Bahri Annual Report-2012

The National Shipping Company of Saudi Arabia (A Saudi Joint Stock Company) Notes to the Consolidated Financial Statements As of December 31, 2012 (in Thousands of Saudi Riyals)

24. Major and Post Balance Sheet Events a) The Company and Saudi Aramco signed on Thu-Alhijjah 20, 1433H (November 4, 2012) an agreement by which the fleet of Vela International Marine Ltd. (Vela), will be transferred to the Company after obtaining required regulatory approvals. The Vela fleet consists of fourteen VLCCs, one VLCC for floating storage, and five refined petroleum product tankers. Bahri will pay Vela a total consideration of approximately SR 4,875,000,000 (equivalent to US$1.3 billion). The consideration will comprise a cash payment amounting to SR 3,122,812,500 (equivalent to US$ 832.75 million) in addition to 78,750,000 new Bahri shares to be issued to Vela at an agreed price of SR 22.25 per share. The Company’s post merger issued number of shares will be 393,750,000 shares and the new shares issued to Vela, which is fully owned by Saudi Aramco, will equal 20 percent of Bahri’s enlarged capital. Vela will have a fair representation on Bahri’s Board. The Company plans to fund the cash consideration through Sharia compliant financing agreements. According to the terms of a long-term shipping contract with a minimum of 10 years, the Company will be the exclusive carrier for Saudi Aramco for the transportation of crude oil sold by Saudi Aramco on the basis of delivery to client. According to this contract and to meet Saudi Aramco’s demand, which is estimated to be 50 VLCC’s, the Company plans to best optimize the utilization of its post merger fleet, which will total 31 VLCC’s, in addition to charter VLCC’s, as required. The long-term shipping contract includes agreed terms where Bahri enjoys protection when freight rates fall below the minimum agreed limit. On the other hand, should freight rates increase above an agreed limit (compensation limit), Bahri will compensate Saudi Aramco. Bahri and Vela have also agreed on temporary arrangements for the operation of the VLCCs owned currently by Bahri within Saudi Aramco’s program to transport oil via VLCC’s. The temporary arrangement started on Safar 19, 1434H (corresponding to January 1,2013) until the long-term shipping contract is in effect according to the terms of the merger agreement. The merger agreement is subject to various terms including the approval of the Extraordinary General Assembly of the Company approving the merger and capital increase and obtaining other regulatory approvals such as the Capital Market Authority and the Supreme Council for Petroleum and Mineral Affairs which is in process. The approval of the Competition Protection Council in Saudi Arabia has already been obtained. b) Pursuant to its replacement program approved by the Company’s Board of Directors for RoRo vessels, the Company sold on January 16, 2013 a RoRo vessel (Saudi Abha) for scrap after it came to the end of its useful life. It is estimated that the Company will make a net profit of SR 21 million after deduction of its book value and other expenses related to the transaction. The financial impact of this transaction will show in the first quarter of 2013. c) On Rabia I 24, 1434H (corresponding to February 5, 2013) the Company received a new general cargo vessel weighing 26,000 tons from South Korea. The new vessel was named Bahri Abha and was built by Hyundai MIPO in South Korea. This is the first of six general cargo ships from a contract agreed with this shipyard in 2011 for a total cost of SR 1.54 billion. The financial impact of this vessel will appear in the first quarter of 2013.

25. Reclassification

Certain amounts previously reported in the 2011 consolidated financial statements have been reclassified to conform to the current year presentation.


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