Rights Issue Prospectus - Galfar Engineering and...

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Rights Issue Prospectus

GALFAR ENGINEERING AND CONTRACTING SAOGPostal Address: P.O. Box 533, P.C: 100, Ruwi, Sultanate of Oman

Tel: 24525000 Fax: 24591676www.galfar.com

RIGHTS ISSUE PROSPECTUS

Increase of Share Capital through a Rights Issue of34,650,000 Ordinary Shares and 14,850,000 Preferential Voting Rights Shares,

at a price of Bzs 280 per Share(With Nominal Value of each Share being Bzs 100, Share Premium of Bzs 178

and Issue Expenses being Bzs 2 per Share)

Financial Advisor & Issue Manager

Oman Arab Bank SAOC,Investment Management Group,

PO Box 2010 PC 112,Sultanate of Oman

Ph: 24827399: Fax: 24827367

Collecting Banks

RIGHTS TRADING PERIOD RIGHTS SUBSCRIPTION PERIODTrading Opens: 8th September 2013 Subscription Opens: 11th September 2013Trading Closes: 22nd September 2013 Subscription Closes: 26th September 2013

The Capital Market Authority (CMA) neither assume responsibility for the accuracy and adequacy of the statements and information contained in this Prospectus nor shall it have any liability for any damage or loss resulting from the reliance upon or use of any part of the same by any person. This Prospectus has been prepared in accordance with the requirements as prescribed by the CMA. This is an unofficial English translation of the original Prospectus prepared in Arabic and approved by the CMA in accordance with the Administrative Decision No. E/67/2013 dated 22nd August 2013.

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IMPORTANT NOTICE TO INVESTORS

The aim of this Prospectus is to present material information that may assist investors to make an appropriate decision as to whether or not to invest in the rights issue of shares of Galfar Engineering & Contracting SAOG (Galfar or the Company) offered hereunder (the Rights Issue).

This Prospectus contains all material information and data and does not contain any misleading information or omit any material information that would have positive or negative impact on an investors decision as to whether or not to invest in the Rights Issue.

The Board of Directors of the Company is jointly and severally responsible for the integrity and adequacy of the information contained in this Prospectus. The Board of Directors confirm, that to their knowledge, appropriate due diligence has been observed in the preparation of this Prospectus and further confirm that no material information has been omitted, the omission of which would render this Prospectus misleading.

All investors should examine and carefully review this Prospectus in order to decide whether it would be appropriate to invest in the Rights Issue by taking into consideration all the information contained in this Prospectus. Investors should not consider this Prospectus a recommendation by the Company to subscribe for the Rights Issue. Every investor shall bear the responsibility of obtaining independent professional advice on the investment in the Shares and conduct independent evaluation of the information and assumptions contained herein using whatsoever analysis or projections he/she sees fit as to whether or not to invest in the Rights Issue.

No person has been authorized to make any statements or provide information on the Company or the Rights Issue other than the persons whose names are indicated in this Prospectus. Where any person makes any statement or provides information it should not be taken as authorized by the Company or the Issue Manager.

ADDITIONAL POINTS TO BE NOTEDThis Prospectus includes relevant information that is deemed important and does not include any misleading information nor excludes any principal information, the omission of which may materially influence any investors decision pertaining to the investment in the Rights Issue through this Prospectus. All summaries of documents or provisions of documents provided in this Prospectus should be seen as being a brief synopsis of the documents and should not be relied upon as comprehensive statements.

All equity investments carry various risks including market risks. The value of the securities can fall as well as rise depending on the market conditions and sentiments.

FORWARD-LOOKING STATEMENTSThis Prospectus contains statements that constitute statements relating to intentions, future acts and events. Such statements are generally classified as forward looking statements and involve known and unknown risks, uncertainties and other important factors that could cause those future acts, events and circumstances to differ from the way they are implicitly portrayed within this Prospectus. Without limitation, the use of any of the words anticipate, continue, estimate, schedule, intend, expect, may, will, project, propose, should, believe will continue, will pursue and similar expressions are intended to identify forward-looking statements. These forward-looking statements are not historical facts but reflect current expectations regarding future results or events and are based on various estimates, factors and assumptions. The Company believes the expectations reflected in those forward-looking statements to be reasonable, but no assurance can be given that these expectations will prove to be correct.

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 the Companys estimates as of any subsequent date.

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The Company 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 the Companys products and services;

The competitive environment;

Regulatory, legal and fiscal developments;

Fluctuations in foreign exchange rates, equity prices or other rates or prices;

Inability to estimate future performance;

Performance of the Omani economy; and

Other factors described under the Chapter titled Risk Factors and Mitigants of this Prospectus.

The Company cannot provide any assurance that forward-looking statements will materialize. The Company, the Issue Manager and any of their respective affiliates, disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless required by law. For a description of material factors that could cause the Companys actual results to differ materially from the forward-looking statements in this Prospectus, see Chapter titled Risk Factors and Mitigants of this Prospectus. The risk factors described in this Prospectus are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in the forward-looking statements.

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TABLE OF CONTENTS

Important Notice to Investors .................................................................................................................................... 4

Additional points to be noted ...................................................................................................................................... 4

Forward-looking Statements ........................................................................................................................................ 4

Table of Contents ........................................................................................................................................................... 6

Definitions/Abbreviations.............................................................................................................................................. 7

CHAPTER 1 - General Information on the Issue and the Issuer......................................................................... 9

CHAPTER 2 - Objective of the Issue, Utilization of Proceeds and Issue Expense ........................................13

CHAPTER 3 - Companys Objects& Approvals .....................................................................................................14

CHAPTER 4 - Shareholding Details..........................................................................................................................16

CHAPTER 5 - Oman Economic Outlook ...............................................................................................................17

CHAPTER 6 - Description of the Company and Business Overview ..............................................................20

CHAPTER 7 - Historical Financial Statements .......................................................................................................35

CHAPTER 8 - Share Price Movement and Dividend Policy ................................................................................37

CHAPTER 9 - Price Justification ...............................................................................................................................39

CHAPTER 10 - Related Party Transactions ............................................................................................................40

CHAPTER 11 - Risk Factors and Mitigants .............................................................................................................41

CHAPTER 12 - Corporate Governance, Board of Directors & Management Team .....................................46

CHAPTER 13 - Rights & Liabilities of Shareholders .............................................................................................55

CHAPTER 14 - Audited Financial Statements for 2012 and Unaudited Statements for the Six Months ended June 30, 2013 ..................................................................................................................57

CHAPTER 15 - Subscription Conditions & Procedures ......................................................................................68

CHAPTER 16 - Time Table ..........................................................................................................................................73

CHAPTER 17 - Undertakings ....................................................................................................................................74

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Rights Issue ProspectusDEFINITIONS/ABBREVIATIONS

AGM Annual General Meeting

Allotment Date The date on which the Issue Manager completes the allotment of the Rights Issue to the Applicants

Applicant/ Subscriber Shareholders who are eligible as of the Record Date for subscription to the Rights Issue or a person who has purchased rights entitlement through the MSM and who submit their completed Application Form to the Collecting Bank on or before the issue closing date

Application/ Subscription

The Application Form duly filled in, containing all the required particulars and duly signed by the Applicant, together with the required documentation along with the payment of the correct application money.

Application Form The application form sent by the Company through post to eligible Shareholders (or a duplicate form that is duly stamped by the Issue Manager) which is required to be completed by an Applicant.

Articles of Association The articles of association of the Company as approved by the CMA

Associate Company/ Associate

An associate is an entity in which the company holds between 20% to 50% of the equity capital.

Board/ Board of Directors

The board of directors of the Company as elected, from time to time, by the Shareholders in accordance with the provisions of the Articles of Association, the CCL and the CMA

CAGR Compounded annual growth rate

CMA The Capital Market Authority of the Sultanate of Oman

CML Capital Market Law of Oman as contained in Royal Decree 80/98, as amended

Collecting Bank(s) Oman Arab Bank SAOC and National Bank of Oman SAOG

Company / Issuer Galfar Engineering and Contracting SAOG

CCL The Commercial Companies Law of the Sultanate of Oman promulgated by Royal Decree Number 4/74, as amended

Code The CMA code of corporate governance for public joint stock companies issued by circular 11/2002, as amended

Class(es) of Shares The two classes of Shares (Ordinary and Preferential Voting Rights Shares) of the Companys share capital

Executive Regulations Executive Regulations of The Capital Market Law

EGM/ Extraordinary General Meeting

An extraordinary general meeting of the Shareholders held in accordance with the provisions of Articles 123 and 124 of the CCL

EPS Earnings per share

FY/ Financial Year The financial year of the Company which commences on the 1st of January and ends on the 31st of December of the same year

Galfar The Company, Galfar Engineering and Contracting SAOG

General Meeting An OGM, EGM or an AGM

GCC The Gulf Cooperation Council

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Government The Government of the Sultanate of Oman

Group Means Galfar Engineering and Contracting SAOG and its subsidiaries

INR Indian Rupee, the currency of India

Issue Price/ Subscription Price

The subscription price per Issue Share payable by the Applicants as stated in this Prospectus.

