International Investment Bank Annual Report 2006


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International Investment Bank Annual Report 2006

  1. 1. IntroductIon International Investment Bank Annual Report 2006 International Investment Bank (IIB) was incorporated as an Islamic investment bank on 6 October 2003, under commercial registration number 51867 as a Bahrain Joint Stock Company (closed). The Bank commenced its investment activity on 13 International Investment Bank B.S.C.(c) October 2003, and operates under a Wholesale Banking 37th Floor, Almoayyed Tower, Al Seef District, P.O. Box 11616, Manama, Kingdom of Bahrain. Licence issued by the Central Bank of Bahrain. Telephone: +973 1756 5000 IIB has an authorised capital of US$ 200 million and a paid-up Fax: +973 1756 5050 capital of US$ 43 million. Subject to regulatory and shareholder approval, this is expected in the near future to increase to US$ 100 million. The Bank’s shareholders are high net worth individuals, business houses and institutions from the GCC states. The core business activities of the Bank include investing on its own account; investment, underwriting and placement in real estate and private equity; and corporate finance, all in conformity with Islamic Shari’ah. It aims to offer its clients an internationally diversified range of investments generated through its network of strategic partnerships. Vision and Mission 2 Financial Highlights in 2006 3 Principal Investment Offerings 2004 - 2006 4 Financial Summary 5 Board of Directors’ Report 6 Board of Directors 8 Corporate Governance 10 Chief Executive Officer’s Review of Operations 15 Financial Review 24 Risk Management 26 Shari’ah Supervisory Board Report 31 Independent Auditors’ Report to the Shareholders 32 Statement of Income 34 Balance Sheet 35 Statement of Cash Flows 36 Statement of Changes in Equity 37 Notes to the Financial Statements 38 Annual Report 2006 | International Investment Bank B.S.C.(c) |
  2. 2. VIsIon and MIssIon To be a regional leader in private equity investment, real estate investment, asset management and corporate finance, mainly through the provision and management of high-quality, globally-diversified investment offerings in accordance with the principles of Islamic Shari’ah; to maximize shareholder value; to generate superior risk-adjusted returns for clients; to provide excellent career opportunities to all employees; and to deal fairly with all other stakeholders. To originate, manage and ultimately exit from a well-diversified range of innovative investment products in association with leading international strategic partners; to provide high-quality advisory services to clients; to operate in accordance with the highest standards of corporate governance, risk management, due diligence and ethical standards; and to attract and retain the best-qualified employees available. | International Investment Bank B.S.C.(c) | Annual Report 2006
  3. 3. FInancIal HIgHlIgHts In 2006 +92.2% Net Income for the year rose by 92.2% over 2005 to US$ 13.5 million +49.2% Total Assets increased by 49.2% over the year 2005 to reach US$ 94.5 million +54.5% Total Assets under Management reached US$ 181.7 million - up by 54.5% over 2005 +62.2% Return on Average Equity increased by 62.2% during 2006 to 24.0% +93.8% Earnings per Share of US$0.31 increased by 93.8% compared to 2005 Annual Report 2006 | International Investment Bank B.S.C.(c) |
  4. 4. PrIncIPal InVestMent oFFerIngs 2004 - 2006 Summary of Principal Investment Offerings 2004-2006 Year Investment Location Private Other Total Description Equity Funds Transaction Raised ** Size US$ Millions US$ Millions US$ Millions 1 2004 Property fund Bahrain 18.6 18.3 36.9 2 2004/5 Independent power producer Asia 23.0 217.0 240.0 3 2005 Housing development company Bahrain 22.6 - 22.6 4 2005 Commercial property * UK 14.6 286.1 300.7 5 2005 Commercial tower development * Dubai 16.4 77.7 94.1 6 2005 Islamic investment bank UK 19.5 175.5 195.0 7 2005 Paper manufacturing company Abu Dhabi 12.0 35.1 47.1 8 2006 Commercial property portfolio France 44.0 61.6 105.6 9 2006 Real estate development company Saudi Arabia 20.9 85.8 106.7 10 2006 Commercial tower development Dubai 25.0 64.1 89.1 Totals 216.6 1,021.2 1,237.8 * Investment realized and funds distributed to investors in 2006 ** Comprises partners’ contributions, borrowings and equity from IPO Principal Bankers and Professional Advisors Principal Bankers Ahli United Bank, Bahrain External Auditors Ernst Young, Bahrain External Legal Counsel Hassan Radhi and Associates, Bahrain 31 31 31 13.5 13.5 13.5 61.4 61.4 61.4 60 60 60 US$ Millions US$ Millions Millions US$ 12 12 12 US$ Millions US$ Millions Millions US$ 25 25 Cents CentsUS$ Cents 25 US$ US$ 50.8 50.8 50.8 50 50 43.8 50 43.8 43.8 20 20 20 9 9 9 40 40 40 7.0 7.0 7.0 16 16 16 15 15 15 30 30 30 6 6 6 10 10 10 20 20 20 3 3 3 5 5 5 10 10 10 0.8 0.8 0.8 2 2 2 0 0 0 0 0 0 0 0 0 2004 2004 2005 2005 2006 2006 2004 2005 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 Net Income Net Income Net Income Earnings per ShareShare Share Earnings per Earnings per Equity Equity Equity 200% 200% 200% 200 200 200 PercentPercent Percent 24.0% 24.0% 24.0% 17.1% 17.1% 17.1% 20 Percent 20 20 Percent Percent 150 150 150 15 15 Percent 15 Percent Percent 134% 134% 134% 13.0% 13.0% 13.0% 14.8% 14.8% 14.8% | International Investment Bank B.S.C.(c) | Annual Report 2006 15 15 15 101% 101% 101% 100 100 100 10 10 10 10 10 10
