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Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:20 pm β mac5 β 3700 Intro : 3700 Intro EIB SUKUK COMPANY LTD. (incorporated as an exempted company in the Cayman Islands with limited liability) US$1,000,000,000 Trust Certificate Issuance Programme Under the trust certificate issuance programme described in this Base Prospectus (the Programme), EIB Sukuk Company Ltd. (in its capacity as issuer, the Issuer and, in its capacity as trustee, the Trustee), subject to compliance with all relevant laws, regulations and directives, may from time to time issue trust certificates (the Trust Certificates) in any currency agreed between the Issuer and the relevant Dealer (as defined below). Trust Certificates may only be issued in registered form. The maximum aggregate face amount of all Trust Certificates from time to time outstanding under the Programme will not exceed US$1,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement described herein), subject to increase as described herein. The Trust Certificates may be issued on a continuing basis to one or more of the Dealers (each a Dealer and together the Dealers) specified under βGeneral Description of the Programmeβ and any additional Dealer appointed under the Programme from time to time by the Issuer, which appointment may be for a specific issue or on an ongoing basis. References in this Base Prospectus to the relevant Dealer shall, in the case of an issue of Trust Certificates being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe to such Trust Certificates. The Trust Certificates will be limited recourse obligations of the Issuer. An investment in Trust Certificates issued under the Programme involves certain risks. For a discussion of these risks, see βRisk Factorsβ. Each Series (as defined herein) of Trust Certificates issued under the Programme will be constituted by (i) a master trust deed (the Master Trust Deed) dated 7 June 2007 entered into between the Issuer, the Trustee, Emirates Islamic Bank PJSC as obligor (the Bank), Emirates Bank International PJSC as guarantor in respect of certain obligations of the Bank (the Guarantor) and Deutsche Trustee Company Limited as delegate of the Trustee (in such capacity, the Delegate) and (ii) a supplemental trust deed (the Supplemental Trust Deed) in relation to the relevant Series. Trust Certificates of each Series confer on the holders of the Trust Certificates from time to time (the Certificateholders) the right to receive certain payments (as more particularly described herein) arising from the assets of a trust declared by the Trustee in relation to the relevant Series (the Trust) over a co-ownership interest in (i) Ijara (leased) assets, (ii) asset-based Sukuk (trust certificates) and/or (iii) units in asset-based funds, which in each case are Sharia compliant assets originated, held or owned by the Bank and including the income generated therefrom and any agreements or documents in relation to such assets (together with any other assets in the relevant Trust, the Trust Assets for the relevant Series). Application has been made to the Financial Services Authority in its capacity as competent authority under the Financial Services and Markets Act 2000 (the UK Listing Authority) for Trust Certificates issued under the Programme during the period of 12 months from the date of this Base Prospectus to be admitted to the official list of the UK Listing Authority (the Official List) and to the London Stock Exchange plc (the London Stock Exchange) for such Trust Certificates to be admitted to trading on the London Stock Exchangeβs Gilt Edged and Fixed Interest Market. References in this Base Prospectus to Trust Certificates being listed (and all related references) shall mean that such Trust Certificates have been admitted to trading on the London Stock Exchangeβs Gilt Edged and Fixed Interest Market and having been admitted to the Official List. The London Stock Exchangeβs Gilt Edged and Fixed Interest Market is a regulated market for the purposes of Directive 93/22/EEC (the Investment Services Directive). Notice of the aggregate face amount of Trust Certificates and any other terms and conditions not contained herein which are applicable to each Series of Trust Certificates will be set out in a final terms supplement (the Final Terms) which, with respect to Trust Certificates to be listed on the London Stock Exchange, will be delivered to the UK Listing Authority and the London Stock Exchange. The Programme provides that Trust Certificates may be listed or admitted to trading, as the case may be, on such other or further stock exchanges or markets as may be agreed between the Issuer and the relevant Dealer. The Issuer may also issue unlisted Trust Certificates and/or Trust Certificates not admitted to trading on any market. The Issuer may agree with any Dealer that Trust Certificates may be issued with terms and conditions not contemplated by the Terms and Conditions of the Trust Certificates herein, in which event a supplemental Base Prospectus, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Trust Certificates. Arrangers Emirates Islamic Bank PJSC Standard Chartered Bank Dealers Barclays Capital Citi Emirates Islamic Bank PJSC The date of this Base Prospectus is 7 June 2007. BNP PARIBAS Deutsche Bank Standard Chartered Bank Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:20 pm β mac5 β 3700 Intro : 3700 Intro This Base Prospectus comprises a base prospectus for the purposes of Article 5.4 of Directive 2003/71/EC (the Prospectus Directive). The Issuer, the Bank and the Guarantor accept responsibility for the information contained in this Base Prospectus. To the best of the knowledge of each of the Issuer, the Bank and the Guarantor (each having taken all reasonable care to ensure that such is the case) the information contained in this Base Prospectus is in accordance with the facts and does not omit anything likely to affect the import of such information. This Base Prospectus should be read and construed together with any amendments or supplements hereto and with any other documents incorporated by reference herein and, in relation to any Series of Trust Certificates, should be read and construed together with the applicable Final Terms. Copies of Final Terms will be available from the registered office of the Issuer and the specified office set out below of the Principal Paying Agent (as defined below) save that, if the relevant Trust Certificates are neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive, the applicable Final Terms will only be obtainable by a Certificateholder holding one or more Trust Certificates and such Certificateholder must produce evidence satisfactory to the Issuer or, as the case may be, the Principal Paying Agent as to its holding of such Trust Certificates and identity. Information contained in βThe UAE Banking System and Prudential Regulationsβ has been extracted from independent, third party sources. Each of the Issuer, the Bank and the Guarantor confirms that such information has been accurately reproduced and that, as far as it is aware and is able to ascertain from information published by the relevant, third party sources, no facts have been omitted which would render the reproduced information inaccurate or misleading. The Dealers and the Delegate have not independently verified the information contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Dealers and the Delegate as to the accuracy or completeness of the information contained or incorporated in this Base Prospectus or any other information provided by the Issuer, the Bank or the Guarantor in connection with the Programme. No Dealer nor the Delegate accepts any liability in relation to the information contained in this Base Prospectus or any other information provided by the Issuer, the Bank and the Guarantor in connection with the Programme. No person is or has been authorised by the Issuer, the Bank and the Guarantor to give any information or to make any representation not contained in or not consistent with this Base Prospectus or any other information supplied in connection with the Programme or the Trust Certificates and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer, the Bank, the Guarantor, the Trustee, the Delegate or any of the Dealers. Neither this Base Prospectus nor any other information supplied in connection with the Programme or any Trust Certificates (a) is intended to provide the basis of any credit or other evaluation or (b) should be considered as a recommendation by the Issuer, the Bank, the Guarantor, the Trustee, the Delegate or any of the Dealers that any recipient of this Base Prospectus or any other information supplied in connection with the Programme or any Trust Certificates should purchase any Trust Certificates. Each investor contemplating purchasing any Trust Certificates should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer, the Bank and the Guarantor. Neither this Base Prospectus nor any other information supplied in connection with the Programme or the issue of any Trust Certificates constitutes an offer or invitation by or on behalf of the Issuer, the Bank, the Guarantor, the Trustee, the Delegate or any of the Dealers to any person to subscribe for or to purchase any Trust Certificates. 2 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:20 pm β mac5 β 3700 Intro : 3700 Intro No comment is made or advice given by the Issuer, the Bank, the Guarantor, the Trustee, the Delegate or the Dealers in respect of taxation matters relating to any Trust Certificates or the legality of the purchase of Trust Certificates by an investor under applicable or similar laws. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN TAX ADVISER, LEGAL ADVISER AND BUSINESS ADVISER AS TO TAX, LEGAL, BUSINESS AND RELATED MATTERS CONCERNING THE PURCHASE OF TRUST CERTIFICATES. Neither the delivery of this Base Prospectus nor the offering, sale or delivery of any Trust Certificates shall in any circumstances imply that the information contained herein concerning the Issuer, the Bank or the Guarantor is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as of any time subsequent to the date indicated in the document containing the same. The Delegate and the Dealers expressly do not undertake to review the financial condition or affairs of the Issuer, the Bank or the Guarantor during the life of the Programme or to advise any investor in the Trust Certificates of any information coming to their attention. The Trust Certificates have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act). Subject to certain exceptions, Trust Certificates may not be offered, sold or delivered within the United States or to U.S. persons, see βSubscription and Saleβ. This Base Prospectus does not constitute an offer to sell or the solicitation of an offer to buy any Trust Certificates in any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such jurisdiction. The distribution of this Base Prospectus and the offer or sale of Trust Certificates may be restricted by law in certain jurisdictions. The Issuer, the Bank, the Guarantor, the Trustee, the Delegate and the Dealers do not represent that this Base Prospectus may be lawfully distributed, or that any Trust Certificates may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, the Bank, the Guarantor, the Trustee, the Delegate or the Dealers which is intended to permit a public offering of any Trust Certificates or distribution of this Base Prospectus in any jurisdiction where action for that purpose is required. Accordingly, no Trust Certificates may be offered or sold, directly or indirectly, and neither this Base Prospectus nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Base Prospectus or any Trust Certificates may come must inform themselves about, and observe, any such restrictions on the distribution of this Base Prospectus and the offering and sale of Trust Certificates. In particular, there are restrictions on the distribution of this Base Prospectus and the offer or sale of Trust Certificates in the United States, the European Economic Area (including the United Kingdom), the United Arab Emirates, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, Dubai International Financial Centre, Malaysia, Hong Kong and the Cayman Islands, see ββSubscription and Saleββ. This Base Prospectus includes forward-looking statements. All statements other than statements of historical facts included in this Base Prospectus may constitute forward-looking statements. Forward-looking statements generally can be identified by the use of forward-looking terminology. such as βmayβ, βwillβ, βexpectβ, βintendβ, βestimateβ, βanticipateβ, βbelieveβ, βcontinueβ or similar terminology. Although the Bank and the Guarantor believe that the expectations reflected in their forward-looking statements are reasonable at this time, there can be no assurance that these expectations will prove to be correct. Certain Publicly Available Information Certain statistical data and other information appearing in this Base Prospectus have been extracted from public sources. Neither the Bank nor the Guarantor accepts responsibility for the factual correctness of any such statistical data or information but each of the Issuer, the Bank and 3 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:20 pm β mac5 β 3700 Intro : 3700 Intro the Guarantor confirms that such statistical data or information has been accurately reproduced and that, as far as it is aware and is able to ascertain from information published by the relevant public sources, no facts have been omitted which would render the reproduced statistical data or information inaccurate or misleading. All references in this document to US dollars, US$ and $ are to the lawful currency of the United States of America, references to £ and Sterling are to the lawful currency of the United Kingdom and references to AED and UAE Dirham are to the lawful currency of the United Arab Emirates. The UAE Dirham has been pegged to the US dollar since 22 November 1980. The mid point between the official buying and selling rates for the UAE Dirham is at a fixed rate of AED3.6725 = US$1.00. All references to euro and β¬ refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended. In addition, all references in this document to UAE are to the United Arab Emirates. NOTICE TO UK RESIDENTS The Trust Certificates represent interests in a collective investment scheme (as defined in the Financial Services and Markets Act 2000 (the FSMA)) which has not been authorised, recognised or otherwise approved by the Financial Services Authority. Accordingly, this Base Prospectus is not being distributed to, and must not be passed on to, the general public in the United Kingdom. The distribution in the United Kingdom of this Base Prospectus, any Final Terms and any other marketing materials relating to the Trust Certificates (A) if effected by a person who is not an authorised person under the FSMA, is being addressed to, or directed at, only the following persons: (i) persons who are Investment Professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the Financial Promotion Order) and (ii) persons falling within any of the categories of persons described in Article 49 (High net worth companies, unincorporated associations, etc) of the Financial Promotion Order and (B) if effected by a person who is an authorised person under the FSMA, is being addressed to, or directed at, only the following persons: (i) persons falling within one of the categories of Investment Professional as defined in Article 14(5) of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001 (the Promotion of CISs Order), (ii) persons falling within any of the categories of person described in Article 22 (High net worth companies, unincorporated associations, etc.) of the Promotion of CISs Order and (iii) any other person to whom it may otherwise lawfully be made in accordance with the Promotion of CISs Order. Persons of any other description in the United Kingdom may not receive and should not act or rely on this Base Prospectus, any Final Terms or any other marketing materials in relation to the Trust Certificates. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Trust Certificates and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme. Any individual intending to invest in any investment described in this Base Prospectus should consult his professional adviser and ensure that he fully understands all the risks associated with making such an investment and that he has sufficient financial resources to sustain any loss that may arise from such investment. CAYMAN ISLANDS NOTICE No invitation may be made to any member of the public of the Cayman Islands to subscribe for the Trust Certificates. 4 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:20 pm β mac5 β 3700 Intro : 3700 Intro TABLE OF CONTENTS Risk Factors .................................................................................................................... 6 Documents Incorporated by Reference ........................................................................ 15 Structure Diagram and Cashflows.................................................................................. 16 General Description of the Programme ........................................................................ 18 Form of the Trust Certificates ........................................................................................ 25 Applicable Final Terms .................................................................................................... 27 Terms and Conditions of the Trust Certificates .............................................................. 36 Use of Proceeds ............................................................................................................ 60 Description of the Issuer................................................................................................ 61 Selected Financial Information of Emirates Islamic Bank PJSC .................................... 63 Description of Emirates Islamic Bank PJSC .................................................................. 64 Selected Financial Information of Emirates Bank International PJSC ............................ 93 Description of Emirates Bank International PJSC .......................................................... 94 The UAE Banking System and Prudential Regulations .................................................. 99 General Description of the Co-ownership Assets .......................................................... 107 Summary of the Principal Transaction Documents ........................................................ 108 Taxation .......................................................................................................................... 120 Subscription and Sale .................................................................................................... 122 General Information........................................................................................................ 126 Financial Information ...................................................................................................... F-1 5 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 RISK FACTORS Each of the Issuer, the Bank and the Guarantor believes that the factors described below represent the principal risks inherent in investing in the Trust Certificates issued under the Programme, but the inability of the Issuer to pay any amounts on or in connection with any Trust Certificate may occur for other reasons and neither the Issuer, the Bank nor the Guarantor represents that the statements below regarding the risks of holding any Trust Certificate are exhaustive. Although the Issuer, the Bank and the Guarantor believe that the various structural elements described in this Base Prospectus lessen some of these risks for Certificateholders, there can be no assurance that these measures will be sufficient to ensure payment to Certificateholders of any Periodic Distribution Amount or the Dissolution Amount in respect of the Trust Certificates of any Series on a timely basis or at all. Prospective investors should also read the detailed information set out elsewhere in this Base Prospectus and reach their own views prior to making any investment decision. Words and expressions defined in βForm of the Trust Certificatesβ and βTerms and Conditions of the Trust Certificatesβ shall have the same meanings in this section. Risk factors relating to the Issuer At the date of this Base Prospectus, the Issuer is a newly-established exempted company with limited liability incorporated under the laws of the Cayman Islands on 16 April 2007 and has no operating history. The Issuer will not engage in any business activity other than the issuance of Trust Certificates under the Programme, the acquisition of the Trust Assets as described herein, acting in the capacity as Trustee, the issuance of shares in its capital and other activities incidental or related to the foregoing as required under the Transaction Documents. As the Issuer is a Cayman Islands company, it may not be possible for Certificateholders to effect service of process outside of the Cayman Islands. The Issuerβs only material assets, which will be held on trust for Certificateholders, will be the Trust Assets relating to each Series of Trust Certificates, including the obligation of the Bank (failing which the Guarantor, in accordance with its guarantee set out in the Master Trust Deed (the Guarantee)) to make payments under the Management Agreement and the Purchase Undertaking Deed to the Issuer. The ability of the Issuer to pay amounts due on the Trust Certificates will primarily be dependent upon receipt by the Issuer from the Bank (failing which the Guarantor, in accordance with the Guarantee) of all amounts due under the Management Agreement and the Purchase Undertaking Deed (which in aggregate may not be sufficient to meet all claims under the Trust Certificates and the Transaction Documents). Risk factors relating to the Bank In the course of its business activities, the Bank is exposed to a variety of risks, the most significant of which are credit risks, operational risks and liquidity risks. Whilst the Bank believes it has implemented the appropriate policies, systems and processes to control and mitigate these risks, investors should note that any failure to adequately control these risks could be greater than anticipated and which could result in adverse effects on the Bankβs financial condition and reputation. Credit risks Credit risks arising from adverse changes in the credit quality and recoverability of loans, advances and amounts due from counterparties are inherent in a wide range of the Bankβs businesses. Credit risks could arise from a deterioration in the credit quality of specific counterparties of the Bank, from a general deterioration in local or global economic conditions or from systemic risks 6 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 with the financial systems, all of which could affect the recoverability and value of the Bankβs assets and require an increase in the Bankβs provisions for the impairment of its assets and other credit exposures. See βDescription of Emirates Islamic Bank PJSC β Risk Managementβ for a description of the Bankβs exposure to credit risks. Operational risks Operational risks and losses can result from fraud, error by employees, failure to document transactions properly or to obtain proper internal authorisation, failure to comply with regulatory requirements and conduct of business rules, the failure of internal systems, equipment and external systems (e.g., those of the Bankβs counterparties or vendors) and occurrence of natural disasters. Although the Bank has implemented risk controls and loss mitigation strategies and substantial resources are devoted to developing efficient procedures, it is not possible to eliminate any of the operational risks entirely. See βDescription of Emirates Islamic Bank PJSC β Risk Managementβ for a description of the Bankβs exposure to operational risks. Liquidity risks Liquidity risks could arise from the inability of the Bank to anticipate and provide for unforeseen decreases or changes in funding sources which could have adverse consequences on the Bankβs ability to meet its obligations when they fall due. See βDescription of Emirates Islamic Bank PJSC β Risk Managementβ for a description of the Bankβs exposure to liquidity risks. Foreign exchange movements may adversely affect the Bankβs profitability The Bank maintains its accounts and reports its results in AED. The UAE Dirham has been pegged at a fixed exchange rate to the U.S. dollar since 22 November 1980. The Bank is exposed to the potential impact of any alteration to or abolition of this foreign exchange peg. Majority of business in the UAE The Bank has all its operations and the majority of its assets in the UAE and accordingly its business may be affected by the financial, political and general economic conditions prevailing from time to time in the UAE and/or the Middle East generally. These markets are subject to greater risks than more developed markets, including in some cases significant legal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in the light of those risks, their investment is appropriate. Generally, investment is only suitable for sophisticated investors who fully appreciate the significance of the risk involved. Political, economic and related considerations The UAE has enjoyed significant economic growth and relative political stability. There can be no assurance that such growth or stability will continue. Moreover, while the UAE Governmentβs policies have generally resulted in improved economic performance, there can be no assurance that such level of performance can be sustained. The Bank may also be adversely affected generally by political and economic developments in or affecting the UAE. No assurance can be given that the UAE Government will not implement regulations or fiscal or monetary policies, including policies, regulations, or new legal interpretations of existing regulations, relating to or affecting taxation, interest rates or exchange controls, or otherwise take actions which could have a material adverse effect on the Bankβs business, financial condition, results of operations or prospects or which could adversely affect the market price and liquidity of the Trust Certificates. 7 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 The Bankβs business may be affected if there are geo-political events that prevent the Bank from delivering its services. It is not possible to predict the occurrence of events or circumstances such as or similar to a war or the impact of such occurrences and no assurance can be given that the Bank would be able to sustain its current profit levels if such events or circumstances were to occur. Therefore a downturn or instability in certain sectors of the UAE or regional economy could have an adverse effect on the Bankβs business, financial condition, results of operations or prospects. These markets are subject to risks similar to other developed markets, including in some cases significant legal, economic and political risks. Traditionally the oil and gas industry has been the basis of the development in the economy, which means that economic development has been impacted by the general level of oil and gas prices. The Bankβs financial performance is affected by general economic conditions Risks arising from changes in credit quality and the recoverability of amounts due from obligors and counterparties are inherent in banking businesses. Adverse changes in global economic conditions, or arising from systemic risks in the financial systems, could affect the recovery and value of the Bankβs assets and require an increase in the Bankβs provisions. The Bank uses different hedging strategies to minimise risk, including securities, collaterals and insurance that reduce the credit risk level to be within the Bank strategy and risk appetite. However, there can be no guarantee that such measures will eliminate or reduce such risks. Competition There are an increasing number of Islamic banks and other institutions offering Islamic financial products and services within the UAE. To date there are six Islamic banks and a number of financial institutions offering Islamic products and solutions. Other financial institutions may consider offering Sharia compliant products. The banking market in the UAE has generally been a relatively protected market with high regulatory and other barriers to entry for foreign financial institutions. However, should some of these barriers be removed or eased in the future, either voluntarily or as a result of the UAEβs obligations to the World Trade Organisation, the Gulf Cooperation Council or any other similar entities, it is likely to lead to a more competitive environment for the Bank and other domestic financial institutions. Risk factors relating to the Guarantor Principal Shareholder The Guarantorβs principal shareholder is the Government of Dubai, holding 76.62% of the Guarantorβs share capital. By virtue of such shareholding of Government of Dubai has the ability to influence the Guarantorβs business significantly through their ability to control actions that require shareholder approval. If circumstances were to arise where the interests of the Government of Dubai conflict with the interests of the Certificateholders, the latter could be disadvantaged. Impact of regulatory changes The Guarantor is subject to the laws, regulations, administrative actions and policies of the UAE, the United Kingdom and each other jurisdiction in which it operates. These regulations may limit the Guarantorβs activities and changes in supervision and regulation, in particular in the UAE, could materially affect the Guarantorβs business (such as pursuant to Basel II), the products or services offered, the value of its assets, and its financial condition. Although the Guarantor works closely 8 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 with its regulators and continually monitors the situation, future changes in regulation, fiscal or other policies cannot be predicted and are beyond the control of the Guarantor. No third-party guarantees Investors should be aware that no guarantee is given in relation to the Notes by the shareholders of the Guarantor or any other person. Political, economic and related considerations The UAE has enjoyed significant economic growth and relative political stability. There can be no assurance that such growth or stability will continue. Moreover, while the UAE governmentβs policies have generally resulted in improved economic performance, there can be no assurance that such level of performance can be sustained. The Guarantor may also be adversely affecting the generally by political and economic developments in or affecting the UAE. No assurance can be given that the UAE government will not implement regulations or fiscal or monetary policies, including policies, regulations, or new legal interpretations of existing regulations, relating to or affecting taxation, interest rates or exchange controls, or otherwise take actions which could have a material adverse effect on the Guarantorβs business, financial condition, results of operations or prospects or which could adversely affect the market price and liquidity of the Notes. The Guarantorβs business may be affected if there are geo-political events that prevent the Guarantor from delivering its services. It is not possible to predict the occurrences of events or circumstances such as or similar to a war or the impact of such occurrences and no assurance can be given that the Guarantor would be able to sustain its current profit levels if such events or circumstances were to occur. The Guarantorβs results of operations are affected by economic and political conditions in the countries in which it operates and any sustained deterioration in the economies of these countries or major political upheaval could have a material adverse affect on the Guarantorβs business and results of operations. Investors should also note that the Guarantorβs business and financial performance could be adversely affected by political, economic and related developments both within and outside the countries in which the Guarantor operates, because of the interrelationships within global financial markets. Foreign exchange policy may adversely affect the Guarantorβs profitability The Guarantor maintains its accounts, and reports its results, in UAE Dirhams. The UAE Dirham has been βpeggedβ at a fixed exchange rate to the US dollar since 22 November 1980. The Guarantor is exposed to the potential impact of any alternation to, or abolition to, or abolition of, this foreign exchange βpegβ. Risk factors relating to the Trust Certificates Absence of secondary market/limited liquidity There is no assurance that a market for the Trust Certificates of any Series will develop or, if it does develop, that it will continue for the life of such Trust Certificates. Accordingly, a Certificateholder may not be able to find a buyer to buy its Trust Certificates readily or at prices that will enable the Certificateholder to realise a desired yield. The market value of the Trust Certificates may fluctuate and a lack of liquidity, in particular, can have a severe adverse effect on the market value of the Trust Certificates. Accordingly, the purchase of the Trust Certificates is suitable only for investors who can bear the risks associated with a lack of liquidity in the Trust Certificates and the financial and other risks associated with an investment in the Trust Certificates. 9 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 The Trust Certificates are limited recourse obligations Recourse to the Issuer in respect of each Series of Trust Certificates is limited to the Trust Assets of that Series and proceeds of such Trust Assets are the sole source of payments on the relevant Trust Certificates. Upon occurrence of a Dissolution Event, or early dissolution pursuant to Conditions 11.2 (Early Dissolution for Tax Reasons) or 11.3 (Dissolution at the Option of the Issuer), the sole rights of each of the Issuer, the Trustee, the Delegate and the Certificateholders of the relevant Series of Trust Certificates will be against the Bank (failing which the Guarantor, in accordance with the Guarantee) to pay the Exercise Price in respect of such Series and otherwise perform its obligations under the Transaction Documents. Certificateholders will otherwise have no recourse to any assets of the Trustee, the Delegate, the Bank, the Guarantor, the relevant Dealer, the Issuer and the Principal Paying Agent or any affiliate of any of the foregoing entities in respect of any shortfall in the expected amounts due under the relevant Trust Assets. The Bank (failing which the Guarantor, in accordance with the Guarantee) is obliged to make certain payments under the Transaction Documents directly to the Issuer, and the Trustee and the Delegate will have direct recourse against the Bank (failing which the Guarantor, in accordance with the Guarantee) to recover payments due to the Issuer from the Bank pursuant to the Transaction Documents. There can be no assurance that the net proceeds of the realisation of, or enforcement with respect to, the Trust Assets will be sufficient to make all payments due in respect of the Trust Certificates of the relevant Series. Furthermore, under no circumstances shall any Certificateholder, the Trustee or the Delegate have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Purchase Undertaking Deed and the sole right of the Trustee, the Delegate and the Certificateholders against the Bank and the Guarantor shall be to enforce the obligation of the Bank to pay the relevant Exercise Price under the Purchase Undertaking Deed (failing which the Guarantor, in accordance with the Guarantee) and otherwise perform its obligations under the Transaction Documents. Risk factors relating to the Co-ownership Assets Liability attaching to owners of assets In order to comply with the requirements of Sharia, a co-ownership interest in the Co-ownership Assets of each Series will pass to the Issuer in its capacity as trustee under the Master Purchase Agreement and the relevant Supplemental Purchase Contract. The Trustee will declare a trust in respect of its co-ownership interest in such Co-ownership Assets and the other Trust Assets of the relevant Series in favour of the Certificateholders of such Series pursuant to a Supplemental Trust Deed constituting the Series. Accordingly, Certificateholders will have beneficial co-ownership interests in the relevant Co-ownership Assets unless transfer of the Co-ownership Assets is prohibited by, or ineffective under, any applicable law (see βTransfer of the Co-ownership Assetsβ below). No investigation or enquiry will be made and no due diligence will be conducted in respect of any Co-ownership Assets. Only limited representations will be obtained from the Bank in respect of the Co-ownership Assets of any Series. In particular, the precise terms of the Co-ownership Assets or the nature of the assets leased, sold or held will not be known (including whether there are any restrictions on transfer or any further obligations required to be performed by the Bank to give effect to the transfer of the co-ownership interest in the relevant Co-ownership Assets). No steps will be taken to perfect any transfer of the co-ownership interest in the relevant Coownership Assets or otherwise give notice to any lessee or obligor in respect thereof. Obligors and lessees may have rights of set off or counterclaim against the Bank in respect of such Coownership Assets. In addition, if and to the extent that a third party is able to establish a direct claim against the Issuer, the Trustee or any Certificateholders on the basis of a legal or beneficial ownership in the Co-ownership Assets, the Bank (failing which the Guarantor, in accordance with the Guarantee) has agreed in the Master Trust Deed to indemnify the Issuer, the Trustee and the Certificateholders 10 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 against any such liabilities. In the event that the Bank and the Guarantor are unable to meet any such claims then the Certificateholders may suffer losses in excess of the original face amount invested. Transfer of the Co-ownership Assets No investigation has been or will be made as to whether any interest in any Co-ownership Assets may be transferred as a matter of the law governing the contracts, the law of the jurisdiction where such assets are located or any other relevant law. No investigation will be made to determine if the Master Purchase Agreement, together with the relevant Supplemental Purchase Contract, will have the effect of transferring a co-ownership interest in the Co-ownership Assets of the relevant Series of Trust Certificates. There are doubts whether, under UAE law, a coownership interest in certain assets (in particular those assets which are real estate based) can be effectively transferred. Accordingly, no assurance is given that any co-ownership interest in the relevant Co-ownership Assets has been or will be transferred to the Issuer. Nevertheless, as indicated earlier, the Certificateholders will not have any rights of enforcement as against the Trust Assets and their rights are limited to enforcement against the Bank (failing which the Guarantor, in accordance with the Guarantee) of its obligation to purchase the Issuerβs co-ownership interest in the Co-ownership Assets pursuant to the terms of the Purchase Undertaking Deed. Accordingly, any such restriction on the ability of the Bank to make a βtrue saleβ of the co-ownership interest in the Co-ownership Assets to the Issuer is likely to be of limited consequence to the rights of the Certificateholders. By way of further assurance, the Bank has covenanted in the Purchase Undertaking Deed that to the extent that any transfer of a co-ownership interest in any of the Co-ownership Assets is not effective in any jurisdiction for any reason, it will make restitution in respect of those Co-ownership Assets. This obligation is also guaranteed by the Guarantor pursuant to the Guarantee. Risk factors relating to payments Periodic Distribution Amount It is expected that the rate of return on the Co-ownership Assets of each Series will exceed the relevant Periodic Distribution Amount due in respect of such Series. It is expected that pending each Periodic Distribution Date, the Trustee will receive profit collections in respect of the Coownership Assets of each Series and that such amounts will be invested in Sharia compliant investments. There is no assurance that such profit collections will be so invested nor any assurance that the rate of return of any such Sharia compliant investments will be sufficient to ensure that the Trustee will have sufficient profit collections to pay Periodic Distribution Amounts in respect of any Series of Trust Certificates. Any failure to pay the Periodic Distribution Amount due on a Periodic Distribution Date could constitute a Dissolution Event in respect of the relevant Series of Trust Certificates and, if such Series is not redeemed in accordance with its terms, each other Series of Trust Certificates. Credit risk The Issuer will fund the redemption amount payable by it in respect of each Series of Trust Certificates with the Exercise Price paid to it by the Bank (failing which the Guarantor, in accordance with the Guarantee) under the Purchase Undertaking Deed, see βSummary of the Principal Transaction Documents β Purchase Undertaking Deedβ. 