INVESTMENT RESEARCH

INITIAL PUBLIC OFFER (IPO) RESEARCH NOTE

Offer Opens: May 11, 2014

Offer Opens: May 11, 2014

Offer Closes: June 9, 2014

Offer Closes: June 9, 2014

Offer Price: Bzs 130 per share

Offer Price: Bzs 128 per share

Fair Value: Bzs 161 per share

Fair Value: Bzs 158 per share

Al SUWADI POWER CO. & AL BATINAH POWER CO. WEALTH MANAGEMENT

High dividend yield of around 8%, along with their stable business model makes the Al Suwadi Power & Al Batinah Power IPOs very attractive for investors.

IPO NOTE May 2014

INVESTMENT CASE 

Al Suwadi Power Company SAOG, located at Barka and A Batinah Power Company SAOG, located at Sohar are the largest power plants in Oman with each of them having a contracted power capacity of 744 MW.

OMAN



POWER SECTOR

Both companies are backed by strong and experienced group of promoters, including Kahrabel and Multitech.



Both companies have stable business models with predictable cash flows and earnings as well as limited operating risk supported by a 15-year power and

Recommendation

water purchase agreement with Oman Power and Water Procurement Company.

BUY AL SUWADI POWER ISSUE PRICE (RO)

:

0.130

TARGET PRICE (RO)

:

0.161

EXPECTED RETURN (%):

23.8%



At their offer price, Al Suwadi Power offers a dividend yield of 8.2% for the next twelve months and Al Batinah Power offers a dividend yield of 8.1%, which are above the yields offered by comparable power companies listed in Oman.



Valuation: We estimate a fair value target price of RO 0.161 for Al Suwadi Power and RO 0.158 for Al Batinah Power based on a weighted average of EV/EBITDA and dividend yield.

AL BATINAH POWER ISSUE PRICE (RO)

:

0.128

TARGET PRICE (RO)

:

0.158

EXPECTED RETURN (%):

23.3%



We expect strong demand for the IPO from institutions (category II investors), leading to high oversubscription. This scenario can drive the stocks higher on listing due to high demand in the secondary market.



Risk Factors: (1) Unexpected breakdowns can adversely affect the Company’s operations and its financial performance; (2) The introduction of spot market can increase competition in Oman; (3) Inflation and Adverse changes in foreign

ANALYST

exchange rates and custom duty rates can impact as a portion of Euro

Nandakumar Chenicheri Asst. Vice President - AMD Email: [email protected] Tel: (+968) 24822300 Ext. 353

denominated payments are not hedged; (4) dividend payments may get

Mable C. Pereira Asst. Vice President - Research Email: [email protected] Tel: (+968) 24822300 Ext. 342

the companies.

impacted in case the mandatory cash sweep is applicable between 2023 to 2028 if the commercial facility is not refinanced as per the assumptions of both

AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE

Issuer

Al Suwadi Power Company SAOG (Under Transformation)

Al Batinah Power Company SAOG (Under Transformation)

Authorized share capital

OMR 71,440,634 divided into 714,406,340 Shares with a nominal value of Bzs 100 per Share.

OMR 67,488,743 divided into 674,887,430 Shares with a nominal value of Bzs 100 per Share.

Issued and Paid up Capital

OMR 71,440,634 divided into 714,406,340 Shares with a nominal value of Bzs 100 per Share.

OMR 67,488,743 divided into 674,887,430 Shares with a nominal value of Bzs 100 per Share.

Offered shares

250,042,219 Shares, representing Issued and Paid-Up Share Capital.

236,210,601 Shares, representing Issued and Paid-Up Share Capital.

Face value

RO 0.100 per share

RO 0.100 per share

Offer price

RO 0.130 per Offer Share (comprising a nominal value of Bzs 0.100, a premium of Bzs 28 and the Offer Expenses of Bzs 2 per Share).

