of associates and the share of net assets of associates based on percentage holding. 7 Investment property under construction The cost of project building includes the following: 31-Dec-17 USD 76,387,195 19,665,016 5,452,722 2,079,481 6,778,356 110,362,770 8 30-Jun-18 USD 110,362,770 At 1 January Development during the year: 3,164,530 Construction work in progress 1,013,481 Travelling and other related expense 554,400 Consultancy and design fees 3,614,522 Finance cost (refer note 14) 118,709,703 30-Jun-18 RO 31-Dec-17 RO 42,489,666 29,409,070 1,218,344 390,190 213,444 1,391,591 45,703,235 7,571,031 2,099,298 800,600 2,609,667 42,489,666 Trade and other receivables 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 3,553,101 681,109 286,371 4,520,581 (513,730) 4,006,851 3,495,600 Rent receivables 45,584 Trade receivables against sale of properties 220,987 Other receivables 3,762,171 - Impairment loss 3,762,171 1,345,806 17,550 85,080 1,448,436 1,448,436 1,367,944 262,227 110,253 1,740,424 (197,786) 1,542,638 (a)The age of rent receivables at the reporting date were as under: 31-Dec-17 USD 730,623 872,855 1,949,623 3,553,101 30-Jun-18 USD 30-Jun-18 RO 800,535 Less than 30 days 1,059,153 Between 31 - 90 days 1,635,912 Over 90 days 3,495,600 F-31 308,206 407,774 629,826 1,345,806 31-Dec-17 RO 281,290 336,049 750,605 1,367,944
196. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 8 Trade and other receivables (continued) (b)Receivables against sale of properties pertain to sale revenue recognised during 2014. These amounts are overdue for more than one year, however, management considers that the trade receivables are fully secured as the legal title of the related properties rests with the Company. The value of the collaterals is assumed to be equal to the exposure against it. Accordingly, no provision is held against these receivables. (c) As at 30 June 2018 and 31 December 2017, fair value of the other receivables approximate to the carrying value. (d) Against rent receivables of RO 1,345,806 (2017: RO 1,367,944) impairment loss of nil (2017: RO 197,786) has been recorded. All other amounts are deemed to be recoverable. 9 Advances, deposits and prepayments 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 1,013,856 218,660 3,896 1,236,412 10 1,213,426 180,501 3,896 1,397,823 Prepayments Advance to other contractor Security deposits 467,169 69,493 1,500 538,162 390,335 84,184 1,500 476,019 Cash and bank balances 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 919 4,020,330 4,021,249 1,075 1,616,932 1,618,007 Cash in hand Cash at bank 414 622,519 622,933 354 1,547,827 1,548,181 Cash at bank includes RO 396,187 (31 December 2017 – RO 443,721) in call accounts having profit at the rates ranging between 0% to 1.94% (31 December 2017 - 0% to 1.94%). 11 Share capital The Company’s authorised share capital comprises 20 million as on 30 June 2018 (31 December 2017 - 20 million) ordinary shares of RO 1 each. The Company’s subscribed and paid up share capital comprises of 18 million as on 30 June 2018 (31 December 2017 - 18 million) ordinary shares of RO 1 each. The Company’s shareholders as on 30 June 2018, 31 December 2017 as follows: Name of the shareholders 30-Jun-18 % Number of holding shares Qatar Investment Authority Al Madina Real Estate Company SAOC Qatar and Oman Investment Company Ministry of Defence Pension Fund Al Madina Investment Company SAOC 12 40.00 23.75 16.11 10.56 9.58 100.00 7,200,000 4,275,000 2,900,000 1,900,000 1,725,000 18,000,000 31-Dec-17 % Number of holding Shares 40.00 7,200,000 23.75 4,275,000 16.11 2,900,000 10.56 1,900,000 9.58 1,725,000 100.00 18,000,000 General reserve A surplus of share subscription amount over the issue expenses is presented as a general reserve. 13 Legal reserve In accordance with article 106 of the Commercial Companies Law 1974 of the Sultanate of Oman, the Company is required to transfer 10% of its net profit for the year to legal reserve until the accumulated reserve equals one third of the Company's issued share capital. This reserve is not available for distribution. F-32
197. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 14 Finance under Sukuk al ijara 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 129 ,870,130 129,870,130 129,870,130 Sukuk al ijara 129,870,130 50,000,000 50,000,000 50,000,000 50,000,000 In October 2013, the Company issued first sukuk offering 500,000 Sukuk certificates with a face value of RO 100 each. The sukuk program is structured as "sukuk al ijara" and is offered through a special purpose vehicle, "Modern Sukuk Company SAOC" (the issuer) which has issued sukuks to various investors. The issuer has used the proceeds from the Sukuk issue to purchase the beneficial title of Muscat Grand Mall Building (Building-I) at Tilal Development Complex, located at Al Khuwair, Muscat, Oman from the Company. Sukuk offering is secured with legal mortgage over the Building I and issued for a period of 5 years with bullet repayment by October 2018. Issuer has also entered into a sale undertaking under which the issuer will sell back the beneficial title of the building to the Company upon maturity of sukuks. The sukuk offering is duly registered with Muscat stock market in third market. The sukuk certificate bears fixed rental rate payable to investors at the rate of 5% per annum on a semi-annual basis, and the first payout started from 30 April 2014. The issuer will service the profit from returns generated from purchased beneficial title of the underlying property. Sukuk repayment will be matured on 30 October 2018 for RO 50 million and the rental payable for 2018 will be RO 2,104,167 (RO 833,333 due on 30 April 2018 & RO 1,270,834 due on 30 October 2018). The fair value of building I is RO 60,000,000 (2016: RO 60,000,000). Out of total borrowing cost RO 960,404 (USD 2,494,557) (31 December 2017 - RO 1,919,418 USD 4,985,502) have not been capitalised under investment property under construction. Reconciliation of the total finance cost is as under; 31-Dec-17 USD 30-Jun-18 USD 6,958,712 4,802,946 2,200 11,763,858 (6,778,356) 3,466,177 2,642,073 828 6,109,078 (3,614,522) 4,985,502 15 30-Jun-18 RO Finance under Sukuk al ijara Finance under Diminishing musharika (note – 15) Bank charges Total finance cost Borrowing cost capitalized (Note 7) Sukuk al ijarah profit rentals and finance cost expense 2,494,556 31-Dec-17 RO 1,334,478 1,017,198 319 2,351,995 (1,391,591) 2,679,104 1,849,134 847 4,529,085 (2,609,667) 960,404 1,919,418 Finance under diminishing musharika 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 64,923,374 10,476,262 7,792,208 83,191,844 (6,983,171) 76,208,673 64,923,374 9,996,005 6,864,096 81,783,475 (6,983,171) 74,800,304 Diminishing musharika – I (note ‘a’) Diminishing musharika – II (note ‘b’) Diminishing musharika – III (note ‘c’) Less: current portion F-33 24,995,499 3,848,462 2,642,677 31,486,638 (2,688,521) 28,798,117 24,995,499 4,033,361 3,000,000 32,028,860 (2,688,521) 29,340,339
198. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 Finance under Sukuk al ijara (continued) (a) The Group has availed islamic project financing facility of RO 25 million for its Muscat Grand Mall expansion project where repayment will commence from February 2018 and will be paid in 17 half yearly (unequal) installments. The facility is secured by way of mortgage over the project expansion land and project lease receivables. The facilities carry a profit rate of 6.150% per annum. (b) The Group has availed islamic project financing facilities of RO 5 million towards its millennium executive apartment project. Repayment of the facility started from April 2016 and will be paid in 18 half yearly (unequal) installments. The facility is secured by way of mortgage of millennium executive apartment land, building and receivables. The facilities carry profit rate of 6.150% per annum. (c) The Group has availed islamic project financing facilities of RO 3 million towards its Muscat Grand Mall expansion project. Repayment of the facility will commence from March 2018 and will be paid in 8 quarterly (unequal) installments. The facility is secured by way of mortgage over the project expansion land and project lease receivables. The facilities carry profit rate of 5.5% per annum. 