KD Kuwaiti Dinar, the currency of Kuwait

MCD/ Registrar Muscat Clearing & Depository Company SAOC in its capacity as registrar and transfer agent for companies listed on the MSM

MOCI The Ministry of Commerce and Industry of the Sultanate of Oman

MSM The Muscat Securities Market of the Sultanate of Oman

OCCI The Oman Chamber of Commerce and Industry

Oman/ the Sultanate Means the Sultanate of Oman

Ordinary General Meeting or OGM

Means a general meeting of the Shareholders held in accordance with the provision of Article 122 of the CCL.

Ordinary Shares Equity Shares of the Company carrying the right to one vote at any General Meeting of shareholders including any Extraordinary General Meeting and otherwise ranking pari-passu with Shares with Preferential Voting Right in all aspects including the dividend receipt.

Preferential Voting Right Shares (PVRS)

Equity Shares of the Company carrying the Right to two votes at any General Meeting of shareholders including any Extraordinary General Meeting and, otherwise ranking pari-passu with Ordinary Shares in all aspects including the dividend receipt.

Prospectus This prospectus of the Rights Issue, as approved by the CMA.

Record Date Means 1st September 2013 being the date as on which the Shareholders (of Ordinary Shares as well as PVRS) whose names are registered in the MCD records will be eligible to subscribe to the Rights Issue.

Related Party Has the meaning given to it in the Code (unless the meaning or context otherwise requires)

Rial Omani/ RO The lawful currency of the Sultanate of Oman.

Rights The preferential right to subscribe to and be allotted Shares in the increased share capital of the Company of nominal value of 100 Baiza per Share

Rights Issue The issue of rights in equal proportion in relation to allotment and subscription of 34,650,000 Ordinary Shares and 14,850,000 Preferential Voting Rights Shares, at a price of Bzs 280 per Share made under this Prospectus.

Share(s) The Ordinary share(s) and Preferential Voting Rights share(s) of the Company.

Shareholders The shareholders (holding Ordinary Shares or PVRS) of the Company.

Subsidiary A subsidiary is a company in which the parent company owns, directly or indirectly more than half of the voting power.

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CHAPTER 1 - GENERAL INFORMATION ON THE ISSUE AND THE ISSUER

Name of the Issuer Galfar Engineering & Contracting SAOG.

Commercial Registration No

1015133

Principal place of Business

Postal Address: P.O.Box 533, P.C: 100, Ruwi, Sultanate of Oman

Companys Duration Unlimited.

Financial Year Financial year commences on 1st January and ends on 31st December of the same year.

Authorised Share Capital

The authorised share capital of the Company is RO 50,000,000 divided into 500,000,000 shares with a face value of 100 Baizas each consisting of two Classes of Shares as follows:

Ordinary Shares: 350,000,000 shares (representing 70% of the Authorised Capital)

Preferential Voting Rights Shares: 150,000,000 shares (representing 30% of the Authorised Capital)

Issued & Paid up Capital (prior to the Rights Issue)

The Issued and Paid up share capital of the Company is RO 33,000,000, divided into 330,000,000 shares with a nominal value of 100 Baizas each consisting of two Classes of Shares as follows:

i) Ordinary Shares: 231,000,000 shares (representing 70% of the Issued and Paid up Capital).

ii) Preferential Voting Rights Shares: 99,000,000 shares (representing 30% of the Issued and Paid up Capital)

Issued and Paid up Share Capital of the Company (Post Rights Issue)

The Issued and Paid up share capital of the Company after the Rights Issue (assuming full subscription) will be RO 37,950,000, divided into 379,500,000 shares with a nominal value of100 Baizas each consisting of two Classes of Shares as follows:

i) Ordinary Shares: 265,650,000 shares (representing 70% of the Issued and Paid up Capital).

ii) Preferential Voting Rights Shares: 113,850,000 shares (representing 30% of the Issued and Paid up Capital)

Nominal Value of the Shares

Baizas 100 per Share.

Ratio of Rights entitlement to Issued and Paid-up Capital

Every Shareholder is entitled to subscribe to 1.5 shares of the Rights Issue for every 10 Shares of the respective Class of Shares held on the Record Date.

Total Number of Shares offered for Subscription

49,500,000 Shares at the Issue Price of Baizas 280 per share (including amount towards issue expense) to Shareholders as of the Record Date on a rights basis, aggregating RO 13,860,000/- (Omani Rial Thirteen million eight hundred sixty thousand only) comprising as under:

i) Ordinary Shares: 34,650,000 shares

ii) Preferential Voting Rights Shares: 14,850,000 shares

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Unsubscribed Shares In the event of any Rights Issue remaining unsubscribed after allocation to Shareholders who have applied for the rights shares and to Applicant/s who bought the rights, then the Company at its discretion, reduce the capital of the Company by an amount equivalent to the value of the Rights (of the respective Class of Shares) that finally remain unsubscribed, or offer the unsubscribed shares to public through a public offer, as provided in Article 83 of Commercial Companies Law.

Issue Expense An amount of 2 Baizas per Issue Share is payable by the Applicant towards Issue Expense.

The total Issue Expenses is estimated at RO 99,000.

Eligibility for Subscription

Every Shareholder may subscribe for a number of Rights that would entitle the Shareholder to own 1.50 Shares for every 10 Shares of the respective Class of Shares held by that Shareholder in the Company as of the Record Date duly rounded off. Subscription for the Rights Issue is open to the Shareholders appearing on the Company register with the MCD as on the Record Date. Persons who purchase the Rights entitlement trading on the MSM before the end of the trading period of the Rights Issue are also eligible to subscribe for the Rights before the Rights Issue closes.

Record Date 1st September 2013

Refund of excess application money

The refund of excess application amounts, if any, shall be made to the respective bank account of the Applicant, within [15] days of the closure of the Rights Issue.

Purpose for which the proceeds of the Subscription would be utilised

Rights Issue proceeds will primarily be used to strengthen the Companys balance sheet and enable the company to raise long term fund to support its growth.

Permissible Level of Foreign Shareholding

It is permissible for non-Omanis to own up to 70% of the Share Capital of the Company in accordance with the Commercial Company Law and the Articles of Association. GCC nationals shall be treated on par with Omani nationals in respect of ownership of and trading in shares and establishment of companies in the Sultanate of Oman pursuant to Ministerial Decision 205/2007.

Date of EGM approving the Rights Issue

30th March 2013

Commencement Date for Trading of the Rights entitlement Shares

8th September 2013

Closing Date for Trading of the Rights entitlement Shares

22nd September 2013

Commencement Date of the Subscription

11th September 2013

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Closing Date of the Subscription

26th September 2013

Listing The Company is already listed on the MSM; the Rights Issue Shares shall also be listed on the MSM.

Regulatory Approvals Approval received from the CMA vides CMA Administrative Decision No. E/67/2013 dated 22nd August 2013.

Allotment The Rights Issue shall be allotted to the extent that eligible Shareholders have submitted valid Applications and to Applicant/s, who have acquired such rights to apply for the Rights through transactions recorded at the MSM and made valid Applications. Allotment is subject to valid subscription and receipt of valid Application Forms.

Financial Advisor & Issue Manager

Oman Arab Bank SAOCInvestment Management Group,PO Box 2010, PC 112, Sultanate of OmanPh: 24827399: Fax: 24827367Email: [email protected]

Statutory Auditors For 2013:PricewaterhouseCoopers LLPHatat House, Suites 205-210 PO Box 3075, Ruwi, Post Code 112Wadi Adai, Muscat, Oman Tel: 24 559 110, Fax: 24 564 408www.pwc.com/middle-east.

From 2009 - 2012:Ernst & YoungErnst & Young Building, QurumP.O. Box 1750, P.C. 112, Sultanate of Oman.Tel.: 24559559, Fax: 24566043Email: [email protected]/me

Internal Auditor

(in-house)

Mr. Shailesh C. Chadha Chief Internal Auditor Tel. : 24525194, Fax .: 24525195 E-mail: [email protected]

In-house Legal Advisor Mr. Abdelbagi Dafalla Abdul RaoufP.O.Box 533, Postal Code 100,Sultanate of OmanTel: 24479489 Fax: 24478491Email: [email protected]

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Legal Advisor to the Rights Issue:

Said Al Shahry & Partners (SASLO)Advocates & Legal ConsultantsP.O. Box 1288, PC 112, Sultanate of OmanTel: 24603123 Fax: 24603400www.saslo.com

Collecting Banks Oman Arab Bank SAOCNational Bank of Oman SAOG

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CHAPTER 2 - OBJECTIVE OF THE ISSUE, UTILIZATION OF PROCEEDS AND ISSUE EXPENSE

2.1 Objective of the Issue

The purpose of the Rights Issue is to strengthen the Companys balance sheet, and enable the company to raise long term fund to support its growth

2.2 Use of Proceeds

The funds raised will be used by the Company for its general corporate purposes and repayment of certain loans.