11 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 Risk factors relating to taxation Taxation risks on payments Payments made by the Bank or the Guarantor to the Issuer under the Transaction Documents or by the Issuer in respect of the Trust Certificates could become subject to taxation. The Management Agreement and the Purchase Undertaking Deed each require the Bank to pay additional amounts in the event that any withholding or deduction is required by UAE law to be made in respect of payments made by it to the Issuer under those documents and this obligation is guaranteed by the Guarantor pursuant to the Guarantee. Condition 12 (Taxation) provides that the Issuer is required to pay additional amounts in respect of any such withholdings or deductions imposed by the Cayman Islands in certain circumstances. In the event that the Issuer fails to gross-up for any such withholding or deduction on payments due in respect of the Trust Certificates to Certificateholders, the Bank (failing which the Guarantor, in accordance with the Guarantee) has, pursuant to the Master Trust Deed, unconditionally and irrevocably undertaken (irrespective of the payment of any fee), as a continuing obligation, to pay to the Issuer (for the benefit of the Certificateholders) an amount equal to the liabilities of the Issuer in respect of any and all additional amounts required to be paid in respect of the Trust Certificates pursuant to Condition 12 (Taxation) in respect of any withholding or deduction in respect of any tax as set out in that Condition. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required, from 1 July 2005, to provide to the tax authorities of another Member State details of certain payments paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have agreed to adopt similar measures (a withholding system in the case of Switzerland) with effect from the same date. If, following implementation of this Directive, a payment were to be made or collected through a Member State which has opted for a withholding system and an amount of, or in respect of tax were to be withheld from that payment, neither the Issuer nor any Paying Agent nor any other person would be obliged to pay additional amounts with respect to any Trust Certificate as a result of the imposition of such withholding tax. If a withholding tax is imposed on payment made by a Paying Agent following implementation of this Directive, the Issuer will be required to maintain a Paying Agent in a Member State that will not be obliged to withhold or deduct tax pursuant to the Directive. Risk factors relating to enforcement UAE bankruptcy law In the event of the Bank or the Guarantorβs insolvency, UAE bankruptcy law may adversely affect the Bank or the Guarantorβs ability to perform its obligations under the Transaction Documents to which it is a party and, consequently, the Issuerβs ability to make payments to Certificateholders. There is little precedent to predict how a claim on behalf of Certificateholders against the Bank or the Guarantor, as the case may be, would be resolved. Change of law The structure of the issue of the Trust Certificates under the Programme is based on English law, UAE law and administrative practices in effect as at the date of this Base Prospectus. No 12 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 assurance can be given as to the impact of any possible change to English law, UAE law or administrative practices after the date of this Base Prospectus, nor can any assurance be given as to whether any such change could adversely affect the ability of the Issuer to make payments under the Trust Certificates to be issued under the Programme or of the Bank or the Guarantor, as the case may be, to comply with its obligations under the Transaction Documents to which it is a party. Enforcement risk Ultimately the payments under the Trust Certificates are dependent upon the Bank (failing which the Guarantor, in accordance with the Guarantee) making payments in the manner contemplated under the Transaction Documents. If the Bank or the Guarantor fails to do so, it may be necessary to bring an action against the Bank and/or the Guarantor, as appropriate, to enforce its obligations which could be both time consuming and costly. The Bank and the Guarantor have irrevocably agreed to certain documentation being governed by English law and to the courts of England having exclusive jurisdiction to settle disputes. Notwithstanding that a judgment may be obtained in an English court there is no assurance that either the Bank or the Guarantor has or would at the relevant time have assets in the United Kingdom against which such a judgment could be enforced. The Bank and the Guarantor are both UAE companies and are incorporated in and have their operations and the majority of their assets located in the UAE. Under current Dubai law, the courts are unlikely to enforce an English judgment without re-examining the merits of the claim and may not observe the choice by the parties of English law as the governing law of the Trust Certificates. In addition, judicial precedents in Dubai have no binding effect on subsequent decisions. Court decisions in Dubai are also generally not recorded. These factors create greater judicial uncertainty in Dubai. Claims for specific enforcement In the event that either the Bank or the Guarantor fails to perform its obligations under any Transaction Document to which it is a party, the potential remedies available to the Trustee and the Delegate include obtaining an order for specific enforcement of the relevant obligations or a claim for damages. There is no assurance that a court will provide an order for specific enforcement which is a discretionary matter. The amount of damages which a court may award in respect of a breach will depend upon a number of possible factors including an obligation on the Trustee and the Delegate to mitigate any loss arising as a result of the breach. No assurance is provided on the level of damages which a court may award in the event of a failure by either the Bank or the Guarantor to perform its obligations as set out in the Transaction Documents to which it is a party. Additional risks Credit ratings may not reflect all risks One or more independent credit rating agencies may assign credit ratings to the Trust Certificates. The ratings may not reflect the potential impact of all risks related to the transaction structure, the market, the additional factors discussed above or any other factors that may affect the value of the Trust Certificates. A credit rating is not a recommendation to buy, sell or hold securities and may be revised or withdrawn by the rating agency at any time. Suitability of investments The Trust Certificates may not be a suitable investment for all investors. Each potential investor in Trust Certificates must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: 13 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 (a) have sufficient knowledge and experience to make a meaningful evaluation of the Trust Certificates, the merits and risks of investing in the Trust Certificates and the information contained in this Base Prospectus; (b) have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Trust Certificates and the impact the Trust Certificates will have on its overall investment portfolio; (c) have sufficient financial resources and liquidity to bear all of the risks of an investment in the Trust Certificates, including where the currency of payment is different from the potential investorβs currency; (d) understand thoroughly the terms of the Trust Certificates and be familiar with the behaviour of any relevant indices and financial markets; and (e) be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic and other factors that may affect its investment and its ability to bear the applicable risks. Trust Certificates subject to early dissolution by the Issuer An early dissolution feature of any Trust Certificate is likely to limit its market value. During any period when the Issuer may elect to dissolve Trust Certificates, the market value of those Trust Certificates generally will not rise substantially above the dissolution amount payable. This also may be true prior to any dissolution period. Emerging markets Investors in emerging markets should be aware that these markets are subject to greater risks than more developed markets, including, in some cases, significant legal, economic and political risks. Accordingly, investors should exercise particular care in evaluating the risks involved and must decide for themselves whether, in light of those risks, their investment is appropriate. Generally, investment in emerging markets is only suitable for sophisticated investors who fully appreciate the significance of the risk involved. 14 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 DOCUMENTS INCORPORATED BY REFERENCE The following documents which have previously been published and have been filed with the Financial Services Authority shall be incorporated in, and form part of, this Base Prospectus: (1) (2) (3) the unaudited consolidated interim financial statements of the Guarantor for the 3 months ended 31 March 2007, including: (i) income statement (page 3); (ii) balance sheet (page 2); (iii) cash flow statement (page 4); (iv) accounting policies and explanatory notes (pages 6 - 21); and (v) auditors' review report (page 1); and the audited consolidated annual financial statements of the Guarantor for the financial year ended 31 December 2006, including: (i) income statement (page 3); (ii) balance sheet (page 2); (iii) cashflow statement (page 4); (iv) accounting policies and explanatory notes (pages 6 β 63); and (v) auditorsβ report (page 1); and the audited consolidated annual financial statements of the Guarantor for the financial year ended 31 December 2005, including: (i) income statement (page 3); (ii) balance sheet (page 2); (iii) cashflow statement (page 4); (iv) accounting policies and explanatory notes (pages 6 β 59); and (v) auditorsβ report (page 1). Any information not listed in the cross-reference list above but included in the documents incorporated by reference is given for the purposes of information only. Following the publication of this Base Prospectus a supplement may be prepared by the Issuer and approved by the UK Listing Authority in accordance with Article 16 of the Prospectus Directive. Statements contained in any such supplement (or contained in any document incorporated by reference therein) shall, to the extent applicable (whether expressly, by implication or otherwise), be deemed to modify or supersede statements contained in this Base Prospectus or in a document which is incorporated by reference in this Base Prospectus. Any statement so modified or superseded shall not, except as so modified or superseded, constitute a part of this Base Prospectus. Copies of documents incorporated by reference in this Base Prospectus can be obtained, upon request, free of charge, from the registered offices of the Issuer and from the specified offices of the Principal Paying Agent in London. The Issuer will, in the event of any significant new factor, material mistake or inaccuracy relating to information included in this Base Prospectus which is capable of affecting the assessment of any Trust Certificates, prepare a supplement to this Base Prospectus or publish a new Base Prospectus for use in connection with any subsequent issue of Trust Certificates. 15 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 STRUCTURE DIAGRAM AND CASHFLOWS Set out below is a simplified structure diagram and description of the principal cash flows underlying each Series of Trust Certificates issued. Potential investors are referred to the terms and conditions of the Trust Certificates and the detailed descriptions of the relevant Transaction Documents set out elsewhere in this document for a fuller description of certain cash flows and for an explanation of the meaning of certain capitalised terms used below. Structure Diagram Bank as seller of co-ownership interests Proceeds Bank as managing agent Bank as purchaser Guarantor Return on co-ownership interest Master Purchase Agreement and Supplemental Purchase Contract Management Agreement Guarantee Purchase Undertaking Deed Exercise Price Issuer Periodic Distribution Amounts and Dissolution Amount Proceeds Master Trust Deed and Supplemental Trust Deed Investors Cashflows Payments by the Certificateholders and the Issuer On the Issue Date of each Series of Trust Certificates, the relevant Certificateholders will pay the issue price in respect thereof to the Issuer and the Issuer will pay an equivalent amount to the Bank in respect of the sale and delivery by the Bank of a co-ownership interest in the relevant Coownership Assets. Periodic Payments by the Bank On each Periodic Distribution Date, the Bank (as Managing Agent) will pay the Issuer an amount representing the Issuerβs share of the return on account of profit in respect of the Co-ownership Assets in an amount which is intended to be sufficient to fund the Periodic Distribution Amounts payable by the Issuer under the Trust Certificates. 16 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 01 : 3700 Section 01 Dissolution Payments On the Maturity Date, the Issuer will sell its co-ownership interest in the Co-ownership Assets to the Bank and the Exercise Price paid by the Bank is intended to fund the Dissolution Amount payable by the Issuer under the Trust Certificates. The Trust may be dissolved prior to the Maturity Date for a range of reasons including (i) default or the imposition of Taxes or (ii) in certain cases where so specified in the applicable Final Terms, at the option of the Issuer. In any such case the Dissolution Amount will be funded through the sale of the Issuerβs co-ownership interest in the Co-ownership Assets to the Bank or action taken to enforce such sale. Guarantee The Guarantor has, in the Guarantee, guaranteed the obligations of the Bank under the Transaction Documents including, in particular, its payment obligations under the Management Agreement and the Purchase Undertaking Deed. 17 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 GENERAL DESCRIPTION OF THE PROGRAMME The following is an overview of the principal features of the Programme. This overview does not contain all of the information that an investor should consider before investing in Trust Certificates and is qualified in its entirety by the remainder of this Base Prospectus and the applicable Final Terms. Each investor should read the entire Base Prospectus and the applicable Final Terms carefully, especially the risks of investing in the Trust Certificates issued under the Programme discussed under βRisk Factorsβ. Words and expressions defined in βForm of the Trust Certificatesβ and βTerms and Conditions of the Trust Certificatesβ shall have the same meanings in this general description. The Programme provides a facility for the issuance of Trust Certificates in series (each, a Series). The terms and conditions governing each Series of Trust Certificates will be the βTerms and Conditions of the Trust Certificatesβ as described herein, as modified or supplemented by the applicable Final Terms. The following is an overview of the principal features of the Trust Certificates. On the occasion of each issuance of Trust Certificates, the Issuer will receive contributions from the Certificateholders representing the proceeds of the Trust Certificates in the amount specified in the relevant Supplemental Trust Deed. The Issuer (acting in its capacity as Trustee) has agreed to apply, on each occasion on which Trust Certificates of a Series are issued, the net proceeds of the issue of such Trust Certificates to purchase a co-ownership interest in (i) Ijara (leased) assets, (ii) asset-based Sukuk (trust certificates) and/or (iii) units in asset-based funds, which in each case are Sharia compliant assets originated, held or owned by the Bank and including the income generated therefrom and any agreements or documents in relation to such assets (Income Generating Assets and, together with any additional Income Generating Assets as described below, the Co-ownership Assets) from the Bank pursuant to a master purchase agreement dated on or about 7 June 2007 between the Issuer, the Trustee and the Bank (the Master Purchase Agreement). The co-ownership interests of the Issuer and the Bank in the Co-ownership Assets of each Series will be set out in the applicable Final Terms. The initial Co-ownership Assets relating to each Series of Trust Certificates will be the subject of, and specified in, a Supplemental Purchase Contract between the Issuer, the Trustee and the Bank (each a Supplemental Purchase Contract). The Bank in its capacity as managing agent (the Managing Agent) has agreed to manage the Coownership Assets relating to each Series of Trust Certificates pursuant to a management agreement dated on or about 7 June 2007 between, inter alios, the Issuer, the Trustee and the Bank (the Management Agreement). The Managing Agent will maintain two Collection Accounts in respect of each Series of Trust Assets. All monies received by the Managing Agent in respect of Co-ownership Assets of each Series will be credited to the appropriate Collection Account and applied by the Managing Agent in a defined order of priority. In particular, profit received in respect of the Issuerβs co-ownership interest in the Co-ownership Assets of each Series of Trust Certificates will, after paying the expenses of the relevant Trust (as defined below), be paid into the relevant Transaction Account and applied to make periodic distributions in respect of the relevant Series on the relevant Periodic Distribution Date, as more particularly described in the Conditions. Principal collections received in respect of the Issuerβs co-ownership interest in the Co-ownership Assets of each Series of Trust Certificates will be reinvested by the Managing Agent on behalf of the Issuer in acquiring from the Bank co-ownership interests in additional Income Generating Assets for the relevant Trust in respect of that Series of Trust Certificates. Any such additional co-ownership interests will form part of the Trust Assets of the relevant Series of Trust Certificates. 18 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 Any insurance proceeds received by the Managing Agent in respect of the Co-ownership Assets will be treated as Co-ownership Revenues and applied in accordance with the Management Agreement. If the Managing Agent breaches its obligations under the Management Agreement, the Managing Agent shall be liable to indemnify the Issuer in accordance with the Management Agreement. The Managing Agent shall also provide Sharia compliant funding (without recourse to the Coownership Assets) to ensure that, among other matters, the Issuerβs entitlement to the Coownership Revenues is paid to the Issuer on a timely basis and in accordance with the Management Agreement. The Bank has agreed to purchase the Issuerβs co-ownership interest in the outstanding Coownership Assets of each Series of Trust Certificates on the relevant Maturity Date or, as the case may be, on the relevant Dissolution Date (as defined in the Conditions) pursuant to a purchase undertaking deed dated on or about 7 June 2007 executed by the Bank (the Purchase Undertaking Deed), to be supplemented, at the time of each such purchase, by a Sale Agreement (each a Sale Agreement) substantially in the form annexed to the Purchase Undertaking Deed and containing the specific terms applicable to the relevant purchase. The price payable by the Bank pursuant to each such Sale Agreement will be an amount equal to (a) the Aggregate Face Amount (as specified in the applicable Final Terms) of the relevant Series of Trust Certificates, and (b) the amount of payable but unpaid Periodic Distribution Amounts on such date (including any additional amounts payable pursuant to Condition 12 (Taxation). The Trustee will distribute the proceeds of sale of the Issuerβs co-ownership interests in the Co-ownership Assets of the relevant Series of Trust Certificates to Certificateholders of the relevant Series in the amounts required to be paid in respect of the relevant Trust Certificates under the Conditions or as otherwise specified in the Final Terms applicable to such Series. Pursuant to a master trust deed (the Master Trust Deed) dated on or about 7 June 2007 between the Issuer, the Trustee, the Bank, the Guarantor and Deutsche Trustee Company Limited (in its capacity as the Trusteeβs delegate, the Delegate), as the same will be supplemented (on the occasion of the issue of each Series of Trust Certificates) by a supplemental trust deed (each, a Supplemental Trust Deed) in respect of the relevant Series of Trust Certificates, the Issuer (acting in its capacity as Trustee) will declare a trust (each, a Trust) over, inter alia, the Issuerβs coownership interests in the Co-ownership Assets, its rights under the Purchase Undertaking Deed and certain other documents which it has entered into and any amounts it may have deposited in the Transaction Account in relation to the relevant Series of Trust Certificates, subject to the terms of the relevant Supplemental Trust Deed. The Issuer will act as trustee in respect of the Trust Assets for the benefit of Certificateholders of each Series in accordance with the Master Trust Deed, the relevant Supplemental Trust Deed and the Conditions. Under the Master Trust Deed, the Issuer will unconditionally and irrevocably delegate authority to the Delegate to take all necessary action on its behalf should a Dissolution Event (as set forth in Condition 14) occur. Following the distribution of the Trust Assets to the Certificateholders in accordance with the Conditions and the Master Trust Deed, the Trustee shall not be liable for any further sums, and accordingly the Certificateholders may not take any action against the Trustee or any other person to recover any such sum, in respect of the Trust Certificates or the Trust Assets. The Trustee shall not be bound in any circumstances to take any action to enforce or to realise such Trust Assets or take any action against the Bank or the Guarantor under any Transaction Documents to which the Bank or the Guarantor is a party unless directed or requested to do so by the Certificateholders in accordance with the Conditions, and then only to the extent indemnified to its satisfaction. 19 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 No Certificateholder shall be entitled to proceed directly against the Bank or the Guarantor unless (i) the Trustee, having become bound so to proceed, fails to do so within 30 days of becoming so bound and such failure is continuing and (ii) the relevant Certificateholder (together with the other Certificateholders who propose to proceed directly against the Bank or the Guarantor) holds at least one-fifth of the aggregate face amount of the Trust Certificates then outstanding. The foregoing is subject to the following: after enforcing or realising such Trust Assets and distributing the net proceeds of the Trust Assets in accordance with Condition 5.2, the obligations of the Trustee in respect of such Trust Certificates shall be satisfied and no Certificateholder may take any further steps against the Trustee to recover any further sums in respect of such Trust Certificates and the right to receive any such sums unpaid shall be extinguished. Under no circumstances shall the Trustee or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Purchase Undertaking Deed, and the sole right of the Trustee and the Certificateholders against the Bank and the Guarantor shall be to enforce the obligation of the Bank to pay the Dissolution Amount and amounts due under the Transaction Documents and the Guarantor to pay amounts due under the Guarantee. In the Guarantee, the Guarantor has unconditionally and irrevocably guaranteed the due and punctual payment of all amounts payable by the Bank under the Transaction Documents and the due and punctual performance and observance by the Bank of each of the other provisions of the Transaction Documents to be performed or observed by the Bank. Certificateholders, by subscribing for or acquiring Trust Certificates, acknowledge that no recourse may be had for the payment of any amount owing in respect of any Trust Certificates against the Trustee, the Issuer or the Delegate, in any circumstances whatsoever, or the relevant Trust to the extent the relevant Trust Assets have been exhausted, following which all obligations of the Trustee, the Issuer, the Delegate and the relevant Trust shall be extinguished. Certificateholders should note that the Trustee and the Delegate will have recourse to the Bank and the Guarantor (pursuant to the terms of the relevant Transaction Documents) and the ability of the Issuer to pay the amounts due in respect of the Trust Certificates will ultimately be dependent on the Bank and the Guarantor. Descriptions of the Bank and the Guarantor are included within this Base Prospectus under βDescription of Emirates Islamic Bank PJSCβ and βDescription of Emirates Bank International PJSCβ below. Certain Transaction Documents are described in more detail in βSummary of the Principal Transaction Documentsβ below. Issuer and Trustee: EIB Sukuk Company Ltd., an exempted company incorporated in accordance with the laws of the Cayman Islands. Bank: Emirates Islamic Bank PJSC. Guarantor: Emirates Bank International PJSC. Ownership of the Issuer: The authorised share capital of the Issuer is US$50,000 consisting of 50,000 shares of a nominal or par value of US$1 each, of which 250 shares are fully paid up and issued. The Issuerβs entire issued share capital is held by Deutsche Bank (Cayman) Limited, Elizabethan Square, P.O. Box 1984, George Town, Grand Cayman, KY1-1104 Cayman Islands under the terms of a trust for charitable purposes. 20 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 Administration of the Issuer: The affairs of the Issuer are managed by Deutsche Bank (Cayman) Limited (the Issuer Administrator), who will provide, amongst other things, certain administrative services for and on behalf of the Issuer pursuant to the Corporate Services Agreement dated on or about 7 June 2007 between, inter alios, the Issuer and the Issuer Administrator (the Corporate Services Agreement). Arrangers: Standard Chartered Bank Emirates Islamic Bank PJSC Dealers: Barclays Bank PLC BNP PARIBAS Citigroup Global Markets Limited Deutsche Bank AG, London Branch Emirates Islamic Bank PJSC Standard Chartered Bank and any other Dealers appointed in accordance with the Programme Agreement. Certain Restrictions: Each issue of Trust Certificates denominated in a currency in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time (see βSubscription and Saleβ). The proceeds of any issue of Trust Certificates will not be accepted in the United Kingdom. Delegate: Deutsche Trustee Company Limited Principal Paying Agent, Calculation Agent and Replacement Agent: Deutsche Bank AG, London Branch Registrar and Transfer Agent: Deutsche Bank Luxembourg S.A. Payment Administrator: Deutsche Bank AG, London Branch will act as payment administrator (the Payment Administrator) under the Agency Agreement. The Payment Administrator is authorised to transfer funds standing to the credit of the Transaction Account to an account of the Principal Paying Agent in order to enable the Issuer to make payments in respect of the Trust Certificates, subject to and in accordance with the Agency Agreement. Programme Size: Up to US$1,000,000,000 (or its equivalent in other currencies calculated as described in the Programme Agreement) outstanding at any time. The Issuer may increase the amount of the Programme in accordance with the terms of the Programme Agreement. Distribution: Trust Certificates may be distributed on a syndicated or non-syndicated basis. 21 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 Currencies: Subject to any applicable legal or regulatory restrictions, any currency agreed between the Issuer and the relevant Dealer. Maturities: The Trust Certificates will have such maturities as may be agreed between the Issuer and the relevant Dealer, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Issuer or the relevant Specified Currency. Issue Price: Trust Certificates may only be issued on a fully-paid basis and at an issue price which is at par. Form of Trust Certificates: The Trust Certificates will be issued in registered form as described in βForm of the Trust Certificatesβ. Status: Each Trust Certificate will evidence an undivided beneficial ownership interest of the Certificateholders in the Trust Assets of the relevant Series, will be a limited recourse obligation of the Issuer and will rank pari passu, without any preference or priority, with all other Trust Certificates of the relevant Series issued under the Programme. Periodic Distributions: Certificateholders are entitled to receive Periodic Distribution Amounts calculated on the basis specified in the applicable Final Terms. Redemption of Trust Certificates: Trust Certificates shall be redeemed at the Dissolution Amount as may be specified in the applicable Final Terms. Denomination of Trust Certificates: The Trust Certificates will be issued in such denominations as may be agreed between the Issuer and the relevant Dealer save that the minimum denomination of each Trust Certificate will be such amount as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency, see βCertain Restrictionsβ above, and save that the minimum denomination of each Trust Certificate admitted to trading on a regulated market within the European Economic Area or offered to the public in a Member State of the European Economic Area in circumstances which require the publication of a prospectus under the Prospectus Directive will be β¬50,000 (or, if the Trust Certificates are denominated in a currency other than euro, the equivalent amount in such currency). Dissolution Events: Upon the occurrence of any Dissolution Event, the Trust Certificates may be redeemed on the Dissolution Date at 100 per cent. of their face amount and the relevant Return Accumulation Period may be adjusted accordingly. See Condition 14 (Dissolution Events). 22 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 Optional Dissolution: If so specified in the applicable Final Terms, a Series of Trust Certificates may be dissolved prior to its Maturity Date in the circumstances set out in Condition 11.2 (Early Dissolution for Tax Reasons) and Condition 11.3 (Dissolution at the Option of the Issuer). Withholding Tax: All payments in respect of Trust Certificates by the Issuer shall be made without withholding or deduction for, or on account of, any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction. In the event that any such withholding or deduction is made, the Issuer will, save in the limited circumstances provided in Condition 12 (Taxation), be required to pay additional amounts so that the holders of the Trust Certificates will receive the full amounts that they would have received in the absence of such withholding or deduction. Guarantee: The Master Trust Deed contains a guarantee given by the Guarantor. See βSummary of the Principal Transaction Documentsβ. Negative Pledge: The Purchase Undertaking Deed contains a negative pledge given by the Bank and the Master Trust Deed contains a negative pledge given by the Guarantor. See βSummary of the Principal Transaction Documentsβ. Cross Default: The Purchase Undertaking Deed contains a cross default provision in relation to the Bank and the Master Trust Deed contains a cross default provision in relation to the Guarantor. See βSummary of the Principal Transaction Documentsβ. Covenants: The Issuer has agreed to certain restrictive covenants as set out in Condition 6 (Covenants). Ratings: The ratings assigned to each Series of Trust Certificates to be issued under the Programme will be specified in the applicable Final Terms. Listing and admission to trading: Application has been made to the UK Listing Authority for Trust Certificates issued under the Programme to be admitted to the Official List and to the London Stock Exchange for such Trust Certificates to be admitted to trading on the London Stock Exchangeβs Gilt Edged and Fixed Interest Market. Trust Certificates may be listed or admitted to trading, as the case may be, on other or further stock exchanges or markets agreed between the Issuer and the relevant Dealer in relation to the Series. Trust Certificates which are neither listed nor admitted to trading on any market may also be issued. The applicable Final Terms will state whether or not the relevant Trust Certificates are to be listed and/or 23 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 admitted to trading and, if so, on which stock exchanges and/or markets. Governing Law and Jurisdiction: The Trust Certificates will be governed by, and construed in accordance with, English law. The Master Trust Deed, each Supplemental Trust Deed, the Programme Agreement, the Agency Agreement, the Purchase Undertaking Deed and the Costs Undertaking Deed will be governed by English law and subject to the exclusive jurisdiction of the English courts. In addition, in respect of any dispute under any such Transaction Document to which it is a party, the Bank and the Guarantor have each consented to arbitration in accordance with the Rules of The London Court of International Arbitration if the Issuer (as Trustee) so requires. The remaining Transaction Documents (other than the Corporate Services Agreement) will be governed by the federal laws of the UAE. The courts of Dubai have non-exclusive jurisdiction to hear all disputes relating to them. The Corporate Services Agreement will be governed by the laws of the Cayman Islands. The courts of the Cayman Islands have jurisdiction to hear all disputes relating to it. Selling Restrictions: There are restrictions on the offer, sale and transfer of the Trust Certificates in the United States, the European Economic Area (including the United Kingdom), the United Arab Emirates, the Kingdom of Saudi Arabia, the Kingdom of Bahrain, Dubai International Financial Centre, Malaysia, Hong Kong and the Cayman Islands and such other restrictions as may be required in connection with the offering and sale of a particular Series of Trust Certificates, see βSubscription and Saleβ. United States Selling Restrictions: Regulation S, Category 2. 