Bahri Annual Report-2012

Financing and Investment

Financing for building ships requires major capital investments. Therefore, the capital structure is created from self-financing in addition to external financing. In ship building the Company’s self-financing is 30% on average of the ship’s value, whilst the remaining 70% is provided from external funding sources. The Company signed a Murabaha contract with the Public Investment Fund on July 3, 2012 to finance part of the cost of building the two general cargo vessels that are currently under construction in the Hyundai MIPO Shipyard in South Korea. The financing contract is valued at SAR 450,000,000 (four hundred and fifty million Saudi Riyals) which will be repaid over the ten years from the date of receiving the ships in equal installments on a quarterly basis. At the end of 2012 the funding of the assets of the Company and its subsidiaries in the consolidated financial statements amounted to SAR 4.26 billion. The Company has adopted investment and financing policies that comply with Sharia laws so that 97% of the Company’s loans for financing are in compliance with Sharia law. In 2014 this rate is expected to become 100%. The Company has also adopted a policy to hedge the risks of fluctuations in financing costs, as it continuously reviews a suitable limit to reduce unexpected surges in financing costs. and evaluate the same objectively, as well as to manage such risks in a proper manner. Thus, all the Company’s management and personnel are responsible for implementing appropriate internal controls and risk management in order to achieve the Company’s goals, preserve its resources, and protect it from unexpected or negative elements. • Protection and indemnity clubs: The size of the Company’s fleet and its position allows it to be an active member in the biggest global protection clubs. These clubs cover risks arising from ship accidents and damaged cargo, in addition to covering the Company’s different requirements. The Company is a board member in two P&I Clubs, which is very beneficial for exchanging experience and consolidating knowledge of the operational risks. • Maritime insurance: This includes insurance of the fleet, equipment and crew working on board, as well as the civil liability arising from such work and the marine risks. Some countries require insurance coverage that complies with their own requirements in order to use their ports. • Non-maritime insurance: This covers the Company’s offices and equipment, including buildings, cars, and workers as needed, in addition to medical insurance/ Takaful insurance for the Company’s employees.

The Treasury Department handles the cash management, investment of surplus funds in Murabaha deposits and sukuk, as well as a limited part in local investment funds and shares. This department also participates in the study of the Company’s projects in terms of the financing and the provision of the necessary funding to meet any financial requirements. It is responsible for the cash management on a daily basis. In the case of surplus cash, the same is invested in instruments with minimal risk such as Murabaha for short periods, depending on the Company’s financial needs and obligations. If there is a shortage of cash, the necessary funding is provided through liquidizing short-term investments and providing funding from the working capital. In addition to investing the surplus cash in short-term Murabaha contracts, the Treasury Department invests part of the surplus cash in sukuk. It also invests part of the surplus cash in the investment funds for local shares and in local markets in accordance with a portfolio managed by a competent authority. The Company focuses on safe investments with low risks, thus investing in local stocks does not exceed 10% of the available surplus cash to the Company at the time.

Risk Management

Insurance of the Company’s Assets and Operational Risks Risk management is part of project planning, which identifies key risks and puts in place appropriate solutions to avoid them. Since the maritime industry is exposed to many risks, whether in terms of financing, information or operation in domestic or foreign markets, the Company has focused greatly on this sector. This is so that it can identify expected and unexpected risks

Insurance is one of the means adopted by the Company to manage risk through the continuous study and assessment of operational risks and reducing costs without compromising benefits. The Company continually seeks to unify efforts between strategic business units in order to achieve the best insurance coverage, in addition to improving the current condition of the various types of insurance coverage, and to avoid duplication or redundancy in some areas of the insurance policies held by the Company. As the company’s fleet continues to grow, the company faces new challenges, which lie in ensuring that the best insurance deals are joined with the best coverage benefits. Thus, this Department seeks to carefully and continuously examine the services provided by insurance companies, based on their market position and the strength of their financial position and their ability to commit to their obligations as well as their technical abilities. It also uses consultants who are specialists in these areas.


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