2.3 The estimated cost of the Rights issue

The costs and expenses of the Rights Issue are estimated at RO 99,000/- (Rials Omani Ninety Nine thousand only), which is equal to approximately 0.71% of the total gross proceeds of the issue. The costs and expenses of the Rights Issue will be met from the amount collected from Applicants toward Issue Expense at 2 Baizas per Share. Any additional expense will be borne by the Company and any surplus will be retained by the Company and credited to its Reserves & Surplus. The breakdown of the estimated costs and expenses is contained in the table below:

Particulars Rial Omani

Financial Advisor & Issue Manager 30,000

Collecting Banks Charges 16,000

Legal Fees 4,000

CMA Fees 6,880

Marketing, Advertising, Printing & Publicity 27,000

Other Expenses including Processing, Postage 15,120

TOTAL 99,000*

* These are estimates and may change as per the actual

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CHAPTER 3 - COMPANYS OBJECTS & APPROVALS

3.1 Overview

The Company was registered in 1975 and subsequently was incorporated in 1986 as a limited liability company (LLC). The Company was transformed to a Stock Associate Omani General (SAOG- equivalent to public joint stock company) organized under the laws of the Sultanate of Oman following its IPO in September 2007

3.2 Objects of the Company

As per the Memorandum and Articles of Association of the Company, the main objectives of the Company are as under:

1) To conduct the business of engineering and contracting, as engineers and/or main or sub-contractors for carrying out all engineering works in their different kinds and specializations of civil, mechanical, electrical and electronic engineering, including execution of works on turnkey basis.

2) To carry out in particular, works of designing, drawing, excavating, filling-up, demolishing, exploding, dismantling, removing, building, constructing, installing, erecting, connecting, commissioning and maintenance of all kinds of Engineering works, which includes without limitation:

a) Civil works to projects of: Oil and gas, petrochemical, roads and high ways, bridges, flyovers, planes run ways, harbours, jetties, corniche, dams and dike, stadiums, educational premises, hospitals, commercial and/or housing complexes, prisons, mosques, public utilities and all other buildings and infrastructure projects.

b) Installation and erection works of: pipelines, turbines, power systems, insulation materials, refractory lining and corrosion resistant lining, steel structures, workshops and factories, equipments, storage facilities, depots and petrol service stations.

c) Electro-mechanical and cooling works of: commercial and residential complexes, factories, cold stores, high and low tension lines, sub stations, cablings, building management and monitoring systems, fire alarm and smoke detection.

d) Water and environment hygiene projects of: supply of water, desalination plants, sanitation and sewage system, water treatment plants and solid waste management system.

3) To carry out in connection with its objects, the business of processing and manufacturing of ready-mix mortar, crusher, asphalt, blocks, interlock, tiles of its all kind and shape, various carpentry and metal products such as doors, windows, fences, grills and others, whether for the Companys usage or for marketing purposes.

4) To carry out the business of heavy carriage and transportation of machineries, equipments and materials whether for the Companys usage or for interest of other parties against charges.

5) To carry out the business of imports, exports, purchasing, selling, hiring of plants, machineries, equipments, building materials and others that related to its objects.

6) To conduct the business of general trading and to carry out in accordance with the Commercial Agencies Law, the business of agencies and commercial representation to international companies, corporations and manufacturers, and to give agencies and commercial representations to others to represent the Company locally and abroad.

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3.3 Registrations & Licenses

The Company presently holds the following material registrations & licenses in order to pursue the activities it has been incorporated for:

Authority Description Valid up to

MOCI Commercial Registration Certificate Number: 1015133 23/8/2013

OCCI Membership Certificate Number: 317 31/12/2014

The MOCI commercial registration is renewed every five years on payment of prescribed fees. The OCCI membership is renewed every [two] years on payment of prescribed fees. In addition to the above, the Company is registered with various agencies such as Tender Board, Muscat Municipality, Public Establishment for Industrial Estates (PEIE) and Public Authority for Electricity & Water (PAEW), Petroleum Development Oman (PDO) etc. The Company is also a member of the Oman Society for Petroleum Services, Oman Society of Contractors. The company is certified under ISO 9001, ISO 14001, ISO 29001 and OHSAS 18001.

3.4 Statement of all equity issuances made by the Company in the last three years

Equity capital as on 31st December 2009 : RO 30,000,000/-

Equity capital issued in FY 2010 : RO 3,000,000/- (through stock dividend of 10%)

Equity capital issued in FY 2011 : NIL

Equity capital issued in FY 2012 : NIL

Equity capital as on 31st December 2012 : RO 33,000,000/-

3.5 Corporate and other approvals obtained

3.5.1 Board Approval

The Board of Directors passed the following resolutions at a meeting held on 6th March 2013:

For strengthening the Companys balance sheet and support its long term growth, the Board of Directors recommend to enhance the capital of the Company through a rights issue of shares by issuing, on a rights basis of 1.5:10 i.e. 49.5 million shares (rights shares) at a price of Baizas 280 (two hundred eighty) per share including an amount of 2 Baizas per share towards share issue expense, aggregating RO 13.86 million, subject to receipt of shareholders and regulatory approvals as may be necessary. Consequently, the issued and paid-up share capital of the Company will increase by RO 4.95 Million (Rial Omani Four million nine hundred fifty thousand) [i.e. from RO 33 Million (Rial Omani Thirty three million) to RO 37.95 (Rial Omani Thirty seven million nine hundred fifty thousand).

3.5.2 Shareholders Approval

The Shareholders at the EGM held on 30th March 2013 approved the rights issue as recommended by the Board of Directors. The EGM also approved the following:

Authorize the Chairman and Vice Chairman, to jointly approve the Record Date and to sign, on behalf of the Board, the prospectus and other documents which are incidental for this Rights Issue.

Amendment of Article [6-a (i) and (ii)] of the Articles of Association.

Authorize the legal advisor to take all necessary steps including execution, registering and filing of any necessary documents with the MOCI, CMA, MSM, MCDC or any other relevant authority in connection with the Rights Issue.

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CHAPTER 4 - SHAREHOLDING DETAILS

The significant Shareholders of the Company as on 28 July 2013 owning 5% or more of the paid-in capital of the Company are as follows:

Name Nationality Number of Ordinary

Shares

Number of Preferential

Voting Rights Shares

Total Shares

% to Total

Equity Capital

Sheikh Salim Said Hamed Al Fannah Al Araimi

Omani 31,938,398 29,700,000 61,638,398 18.68

Al Siraj Investment and Projects LLC

Omani 21,392,150 20,625,000 42,017,150 12.73

Immar United Investment & Projects LLC

Omani 19,800,000 19,800,000 39,600,000 12.00

Mr. P Mohamed Ali Indian 16,500,000 16,500,000 33,000,000 10.00

Ms. Rasiya Mohamed Ali Indian 24,165,954 Nil 24,165,954 7.32

PMA International Ltd. BVI company

8,250,000 8,250,000 16,500,000 5.00

The Company has 4,874 Shareholders as on July 2013. The ownership pattern is summarized below:

Nationality Share Capital (%)

Omani / GCC 72.48

Arab 0.22

Foreign 27.29

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Rights Issue ProspectusCHAPTER 5 - OMAN ECONOMIC OUTLOOK

5.1 Background

Strategically positioned at the crossroads of Asia and Europe, Oman has historically been a center of trade and commerce. With a population of about 3.6 million spread over a land area of 309,500 square km, Oman is perceived as a country with stable political, economic and social systems. The country has created a strong infrastructure, healthcare, communication, international trade network and advanced transportation systems on the backbone of a flourishing oil-based economy. The continued focus of the Government to diversify the economy and gradually reduce its dependence on oil, has witnessed a steady growth of the non-oil sectors. Currently, according to the data published by the National Centre for Statistics & Information, oil contributes about 52% of the 2012 Gross Domestic Product (GDP) at current market prices, which the Government aims to reduce over the future.

5.2 Economy

The Omani economy is estimated to have grown by 11.6% in 2012, supported by the relative stability in crude oil prices in the international markets. Despite the uncertain global outlook, the domestic market witnessed improved demand across various sectors.