24 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 FORM OF THE TRUST CERTIFICATES The Trust Certificates of each Series will be in registered form. Trust Certificates will be issued outside the United States in reliance on Regulation S under the U.S. Securities Act of 1933, as amended. Each Series of Trust Certificates will initially be represented by a global trust certificate in registered form (a Global Trust Certificate). Global Trust Certificates will be deposited with a common depositary (the Common Depositary) for Euroclear Bank S.A./N.V. (Euroclear) and Clearstream Banking, société anonyme (Clearsteam, Luxembourg) and will be registered in the name of a nominee for the Common Depositary. Persons holding beneficial interests in Global Trust Certificates will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of definitive Trust Certificates in fully registered form. Payments of any amount in respect of the Global Trust Certificates will, in the absence of provision to the contrary, be made to the person shown on the Register (as defined in Condition 2.2 (Register)) as the registered holder of the Global Trust Certificates. None of the Issuer, the Trustee, any Paying Agent or the Registrar will have any responsibility or liability for any aspect of the records relating to or payments or deliveries made on account of beneficial ownership interests in the Global Trust Certificates or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Payment of any amounts in respect of Individual Trust Certificates in definitive form will, in the absence of provision to the contrary, be made to the persons shown on the Register on the relevant Record Date (as defined in Condition 1.1 (Definitions)) immediately preceding the due date for payment in the manner provided in that Condition. Interests in a Global Trust Certificate will be exchangeable (free of charge), in whole but not in part, for definitive Trust Certificates only upon the occurrence of an Exchange Event. The Issuer will promptly give notice to Certificateholders in accordance with Condition 17 (Notices) if an Exchange Event occurs. For these purposes, Exchange Event means that (i) a Dissolution Event (as defined in Condition 14 (Dissolution Events)) has occurred and is continuing or (ii) the Issuer has been notified that both Euroclear and Clearstream, Luxembourg have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no successor clearing system is available. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream, Luxembourg (acting on the instructions of any holder of an interest in such Global Trust Certificate) may give notice to the Registrar requesting exchange and, in the event of the occurrence of an Exchange Event as described in (ii) above, the Trustee may also give notice to the Registrar requesting exchange. Any such exchange shall occur not later than 10 days after the date of receipt of the first relevant notice by the Registrar. For so long as any of the Trust Certificates is represented by a Global Trust Certificate held on behalf of Euroclear and/or Clearstream, Luxembourg each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular face amount of such Trust Certificates (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the face amount of such Trust Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer and its agents as the holder of such face amount of such Trust Certificates for all purposes other than with respect to any payment on such face amount of such Trust Certificates, for which purpose the registered holder of the relevant Global Trust Certificate shall be treated by the Issuer, the Trustee and their respective agents as the holder of such face amount of such Trust Certificates in accordance with and subject to the terms of the relevant Global Trust Certificate and the expressions Certificateholder and holder of Trust Certificates and related expressions shall be construed accordingly. 25 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 02 : 3700 Section 02 Any reference herein to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms. 26 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 APPLICABLE FINAL TERMS Set out below is the form of Final Terms which will be completed for each Series of Trust Certificates issued under the Programme. [Date] EIB Sukuk Company Ltd. Issue of [Aggregate Face Amount of Series] [Title of Trust Certificates] under the US$1,000,000,000 Trust Certificate Issuance Programme PART A β CONTRACTUAL TERMS Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Base Prospectus dated 7 June 2007 which constitutes a base prospectus for the purposes of the Prospectus Directive (Directive 2003/71/EC) (the Prospectus Directive). This document constitutes the Final Terms of the Trust Certificates described herein for the purposes of Article 5.4 of the Prospectus Directive and must be read in conjunction with the Base Prospectus. Full information on the Issuer, Emirates Islamic Bank PJSC, Emirates Bank International PJSC and the offer of the Trust Certificates is only available on the basis of a combination of these Final Terms and the Base Prospectus. The Base Prospectus is available for viewing at the registered office of the Issuer at c/o Deutsche Bank (Cayman) Limited, Elizabethan Square, P.O. Box 1984, Grand Cayman, KY1-1104, Cayman Islands and the Principal Paying Agent at Winchester House, 1 Great Winchester Street, London EC2N 2DB and copies may be obtained from those offices. [Include whichever of the following apply or specify as ββNot Applicableββ (N/A). Note that the numbering should remain as set out below, even if ββNot Applicableββ is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Final Terms.] [When adding any other final terms or information consideration should be given as to whether such terms or information constitute ββsignificant new factorsββ and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive.] [The proceeds of any issue of Trust Certificates should not be accepted in the United Kingdom.] 1. Issuer and Trustee: EIB Sukuk Company Ltd. 2. (i) Bank: Emirates Islamic Bank PJSC (ii) Guarantor: Emirates Bank International PJSC 3. Series Number: [ ] 4. Specified Currency: [ ] 5. Aggregate Face Amount of Series: [ ] 6. Issue Price: 100 per cent. of the Aggregate Face Amount 7. Specified Denominations: [ ] (this means the minimum integral amount in which transfers can be made) [ ] (N.B. If an issue of Trust Certificates is (i) NOT admitted to trading on an European Economic Area exchange; and (ii) only offered in the European Economic Area in circumstances where a prospectus is not required to 27 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 be published under the Prospectus Directive the β¬50,000 minimum denomination is not required.) 8. (a) Issue Date: [ ] (b) Return Accrual Commencement Date: [Issue Date][specify other] 9. Maturity Date: [Specify date or (for Floating Periodic Distribution Trust Certificates) Periodic Distribution Date falling in or nearest to the relevant month and year.] 10. Periodic Distribution Amount Basis: [[ ] per cent. Fixed Periodic Distribution Amount] [[specify reference rate] +/-[ ] per cent. Floating Periodic Distribution Amount] (further particulars specified below) 11. Dissolution Basis: Dissolution at par 12. Change of Periodic Distribution Basis: [Specify details of any provision for convertibility of Trust Certificates into another Periodic Distribution basis.] [Not Applicable] 13. Call Options: [Not Applicable] [Optional Dissolution (Call)] [further particulars specified below] 14. Status: Unsubordinated 15. Method of distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO PERIODIC DISTRIBUTIONS PAYABLE 16. Fixed Periodic Distribution Provisions: [Applicable/Not Applicable] (a) Rate[(s)]: [ ] per cent. per annum [payable [annually/ semiannually/quarterly/monthly] in arrear] (b) Periodic Distribution Date(s): [[ ] in each year up to and including the Maturity Date] [specify other] (c) Fixed Amount(s): [ ] per Trust Certificate of [ ] Specified Denomination [and [ ] per Trust Certificate of [ ] Specified Denomination] (d) Broken Amount(s): [ (If not applicable, delete the remaining subparagraphs of this paragraph) ] (Insert particulars of any initial or final broken Periodic Distribution Amounts which do not correspond with the Fixed Amount(s) specified under paragraph 16(c)) (e) Day Count Fraction: [30/360 or Actual/Actual (ICMA) or [specify other]] (f) Determination Date(s): [ ] in each year [Insert regular periodic distribution dates, ignoring issue date or maturity date in the case of a long or short first or last return accumulation period 28 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 N.B. This will need to be amended in the case of regular periodic distribution dates which are not of equal duration N.B. Only relevant where Day Count Fraction is Actual/Actual (ICMA)] (g) 17. Other terms relating to the method of calculating Fixed Periodic Distributions: [Not Applicable/give details] Floating Periodic Distribution Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining sub-paragraphs of this paragraph) (a) Specified Periodic Distribution Dates: [ ] [Not Applicable] (Specified Period and Specified Periodic Distribution Dates are alternatives. If the Business Day Convention is the Floating Rate Convention, insert βNot Applicableβ) (b) Specified Period: [ ] [Not Applicable] (Specified Period and Specified Periodic Distribution Dates are alternatives. A Specified Period, rather than Specified Periodic Distribution Dates, will only be relevant if the Business Day Convention is the Floating Rate Convention. Otherwise, insert βNot Applicableβ) (c) Business Day Convention: [Floating Rate Convention / Following Business Day Convention / Modified Following Business Day Convention / Preceding Business Day Convention / [specify other]] (d) Additional Business Centre(s): [Not Applicable/give details] (e) Manner in which the Rate(s) is/are to be determined: [Screen Rate Determination (Condition 8.3 (Screen Rate Determination) applies/specify other] (f) Screen Rate Determination: [Applicable/Not Applicable] (If not applicable, delete the remaining sub paragraphs of this paragraph) (i) Reference Rate: [For example, LIBOR or EURIBOR] (ii) Periodic Distribution Determination Date: [ ] (Second London business day prior to the start of each Return Accumulation Period if LIBOR (other than Sterling or euro LIBOR), first day of each Return Accumulation Period if Sterling LIBOR and the second day on which the TARGET System is open prior to the start of each Return Accumulation Period if EURIBOR or euro LIBOR) (iii) Relevant Screen Page: [For example, Reuters [LIBOR01/EURIBOR01]] (iv) Relevant Time: (g) Margin: [For example, 11.00 a.m. London time/Dubai time] [ ] 29 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 (h) Day Count Fraction: [Actual/365 Actual/365 (Fixed) Actual/365 (Sterling) Actual/360 30/360 30E/360 Other] (See Condition 8 for alternatives) (i) Calculation Agent: [Principal Paying Agent] [specify other] (j) Other terms relating to the method of calculating Floating Periodic Distributions: [Not Applicable] [give details] PROVISIONS RELATING TO DISSOLUTION 18. Optional Dissolution (Call): [Applicable/Not Applicable] (If not applicable, delete the remaining sub paragraphs of this paragraph) (a) Optional Dissolution Amount: [Final Dissolution Amount] [[ ] per Trust Certificate of [ ] Specified Denomination] [specify other] (b) Optional Dissolution Date: [Any Periodic Distribution Date] [specify other] (c) Notice period (if other than as set out in the Conditions): [ ] 19. Final Dissolution Amount: [ ] per Trust Certificate of [ Denomination] [specify other] ] Specified 20. Early Dissolution Amount (Tax): [Final Dissolution Amount] [[ ] per Trust Certificate of [ ] Specified Denomination] [specify other] 21. Dissolution Amount pursuant to Condition 14: [[ ] per Trust Certificate of [ Denomination][specify other] ] Specified GENERAL PROVISIONS APPLICABLE TO THE TRUST CERTIFICATES 22. Form of Trust Certificates: Global Trust Certificate exchangeable for Trust Certificates in definitive registered form in the limited circumstances specified in the Global Trust Certificate 23. Additional Financial Centre(s): [ ] (Note that this item relates to the place of payment and not Return Accumulation Period end dates, to which item 17(d) relates) PROVISIONS IN RESPECT OF THE CO-OWNERSHIP ASSETS 24. Co-ownership Assets on the Issue Date: As scheduled to the Supplemental Purchase Contract dated [ ], a copy of which schedule is set out in the Annex hereto 30 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 10:04 pm β mac5 β 3700 Section 03 : 3700 Section 03 25. Co-ownership interests in the Co ownership Assets: Issuer: [ ] per cent. Bank: [ ] per cent. 26. Trust Assets: [Condition 5.1 (Trust Assets) applies] [specify other] 27. Details of Transaction Account: EIB Sukuk Company Ltd. Transaction Account No: [Series No.: 1/2/3 etc] with [ ] 28. Other Transaction Document Information: 29. (a) Supplemental Trust Deed: Supplemental Trust Deed dated [ ] between the Issuer, the Trustee, the Bank, the Guarantor and the Delegate (b) Supplemental Purchase Contract: Supplemental Purchase Contract dated [ between the Issuer, the Trustee and the Bank (c) Late Payment Percentage: (For the purpose of Clause 3.4 of the Purchase Undertaking Deed) [ Other final terms: ] ] per cent. per annum [Not Applicable/give details] (When adding any other final terms consideration should be given as to whether such terms constitute ββsignificant new factorsββ and consequently trigger the need for a supplement to the Base Prospectus under Article 16 of the Prospectus Directive) DISTRIBUTION 30. (a) If syndicated, names of Managers: [Not Applicable/give names] (b) Date of Subscription Agreement: [ ] 31. If non-syndicated, name of relevant Dealer: [ ] 32. Additional selling restrictions: [Not Applicable/give details] [LISTING AND ADMISSION TO TRADING APPLICATION These Final Terms comprise the final terms required to list and have admitted to trading the issue of Trust Certificates described herein pursuant to the US$1,000,000,000 Trust Certificate Issuance Programme of EIB Sukuk Company Ltd.] RESPONSIBILITY Each of the Issuer, the Bank and the Guarantor accepts responsibility for the information contained in these Final Terms. To the best of the knowledge and belief of each of the Issuer, the Bank and the Guarantor (having taken all reasonable care to ensure that such is the case) the information contained in these Final Terms is in accordance with the facts and does not omit anything likely to affect the import of such information. [[ ] has been extracted from [ ]. Each of the Issuer, the Bank and the Guarantor confirms that such information has been accurately reproduced and that, so far as it is aware and is able to ascertain from information published by [ ], no facts have been omitted which would render the reproduced information inaccurate or misleading.] 31 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 Signed on behalf of EIB Sukuk Company Ltd. (the Issuer) By: 1111111111111111113 Duly authorised Signed on behalf of Emirates Islamic Bank PJSC (the Bank) Signed on behalf of Emirates Bank International PJSC (the Guarantor) By: By: 1111111111111111113 Duly authorised 32 1111111111111111113 Duly authorised Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 PART B β OTHER INFORMATION 1. 2. LISTING AND ADMISSION TO TRADING (i) Listing: [London] [specify other] [None] (ii) Admission to trading: [Application has been made for the Trust Certificates to be admitted to trading on [ ] with effect from [ ]] [Not Applicable] (iii) Estimate of total expenses related to admission to trading: [ ] RATINGS Ratings: The Trust Certificates to be issued have been rated: [S & P: [ ]] [Moodyβs: [ ]] [Fitch: [ ]] [[Other]: [ ]] (The above disclosure should reflect the rating allocated to Trust Certificates of the type being issued under the Programme generally or, where the issue has been specially rated, that rating) 3. NOTIFICATION The Financial Services Authority [has been requested to provide/has provided β include first alternative for an issue which is contemporaneous with the establishment or update of the Programme and the second alternative for subsequent issues] the [names of competent authorities of host Member States] with a certificate of approval attesting that the Base Prospectus has been drawn up in accordance with the Prospectus Directive. 4. INTERESTS OF NATURAL AND LEGAL PERSONS INVOLVED IN THE ISSUE [Save for any fees payable to the [Managers/Dealer], so far as each of the Issuer, the Bank and the Guarantor is aware, no person involved in the issue of the Trust Certificates has an interest material to the offer. β Amend as appropriate if there are other interests.] 5. YIELD (Fixed Periodic Distribution Trust Certificates only) Indication of yield: 6. [ ] The yield is calculated at the Issue Date on the basis of the Issue Price. It is not an indication of future yield. OPERATIONAL INFORMATION (i) ISIN Code: [ ] (ii) Common Code: [ ] 33 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 (iii) Any clearing system(s) other than Euroclear Bank S.A./N.V. and Clearstream Banking, société anonyme and the relevant identification number(s): [Not Applicable/give name(s) and number(s)] (iv) Delivery: Delivery [against/free of] payment (v) Names and addresses of additional Paying Agent(s) (if any): [ ] 34 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:21 pm β mac5 β 3700 Section 03 : 3700 Section 03 Annex to the Final Terms Co-ownership Assets* * Insert Schedule of initial Co-ownership Assets contained in relevant Supplemental Purchase Contract once in final form. 35 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 TERMS AND CONDITIONS OF THE TRUST CERTIFICATES The following is the text of the Terms and Conditions of the Trust Certificates, which will be endorsed on each Trust Certificate in definitive registered form issued under the Programme and will apply to each Global Trust Certificate. The applicable Final Terms in relation to any series of Trust Certificates may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Trust Certificates. EIB Sukuk Company Ltd. (in its capacity as issuer, the Issuer and, in its capacity as trustee, the Trustee, which latter expression shall include the Delegate (as defined below)) has established a programme (the Programme) for the issuance of up to US$1,000,000,000 in aggregate face amount of Trust Certificates. Trust Certificates issued under the Programme are issued in series (each a Series). The final terms for this Trust Certificate (or the relevant provisions thereof) are set out in Part A of the Final Terms attached to or endorsed on this Trust Certificate which supplement these Terms and Conditions (the Conditions) and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the Conditions, replace or modify the Conditions for the purposes of this Trust Certificate. References to the applicable Final Terms are to Part A of the Final Terms (or the relevant provisions thereof) attached to or endorsed on this Trust Certificate. Each of the Trust Certificates will represent an undivided beneficial ownership (real ownership) interest in the Trust Assets which are held by the Trustee on trust (the Trust) for, inter alia, the benefit of the registered holders of the Trust Certificates pursuant to (i) a Master Trust Deed (the Master Trust Deed) dated 7 June 2007 and made between the Issuer, the Trustee, Emirates Islamic Bank PJSC as obligor (the Bank), Emirates Bank International PJSC as guarantor (the Guarantor) and Deutsche Trustee Company Limited (the Delegate) and (ii) a supplemental trust deed (the Supplemental Trust Deed and, together with the Master Trust Deed, the Trust Deed) having the details set out in the applicable Final Terms. In these Conditions, references to Trust Certificates shall be references to the Trust Certificates which are the subject of the applicable Final Terms. Payments relating to the Trust Certificates will be made pursuant to an agency agreement dated on or about 7 June 2007 (the Agency Agreement) made between the Issuer, the Trustee, the Bank, the Guarantor, Deutsche Bank Luxembourg S.A. in its capacities as transfer agent (in such capacity, the Transfer Agent, which expression shall include any successor) and registrar (in such capacity, the Registrar, which expression shall include any successor) and Deutsche Bank AG, London Branch in its capacities as principal paying agent (in such capacity, the Principal Paying Agent, which expression shall include any successor), payment administrator (in such capacity, the Payment Administrator, which expression shall include any successor), calculation agent (in such capacity, the Calculation Agent, which expression shall include any successor) and replacement agent (in such capacity, the Replacement Agent, which expression shall include any successor). The Principal Paying Agent, the Payment Administrator, the Calculation Agent, the Transfer Agent, the Registrar and the Replacement Agent are together referred to as the Agents. Subject as set below, copies of the documents set out below are available for inspection and obtainable free of charge during normal business hours at the specified office for the time being of the Principal Paying Agent. The Certificateholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the documents set out below: (a) a master purchase agreement between the Issuer, the Trustee and the Bank dated on or about 7 June 2007 (the Master Purchase Agreement); 36 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 (b) the Supplemental Purchase Contract (the Supplemental Purchase Contract and, together with the Master Purchase Agreement, the Purchase Agreement) having the details set out in the applicable Final Terms; (c) a management agreement between, inter alia, the Issuer, the Trustee and the Bank as managing agent (the Managing Agent) dated on or about 7 June 2007 (the Management Agreement); (d) a purchase undertaking deed entered into by the Bank dated on or about 7 June 2007 (the Purchase Undertaking Deed), containing the form of Sale Agreement (the Sale Agreement) to be executed by the Bank, the Issuer and the Trustee on the Maturity Date or, as the case may be, the Dissolution Date; (e) the Trust Deed; (f) the Agency Agreement; (g) a corporate services agreement between Deutsche Bank (Cayman) Limited (as provider of corporate services to the Issuer) and the Issuer dated on or about 7 June 2007 (the Corporate Services Agreement); (h) a programme agreement between the Issuer, the Trustee, the Bank, the Guarantor and the Dealers dated on or about 7 June 2007 (the Programme Agreement); (i) a costs undertaking deed entered into by the Bank and the Guarantor dated on or about 7 June 2007 (the Costs Undertaking Deed); and (j) the applicable Final Terms. The statements in the Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed and the Agency Agreement. Each initial Certificateholder, by its acquisition and holding of its interest in a Trust Certificate, shall be deemed to authorise and direct the Issuer (acting as trustee on behalf of the Certificateholders) to apply the sums paid by it in respect of its Trust Certificates to purchase from the Bank a coownership interest in the Bankβs undivided rights, title and interest in the Co-ownership Assets and to enter into each Transaction Document to which it is a party, subject to the terms and conditions of the Trust Deed and these Conditions. 1. INTERPRETATION 1.1 Definitions Words and expressions defined in the Trust Deed and the Agency Agreement or used in the applicable Final Terms shall have the same meanings where used in the Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between any such document and the applicable Final Terms, the applicable Final Terms will prevail. In addition, in these Conditions the following expressions have the following meanings: Calculation Agent means the Principal Paying Agent or such other Person specified in the applicable Final Terms as the party responsible for calculating the Periodic Distribution Amount and/or such other amount(s) as may be specified in the applicable Final Terms in accordance with Condition 8 (Floating Periodic Distribution Provision); Co-owners means the Issuer and the Bank and Co-owner shall be construed accordingly; Co-ownership Assets means (i) the initial portfolio of assets in relation to the Trust Certificates as more particularly described in the Supplemental Purchase Agreement and the applicable Final Terms and (ii) any further assets in which the Issuer acquires a co-ownership 37 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 interest in accordance with the terms of the Management Agreement provided that any assets in which the Issuer ceases to have a co-ownership interest shall not thereafter be deemed to be Co-ownership Assets; Co-ownership Liabilities Amount means, in relation to each Series of Trust Certificates, any amount due to the Managing Agent under the Management Agreement in respect of any qard advances made by the Managing Agent thereunder and the amount of any claims, losses, costs and expenses properly incurred or suffered by the Managing Agent in providing the services; Co-ownership Revenues means all rental, sale proceeds or consideration, damages, insurance proceeds, compensation or other sums received by the Managing Agent in whatever currency in connection with the Co-ownership Assets; Dissolution Amount means, as appropriate, the Final Dissolution Amount, the Early Dissolution Amount (Tax), the Optional Dissolution Amount (Call) or such other amount in the nature of a redemption amount as may be specified in, or determined in accordance with the provisions of, the applicable Final Terms; Dissolution Date means, as the case may be, (a) following the occurrence of a Dissolution Event (as defined in Condition 14 (Dissolution Events)), the date on which the Trust Certificates are dissolved in accordance with the provisions of Condition 14 (Dissolution Events), (b) the date on which the Trust Certificates are dissolved in accordance with the provisions of Condition 11.2 (Early Dissolution for Tax Reasons), or (c) the Optional Dissolution Date (Call) in accordance with the provisions of Condition 11.3 (Dissolution at the Option of the Issuer); Encumbrance means any lien, pledge, mortgage, security interest, deed of trust, charge or other encumbrance or arrangement having a similar effect; Extraordinary Resolution has the meaning given in Schedule 4 to the Master Trust Deed; Indebtedness means any present or future indebtedness of any person for or in respect of any money borrowed or raised including (without limitation) any borrowed money or liability arising under or in respect of any acceptance or acceptance credit or evidenced by any notes, bonds, debentures, debenture stock, loan stock or other securities or any moneys raised under any transaction having the commercial effect of borrowing or raising money; Liability means any loss, damage, cost, charge, claim, demand, expense, judgment, action, proceeding or liability whatsoever (including, without limitation, in respect of taxes, duties, levies, imposts and other charges) and including any value added tax or similar tax charged or chargeable in respect thereof and legal fees and expenses on a full indemnity basis; Payment Business Day means: (a) a day on which banks in the relevant place of surrender of the Certificate of Registration are open for presentation and payment of registered securities and for dealings in foreign currencies; and (b) in the case of payment by transfer to an account: (i) if the currency of payment is euro, a TARGET Settlement Day and a day on which dealings in foreign currencies may be carried on in each (if any) Additional Financial Centre; or (ii) if the currency of payment is not euro, any day which is a day on which dealings in foreign currencies may be carried on in the principal financial centre of the currency of payment and in each (if any) Additional Financial Centre; 38 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 Periodic Distribution Amount means, in relation to a Trust Certificate and a Return Accumulation Period, the amount of profit distribution payable in respect of that Trust Certificate for that Return Accumulation Period which amount may be a Fixed Amount, a Broken Amount or an amount otherwise calculated in accordance with Condition 7 (Fixed Periodic Distribution Provisions) or Condition 8 (Floating Periodic Distribution Provisions); Permitted Encumbrance means any Encumbrance: (a) arising solely by operation of law; (b) that is granted to any third party and which has been disclosed to the Trustee as at the date of the Supplemental Purchase Contract or to which the Trustee subsequently agrees; Person means any individual, company, corporation, firm, partnership, joint venture, association, organisation, state or agency of a state or other entity, whether or not having separate legal personality; Rate means the rate or rates (expressed as a percentage per annum) representing a defined share of the profits distributable by the Trustee in respect of the Trust Certificates specified in the applicable Final Terms or calculated or determined in accordance with the provisions of these Conditions and/or the applicable Final Terms; Rating Agencies means the rating agencies, each of which has assigned a credit rating to the Trust Certificates, and their successors, and each a Rating Agency; Record Date means, in the case of the payment of a Periodic Distribution Amount, the date falling on the fifteenth day before the relevant Periodic Distribution Date and, in the case of the payment of a Dissolution Amount, the date falling two Payment Business Days before the Maturity Date or Dissolution Date, as the case may be; Reference Banks means the principal London office of each of four major banks engaged in the London or Eurozone inter-bank market selected by or on behalf of the Issuer, provided that once a Reference Bank has first been selected by the Issuer or its duly appointed representative, such Reference Bank shall not be changed unless it ceases to be capable of acting as such; Relevant Date means, in relation to any payment, whichever is the later of (a) the date on which the payment in question first becomes due and (b) if the full amount payable has not been received in the principal financial centre of the currency of payment by the Principal Paying Agent on or prior to such due date, the date on which (the full amount having been so received) notice to that effect has been given to the Certificateholders by the Trustee in accordance with Condition 17 (Notices); Relevant Jurisdiction means the Cayman Islands and the United Arab Emirates or, in either case, any political subdivision or authority thereof or therein having the power to tax; Relevant Screen Page means the page, section or other part of a particular information service (including, without limitation, the Reuter Money 3000 Service) specified as the Relevant Screen Page in the applicable Final Terms, or such other page, section or other part as may replace it on that information service or such other information service, in each case, as may be nominated by the Person providing or sponsoring the information appearing there for the purpose of displaying rates or prices comparable to the Reference Rate; Return Accumulation Period means the period from (and including) a Periodic Distribution Date (or the Return Accumulation Commencement Date) to (but excluding) the next (or first) Period Distribution Date; 39 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 Stock Exchange means, in relation to the Trust Certificates, the stock exchange or exchanges (if any) on which the Trust Certificates are for the time being quoted or listed; Subsidiary means, in relation to any Person (the first Person) at any particular time, any other Person (the second Person): (a) whose affairs and policies the first Person controls or has the power to control, whether by ownership of share capital, contract, the power to appoint or remove members of the governing body of the second Person or otherwise; or (b) whose financial statements are, in accordance with applicable law and generally accepted accounting principles, consolidated with those of the first Person; TARGET Settlement Day means any day on which the Trans-European Automated RealTime Gross Settlement Express Transfer (TARGET) System (the TARGET System) is open; Taxes means any taxes, levies, imposts, duties, fees, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Relevant Jurisdiction, and all interest, penalties or similar liabilities with respect thereto; Transaction Account means the account in the Issuerβs name, details of which are specified in the applicable Final Terms; Transaction Documents means the Purchase Agreement, the Management Agreement, the Purchase Undertaking Deed, the Trust Deed, the Costs Undertaking Deed, the Agency Agreement, the Corporate Services Agreement, the Programme Agreement, any Subscription Agreement (as defined in the Programme Agreement) and any Sale Agreement; Treaty means the Treaty establishing the European Communities, as amended; and Trust Assets means the assets, rights, cash or investments described in Condition 5.1 (Trust Assets). 1.2 Interpretation In these Conditions: (a) any reference to face amount shall be deemed to include the Dissolution Amount, any additional amounts (other than relating to Periodic Distribution Amounts) which may be payable under Condition 12 (Taxation), and any other amount in the nature of face amounts payable pursuant to these Conditions; (b) any reference to Periodic Distribution Amounts shall be deemed to include any additional amounts in respect of profit distributions which may be payable under Condition 12 (Taxation) and any other amount in the nature of a profit distribution payable pursuant to these Conditions; (c) references to Trust Certificates being βoutstandingβ shall be construed in accordance with the Master Trust Deed; and (d) any reference to a Transaction Document shall be construed as a reference to that Transaction Document as amended and/or supplemented up to and including the Issue Date. 2. FORM, DENOMINATION AND TITLE 2.1 Form and Denomination The Trust Certificates are issued in registered form in the Specified Denominations. 40 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 For so long as any of the Trust Certificates is represented by a Global Trust Certificate held on behalf of Euroclear Bank S.A./N.V. (Euroclear) and/or Clearstream Banking, société anonyme (Clearstream, Luxembourg), each person (other than Euroclear or Clearstream, Luxembourg) who is for the time being shown in the records of Euroclear or of Clearstream, Luxembourg as the holder of a particular face amount of such Trust Certificates (in which regard any certificate or other document issued by Euroclear or Clearstream, Luxembourg as to the face amount of such Trust Certificates standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error or proven error) shall be treated by the Issuer, the Trustee, the Bank, the Guarantor and the Agents as the holder of such face amount of such Trust Certificates for all purposes other than with respect to payment in respect of such Trust Certificates, for which purpose the registered holder of the Global Trust Certificate shall be treated by the Issuer, the Trustee, the Bank, the Guarantor and any Agent as the holder of such face amount of such Trust Certificates in accordance with and subject to the terms of the relevant Global Trust Certificate and the expressions Certificateholder and holder in relation to any Trust Certificates and related expressions shall be construed accordingly. Trust Certificates which are represented by a Global Trust Certificate will be transferable only in accordance with the rules and procedures for the time being of Euroclear and Clearstream, Luxembourg, as the case may be. References to Euroclear and/or Clearstream, Luxembourg shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Final Terms. 2.2 Register The Registrar will maintain a register (the Register) of Certificateholders in respect of the Trust Certificates in accordance with the provisions of the Agency Agreement. A certificate of registration (each a Certificate of Registration) will be issued to each Certificateholder in respect of its entire registered holding of Trust Certificates and will be serially numbered with an identifying number which will be recorded also on the Register. 2.3 Title The Issuer, the Trustee, the Bank, the Guarantor and the Agents may (to the fullest extent permitted by applicable laws) deem and treat the person in whose name any outstanding Trust Certificate is for the time being registered (as set out in the Register) as the holder of such Trust Certificate or of a particular face amount of the Trust Certificates for all purposes (whether or not such Trust Certificate or face amount shall be overdue and notwithstanding any notice of ownership thereof or of trust or other interest with regard thereto, and any notice of loss or theft or any writing thereon), and the Issuer, the Trustee, the Bank, the Guarantor and the Agents shall not be affected by any notice to the contrary. All payments made to such registered holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for moneys payable in respect of such Trust Certificate or face amount. 3. TRANSFERS OF TRUST CERTIFICATES AND ISSUE OF CERTIFICATES 3.1 Transfers Subject to Conditions 3.4 (Closed periods) and 3.5 (Regulations), a Trust Certificate may be transferred in whole or in an amount equal to the Specified Denomination or any integral multiple thereof by depositing the Certificate of Registration issued in respect of that Trust Certificate, with the form of transfer on the back duly completed and signed, at the specified office of the Registrar. 41 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 3.2 Delivery of new Certificates of Registration Each new Certificate of Registration to be issued upon transfer of Trust Certificates will, within five business days of receipt by the Registrar of the duly completed form of transfer endorsed on the relevant Certificate of Registration, be mailed by uninsured mail at the risk of the holder entitled to the Trust Certificate to the address specified in the form of transfer. For the purposes of this Condition, business day shall mean a day on which banks are open for business in the city in which the specified office of the Registrar is located. Where some but not all of the Trust Certificates in respect of which a Certificate of Registration is issued are to be transferred, a new Certificate of Registration in respect of the Trust Certificates not so transferred will, within five business days of receipt by the Registrar of the original Certificate of Registration, be mailed by uninsured mail at the risk of the holder of the Trust Certificates not so transferred to the address of such holder appearing on the Register or as specified in the form of transfer. 