15 Finance under diminishing musharika (d) Total finance cost paid by the company is as under; 31-Dec-17 USD 30-Jun-18 USD 1,422,255 6,778,356 4,985,501 (11,559,774) 1,384,748 3,614,522 2,494,556 (5,628,543) (241,590) 1,384,748 31-Dec-17 USD 1,215,644 169,104 1,384,748 16 30-Jun-18 RO 31-Dec-17 RO Opening balance Add: Finance cost as per investment property Add: Finance cost as per income statement Less: Finance cost paid during the year Less: Amortization of cost accounted during the (123,847) year 1,741,436 Closing balance (refer below) 533,128 1,391,591 960,404 (2,166,989) 547,568 2,609,667 1,919,418 (4,450,513) (47,681) 670,453 (93,012) 533,128 30-Jun-18 USD 30-Jun-18 RO Accrued sukuk ijara profit rentals (refer note 19) 1,261,111 480,325 Accrued meethaq rental [refer note – 19 (a)] 1,741,436 Closing balance 485,528 184,925 670,453 31-Dec-17 RO 468,023 65,105 533,128 End of service benefits Movement in liability for end of service benefits is as under: 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 105,719 50,852 (1,758) 154,813 154,813 23,675 178,488 At the beginning of the period/year Charge for end of service benefits Payments made during the period/ year At the end of the period/year F-34 59,603 9,115 68,718 40,702 19,578 (677) 59,603
199. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 17 Advances and security deposits 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 2 ,155,255 2,319,010 6,307,057 2,345,618 170,057 9,726,551 428,519 11,209,841 2,116,971 14,359,197 (9,054,586) 2,155,255 (12,013,579) 2,345,618 18 Security deposits against rent of Muscat Grand Mall Advance rent for Muscat Grand Mall Advance against sale of units at expansion Advance rental for Tilal development complex offices Less: current portion of advances and security deposits 903,063 65,472 3,744,722 829,773 892,819 2,428,217 815,034 5,528,291 164,980 4,315,789 (4,625,228) 903,063 (3,486,015) 829,773 Taxation (a) Taxation for the current year has been determined based on the taxable income for the year. The Company’s income tax assessments for the tax years 2012 to 2016 have not yet been finalised by the Secretariat General for Taxation at the Ministry of Finance. The management considers that additional taxes, if any, that may become payable on finalisation of the assessments in respect of the open years would not be material to the Company’s financial position as at 31 December 2017. (b) Component of income tax charge: 30-Jun-17 USD 188,114 77,384 265,498 618,751 451,821 3,780,431 849 (10,270) 77,384 4,918,966 (c) 30-Jun-18 USD 5,442 5,442 411,977 6,722 34,818 453,517 Current tax - current year - prior years Deferred tax - current year -deferred tax assets not recgnized -Impact of change in tax rate -nondeductible expenses -Exempt income - prior years 30-Jun-18 RO 30-Jun-17 RO 2,095 2,095 158,611 2,588 13,405 174,604 72,424 29,793 102,217 238,219 173,951 1,455,466 327 (3,954) 29,793 1,893,802 30-Jun-18 RO 171,668 2,095 (147,661) 26,102 30-Jun-17 RO 232,315 72,424 (202,522) 102,217 Movement in current tax liability during the year is as under: 30-Jun-17 USD 603,416 188,114 (526,031) 265,499 30-Jun-18 USD 445,891 5,442 (383,535) 67,798 At the beginning of the period/year Charge for the period/year Reversal during the period/year Paid during the period/year At the end of the period/year (d)Deferred tax assets / (liabilities) are attributable to the following items Property, plant and equipment Fair value adjustments on investment properties Revaluation reserve Net deferred tax liability Recognised in 1 January other 2018comprehensive income RO RO (1,682,946) - Recognised in the statement of comprehensive income RO (157,509) 30 June 2018 RO (1,840,455) (5,908,687) - (15,000) (5,923,687) (54,186) (7,645,819) (1,596) (1,596) (172,509) (55,782) (7,819,924) F-35
200. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 Property , plant and equipment Fair value adjustments on investment properties Revaluation reserve Net deferred tax liability Recognised in 1 January other 2018comprehensive income USD (4,371,288) - Recognised in the statement of comprehensive income USD (409,114) - (38,961) (15,386,200) (140,743) (19,859,270) (4,145) (4,145) (448,075) (144,888) (20,311,490) RO (920,963) Recognised in the statement of comprehensive income RO (761,983) 31 December 2017 RO (1,682,946) (4,726,950) (1,181,737) (5,908,687) (5,647,913) (54,186) (1,997,906) (54,186) (7,645,819) 1 January 2017 Property, plant and equipment Fair value adjustments on investment properties Revaluation reserve Net deferred tax liability 19 Trade and other payables USD (4,780,402) (15,347,239) 1 January 2017 Property, plant and equipment Fair value adjustments on investment properties Revaluation reserve Net deferred tax liability 30 June 2018 USD (2,392,112) Recognised in the statement of comprehensive income USD (1,979,176) 31 December 2017 USD (4,371,288) (12,277,792) (3,069,447) (15,347,239) (14,669,904) (140,743) (5,189,366) (140,743) (19,859,270) 31-Dec-17 30-Jun-18 30-Jun-18 31-Dec-17 USD USD RO RO 1,962,208 1,215,644 1,868,608 58,083 1,595,914 6,700,457 3,145,113 Accrued expenses (refer below-a) Accrued sukuk Ijara profit rentals [refer note 1,261,111 – 15 (d)] 2,492,533 Accrued utilities charges - Directors’ remuneration 1,807,623 Other payables (refer below-b) 8,706,380 1,210,868 755,450 485,528 959,625 695,935 3,351,956 468,023 719,414 22,362 614,427 2,579,676 30-Jun-18 RO 31-Dec-17 RO 13,700 16,000 184,925 20,000 89,590 47,766 328,353 93,528 107,860 176,440 65,105 20,000 88,345 44,901 234,358 82,935 90,450 - (a) Accrued expenses: 31-Dec-17 USD 30-Jun-18 USD 41,558 35,584 169,104 51,948 229,468 116,625 608,720 215,416 234,934 480,325 51,948 232,701 124,068 852,865 242,930 280,156 458,286 Accrued Audit fees Accrued meethaq rental [refer note – 15 (d)] Accrued security fees (bank muscat) Gift voucher sale / redemption MGM accrued administrative & general MGM accrued maintenance expenses MGM accrued marketing & promotions MGM staff leave salary & passage MGM Mazaya grand card sale / redemption F-36
201. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 124 ,805 220,499 88,005 81,622 1,962,205 115,151 50,600 3,145,113 Tilal office service charges received (Bldg6) Tilal residence service charges received (Bldg-2,7,8) Others 84,892 48,050 44,333 19,481 1,210,868 33,882 31,424 755,450 (b) Other payables: 31-Dec-17 USD 30-Jun-18 USD 296,558 262,145 1,037,212 1,595,915 167,005 264,169 1,376,449 1,807,623 20 31-Dec-17 RO 64,297 101,705 529,933 695,935 114,175 100,926 399,326 614,427 30-Jun-18 RO 4,589,956 30-Jun-17 RO 4,320,925 375,716 4,965,672 456,425 4,777,350 Rental income from investment properties 30-Jun-17 USD 11,223,182 1,185,519 12,408,701 21 LC payment certification to be received Retention payable for Tilal complex Other creditors payable 30-Jun-18 RO 30-Jun-18 USD 11,921,964 Rental income from mall and offices Rental income from millennium executive 975,885 apartments 12,897,849 General and administrative expenses 30-Jun-17 USD 1,750,431 1,452,223 103,026 701,878 551,774 328,392 66,122 81,234 641,488 47,273 34,294 6,345 6,649 5,927 25,974 1,987 5,805,017 30-Jun-18 USD 1,450,236 2,291,444 52,166 924,377 910,187 365,535 87,413 84,813 1,272,010 67,013 34,787 7,691 3,429 26 9,709 7,560,836 30-Jun-18 RO Staff costs Utility charges Setup cost Maintenance expenses Marketing and promotion Municipal fees and taxes General expenses Insurance Rebate and Concessions Directors' sitting fees [note 22(a)] Legal and professional charges Board meeting related expenses Fees and subscription Printing and stationery Donation Withholding tax 558,341 882,206 20,084 355,885 350,422 140,731 33,654 32,653 489,724 25,800 13,393 2,961 1,320 10 3,738 2,910,922 30-Jun-17 RO 673,916 559,106 39,665 270,223 212,433 126,431 25,457 31,275 246,973 18,200 13,203 2,443 2,560 2,282 10,000 765 2,234,932 These expenses includes direct operating expenses arising from investment property that generates rental income during / period June 2018 amounting to RO 1,679,034 (June 2017: RO 2,085,993). F-37
202. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 22 Related party transactions Related parties represent associated companies , major shareholders, directors and key management personnel of the Group, and entities controlled, jointly controlled or significantly influenced by such parties. Pricing policies and terms of these transactions are approved by the Group’s management. The Group entered into transactions in the ordinary course of business with other related parties in which certain directors have a significant influence and with senior management. The terms and conditions of these transactions are mutually agreed. (a) Transactions with related parties are as follows; 30-Jun-17 USD 30-Jun-18 USD 47,273 524,883 299,740 67,013 532,756 332,330 14,979,530 3,164,530 389,610 389,610 41,948 77,174 306,995 340,032 52,592 231,774 30-Jun-18 RO Directors’ sitting fees Directors’ remuneration Key management remuneration Purchase of Takaful Insurance Cost of civil works carried out by Adhi Oman LLC Management fee to Al Madina Real Estate SAOC Work Executed by Muscat Solution & System Co LLC Sales commission to Edara Real Estate Co LLC Rental income earned from related parties 30-Jun-17 RO 25,800 205,111 127,947 18,200 202,080 115,400 1,218,344 5,767,119 150,000 150,000 29,712 16,150 20,248 118,193 89,233 130,913 The Company under an operation lease agreement with a related party (Al Madina Hotel and Resort Development Co SAOC) earns rental from its Millennium Executive Apartment for a period of 15 years. As per the terms of the agreement, there rentals will be mutually reset on annual basis. Current year gross rental as of 30 June 2018 of RO 375,716 (30 June 2017: RO 456,425) (refer note – 20). Key management personnel are those people having authority and responsibility for planning, directing, and controlling the activities of an entity, either directly or indirectly. This designation typically includes the following positions: • • • Board of directors Chief executive officer, chief operating officer, and chief financial officer Vice presidents (b) Amounts due from and due to related parties are interest free, repayable on agreed terms and disclosed in the statement of financial position, respectively - companies under common control F-38
203. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 22 Related party transactions (continued) Due from related parties 31-Dec-17 USD 30-Jun-18 USD 2,108,665 3,425,390 41,719 56,558 2,078 5,519 690,366 2,391,857 35,309 - 281,517 281,517 121,003 672,405 187,579 237,437 200,403 260,819 64,275 64,275 14,138 14,140 17,532 17,532 182,668 195,730 538,416 646,852 759,447 5,245,115 225,501 8,495,532 Due from related parties Project related receivables: Al Madina Hotel & Resort Development Company SAOC – Company under common control Millennium executive apartments Company under common control MOD Sawary Mall – Sohar – Company under common control Al Madina Real Estate Co SAOC (Tilal Hotels Co LLC) -Company under common control Muscat Solution and System Co LLC – Company under common control Sundus Trading & Marketing (Bows & Arrow) – Company under common control Tilal International Trade Marks LLC – Associates Rental related receivables: Gulf Brands LLC - Company under common control Sundus Trading & Marketing LLC- Company under common control Transid Holding LLC - Company under common control Exiting Games LLC - Company under common control Future Brands LLC - Company under common control Silver Nymph LLC - Company under common control Premedion Health & Spa LLC - Company under common control Contract advance: Adhi Oman LLC - Company under common control 30-Jun-18 RO 31-Dec-17 RO 1,318,775 811,836 21,775 16,062 2,125 800 920,865 265,791 - 13,594 108,384 108,384 258,876 46,586 91,413 72,218 100,415 77,155 24,746 24,746 5,444 5,443 6,750 6,750 75,356 70,327 249,038 207,290 86,818 3,270,780 292,387 2,019,369 Due to related parties 31-Dec-17 USD 30-Jun-18 USD 9,449,252 11,690,220 2,421,852 315,060 - 367,655 2,904,442 3,571 111,055 12,297,219 331,330 15,297,218 Due to related parties Adhi Oman LLC - Company under common control Al Madina Real Estate Company SAOCCompany under common control Edara Real Estate LLC - Associates Millennium Executive Apartment Muscat Solution & system Company LLC Al Madina Insurance Co. SAOG Company under common control F-39 30-Jun-18 RO 31-Dec-17 RO 4,500,735 3,637,962 141,547 1,118,210 1,375 932,413 121,298 - 127,562 5,889,429 42,756 4,734,429