RO 0.128 per Offer Share (comprising a nominal value of Bzs 0.100, a premium of Bzs 26 and the Offer Expenses of Bzs 2 per Share).

Issue Opens on: May 11, 2014

Issue Opens on: May 11, 2014

Issue closes on: June 9, 2014

Issue closes on: June 9, 2014

Approval of CMA of allotment: June 19, 2014

Approval of CMA of allotment: June 19, 2014

Refund process will start by June 22, 2014

Refund process will start by June 22, 2014

Shares would be listed for trading on the Muscat Securities Market on June 23, 2014

Shares would be listed for trading on the Muscat Securities Market on June 23, 2014

Minimum Limit Category I: 1,000 shares and in multiples of 100 shares thereafter. Category II: 600,100 shares and in multiples of 100 thereafter Maximum Limit

Minimum Limit Category I: 1,000 shares and in multiples of 100 shares thereafter. Category II: 600,100 shares and in multiples of 100 thereafter Maximum Limit

Category I: 600,000 shares

Category I: 600,000 shares

Category II: 25,004,200 Shares, representing 10% of the Offer.

Category II: 23,621,000 Shares, representing 10% of the Offer.

In case of over-subscription, the Offer of 250,042,219 shares shall be split among the eligible investor groups, in the following portions:

In case of over-subscription, the Offer of 236,210,601 shares shall be split among the eligible investor groups, in the following portions:

Category I Investors:

Category I Investors:

162,527,442 Shares, being 65% of the Offer, on a prorata basis.

153,536,891 Shares, being 65% of the Offer, on a prorata basis.

Category II Investors:

Category II Investors:

87,514,777 Shares, being 35% of the Offer, on a prorata basis.

82,673,710 Shares, being 35% of the Offer, on a pro-rata basis.

A minimum number of Offer Shares may be distributed equally among subscribers, taking into consideration small subscribers and the remaining Offer Shares shall be allocated on a pro-rata basis. Any under subscription in any Category shall be carried to the other category.

A minimum number of Offer Shares may be distributed equally among subscribers, taking into consideration small subscribers and the remaining Offer Shares shall be allocated on a pro-rata basis. Any under subscription in any Category shall be carried to the other category.

Offer period and listing

Limit for the subscription under one application

Proposed allocation of shares

35%

of

total

35%

of

total

Eligibility

Omani and non-Omani individuals and juristic persons. All GCC individuals and juristic persons are treated as Omani individuals and juristic persons.

Basis for under subscription

In case of shortfall in subscription and non-subscription by Electricity Holding Co. SAOC (EHC) under Project Founders Agreement (PFA), the promoters are committed to re-offer the unsubscribed shares after one year, for three consecutive years.

FINCORP WEALTH MANAGEMENT

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE

Person prohibited from subscribing

The following applicants shall not be permitted to participate in the subscription: 1. Sole proprietorship establishments: The owners of sole proprietorship establishments may only submit applications in their personal names. 2. Trust Accounts: Customers registered under trust accounts may only submit Applications in their personal names. 3. Multiple applications for the subscription: An applicant may not submit more than one Application. 4. Joint Applications (i.e. applications made in the name of more than one individual) including applications made on behalf of legal heirs: These applications should only be made in their personal names. All such applications by prohibited persons defined above will be rejected without contacting the applicant.

Financial Adviser & Issue manager

Bank Muscat SAOG

Subscription Banks

Bank Muscat, Bank Dhofar, National Bank of Oman, Oman Arab Bank, Bank Sohar, Ahli Bank

COMPANY OVERVIEW 

Al Suwadi Power and Al Batinah Power own and operate the natural gas fired Barka-3 power plant and Sohar-2 power plants respectively. These power plants are the largest in Oman with each of them having a contracted power capacity of 744 MW (representing 13.3% of the MIS contracted capacity of 5589 MW, as of 2013). The companies generate their revenues pursuant to a 15-year power purchase agreement (PPA) with Oman Power and Water Procurement Company SAOC (OPWP). Suez-Tractebel Operation and Maintenance Oman LLC (STOMO), a GDF SUEZ majority owned company is the operator for both the plants. The plants use technology from Siemens.