3.3 Formalities free of charge Registration of transfer of Trust Certificates will be effected without charge by or on behalf of the Issuer and the Registrar but upon payment (or the giving of such indemnity as the Issuer and the Registrar may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to such transfer. 3.4 Closed periods No Certificateholder may require the transfer of a Trust Certificate to be registered during the period of 15 days ending on a Periodic Distribution Date, the Maturity Date, a Dissolution Date or any other date on which any payment of the face amount or payment of any profit in respect of a Trust Certificate falls due. 3.5 Regulations All transfers of Trust Certificates and entries on the Register will be made subject to the detailed regulations concerning the transfer of Trust Certificates scheduled to the Master Trust Deed. A copy of the current regulations will be mailed (free of charge) by the Registrar to any Certificateholder who requests one. Among other things, such regulations require the following: The Issuer shall ensure that the Registrar maintains the Register showing the amount of the outstanding Trust Certificates (with each Trust Certificate bearing an identifying serial number), the issue dates and the names and addresses of the holders of the Trust Certificates. The Trustee and the holders of Trust Certificates may inspect the Register. The Trust Certificates are transferable (in whole or in part) and the Certificate of Registration in respect of the Trust Certificates to be transferred must be delivered for registration to the specified office of the Registrar with the form of transfer, which may be obtained from the Registrar, endorsed and accompanied by such other evidence as the Issuer may require to prove the title of the transferor or his right to transfer the Trust Certificates. The holder of Trust Certificates shall be entitled to receive in accordance with Condition 3.2 (Delivery of new Certificates of Registration) only one Certificate of Registration in respect of his entire holding of Trust Certificates. In the case of a transfer of a portion of the face amount of a Certificate of Registration, a new Certificate of Registration in respect of the balance of the Trust Certificates not transferred will be issued to the transferor in accordance with Condition 3.2 (Delivery of new Certificates of Registration). 42 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 4. STATUS, GUARANTEE AND LIMITED RECOURSE 4.1 Status Each Trust Certificate evidences an undivided beneficial ownership (real ownership) interest in the Trust Assets subject to the terms of the Trust Deed, the Purchase Undertaking Deed, the Sale Agreement and these Conditions and is a limited recourse obligation of the Issuer. Each Trust Certificate ranks pari passu, without any preference or priority, with all other Trust Certificates. 4.2 Guarantee The payment obligations of the Bank under the Transaction Documents to which it is a party are unconditionally and irrevocably guaranteed by the Guarantor pursuant to the guarantee (the Guarantee) contained in the Master Trust Deed. 4.3 Limited Recourse Proceeds of the Trust Assets are the sole source of payments on the Trust Certificates. The Trust Certificates do not represent an interest in any of the Issuer, the Trustee, the Bank, the Guarantor, any of the Agents or any of their respective affiliates. Accordingly, Certificateholders will have no recourse to any assets of the Issuer (other than the Trust Assets), the Trustee (including, in particular other assets comprised in other trusts, if any), the Bank (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Guarantor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Agents or any of their respective affiliates in respect of any shortfall in the expected amounts from the Trust Assets. However, the Bank is obliged to make the payments under the relevant Transaction Documents to which it is a party directly to EIB Sukuk Company Ltd. and EIB Sukuk Company Ltd., as trustee for and on behalf of Certificateholders, will have direct recourse against the Bank (failing which the Guarantor, in accordance with the Guarantee) to recover payments due to the Issuer from the Bank pursuant to such Transaction Documents. The net proceeds of the realisation of, or enforcement with respect to, the Trust Assets may not be sufficient to make all payments due in respect of the Trust Certificates. If, following distribution of such proceeds, there remains a shortfall in payments due under the Trust Certificates, subject to Condition 15 (Enforcement and Exercise of Rights), no Certificateholder will have any claim against the Issuer, the Trustee, the Agents, the Bank (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Guarantor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates or other assets in respect of such shortfall and any unsatisfied claims of the Certificateholders shall be extinguished. In particular, no Certificateholder will be able to petition for, or join any other person in instituting proceedings for, the reorganisation, liquidation, winding up or receivership of the Issuer, the Trustee, the Bank (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party), the Guarantor (to the extent it fulfils all of its obligations under the relevant Transaction Documents to which it is a party) or any of their affiliates as a consequence of such shortfall or otherwise. 4.4 Agreement of Certificateholders By purchasing the Trust Certificates, each Certificateholder agrees that notwithstanding anything to the contrary contained herein or in any other Transaction Document: (a) no payment of any amount whatsoever shall be made by any of the Issuer, the Trustee or the Trust or any of their respective agents on their behalf except to the extent funds are available therefor from the Trust Assets and further agrees that no recourse shall 43 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 be had for the payment of any amount owing hereunder or under any other Transaction Document, whether for the payment of any fee or other amount hereunder or any other obligation or claim arising out of or based upon any Transaction Document, against any of the Issuer, the Trustee or the Trust to the extent the Trust Assets have been exhausted following which all obligations of the Issuer, the Trustee and the Trust shall be extinguished; and (b) prior to the date which is one year and one day after the date on which all amounts owing by the Issuer under the Transaction Documents to which it is a party have been paid in full, it will not institute against, or join with any other person in instituting against the Issuer, the Trustee or the Trust, any bankruptcy, reorganisation, arrangement or liquidation proceedings or other proceedings under any bankruptcy or similar law. 5. THE TRUST 5.1 Trust Assets Unless otherwise specified in the Supplemental Purchase Contract and the applicable Final Terms, the Trust Assets will comprise: (a) the Issuerβs co-ownership interest in the Co-ownership Assets; (b) the rights, titles, interests and benefits, present and future, of the Issuer and the Trustee in, to and under the Transaction Documents; (c) all monies standing to the credit of the Transaction Account; and (d) any other assets, rights, cash or investments as may be specified in the applicable Final Terms, and all proceeds of the foregoing. 5.2 Application of Proceeds from the Trust Assets Pursuant to the Trust Deed, the Trustee holds the Trust Assets for and on behalf of the holders of the Certificates. On each Periodic Distribution Date, or on any Dissolution Date, the Payment Administrator, notwithstanding any instructions to the contrary from the Trustee, will apply the monies standing to the credit of the Transaction Account in the following order of priority: (a) first, to the Delegate in respect of all amounts owing to it under the Transaction Documents in its capacity as Delegate; (b) second, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts due and unpaid; (c) third, only if such payment is made on the Maturity Date or any Dissolution Date, to the Principal Paying Agent in or towards payment pari passu and rateably of the Dissolution Amount; and (d) fourth, only if such payment is made on the Maturity Date or any Dissolution Date, to the Issuer. The Management Agreement provides that the Managing Agent will maintain a Return Collection Account in respect of the Trust Assets and will pay certain monies credited to this account to the Transaction Account on or prior to each Periodic Distribution Date. See βSummary of the Principal Transaction Documents - Management Agreement - Operation of Collection Accountsβ below. 44 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 6. COVENANTS The Issuer has covenanted in the Master Trust Deed that, inter alia, for so long as any Trust Certificate is outstanding, it shall not (without the prior written consent of the Delegate): (a) incur any indebtedness in respect of borrowed money whatsoever, or give any guarantee in respect of any obligation of any person or issue any shares (or rights, warrants or options in respect of shares or securities convertible into or exchangeable for shares) other than the Trust Certificates issued under the Programme; (b) secure any of its present or future indebtedness for borrowed money by any lien, pledge, charge or other security interest upon any of its present or future assets, properties or revenues (other than those arising by operation of law); (c) sell, lease, transfer, assign, participate, exchange or otherwise dispose of, or pledge, mortgage, hypothecate or otherwise encumber (by security interest, lien (statutory or otherwise), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever or otherwise or permit such to occur or suffer such to exist), any part of (i) its title to the Co-ownership Assets or any interest therein except pursuant to any Transaction Document or (ii) its interests in any of the other Trust Assets except pursuant to any Transaction Document; (d) use the proceeds of the issue of the Trust Certificates for any purpose other than as set out in the applicable Final Terms; (e) amend or agree to any amendment of any Transaction Document to which it is a party, or its memorandum and articles of association, in a manner which is materially prejudicial to the rights of holders of outstanding Trust Certificates (it being accepted that an increase in the aggregate face amount of the Programme will not be materially prejudicial to such rights) without (i) the prior approval of the Certificateholders by way of Extraordinary Resolution and (ii) first notifying the Rating Agencies of the proposed amendments and subsequently providing the Rating Agencies with copies of the relevant executed amended Transaction Documents; (f) act as trustee in respect of any trust other than the Trust corresponding to a Series of Trust Certificates issued from time to time pursuant to the Programme; (g) have any subsidiaries or employees; (h) redeem any of its shares or pay any dividend or make any other distribution to its shareholders; (i) put to its directors or shareholders any resolution for or appoint any liquidator for its winding up or any resolution for the commencement of any other bankruptcy or insolvency proceeding with respect to it; and (j) enter into any contract, transaction, amendment, obligation or liability other than the Transaction Documents to which it is a party or any permitted amendment or supplement thereto or as expressly permitted or required thereunder or engage in any business or activity other than: (i) as provided for or permitted in the Transaction Documents; (ii) the ownership, management and disposal of Trust Assets as provided in the Transaction Documents; and (iii) such other matters which are incidental thereto. 45 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 7. FIXED PERIODIC DISTRIBUTION PROVISIONS 7.1 Application This Condition 7 is applicable to the Trust Certificates only if the Fixed Periodic Distribution Provisions are specified in the applicable Final Terms as being applicable. 7.2 Periodic Distribution Amount A Periodic Distribution Amount representing a defined share of the profit in respect of the Co-ownership Assets for the Trust Certificates will be payable in respect of the Trust Certificates and be distributable by the Issuer to the Certificateholders in accordance with these Conditions. 7.3 Determination of Periodic Distribution Amount Except as provided in the applicable Final Terms, the Periodic Distribution Amount payable in respect of each Trust Certificate for any Return Accumulation Period shall be the Fixed Amount and, if the Trust Certificates are in more than one Specified Denomination, shall be the Fixed Amount in respect of the relevant Specified Denomination. Payments of Periodic Distribution Amount on any Periodic Distribution Date may, if so specified in the applicable Final Terms, amount to the Broken Amount so specified. Except in the case of Trust Certificates in definitive form where a Periodic Distribution Amount or Broken Amount is specified in the applicable Final Terms, such Periodic Distribution Amount shall be calculated by applying the Rate to each Specified Denomination, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Day Count Fraction means, in respect of the calculation of Periodic Distribution Amount in accordance with this Condition 7.3: (a) if βActual/Actual (ICMA)β is specified in the applicable Final Terms: (i) in the case of Trust Certificates where the number of days in the relevant period from (and including) the most recent Periodic Distribution Date (or, if none, the Return Accumulation Commencement Date) to (but excluding) the relevant payment date (the Accrual Period) is equal to or shorter than the Determination Period during which the Accrual Period ends, the number of days in such Accrual Period divided by the product of (A) the number of days in such Determination Period and (B) the number of Determination Dates (as specified in the applicable Final Terms) that would occur in one calendar year; or (ii) in the case of Trust Certificates where the Accrual Period is longer than the Determination Period during which the Accrual Period ends, the sum of: (A) the number of days in such Accrual Period falling in the Determination Period in which the Accrual Period begins divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and (B) the number of days in such Accrual Period falling in the next Determination Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and 46 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 (b) if β30/360β is specified in the applicable Final Terms, the number of days in the period from (and including) the most recent Periodic Distribution Date (or, if none, the Return Accumulation Commencement Date) to (but excluding) the relevant payment date (such number of days being calculated on the basis of a year of 360 days with 12 30day months) divided by 360. In the Conditions: Determination Period means each period from (and including) a Determination Date to (but excluding) the next Determination Date (including, where either the Return Accrual Commencement Date or the final Periodic Distribution Date is not a Determination Date, the period commencing on the first Determination Date prior to, and ending on the first Determination Date falling after, such date); and sub-unit means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, one cent. 7.4 Payment in Arrear Subject to Condition 7.5 (Cessation of Profit Entitlement), Condition 11.2 (Early Dissolution for Tax Reasons), Condition 11.3 (Dissolution at the Option of the Issuer) and Condition 14 (Dissolution Events) below, and unless otherwise specified in the applicable Final Terms, each Periodic Distribution Amount will be paid in respect of the relevant Trust Certificates in arrear on each Periodic Distribution Date. 7.5 Cessation of Profit Entitlement No further amounts will be payable on any Trust Certificate from and including the Maturity Date or, as the case may be, the Dissolution Date. 8. FLOATING PERIODIC DISTRIBUTION PROVISIONS 8.1 Application This Condition 8 is applicable to the Trust Certificates only if the Floating Periodic Distribution Provisions are specified in the applicable Final Terms as being applicable. 8.2 Periodic Distribution Amount A Periodic Distribution Amount representing a defined share of the profit in respect of the Co ownership Assets for the Trust Certificates will be payable in respect of the Trust Certificates and be distributable by the Issuer to the Certificateholders in accordance with these Conditions. Such Periodic Distribution Amounts will be payable in arrear on either: (a) the Specified Periodic Distribution Date(s) in each year specified in the applicable Final Terms; or (b) if no Specified Periodic Distribution Date(s) is/are specified in the applicable Final Terms, each date (each such date, together with each Specified Periodic Distribution Date, a Periodic Distribution Date) which falls the number of months or other period specified as the Specified Period in the applicable Final Terms after the preceding Periodic Distribution Date or, in the case of the first Periodic Distribution Date, after the Return Accumulation Commencement Date. Such Periodic Distribution Amounts will be payable in respect of each Return Accumulation Period. 47 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 If a Business Day Convention is specified in the applicable Final Terms and (x) if there is no numerically corresponding day in the calendar month in which a Periodic Distribution Date should occur or (y) if any Periodic Distribution Date would otherwise fall on a day which is not a Business Day, then, if the Business Day Convention specified is: (A) in any case where Specified Periods are specified in accordance with Condition 8.2(b) above, the Floating Rate Convention, such Periodic Distribution Date (a) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (ii) below shall apply mutatis mutandis or (b) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (i) such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day and (ii) each subsequent Periodic Distribution Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Periodic Distribution Date occurred; or (B) the Following Business Day Convention, such Periodic Distribution Date shall be postponed to the next day which is a Business Day; or (C) the Modified Following Business Day Convention, such Periodic Distribution Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day; or (D) the Preceding Business Day Convention, such Periodic Distribution Date shall be brought forward to the immediately preceding Business Day. In the Conditions, Business Day means a day which is both: 8.3 (a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in London and any Additional Business Centre specified in the applicable Final Terms; and (b) either (i) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (if other than London and any Additional Business Centre) or (ii) in relation to any sum payable in euro, a day on which the TARGET System is open. Screen Rate Determination If Screen Rate Determination is specified in the applicable Final Terms as the manner in which the Rate(s) is/are to be determined, the Rate applicable to the Trust Certificates for each Return Accumulation Period will be determined by the Calculation Agent on the following basis: (a) if the Reference Rate specified in the applicable Final Terms is a composite quotation or customarily supplied by one entity, the Calculation Agent will determine the Reference Rate which appears on the Relevant Screen Page as of the Relevant Time on the relevant Periodic Distribution Determination Date; (b) in any other case, the Calculation Agent will determine the arithmetic mean of the Reference Rates which appear on the Relevant Screen Page as of the Relevant Time on the relevant Periodic Distribution Determination Date; 48 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 (c) (d) if, in the case of (a) above, such rate does not appear on that page or, in the case of (b) above, fewer than two such rates appear on that page or if, in either case, the Relevant Screen Page is unavailable, the Calculation Agent will: (i) request each of the Reference Banks to provide a quotation of the Reference Rate at approximately the Relevant Time on the Periodic Distribution Determination Date to prime banks in the London or Eurozone interbank market, as the case may be, in an amount that is representative for a single transaction in that market at that time; and (ii) determine the arithmetic mean of such quotations; and if fewer than two such quotations are provided as requested, the Calculation Agent will determine the arithmetic mean of the rates quoted by major banks in the principal financial centre of the Specified Currency, selected by the Calculation Agent, at approximately 11.00 a.m. (local time in the principal financial centre of the Specified Currency) on the first day of the relevant Return Accumulation Period for loans in the Specified Currency to leading European banks for a period equal to the relevant Return Accumulation Period and in an amount that is representative for a single transaction in that market at that time, and the Rate for such Return Accumulation Period shall be the sum of the Margin and the rate or (as the case may be) the arithmetic mean so determined; provided, however, that if the Calculation Agent is unable to determine a rate or (as the case may be) an arithmetic mean in accordance with the above provisions in relation to any Return Accumulation Period, the Rate applicable to the Trust Certificates during such Return Accumulation Period will be the sum of the Margin and the rate or (as the case may be) the arithmetic mean last determined in relation to the Trust Certificates in respect of a preceding Return Accumulation Period. 8.4 Cessation of Profit Entitlement No further amounts will be payable on any Trust Certificate from and including the Maturity Date or, as the case may be, the Dissolution Date. 8.5 Calculation of Periodic Distribution Amount The Calculation Agent will, as soon as practicable after the time at which the Rate is to be determined in relation to each Return Accumulation Period, calculate the Periodic Distribution Amount payable in respect of each Trust Certificate for such Return Accumulation Period. The Periodic Distribution Amount will be calculated by applying the Rate applicable to the relevant Return Accumulation Period to the face amount (in the case of a Trust Certificate in global form) or Specified Denomination (in the case of a Trust Certificate in individual registered form) of such Trust Certificate during such Return Accumulation Period, multiplying the product by the relevant Day Count Fraction and rounding the resultant figure to the nearest sub-unit of the Specified Currency (half a subunit being rounded upwards). Day Count Fraction means, in respect of the calculation of a Periodic Distribution Amount in accordance with this Condition 8: (a) if βActual/365β or βActual/Actualβ is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365 (or, if any portion of that Return Accumulation Period falls in a leap year, the sum of (A) the actual number of days in that portion of the Return Accumulation Period falling in a leap year divided by 366 and (B) the actual number of days in that portion of the Return Accumulation Period falling in a non-leap year divided by 365); 49 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 8.6 (b) if βActual/365 (Fixed)β is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365; (c) if βActual/365 (Sterling)β is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 365 or, in the case of a Periodic Distribution Date falling in a leap year, 366; (d) if βActual/360β is specified in the applicable Final Terms, the actual number of days in the Return Accumulation Period divided by 360; (e) if β30/360β β360/360β or βBond Basisβ is specified in the applicable Final Terms, the number of days in the Return Accumulation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months (unless (A) the last day of the Return Accumulation Period is the 31st day of a month but the first day of the Return Accumulation Period is a day other than the 30th or 31st day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or (B) the last day of the Return Accumulation Period is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month)); and (f) if β30E/360β or βEurobond Basisβ is specified in the applicable Final Terms, the number of days in the Return Accumulation Period divided by 360 (the number of days to be calculated on the basis of a year of 360 days with 12 30-day months, without regard to the date of the first day or last day of the Return Accumulation Period unless, in the case of the final Return Accumulation Period, the Maturity Date is the last day of the month of February, in which case the month of February shall not be considered to be lengthened to a 30-day month). Calculation of Other Amounts If the applicable Final Terms specifies that any other amount is to be calculated by the Calculation Agent, the Calculation Agent will, as soon as practicable after the time or times at which any such amount is to be determined, calculate the relevant amount. The relevant amount will be calculated by the Calculation Agent in the manner specified in the applicable Final Terms. 8.7 Publication The Calculation Agent will cause each Rate and Periodic Distribution Amount determined by it, together with the relevant Periodic Distribution Date, and any other amount(s) required to be determined by it together with any relevant payment date(s) to be notified to the Paying Agents and each listing authority, stock exchange and/or quotation system (if any) by which the Trust Certificates have then been admitted to listing, trading and/or quotation as soon as practicable after such determination but (in the case of each Rate, Periodic Distribution Amount and Periodic Distribution Date) in any event not later than the first day of the relevant Return Accumulation Period. Notice thereof shall also promptly be given to the Certificateholders. The Calculation Agent will be entitled to recalculate any Periodic Distribution Amount (on the basis of the foregoing provisions) without notice in the event of an extension or shortening of the relevant Return Accumulation Period. 8.8 Notifications, etc. to be final All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition by the Calculation Agent will (in the absence of wilful default, bad faith or manifest or proven error) be binding on the Issuer, the Trustee, the Principal Paying Agent and all Certificateholders (in the absence as referred to above). No liability to the Issuer, the Trustee, 50 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 the Bank, the Guarantor, the Principal Paying Agent or the Certificateholders shall attach to the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions under this Condition. 9. PAYMENT Payment of Dissolution Amounts and Periodic Distribution Amounts will be made by transfer to the registered account (as defined below) of the Certificateholder in the Specified Currency mailed to the registered address of the Certificateholder if it does not have a registered account. Payments of Dissolution Amounts will only be made against surrender of the relevant Certificate of Registration at the specified office of the Registrar or the Principal Paying Agent. Dissolution Amounts and Periodic Distribution Amounts will be paid to the holder shown on the Register at the close of business on the relevant Record Date. For the purposes of this Condition, a Certificateholderβs registered account means the account in the Specified Currency maintained by or on behalf of such Certificateholder with a bank that processes payments in the Specified Currency, details of which appear on the Register at the close of business on the relevant Record Date, and a Certificateholderβs registered address means its address appearing on the Register at that time. All such payments will be made subject to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions described in Condition 12 (Taxation). Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that is not a Payment Business Day, for value the first following day which is a Payment Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the Payment Business Day preceding the due date for payment or, in the case of a payment of face amounts, if later, on the Payment Business Day on which the relevant Certificate of Registration is surrendered at the specified office of the Registrar or the Principal Paying Agent. Unless otherwise specified in the applicable Final Terms, Certificateholders will not be entitled to any payment for any delay after the due date in receiving the amount due if the due date is not a Payment Business Day, if the Certificateholder is late in surrendering its Certificate of Registration (if required to do so) or if a cheque mailed in accordance with this Condition arrives after the due date for payment. If the amount of any Dissolution Amount or Periodic Distribution Amount is not paid in full when due, the Registrar will annotate the Register with a record of the amount of such Dissolution Amount or Periodic Distribution Amount in fact paid. 10. AGENTS 10.1 Agents of Issuer In acting under the Agency Agreement and in connection with the Trust Certificates, the Agents act solely as agents of the Issuer and (to the extent provided therein) the Trustee and do not assume any obligations towards or relationship of agency or trust for or with any of the Certificateholders. 10.2 Specified Offices The names of the initial Agents and their initial specified offices are set out below. The Issuer reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents provided, however, that: (a) there will at all times be a Principal Paying Agent; 51 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 (b) there will at all times be a Registrar; (c) so long as any Trust Certificates are admitted to listing, trading and/or quotation on any listing authority, stock exchange and/or quotation system, there will at all times be a Paying Agent and a Transfer Agent having its specified office in such place (if any) as may be required by the rules of such listing authority, stock exchange and/or quotation system; (d) there will at all times be a Replacement Agent; (e) there will at all times be a Paying Agent in a Member State of the European Union that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced to conform to, such Directive; and (f) there will at all times be a Calculation Agent. Notice of any termination or appointment and of any changes in specified offices will be given to the Certificateholders promptly by the Issuer in accordance with Condition 17 (Notices). 11. CAPITAL DISTRIBUTIONS OF TRUST 11.1 Scheduled Dissolution Unless the Trust Certificates are redeemed earlier, each Trust Certificate will be redeemed on the Maturity Date at its Final Dissolution Amount together with any Periodic Distribution Amount payable. Upon payment in full of such amounts and the termination of the Trust, the Trust Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Issuer and the Trustee shall have no further obligations in respect thereof. 11.2 Early Dissolution for Tax Reasons The Trust may be dissolved at the option of the Trustee (with the prior written consent of the Bank) and in such case the Trust Certificates will be redeemed by the Issuer in whole, but not in part: (a) at any time (if the Floating Periodic Distribution Provisions are not specified in the applicable Final Terms as being applicable); or (b) on any Periodic Distribution Date (if the Floating Periodic Distribution Provisions are specified in the applicable Final Terms as being applicable), on giving not less than 30 nor more than 60 daysβ notice to the Certificateholders in accordance with Condition 17 (Notices) (which notice shall be irrevocable), at their Early Dissolution Amount (Tax), together with Periodic Distribution Amounts accrued (if any) to the Dissolution Date, if: (i) the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 12 (Taxation) as a result of any change in, or amendment to, the laws or regulations of a Relevant Jurisdiction or any change in the application or official interpretation of such laws or regulations (including a holding by a court of competent jurisdiction or, by any authority in or of a Relevant Jurisdiction having a power tax), which change or amendment becomes effective on or after the Issue Date; and (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it, 52 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 provided, however, that no such notice of dissolution shall be given earlier than: (A) where the Trust Certificates may be dissolved at any time, 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Trust Certificates were then due; or (B) where the Trust Certificates may be dissolved only on a Periodic Distribution Date, 60 days prior to the Periodic Distribution Date occurring immediately before the earliest date on which the Issuer would be obliged to pay such additional amounts if a payment in respect of the Trust Certificates were then due. Prior to the publication of any notice of dissolution pursuant to this paragraph, the Issuer shall deliver to the Principal Paying Agent (a) a certificate signed by a director acting on behalf of the Issuer, which shall be binding on the Certificateholders, stating that the Trustee is entitled to effect such dissolution and setting forth a statement of facts showing that the conditions precedent in (i) and (ii) above to the right of the Trustee so to dissolve have occurred, and (b) an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment. Upon the expiry of any such notice as is referred to in this Condition 11.2, the Trustee shall be bound to dissolve the Trust in accordance with this Condition 11.2 and the Issuer shall be bound to redeem the Trust Certificates. Upon such dissolution as aforesaid redemption, the Trust Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Issuer and the Trustee shall have no further obligations in respect thereof. 11.3 Dissolution at the Option of the Issuer If the Optional Dissolution (Call) option is specified in the applicable Final Terms as being applicable, the Trust shall be dissolved in whole but not in part on any Optional Dissolution Date at the relevant Optional Dissolution Amount together with Periodic Distribution Amounts accrued (if any) to the Optional Dissolution Date on the Issuer (with the prior written consent of the Bank) giving not less than 30 nor more than 60 daysβ notice to the Certificateholders in accordance with Condition 17 (Notices) (which notice shall be irrevocable and shall oblige the Trustee to dissolve the Trust Certificates on the relevant Optional Dissolution Date). Upon payment in full of such amounts and the termination of the relevant Trust, the Trust Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Issuer and the Trustee shall have no further obligations in respect thereof. 11.4 No Other Optional Early Dissolution The Issuer shall not be entitled to redeem the Trust Certificates, and the Trustee shall not be entitled to dissolve the Trust, at its option otherwise than as provided in Conditions 11.1 (Scheduled Dissolution), 11.2 (Early Dissolution for Tax Reasons) and 11.3 (Dissolution at the Option of the Issuer) above. 11.5 Cancellation All Trust Certificates which are redeemed will forthwith be cancelled and destroyed and accordingly may not be held, reissued or resold. 12. TAXATION All payments in respect of the Trust Certificates shall be made without withholding or deduction for, or on account of, any Taxes, unless the withholding or deduction of the Taxes is required by law. In such event, the Issuer will pay to the Certificateholders additional amounts so that the full amount which otherwise would have been due and payable under 53 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 the Trust Certificates is received by parties entitled thereto, except that no such additional amount shall be payable to any Certificateholder: 13. (a) who is liable for such Taxes in respect of such Trust Certificate by reason of having some connection with any Relevant Jurisdiction other than the mere holding of such Trust Certificate; or (b) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any law implementing or complying with, or introduced in order to conform to, such Directive; or (c) where the Certificate of Registration is required to be presented for payment and is presented for payment by or on behalf of a Certificateholder who would be able to avoid such withholding or deduction by presenting the relevant Certificate of Registration to another Paying Agent in a Member State of the European Union; or (d) where (in the case of the payment of face amounts or Periodic Distribution Amounts on dissolution) the relevant Certificate of Registration is surrendered for payment more than 30 days after the Relevant Date except to the extent that the relevant Certificateholder would have been entitled to such additional amount if it had surrendered the relevant Certificate of Registration on the last day of such period of 30 days. PRESCRIPTION The rights to receive distributions in respect of the Trust Certificates will be forfeited unless claimed within periods of 10 years (in the case of Dissolution Amounts) and five years (in the case of Periodic Distribution Amounts) from the Relevant Date in respect thereof. 