  5. 5. FInancIal suMMary Three-year Financial Summary 2006 2005 2004 Earnings (US$ Millions) Total income 24.6 12.4 4.2 Operating income 23.6 11.2 3.5 Operating expenses 10.1 4.2 2.7 Net income 13.5 7.0 0.8 Dividend (%) 10.0 8.0 - Financial Position (US$ Millions) Total assets 94.5 63.4 44.4 Due from Financial Institutions 53.5 26.2 28.0 Investments 16.4 13.7 14.1 Due to Financial Institutions 20.0 - - Equity 61.4 50.8 43.8 Ratios Profitability Return on average equity (%) 24.0 14.8 1.8 Return on average assets (%) 17.1 13.0 1.8 Earnings per share (cents) 31 16 2 31 31 31 Cost-to-income ratio (%) 13.5 13.5 13.5 45.2 43.5 61.4 61.4 61.4 81.5 Capital US$ Millions Millions 60 60 60 US$ Millions Millions Millions US$ US$ 12 12 US$ Millions12 US$ 25 US$ Cents 25 Cents 25 US$ US$ Cents 50.8 50.8 50.8 Capital adequacy (regulatory minimum 12%) 50 134 50 43.8 50 43.8 43.8 101 200 20 20 20 9 9 9 40 40 40 Equity/total7.0 assets (%) 7.0 7.0 16 16 16 65.0 80.2 98.5 15 15 15 Liquidity and Other 30 30 30 6 6 6 10 10 10 Investments/total assets (%) 20 17.4 20 20 21.6 31.7 3 3 3 Liquid assets/total assets (%) 5 5 5 10 66.4 10 10 43.0 63.3 0.8 0.8 0.8 2 2 2 0 0 under management (US$ Millions) 0 Assets 0 0 0 0181.7 0 0 117.6 19.6 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 NumberNetemployees of Net IncomeIncomeIncome Net Earnings per Share Share Share Earnings per Earnings per 40 Equity Equity Equity 20 17 200% 200% 200% 200 200 200 Percent Percent Percent 24.0% 24.0% 24.0% 17.1% 17.1% 17.1% 20 20 20 Percent Percent Percent 150 150 150 15 15 15 Percent Percent Percent 134% 134% 134% 13.0% 13.0% 13.0% 14.8% 14.8% 14.8% 15 15 15 101% 101% 101% 100 100 100 10 10 10 10 10 10 50 50 50 5 5 5 5 5 5 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% 0 0 0 0 0 0 0 0 0 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 2004 2004 2005 2004 20052006 20052006 2006 Return Return Return on Average Equity on Average Equity Equity on Average CapitalCapitalCapital Adequacy Ratio Adequacy Ratio Ratio Adequacy Return Return Return on Average Assets on Average Assets Assets on Average Annual Report 2006 | International Investment Bank B.S.C.(c) |
  6. 6. Board oF dIrectors’ rePort Dear Shareholders, On behalf investments in the UK and Dubai. of the Board of Directors, A 67% IRR was generated in only 18 it gives me great pleasure months on the UK property, and the to report to you on the Dubai investment yielded a 25% IRR performance of International over a period of 11 months. These exits Investment Bank (‘IIB’) during represented important milestones in 00. IIB’s development, as they are tangible evidence of the Bank’s capabilities in Regional economic developments delivering exceptional performance. IIB’s As I foresaw in last year’s Directors’ strategy of investing across a diversified Report, there were major corrections range of countries and industries has in the GCC stock markets during the also paid dividends over the past year, course of the year, with some indices as it has helped to cushion investors falling by more than 50% from their all- against the fall in the US Dollar. time highs only 12-15 months earlier. Financial performance Although these falls have inevitably Saeed Abdul Jalil Al Fahim damaged investor confidence in the Following the strong contribution short term, they have not had a material from both the new and the existing impact on the overall economies investments arranged by the Bank, Total of the region, which continue to be Income rose by 98.1%, from US$ 12.4 bolstered by high oil and gas revenues. million in 2005 to US$ 24.6 million in Governments have exercised prudence 2006. During the year, IIB continued in their spending, and have brought to build up its staff and its operating down their debt levels. They have also infrastructure, as a result of which embraced a variety of economic and Total Expenses increased by 105.8%. political reforms, which contributed to Net Income at US$ 13.5 million was a favorable investment climate in IIB’s 92.2% higher than in 2005, representing target countries and sectors in 2006. a very creditable 31.3% return on However, the geopolitical situation in paid-up capital. The Cost-to-Income the wider Middle East region is a cause Ratio increased from 43.5% in 2005 for concern, and could seriously dent to 45.2% in 2006, which still compares investor confidence, not only in the very favorably with our regional and Arab World but also internationally, if it international peers. deteriorates further. The growth in business volumes was Investment achievements also reflected in the total footings increasing by 49.2% to US$ 94.5 2006 was IIB’s third full year of million. The Bank continued to operations. In addition to arranging maintain a high degree of liquidity, several new major real estate with surplus funds being placed on investments in Dubai, France and short term murabaha with selected Saudi Arabia, the Bank made strategic investment-grade banks, and its Capital direct investments in Islamic financial Adequacy Ratio remained comfortably services institutions in the UK and above the regulatory requirement. This Kuwait, which will complement its prudent approach to liquidity and existing stake in European Islamic solvency is a cornerstone of the risk Investment Bank. IIB’s investors and management policy laid down by the shareholders are already reaping the Board of Directors, and is designed rewards of the Bank’s highly selective to ensure that IIB can withstand any and rigorous investment strategy, external financial or economic shocks with two very profitable early exits that may arise. being achieved from recent real estate | International Investment Bank B.S.C.(c) | Annual Report 2006