(jO jf ) LG G dG g (Structure of Gross Domestic Product (End of December)

2011 2012

53% 52%

5%8%8%

27%

5%7%7%

28%

Total Petrolum Activities

dG fCG LG

adGh edG IQGOEGPublic Administration & Defence

Construction

GAfG

iNCG fCGOther Activities

Wholesale & Retail Trade

FdGh G IQ

Although the global economy shows signs of stabilising, the overall situation continues to be uncertain on account of the debt problems of the developed economies in Europe and weak growth.

Oman has a credit rating of A by Standard & Poors and A1 by Moodys Investor Services. The Omani Rial is pegged to the U.S. Dollar at a fixed exchange rate of 1 RO = 2.6008 US$.

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1000900800700600500400300200100

0

865

US$/BBLMn. BBL

Daily Average Production Average Price

884 919 120

100

80

60

40

20

0

Crude OilDaily Average Prod. & Average Prices

eH e

edG fG Se dG Se

eH / QhO

dG Seh edG fG Se

77

103110

Merchandise Exports & Imports (Mn. R.O) Government Revenues and Expenditures (Mn. R.O)

Merchandise Imports

2,34

5.9

2,33

11,

852

2,65

6.2

2,29

0

3,80

9.9

4,04

0

4,20

7.6

4,51

1

4,93

6.1

4,98

0 5,88

0.4

5,92

1

7,56

07,

639

7,42

96,

748 7

,965

7,91

7

10,7

38

12,4

91

1,68

3.6

4,35

1.8

1,97

2.8

5,14

4.9

3,31

2.7

7,18

6.9

3,39

4.0

8,29

9.5

4,19

0.1

9,49

3.9

6,14

4.2

14,5

038,

814.

5 10,6

326,

864.

2

14,0

73

7,60

3.3

18,1

07

9,08

2

Merchandise Exports

1995 2000 2004 2005 2006 2007 2008 2009 2010 2011 1995 2000 2004 2005 2006 2007 2008 2009 2010 2011

Y jQ e - eG ahGh GOGjGY jQ e - dG GOQGdGh GQOdG

dG GOQGdG dG GQOdGTotal Revenues Total ExpenditureGOGjG LG ahG LG

(Source: Monthly Statistical Bulletin- Feb 2013, National Centre for Statistics & Information)

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5.3 Public Finance

(The data in this section is based on information gathered from publications of National Centre for Statistics & Information)

The Government budget for the year 2012 set the total revenue at RO 8.8 billion based on an oil price of US$ 75 per barrel. As against this, the actual revenue was about RO 13.98 billion, of which oil & gas revenue was RO 12 million (86% of total revenue). The average price of Oman crude up in 2012 was $110/barrel. Total public expenditure in 2012 was estimated at RO 10.76 billion leading to a considerable surplus of RO 3,22 billion as against a deficit of RO 1.20 billion projected in the budget for 2012. The Sultanates merchandise exports increased by 10.7% in 2012 over 2011, primarily driven by the increased value of oil and gas exports. Annual rate of growth of merchandise imports in 2012 was 19% compared to the previous year.

For the year 2013, the Government has budgeted public revenue of RO 11.2 billion based on an estimated price of oil at USD 85 per barrel. The total government expenditure for 2013 is proposed at RO 12.9 billion which is 12% higher than the revised budget expenditure for 2012.

(Monthly Statistical Bulletin- April 2013, National Centre for Statistics & Information)

5.4 Development Plans

The Government has drawn up the Eighth Five-Year Development Plan (2011-15) which proposes substantial public investments with focus on the infrastructure sector. These investments are expected to improve the domestic demand and further increase the diversification of the Omani economy.

The Government has projected cumulative revenue of RO 37.5 billion over the plan period with an overall public expenditure of RO 42.71 billion over the five year plan period. The plan expects non-oil activities to grow at a rate of 10% (at current prices) and 6% (at constant prices). This emphasizes the continuing efforts to further diversify the economy. The plan provides for investment in new projects worth RO 5.6 billion apart from projects worth RO 6.4 billion carried over from the previous plan period. The plan targets to provide employment to 200,000 to 275,000 Omani citizens.

5.5 Key Economic Indicators

2009 2010 2011 2012

GDP at market price (RO billions) 18.56 22.61 26.90 30.03

Population (millions) N.A 2.77# 3.3@ 3.6@

Per capita GDP at market price (RO) N.A. 8,162 8,151 8342

Oil and gas industry as % of GDP 41% 46% 51% 52%

Annual Inflation (%) 3.4 3.3 4.0 2.9

MSM market capitalization (RO billions) 9.1 10.9 10.3 11.7

Crude oil production (million barrels) 297 315 323 336

# as per 2010 census @ Registered the Directorate General of Civil Status (Mid Year)

Sources: National Centre for Statistics & Information

National Centre for Statistics & Information- Monthly Statistical Bulletin- December 2012 - Volume 23 Number 12 & Statistical Year Book 2012

MSM Annual Statistical Bulletin 2012

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CHAPTER 6 - DESCRIPTION OF THE COMPANY AND BUSINESS OVERVIEW

6.1 Overview of the Company

The Company is one of the largest, multi-discipline engineering and construction companies in the Sultanate of Oman and GCC. Galfar has highly experienced and professional management team in project management, engineering and construction in areas such as oil & gas, civil, electro-mechanical, roads & bridges, utilities & services and environmental projects. The Company has delivered a diversified range of projects including oil and gas pipelines, production, collection and processing facilities; service contracts in petroleum industry; commercial and residential complexes; educational institutions; industrial structures; ports and harbours; hospitals; stadiums; water retaining structures; bridges, roads and dams; electro-mechanical works; HVAC systems, power transmission lines and substations; operations & maintenance contracts for hospitals and universities; sewage treatment plants, reverse osmosis plants, water line networks and sewage line networks.

The Company is one of the biggest employers of the national work force in the private sector. The Company owns a fleet of over 7,100 vehicles and equipment. Galfars operations are spread across the Sultanate of Oman, various countries in the GCC, the Middle East and India. Its construction, procurement and project management services cover major engineering disciplines. Galfar is ISO 9001 certified and the Company views safety, quality and reliability as the cornerstones of its business.

6.2 Description of the Companys business

The Companys business can be classified under 3 major segments Civil & Marine, Oil & Gas and Roads & Bridges:

Civil & Marine and Utilities & Services

The civil division is the first operating division of Galfar. The division has grown from strength to strength from modest beginnings and has established a track record in undertaking and delivering projects. The capability and expertise of the unit includes residential and commercial buildings, hospitals, health centers, monumental structures, flyovers, automobile showrooms, hotels, schools, palaces, harbours, stadiums, sewage treatment plants, heavy industrial structures, water tanks, water and waste water networks. The division has several prestigious projects to its credit such as the Civic Plazza, Muscat Gate, Ibri General Hospital, Sur Stadium, Mawelah Interchange, Sur Fishery Harbour, Seeb Fishery Harbour, Al Sharqiyah water supply network, Saida bin Mazouna Mosque, Bank Muscat Corporate Office, Saud Bahwan Group Corporate Centre & Showrooms, Crown Plaza hotel at Sohar, Duqm Beach hotel, Ship repair yard and dry dock complex, Barka Reservoir, etc.

The division also runs a full fledged carpentry workshop that mostly caters to the joinery requirements of various projects. The fire rated timber doors manufactured by the carpentry workshop are approved by Royal Oman Police /Civil Defence.

The Utilities & Services Unit is one of the major MEP contractor in Oman specializing in EPC works for EHV substation & transmission line. They undertake major HVAC works including special application for hospital environment and demanding requirement of palace and high end villas. EPC works for STP/R.O. Plants including operation and maintenance are undertaken and some of the plants are being maintained for more than 20 years. The first state-of-the art Sewage Treatment Plant employing MBR technology was supplied / installed and commissioned by Utilities & Services Unit. The Utilities & Services Unit has the statutory registration requirement for fire alarm & fire fighting system.

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The Civil & Marine and Utilities & Services division has an extensive customer base, including some who have been valuable patrons for the past two decades.

Oil & Gas

Since the commencement of its operations in the year 1988, the Oil & Gas unit has grown over the years and has the capacity to execute Engineering, Procurement and Construction (EPC) projects in the Oil and Gas sector. This unit has executed projects related to production and processing facilities in the oil & gas sector. It has successfully completed on-plot and off-plot service contracts, encompassing design, civil, mechanical, electrical, instrumentation and coating services. It is well experienced in cross-country oil and gas pipelines and flow lines of various materials like carbon steel, stainless steel, PE Lined and coated pipes and GRP pipes etc., erection & commissioning of static and rotary equipments, construction of oil storage tanks, gathering stations, corrosion protection, chemical injection and water injection projects, control and automation systems, electrical power generation and distribution, 132kV/66kV/33kV/11kV overhead lines etc. . The division has several prestigious projects to its credit, such as LNG upstream facilities, Kauther Gas Plant, Harweel Cluster facilities, North and Off-plot Delivery Services Contract (ODC), Qarn Alam Steam project etc.