14. DISSOLUTION EVENTS If any of the following events occurs and is continuing (each, a Dissolution Event): (a) default is made in the payment of the Dissolution Amount on the date fixed for payment thereof, or default is made in the payment of any Periodic Distribution Amount on the due date for payment thereof and, in the case of any Periodic Distribution Amount only, such default continues for a period of seven days; or (b) the Issuer fails duly to perform or comply with any of the obligations expressed to be assumed by it in the Transaction Documents; or (c) a Bank Event (as defined in the Purchase Undertaking Deed) or a Guarantor Event (as defined in the Master Trust Deed) occurs; or (d) the Issuer repudiates any Transaction Document or does or causes to be done any act or thing evidencing an intention to repudiate any Transaction Document; or (e) at any time it is or will become unlawful for the Issuer (by way of insolvency or otherwise) to perform or comply with any of its obligations under the Transaction Documents or any of the obligations of the Issuer under the Transaction Documents are not or cease to be legal, valid, binding and enforceable, then the Trustee at its discretion may, and if so requested in writing by Certificateholders representing not less than one-fifth in face amount of the Trust Certificates for the time being outstanding (subject to be being indemnified and/or secured to its satisfaction) shall, by written notice addressed to the Issuer, the Bank and the Guarantor, declare the Trust Certificates to be immediately due and payable, whereupon they shall become immediately due and payable at their Dissolution Amount together with accrued Periodic Distribution 54 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 Amounts (if any). Notice of any such declaration shall promptly be given to the Certificateholders in accordance with Condition 17 (Notices). Upon payment in full of such amounts, the Trust Certificates shall cease to represent interests in the Trust Assets and no further amounts shall be payable in respect thereof and the Issuer and the Trustee shall have no further obligations in respect thereof. For the purpose of (a) above, amounts shall be considered due in respect of the Trust Certificates (including for the avoidance of doubt any amounts calculated as being payable under Condition 7 (Fixed Periodic Distribution Provisions), Condition 8 (Floating Periodic Distribution Provisions) and Condition 11 (Capital Distributions of Trust)) notwithstanding that the Issuer or the Trustee has at the relevant time insufficient funds or Trust Assets to pay such amounts. 15. ENFORCEMENT AND EXERCISE OF RIGHTS 15.1 Enforcement Upon the occurrence of a Dissolution Event, to the extent that the amounts payable in respect of the Trust Certificates have not been paid in full pursuant to Condition 14 (Dissolution Events), the Trustee shall, upon being requested in writing by Certificateholders representing not less than one-fifth in face amount of the Trust Certificates for the time being outstanding (subject to being indemnified and/or secured to its satisfaction), take one or more of the following steps: (a) enforce the provisions of the Purchase Undertaking Deed and the Sale Agreement against the Bank and/or the Guarantee against the Guarantor; and/or (b) take such other steps as the Trustee may consider necessary in its absolute discretion to protect the interests of the Certificateholders. Notwithstanding the foregoing, the Trustee may at any time, at its discretion and without notice, take such proceedings and/or other steps as it may think fit against or in relation to each of the Issuer, the Bank and/or the Guarantor to enforce their respective obligations under the Transaction Documents, the Conditions and the Trust Certificates. 15.2 Limitation on liability of the Trustee Following the distribution of the proceeds of the Trust Assets in respect of the Trust Certificates to the Certificateholders in accordance with these Conditions and the Trust Deed, the Trustee shall not be liable for any further sums, and accordingly no Certificateholder may take any action against the Trustee or any other person (other than the Bank and/or the Guarantor) to recover any such sum in respect of the Trust Certificates or Trust Assets. 15.3 Trustee not obliged to take action The Trustee shall not be bound in any circumstances to take any action to enforce or to realise the Trust Assets or take any action against the Bank and/or the Guarantor under any Transaction Document to which either the Bank or the Guarantor is a party unless directed or requested to do so (a) by an Extraordinary Resolution or (b) in writing by the holders of at least one-fifth in aggregate face amount of the Certificates then outstanding and, in each case, indemnified and/or secured to its satisfaction. 15.4 Direct enforcement by Certificateholders No Certificateholder shall be entitled to proceed directly against the Issuer, the Bank or the Guarantor unless (i) the Trustee, having become bound so to proceed, fails to do so within 55 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 30 days of becoming so bound and such failure is continuing and (ii) the relevant Certificateholder (or such Certificateholder together with the other Certificateholders who propose to proceed directly against the Bank and/or the Guarantor) holds at least one-fifth of the aggregate face amount of the Trust Certificates then outstanding. Under no circumstances shall the Trustee or any Certificateholder have any right to cause the sale or other disposition of any of the Trust Assets except pursuant to the Purchase Undertaking Deed, and the sole right of the Trustee and the Certificateholders against the Bank and/or the Guarantor shall be (in the case of the Bank) to enforce its obligation to pay the Exercise Price under the Purchase Undertaking Deed and any other amounts due by it under the Transaction Documents to which it is a party and (in the case of the Guarantor) to enforce its obligation under the Guarantee. 15.5 Limited recourse Conditions 15.2 (Limitation on liability of the Trustee), 15.3 (Trustee not obliged to take action) and 15.4 (Direct enforcement by Certificateholders) are subject to this Condition 15.5. After distributing the net proceeds of the Trust Assets in accordance with Condition 5.2 (Application of Proceeds from the Trust Assets), the obligations of the Trustee in respect of the Trust Certificates shall be satisfied and no holder of the Trust Certificates may take any further steps against the Trustee to recover any further sums in respect of the Trust Certificates and the right to receive any such sums unpaid shall be extinguished. In particular, no holder of the Trust Certificates shall be entitled in respect thereof to petition or to take any other steps for the winding-up of the Trustee nor shall any of them have any claim in respect of the trust assets of any other trust established by the Trustee. 16. REPLACEMENT OF CERTIFICATES OF REGISTRATION Should any Certificate of Registration be lost, stolen, mutilated, defaced or destroyed it may be replaced at the specified office of the Replacement Agent upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Certificates of Registration must be surrendered before replacements will be issued. 17. NOTICES All notices regarding Trust Certificates will be deemed to be validly given if published in one or more leading English language daily newspapers of general circulation in London and the Gulf region. It is expected that any such publication in a newspaper will be made in the Financial Times in London and Gulf News in the Gulf region. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules of any stock exchange or other relevant authority on which the Trust Certificates are for the time being listed or by which they have been admitted to trading. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in more than one newspaper, on the date of the first publication in all required newspapers. If publication as provided above is not practicable, a notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee shall approve. Until such time as any Individual Trust Certificates are issued, there may, so long as any Global Trust Certificate representing the Trust Certificates is held in its entirety on behalf of Euroclear and/or Clearstream, Luxembourg, be substituted for such publication in such newspaper(s) the delivery of the relevant notice to Euroclear and/or Clearstream, Luxembourg for communication by them to the holders of the Trust Certificates and, in addition, for so long as any Trust Certificates are listed on a stock exchange or are admitted to trading by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules. Any such notice shall be deemed to have been 56 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 given to the holders of the Trust Certificates on the same day on which the said notice was given to Euroclear and/or Clearstream, Luxembourg. Notices to be given by any Certificateholder shall be in writing and given by lodging the same, together with the relative Trust Certificate or Trust Certificates, with the Principal Paying Agent. Whilst any of the Trust Certificates are represented by a Global Trust Certificate, such notice may be given by any holder of a Trust Certificate to the Principal Paying Agent through Euroclear and/or Clearstream, Luxembourg, as the case may be, in such manner as the Principal Paying Agent and Euroclear and/or Clearstream, Luxembourg, as the case may be, may approve for this purpose. 18. MEETINGS OF CERTIFICATEHOLDERS, MODIFICATION, WAIVER, AUTHORISATION AND DETERMINATION 18.1 The Master Trust Deed contains provisions for convening meetings of Certificateholders to consider any matter affecting their interests, including the modification or abrogation by Extraordinary Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more Certificateholders, proxies or representatives holding or representing in the aggregate not less than a majority in face amount of the Trust Certificates for the time being outstanding, or at any adjourned such meeting one or more Certificateholders, proxies or representatives present whatever the face amount of the Trust Certificates held or represented by him or them except that any meeting the business of which includes the modification of certain provisions of the Trust Certificates (including modifying the Maturity Date, reducing or cancelling any amount payable in respect of the Trust Certificates or altering the currency of payment of the Trust Certificates or amending certain covenants given by the Issuer in the Master Trust Deed), the quorum shall be one or more persons present holding or representing not less than 75 per cent. in aggregate face amount of the Trust Certificates for the time being outstanding, or at any adjourned such meeting one or more persons present holding or representing not less than 25 per cent. in aggregate face amount of the Trust Certificates for the time being outstanding. To be passed, an Extraordinary Resolution requires a majority in favour consisting of not less than two-thirds of the persons voting on a show of hands or, if a poll is duly demanded, a majority of not less than two-thirds of the votes cast on such poll and, if duly passed, will be binding on all holders of the Trust Certificates, whether or not they are present at the meeting and whether or not voting. 18.2 The Delegate may agree, without the consent or sanction of the Certificateholders, to any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of these Conditions or any of the provisions of the Trust Deed or determine, without any such consent or sanction as aforesaid, that any Dissolution Event shall not be treated as such, which in any such case is not, in the opinion of the Delegate, materially prejudicial to the interests of the Certificateholders or may agree, without any such consent as aforesaid, to any modification which, in its opinion, is of a formal, minor or technical nature or to correct a manifest or proven error. 18.3 In connection with the exercise by it of any of the powers, trusts, authorities and discretions vested in it (including, without limitation, any modification, waiver, authorisation or determination), the Trustee shall have regard to the general interests of the Certificateholders as a class (but shall not have regard to any interests arising from circumstances particular to individual Certificateholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Certificateholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof) and the Trustee shall not be entitled to require, nor shall any Certificateholder be entitled to claim from the 57 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 Trustee or any other person, any indemnification or payment in respect of any tax consequence of any such exercise upon individual Certificateholders except to the extent provided in Condition 12 (Taxation). 18.4 Any modification, abrogation, waiver, authorisation or determination shall be binding on all the Certificateholders and shall be notified to the Certificateholders as soon as practicable thereafter in accordance with Condition 17 (Notices). 19. INDEMNIFICATION AND LIABILITY OF THE TRUSTEE 19.1 The Trust Deed contains provisions for the indemnification of the Trustee in certain circumstances and for its relief from responsibility, including provisions relieving it from taking action unless indemnified and/or secured to its satisfaction. 19.2 The Trustee makes no representation and assumes no responsibility for the validity, sufficiency or enforceability of the obligations of the Bank and/or the Guarantor under any Transaction Document to which the Bank and/or the Guarantor is a party (or are parties) and shall not under any circumstances have any liability or be obliged to account to the Certificateholders in respect of any payment which should have been made by the Bank and/or the Guarantor, but is not so made, and shall not in any circumstances have any liability arising from the Trust Assets other than as expressly provided in the Conditions or in the Trust Deed. 19.3 The Trustee is exempted from (i) any liability in respect of any loss or theft of the Trust Assets or any cash, (ii) any obligation to insure the Trust Assets or any cash and (iii) any claim arising from the fact that the Trust Assets or any cash are held by or on behalf of the Trustee or on deposit or in an account with any depository or clearing system or are registered in the name of the Trustee or its nominee, unless such loss or theft arises as a result of default or misconduct of the Trustee. 19.4 Subject to Condition 14 (Dissolution Events) and Condition 15 (Enforcement and Exercise of Rights), the Trustee waives any right to be indemnified by the Certificateholders in circumstances where the Trust Assets are insufficient therefor. 20. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of the Conditions, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 21. GOVERNING LAW AND SUBMISSION TO JURISDICTION The Trust Deed is governed by, and will be construed in accordance with, English law. The Issuer has in the Trust Deed irrevocably and unconditionally agreed that the courts of England are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with the Trust Deed (Proceedings) and has accordingly submitted to the exclusive jurisdiction of the English courts. This submission is made for the benefit of the Trustee and the Certificateholders and shall not limit the right of any of them to take Proceedings in any other court of competent jurisdiction, nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). The Issuer has also agreed to waive any objection to the Proceedings on the grounds that they are an inconvenient or inappropriate forum. Without limiting the rights of the Certificateholders under this Condition, any dispute arising from or connected with the Trust Certificates (including any dispute regarding the existence, 58 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 validity or termination of the Trust Certificates (each a Dispute)) may be referred by any Certificateholder to arbitration in Paris in accordance with the rules of the London Court of International Arbitration (the Rules), the Rules being incorporated into this Condition by reference. The number of arbitrators shall be three and the arbitration shall be conducted in English. Any arbitration award so made shall be binding. The Issuer has in the Trust Deed appointed an agent for service of process and has undertaken that, in the event of such agent ceasing so to act or ceasing to be registered in England, it will appoint another person approved by the Trustee as its agent for service of process in respect of any Proceedings or Disputes. Nothing herein shall affect the right to serve process in any matter permitted by law. 59 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 04 : 3700 Section 04 USE OF PROCEEDS The net proceeds of each Series of Trust Certificates issued under the Programme will be applied by the Issuer for the purchase of a co-ownership interest in the Co-ownership Assets of the relevant Series from the Bank. 60 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 DESCRIPTION OF THE ISSUER General EIB Sukuk Company Ltd., a Cayman Islands exempted company with limited liability, was incorporated on 16 April 2007 under the Companies Law (as revised) of the Cayman Islands with company registration number 185691. The Issuer has been established as a special purpose vehicle for the sole purpose of issuing Trust Certificates under the Programme and entering into the transactions contemplated by the Transaction Documents. The registered office of the Issuer is at c/o Deutsche Bank (Cayman) Limited, Elizabethan Square, P.O. Box 1984, Grand Cayman, KY11104, Cayman Islands, and its telephone number is +1 345 949 8244. The authorised share capital of the Issuer is US$50,000 shares of a nominal or par value of US$1.00 each, 250 of which have been issued. All of the issued shares (the Shares) are fully-paid and are held by Deutsche Bank (Cayman) Limited, Elizabethan Square, P.O. Box 1984, Grand Cayman, KY1-1104, Cayman Islands as share trustee (the Share Trustee) under the terms of a declaration of trust (the Declaration of Trust) dated 6 June 2007 under which the Share Trustee holds the Shares in trust until the Termination Date (as defined in the Declaration of Trust). Prior to the Termination Date, the trust is an accumulation trust, but the Share Trustee has the power to benefit the Certificateholders or Qualified Charities (as defined in the Declaration of Trust). It is not anticipated that any distribution will be made whilst any Trust Certificate is outstanding. Following the Termination Date, the Share Trustee will wind up the trust and make a final distribution to charity. The Share Trustee has no beneficial interest in, and derives no benefit (other than its fee for acting as Share Trustee) from, its holding of the Shares. Business of the Issuer The Issuer has no prior operating history or prior business and will not have any substantial liabilities other than in connection with the Trust Certificates to be issued under the Programme. The Trust Certificates are the obligations of the Issuer alone and not the Share Trustee. The objects for which the Issuer is established are set out in the Amended and Restated Memorandum of Association of the Issuer as adopted on 6 June 2007. Financial Statements Since the date of incorporation, no financial statements of the Issuer have been prepared. The Issuer is not required by Cayman Islands law, and does not intend, to publish audited financial statements. Directors of the Issuer The Directors of the Issuer are as follows: Name: 111 Principal Occupation: 1111111111 Alan Corkish David Dyer Gwen Pineau Simon Whetherell Banker Banker Banker Banker The business address of the Directors is c/o Deutsche Bank (Cayman) Limited, Elizabethan Square, P.O. Box 1984, Grand Cayman, KY1-1004, Cayman Islands. There are no potential conflicts of interest between the private interests or other duties of the Directors listed above and their duties to the Issuer. 61 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 The Administrator Deutsche Bank (Cayman) Limited will also act as the corporate administrator of the Issuer (in such capacity, the Corporate Administrator). The office of the Corporate Administrator will serve as the general business office of the Issuer. Through the office, and pursuant to the terms of a corporate services agreement to be entered into between the Issuer and the Corporate Administrator (the Corporate Services Agreement), the Corporate Administrator will perform in the Cayman Islands various administrative functions on behalf of the Issuer, including communications with shareholders and the general public, and the provision of certain clerical, administrative and other services until termination of the Corporate Services Agreement. In consideration of the foregoing, the Corporate Administrator will receive various fees payable by the Issuer at rates agreed upon from time to time, plus expenses. The terms of the Corporate Services Agreement provide that the Issuer may terminate the appointment of the Corporate Administrator by giving 14 daysβ notice to the Corporate Administrator at any time within 12 months of the happening of any certain stated events, including any breach by the Corporate Administrator of its obligations under the Corporate Services Agreement. In addition, the Corporate Services Agreement provides that the Corporate Administrator shall be entitled to retire from its appointment by giving at least three monthsβ notice in writing. The Corporate Administrator will be subject to the overview of the Issuerβs Board of Directors. The Corporate Services Agreement may be terminated (other than as stated above) by either the Issuer or the Corporate Administrator giving the other party at least three monthsβ written notice. The Corporate Administratorβs principal office is Elizabethan Square, P.O. Box 1984, Grand Cayman, KY1-1104, Cayman Islands. The Directors of the Issuer are all employees or officers of the Corporate Administrator. The Issuer has no employees and is not expected to have any employees in the future. 62 SELECTED FINANCIAL INFORMATION OF EMIRATES ISLAMIC BANK PJSC The following information has been derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements of the Bank and the other information included elsewhere in this Base Prospectus. The following table sets forth selected information of the Bank as at 31 December 2006, 31 December 2005 and 31 December 2004 as extracted from the Bank's audited annual consolidated financial statements for the respective period. 2006 111111 (USD m) (Restated)4 (Restated)5 2005 2004 111111 111111 (USD m) (USD m) Income Statement Highlights Total Operating Income .................................................... Total Operating Expenses.................................................. Net Profit .......................................................................... 150.8 118.8 32.0 54.3 40.5 13.8 20.1 14.8 5.3 Financial Statement Highlights Total Assets ...................................................................... Total Financing1 .................................................................. Investments2 ...................................................................... Customer Deposits............................................................ Total Deposits3 .................................................................. Shareholders Equity .......................................................... 2,851.6 1,797.0 513.8 2,462.9 2,478.1 263.0 1,306.5 586.5 214.9 980.0 984.9 234.1 638.6 137.1 46.8 336.1 394.4 222.2 Profitability Return on average assets (%) .......................................... Return on shareholders equity (%).................................... Earnings Per Share ............................................................ Profit per Employee (USD) ................................................ 1.54% 12.9% 0.049 39,924 1.4% 6.1% 0.021 27,093 0.9 2.4 0.01 18,761 Capital Shareholdersβ Equity (%) Total Assets .............................. Capital Adequacy Ratio ...................................................... 9.2% 11.4 17.9% 23.7 34.8% 68.6 Liquidity & Business Indicators Due from Banks/Due to Banks .......................................... Financing/Total Deposits.................................................... Customer Deposits/Total Deposits .................................... Number of Employees ...................................................... 2,180% 73% 99% 801 8,084% 60% 100% 510 675% 35% 85% 284 1. 2. 3. 4. 5. Includes Loans & Receivables. Includes investment in securities and properties. Includes Customer accounts and deposits, due to banks and financial institutions borrowing. In 2006, the Bank changed its accounting policy relating to amortisation of deferred income on financing receivables from the straight line method to the effective rate of return method in accordance with IAS39. The consolidated financial statements for the financial year ended 31 December 2005 were restated to conform with the change in accounting policy. The 31 December 2004 consolidated financial information was restated in the 31 December 2005 annual accounts due to an understatement of retained earnings arising from a mathematical error in the computation of deferred income. However, no restatement has been made to conform with the change of accounting policy as stated in Note 4 above. Furthermore, the Bank was converted to be fully Sharia compliant on 9 October 2004. Accordingly, the financial information for 2004 is not directly comparable with the financial information for 2005 and 2006 as presented above. 63 DESCRIPTION OF EMIRATES ISLAMIC BANK PJSC HISTORY AND OVERVIEW OF THE BANK The Bankβs mission statement is to be the leading provider of high standard Sharia compliant innovative financial products, quality service and superior value for its customers, shareholders, employees and the community. The Bank, formerly known as Middle East Bank PJSC, was incorporated by a decree of His Highness the Ruler of Dubai as a conventional commercial bank with limited liability in the Emirate of Dubai in 1976. The Bank was registered as a Public Joint Stock Company in July 1995. At an extraordinary general meeting of shareholders held on 10 March 2004, a resolution was passed to convert the Bankβs activities to be fully Sharia compliant. The conversion process was completed on 9 October 2004 when the Bank obtained UAE Central Bank and other relevant UAE authoritiesβ approvals. Through its head office in Dubai and 18 branches in the UAE, the Bank provides full banking services and a variety of products through Sharia compliant financing and investments and currently ranks as the third largest Islamic bank in the UAE by assets. The Bankβs authorised and paid-up capital as at 31 December 2006 consisted of 650,000,000 shares of AED 1 each. The Bank is 99.85% owned by Emirates Bank International PJSC. Based on its December 2006 financial statements, the Bankβs income from retail banking amounted to 42% of its total income, while income from corporate banking represented 50% of total income. The remaining 8% was generated from treasury activities. In the same year, the Bankβs total assets were AED 10.4 billion, and its capital adequacy ratio was 11.4%. Since its conversion to Islamic banking, the Bank has realised substantially increased growth rates in assets, deposits and profits as reflected in its financial statements for 2005 and 2006. Total assets grew by 103%* in 2005 and 118% in 2006. Similarly, customerβs accounts, total shareholders equity and net income grew by 191%*, 4.4%* and 120%*, respectively, in 2005 and 151%, 12.3% and 131%, respectively, in 2006. In 2007 and beyond, the Bank aims to continue to grow its market share by expanding its branches and ATM network, widening its client base and continuing to introduce innovative Sharia compliant products of a high standard to satisfy the demands of its customers. In order to achieve its objectives, the Bank will focus on its mission of excellence in service, strict compliance with Sharia and serving the society (the three βSβ mission) (see Strategy below). Whilst the Bank does have a strong degree of independence in the operation of its business, it enjoys a high level of support from the Emirates Bank group in relation to many support functions including human resources, treasury, information technology, certain administrative services and back office operations such as clearing and remittances (see Competitive Strengths β Support from Emirates Bank Group). The Bankβs registered office address is P.O. Box 6564, Dubai, United Arab Emirates. The Bankβs head office is located on the 2nd & 3rd Floor, Al Gurg Tower 1, Plot 372 - Riggat Al Buteen. The Bankβs general contact number is +971 4 228 7474. * As set out in Note 5 on page 64, the Bank changed its accounting policy relating to the amortisation of deferred income on financing receivables during the financial year ended 31 December 2006 and restated the consolidated financial statements for the year ended 31 December 2005 to conform with the new accounting policy. The financial statements for the year ended 31 December 2004 were not restated. Furthermore, the Bank was converted to be fully Sharia compliant on 9 Ocober 2004. Accordingly these ratios are not directly comparable 64 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 DESCRIPTION OF THE BANKβS BUSINESS In October 2004, the Bank commenced its operations as an Islamic bank offering a range of Sharia compliant products and services with the objective of conforming to the strictest standards of Islamic finance to meet the expectations of its customers. All of the Bankβs activities are under the supervision of a Fatwa and Sharia Supervisory Board (Sharia Board) comprising several prominent Sharia scholars (see Fatwa and Sharia Supervisory Board). On the operational side, the Bank is segmented into three divisions as follows: β’ Retail Banking (accounting for 42% of total income as at 31 December 2006) β’ Corporate Banking (accounting for 50% of total income as at 31 December 2006) which is further segmented into the following sub divisions: β’ o Corporate Banking o Investments and Syndication o Real Estate Treasury (accounting for 8% of total income as at 31 December 2006) Retail Banking: The Bankβs Retail Banking division offers a complete range of Sharia compliant retail and personal banking products and services through its network of 18 branches located throughout U.A.E. (8 in Dubai, 3 in Abu Dhabi, 3 in Sharjah and 4 in the Northern Emirates). The Bank aims to open 6 further branches in 2007, 5 in 2008 and 6 in 2009. The Bank currently operates a total of 43 ATMs and 13 deposit machines and aims to have a further 15 ATMs by the end of 2007. The Bankβs customers are able to use Emirates Bank Internationalβs ATMs for no additional fees which gives the Bankβs customers access to a significant network of ATMs. The Bankβs customers can also use any ATM in the UAE through the βUAE Switch networkβ for a small fee for every withdrawal. In addition to these branches and ATMs, the Bank has a wide range of distribution channels as detailed below (see Internet phone and mobile banking). The Bank offers a variety of investment deposit products and services that are designed to meet the varied needs of its retail customers (as detailed below). The Bank aims to support these products and services with dedicated and quality customer service. This is part of the Bankβs strategy to increase its market share and achieve its mission statement through the 3 βSβ mission being Sharia, Service and Society. The Bank has been at the forefront of innovation in its retail operations being the first bank in the UAE to introduce the Sharia compliant credit card, the first Islamic bank in the UAE to introduce and install fraud device inhibitors on its ATMs. The Bank has also recently launched the βVisa Infiniteβ credit card product, being the first Bank in the UAE to do so. 93% of the Bankβs financing and investments funding is derived from customerβs accounts (being 22% from current accounts, 10% from savings accounts and 68% from fixed deposit accounts). Substantially all of the Bankβs customer deposits (current, savings and fixed) are domestic. The Bankβs principal retail products and services include the following: β’ Ethmar: an exclusive priority banking service designed to meet the needs of high net worth individuals. Ethmar customers enjoy personalised services and a wide range of benefits including dedicated relationship managers, preferential pricing and pre-approved platinum charge/credit cards. 65 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 β’ SME: the Bank provides banking services to small and medium-sized enterprises providing facilities up to a limited amount (beyond which Corporate Banking provides the facilities). The Bank has been actively developing its resources and infrastructure to target this market and the Bank aims to grow this area significantly during and over the course of 2007 and beyond. β’ β’ β’ Current accounts β’ β’ Charge cards: Sharia compliant visa charge cards. β’ Investment saving accounts Investment time deposit accounts: these are accounts structured under the principles of mudaraba financing and offered in a variety of tenors ranging from three months to two years. This portfolio has grown significantly over the last two years due to the high profits distributed by the Bank on this product. Credit cards: Sharia compliant credit cards in various categories including platinum, gold, classic and the recently launched βVisa Infiniteβ credit card. Manzili home finance: providing three main types of Sharia compliant home financing: o Manzili Smart Home - based on the Islamic finance structure of Murabaha o Manzili Home Lease - based on the Islamic finance structure of Ijara o Manzili Home Invest - based on the Islamic finance structure of Musharaka-Ijara Recent trends have shown that home finance is a key growth area for the industry and the Bank considers that it is well positioned to grow its share of this market with its range of products and focus on service. β’ Intaleq car finance: car financing (for new and used vehicles) based on murabaha financing. This was one of the first products introduced by the Bank and is one of its most popular products. β’ β’ Goods murabaha: financing for a variety of personal goods based on murabaha financing. β’ Ladies banking: the Bank currently offers exclusive ladies sections at certain branches for its female customers. By the end of 2007, the Bank intends to open a ladies only branch in Jumeira, Dubai. β’ Internet, phone and mobile banking: in addition to the Bankβs branch and ATM network, the Bank provides extensive electronic banking options to its customers including internet banking, phone banking and mobile (sms) banking. The Bankβs internet, phone and mobile (sms) banking technology platform is provided by the Emirates Bank group and therefore the Bank has the benefit of a well-developed system that is tried, tested and resourced at the Emirates Bank group level. Customers who visit the Bankβs branches are first served by tellers and are then shown by an officer of the Bank how to use internet banking in the branch to save the customerβs time and improve the efficiency of the branch. The internet banking platform allows customers to: Rent finance: financing by which the Bank rents the relevant property and sub-lets it to the customer for a more convenient rental installment schedule. β’ β’ β’ β’ access their accounts securely and reliably open new accounts view account statements and balances (including credit and charge cards) transfer funds between certain accounts 66 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 β’ β’ β’ β’ pay utility (Etisalat / DEWA) and credit card bills order cheque book requests get product information request a demand draft, managerβs cheque and telegraphic transfers The Bankβs phone banking service allows customers to access various services over the phone including account enquiries, funds transfer and bill payment through self service interactive voice responders or personal agents. The Bank also provides sms banking, known as βEIBmobileβ, which gives customers pre-defined alerts sent on their mobile phones and allows customers to make enquiries on their accounts/cards, for example, in relation to withdrawals, ATM card transactions, balance enquiries, salary transfers, accounts summaries foreign exchange rates and utility bill payment. Corporate Banking: The Corporate Banking division provides a comprehensive range of products and services to small, medium and large corporate customers. The Bank has six Corporate Banking units across the UAE (3 in Dubai, one in Abu Dhabi, one in Sharjah and one in Al Ain). The Bank aims to substantially increase its business with small and medium sized enterprises by focussing on their requirements and tailoring products and services accordingly through the establishment of the business banking unit (see below). The Corporate Banking division is segmented into Real Estate, Corporate Banking and Investment and Syndication. Each of these is described below. Real Estate The Bank has exposure to the real estate sector both through its financing activities and direct investments in property. On the financing side, the Bank imposes strong controls and detailed evaluations on its financing against real estate and real estate based projects. In Corporate Banking, the maximum loan-tovalue ratio allowable for such loans is 75% and credit approval is subject to sufficient cash flow generated from the real estate and security which ensures a stricter risk management regime than security alone for the Bankβs exposure to real estate. The Bank is often involved as the manager of the relevant property which gives it better control over the management of the security. On the direct investment side, the Bank owns a property portfolio with a book value of AED 142 million in land and AED 128 million in buildings. The Bank has also established a real estate fund, the Emirates Real Estate Fund, with 13 properties the market value of which now exceeds AED 1 billion. The Bankβs overall exposure to real estate, both in direct investment and through its financing activities, is not more than 20% of its total assets. Corporate Banking The Corporate Banking division provides services to its customers in the following areas: β’ Project finance β providing financing solutions for various projects, for example, a waste recycling project in Jebel Ali and a steel factory project in the Dubai Investment Park. β’ Business banking unit (mid market) β addressing the general financing requirements of corporate clients. This unit is newly established and dedicated to focussing its resources on 67 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 understanding the mid market segment and providing high quality products and services to this market. β’ β’ Contract/trade finance β providing letters of credit and letters of guarantee. Cash management β the Bank offers corporate customers offers electronic banking so that day-to-day transactions can be conducted more efficiently from both the Bank and customerβs perspective. The above products and services are provided through a range of Sharia compliant structures including murabaha, ijara, istisnaβa, musharaka and mudaraba. The Bankβs Corporate Banking customers consist of private sector customers (60%), public sector customers (27%) and government bodies/agencies (13%). The industries covered by Corporate Banking customers comprise, inter alia, real estate (46%), financial institutions (24%), trading (9%) and manufacturing (6%). Investment and Syndication The Investment and Syndication department at the Bank is responsible for the Bankβs investment strategy and undertakes proprietary investment activities for the Bankβs own balance sheet. It also provides fee based investment arranging/structuring services to the Bankβs clients. In addition, it undertakes treasury and money market operations with other financial institutions and plays an important role in managing the Bankβs liquidity requirements. At the end of 2006, the Bankβs investment portfolio reached AED 1.6 billion. Subject to credit and Sharia approval, the Bankβs Investment and Syndication group has the discretion to enter into a wide range of investment opportunities and is often approached with a variety of external investment proposals. The activities undertaken by the Investment and Syndication department include the following: β’ Structured finance transactions β the Bank arranges and participates in financing large transactions through bilateral deals, club deals and syndicated deals. For example, the Bank has arranged or participated in sukuk issuances for Dubai Ports, Customs and Free Zone Corporation Sukuk, Nakheel (these two represent the Bankβs largest investments), Amlak and Bukhatir Investment. By using the experience gained on these transactions the Bank aims to increase its business of arranging structured finance transactions. β’ Collective investment schemes β the Bank invests its own funds, as well as clientsβ funds, in third party and the Bankβs own collective investment schemes such as mutual funds and investment portfolios. The Bankβs own collective investment schemes are managed by EIS Asset Management, a subsidiary of Emirates Bank International. β’ Direct investments (equity holdings) - the Bank has strategic stakes in Albaraka Banking Group, Mawarid Finance, Madain Real Estate Development and Madares. β’ Other investments β the Bank invests in other assets such as foreign property and project finance. β’ Short term treasury investment β the Bank places funds through investment Wakala investment products (an agency agreement whereby the financial institution is provided an investment limit that it can utilise at any time in Sharia compliant investments with banks and other financial institutions). Treasury: The Treasury division of the Bank is responsible for managing the Bankβs short-term liquidity by placing surplus liquidity with Islamic institutions on a short term basis. Liquidity which is not placed with an Islamic institution on a short term basis is invested with Emirates Bank International in Wakala investment products pursuant to a master framework agreement. 