While Al Suwadi is able to extract seawater by a submerged pipe as it is located near the sea, Al Batinah incurs higher costs as it extracts sea water from a shared facility as per a sea water extraction agreement with Majlis Industrial Services Company SAOC. Brief details of the two companies are given below. Al Suwadi Power August 2, 2010 April 4, 2013 BOO March 31, 2028 744 MW Barka

Date of Establishment Full Commercial Operation Date Contract Type PPA Expiry Contracted Power Capacity Location

Al Batinah Power August 2, 2010 April 3, 2013 BOO March 31, 2028 744 MW Sohar

Source: IPO Prospectus

SHAREHOLDING PATTERN Shareholding Pattern Pre & Post-IPO of Al Suwadi & Al Batinah Power Pre-IPO Post-IPO Kahrabel 46.00% 29.90% Multitech 22.00% 14.30% BHSP 11.00% 7.15% SEPI 11.00% 7.15% PASI 10.00% 6.50% Public 35.00% Total 100.00% 100.00% Source: IPO Prospectus

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE 

The promoters in both Al Suwadi Power and Al Batinah Power are the same. They are also holding the same percentage holding in both the companies prior to the IPO and post-IPO. Kahrabel, owned by International Power Limited (also known as GDF SUEZ Energy International), is the largest shareholder and currently owns 46% in the two power companies. In Oman, Kahrabel has direct and indirect ownership interest in six of the eleven contracted projects by OPWP in the MIS. Multitech, the second largest shareholder and a part of Suhail Bahwan Group owns 22% in the two companies. Other promoters include BHBP, owned by Sojitz, an investment and trading corporation based in Japan, SEPI owned by Yonden of Japan and Public Authority for Social Insurance (PASI), based in Oman. All the promoters together are offering 35% to the public.

POWER SECTOR OVERVIEW 

The electricity and related water sector in Oman is divided into three regional systems partially connected via interconnectors: the Main Interconnected System, the Salalah System and the Rural Areas Electricity System.



Oman Power and Water Procurement Company SAOC (OPWP) is the single buyer of power and water for all IPP/IWPP projects within Oman. OPWP procures the required power and desalinated water in bulk from generation and production facilities connected to the MIS, Salalah System and PDO interconnected system.



OPWP’s present portfolio of contracted capacity in the MIS comprises long-term contracts with eleven operational plants, having a total contracted capacity of 5,589 MW and 116.2 MiGD.

POWER DEMAND OUTLOOK 

OPWP expects peak demand for electricity in MIS to grow at a CAGR of 9.5% per annum from 5,239 MW in 2014 to 8,106 MW by 2019 in the base scenario driven by growth in population arising from infrastructure expansion and general economic growth, and industrial growth in designated economic zones. In the high case scenario, average peak demand growth could reach 12.5% while in the lower case, average growth would be around 7.6%.

Source: IPO Prospectus

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE POWER SECTOR – RECENT DEVELOPMENTS 

In early 2014, OPWP announced plans to implement new arrangements for procurement of power and water from independent power producers and independent power and water producers in Oman. The two principal feature of the new arrangements are, firstly the introduction of a spot market for power and secondly, implementation of a more flexible process for awarding new PPA’s and PWPA’s.



The proposed spot market is expected to provide an alternative way for producers to sell power to OPWP and will operate in conjunction with the existing PPA’s and PWPA’s. Instead of entering into a P(W)PA, qualified producers will participate in a spot market and receive prices determined on a day-to-day basis in accordance with specified market rules.



The flexible process of awarding new P(W)PA’s is aimed at allowing bidders to offer more generation options for evaluation to OPWP as opposed to the current procedure wherein OPWP awards new P(W)PA’s following competitive tender process based on a precisely defined project requirement.