  7. 7. Board oF dIrectors’ rePort Given these excellent results, the Outlook for 2007 Appreciations Board is proposing to distribute a cash Whilst the business prospects for 2007 On behalf of the Board of Directors, dividend for 2006 of US$ 4.3 million, appear bright, with a strong pipeline I would like to thank the Bahrain representing 10% of paid-up share of deals already under review, and the Government and the Central Bank of capital, to transfer US$ 1.3 million to regional economies remaining very Bahrain for their pro-active support statutory reserve and to retain US$ 7.8 buoyant, the Bank faces a number of for the financial services sector, and our million to further strengthen the Bank’s challenges. Supported by the massive shareholders, Shari’ah Board, clients, capital base. As in the previous two amount of liquidity and strong demand business partners and employees, who years, the Board is also proposing that for Shari’ah-compliant investments in have all made invaluable contributions the shareholders pay their respective the GCC countries, there is intense to IIB’s success. We look forward to Zakat on their equity investment in the competition from both regional and continuing our mutually beneficial Bank. international investment banks for new relationship in the years ahead. It is proposed that the Board of business. This is driving down yields, Directors should receive a total and putting further upward pressure remuneration of US$ 330,000 in on regional and international asset respect of 2006, in addition to the prices, to levels which may not prove usual reimbursement of their travel and sustainable. There is also a shortage accommodation expenses incurred in of qualified investment banking connection with IIB-related business professionals, which has pushed up during the year. remuneration levels, and which could affect IIB’s ambitious growth plans. The Saeed Abdul Jalil Al Fahim Capital increase Chairman Bank is therefore introducing a share As announced at the last Annual incentive scheme which is designed General Meeting, it is intended to to attract and retain key staff, while significantly increase the Bank’s capital aligning the interests of shareholders through a “rights issue” for existing and employees. shareholders and an invitation, on a During 2007 the Bank plans to acquire selective basis, to certain investors in a core banking system in order to our deals to enable them to share in the enhance and automate a number of its success of the Bank. An independent key processes, including accounting, valuation of the Bank is currently being financial control, risk management and undertaken by external consultants. customer relationship management. Subject to final shareholder and Whilst this will represent a major regulatory approval, the capital increase investment, it is considered essential is scheduled to proceed during the to the Bank’s long-term growth and first half of 2007, and it will enable the development. Additional premises Bank to scale up its activities in terms have also been leased in order to of both the number and the size of the accommodate the Bank’s increased transactions that it can arrange. headcount, which is expected to rise from 40 to 60 during 2007. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  8. 8. Board oF dIrectors 1 Mr. Ahmed Salem 4 Mr. Abdul Wahab 8 Mr. Fahad Fouad Bugshan, Vice Chairman Mohammed Al Wazzan, Bubshait, Director President, Saudi Industrial Director Chairman CEO Projects Company (SIPCO), Chairman of Kuwait Real of Audeo Maxima Saudi Arabia; Member of the Estate Bank; Chairman of International Ltd., UAE; Board, Pepsi Cola, Egypt; Social Development Office, Chairman of BubbleDeck Chairman, Savoy Hotels, Kuwait; Vice Chairman Middle East LLC, UAE; Sharm Al-Sheikh. of National International Foreign Investments Holding Company, Advisor of Abdulla 2 Mr. Aamer Abdul Jalil Al Kuwait; Former Minister Fouad Holding Co. Ltd.; Fahim, Director of Commerce Industry, Former General Manager Managing Director of Al Kuwait; Former Minister of Mantech Real Estate Fahim Group, UAE; Board of Social Affairs Labour, Fouad Travel Agency Mr. Saeed Abdul Jalil Al Member of Abu Dhabi Kuwait. (Abdulla Fouad Holding Fahim, Chairman Commercial Bank; Board Company Ltd.), Saudi Member of Al Wathba 5 Mr. Ali Hashim Sadiq Chairman of Al Fahim Arabia. Insurance Company; Hashim, Director Group, UAE; President of Member of Federal National President CEO, Gulf 9 Mr. Sulaiman Haider Sh. Khalifa Excellence Award Council, UAE; Board United Investment, Saudi Sulaiman, Director (Abu Dhabi Chamber of Commerce and Industry); Member of Abu Dhabi Arabia; Chairman, Gulf Chairman, Sulaiman Former Deputy President Chamber of Commerce and Packaging Systems, Saudi