68 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 STRATEGY Mission and Objective: The Bankβs mission statement is to be the leading provider of high standard, Sharia compliant, innovative financial products, quality service and superior value for its customers, shareholders, employees and the community. The Bankβs vision is that βEmirates Islamic Bank is the first banking choice for investors, customers and staffβ. The Bank aims to achieve its vision and mission statement by βproviding innovative and high standard financial products and services governed by Islamic Sharia provisions to enrich the society (the 3 βSβ mission). In relation to Service, the Bank places high emphasis on the quality of service it provides (see Competitive Strengths - Quality of service and response time). In relation to Sharia, the Bank adheres very strictly to Sharia principles in accordance with its customer demands. In relation to Society, the Bank is involved in a number of charitable endeavours including, for example, the Bankβs zakaat accounts through which it supports over four hundred families in the UAE by paying for their monthly living allowance, rent, medical treatment and school fees. The Bankβs objective is to be amongst the top banks in the UAE by providing cutting-edge Islamic financing solutions. The current strategic intention is to operate locally (Middle East and North Africa), but to be recognised internationally. The Bank believes that the continuing growth of the UAE economy and the expansion of its private sector will sustain strong demand for Sharia compliant financing from both the private and public sectors. As such, a key objective of the Bank is to meaningfully contribute to this continued growth through its innovative range of products and services. The Bankβs broad strategic objectives are outlined below: Growth Strategy: The Bankβs Retail Banking objective is to achieve optimal profit growth by growing its market share amongst the key target segments while addressing the banking needs of all segments of the market, with a key focus on high and middle income segments, priority banking and small- and medium-sized enterprises. To achieve this, it aims to be a full service bank for its target segments by continuing to offer a wide range of innovative products and services supported by high quality sales and service infrastructure through a well qualified, trained and motivated workforce. The Bank also aims to ensure effective cost control so as to be competitive with other banks in the market. This is expected to be achieved by using cutting edge technology, effective risk management and utilising economies of scale by centralising operations and outsourcing support services. In Corporate Banking the Bank aims to optimise its investment opportunities, provide customeroriented and innovative Sharia products and to strike an optimal balance between profit-based and fee-based income. The Bankβs objective is to diversify its portfolio amongst various business sectors while continuing to emphasise the delivery of quality service backed by effective relationship management and competitive products. In particular, the Bank aims to substantially increase its business with small- and medium-sized enterprises and establish a competitive advantage in this area through the business banking unit which is newly established and dedicated to the mid-market segment by providing high quality products and services to this market. Diversify Deposit Base: The Bank intends to improve its funding base by increasing its share of the domestic deposits market through its extensive retail branch network and customer-focused product offering. In line with this approach the bank has increased its branches to 18 by the end of 2006 and plans to grow its distribution network by investing in new branches, ATMs and alternative channels (see Retail Banking above). A wider branch and ATM network is expected to provide the platform for the launch of new products and services that will allow the Bank to further grow its market share. Capital: The Bank has obtained the necessary approvals of its shareholders and the regulatory authorities to increase the Bankβs Tier II capital by AED 300 million in 2007 in order to comply with the capital adequacy requirements in line with the growth of its total assets. The Bank also plans to increase its paid-up capital by AED 100 million through a transfer from its retained earnings in 69 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 2007 to comply with the capital adequacy requirements in line with the growth of the Bankβs total assets. Currently the Bankβs authorised and paid-up share capital is AED 650 million. New Markets: The Bank aims to expand its operations and investments in various jurisdictions in the Middle East and the North Africa region through strategic acquisitions and joint ventures to diversify its revenue and risk profile. On 8 May 2007 it was publicly announced that the Emirates Bank group has entered into a memorandum of understanding with JSC Bank TuranAlem, one of Kazakhstanβs leading banks, with the intention of promoting Islamic banking and financial products in Kazakhstan and the Commonwealth of Independent States and a possible joint venture specialising in Islamic banking in the region. A steering committee has been formed to commence a thorough due diligence on the potential joint venture with JSC Bank TuranAlem. The Bank is also currently considering strategic investments through joint ventures and alliances in Turkey and Algeria. General: The Bank will be moving its head office to the new location of Festival City in Dubai by the middle of 2007 which will provide the additional space the Bank requires to accommodate the growth it has experienced and expects to experience in the coming years. The Bank, in conjunction with Emirates Bank International, is in the process of upgrading to a new computer system for its core banking system and implementing the βloan origination systemβ for front-end Retail Banking. The loan origination system employs workflow technology to control and monitor the various work steps in loan processing and uses digital imaging technology to reduce the delays and inefficiencies in handling paper documents. This project is expected to be completed by the end of 2008. The Bankβs strategy is to continue to rely on the Emirates Bank group for the functions and support that it provides to the Bank however, at the same time, the Bank intends to hire further staff in certain of these areas such as human resources and IT to further supplement the support available to the Bank. COMPETITIVE STRENGTHS The Bank enjoys a number of key competitive strengths, including the following: Support from Emirates Bank group The Bank enjoys a high level of support from Emirates Bank International in relation to many support functions including human resources, treasury, information technology, certain administrative services and back office operations such as clearing and remittances. The Bank utilises the services of its sister companies in the Emirates Bank group such as Network International, a subsidiary of Emirates Bank International, which handles the Bankβs credit card and debit card processing services and Buzz Contact Centre Solutions, a subsidiary of Emirates Bank International, which handles the Bankβs call centre requirements. The Bank also has the benefit of being to to leverage off Emirates Bank Internationalβs retail and corporate customer base that require Sharia compliant banking. Diversified distribution channels The Bank is able to distribute its products through a variety of channels which include its expanding network of branches, ATMs, a direct sales force, internet, phone and mobile banking and a call centre. The proposed increase in the number of branches and ATMs over the coming years will enhance the Bankβs accessibility to its customers. The Bank has accounts with a diverse client base which in turn creates opportunities to cross sell its other products and services such as car and home financing facilities. 70 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Quality of service and response time The rapid population growth in the UAE has resulted in a significant rise in the demand for banking services, especially those that are Sharia compliant. The Bank considers service quality and quick response time to be the key differentiators in maintaining client and customer satisfaction and loyalty. To this end, the Bankβs employees are trained in client service techniques and new product and market developments. The Bankβs commitment to quality is demonstrated by the fact that it scored highly in the annual Benchmarking and Service Quality Study of banks conducted recently (29 October 2006) by Dubai-based Ethos Consultancy. The Bank scored 72.2% and was ranked as the best Islamic bank in the UAE while coming third in the overall standings of 29 banks surveyed. The survey used criteria based on quality of service and the speed of customer service staff response. The Bank believes that the βTafawouk dashboardβ, a management reporting system on the performance of individual branches and employees has played a key part in achieving these results (see Strong information technology base below). Sharia compliance standards The Bank aims for Sharia compliance by offering all its products and services in strict conformity with the Sharia supervision parameters approved by the Sharia Board. Strict compliance with Sharia is a key component of the Bankβs 3 βSβ mission being service, Sharia and society. To this end, the Bank has established a Sharia department that supports the Fatwa, audit and supervisory functions of the Sharia Board. The Sharia department is staffed with suitably skilled employees who ensure that Sharia principles are applied to all new products and services. This helps to ensure that the Bankβs reputation as a premier Islamic bank is maintained. Experienced and committed management The Bank aims for a high employee retention rate (the Bank had only an 8% resignation rate for 2006). In particular, a high proportion of the Bankβs senior management team has been with the Bank since its inception and, prior to joining the Bank, most of them have had many years of experience with other international banks. Comprehensive staff training and development The Bank provides regular training to staff members at all levels. This is done through a dedicated training division within the Bank. To illustrate this, all new employees of the Bank are required to attend an intensive training programme which provides them with a comprehensive introduction to the Bankβs products and services. The Bank also aims to enhance its role in expanding the overall staff knowledge level of banking in general and Islamic banking in particular through its innovative career development programmes. The Bank believes that the continuous efforts and developmental programmes provided over the past years by the Bank have contributed to the high level of skill in the industry and has contributed to the Bank being seen as an industry leader (see Management and Employees β Training). Stable funding base The Bank has a diversified deposit base that includes retail and corporate customers, government bodies and public sector agencies which, taken together, are regarded by the Bank as a relatively stable and a low cost source of funding. Relationships and strategic alliances The Bank has strategic alliances with other reputable UAE-based entities such as Amlak Finance, Tamweel, Mawarid Finance and Madain Real Estate. Through these alliances, the Bank has, in 71 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 some cases, priority over other financial institutions in providing these entities with banking and financial services. Through its strategic investment in the Al Baraka Group and strategic relationship with Al Salaam Bank, the Bank also gains an exposure to growing markets in the Middle East and the North Africa region including Bahrain, Sudan, Algeria, Syria, Jordan and Saudi Arabia. Strong information technology base The Bank envisages the role of information technology (βITβ) to be significant in ensuring the Bank remains responsive and flexible to the competitive and dynamic forces of the environment within which it operates. Accordingly, the Bank invests in IT continuously to ensure that it is resourced in line with modern banking IT requirements. Capital expenditure on IT equipment was AED 2.9 million and AED 6.2 million for 2005 and 2006 respectively. The mainframe of the IT system is centralised at the Emirates Bank group level. The Bank also complements its IT investments with appropriate investments in its human resources through continuous training and certification. Business process automation, consolidation of IT assets and continuous replacement of obsolete and redundant IT are intended to ensure that the Bankβs IT support infrastructure functions in an operationally productive and cost-efficient environment. The Bankβs IT investment strategy is focused on continuously improving the cost efficiency and the quality of the services that the Bank provides to its customers. The Bank, in conjunction with Emirates Bank International, is in the process of upgrading to a new computer system for its core banking system and implementing the βloan origination systemβ for front-end Retail Banking. The loan origination system employs workflow technology to control and monitor the various work steps in loan processing and uses digital imaging technology to reduce the delays and inefficiencies in handling paper documents. This project is expected to be completed by the end of 2008. An example of the way in which the Bank uses IT as a competitive advantage is the Bankβs use of a highly sophisticated management software developed and implemented at the Emirates Bank group level known as the βTafawouq dashboardβ which provides management with detailed reports on the performance of individual branches and employees. For example, it feeds back information to the user about customer waiting times (measured by the time between a customer taking a ticket and being served), customer satisfaction, and staff performance measured against various targets. Links with the Community The Bankβs philosophy has been to maintain strong links with the local community and it intends to continue to promote the positive development of society in the UAE. The Bank sees this as an important feature in maintaining its position as a premier Islamic bank. For example, it has been active in promoting ββEmiratisationββ, the process of employing and training UAE nationals with a view to encouraging them to participate in and enhance the economy of the UAE. The Bank enjoys one of the highest Emiratisation levels in the UAE banking sector due to its innovative initiatives in attracting UAE nationals into the industry: 36% of the Bankβs total employees as at 31 December 2006 were Emirati. The Bankβs target Emiratisation level is 40%. COMPETITION The Bank faces competition in all of its principal business areas. In its Retail Banking and Corporate Banking businesses, the Bankβs principal competitors include both banks that are locally incorporated (conventional and Islamic) as well as certain foreign banks operating in the UAE. As 72 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 at 31 December 2006 there were 48 banks holding full commercial banking licenses in the UAE, of which 21 were locally incorporated. In the Islamic banking market, the Bankβs direct competitors include Dubai Islamic Bank, Abu Dhabi Islamic Bank and Sharjah Islamic Bank, all of which are incorporated in the UAE. There are also international banks providing Islamic arms like ABN Amro, Citi Islamic, HSBC Amanah and Standard Chartered Bank. Potential future competitors include Dubai Bank and Noor Islamic Bank which are both locally incorporated and recent entrants to the Islamic banking market. Despite the relatively high level of competition in the banking sector in the UAE, the Bank expects the recent and continuing growth of the economy to lead to an overall growth in demand for banking services, particularly in the Islamic banking sector. The Bankβs objective is to participate in this growth and to increase its market share based on its selling skills, service quality standards, personalised customer care and continuing product development. In the course of its own conversion from a conventional bank to an Islamic bank, the Bank believes it has developed a considerable amount of expertise and know-how relating to the operational issues in relation to the conversion process. This ultimately puts the Bank in the position of being able to offer certain types of rarely available consultancy services (on a fee-paying basis) to other financial institutions which may themselves be contemplating such a conversion. RISK MANAGEMENT The activities of the Bank require continuous management of particular risks or combinations of risks. Risk management is the identification, analysis, evaluation and management of the factors that could adversely affect the Bankβs resources, operations and financial results. The main risk factors that concern the Bank are credit, operational, market, liquidity, legal and currency risks. The Bank aims to manage its exposure to these risks conservatively. The responsibility for overall risk management for the Emirates Bank group lies with the Chief Risk Officer. However, at the Bank level, risk management is overseen by the Assets and Liabilities Committee (ALCO) of the Bank. The Bank is also represented at some Emirates Bank group risk committee levels as well. Each department of the Bank is responsible for: β’ identifying and measuring the risks that the Bank is exposed to and considering whether those risks are significant; β’ developing and recommending for approval appropriate risk management policies and procedures regarding those activities and business units which are susceptible to significant risk, including business continuity plans. All risk management policies must be approved by the Board of Directors; β’ providing direction regarding the Bankβs overall risk philosophy and risk tolerance, including considering whether certain new business proposals referred to the ALCO are acceptable from a risk management perspective; β’ β’ monitoring compliance with risk management policies and procedures; and reporting any policy or major practice changes, unusual situations, significant exceptions and new strategies to the Board of Directors for review, approval and/or ratification. Distributions of profit to shareholders and depositors is subject to a comprehensive risk management system that is reviewed at the management level, the Sharia Board level and the ALCO level to ensure the appropriate distribution levels taking into account the Bankβs performance, competitor profit distributions and market conditions. 73 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Anti money laundering (AML) and know your client (KYC) policies The Bank has implemented AML and KYC rules and procedures as required by the UAE Central Bank regulations and other laws. All prospective customers must undergo identity checks based on the Bankβs internal compliance requirements. The Bank arranges regular training for staff members on AML and KYC. The continuous development, control and enforcement of the Bankβs KYC and AML regulations is the responsibility of the Bankβs group compliance section. Credit Risk Credit risk is the risk that a counterparty in a financial relationship fails to meet its contractual obligations and causes the Bank to incur a financial loss. The Bank attempts to control credit risk by monitoring credit exposure, limiting transactions with specific counterparties, and continually assessing the creditworthiness of counterparties. Credit risk concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Credit risk concentrations indicate the relative sensitivity of the Bankβs performance to developments affecting a particular industry or geographical location. The Bank seeks to manage its credit risk exposure through diversification of financial product offerings and investments to avoid undue concentrations of risks with individuals or groups of customers in specific locations or businesses. The Bank also obtains security for the financial obligations of the counterparties whenever appropriate. Credit limits are also established for countries and industry sectors to ensure that the Bankβs credit risk profile is diverse. The Bankβs credit risk limits and actual levels of exposure are regularly reviewed by the Bankβs Executive Committee and the Bankβs Board of Directors. See Credit Approval Procedures below for further details on how this risk is managed by the Bank. Operational Risk Operational risk is the risk of loss resulting from inadequate or failed internal processes and systems, human error or external events. This type of risk includes fraud, unauthorised activities, errors and settlement risk arising from the large number of daily banking transactions occurring in the normal course of business. There is also a wide variety of business risks such as legal, regulatory, human resources and reputational risks inherent in all business activities. The Bank has standard policies and procedures for managing each of its divisions, departments and branches so as to minimise loss through a framework which requires all units to identify, assess, monitor and control operational risk. All standard policies and procedures are subject to review and approval by the Board of Directors. The Bank manages operational risk through disciplined application and evaluation of internal controls, appropriate segregation of duties, independent authorisation of transactions and regular, systematic reconciliation and monitoring of transactions. This control structure is complemented by independent and periodic reviews by the Bankβs internal audit department. The Bank follows the Emirates Bank group policy in relation to compliance with the Office of Foreign Assets Control (OFAC) regulations which are in line with international practices and guidelines. The Bank maintains a βrestricted customerβ database which is checked when prospective customers of the Bank are initially assessed. This database is linked to the OFAC list of sanctioned individuals as updated from time to time. 74 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Market Risk Market risk is the risk of loss arising from unexpected changes in financial prices, for instance, as a result of fluctuations in interest rates and/or exchange rates and/or in bond, equity and commodity prices. Consistent with the Bankβs approach to strict compliance with Sharia, the Bank does not enter into speculative foreign exchange and currency transactions. The Bank only enters into a limited amount of foreign exchange and currency transactions to hedge its commercial activities. The Bankβs market risk is managed through risk limits set by the ALCO and approved by the Bankβs Board of Directors. Risk limits are reviewed by the ALCO on an annual basis. The market risk limits are monitored independently by the Emirates Bank group risk department on a regular basis, and exceptions, if any, are reported to senior management and approved by the ALCO. Liquidity Risk Liquidity risk is the risk that the Bank will be unable to meet its maturing obligations to a counterparty. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain sources of funding to dry up immediately. To guard against this risk, the Bank has diversified funding sources and assets are managed with liquidity in mind, maintaining a healthy balance of cash and cash equivalents. Liquidity is managed by the Treasury department under guidance from the ALCO, and is monitored using short-term cash-flow reports and medium-term maturity mismatch reports. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date. They do not take into account the effective maturities as indicated by the Bankβs deposit retention history and the availability of liquid funds. The maturity profile of the Bankβs assets and liabilities is monitored by management to ensure adequate liquidity is maintained (see Maturity Profile of Assets and Liabilities below). Legal Risk The Bank has a full-time legal advisor who deals with both routine and more complex legal cases. Situations of a particular complexity and sensitivity are referred to external firms of lawyers, either in the UAE or overseas, as appropriate. The Bank aims to hire another full time lawyer by the end of 2007. Currency Risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank is not exposed to significant currency risks resulting from foreign currency transactions undertaken by the Bank for its customers. Customers bear the currency risks as per the contractual terms of the transaction. The Bank does not have any substantial assets or liabilities in foreign currencies other than the US Dollar which is currently pegged to the UAE dirham. The Bank does not deal in derivatives such as foreign exchange contracts and foreign currency swaps nor does it undertake any hedging transactions that are considered to be non-compliant with Sharia. 75 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Capital Management/Adequacy As at 31 December 2006 EIB`s capital base consisted solely of Tier 1 capital. The Bankβs capital adequacy ratios were 11.4% and 23.7% as of 31 December 2006 and 31 December 2005, respectively. The decrease in the capital adequacy ratio in the year 2006 was due to the increase in the Bankβs financing and investment portfolio. The Bankβs capital adequacy ratio is regularly monitored by the ALCO and managed by the Emirates Bank group risk department. The following table shows the Bankβs risk assets and their risk weighted values for capital adequacy ratio purposes as at 31 December 2005 and 31 December 2006, respectively. As at As at 31 Dec 31 Dec 2006 2005 11112 11112 AED 000βs AED 000βs Capital Base ................................................................................................ On Balance sheet........................................................................................ Off Balance sheet ...................................................................................... Risk Asset Ratio .......................................................................................... 972,353 815,608 7,754,557 3,040,065 753,274 396,419 11.4% 23.7% Basel II Implementation of and compliance with the Basel II framework to the satisfaction of the UAE Central Bank is being undertaken at the Emirates Bank group level. Regular meetings are held between the Bankβs representatives and the risk management division of the Emirates Bank group to understand the scope the requirements of implementing Basel II including changes required to internal systems (in particular changes required to IT systems) and to monitor progress made towards the implementation of Basel II. The Bank aims to implement the Moodyβs KMV regulatory capital calculator as a credit risk analysis tool allowing the Bank to calculate its regulatory capital on a consistent and continuous basis for the purposes of compliance with Basel II. CREDIT APPROVAL PROCEDURES Credit approval matrix The Bankβs philosophy is to adopt a comprehensive approach to credit analysis of business proposals. Approval of Corporate Banking credit policies is vested with the Bank's Board of Directors. These credit policies are prepared by the Credit division and submitted to the Bank's Board Credit and Investment Committee (BCIC) and the risk management division of the Emirates Bank group for their approval before being presented to the Board of Directors for their ratification. Approval of Retail Banking credit policies is delegated by the Board of Directors to the Head of Credit and Chief Executive Officer (acting jointly). Whilst their specific consent is not required, new credit policies or changes to existing credit policies for Retail Banking are also reviewed by the BCIC and the risk management division of the Emirates Bank group. The credit approval tiers for Retail Banking are as follows: Retail Banking products are channelled through sales units and branches. Sales unit staff do not have any authority to approve credit applications. Branch managers are given certain approval authorities but strictly within the stipulations of approved product policies. Approvals beyond the authority of branch managers are sent to the retail assessment unit (RAU). RAU officers review credit applications received from business units in accordance with Bankβs applicable credit policies. Applications that are beyond 76 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 the authority of RAU officers are passed on to RAU manager. The RAU manager can authorise certain credit applications within their authority or, where required, pass them on for the Head of Credit to review. In certain cases, the Head of Credit may consult with the General Manager of Retail Banking. All credit applications, whether originated from sales units or branches, are reviewed by a centralised and independent retail processing centre (RPC) before the credit application is passed on to the operations department for disbursement. The RPC manager reports to credit support manager who also reports to the Head of Credit. The credit approval tiers for Corporate Banking are as follows: on the business side, the General Manager and Head of Corporate Banking have certain approval authorities based on specified credit policies. Business proposals beyond the approval authority of the General Manager and Head of Corporate Banking are presented to the Credit division where proposals are initially reviewed by the relevant credit managers. A report on the proposal is prepared and submitted to the risk analysis manager who will either authorise the proposal or submit it to the Head of Credit depending on the limit and nature of the proposal. Proposals may also be submitted to the Chief Executive Officer and General Management Credit Committee (GMCC) again, depending on the limit and nature of the proposal. The relevant approval limits are governed by the Bank's discretionary limits policy which is approved by Board of Directors and reviewed on an annual basis. Limits are specified in absolute amounts but are determined by reference to the Bankβs total shareholders equity, for example, the Chief Executive Officer's approval limit is approximately 0.5% of the Bankβs total shareholders equity and the GMCC's approval limit is approximately 1% of the Bankβs total shareholders equity. Business proposals of higher amount must be approved by the BCIC. All decisions taken by the BCIC are brought to the knowledge of the Board of Directors on monthly basis. Any proposal that is considered as βLarge Exposureβ in line with (and as defined in) UAEβs Central Bankβs Circular 16/93 requires the approval of the Board of Directors and the UAE Central Bank. Credit Division The Bank has a dedicated Credit division that is responsible for evaluating all matters relating to credit risks (for Retail, and Corporate Banking) and comprises the following units: β’ β’ β’ β’ β’ Retail Credit Analysis Department (Retail Banking) Credit Risk Analysis Department (Corporate Banking) Credit Support and Operations Department Quality Assurance Department Trade Finance Operations The above listed departments all report to the Head of the Credit. Board Credit and Investment Committee The BCIC approves credit facilities within the parameters prescribed by the Board of Directors. It also approves any new products, schemes and policies and oversees any litigation and settlement arrangements for classified accounts and any rescheduling or restructuring of credit. The permanent members of the BCIC are: β’ β’ β’ β’ Chief Executive Officer Head of the Credit Director - Sharia Board 3 directors representing Emirates Bank International 77 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Risk Rating System The Bank has a risk rating system for transactions and customers. The risk rating system is used as a credit risk management tool whereby any risks taken on the Bankβs books are rated against a set of predetermined standards established in accordance with the UAE Central Bankβs guidelines and international guidelines. The principal objectives of establishing the risk rating system are to: β’ β’ β’ ensure the credit quality of the obligors; determine the pricing and the tenor of the credit facility for a particular type of obligor; and act as an effective tool for determining the degree of risk and its mitigating factors. Risk ratings are reviewed and set by the Bankβs Credit division on an ongoing basis. Risks are classified according to the risk profile of the asset or risk and the probability of default. The Bank has adopted β10 point rating systemβ in line with the risk rating system adopted by the Emirates Bank group as per international risk rating parameters. Below is a table showing the risk rating matrix used by the Bank: EIB Risk Grade 1111 1A Classification 1111112 Excellent investment grade 1B Very Good investment grade 1C Good investment grade 1D Above average large size company β investment grade 1E 2A Average large size company excellent medium size company Below average large size company Good - average medium size company 2B OLEM close follow up 3 Substandard 4 Doubtful 5 Loss Equivalent S&P Rating 111211 AAA Equivalent Moodyβs Rating 111211 Aaa AA+ to AA- Aa1 to Aa3 A+ to A- A1 to A3 BBB+ to BBB- Baa1 to Baa3 BB+ to BB- Ba1 to Ba3 B+ to B- B1 to B3 CCC+ to CC Caa to C R C SD C D C Collateral management Separate Corporate and Retail Banking operations units exist to evaluate and maintain the collateral and credit facilities for each client. In the case of certain products, for example, financing covered by a percentage of share securities, there is a mechanism to maintain securities at a specified level and in case there is a shortfall below the βtrigger levelβ, customers are contacted to either reduce their liabilities or cover the margin. Limits on financing The Bankβs credit limit policies are monitored through a regular reporting system that involves several departments including the credit, finance and business units as well as senior management. Country limits are approved by the Board Credit Investment Committee and Board of Directors and for certain sectors / sub-sectors and limits are implemented for the purposes of diversification and risk control. These limits are determined as part of the overall credit and investment policy based on industry and economic data reviewed at committee / senior 78 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 management levels and appropriate portfolio strategies are suggested accordingly on a periodical basis. PROVISION AND WRITE-OFFS Financing is monitored through a Management Information System (MIS) and periodical reports. The Bank has formulated what it believes to be a prudent loss provisioning and write-offs policy to ensure the quality of the Bankβs asset portfolio. The risk-rating criteria set out above and the classification of accounts as sub-standard (risk grade 3) and below is used as the basis for the Bankβs provisioning policy. Financing receivables are presented net of allowances for impairment. Specific allowances are made against the carrying amount of financing receivables that are identified as being impaired based on regular reviews of outstanding balances to reduce these financing receivables and loans (a small amount of βloansβ were carried over from Middle East Bank PJSC and have not been converted to Sharia compliant investments at the request of the relevant customers) to their estimated recoverable amounts at the balance sheet date. The expected cash flows for a portfolio of similar assets are estimated based on previous experience with similar assets and considering the credit rating of the underlying customers and the frequency of late payments. When a receivable or financing is known to be uncollectable, all the necessary legal procedures to recover such monies have been exhausted, and the final loss has been determined, the receivable is written-off at various levels within the Bank depending on the amount. If in a subsequent period the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down or allowance is reversed through the income statement. The retail credit portfolio is monitored regularly and accounts are downgraded based upon the number of days amounts are overdue by way of MIS generated reports and subsequently each month end respective report is generated for follow up of necessary cases. The delinquent customers are monitored at an individual level through a centralised collection department on a day-to-day basis. Corporate accounts are also reviewed regularly through various MIS reports and monthly risk meetings are conducted with the corresponding business units to classify them as per the Bankβs risk rating system. Provisions under the retail portfolio are done as block provisions at each month based upon the respective risk grades. For Corporate Banking, provisions are based on the International Accounting Standard (IAS) 39 (Financial Instruments: Recognition and Measurement) based on net present value (NPV) of future cash flows. The exercise is normally conducted at quarter ends. 79 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 In the case of Retail Banking, the Bankβs Central Collection Unit follow-up overdue accounts as shown in an automated collection system through the life cycle of such accounts. In the case of Corporate Banking, affected accounts are initially followed up by the Bankβs Credit division through the business. Accounts which remain overdue after a follow up by the Bankβs Credit division are transferred to the Special Loans Group unit of the Emirates Bank group for further follow-up after being fully provided. Assistance of external collection agencies is also taken in some cases. The Bank adheres to International Financial Reporting Standards which lay down strict principles and guidelines for the recognition and provisioning of impaired financing and advances. The Bankβs provisioning and write-offs for the years 2005 and 2006 are shown in the following table: Impairment Allowance for Loans and Receivables .......................... Impairment Allowance for financing Receivables and Investments.. Recoveries ........................................................................................ Impairment allowances net of receivables .................................. 2006 11111 AED 000βs 0 47,123 (13,220) 11111 33,903 11111 aaaaa 2005 11111 AED 000βs 2,932 5,335 (14,842) 11111 (6,575) 11111 aaaaa Total non-performing loans as at 31 December 2006 A break up of non performing loans (NPLs) by Corporate Banking and Retail Banking and prior to and following conversion of the Bank to an Islamic bank is shown below: Percentage of Total non total non Post Pre performing performing Amount Percentage conversion conversion loans loans provisioned provisioned 123111 123111 123111 123111 123111 123111 Corporate Banking ............ Retail Banking.................... AED 000's 10,640 63,320 AED 000's 62,802 54,144 AED 000's 73,442 117,464 % 38.47% 61.53% AED 000's 69,624 91,618 % 94.80% 78.00% 123111 123111 123111 123111 123111 123111 Total .................................. 73,960 116,946 190,906 100.00% 161,242 84.46% 123111 123111 123111 123111 123111 123111 Total NPLs as at 31 December 2006 were AED 190.9 million which equates to 3% of the Bankβs total financing and advances for the same year. Out of total NPLs, 62% pertains to the Retail Banking division and the remaining 38% pertains to the Corporate Banking division. 61% of NPLs have been NPLs loans since the conversion of Middle East Bank to Emirates Islamic Bank in October 2004. Provision has been made for AED 161.2 million against the total NPLs of AED 190.9 million (i.e. 84 % of total NPLs). In addition to the above NPLs, there are further delinquent loans and receivables of AED 233.7 million (identified at the time when Middle East Bank PJSC was taken over by the Emirates Bank group) which have been fully provisioned for and are an off balance sheet item. INTERNAL AUDIT AND COMPLIANCE The Bankβs internal audit department functions under a charter approved by the Board of Directors. The head of Internal Audit is independent from the other operations of the Bank and reports directly to the Board of Directors. This allows him to carry out his work independently and objectively. The scope of audits encompasses the examination and evaluation of the adequacy and effectiveness of the organisationβs systems of internal controls and the quality of performance in carrying out assigned responsibility. 80 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 The approach adopted for internal audits comprises a mixture of activity and thematic reviews, unit specific examination and independent asset quality evaluation. In addition, reviews of the Bankβs computer applications are conducted by specialist information system auditors to ensure the adequacy and efficiency of controls relating to integrity, confidentiality and availability of application systems, components and data. All internal audit personnel are professionally qualified and experienced. In addition to general training the Bank provides specialised education for information system auditors. Training requirements are identified annually and are delivered in coordination with the Emirates Bank groupβs training centre. Types of audit assignments conducted include: Operational: This involves undertaking a comprehensive review of all business and support activities including but not limited to Retail, Corporate, Treasury, trade finance and related operational and administrative support functions. These reviews provide for an evaluation of the organisational structure in place to manage the business and the control processes adopted in the related functions, against managementβs control objectives, which ensure that activities are: β’ authorised, accord with all internal and external authorisation requirements, and are conducted in an orderly and efficient manner; β’ β’ recorded and reported accurately and upon a timely basis; and protected from loss / misplacement, howsoever arising. IT Audits: This involves appraising the internal control environment of automated information processing systems as well as evaluating the integrity, confidentiality and availability of IT systems generated information. Compliance: This involves reviewing of adherence to internal policies, plans, procedures, as well as laws and regulations. Group Compliance: The role of the Emirates Bank group compliance function is to identify, assess and monitor the compliance risks faced by the Bank and to advise and report to senior management on these risks. The Bankβs policy is that all applicable legal, statutory and regulatory obligations in force in the jurisdictions in which the Bank operates are to be met in full. Group Compliance also oversees the AML policy and procedures of the Bank. These policies and procedures are aimed at ensuring that the Bank is not being used for the purpose of laundering funds associated with drug trafficking, terrorism and other serious crimes. The Bankβs policy is to not establish relationships with customers whose transaction requirements gives rise to suspicion of involvement in money laundering activities. The Bank exercises βKYCβ requirements whereby prospective customers are required to provide key information regarding their identity, circumstances and expected transactions. The Bank will terminate any customer relationship where the customerβs conduct gives the Bank reasonable cause to believe or suspect ongoing involvement with illegal activities. Any such termination follows reporting of the suspicion to the appropriate authorities and any further action by the Bank is taken in consultation with the UAE Central Bank. See Anti money laundering and know your client above. 81 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 LEGAL PROCEEDINGS No provisions were made in 2006 regarding any outstanding proceedings against the Bank. INFORMATION TECHNOLOGY The Bankβs IT strategy is focused on providing reliable and accurate information systems to its customers and employees in a secure environment through the support of the IT department at the Emirates Bank group level. The Bank has in place a wide range of banking software that has been developed for Emirates Bank International and re-engineered to suit the Bankβs requirements. The Bank, in conjunction with Emirates Bank International, is in the process of upgrading to a new computer system for its core banking system and implementing the βloan origination systemβ for front-end retail banking. The Bank also utilises the Emirates Bank group Buzz Center as a call centre and for 24 hour phone banking and provides internet banking and mobile (sms) banking to its customers (see Retail Banking above). The security and reliability of the Bankβs IT services has been tested by the IT department at the Bank through implementation of a disaster and recovery site at a remote premises that can be activated in the case of any accident affecting the Bankβs IT systems to ensure that critical systems and data continue to be fully operational so that the Bank can continue to provide essential services to its customers. The IT department at the Bank carries out daily and other periodic data back-ups which are stored at a location away from its head office. The Emirates Bank group, also carries out annual intrusion tests on its IT network with the assistance of an external vendor. There is no evidence of intrusion attempts to date. The Bankβs disaster recovery plan provides for back up of IT systems at its disaster recovery site. SUBSIDIARIES Emirates Islamic Financial Brokerage (EIFB) was established in June 2006 and is 100 percent owned by the Bank. EIFB provides Sharia compliant brokerage services to investors in the local stock markets which includes both the Dubai Financial Market and the Abu Dhabi Securities Market. EIFB offers customers the opportunity to trade shares through dedicated brokers as well as online trading. EIFB offers a competitive fee structure, dedicated brokers, customer service representatives and trading rooms for high net worth individuals. EIFBβs branches are located within the same premises as the Bankβs branches in Dubai and Sharjah and the Bank aims to integrate the banking and brokerage services. SHARIA COMPLIANCE All transactions that the Bank undertakes and all products that it offers are strictly Sharia compliant. The Bankβs objective is to provide the highest standards of Islamic finance and all the Bankβs activities are supervised by the Sharia Board. Before either the execution of a transaction or the launch of a new product, the terms of the transaction or product are sent to the Sharia Board for its approval. Sharia Board The Sharia Board is an independent body of Sharia scholars that is appointed by the General Assembly of the Bank. Its key task is to supervise the application of different aspects of Sharia within the Bank and to ensure that all transactions are undertaken in strict compliance with Sharia. The decisions and pronouncements of the Sharia Board are binding on the management and the Directors of the Bank. The Sharia Board meetings are held periodically and whenever the need arises. The Bankβs management does however retain the authority to not implement a transaction or proposal approved by the Sharia Board if, for any reason, management feels the transaction or 82 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 proposal is not in the best interests of the Bank. The current three members of the Bankβs Sharia Board are: Dr. Hussein Hamid Hassan Chairman and Executive Member Dr. Hussein Hamid received his PhD in the Faculty of Sharia at Al Azhar University in Cairo, Egypt in 1965. He also holds two law degrees from the International Institute of Comparative Law, University of New York and two additional degrees in Law and Economics from Cairo University. He served as Assistant Professor, Associate Professor and Professor of Sharia in the Faculty of Law and Economics at Cairo University between 1960 and 2002. Currently, he chairs or is member of the Sharia boards of more than 7 Islamic financial institutions including Emirates Islamic Bank, Dubai Islamic Bank, Sharjah Islamic Bank, Islamic Development Bank, Dubai Financial Market, Dubai Islamic Insurance and Re-Insurance (Aman), Tamweel, AMLAK, the Liquidity Management Center and AAOIFI in Bahrain. He is the author of 21 books on Islamic law, Islamic finance, Islamic economics, social studies and art, in addition to more than 400 research articles on these subjects. Dr. Ojeil Jassim AlNashmi Currently a professor of Sharia and Islamic Studies at Kuwait University Dr. Ojeil Al Nashmi received his PhD on βPrinciples of Islamic Jurisprudenceβ from Al-Azhar University in Cairo, Egypt in 1977. He is a member and the representative of Kuwait at the International Islamic Jurisprudence Assembly and serves on the Sharia boards of a number of Islamic financial institutions in the Gulf Cooperation Council (GCC) including Kuwait Finance House, Emirates Islamic Bank, Gulf Finance House, Sharjah Islamic Bank, Dubai Financial market, AAOIFI and the Liquidity Management Center in Bahrain. He published many scholarly articles and studies in prominent periodicals on contemporary issues in Islamic finance and Jurisprudence. He also authored many books on the Principles of Islamic Jurisprudence and on Islamic education. Dr. Ali Al-Qurra Daghi Currently a Professor of Sharia and Head of the Department of Principles of Islamic Jurisprudence in the School of Sharia and Law at Qatar University. Dr. Ali Al-Qurra Daghi received his PhD in the area of contracts and financial transactions from Al Azhar University in Cairo, Egypt in 1985. He presently serves on the Sharia boards of many Islamic financial institutions in and outside Qatar including Emirates Islamic Bank and Dubai Islamic Bank in the UAE, Investment House and Investors Bank in Bahrain and First Investment in Kuwait. In addition, he is a founding member of many charitable organisations and international Islamic Jurisprudence bodies. He is the author of many research articles in contemporary issues in Islamic finance and banking. Board of Directors: The Bank operates under the direction of a Board of Directors, which is comprised of seven members vested with the power to manage the Bank and conduct its business in accordance with the Federal Law No. 8 of 1984 concerning commercial companies of the UAE (the Commercial Companies Law), the Bankβs Memorandum and Articles of Association and resolutions of the shareholders. The Board of Directors is elected by the shareholders. The Board of Directors is fully responsible for the Bankβs performance and for reporting to the shareholders. The following table sets out the names of the Bankβs Board of Directors: 83 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Name 111 Position 1111 Saeed Mohamed Rashid Al Sharid Chairman Ahmed Bin Hassan Mohd. Bin Al Sheikh Vice Chairman Salah Abdulrahman Mohammed Bukhatir Director Jamal Saeed Juma Bin Ghalaita Director Sulaiman Hamed Al Mazroui Director Sheikh Mohamed Bin Ahmed Al Maktoum Director Mahdi Abdulnabi Hussain Kazim Director The business address of the directors is P.O. Box 6564, Dubai, United Arab Emirates. No member of the Board of Directors has any actual or potential conflict of interest between his duties to the Bank and his private interests or other duties. None of the directors have an employment contract with the Bank. MANAGEMENT AND EMPLOYEES The Bankβs management structure is summarised in diagram form in the organisation chart set out below: Chief Executive Officer Executive Committee Manager Business Planning Assets & Liability Committee GM β Corporate & Investment Banking GM β Retail Head, Credit Div Head of Corporate Banking Head of Branches & Elthmar Head of Business Support Head of Real Estate Head of Retail & Card Sales Head of Brokerage Head of Investments & Syndications Dept. Head of Marketing Manager Business Planning & Control Risk Analysis Manager Retail Risk Manager Head, Finance Human Resources Head, Sharia Product Structuring Manager, Financial Policy & Control Credit Support Manager Trade Finance Manager Process & Quality Dept Manager, Budgeting & Reporting Manager, Finance Info System Management Senior Management Name 111 Position 1111 Ebrahim Fayez Al Shamsi Chief Executive Officer Abdulla Showaiter General Manager - Corporate and Investment Banking Faisal Aqil General Manager - Retail Banking Ahmad Fayez Al Shamsi Chief Finance Officer Zahid Rashid Head of Credit 84 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Employees As at 31 December 2006, the Bank had a total of 801 employees (compared with 510 employees as at 31 December 2005) comprising between expats and UAE nationals as follows. Total employees ...................................................................... EXPAT 1111 524 UAE 1111 277 Grand Total 1111 801 Training The Bank treats training as an integral part of staff development. The Global Training Centre (GTC) of the Emirates Bank group provides training to various categories of staff within the Bank. The training covers the range of retail, corporate and Sharia-based training. In addition various management, sales and service-based training are provided to the appropriate staff members. GTC also facilitates external training courses and relevant conferences, seminars and workshops which benefit the staff. The business communication unit of GTC provides language training in English and Arabic. Certain courses result in certifications and these are well recognised in the region. The Bank has an affilliation with Bradford University and offers certain senior staff the opportunity to do an MBA at Bradford University. The Bank also facilitates staff to complete the Institute for Leadership and Management Certification programme, diplomas in business leadership and banking and financial courses offered at the Emirates Institute for Banking and Financial Studies. Reward and Recognition The success of the Bank is dependent upon the competence of employees at all levels of its business. The Bank provides a range of reward and recognition schemes to attract, motivate and retain high calibre individuals to drive the performance of the business and drive new growth streams. Focus on UAE nationals The Bank acknowledges the key role UAE nationals will play in the future of the Bank and has one of the highest Emiratisation percentages among banks in the UAE. The Bankβs reward, recognition and career development schemes are especially tailored to ensure it attracts and develop the best calibre UAE nationals. Reward Policy Salaries and benefits are benchmarked against equivalent market salaries of banks of similar size both in terms of assets and employee strength and are set around median levels. Salaries are reviewed annually after consideration of the Bankβs performance, market positioning and the need to reward individual performance, based on the outcomes of periodical performance reviews. Annual bonuses and incentives are also paid depending on performance. Bonuses are paid to branches directly based on the performance of the relevant branch. This motivates branch managers to ensure that the branch and branch employees operate efficiently. Benefits The Bank offers a broad range of benefits to staff. Some of the main benefits include leave and sick pay provision, health and safety insurance, medical insurance, vacation airfares and termination benefits. 85 U.A.E national pension fund All UAE nationals employed by the Bank participate in the Government sponsored General Pension & Social Security pension scheme. The scheme enables members to achieve the maximum pension of 100% of their salary after 30 years of service. The Emirates Islamic Bank Provident Fund Plan All employees of the Bank are, on completion of probation, invited to join the new contributory Provident Fund Plan. In this Provident Fund Plan, employees may choose to contribute between 5% to 20% of their basic salary and the Bank will match the contribution. Employees are free to choose from a range of investment vehicles where the total contribution will be invested. Recognition policy A number of formal recognition schemes have been instituted across the Bank. These provide line managers more opportunities to recognise and reward staff who make positive contributions. The schemes include: Division 1111 Recognition Scheme 1111111111 Corporate Banking Spot Recognition Scheme Priority Banking Ethmar Best ASC Unit Star A/c Manager of the Quarter Retail Banking Best Retail / Branch Star Team Leader Star RBE Customer Service Service Quality Award Employee of the Quarter Sales Sales Champion Support Areas Performance Excellence Award (For non Managerial staff) Special Recognition Award Ideas in Action All Departments SELECTED FINANCIAL INFORMATION: The following tables set out in summary form the balance sheet and income statement information relating to the Bank. Such financial statements together with the auditorβs reports of KPMG and the accompanying notes, appear elsewhere in this Prospectus. The financial information presented below should be read in conjunction with such financial statements, reports and the notes thereto. In 2006, the Bank changed its accounting policy relating to amortisation of deferred income on financing receivables, from straight line method to effective rate of return method in accordance with IAS39. The consolidated financial statements for the financial year ended 31 December 2005 were restated to conform with the change in accounting policy. However, no restatement has been made to conform with the change in accounting policy for the consolidated financial statements for the financial year ended 31 December 2004. Furthermore, the Bank was converted to be fully Sharia compliant on 9 October 2004. Accordingly, the financial information for 2004 is not directly comparable with the financial information for 2005 and 2006 as presented above. 86 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Customer and Bank Deposits: The Bankβs main source of funding has been customer and other banksβ deposits and shareholdersβ equity. The following table sets out certain details of such funding for the Bank as at 31 December 2006, 31 December 2005 and 31 December 2004: Customerβs Deposits .............................................................. Due to Banks and other Financial Institutions ........................ Other Liabilities........................................................................ Shareholders Equity ................................................................ 2006 2005 2004 11211 12111 12111 (AED m) (AED m) (AED m) 9,046 3,599 1,234 56 18 15 395 315 80 966 860 816 Assets and Investments The following summarises the position in relation to some of the Bankβs principal assets and investments: 2006 2005 2004 11211 12111 12111 (AED m) (AED m) (AED m) Cash and Bank Balances ........................................................ 453 239 149 Due from Financial Institutions................................................ 38 95 20 Due from Group Holding Company ........................................ 1,182 1,354 1,417 Financing Receivables ............................................................ 6,558 2,110 463 Investments ............................................................................ 1,887 789 173 Loans and Receivables ............................................................ 42 45 40 Loans and Receivables The following table summarises the movement of loans and receivables and related provision for impairment 2006 2005 2004 11211 12111 12111 (AED m) (AED m) (AED m) Gross Loans and Receivables.................................................. 109 125 134 Less-Allowance for Impairment .............................................. -67 -80 -94 Loans and Receivables Net .................................................. 42 45 40 Commitments and Contingent Liabilities The Bank provides letters of guarantees and letters of credit to meet the requirements of its customers. These commitments have fixed limits and expirations, and are not concentrated in any period, and are arising in the normal course of business, as follows: 2006 2005 2004 11211 12111 12111 (AED m) (AED m) (AED m) Letters of guarantee ................................................................ 1,114 518 2,188 Letters of credit ...................................................................... 440 368 92 Other contingent liabilities ...................................................... 86 51 75 Related Party Transactions The Bank has carried out transactions in the normal course of business with Emirates Bank group and with certain staff, shareholders, directors and entities in which the Bank, its shareholders and directors have significant interests. The related party transactions are as follows: 87 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Balance sheet Due from holding company ........................................................................ Investment in EREF .................................................................................... Financing assets- Directors ........................................................................ Financing assets- Key management personnel .......................................... Current/investment accounts - Directors .................................................... Income Statement (AED million) Sale of investment properties EREF .......................................................... Redemption of units in EREF...................................................................... Profit from Murabaha group holding company .......................................... Key management personal compensations................................................ Key management personal compensations - retirements benefits............ 2006 2005 11211 11211 (AED m) (AED m) 1,182 1,355 282 339 96 34 37 0 4 6 100 34 43 7 0 293 18 35 5 0 Maturity Profile of Assets and Liabilities The tables below set out information regarding the maturity profile of the Bankβs assets and liabilities. These amounts are determined through the Bankβs accounting software and are monitored by the ALCO. 2006 Within 3 months Over 3 months to 1 year Over 1 year to 3 years Over 3 years to 5 years Over 5 years Total 11 1111 1111 1111 1111 1111 1111 AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs 453,337 β β β β 453,337 38,465 β β β β 38,465 273,026 1,634,566 42,472 β 247,280 β 909,048 1,049,513 β 486,266 270,048 β β β 1,936,443 β 822,359 β β β β 746,378 β 308,674 β β β β 1,191,409 β β β β 64,466 1,182,074 6,558,309 42,472 1,617,299 270,048 247,280 64,466 1111 1111 1111 1111 1111 1111 2,689,146 2,714,875 2,758,802 1,055,052 1,255,875 10,473,750 1111 1111 1111 1111 1111 1111 2,859,382 3,842,879 2,343,834 β β 9,046,095 55,983 395,187 10,613 β β β β β β β β β β β β β β β β 965,872 55,983 395,187 10,613 965,872 1111 1111 1111 1111 1111 1111 ASSETS: Cash, and balances with UAE Central Bank .............. Due from banks and other financial institutions .......... Due from Group Holding Company............................ Financing receivables .......... Loans and receivables ........ Investment securities .......... Investment properties ........ Prepayment and other assets Fixed assets ........................ TOTAL ASSETS .................. LIABILITIES: Customersβ accounts .......... Due to banks and other financial institutions .......... Other liabilities .................... Zakat payable ...................... Shareholdersβ Equity............ TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY Liquidity gap ...................... 3,321,165 3,842,879 2,343,834 β 965,872 10,473,750 1111 1111 1111 1111 1111 1111 414,968 1,055,052 290,003 1111 1111 (290,003) β β 1111 aaaa 1111 aaaa 1111 aaaa (632,019) 1111 Cumulative Liquidity gap.. (632,019) 1111 aaaa (1,128,004) 1111 1111 (1,760,023) (1,345,055) 1111 aaaa 1111 aaaa 88 1111 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Maturity Profile of Assets and Liabilities (continued) Restated 2005 Within 3 months Over 3 months to 1 year Over 1 year to 3 years Over 3 years to 5 years Over 5 years Total 11 1111 1111 1111 1111 1111 1111 AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs 238,858 β β β β 238,858 95,088 β β β β 95,088 1,195,678 314,006 32,240 β β 143,965 β 158,935 442,662 β β 128,729 β β β 814,142 β 299,636 β β β β 421,136 β 360,283 β β β β 118,607 12,534 339 β β 21,955 1,354,613 2,110,553 44,774 660,258 128,729 143,965 21,955 1111 1111 1111 1111 1111 1111 2,019,835 730,326 1,113,778 781,419 153,435 4,798,793 1111 1111 1111 1111 1111 1111 1,030,987 1,330,426 1,238,143 β β 3,599,556 17,932 315,495 5,969 β β β β β β β β β β β β β β β β 859,841 17,932 315,495 5,969 859,841 1111 1111 1111 1111 1111 1111 ASSETS: Cash, and balances with UAE Central Bank .............. Due from banks and other financial institutions .......... Due from Group Holding Company............................ Financing receivables .......... Loans and receivables ........ Investment securities .......... Investment properties ........ Prepayment and other assets Fixed assets ........................ TOTAL ASSETS .................. LIABILITIES: Customersβ accounts .......... Due to banks and other financial institutions .......... Other liabilities .................... Zakat payable ...................... Shareholdersβ Equity............ TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY 1,370,383 1,330,426 1,238,143 β 859,841 4,798,793 1111 aaaa 1111 aaaa 1111 aaaa 1111 aaaa 1111 aaaa 1111 aaaa 89 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Financing receivables The following table summarises the types of financing activities undertaken by the Bank. 2006 Financing comprise: Commodities Murabaha .................................................................... Vehicles Murabaha ............................................................................ Syndication Murabaha ...................................................................... Real Estate Murabaha ...................................................................... Total Murabaha................................................................................ Istisnaa .............................................................................................. Ijarah.................................................................................................. Credit card receivables ...................................................................... Others .............................................................................................. Less: Deferred income...................................................................... Less: Impairment Allowance ............................................................ Wakala .............................................................................................. Total financing receivables ............................................................ Analysis by Economic Activity Agriculture and related activities ...................................................... Manufacturing .................................................................................. Construction ...................................................................................... Trade.................................................................................................. Transportation and communication .................................................. Services and personal ...................................................................... Others .............................................................................................. Less: Deferred income...................................................................... Less: Allowance for impairment........................................................ 90 11111 AED 000βs 2005 Restated 11111 AED 000βs 989,023 1, 938,264 389,407 126,717 11111 3,443,411 11111 259,278 1,753,197 185,192 881,438 11111 6,522,516 (375,964) (94,113) 11111 6,052,439 11111 505,870 11111 6,558,309 11111 364,786 812,137 328,746 110,916 11111 1,616,585 11111 15,821 603,582 37,468 47,968 11111 2,321,424 (182,246) (46,990) 11111 2,092,188 11111 18,365 11111 2,110,553 11111 23,514 166,721 1,593,222 1,429,042 13,059 3,544,095 258,733 11111 7,028,386 11111 (375,964) (94,113) 11111 6,558,309 11111 aaaaa 26,660 130,244 617,273 604,668 3,905 936,265 20,774 11111 2,339,789 11111 (182,246) (46,990) 11111 2,110,553 11111 aaaaa Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 GEOGRAPHICAL DISTRIBUTION OF ASSETS AND LIABILITIES The following table sets out the allocation of the Bankβs assets by geographic region. 2006 11 GCC Other Middle East Europe North America Asia Far East Others Total 1112 1112 1112 1112 1112 1112 1112 1112 AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs ASSETS: Cash, and balances with UAE Central Bank.......... 453,337 β β β β β β 453,337 Due from banks and other financial institutions ...... 29,089 361 5,889 2,081 308 440 297 38,465 Due from Group Holding Company .......... 1,182,074 β β β β β β 1,182,074 Financing receivables and investments............ 6,344,592 195,069 18,648 β 6,558,309 Loans and receivables .... 42,472 β β β β β 42,472 Investment securities...... 1,592,469 β 24,830 β β β β 1,617,299 Investments properties .. 270,048 β β β β β β 270,048 Prepayment and other assets ............................ 247,280 β β β β β 247,280 Fixed assets .................... 64,466 β β β β β β 64,466 1112 1112 1112 1112 1112 1112 1112 1112 TOTAL ASSETS .............. 10,225,827 195,430 30,719 2,081 18,956 440 297 10,473,750 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas LIABILITIES: Customersβ accounts ...... Due to banks and other financial institutions ...... Other liabilities ................ Zakat payable .................. Shareholdersβ Equity ...... 9,045,373 β 722 β β β β 9,046,095 3,753 395,187 10,613 965,872 β β β β β β β β 52,227 β β β β β β β 3 β β β β β β β 55,983 395,187 10,613 965,872 1112 1112 1112 1112 1112 1112 1112 1112 TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY ........................ 10,420,798 β 722 52,227 β 3 β 10,473,750 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 2005 11 GCC Other Middle East Europe North America Asia Far East Others Total 1112 1112 1112 1112 1112 1112 1112 1112 AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs AED 000βs ASSETS: Cash, and deposits with UAE Central Bank.......... 238,858 β β β β β β 238,858 Due from banks and other financial institutions ...... 2,057 302 5,153 86,395 456 488 237 95,088 Due from Group Holding Company .......... 1,353,059 β 1,532 β 22 β β 1,354,613 Financing receivables ...... 2,027,005 45,983 β β 16,814 β 20,751 2,110,553 Loans and receivables .... 44,774 β β β β β β 44,774 Investment securities...... 660,258 β β β β β β 660,258 Investments properties .. 128,729 β β β β β β 128,729 Prepayment and other assets ............................ 141,747 β 279 1,939 β β β 143,965 Fixed assets .................... 21,955 β β β β β β 21,955 1112 1112 1112 1112 1112 1112 1112 1112 TOTAL ASSETS .............. 4,618,442 46,285 6,964 88,334 17,292 488 20,988 4,798,793 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas LIABILITIES: Customersβ accounts ...... Due to banks and other financial institutions ...... Other liabilities ................ Zakat payable .................. Shareholdersβ Equity ...... 3,598,867 β 689 β β β β 3,599,556 17,805 315,495 5,969 859,841 β β β β β β β β 3 β β β β β β β 124 β β β β β β β 17,932 315,495 5,969 859,841 1112 1112 1112 1112 1112 1112 1112 1112 TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY ........................ 4,797,977 β 689 3 β 124 β 4,798,793 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 1112 aaas 91 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Impairment allowances The following table sets out the movements in impairment allowances. 