REVENUE OVERVIEW During the term of the PPA 

As per the terms of the PPA, effective from the commercial date of operation, Al Suwadi Power and Al Batinah Power are required to maintain a net generating capacity of 744 MW and sell the electrical energy output exclusively to OPWP. In return, the power companies receive a tariff covering capacity charges, electrical energy charges and fuel charges from OPWP.



The companies will witness higher revenues during the summer months from April to September corresponding to the second and third quarters of the year owing to higher electricity demand as well seasonality factors applied to capacity charges defined in the PPA tariff structure.



During winter months i.e. the first and fourth quarters of the year, planned maintenance will be conducted owing to lower electricity demand. The terms of the PPA does not provide an allowance for planned outages during the summer months which could lead to higher capacity payments. Earnings can therefore be lower during these two quarters. Beyond the term of the PPA



The management of both the power companies expects the plants to operate well beyond the term of the PPA i.e. 15 years. After the expiry of the term of the PPA, the PPA may either be extended or, if the power market in Oman is liberalized during this period, the power produced by the Plants may be sold into a merchant market.

FINANCING AGREEMENTS 

Al Suwadi Power has entered into financing agreements with a consortium of international banks and export credit agencies, for an aggregate amount of approximately OMR 252 million. As of 31 March 2014, the company had RO 240.4 million of debt which included RO 47.7 million of commercial facility. Al Batinah Power has also entered into similar financing agreements for approximately RO 243.19 million. As of 31 March 2014, Al Batinah

FINCORP WEALTH MANAGEMENT

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE Power had RO 225.9 million of debt which included RO 49.5 million of commercial facility. 

For both the companies, the aggregate amount of drawdowns under the facilities (other than the Commercial Facility) is repayable in full in 28 half-yearly installments commencing from 31 October 2013 with the final installment being due on 31 March 2027. The Commercial Facility is repayable in full in 30 half-yearly installments commencing from 31 October 2013 with the final installment being due on 31 March 2028.



The two companies are expecting the USD Commercial Tranche to be refinanced by contract year 4 (May 2016) under the terms which include removal of the cash sweep and extension of the maturity to 3 years beyond PPA and lower pricing of facility.



Both the companies are required to maintain a cash balance (or Shareholders’ credit support) equivalent to six months’ of future debt service payments in a separate bank account pledged in favour of its lenders. Both are also required to maintain a debt service provisioning account until October 2024.

COMPETITIVE STRENGTHS 

Stable and predictable cash flows, resilient to potential shocks in gas prices and power demand until 2028 Both Al Suwadi Power and Al Batinah Power currently generate revenues pursuant to a 15-year term PPA with OPWP. The capacity of and power produced from the Plants are fully contracted to OPWP and used to meet the growing power demands of the MIS region during the term of the PPA. OPWP, the sole purchaser of electricity is owned by the Government of Oman with a credit rating of A1 (Moody’s) and A (S&P) and has a proven track record of timely payments.



Long term availability of natural gas, no exposure to gas price movements, and hence mitigation of fuel risks Pursuant to the 15-year Natural Gas Sales Agreement entered with the Ministry of Oil and Gas, the latter is responsible for the procurement and delivery of natural gas requirements to the Plant. Fuel revenues and charges are calculated based on the consumption of natural gas for electrical energy output delivered.



On-time commissioning of the Plants with industry-leading reliability The Plants were completed with a delay of 2-3 days of the scheduled operation date and no delay penalties were payable to OPWP. In addition, both plants have been in full commercial operation for 12 months. Al Batinah Power plant achieved a reliability of 99.88% in 2013 indicating a forced outage rate of 0.12% while the Al Suwadi Power plant achieved a reliability of 99.73% in 2013 indicating a forced outage rate of 0.27%.

RISKS & CONCERNS 

Unexpected breakdowns can adversely affect the Company’s operations and its financial performance Unexpected breakdowns or equipment failure can result in production loss, necessitate capital expenditures or increase operational and maintenance costs, higher than projected, that can adversely affect the financial performance of the Company.