Bros, Qatar; Board of Abu Dhabi Chamber of Industry; Board Member of Arabia; Member of the Member, Qatar Commerce and Industry; Al Qudra Holdings; Board Board, Middle East Telecom Chamber of Commerce; Former Member of Board Member of Al Safwa Islamic (METCO), Saudi Arabia. Board Member, Qatar of National Bank of Abu Financial Services; Chairman Navigation; Board 6 Mr. Khalid Othman Abu Dhabi; Former Member of of Aradi Properties P.J.S.C. Member, Qatar German Hemed, Director Board of United Arab Bank. Medical Company; Area 3 Mr. Ebrahim Eshaq President, Owma Trading Manager, Qatar National Abdulrahman, Director Co. Ltd, Saudi Arabia. Bank. Managing Director, 7 Mr. Abdulla Ahmed 1 2 3 Investment and Trading Balamsh, Director (Gulf ) Enterprises, Bahrain; Director, Bahrain Car Park Proprietor and Chairman of 4 5 6 Hosoon Najd Group, Saudi Co. B.S.C.; Director, United Gulf Industries B.S.C.; Arabia; Regional Manager 7 8 9 Founder Shareholder and of Saeed Mohammed Al- former Managing Director of Amoudi Company; Member Bank of Bahrain and Kuwait. of the Board of Emmar Al Wattan Real Estate Company. | International Investment Bank B.S.C.(c) | Annual Report 2006
  9. 9. Board oF dIrectors Annual Report 2006 | International Investment Bank B.S.C.(c) |
  10. 10. corPorate goVernance The Board of Directors is responsible for the overall governance of the Bank through continuous review Board of Directors Audit Committee and adherence to international best Shari’ah Committee practice and standards. The Board determines the Bank’s strategy, provides direction to the Executive Management, Executive Committee ensures that the control framework Chief Executive Officer Internal Audit is functioning in accordance with Nominations best practice and monitors Executive Committee Management’s performance. The interaction between Directors and Manager, Chief Financial Officer Management through the Board and HR Administration Management Committees is shown on the organization chart. Head, Manager, Legal Compliance Risk Management 1. Board of Directors The Board meets regularly throughout the year in order to control strategic, Chief Operating Management Executive Director, financial, operational, internal control Officer Committee Banking Support and compliance issues. It currently comprises ten “non-executive directors”, Executive Director, Banking Support as defined by the “High Level Controls” Private Equity and module (HC-1.3.5) of the CBB Corporate Finance Investor Services (Vacant) Rulebook Volume II, profiles of whom are provided at Page 8. Engineering Services Executive Director, Board Committees Investment and IT Services The Board has established three Business Development sub-committees and a Shari’ah Board Corporate Communications comprising expert, independent scholars to assist it in carrying out its Executive Director, Investment Placement responsibilities. The Nominations (Vacant) Committee was set up in 2006. This committee structure ensures appropriate oversight by the Board of Committee Members Summary Terms of Reference Directors while permitting efficient day- to-day management of the Bank. Executive Committee Mr. Aamer Abdul Jalil Al Fahim Assists the Board to review the Bank’s strategy, (Chairman) annual budget and forecasts, risk policies and Mr. Ebrahim Eshaq Abdulrahman management committees’ activities and Mr. Khalid Othman Abu Hemed actions. Audit Committee Mr. Abdul Wahab Mohammed Assists the Board to review the integrity of the Al-Wazzan financial statements, compliance with legal and (Chairman) regulatory requirements, the Bank’s internal Mr. Sulaiman Haider Sulaiman, audit function and the independent auditor’s Mr. Fahad Fouad Bubshait qualifications, independence and performance. Nominations Committee Mr. Ahmed Salem Bugshan Assists the Board to assess candidates and to (Chairman) make management appointments. Mr. Aamer Abdul Jalil Al Fahim Mr. Ali Hashim Sadiq Hashim Shari’ah Supervisory Board Sheikh Nizam Yaquby Assists the Board to ensure that the Bank (Chairman) operates in accordance with Shari’ah rules and Sheikh Abdul Sattar Abu Ghuddah principles through a review of interim and annual Sheikh Osama Mohammed financial statements and a detailed analysis Saad Bahar of each type of transaction with its relevant documentation and the procedures adopted by the Bank. 0 | International Investment Bank B.S.C.(c) | Annual Report 2006
  11. 11. corPorate goVernance Shari’ah Supervisory Board 2. Executive Management Executive Management Profiles Being an Islamic Bank, IIB’s Shari’ah Management Committees a). General Management Supervisory Board regularly reviews The Board has approved the formation Aabed Al-Zeera, Chief Executive all investment products and business of an Executive Management Officer activities to ensure compliance with Committee, which is summarised in the the Islamic Shari’ah, approves the Mr. Al-Zeera has over twenty five years table below. Bank’s financial statements and also of international banking experience participates with management in the Arising from the rapid growth in with major financial institutions in the development of suitable investment the Bank during its first three years Kingdom of Bahrain and the United products and services. of operations, a comprehensive Arab Emirates. They include American