The unit has a full-fledged design office for facilitating the execution of EPC projects. The design office has the capability to design in various areas of oil &gas engineering such as on-plot and off-plot facilities, process, electrical, instrumentation and pipelines including PE lining for pipelines, using the latest software and techniques.

The Oil &Gas unit has an exclusive fabrication facility at Nizwa (U & R Certified) that is well established, serving as a central hub for fabrication of pressure vessels, piping spools, pipe supports, structures, launcher-receivers, tanks, manifold sand fabrication including coating and calibration services.

Roads & Bridges

Started in 1989 the Roads and Bridges unit has successfully completed construction/rehabilitation of over 1500 km of roads in Oman. This unit has the capability to undertake large roads and bridges projects and has progressed to be a leading road construction contractor in the Sultanate. It has contributed in the development of the country by building roads across the length and breadth of the country. The unit has specialized teams to take up challenging jobs in most difficult terrains. The biggest asset of the unit is its committed and motivated workforce. Some of the prestigious projects of the unit include the Muscat Express Way, Bowshar Al Amerat Road, Central Corridor, Hashik Suwamiya road and the Jabel Akthar road projects.

The unit has a central full-fledged materials testing laboratory for soil, asphalt and concrete testing in addition to the various site laboratories. It is also self sufficient in production of major road building materials such as aggregates and asphalt.

The above business units are supported by various support units and management units:

Plant Unit

Galfar owns a large fleet of plant, equipment and vehicles which are managed and maintained by a well experienced team of equipment engineers and mechanics. These equipment and vehicles are serviced and maintained by a fully equipped base workshop in Muscat and a network of project based workshops. The plant and equipment include asphalt plants, batching plants, crusher plants, trenchers, heavy duty cranes, tower cranes, side booms, heavy duty dozers, excavators, front end loaders, graders and vibratory rollers.

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Human Resources (HR)

With nearly 24,000 strong, well-motivated multi-national work force, Galfar is one of the largest private sector employers in the region. Its work force includes about 4,135 Omani nationals and rest from other countries, mainly from the Indian sub continent and MENA region. The Company lays a lot of emphasis on its Omanisation programme through employing and training Omani nationals. Galfar is one of the employers of the largest number of Omani nationals in the private sector. With the aim of developing its national workforce, Galfar has established training centers at Muscat and Sohar.

The general split-up of the workforce deployment (as on May 2013) across various offices, units and projects is given below:

Roads & Bridges 4,396

Airport 2,590

Muscat & Batinah Express Way 2,100

Oil & Gas (North, South and EPC) 5,677

Civil Marine & Infrastructure 5,149

Utility & Services 2,435

Support units 1,601

Total 23,948

The Ministry of Manpower requirement for Omanisation applicable to the Company is currently 30%. The actual Omanisation as on 31st May 2013 was 17.27%

Business development & tendering

The business development and tendering unit plays a vital role in maintaining Galfar as a leading EPC and construction partner. With clientele spread across almost all the Ministries and Government Departments and leading oil exploration and production companies in Oman, one of the major responsibilities for the unit is to liaise and understand the project specific requirements. It also plays a crucial role in keeping the Companys management informed on future projects. The unit also has the responsibility to locate joint-venture or consortium partners in projects where such associations are necessary or advantageous.

The tendering unit has the responsibility to ensure success in tenders submitted by the Company. It looks after the tender preparation and submission for all the operating units. With a responsibility to maintain growth in the organization, the unit has a very important and crucial task.

The business development and tendering unit is responsible to ensure that the Companys strategic policies are addressed at all times and that the Company maintains a sustainable growth while maintaining the satisfaction level for all stakeholders.

Quality & Health, Safety & Environmental (QHSE)

Safety and quality have always been a priority for Galfar in its operations and the Company has been maintaining high standards in its operations. The Companys operations are certified for meeting international standards such as ISO 9001, ISO 14001 and OHSAS 18001.The dedicated QHSE unit develops the management systems and procedures, monitors the implementation and carries out audits to ensure compliance.

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Galfar has won many awards and accolades from its clients and international organizations for its level of performance in HSE. Galfar conducts specialized HSE related training courses, in addition to the quality and HSE management system trainings.

Finance & Information Technology (IT)

The accounting and financial matters of the Company are managed by the finance and treasury department. Receivables, payables, payroll, managing the working capital, arranging bank facilities, insurance and periodic MIS reports for corporate management are taken care of by this department. They also formulate the accounting policies of the Company. The operations of this department are fully computerized.

Companys IT requirements are managed by the IT department. The IT infrastructure consists of multiple UNIX and WINDOWS servers with more than 1500 computers on a corporate network. The different units of the organization are linked on a network. The project sites at remote locations also access the corporate network through links. The major application running on the network is Oracle e-Business Suite covering the business processes of finance, payroll, materials, inventory and projects. The IT team, consisting of both hardware and software professionals, looks after the IT support, development of IT solutions and maintenance of hardware and network for the entire organization.

Internal Audit

Galfar has an independent in-house Internal Audit unit (as per the requirements of statutory authorities), reporting directly to the Audit Committee of the Board of Directors. Its objectives are to strengthen the effectiveness of internal control, risk management and corporate governance procedures, to ascertain the integrity of companys operations and reporting and to ensure compliance of the Capital Market Authority guidelines.

In order to ensure its independent and effective working, internal audit has free access to the Companys records, physical properties, and personnel relevant to any function under review.

Material Management Unit

This unit is the supply chain arm of the Company and is critical and central to all its activities. The activities of this unit start early on in the project from the tendering stage, and on award of the contract, it ensures that the correct materials are procured and delivered at the project site at the correct time and at the correct price, conforming to the stringent quality norms prescribed by the client and consultant.

The complexity of operations involves managing inventories at various project locations as well as maintaining a transport and warehousing hub at Muscat for centralized materials. Its warehousing spread covers the entire geographical area of the Sultanate of Oman. It also ensures on line updating of records and data on a real time basis. The supply chain module works on an ERP environment supported by Oracle software making the entire cycle of supply chain transparent and visible for timely action at any point of time.

Sub contract Management

Galfar has earmarked experienced personnel to evaluate and engage efficient and resourceful subcontractors to handle jobs that it subcontracts in its normal course of business. Subcontracted activities could be either be specialized activities for which Galfar may not have internal expertise/ resources or activities that the Company, although capable of executing, sub-contracts due to the order book position and tight execution schedule. Also as a part of the Companys corporate social responsibilities, this unit subcontracts certain activities of the projects to Omani small and medium enterprises (SME). Depending on the type of activity the subcontractors are selected based on demonstrated capabilities by way of

24

previous experiences, financial standing, methodology of execution, availability of trained and qualified personnel, skill levels of employees, equipment details etc. The performance of the subcontractors is also linked to periodic evaluation by the subcontracts unit, the relevant project concerned as well as the QHSE unit of the Company.

6.3 Projects Executed through Joint Venture / consortium

With its wide spread operations all across Oman, multi-discipline capabilities, huge human resource and plant & equipment, added strength of affiliated companies and commitment to quality, HSE and customer satisfaction, Galfar is a sought after joint venture partner in the Middle East. Galfar has successfully completed several joint venture / consortium projects in partnership with some of the leading companies of the world like Bechtel, Snamproggetti, Petrofac, Sade etc. Some of the major projects completed as well as in progress, through joint venture include the following:

a) North Oman Crude Stabilization Project: This US$ 100 million EPC contract for the construction of vacuum flash plant and crude stabilization plant at Fahud and Qarnalm, was executed as a Joint Venture between Galfar and Petrofac International and was completed in 1994. Petrofac did the engineering and commissioning of the project whereas the construction work was handled by Galfar.

b) LNG upstream facilities: Snamproggetti, Bechtel and Galfar formed a consortium to execute this US$ 370 million EPC contract for the construction of LNG upstream facilities at Saih Rawl and Barik for Petroleum Development Oman (PDO). Galfar executed the civil, electrical, mechanical, instrumentation and insulation works for the project.

c) AshSharqiya main water supply scheme: A joint-venture with Sade, France, this US$ 50 million water line project involved laying of a 130 km pipeline of diameter varying from 400 mm to 800mm, seven 45 metre high, 1300 cubic metre (cu.m.) elevated tanks, three ground reservoirs of capacity 12,300 cu.m., 6,600 cu.m. and 3300 cu.m. each, pumping stations, chlorination and fluoridation facilities, works compound, overhead power transmission lines, SCADA system, fencing and other minor structures.