Post PPA Risks The 15-year term of the PPA matures before the Plants reach their expected lifetime. Both companies expect substantial part of the value to be realized beyond the PPA. However, at that moment, the plants with an FINCORP WEALTH MANAGEMENT

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE expiring off-take agreement, will face new risks such as Gas supply and price risk, Market risk (price and capacity), Competition from recent, more efficient technologies, Regulatory risks, Operational risks, Customer credit risk and Macro-economic risks. 

No ownership of the land on which the Plant is situated. Al Suwadi Power plant is situated on land owned by Ministry of Housing which has granted a usufruct right over the site to the company with a term of 25 years from the effective date of agreement and is subject to a further extension of 25 years. Similarly, Al Batinah Power plant is situated on land owned by Sohar Industrial Port Company SAOC which has granted a sub-usufruct right over the site to the company with a term of 15 years from the effective date of agreement and is subject to a further extension of 15 years. In the event of a material breach of the terms of the usufruct agreements, the respective land owners may elect to terminate the agreement earlier, evict and repossess the site which would have a material adverse effect on the business, results of operations and financial condition.



Inflation could increase costs Pursuant to the terms of the PPA, revenues of the two companies are compensated for indexation in respect of both USD and OMR cost inflation. Hence, the risks of variation of USD/OMR cost inflation are largely mitigated by the revenues being partially tied to an escalation formula based on a mix of US Dollar PPI and Omani Rial CPI indices. However, a portion of the payments in respect of the O&M Agreements are in euro, and therefore the companies to a certain extent are exposed to indexation risk in respect of such euro payments.



Adverse changes in foreign exchange and custom duty rates Both the companies have hedging arrangements in place that protect against changes in the euro exchange rate to which it has exposure due to euro denominated obligations under the O&M Agreement. As of the date of the prospectus, a portion of the euro denominated payments is not covered by the hedging arrangements. Ability to obtain new hedging arrangements depends on factors, including general economic and market conditions, international interest rates, from banks or other financiers. There is no assurance that such hedging arrangements will be available or, if available, that such hedging arrangements will be obtainable on terms or at a cost that are not onerous. If the companies are unable to hedge the foreign exchange - euro exposure, this could have a material adverse effect on their businesses and financial conditions.



Dividend policy may not be fulfilled. The two companies are expecting their USD Commercial Tranche (approx. 19% of the total financing for Al Suwadi Power and approx. 21% for Al Batinah Power) to be refinanced by contract year 4 (May 2016) under the terms which include removal of the cash sweep and extension of the maturity to 3 years beyond PPA and lower pricing of facility. If the commercial tranche is not refinanced and cash sweep not removed, then a mandatory cash sweep mechanism will be applicable from 31 March 2023 till 31 March 2028 and the ability to pay dividends may be impacted in this period of cash sweep as operating revenues may only be paid into the dividend distribution account when the project accounts set out in the common terms agreements have been fully funded.

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE

VALUATION The following methods though generally used for valuing companies are not being adopted on account of the following reasons: 

Discounted Cash Flow Model – Valuation is dependent on the assumptions taken for forecasting future cash flows and the discount rate. Cash flows may get affected by changes in business environment and regulatory changes. It is difficult to forecast post PPA cash flows in case of these companies when the terms of contract with OPWP may change. Likely introduction of a spot market can also change cash flows post existing PPA. Discount rate can also vary in different periods based on changes in risk-free rate, inflation rate, market risk premium and Beta.



Dividend Discount Model - Dividend discount model involves forecasting of dividend cash flows and discount rate both in PPA as well as the post PPA period which is subject to various assumptions. Post PPA cash flow uncertainty will impact dividend payout. Dividend payments can vary depending on the cash flows available for distribution after meeting the capex, debt instalments and financing costs and any cash sweep mechanism.