review of corporate governance and Express Banking Corporation, Arab IIB’s Shari’ah Supervisory Board the committee structure has been Banking Corporation (ABC), Standard comprises three prominent GCC completed. It is anticipated that the Chartered Bank and First Islamic Islamic scholars who provide the Bank Board at its next meeting will approve Investment Bank (now Arcapita). He with pragmatic Islamic opinions: the formation of an Assets and was instrumental in setting up ABC’s Sheikh Nizam Yaquby Liabilities Committee, an Investment Representative Office in Abu Dhabi in Committee and a Risk Management 1996, where he served as Vice President Sh. Yaquby is a member of the Islamic Committee, which are planned to and Chief Representative. supervisory board of several Islamic be fully functional by 30 June 2007. institutions, including the Arab Islamic Mr. Al-Zeera was one of the key These committees will comprise senior Bank and the Abu Dhabi Islamic Bank. promoters of IIB who, together with management and heads of departments He is also a board member of the Dow the Al Fahim Group, conceived and who are best qualified to make decisions Jones Islamic Index. His work has successfully set up the Bank. He is a on such issues as funding, asset appeared in the following publications: board member of several companies of utilization, investment purchase/sale Risalah Fi al-Tawbah, Qurrat al-Ainayn IIB and is a Non-Executive Director of and management of all types of risk, fi Fada il Birr al-Walidayn, Irshad European Islamic Investment Bank Plc, including market, credit, liquidity al-Uqala’ila Hukum al-Qira’h min al- London. and operational risks. In addition, an Mushaf fi al-Salah, Tahqia al-Amal fi Information Technology Committee Salah Nooruddin, Chief Operating Ikhraj Zakat al-Fitr bi al-Mal. will be formed to supervise the selection Officer Sheikh Abdul Sattar Abu Ghuddah and implementation of a core banking Mr. Nooruddin holds a Masters Degree Sh. Abu Ghuddah holds a Ph.D. in system. in International Banking Finance and Islamic law and comparative Fiqh from A Management Committee will has over twenty years of international Al Azhar University Cairo, Egypt. approve each committee’s terms of banking experience with major financial He has taught at various institutes, reference, membership, delegated institutions such as Chase Manhattan including Imam Al Da’awa Institute authorities and policies. All Bank and Arab Banking Corporation. (Riyadh), Religious Institute (Kuwait) management committees are expected In 1997, he established a financial and the Shari’ah College of the Law to meet at least monthly and a quarterly advisory firm, Trust Securities, which is Faculty at Kuwait University. report highlighting the major activities today known as Gulfinvest Bahrain. He and decisions will be provided to the joined IIB when operations commenced Sheikh Osama Mohammed Saad Executive Committee for review and in 2003 and is a board member of Bahar ratification. This enhanced structure several companies of IIB and of Islamic Sh. Al Bahar holds a Bachelor degree in will ensure that IIB meets or exceeds Finance Consultants. Islamic Shari’ah and was an Associate the best industry standards of Lecturer at the BIBF, Bahrain. He is a governance and its activities, strategy, Member of the Shari’ah Board of the performance and risks are effectively National Investor Fund of Abu Dhabi managed. and is a Shari’ah Advisor to Khaleej Finance and Investments. From 1994 to Committee Members Summary Terms of 2005, he was Manager of the Shari’ah Reference Department at Shamil Bank, Bahrain. Management Mr. Aabed Al-Zeera Focuses on the Committee (Chairman) execution of the Since 2005, Sh. Osama has been Mr. Salah Nooruddin strategic business Shari’ah Compliance Officer at ABC Mr. Frederick Stonehouse plan via regular review Islamic Bank, Bahrain and is currently Mr. Michael Ross-McCall and monitoring of the Mr. Mohamed Hadi Mejai tasks and initiatives Head of Shari’ah Compliance at Al- undertaken to fulfill the Salam Bank, Bahrain. plan’s objectives. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  12. 12. corPorate goVernance Eihab Ahmed, Head, Legal c). Finance, Administration and Audit Hakan Gunay, Director Compliance Michael Ross-McCall, Chief Mr. Gunay holds a B.Sc. in Management Mr. Ahmed graduated in 1994 with Financial Officer from the Middle East Technical a Law Degree from the University University in Turkey and an MBA Mr. Ross-McCall holds a Law Degree of Khartoum, following which he from Cass Business School, London from Edinburgh University and is a spent 5 years as Legal Consultant at City University (UK). Prior to joining member of The Institute of Chartered the Ministry of Justice of Sudan. He IIB, he spent 15 years in the field of Accountants of Scotland. He has was a Public Prosecutor and for four appraisal, development and financing worked in the banking sector for over years a Legal Advisor at the Bank of of infrastructure projects, located in 20 years, including positions at Wells Khartoum. He then worked as Legal Turkey, Belgium and Saudi Arabia. Fargo Bank, Bank of Bahrain Kuwait Consultant at BDO Jawad Habib, and Bahraini Saudi Bank. 3. Incentive Structure Bahrain and most recently as Head of Legal Department at Khaleej Finance Nader