204. 8 TILAL DEVELOPMENT COMPANY SAOC NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018 22 Related party transactions (continued) (c) Certain project expenses related to investment property under construction are incurred by Al Madina Real Estate Company SAOC ("AMRE") on behalf of the Group in accordance with the agreement. The amounts incurred by AMRE are reimbursed and accounted appropriately towards development properties and general and administration expenses. 23 Net asset value per share The calculation of net assets value per share is based on the net assets value at the reporting date divided by the number of ordinary shares at the year end. 31-Dec-17 USD 152,198,703 30-Jun-18 USD 154,487,545 18,000,000 18,000,000 8.46 Net assets Number of shares at the end of the year - number 8.58 Net assets value per share 24 Contingencies and commitments (a) There are no contingencies as at the reporting date. 30-Jun-18 RO 59,477,705 31-Dec-17 RO 58,596,501 18,000,000 18,000,000 3.30 3.26 (b) Capital commitments related to project developments including planned expansion amounted to RO 7,510,334 as of 31 December 2017 (31 December 2016 - RO 9,011,556). 25 26 Basic earnings per share 30-Jun-2017 30-Jun-18 USD USD (793,961) 2,292,987 18,000,000 0.044 18,000,000 0.127 The calculation of earnings per share is as follows: Profit/(loss) for the period attributable to ordinary shareholders Number of shares at the period end Earnings per share 30-Jun-18 30-Jun-2017 RO RO 882,800 (305,675) 18,000,000 0.049 18,000,000 0.017 Change in cash flows from financing activities 30-Jun-2017 USD 69,462,491 30-Jun-2018 USD 83,191,844 6,417,404 75,879,895 6,417,404 (1,408,369) 81,783,475 (1,408,370) Particulars Opening Balance Additions during the period Repayments during the period Closing Balance Change in cash flows F-40 30-Jun-2018 RO 32,028,860 30-Jun-2017 RO 26,743,059 (542,222) 31,486,638 (542,222) 2,470,700 29,213,759 2,470,700
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285. ISSUER AND TRUSTEE SELLER , SERVICE AGENT AND LESSEE Tilal Sukuk Company Limited c/o MaplesFS Limited P.O. Box 1093 Queensgate House Grand Cayman KY1-1102 Cayman Islands Tilal Development Company S.A.O.C. P.O. Box 147 Postal Code 118 Bawshar South Al Khuwair Muscat Governorate Sultanate of Oman DELEGATE BNY Mellon Corporate Trustee Services Limited One Canada Square London E14 5AL United Kingdom PRINCIPAL PAYING AGENT REGISTRAR AND TRANSFER AGENT The Bank of New York Mellon, London Branch One Canada Square London E14 5AL United Kingdom The Bank of New York Mellon SA/NV, Luxembourg Branch Vertigo Building – Polaris 2-4 Eugéne Ruppert L-2453 Luxembourg LEGAL ADVISERS To the Joint Lead Managers as to English law To the Delegate as to English law King & Spalding LLP Al Fattan Currency House Tower 2, Level 24 Dubai International Financial Centre P.O. Box 506547 Dubai United Arab Emirates King & Spalding LLP Al Fattan Currency House Tower 2, Level 24 Dubai International Financial Centre P.O. Box 506547 Dubai United Arab Emirates To Tilal as to English and Omani law Trowers & Hamlin LLP Al Jawhara Building Al Muntazah Street Shatti Al Qurum P.O. Box 2991, PC 112 Muscat Sultanate of Oman To the Trustee as to Cayman Islands law Maples and Calder (Dubai) LLP Level 14, Burj Daman Dubai International Financial Centre P.O. Box 119980 Dubai United Arab Emirates
286. SOLE GLOBAL COORDINATOR Emirates NBD Bank PJSC c /o Emirates NBD Capital Limited Level 12, West Wing The Gate Building DIFC Dubai United Arab Emirates P.O. Box 506710 JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS Emirates NBD Bank PJSC c/o Emirates NBD Capital Limited Level 12, West Wing The Gate Building DIFC Dubai United Arab Emirates P.O. Box 506710 Maisarah Islamic Banking - Bank Dhofar (SAOG) Ground Floor A’Sahwa Tower-1 Azaiba P.O. Box. 1792 Azaiba PC 130 Sultanate of Oman AUDITORS KPMG – Muscat Branch CBD, HSBC Bank Building, 4th Floor P.O. Box 641, P.C. 112 Ruwi , Sultanate Of Oman LISTING AGENT Arthur Cox Listing Servies Limited Ten Ealrsfort Dublin 2