Price to Earnings Multiple – Earnings of companies within an industry can vary depending on their accounting policies, debt financing terms and interest costs, non-cash items such as depreciation and amortization, litigations and non-recurring items and thus a relative valuation based on Price to Earnings multiple is not being adopted.

We have adopted Enterprise Value (EV) to EBITDA Multiple and the Dividend Yield Method for valuing Al Suwadi Power and Al Batinah Power for the following reasons: 

EV/EBITDA Multiple – EV/EBITDA measure is not affected by differences in capital structure and the multiple can be used to compare companies within the same sector irrespective of their different levels of debt. EBITDA is also not affected by depreciation & amortization, interest costs and taxation and reflects the true earning potential of the company.



Dividend Yield Method – Due to the predictability of dividend payouts during the PPA term, we have used this method to arrive at the fair value.

EV/EBITDA Multiple We have examined the EV/EBITDA multiple of similar power companies in Oman for the past ten years and the multiple generally range between 8x to 12x. EV/EBITDA Multiple Sohar Power ACWA Power Barka SMN Power Sembcorp Salalah

Current 9.97 9.86 10.91 9.76

High 10.53 10.26 11.91 9.90

Low 8.22 5.30 10.93 9.53

*Current as of May 15, 2014 Source: Bloomberg, Fincorp Research

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE We expect both the power IPOs to evince good buying interest from institutions immediately after listing which can lead to a spike in the EV/EBITDA multiple leading to stronger listing gains. Therefore, for valuation, we have considered an EV/EBITDA multiple of 11.5x which is at the higher band of the multiples of similar companies. EBITDA of FY 2015 as estimated by the company has been employed for valuation. EV/EBITDA Method EV/EBITDA Multiple EBITDA - 2015E Enterprise Value Net Debt Equity Value (RO Mn) No. of Shares (Mn) Value / Share (RO)

Al Suwadi Power 11.5 30.3 348.5 (236.1) 112.4 714.4 0.157

Al Batinah Power 11.5 28.4 326.6 (221.6) 105.0 674.9 0.156

EV/EBITDA method provides a value of RO 0.157 for Al Suwadi Power and RO 0.156 for Al Batinah Power.

Dividend Yield We have estimated the dividends expected to be paid by the peer power companies in Oman during the next twelve months and the dividend yields estimated are above 6.5% for most of the companies at their current price as of May 15, 2014. Current Price (RO) 0.384 0.740 0.310 0.540 1.985

Dividend Yield Sohar Power ACWA Power Barka Al Kamil Power SMN Power Sembcorp Salalah

Expected Dividends (RO) 0.026 0.050 0.020 0.040 0.120

Expected Yield 6.8% 6.8% 6.5% 7.4% 6.0%

Source: Fincorp Research

While Al Suwadi Power is expected to pay dividends of 10.7 baizas in the next twelve months, Al Batinah Power is expected to pay dividends of 10.4 baizas during this period offering dividend yields of 8.2% and 8.1% respectively. Based on a dividend yield of 6.5%, we have arrived at a value of RO 0.165 for Al Suwadi Power and RO 0.160 for Al Batinah Power.

Our Fair Value Estimate for Al Suwadi Power and Al Batinah Power Value Per Share Estimate (RO per share) Weight EV/EBITDA 50% Dividend Yield 50% Weighted Average Value Per Share

Al Suwadi Power Value/Share 0.157 0.165 0.161

Al Batinah Power Value/Share 0.156 0.160 0.158

We estimate a fair value target price of RO 0.161 for Al Suwadi Power and RO 0.158 for Al Batinah Power based on a weighted average of the two valuation approaches. FINCORP WEALTH MANAGEMENT