Asad, Director, Finance and The Bank conducts a formal written Investment Bank, Bahrain. Administration appraisal for management at least once per year. Depending on the b). Banking Support Mr. Asad holds a B.Sc. in Accounting Bank’s performance and individual and an M.B.A. from a UK university. Frederick Stonehouse, Executive goal achievement, management and His professional qualifications include Director staff are eligible to receive an annual CPA and CFA. He spent eight years discretionary performance bonus Mr. Stonehouse has more than providing audit and advisory services at and/or a salary increment. Management 30 years of international banking PricewaterhouseCoopers and Arthur and staff are also eligible to co-invest experience with major UK, US, Arab Andersen and before joining the Bank in the Bank’s investment offerings. and Spanish institutions in London, in 2005, he was Deputy Financial The Board of Directors approves the Bahrain and Madrid, including Controller at Bahrain Islamic Bank. aggregate amount of discretionary National Westminster Bank, Lloyds Ali Redha, Head, Internal Audit bonuses, together with the specific Bank International, Arab Banking Mr. Redha is a member of the payments made (if any) to the Chief Corporation, Arab Bank and Banco American Institute of Certified Public Executive Officer and the Chief Atlantico. He has been closely involved Accountants (AICPA). He has over Operating Officer. The Board approves with Arab institutions since 1978 10 years of experience in auditing and the aggregate amount of planned and has occupied senior management banking at KPMG , Daar Al-Maal increments as part of its approval of the positions for the past 20 years. Al-Islami (DMI Group), Shamil Bank, annual budget. Hasan Abu-Hasan, Head, Ithmaar Bank and Bahraini Saudi Bank. A proposal to implement a stock option Engineering Services He joined IIB in 2005 and helped co- scheme available to management and Mr. Abu-Hassan holds a Master’s ordinate policies and procedures and selective staff will be presented to an Degree in Engineering Management the setup of controls and guidelines. extraordinary general meeting for from Bahrain University and a Master’s approval during the first quarter of d). Investment and Business Development Certificate in Project Management from 2007. The George Washington University Mohamed Hadi Mejai, Executive School of Business. Prior to joining Director IIB in November 2005, as a Civil Prior to joining IIB in 2005, Mr. Mejai Engineer and a Government Executive, spent several years with the Islamic he spent more than 20 years working Development Bank Group and affiliated in developing the electricity and water investment companies and funds in the infrastructures for the Kingdom of Kingdom of Saudi Arabia and UAE. Bahrain. He started his banking career in France and the UK. Mr. Mejai’s track record is mainly in aquisition structuring and monitoring of investments. He holds a Masters of Science from the University of London, UK and completed his executive education at the Theseus International Institute, France, and the London Business School, UK. | International Investment Bank B.S.C.(c) | Annual Report 2006
  13. 13. corPorate goVernance 4. Communications Strategy 6. Shareholders and Directors’ Interests A summary of the Bank’s quarterly and annual financial statements Shareholders are published in local and regional Distribution Schedule of Equity newspapers. All other published communications including investment The ordinary shares in issue at offerings and exits are handled by 31 December 2006 comprised 43 the Corporate Communications million shares of US$ 1 each. The Department, under the direction of the concentration of the 45 shareholders is Executive Director, Banking Support. as follows: Enquiries are received via the IIB e-mail address Category Number of Number of Percentage Shares Shareholders Holding The Bank maintains a website which contains Less than 1% 2,550,000 12 5.93 1% up to less than 5% 25,209,649 30 58.62 the latest Annual Report, together 5% up to less than 10% 4,801,754 2 11.17 with summary financial data covering 20% up to less than 25% 10,438,597 1 24.28 the previous two years and interim Total 43,000,000 45 100 quarterly financial statements. It also contains a profile of the Bank, details Directors of the principal products and services, profiles of the senior managers and Shareholding by Directors and their regular press releases concerning related parties investment transactions and other The number of shares held by Directors developments. and their related parties at 31 December 5. Additional Governance Controls 2006 aggregated to 49.98% of the issued share capital. The Board has approved a number of policies which are communicated to 7. Management Team management and all staff. They cover General Management subjects including risk management, Aabed Al-Zeera Chief Executive Officer anti-money laundering, ethical Salah Nooruddin Chief Operating Officer behavior, personal conduct, financial Eihab Ahmed Head, Legal Compliance control, human resources and business Banking Support continuity. Frederick Stonehouse Executive Director, Banking Support Murtaza Ghulam Principal, Banking Support Corporate governance is also supported Saba Al-Khalifa Principal, Investor Services Mazar Jalal