d) Construction of Ship repair yard and Dry dock complex at Duqm: Galfar in consortium with Daewoo Engineering & Contracting was awarded the contract in April 2008 for construction of Ship repair yard and Dry dock complex at Duqm, Sultanate of Oman. The contract value was about RO 170 Million. The consortium successfully completed the contract scope in December 2010. The project being one of the largest repair yards in the world, is planned to transform Oman into a hub for global ports business. The ship repair yard and dry dock complex is equipped with unique state of art dry docks, having capacity to handle large vessels such as ULCCs. Galfar handled the engineering & contracting for mechanical, electrical and plumbing (MEP) infrastructure & buildings.

e) Salalah International Airport (MC5): The Larsen and Toubro (L&T) and Galfar consortium was awarded the contract for the design and build of Salalah International Airport in December 2010. The contract value was about RO 294 million, of which Galfars scope was RO 102million. This included the new 4 km runway, airfield lighting, adjacent taxiways and aprons, extensive drainage, landside and airside roads, bridges, car parks including a sophisticated traffic management system, landscaping and irrigation and security fencing.

f) Darsait Sewage Treatment Plant: Haya Water awarded the contract to the consortium of Cadagua and Galfar to design, build and operate a sewage treatment plant using membrane bio-reactor (MBR) technology in Darsait, Muscat. Galfar is the installation and construction partner for

25


the project, covering civil works & building service, supply of non-process equipments as well as the operation and maintenance of the plant for two years.

6.4 Subsidiaries and Associates

As at 31st December 2012, the Company has the following subsidiaries and their financials are consolidated into the financial statements of Galfar:

Name of the Subsidiaries

Principal activity % of Shares held by the Company

Place of incorporation

Al-Khalij Heavy Equipment and Engineering LLC

Hiring out of cranes 52.2 Sultanate of Oman

Galfar Training Institute LLC Training 99 Sultanate of Oman

Galfar Engineering and Contracting India Pvt. Ltd.

Construction 99.99 India

Aspire Projects & Services LLC

Construction 99.90 Sultanate of Oman

Galfar Aspire Readymix LLC Manufacture of ready mix concrete

99 Sultanate of Oman

Galfar Wasen Contracting Company Libya

Construction 65 Libya

Al-Khalij Heavy Equipment and Engineering LLC: The company is engaged in the hiring out of cranes, equipments and other vehicles to users in Oman for which it receives lease rental income. It recorded revenues of RO 1.8 mln, RO 1.7 mln & RO 1.74 mln for the years ended 2010, 2011 & 2012 with net profit of RO 0.01 mln, RO 0.3 mln & RO 0.09 mln respectively. While Galfar owns 52.20% of the equity, the balance is held by Salim International Investment Holding LLC (23.91%), Al Siraj Investments (9.96%), PMA International Ltd. (11.96%) and Qhassya Projects and Investments LLC (1.99%).

Galfar Training Institute LLC: The Company provides training programmes in various trades like heavy duty driving, construction, scaffolding, fire fighting etc. For the years ended 2011 and 2012 it achieved revenues of RO 0.81 mln and RO 1.04 mln with net profit of RO (0.16 mln) and RO 0.03 mln respectively.

Galfar Engineering and Contracting India Pvt Ltd.: The Company was established in India in 2009 to handle various infrastructure projects in India, particularly in the road sector. The company undertakes these projects through separate SPV (Special Purpose Vehicle) companies with other local partners. Details of the projects undertaken are listed under the Associate companies as given below. It plans to continue to expand its operations in India. As a wholly owned subsidiary, the companys operations and results are fully consolidated into Galfars financial statements. For the years ended 31st March 2010, 2011 and 2012, the subsidiary recorded revenues of INR 362 mln, INR 852 mln and INR 694 mln with net profit of INR 33.2 mln, INR 109.8 mln and INR 65.3 mln respectively. Galfar India is in the process of increasing its authorized share capital from INR 1 Million to INR 250 Million and its paid up share capital from INR 1 Million to INR 100 Million.

Aspire Projects & Services LLC: The company has entered the facilities management and specialized engineering solutions sector. This will open the company to avenues in facilities management, lternative power solutions and green energy solutions for the building industry. The company recorded a turnover of RO 1.75 mln with net profit of RO 0.14 mln in 2012.

26

Galfar Aspire Readymix LLC: The company was incorporated in the Sultanate of Oman in the year 2011 for the manufacture of ready-mixed concrete. It successfully secured the approvals from some of the leading consultants which has enabled the company to establish itself quickly as a quality concrete supplier in the market. The company commenced operations during 2012 and recorded a turnover of RO 1.27 mln and profit of RO 0.2 mln.

Galfar Wasen Contracting Company, Libya: Galfar holds 65% shareholding in the company incorporated in Libya during 2010. It is yet to commence its commercial operations due to political instability in that country.

The following two new subsidiaries have been incorporated in India:

Kashipur Sitarganj Highways Private Limited (KSHPL): The company was incorporated in India with an authorised and paid up share capital of INR 1,000,000/- with Galfar Engineering & Contracting SAOG holding 51% and Galfar Engineering and Contracting India Pvt Ltd. holding the other 49%. The company is undertaking the work of four laning of Kashipur - Sitarganj Section of NH-74 (from Km 175.000 to Km 252.200) in the states of Uttarakhand and Uttar Pradesh, India under NHDP Phase IV through public private partnership on Design, Build, Finance, Operate and Transfer on DBFOT Toll basis project.

Salasar Highways Private Limited (SHPL): The company was incorporated in India with an authorised and paid up share capital of INR 1,000,000/- with Galfar Engineering & Contracting SAOG holding 51% and Galfar Engineering and Contracting India Pvt Ltd. holding the other 49%. The company is undertaking two laning (with paved shoulder) of Rajasthan border to Fatehpur on NH 65 (with link upto Salasar section) under NHDP Phase IV on Design, Build, Finance, Operate and Transfer on DBFOT Toll basis.

Registered Branch Office in the Kingdom of Saudi Arabia (KSA)

The Company has registered its branch office in Saudi Arabia and is in the process of completing other formalities to qualify and participate in the Saudi projects.

Associate Companies of Galfar

The Company has the following Associate entities:

Galfar Engineering & Contracting Kuwait KSCC (please refer note 1): The company is engaged in the construction works for buildings, roads and bridges as well as operation of ready mix concrete plant, asphalt plant and clinker grinding plant. The company recorded revenues of KD 2.99 mln, KD 3.9 mln, and KD 10.7 mln in 2010, 2011 and 2012 with net loss of, KD 4.4 mln, KD 2.4 mln and KD 1.9 mln respectively. The main shareholders are Galfar (26%), Galfar Al Misnad Engg. & Cont. W.L.L., Qatar (28%), Mr. K.G. Abraham (MD, NBTC Kuwait) (25%), Dr. P. Mohammed Ali (MD, Galfar) (19%), and Sheikh Dr. Salim Said Hamed Al Fannah Al Araimi (Chairman, Galfar) (2%),

Mahakaleshwar Tollways Pvt. Ltd., India (MTPL) (please refer note 2): The company is engaged in the design, construction, finance, operation and maintenance on BOT (Build, Operate & Transfer) basis for tollways road at Indore - Ujjain in the state of Madhya Pradesh, India. It recorded revenues of INR 64.2 mln & INR 174.3 mln for the year ended March 2011 & 2012 respectively with net losses of INR 109.6 mln and 363.1 mln respectively. The shareholders of the company are Galfar (26%), SREI Venture Capital Trust Fund, India (48%), and Varaha Infrs Ltd. (26%). This project is already completed and toll collection has started.

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Shree Jagannath Expressways Pvt. Ltd., India (SJEPL) (please refer note 2): The company is carrying out the six laning of Chandikhole Jagatpur Bhubaneshwar section of National Highway No.5, from km 0 to km 62 and from Km 413 to Km 418 in the State of Orissa, India, on Design, Built, Finance, Operate and Transfer (DBFOT) basis. The main shareholders are Galfar (26%), Simplex Infra Development Ltd. (34%) SREI Venture Capital Trust (27%) and Bharat Road Network Ltd. (13%).

Ghaziabad Aligarh Expressway Pvt. Ltd., India (GAEPL) (please refer note 2): The company is engaged in the design, engineering, finance, construction, operation and maintenance for four / six laning of Ghaziabad-Aligarh Section of National Highway No.91 from Km 23.6 to Km 140.2 in the State of Uttar Pradesh, India on Design, Build, Finance, Operate and Transfer (DBFOT) basis. The project is in the construction stage. The main shareholders are PNC Infratech Ltd. (36%), Galfar (26%), Bharat Road Network Ltd. (26%) and SREI Venture Capital Trust (12%).