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE

FINANCIAL SUMMARY AL SUWADI POWER FY ended Dec 31

2014E

2015E

2016E

2017E

2018E

INCOME STATEMENT Revenue EBITDA EBIT Net Financing Costs Net Profit

48.00 29.50 21.40 (13.20) 4.80

50.30 30.30 22.20 (12.50) 7.30

52.70 30.40 22.30 (11.60) 9.20

55.20 30.50 22.40 (10.90) 10.50

58.00 30.70 22.60 (10.10) 10.90

BALANCE SHEET Cash and Cash Equivalents Net Fixed Assets Total Assets Total Debt Total Liabilities Share Capital Total Shareholders’ Funds Hedging reserve Net Debt

7.00 305.50 317.30 230.40 317.30 71.40 85.70 (6.20) 223.40

5.60 297.50 308.10 217.10 308.10 71.40 85.80 (6.20) 211.50

4.30 289.50 299.00 203.00 299.00 71.40 87.80 (6.20) 198.70

3.70 281.50 290.60 188.70 290.60 71.40 91.10 (6.20) 185.00

3.20 273.40 282.30 174.00 282.30 71.40 94.60 (6.20) 170.80

CASH FLOW STATEMENT Cash Generated From Operations Capital Expenditures Net Financing Costs Movement in Financial Debt Net Increase (Decrease) in Cash and Cash Equivalents

29.60 (0.40) (11.70) (12.80) 0.50

30.30

30.40

30.50

30.70

(11.10) (13.30) (1.40)

(10.40) (14.10) (1.30)

(9.70) (14.20) (0.60)

(9.10) (14.80) (0.50)

PER SHARE Basic EPS Dividend Per Share Book Value Per Share

0.0067 0.0059 0.120

0.0103 0.0102 0.120

0.0129 0.0101 0.123

0.0147 0.0101 0.128

0.0152 0.0104 0.132

VALUATION EV/EBITDA (x) Dividend Yield (%)*

10.72 8.4%

10.05 7.8%

9.59 7.8%

9.11 7.8%

8.59 8.0%

MARGINS EBITDA Margin (%) Net Margin (%)

61.46% 10.00%

60.24% 14.51%

57.69% 17.46%

55.25% 19.02%

52.93% 18.79%

SHAREHOLDER RETURNS Return on Equity (%) Return on Assets (%) Return on Invested Capital (%) Payout Ratio (%)

5.60% 1.51% 3.92% 88.06%

8.51% 2.37% 5.53% 99.03%

10.48% 3.08% 6.59% 78.29%

11.53% 3.61% 7.25% 68.71%

11.52% 3.86% 7.34% 68.42%

LEVERAGE AND SOLVENCY Net Debt / Equity (%) EBIT / Interest Expense (x)

260.68% 1.62

246.50% 1.78

226.31% 1.92

203.07% 2.06

180.55% 2.24

(Values in RO'mn except per share data)

*2014 annualized based on 6.5 months of post-IPO holding Source: IPO Prospectus, FINCORP Research

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE AL BATINAH POWER FY ended Dec 31

2014E

2015E

2016E

2017E

2018E

INCOME STATEMENT Revenue EBITDA EBIT Net Financing Costs Net Profit

47.30 27.50 20.00 (12.30) 4.60

49.40 28.40 20.90 (11.70) 7.00

51.90 28.50 21.00 (10.80) 8.80

54.40 28.60 21.10 (10.10) 9.80

57.30 28.80 21.30 (9.40) 10.30

BALANCE SHEET Cash and Cash Equivalents Net Fixed Assets Total Assets Total Debt Total Liabilities Share Capital Total Shareholders’ Funds Hedging reserve Net Debt

6.10 284.20 295.00 215.20 295.00 67.50 79.00 (5.90) 209.10

4.90 276.70 286.50 202.70 286.50 67.50 79.20 (5.90) 197.80

3.80 269.20 278.10 189.50 278.10 67.50 81.30 (5.90) 185.70

3.50 261.70 270.50 176.30 270.50 67.50 84.40 (5.90) 172.80

3.30 254.30 263.00 162.60 263.00 67.50 87.90 (5.90) 159.30

CASH FLOW STATEMENT Cash Generated From Operations Capital Expenditures Net Financing Costs Movement in Financial Debt Net Increase (Decrease) in Cash and Cash Equivalents