Principal, Acting Manager, Risk Management by the ongoing reviews performed by Hasan Abu-Hasan Head, Engineering Services the Internal Audit Department and the Finance, Administration and Audit External Auditors. The reviews confirm Michael Ross-McCall Chief Financial Officer that the policies and internal control Nader Asad Director, Finance and Administration Ali Redha Head, Internal Audit procedures conform to best practice and Business Development are being fully complied with by all staff. Mohamed Hadi Mejai Executive Director, Investment Business Development Hakan Gunay Director Nader Al-Khilili Principal Nasser Bayoun Principal Fadi Qassim Project Manager Investment Placement Alyas Al-Meftah Principal, KSA, Western Province Ebrahim Al-Shaibeh Principal, Kuwait Fawzan Alnaser Principal, Bahrain, Qatar and KSA, Eastern Province Jassim Alshaikh Principal, KSA, Riyadh Rayan Kazerooni Principal, UAE and Oman Bader Ali Associate, KSA Eastern Province Bashar Ali Al-Shaikh Associate, KSA Eastern Province AbdulJabbar Al-Kooheji Associate, UAE Saud Al Yahya Associate, Kuwait Annual Report 2006 | International Investment Bank B.S.C.(c) |
  14. 14. 120 US$ Millions 20 US$ Millions 16.4 100 16 14.1 13.7 80 12 60 44.4 8 40 4 20 0 0 2004 2005 2006 2004 Investments Total Asset 100 Percent 81.5% 181.7 181.7 75 120 120 US$ Millions US$ Millions 180 180 US$ Millions US$ Millions 94.5 94.5 16.4 16.4 100 100 150 150 80 80 120 120 117.6 117.6 50 43.5% 45.2% 63.4 63.4 60 60 90 90 44.4 44.4 40 40 60 60 25 20 20 30 30 19.6 19.6 0 0 0 0 0 2006 2006 2004 2004 2005 2005 2006 2006 2004 2004 2005 2005 2006 2006 2004 2005 2006 Total Assets Assets under Management Cost / Income Ratio 45.2% 45.2% 2006 2006 | International Investment Bank B.S.C.(c) | Annual Report 2005 atio
  15. 15. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons Bahrain’s economy performed During the course of 2006, IIB arranged well in 2006 in conjunction five new investments and successfully with the robust growth in exited two transactions. In keeping with other GCC countries. This was the Bank’s strategy, the new investments supported by record oil prices were diversified by asset type, by and high production levels, economic sector and by country. They strong corporate earnings, included a commercial office tower in particularly in the banking Dubai, a housing development company sector, low inflation and in Saudi Arabia and a portfolio of high levels of liquidity. Most commercial properties in France. regional economies posted Another important milestone was record budget and current reached by the Bank during 2006 account surpluses. Despite when we achieved the first exits from a number of IPOs that were investments, being a prime office oversubscribed, most regional building in the West End of London stock market indices posted and a commercial tower development Aabed Al-Zeera declines in 2006. in Dubai, in both cases delivering The Central Bank of Bahrain issued outstanding returns to our investors banking licenses to several new several years ahead of schedule. These institutions during the year, further two highly successful exits have helped intensifying the competition for retail to cement IIB’s reputation both and commercial customers. New with investors and with institutional entrants are attracted by the reputation partners, and to establish a clear for transparency, firm Central Bank track record for the Bank in both the supervision and strong ties to the origination, structuring, management surging economies in the GCC and and delivery of profitable Shari’ah- MENA regions. compliant investments. Summary In keeping with best practice, corporate governance is being further enhanced 2006 represented IIB’s third full year through changes to the board and of operations, and the Bank achieved management committee structure. further important milestones in its Details can be found at pages 10-11. development. These include a very strong financial performance, several During the course of the year the new investment transactions, highly Internal Auditor undertook several profitable exits well ahead of plan, the audits in accordance with the audit recruitment of additional staff and programme approved by the Audit the implementation of policies and Committee. The Bank also underwent procedures prepared in association with a routine examination by the Central external consultants. I am confident Bank of Bahrain which revealed no that solid foundations have now been material regulatory concerns. laid for the Bank to move to the next IIB, through our strong global network stage of its development, which will of contacts, continues to gain access to be given strong impetus by a material high quality investments. We subject increase in our paid-up capital during each project to various stress tests, and the first half of 2007. This is a tangible benefit from the input of reputable demonstration of the excellent support external advisors to assess their viability. that the Bank has always enjoyed from its shareholders, and it will enable IIB to scale up its operations in a prudent and sustainable manner. Annual Report 2006 | International Investment Bank B.S.C.(c) |