International Water Treatment LLC: The company has been registered to execute an EPC project for the independent water treatment plant at Al Ghubra, Muscat, Oman. The project value is approximately USD 215 Million and the time period for completion of the contract is 22 months. The shareholders are Galfar (30%), Wabag from India (32.5%) and Cadagua from Spain (37.5%).

Note:1) In the year 2010, in an auction sale, Galfar acquired 26% shareholding of Shaheen Al Ghanim

Contracting Co. KSCC, a company incorporated in Kuwait and engaged in construction activities. The name of the company was subsequently changed to Galfar Engineering and Contracting Kuwait KSCC.

2) Galfar holds 26% shares in these special purpose companies, incorporated in India, to Build Operate Transfer (BOT) road projects. The first two companies MTPL and SJEPL have commenced collecting toll, while GAEPL project is under construction.

6.5 Business growth and performance

Business scenario for the year 2013 and onwards looks promising as far as construction and infrastructure related companies are concerned. The Government has earmarked a good sum of its budgeted amount for the development activities, especially in the infrastructure sector.

Galfar being one of the major EPC contractors in the country, and based on its past track record in acquiring and executing projects, the company management is optimistic in keeping the trend on a sustainable and steady growth trajectory.

Some of the major projects which the Government authorities are considering to implement are:

MOD complex in Nizwa and Duqm

Mirbat Naval Base with dredging and ship lift facilities

Aircraft hangers in two or three more locations

General building construction such as Mosques, gateways etc

ROP complex in Nizwa

ROP Hospital in Muscat (600 beds)

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Building new ROP police stations in Muscat and other cities

Reservoirs and water supply lines

Transmission & distribution networks

Salalah Independent Power Project

Quriyat Independent Water Project

Container terminals at different locations

Ministry of Health - major hospitals

Heritage museum

Waste management program

Remaining package for Batinah Expressway peripheral roads

Musandam road with tunnels

Major Projects in hand

As of 31st December 2012, the Companys outstanding orders amounted to about RO 659 million and some of the major projects under execution include the following:

Job Title Net Contract Value (RO

million)

Backlog as at end 2012 (RO

million)

Construction of Al Batinah South Express way Package 1 138.9 129.1

North Oman ODC (rate contract) 542.3 84.8

Construction of Salalah Airport - Main Contract 5 99.9 66.1

Construction of Izz-Adam Dual Road 50.9 44.4

Construction of Mooring Facilities & Asphalt Road Hallaniyat Island

36.7 24.6

Construction of Extensions to the water distribution Networks in Nizwa in Dakhliya Region

24.1 23.3

Hasik-Ash Shuwaymia Road 103.8 23.2

Dualisation of Nizwa-Ibri Road (Jabrin to Ibri) 32.7 20.9

Nimr.G -Karim West water flood Projects 36.9 20.8

Al Rub AlKhali Border post 24.8 18.9

Ras Al Hadd Airport -Airfield Development -Pk 2 44.6 14.6

Seeb coastal vacuum sewer network 69.6 14.0

Design,Build ,Operation & Maintenance of New Darsait STP

19.3 13.9

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Companys Performance

The Company has grown steadily from its inception and the growth in its business (consolidated) over the last 5 years is presented in the following table:

RO in Million

Particulars/ Years 2008 2009 2010 2011 2012

Revenue 362.3 412.1 371.5 307.2 336.5

Cost of contracts& sales 326.6 394.8 348.3 284.1 307.6

Profit/ (Loss) on Contracts 35.7 17.3 23.2 23.1 28.9

Net Profit 23.1 3.8 6.0 5.3 9.2

For the year 2012, the Company achieved a net profit of RO 9.2 million as compared to RO 5.3 million during the previous year, a growth of 74%. The net profit margin which had decreased from a high level of about 6.4% in 2008 to around 1.6% in 2010 and 1.7% in 2011 has improved to 2.7% in 2012. The Company expects to further improve its financial position over the next few years.

6.6 Business outlook and Future Plans

With an outstanding order book of about RO 659 million, the Company is well placed in its aim to continue with its efforts for achieving a sustainable and profitable growth.

The continued Governments expenditure on development of infrastructure during the Eighth Plan (2011-2015) is expected to support the construction industry, across the segments. As a result, the business outlook for the company is encouraging as the Company is well experienced in oil and gas, roads and bridges, hospitals, waste water treatment, power transmission lines, ports and airports etc.

Apart from its operations in Oman, the Company has also established a subsidiary in India for construction activities as well as invested in BOT road projects.

The Company has registered its branch office in Saudi Arabia and is in the process of completing other formalities that will make it eligible to participate in local project tenders. It will focus on the infrastructure and oil & gas sectors of the country.

The associate Company in Kuwait is focusing on completing its projects on hand and takes on new projects in the roads and oil & gas sectors. The subsidiary company in Libya is dormant and awaits right opportunity.

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31


6.8 Sources of Financing and Debt Equity Ratio

The main sources for financing are shareholders equity, borrowings and creditors.

Statement Value as on 31-12-2012

Value as on 31-12-2011

R.O. 000 R.O. 000

Current Liabilities

Term loans -current portion 32,694 20,972

Finance Lease -current portion 4,261 4,104

Short term loans 35,650 25,850

Bank borrowings 61,903 47,224

Trade and other payables 150,925 145,925

Income tax payable 2,003 1,927

Sub-total 287,436 246,002

Non-current Liabilities

Term loans 22,900 25,992

Finance Lease 5,437 5,273

Other payables and provisions 41,616 30,809

Deferred tax liability 7,302 7,639

Sub-total 77,255 69,713

Total Liabilities 364,691 315,715

Total Liabilities/Equity Ratio 3.97 3.60

6.9 Details of Debt

The Company has availed term loans, lease finance, short term loans and other bank borrowings and the position as on 31st December 2012 is given below.

Term loans

(RO 000)

- from banks 55,005- finance companies 589

Of which:Current portion

- from banks 32,393- finance companies 301

Non-current portion- from banks 2,612- finance companies 288

32

The amount of term loans repayable within next twelve month period is shown as a current liability. The term loans from banks are secured against the contract assignments and/or joint registration of vehicle/equipment. The term loans from finance companies are secured against the jointly registered vehicle/equipment.

The interest rates on term loans were as follows:

31st December 2012

Floating rate loans LIBOR + 1.75% to 2.00% Fixed interest rate loans 4.99% to 8.25%

Finance Lease

Finance lease liabilities are for various items of plant and machinery. These leased assets are capitalized and depreciated in the Companys accounting records. Future minimum lease payments under finance leases and hire purchase contracts together with the present value of the net minimum lease payments, as on 31st December 2012, are as follows:

(RO 000)Within one year 4,352After one year but not more than five years 5,926Total minimum lease payments 10,278Less amounts representing finance charges (580)Present value of minimum lease payments 9,698

Short term Loans from banks (RO 000)From banks 35,650

Bank short term loans are repayable in one year and are secured against the contract assignments and/or joint registration of vehicle/equipment. The interest rates on these loans vary between 4.5% to 6.0% per annum.

Bank borrowings (RO 000)Loan against trust receipts 45,240Bank overdrafts 16,663Total 61,903

Bank borrowings are repayable on demand or within one year. The interest rates on bank borrowings vary from 5.5% to 8.0% per annum. Bank borrowings are secured against the contract assignments and/or joint registration of vehicle/equipment.

33


Main Debt Covenants

The Company has generally complied with the debt covenants stipulated by its lenders and in case of variance; these have been suitably discussed with the lenders. Some of the main covenants stipulated and the position as at 31st December 2012 is given below:

Ratio Covenant Position as at

31/12/2012

Position as at

31/12/2011

Current Ratio 1.00 minimum 1.1 1.08

Net Bank debt to tangible net worth 1.00 maximum 1.47 1.33

Total liabilities to Total Equity 3.50 maximum 3.84 3.59

Tangible net worth not less than RO 84 million RO 84 mln RO 91.46 mln RO 85.85 mln

Gearing ratio 1.75 maximum 1.68 1.47

Proposed Debt Restructuring

The Company is considering raising sub-ordinate debt and long term loans to rationalize the debt structure of the company during the current financial year. This, together with the proceeds from the rights issue, is expected to enable the Company to consolidate its financial position and facilitate fund raising to support its growth plans.

6.10 Property Interests of the Company

Description Location Freehold / Leasehold

Remarks

Land of area 20,210 sq.m. Ghala Heights in Baushar Freehold Residential & Commercial




6.11 Commitments & Contingencies

The details of commitments & contingencies of the Company as per the consolidated audited financial statements as on 31st December 2012 are given below:

RO 000Bonds and guarantees 212,767Letter of credit 21,760 Forex commitments 144Capital commitments 1,005

The Company has provided corporate guarantees for certain subsidiaries and related parties amounting to RO 1.91 million and RO 1.71 million respectively during the year. The Company does not anticipate any material liability to arise from these guarantees.