27.50 (3.40) (10.90) (11.90) (2.60)

28.40

28.50

28.60

28.80

(10.30) (12.50) (1.20)

-

-

(9.60) (13.20) (1.10)

(9.00) (13.30) (0.30)

(8.40) (13.70) (0.20)

PER SHARE Basic EPS Dividend Per Share Book Value Per Share

0.0068 0.0058 0.117

0.0104 0.0100 0.117

0.0131 0.0100 0.120

0.0146 0.0099 0.125

0.0153 0.0102 0.130

VALUATION EV/EBITDA (x) Dividend Yield (%)*

10.74 8.4%

10.01 7.8%

9.55 7.8%

9.06 7.7%

8.53 8.0%

MARGINS EBITDA Margin (%) Net Margin (%)

58.14% 9.73%

57.49% 14.17%

54.91% 16.96%

52.57% 18.01%

50.26% 17.98%

SHAREHOLDER RETURNS Return on Equity (%) Return on Assets (%) Return on Invested Capital (%) Payout Ratio (%)

5.82% 1.56% 4.06% 85.09%

8.84% 2.44% 5.72% 96.15%

10.82% 3.16% 6.76% 76.34%

11.61% 3.62% 7.28% 67.81%

11.72% 3.92% 7.42% 66.67%

LEVERAGE AND SOLVENCY Net Debt / Equity (%) EBIT / Interest Expense (x)

264.68% 1.63

249.75% 1.79

228.41% 1.94

204.74% 2.09

181.23% 2.27

(Values in RO'mn except per share data)

*2014 annualized based on 6.5 months of post-IPO holding Source: IPO Prospectus, FINCORP Research

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AL SUWADI POWER CO. & AL BATINAH POWER CO. – IPO NOTE

RESEARCH CONTACT DETAILS Nandakumar Chenicheri Gaurav Ramaiya Mable C Pereira

(+968) 24822300 Ext: 353 (+968) 24822300 Ext: 348 (+968) 24822300 Ext: 342

[email protected] [email protected] [email protected]

BROKERAGE CONTACT DETAILS Mohammad Al Ghalayini

(+968) 24822300 Ext: 333

[email protected]

Aiman Al Balushi

(+968) 24822300 Ext: 329

[email protected]

Deena Omeir

(+968) 24822300 Ext: 335

[email protected]

The Financial Corporation Co SAOG (FINCORP) PO Box 782, PC 131, Sultanate of Oman Tel: +968 24822300 | Fax: +968 24812925

Disclaimer The research team of The Financial Corporation, SAOG (hereto referred as FINCORP) has prepared the information, analysis and expressed its opinion on the subject matter of this report. The information contained has been obtained from sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, FINCORP makes no guarantee, representation or warranty, whether express or implied, and accepts no responsibility or liability as to its accuracy or completeness of the data, being provided. All investment information and opinions are subject to change without notice. The investor will indemnify FINCORP and its directors, officers, and employees against any loss or damage or other liabilities (including costs), which they may suffer as a result of reliance on this report. This report is not to be relied upon in substitution for the exercise of independent judgment. Also, not all customers may receive the material at the same time. This document is for private circulation and information purposes only. It does not and should not be construed as an offer to buy or sell securities mentioned herein. FINCORP will not be liable for any direct or indirect losses arising from the use thereof, and the investors are expected to use the information contained herein at their own risk. FINCORP and its affiliates or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. FINCORP and its affiliates may act as market makers or underwrite securities of companies discussed herein (or investments related thereto), and may sell them to or buy them from custome rs on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. Authors or contributors of this report could have direct interest in the capital market or in the securities mentioned herein. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position, and using such independent advisors, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. This document is strictly for the use of recipients only. None of the material provided herein may be reproduced, rewritten, rehashed, published, resold or distributed in any manner whatsoever without the prior and explicit written permission of FINCORP.

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