  16. 16. cHIeF executIVe oFFIcer’s reVIew oF oPeratIons Selecting the right deals and working in the proposed state-of-the-art West Among these are the Saudi Arabian with world class partners from within Bay Tower, which is being developed in Pension Fund and the Alzahid Group. the region and internationally to partnership with SNASCO, a GCC- Ewaan will explore a broad range of maximize value is critical to the ongoing based real estate development company, opportunities in the Saudi Arabian real success of IIB. Real estate continues and will form part of the Business Bay estate market, in particular the mid- to be an attractive asset class and we District in Dubai, UAE. The 30-storey market housing segment, where demand are well placed to offer a broad and X-shaped West Bay Tower provides far outstrips supply and into which well balanced portfolio of properties, 75,702 sq. metres of floor space and is little investment has been channeled to both from within this region and other due for completion in the fourth quarter date. According to recent projections, strong performing markets. We seek out of 2008. It offers investors the potential it is expected that over the next ten attractive assets that are diversified by early realization of their investment years the gap between housing supply country, sector and asset type, and we through pre-sales of office units during and demand in Saudi Arabia will reach have thereby been able to provide our the construction period of the Tower. some 1 million units. Ewaan believes investors with a balanced portfolio, as This is IIB’s second investment in the mid-market segment represents a well as superior risk-adjusted returns, Dubai’s Business Bay development, large proportion of this requirement. during a period when regional stock which is being planned by the Dubai markets have suffered sharp corrections. The IRR for investment in the company Government as the new dynamic Rigorous due diligence and efficient is expected to be in excess of 22% over ‘downtown’ area of Dubai, the pre- execution provide the solid foundations a three to five year horizon. Further, eminent business hub in the UAE on which all of IIB’s investment there is scope for significantly enhanced and the region. The projected Internal decisions are based. returns through capital appreciation Rate of Return (IRR) on the West at exit should the company be floated Investment Transactions Bay Tower project is 21.6% over an through an Initial Public Offering investment horizon of 36 months and In 2004, its first full year of operation, (IPO). was heavily oversubscribed by investors IIB established a property fund based from across the GCC in June 2006. IIB France Investment in Bahrain and purchased an equity Holding B.S.C. investment in an independent power IIB KSA Investments Total transaction size: US$ 105.6 million company in Asia. During 2005, the Ewaan Bank successfully arranged and placed Total transaction size: US$ 106.7 million In December 2006, IIB acquired a six investments. These comprised high-quality portfolio of commercial In July 2006, IIB and its co- opportunities across a number of real estate properties in France. IIB investors formed Ewaan, a real estate asset classes and geographic locations, and its investors are taking a 90% development company for investment including commercial real estate stake in the portfolio, which comprises in the Saudi Arabian real estate market. investments in the UK and Dubai, a six commercial properties that are To be based in Saudi Arabia, and with strategic direct investment in an Islamic strategically located in France’s two an authorized capital of SR 400 million investment bank in Europe, a housing largest cities, Paris and Lyon. There is (US$ 106 million), the company development company in Bahrain, a strong demand for office space in the plans to invest SR2 billion (US$ 533 new paper mill plant in Abu Dhabi French commercial property sector and million) in the fast-developing Saudi and placement of the equity investment particularly in these key commercial Arabian property sector over the next in the independent power company hubs. three years. The strategic partners in Asia set up in 2004. In 2006, the In making the acquisition, IIB has include the Islamic Corporation for Bank arranged and placed five new partnered with a renowned asset Development of the Private Sector investments and successfully exited manager with extensive experience (ICD), a multilateral investment affiliate from two investments that it arranged in the structuring and management of the Islamic Development Bank, and and placed in 2005. A summary of these of Shari’ah-compliant real estate the Saudi Economic and Development seven transactions is as follows: investments in Europe, and who holds Company (SEDCO), a Saudi-based New Transactions in 2006 investment group. the remaining 10% share ownership in the portfolio. The investment represents IIB UAE Investment Limited Included in Ewaan’s strategic IIB’s third European investment and its West Bay Tower shareholder base is a well diversified mix second real estate acquisition in Europe. Total transaction size: US$ 89.1 million of highly regarded investors, including high net worth individuals and financial In April 2006, IIB took a 65% stake institutions, multilateral businesses as well as government organisations. | International Investment Bank B.S.C.(c) | Annual Report 2006