34

The parent company income tax assessment up to the year 2007 has been finalized by the taxation department. The income assessments of the subsidiary companies are at various stages of completion. The management believes that any additional taxation for the un-assessed years will not be material to the financial position of the group as at the reporting date of 31st December 2012.

6.12 Internal Audit

There were no major adverse unresolved observations arising from the Internal Audit of the Company during the period ended 31 December 2012.

6.13 Legal Proceedings

The Company has legal cases pending in the courts of law in Oman pertaining to labour and rental disputes, commercial cases and damages to properties etc. arising from its operation. The Company has contested these cases, and does not expect the outcome of these court cases to have a major impact on the financial statements. However, the Company has created a general provision of RO 400,000 towards any adverse decisions.

6.14 Environmental violations

The company has been levied fines to the extent of RO 80,400 on account of environmental violations as part of execution of various projects. The company is in the process of negotiating settlement.

6.15 Contractual Penalties

The company has been levied penalties for delay in execution of certain projects amounting to RO 3.38 million. The penalties are countered by the extension of time and other claims from the Company. No provision for any financial impact has been considered in the financial statements as on 31st December 2012.

6.16 Corporate Social Responsibility (CSR)

Galfar has been active in its corporate social responsibility. As part of CSR, Galfar has played an active role in developing local community contractors in the oil field areas and the SMEs in Oman. The management takes pride in declaring that a major portion of its outsourcing is dedicated towards development of SMEs.

The Company has a training institute, where training is imparted mostly to Omanis on various skilled categories like drivers and operators for heavy duty vehicle and equipment. Further, Galfar has actively participated in the Water Conservation Society and has helped the cause with financial and logistical support.

Galfar has taken active part in road safety campaigns apart from conducting its own safety awareness programs on several occasions during the year. The Company has assisted some local schools in Bausher, Muscat to arrange drawing competitions for its students. Winners were rewarded and as well as appreciated through the media. The Company has supported organizations engaged in creating awareness towards the harmful effects caused by smoking, alcohols and drugs. It has also supported towns and villages in their development activities for mosques and religious buildings such as halls etc.

The Company has contributed towards the nationally popular game of football by supporting various clubs with uniforms, shoes etc. The Company has also provided equipment to grade and develop playground for communities across Oman, especially in villages and small towns.

35

Rights Issue ProspectusCHAPTER 7 - HISTORICAL FINANCIAL STATEMENTS

Details of historical financial data (consolidated) for the period 2009 2012 are provided below. For full financial statements of the Company, please visit the MSM on the link: www.msm.gov.om or the Companys website www.galfar.com.

PROFIT AND LOSS STATEMENT

Audited2012

Audited2011

Audited2010

Audited2009

RO000 RO000 RO000 RO000

Contract income 328,817 301,650 367,419 408,450

Sales and services income 7,687 5,572 4,109 3,682

Revenue 336,504 307,222 371,528 412,132

Cost of contracts and sales (307,633) (284,148) (348,302) (394,848)

Profit on contracts 28,871 23,075 23,226 17,284

General and administrative expenses (11,001) (11,250) (9,696) (8,751)

Profit from operations 17,870 11,825 13,530 8,533

Net Financing costs (7,829) (6,778) (6,940) (4,303)

Other income 2,784 1,881 757 498

Share of associates profit/(loss) (1,436) (665) - -

Impairment of goodwill of a subsidiary - - - (165)

Expenses pertaining to prior years - - - -

Profit/(Loss) before tax 11,389 6,263 7,347 4,563

Income tax expense (2,183) (999) (1,347) (809)

Profit and Comprehensive Income r/(Loss) for the year 9,206 5,264 6,000 3,754

Attributable to:

Owners of parent company 9,044 5,235 5,994 3,830

Non-controlling interests 162 29 6 (76)

Basic earnings per share attributable to equity shareholders of the parent company 0.027 0.016 0.018 0.012

36

BALANCE SHEET

Audited2012

Audited2011

Audited2010

Audited2009

RO000 RO000 RO000 RO000

ASSETS

Non-current Assets

Property, plant and equipment 116,803 114,098 122,000 134,402

Investments 9,874 9,971 8,488 1,211

Retentions receivable 22,249 16,750 16,405 25,300

Current Assets

Inventories 32,828 29,040 24,190 23,245

Contract work in progress 45,313 27,660 45,576 45,450

Contract and trade receivables 195,889 185,123 184,631 122,864

Advances, prepayments and other receivables 17,451 17,295 15,339 12,747

Deposits with bank 12,674 1,050 2,392 2,759

Cash and bank balances 3,468 2,359 1,709 1,797

Total Assets 456,549 403,346 420,730 369,775

EQUITY AND LIABILITIES

Shareholders' Equity

Share capital 33,000 33,000 33,000 30,000

Reserves and surplus 58,010 53,945 52,010 52,016

Non-controlling interests 848 686 657 651

Total Equity 91,858 87,631 85,667 82,667

Non-current Liabilities

Term loans 22,900 25,992 21,664 26,729

Finance Lease 5,437 5,273 4,809 2,897

Other payables and provisions 41,616 30,809 23,129 19,993

Deferred tax liability 7,302 7,639 7,822 7,220

Current Liabilities

Term loans -current portion 32,694 20,972 21,407 20,797

Finance Lease -current portion 4,261 4,104 3,140 2,648

Short term loans 35,650 25,850 18,000 22,500

Bank borrowings 61,903 47,224 47,649 22,962

Trade and Other payables 150,925 145,925 186,698 161,362

Provision for taxation 2,003 1,927 745 -

Total Liabilities 364,691 315,715 335,063 287,109

Total Equity and Liabilities 456,549 403,346 420,730 369,775

Net Assets per share 0.276 0.263 0.257 0.273

37

Rights Issue ProspectusCHAPTER 8 - SHARE PRICE MOVEMENT AND DIVIDEND POLICY

The following table illustrates the movement in the share price of the Company for the period 2009 to the first four months of 2013 as per the MSM.

8.1 Share Price Movement (Value in Rial Omani) (from MSM website- msm.gov.om)

Financial year Opening Price High Price Low Price Closing Price

2009

Q1 0.495 0.616 0.360 0.441

Q2 0.440 0.747 0.425 0.628

Q3 0.628 0.704 0.580 0.640

Q4 0.642 0.725 0.543 0.575

2010

Q1 0.595 0.595 0.441 0.466

Q2 0.470 0.514 0.360 0.424

Q3 0.426 0.547 0.417 0.533

Q4 0.520 0.603 0.511 0.560

2011

Q1 0.564 0.609 0.436 0.445

Q2 0.440 0.488 0.400 0.433

Q3 0.440 0.488 0.400 0.433

Q4 0.359 0.370 0.315 0.337

2012

January 0.340 0.347 0.335 0.335

February 0.335 0.404 0.333 0.394

March 0.385 0.420 0.370 0.379

April 0.380 0.440 0.380 0.421

May 0.416 0.432 0.372 0.398

June 0.400 0.415 0.388 0.392

July 0.392 0.392 0.355 0.365

August 0.364 0.380 0.362 0.369

September 0.369 0.439 0.369 0.413

October 0.417 0.420 0.390 0.385

November 0.385 0.390 0.363 0.367

December 0.370 0.374 0.357 0.364

2013

January 0.363 0.38 0.363 0.369

February 0.366 0.374 0.343 0.356

March 0.356 0.373 0.338 0.342

April 0.347 0.405 0.343 0.367

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8.2 Dividend Policy

The Company proposes to follow a reasonable dividend payout policy, subject to debt repayments, working capital and capital expenditure requirements. The amount of annual dividends and the determination of whether to pay dividend in any year may be affected by a number of other factors including Galfars business prospects, financial performance, free cash availability, and the outlook for the construction sector. Galfars management will take into account dividend payout ratios within its industry/sector as well as dividend yields of other leading stocks on the MSM at the time of recommending dividends.

The dividend details of the Company for the past years are given below:

Date Remarks Type % to paid-up capital

Amount (RO)

30-Mar-09 Date of AGM Cash Dividend 20 5,000,000

30-Mar-09 Date of AGM Stock Dividend 20 5,000,000


29-Mar-10 Date of AGM Stock Dividend 10 3,000,000



30-Mar-13 Date of AGM Cash Dividend 17.5 5,775,000

39

Rights Issue ProspectusCHAPTER 9 - PRICE JUSTIFICATION

The Company is on

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