2006 Movement in allowances for impairment: Balances at the beginning of the year .............................................. Impairment allowances made during the year .................................. 11111 AED 000βs 2005 Restated 11111 AED 000βs 46,990 47,123 11111 94,113 11111 41,655 5,335 11111 46,990 11111 47,123 (13,220) 11111 33,903 11111 5,335 (11,910) 11111 (6,575) 11111 Net impairment of loans and receivables impairment allowances of financing receivables .............................. Recoveries ........................................................................................ Impairment allowances net of (recoveries) .................................. Industry Regulation and Supervision The principal source of banking regulation in the United Arab Emirates is the UAE Central Bank. The UAE Central Bank provides prudential supervision of each bankβs capital adequacy, liquidity and anti-money laundering controls and its general banking activities. Monitoring by the UAE Central Bank is undertaken by way of regular inspections of banks and their records and the requirement for regular submission of data including, but not limited to, deposited funds, financing and mortgage business, liquidity status and anti-money laundering measures. The Bank submits monthly, quarterly and annual reports to the Banking Supervision and Examination Department of the UAE Central Bank. The Bankβs Memorandum and Articles of Association, the audited financial statements, the distribution of dividends and other documents are all required to be approved by the UAE Central Bank. As a UAE company, the Bank is also subject to supervision and regulation at a corporate level by both the UAE Ministry of Economy and Planning and by the local regulatory authorities within each of the Emirates of the UAE in relation to branches located in those emirates. The Bank operates under a commercial banking license granted to it by the UAE Central Bank to undertake Islamic banking activities. The licensing of Islamic banks requires the appointment of a Sharia Committee to ensure the adherence to Sharia principles in the banksβ operations and contracts. The Bank complies with this requirement through its Sharia Board (see Fatwa and Sharia Supervisory Board above). 92 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 SELECTED FINANCIAL INFORMATION OF EMIRATES BANK INTERNATIONAL PJSC The following information has been derived from, and should be read in conjunction with, and is qualified in its entirety by reference to, the consolidated financial statements of the Guarantor incorporated by reference in this Base Prospectus (see Documents Incorporated By Reference above). The following table sets forth selected information of the Guarantor as at 31 December 2006, 31 December 2005 and 31 December 2004 as extracted from the Guarantor's audited annual consolidated financial statements for the respective period. 2006 1111 (USD m) 2005 1111 (USD m) 2004 1111 (USD m) Income Statement Highlights Total Operating Income ................................................ Total Operating Expenses ............................................ Net Profit ...................................................................... 788.5 310.9 514.1 610.1 210.8 470.6 435.4 165.0 264.7 Financial Statement Highlights Total Assets .................................................................. Total Financing1 ............................................................ Investments2 ................................................................ Customer Deposits ...................................................... Total Deposits3 .............................................................. Shareholders Equity .................................................... 26,103.5 17,924.5 3,086.6 11,131.8 22,419.2 2,416.7 16,175.6 11,091.4 1,534.9 8,021.9 13,279.0 2,109.7 10,473.4 7,577.9 630.2 5,288.3 8,537.1 1,583.6 Profitability Return on average Assets (%) .................................... Return on average Shareholders equity (%) ................ Earnings Per Share ...................................................... Profit per Employee (USD) .......................................... 2.4% 22.6% 0.81 108,919.6 3.5% 25.5% 0.74 156,507.6 2.7% 18.0% 1.35 121,854.7 Capital Shareholdersβ Equity (%) Total Assets.......................... Capital Adequacy Ratio ................................................ 9.3% 15.6 13.0% 16.3 15.1% 18.7 Liquidity & Business Indicators Due from Banks/Due to Banks .................................... Financing/Total Deposits .............................................. Customer Deposits/Total Deposits .............................. Number of Employees ................................................ 34% 80% 50% 4,720 87% 84% 60% 3,007 94% 89% 62% 2,172 NOTES: 1Includes Loans & Receivables and Islamic financing 2Includes investment in securities, associate companies and properties 3Includes Customer deposits, islamic deposits, due to banks, deposits under repurchase agreement and medium term borrowing 93 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 DESCRIPTION OF EMIRATES BANK INTERNATIONAL PJSC Introduction The Guarantor was incorporated as a public limited liability company by H.H. Sheikh Rashid Bin Saeed Al Maktoum, Ruler of Dubai, pursuant to an Emiri Decree dated 27 March 1977 (as amended by Emiri Decree No.(30) of 1980, Emiri Decree Nos.(5) & (6) of 1983, Emiri Decree No.(3) of 1984 and Emiri Decree No.(10) of 1988). The legal status of the Guarantor was amended to conform with Federal Commercial Companies Law and accordingly was registered in the United Arab Emirates (the UAE) as a Public Joint Stock Company (Commercial Register No.23) pursuant to a Special Resolution passed by the Shareholders at an Extra Ordinary General Meeting held on 24 April 1991, which came into effect on 12 June 1995, being the date of the Certificate of Registration as a Public Joint Stock Company issued by The UAE Ministry of Economy and Planning. The Guarantorβs registration number is 209047. The registered office address of the Guarantor is, Baniyas Road, P.O. Box 2923, Deira, Dubai, United Arab Emirates and the telephone number of the registered office is +971 4 225 6256. Ownership The issued and fully paid up share capital of the Guarantor, as at the date of this Base Prospectus is 2,331,895,822 ordinary shares of AED1.00 each, of which the Government of Dubai currently has a 76.62 per cent. shareholding. The Government of Dubai has not and does not intervene in the management of the Guarantor. The Board of Directors is composed of individuals independent of the Government of Dubai and directors stand for re-election every three years. Decisions are taken by the Board of Directors and management in the sole interest of the Guarantor. The Guarantor does not have an ββauthorisedββ share capital as this concept does not exist under the UAE Commercial Companies Law. All stated share capital must be subscribed for and issued. The Guarantor was first listed on the Dubai Financial Market in March 2000 and its shares are traded on a daily basis, except for those held by the Government of Dubai. The Board The Board of Directors, at the date of this Base Prospectus, is: Significant non-Group Directorships Name Position 111 1112 1111111111 H.E. Ahmed Humaid Al Tayer Chairman (since November 1983) Commercial Bank of Dubai PSC (Chairman) Dubai Aluminum Company Ltd (βDubaiβ) (Vice Chairman) H.E. Easa Saleh Al Gurg CBE (UAE Ambassador to the UK and the Republic of Ireland) Director (since November 1983) and Vice Chairman (since March 2006) Easa Saleh Al Gurg Group (Chairman) National Bank of Fujairah (Vice Chairman) Investcorp Bank EC (Director) Mr Fardan Bin Ali Alfardan Director (since March 1977) Fardan Ali Alfardan & Partners (Chairman) Union Properties PJSC (Director) First Investor LLC (Chairman) Mr Anis Abdullah Al Jallaf Director (Appointed as Director in April 1985, as Managing Director and CEO in December 1990 and reappointed as Director in March 2006) Dubai International Financial Centre (Chairman) Dubai Investments PJSC (Chairman) Dubai Council for Economic Affairs (Member) Union Properties PJSC (Chairman) Properties Investment LLC (Chairman) 94 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Position Significant non-Group Directorships 111 1112 1111111111 H.E. Abdullah Ahmed Lootah (Under-Secretary, UAE Ministry of Communications) Director (since March 2000) Etisalat (Director) Emirates Communications (Vice Chairman) Civil Aviation General Authority (Vice Chairman) General Postal Authority (Director) Mr Khalid Jassim Kalban Director (since March 2000) Dubai Investments PJSC (Managing Director & CEO Arab Insurance Group (Bahrain) (Director) National General Insurance Company PJSC (Chairman) Emirates Financial Services PSC (Chairman) Mr Hamad M. Buamim Director (since March 2006) Dubai Council for Economic Affairs (Secretary General) Name No member of the Board of Directors has any actual or potential conflict of interest between his duties to the Guarantor and his private interests or other duties. The business address of each member of the Board of Directors through which they can be contacted is PO Box 2923, Dubai, UAE. The Board of Directors represents, inter alia, the interests of the shareholders, supervises the managementβs activities, decides upon general guidelines for the business and appoints executive level management. Supervision Banking and financial institutions in the UAE are subject to governmental supervision and regulation exercised by the UAE Ministry of Economy and Planning (the Ministry), the competent local Authority in the different Emirates (the Competent Authority) and the UAE Central Bank (the Central Bank). Whilst the Ministry is the predominant authority to control the operation and implementation of companies generally, the Competent Authority has a very wide jurisdiction to regulate industry, internal and external trade, including many of the responsibilities for the incorporation of companies and co-ordination with the Ministry. The Competent Authority in Dubai is the Department of Economic Development β Dubai. The regulations issued by the Central Bank contain the basic principles for banking supervision, monitoring and regulations of the Guarantorβs business activities, capital adequacy and liquidity. Monitoring by the Central Bank is undertaken by way of regular inspections of Banks and their records and the requirement for regular submissions of data including, but not limited to deposited funds, loans and mortgage business, liquidity status and anti-money laundering measures. Fiscal Year The fiscal year of the Guarantor is the calendar year ending on 31 December. Auditors The independent auditors of the Guarantor are Messrs KPMG, Chartered Accountants, of P.O. Box 3800, Emirates Towers, Sheikh Zayed Road, Dubai, UAE. KPMG are regulated in the UAE by the UAE Ministry of Economy and Planning. They have audited the financial statements of the Guarantor for the years ended on 31 December 2004, 2005 and 2006 and have issued an unqualified opinion in each case. 95 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 Business of the Guarantor For business segment reporting purposes, the Guarantor is organised into the following main business segments: 1. Government, corporate and commercial banking which incorporates structured financing, current and savings accounts, customer deposits, overdrafts, trade finance and term loans for Government, Corporate and Commercial customers. 2. Retail banking which incorporates current and savings accounts, customer deposits, overdrafts, personal and instalment credit loans, foreign currency and trade finance related facilities. 3. Investment and funds management which involves managing the Groupβs portfolio of investments, funds management and inter-bank treasury operations. 4. Real Estate activities which involves activities relating to property development, property management and maintenance, rental income and property related services undertaken on behalf of other parties. 5. Other operations of the Group comprising insurance services, credit card facilities and other banking related services, none of which constitutes a separately reportable segment. The distinction between the corporate, commercial banking and retail banking segments is primarily based on monetary threshold limits determined by the management of the Guarantor. Core Banking Business The largest business segment in terms of revenue for the Guarantor is that of Government, Corporate and Commercial banking. The corporate banking activities are centralised into seven corporate banking units, four of which are situated in Dubai, one in Abu Dhabi, one in Al Ain and one in Sharjah. In addition, the corporate banking division also oversees the Corporate Customer Credit and Lending activities. International and regional structured finance and syndicated lending are carried out by the International Banking & Syndications division. The Financial Institutions division provides Group support in dealing with correspondent banks and maintaining international trade finance relations. Retail banking is undertaken by the Guarantor and its subsidiary, Emirates Islamic Bank PJSC, through an extensive network of over 56 branches throughout the UAE. With the introduction of the meBANK electronic and internet banking channel in March 2001, the retail banking division has been one of the Guarantorβs fastest growing business sectors and has contributed an increasing proportion of revenue. All retail services have been packaged under the meBANK brand. Access to meBANK services is possible from a variety of different locations in Dubai, Abu Dhabi and Sharjah ranging from traditional branches to retail and commercial outlets. The Guarantor has also divided its customer base into three segments: 1) High Net Worth (HNW); 2) Middle Market; and 3) Mass Market. Products and services are packaged for each of the segments, keeping in view the Guarantorβs objective of moving customers into a more profitable class of business through cross selling products and by using innovative delivery channels. The HNW segment is serviced through the Al Shaheen Club Priority Banking service which offers priority banking and wealth management facilities and services. Islamic banking is a new area of focus and during 2004, the Guarantor finalised the conversion of Middle East PJSC to an Islamic Retail and Commercial banking subsidiary and named the subsidiary, Emirates Islamic Bank PJSC. The Groupβs overseas offices comprise of representative offices in Mumbai, India, Tehran, Iran and Singapore. A branch office in London, England supports the Guarantorβs European business 96 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 interests and in August of 2004, the Guarantor opened a full service branch in Riyadh, Saudi Arabia as part of its strategic expansion into other GCC countries. The Guarantor is parent to a number of corporate entities. It is not a holding company and it is not dependent on other entities in the Group. The principal operating subsidiaries and associates of the Group are as follows: Emirates Investment Services LLC Emirates Investment Services LLC was established in 2007. It is wholly owned by the Guarantor and was formed through the integration of the current asset management divisions of Emirates Financial Services and Emirates Bank International PJSC. The new entity operates from Dubai International Financial Centre and offers a broad spectrum of investment products and services. The majority of other products and services provided by Emirates Financial Services (EFS) including Investment Banking and Proprietary Investments have been moved to the parent bank. EFS will retain its licence. Emirates International Securities LLC Formerly known as Emirates International Brokerage, this wholly owned subsidiary of the Group was established in 2002 and changed its name to the current in 2006. It specialises in the provision of securities trading and brokerage services to people who wish to trade in locally listed equity and debt securities. The company is a registered broker with both the Dubai Financial Market and the Abu Dhabi Securities Market and enjoys a healthy market share of the brokerage business in the UAE. The business of the company continues to grow in line with the increased trading and listing of securities on both UAE bourses. Network International LLC This wholly owned subsidiary, incorporated in the Emirate of Dubai, specialises in the provision of credit and debit card processing services, ATM sharing and management facilities, and merchant acquiring services and e-commerce services. In keeping with its strategic objectives, the company has invested in chip card equipment enabling it to expand its range of processing services to banks and other financial institutions. Currently it provides such services to 25 banks in the MENA region. Union Properties PJSC This is a public joint stock company incorporated in the Emirate of Dubai and listed on the Dubai Financial Market. During 2004, the Guarantorβs management adopted a strategy of gradual ownership reduction and the shareholding in this company is 48.9 per cent. The principal activities of the company are property investment and development, the management and maintenance of its own properties including the operation of its cold stores and the undertaking of property related services on behalf of other parties, including other Group companies. National General Insurance PJSC The Guarantor has a 36.7 per cent. shareholding in this public joint stock company which is incorporated in the Emirate of Dubai and listed on the Dubai Financial Market. The company is licensed by the UAE Ministry of Economy and Planning to offer a range of general and specialist insurance products including fire, burglary, personal accident, marine, engineering, public and professional indemnity and motor insurance protection. The company also operates the largest private medical insurance scheme in the UAE, ββHealth Netββ, for both individual and corporate groups. The company has a suite of Banc assurance products, marketed and offered to the Guarantorβs customers through the branch network and meBANK. Other specialised insurance products which have been launched include a Credit Insurance tie up with COFACE of France. It 97 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:22 pm β mac5 β 3700 Section 05 : 3700 Section 05 recently concluded an agreement with AVIVA for underwriting and marketing International Individual and Group Life and Medical products. Emirates Islamic Bank PJSC Formerly known as Middle East Bank PJSC, this 99.8 per cent. owned subsidiary was incorporated as a public limited company by H.H. Sheikh Rashid Bin Saeed Al Maktoum, Ruler of Dubai, pursuant to Emiri Decree dated 4 October 1975, as amended by Emiri Decree dated 3 April 1976 and registered as a Public Joint Stock Company (Commercial Register No. 30 dated 18 July 1995). The company was acquired by the Guarantor, pursuant to an agreement dated 9 December 1991. In 2004, in response to customer demand for Sharia compliant products on a broader scale the bank was converted to an Islamic bank and its name was changed to Emirates Islamic Bank PJSC. Further information on the Guarantor, the Board of Directors and Group activities can be found in the audited annual financial statements of the Guarantor for the year ended 31 December 2006. Announcement of merger with National Bank of Dubai On 7 March 2007, it was publicly announced that the two largest banks in the Emirate of Dubai, the Guarantor and National Bank of Dubai PJSC (NBD), will merge to create the largest bank in the UAE. As at 31 December 2006, their combined total assets were approximately US$45 billion. The two banks are at an early state in the merger process that will require both banks to perform legal and financial due diligence as well as obtain shareholder and regulatory approval. A completion date has not yet been communicated but management of the two banks are already working together to ensure an efficient merger. HH Sheikh Ahmed bin Saeed Al Maktoum has been appointed Chairman of a high level steering committee to lead the merger of the two banks. The steering committee is tasked with driving the progress of actions necessary to achieve a successful merger of the two banks. The committee which met for the first time on 14 March 2007, includes the Chairman of each bank, their CEOs and CFOs. It has been decided that KPMG will undertake due diligence on NBD on behalf of the Guarantor and Ernst & Young has been appointed by NBD to carry out due diligence on EBI. In terms of the legal matters, Linklaters will represent the Guarantor and Allen & Overy will represent NBD. Goldman Sachs International has been appointed as financial adviser to both banks to guide the overall financial closing process, including the valuation process. In terms of organisational structure, it has been agreed that H.E. Ahmed Al Tayer, currently Chairman of the Guarantor, will hold the post of Chairman of the Board of Directors of the new bank and the current NBD Chairman, Mr Abdullah Mohammad Saleh, will become Deputy Chairman. Details of the planned legal and financial structure are not available at this stage. NBD was established in 1963 and is the oldest indigenous bank in Dubai. The Government of Dubai presently owns 14 per cent. of NBD. 98 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 THE UNITED ARAB EMIRATES BANKING SYSTEM AND PRUDENTIAL REGULATION General Economic Information The UAE economy has grown steadily over the last decade, faltering only twice, in 1998 and 2001, due to lower oil prices and OPEC-mandated production cuts. Since oil prices are expected to stay high in 2007, prospects for the economy this year continue to be bright. Although fluctuations in energy prices do have a bearing on economic growth, the UAE is viewed as being in a less vulnerable position than some of its Gulf Co-operation Council (GCC) partners due to the robust growth in the non-oil sector, particularly in Dubai, and the sizeable wealth of the Government of Abu Dhabi. The major Emirati governments are spending substantial amounts on expanding infrastructure in their respective Emirates. While Abu Dhabi is focusing on downstream oil and gas projects, Dubai is emphasising the tourism, leisure and financial sectors. Both Emirates have announced multi-billion dollar projects that will keep the real estate, construction and related sectors busy for the next several years. The UAE is the second largest economy in the Arab world. Though it has a more diversified economy than most of the other countries in the GCC, its wealth is largely based on oil and gas. Estimates for 2006 suggest that GDP will have risen to U.S.$157 billion representing a 19 per cent. growth on the year. Exports went up to U.S.$130 billion whilst imports rose to only U.S.$78 billion and as such the trade balance widened to U.S.$52 billion. Oil export revenues are being estimated at U.S.$48 billion with oil production averaging 2.700 mbpd. Current Account balance closing at U.S.$33 billion surplus. Total external debt rising marginally to U.S.$16.2 billion. Inflation was around 10 per cent. in 2006 and the IMF has predicted that it will fall to 5 per cent. in 2007. With regard to monetary and banking developments, money supply (MI) rose by 29.2 per cent., to reach AED104 billion by the end of 2005. Consequently, private domestic liquidity (M2) expanded by AED81billion (33.8 per cent.) to reach AED32 billion. Overall liquidity (M3) rose by AED111 billion (33.6 per cent.) to reach AED415 billion. Quasi-monetary deposits reached AED220 billion. Due to its fixed peg to the US Dollar, the dirham depreciated against most major currencies during 2006. The rate of exchange of the dirham remained extensively unchanged against all GCC currencies at the end of 2006 compared to its rate at the end of 2005. The issue of currency is solely and exclusively exercised by the Central Bank of UAE. The UAE population grew by 7.0 per cent. during 2006, compared to 2005 levels, reaching 4.83 million. Males constituted 67.8 per cent. of the population (due in large part to construction activity) whilst the shares of the Emirates of Abu Dhabi, Dubai and Sharjah in total UAE population reached 38.8 per cent., 30.2 per cent., and 16 per cent., respectively. The banking sector performed particularly well in 2006. Nearly all banks reported strong growth in assets, loans and customer deposits. Higher trade finance, personal loans and corporate lending resulted in strong credit growth. Liquidity levels remain high and customer deposits increased at a robust pace despite lower interest rates. Interest spreads therefore widened last year. Nearly all banks have focused on increasing their non-interest revenues; growing trade finance activities have improved commissions and foreign exchange earnings, while rising consumer banking activities have pushed up fee income. Risk charges have come down due to improved asset quality. Overall, the net profit of the banking sector increased quite generously. In 2005, the aggregate balance sheet of banks operating in the country grew by AED188 billion (42 per cent.) to reach AED638 billion at the end of 2005 against AED449 billion at the end of 2004. The number of locally incorporated banks operating in the country remained unchanged during 2006. The number of branches and cash offices of these banks increased to 391 and 49, respectively. The number of foreign banks operating in the country was 25 during 2004. In addition five new representative offices of foreign banks were opened bringing their total to 55. 99 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 Sovereign Overview The UAE is a Federation of seven Emirates. Formerly known as the Trucial States, they were a British protectorate until gaining independence in December, 1971, when they merged to form the United Arab Emirates. In common with other Arab states in the Gulf, all of the Emirates have traditional monarchial governments which rule by Emiri decree and no democratic representation. Each emir reserves a high degree of political autonomy within the Federation, though in practice, real power is vested in the two richest emirates β Dubai and Abu Dhabi. The other five Emirates are Sharjah, Ajman, Umm Al-Qaiwain, Fujeairah and Ras Al-Khaimah. The Federation is governed by the Supreme Council of the Rulers. This is the highest federal governing body and consists of the rulers of the seven Emirates. The Supreme Council elects from its own membership the President and the Vice President (for renewable five year terms). HH Sheikh Zayed Bin Sultan Al-Nahyan, Ruler of Abu Dhabi, held the position of President since independence in 1971 until his death in November, 2004 and has been succeeded by his son, HH Sheikh Khalifa Bin Zayed Al-Nahyan. HH Sheikh Mohammed Bin Rashid Al Maktoum is Vice President and Prime Minister of the UAE and Ruler of Dubai. Abu Dhabi is the richest and largest of the seven Emirates and the city of Abu Dhabi is also the chosen capital of the Federation. The Emirate of Abu Dhabi owns and controls around 90 per cent., of the capital wealth of the UAE. Considering this financial wealth, it may, in cases of need, bankroll the rest of the Federation. During his long presidency, HH Sheikh Zayed instigated massive investment in the infrastructure of the UAE, which has transformed the country. Much of Abu Dhabiβs wealth is now in overseas assets, built up from surplus oil reserves by the Abu Dhabi Investment Authority (ADIA). Dubai is the second largest city and has a long history as a trading port. Its economy is more diversified and dynamic than Abu Dhabiβs and it is one of the most important commercial centres in the Middle East, with growing banking, tourism and real estate sectors. However, with only a fraction of the fossil fuel reserves of Abu Dhabi, it has gradually reduced its dependency on this income source and has expanded rapidly in the tourism and real estate markets. The Government of Dubai, under its Ruler, HH Sheikh Mohammed Bin Rashid Al Maktoum, continues to invest heavily in the infrastructure of the Emirate and its broader economic development. The UAE enjoys good relations with the other states in the GCC, however, it is not immune to the political risks and volatility that have over-shadowed the region, particularly in the last couple of years. The economy remains heavily protected and nearly all utilities and most major industries are controlled by the state. In addition, there are tight restrictions placed on foreign investment. For example, foreigners are not permitted to have a controlling interest in UAE businesses and corporates. To circumvent this rule, Dubai and other Emirates have established trade and industry free zones as a means of attracting overseas investment and diversifying the economy. Despite the UAEβs membership of the WTO, progress towards economic liberalisation has been slow, but trade agreements with Europe and the United States are underway. Characteristics of the Banking System Lack of Consolidation Although the UAE could be viewed as being over-banked with 46 different banks licensed to operate inside the Federation (excluding the Dubai International Financial Centre (DIFC)), most banks show healthy levels of profitability and maintain sound asset quality, and so there is little impetus for consolidation. Mergers in the past have tended to come as a result of banks getting into financial difficulties. The federal structure of the country has, to some extent, encouraged the fragmented nature of the banking sector, with the individual Emirates wishing to retain their own 100 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 national banks. Rivalries between large local business families and a desire not to dilute shareholdings have also hampered the process of consolidation. The relatively small size of UAE banks, sometimes, prevents them from competing for large financing deals in the region. It also means that they have comparatively small franchises with which to absorb capital costs, such as IT system development. The advent of WTO liberalisation should allow greater competition from foreign banks, both from new entrants to the market and from existing players expanding their operations, which may eventually result in more mergers, possibly even creating banks with pan-Gulf franchises. Domestic Focus The UAE incorporated banks are predominantly focused on the lucrative domestic market but a number have small operations overseas and are showing growing interest. With a large number of players chasing a limited number of wholesale lending opportunities, most banks have been turning to retail banking, which had previously been seen as a relatively untapped market. However, increasing competition in this area is gradually eroding margins (albeit from a relatively high starting point) and encouraging a relaxation of lending criteria. As the market has yet to be tested under adverse conditions, it is difficult to know to what extent the latter will lead to asset quality problems going forward. Expansion of retail operations has required heavy investment in distribution channels, particularly ATM networks, kiosks and telephone and Internet banking services. As a consequence, IT costs have been a prominent feature of many bankβs expenses. Limited Foreign Ownership In 1987, the Government placed a freeze on new foreign banks opening operations in the UAE. At the same time, existing foreign banks were limited to a maximum of eight branches, which restricted their ability to develop any retail potential. The Central Bank has responded positively to some GCC banksβ applications for banking licences. However, with the opening of the DIFC, international banks will be able to establish a presence and contest the wholesale banking market. This has seen new entities entering the market place. The 25 foreign banks in the country (excluding the DIFC) currently have approx. a 25 per cent. share of the market. Locally incorporated banks must be majority owned by UAE nationals. There are no immediate signs of consolidation in the banking sector. Exposure to the Oil Sector With much of the economy directly or indirectly dependent on the oil sector, the UAE banks are vulnerable during long periods of low oil prices. In particular, oil revenues tend to drive levels of liquidity and government infrastructure investment. Lack of Developed Capital Markets The absence of mature bond and equity markets in the UAE means that banks have tended to shoulder the burden of long-term financing. This has tended to create a maturity mismatch in their balance sheets, as most of their liabilities are short term customer deposits. However, the two stock markets, the Dubai Financial Market and the Abu Dhabi Securities Market, both of which were established in 2000, continue to develop and the number of listed companies continues to increase. During 2002, the Government of Dubai established the DIFC, a free trade zone and financial services centre focusing on Private Banking, Asset Management, Investment Banking, Reinsurance activities, Islamic Finance, Securities Trading and Back Office Operations. The DIFC 101 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 began issuing licences to overseas financial services businesses in September, 2004 following the approval of its laws and regulations by both Federal and Local Authorities. Government Involvement There is a high degree of state involvement in the UAE banking sector. Most of the larger banks have some degree of government ownership. Privatisation, though advocated in principle, has been slow to happen in practice. The state is also the banking sectorβs largest customer, in terms of both deposits and project financing. Expatriate Workforce An unusual feature of the UAE economy is its reliance on overseas labour, with expatriates making up approximately 80 per cent., of the workforce. The banking sector is no exception to this and expatriates are heavily represented in the senior management of most of the major banks. This has brought expertise from more developed markets to the sector, but has also contributed to a relatively high turnover of key personnel although the Guarantor and the Bank is viewed as an exception. The high level of expatriates in the country has been an increasing concern to the Government and as part of a policy of ββEmiratisationββ banks were instructed, in 1999, to increase UAE nationals on their payroll to 40 per cent. by 2009 but much work needs to be done to attain this target. Islamic Finance and Banking Islamic (Sharia) law forbids the charging of interest on any financial transaction. A number of institutions have grown up across the Islamic world to serve customers who wish to observe this principle. These institutions offer a good range of products, which, though correspond with conventional financial transactions, are structured in such a ways as to avoid the application of interest. The UAE is home to numerous institutions offering Islamic banking and finance products. Such institutions include Dubai Islamic Bank, Abu Dhabi Islamic Bank, Emirates Islamic Bank, Sharjah Islamic Bank, Osool Finance and Amlak Finance. Legal Environment There are three primary sources of law in the UAE: federal laws and decrees, local laws and Sharia (Islamic Law). In addition, Emiri Decrees can be issued by the Rulers of each of the Emirates which, when issued, have full legal effect and operation. In the absence of federal legislation on areas specifically reserved to federal authority, the Ruler or local government will apply his or its own rules, regulations and practices. As is its right under the Constitution, Dubai, like the Emirate of Ras Al-Khaimah, has elected to maintain its own court system, separate from that of the Federation and the courts of Dubai have sole jurisdiction to hear cases brought in the Emirate of Dubai. Although both federal and Dubai courts have a similar three tier structure (Court of First Instance, Court of Appeal and the Court of Cassation/Supreme Court), Dubai has retained complete autonomy over its courts in all matters, including the appointment of judges. In accordance with the Constitution, however, the Dubai courts will first apply federal law where this exists and in its absence the laws of the Emirate of Dubai. Supervision of Banks The main piece of legislation covering the banking system is Union Law No. 10 of 1980 (the Union Law) which established the Central Bank. The Central Banksβ primary roles are to formulate and implement banking, credit and monetary and fiscal policy and be responsible for ensuring price and currency stability with free convertibility to foreign denominations. 102 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 It is also the ββbank for banksββ in the country. However, it is not the ββlender of last resortββ. In the event of a bank getting into trouble, rescue funds, such as long-term liquidity or equity support, would generally come from the Emirate in which the institution is based. Income from overseas investments has been used to fund fiscal deficits, obviating the need for the Central Bank to issue federal government debt. However, it does issue Certificates of Deposit (CDs) to the banks, denominated in both USD and AED, in order to absorb excess liquidity rather than to raise funds. There is presently no active secondary market in these securities, but they can be redeemed at face value at the Central Bank at any time. The AED is linked to the IMF Special Drawing Right. However, the USD is the intervention currency and in reality the AED is pegged to the dollar. This peg (at 3.67 AED: 1 USD) has been in place since the 1980s and has proved to be resilient both to political tensions in the region and fluctuations in the oil prices. The Central Bank is also responsible for regulating anti money laundering activities in the UAE and enforcing Federal Law No. 4 of 2002 regarding the criminalisation of Money Laundering. It has established a Financial Intelligence Unit, issued a number of detailed regulatory instructions in the establishment of Anti Money Laundering policies and procedures, and hosted teams from the Financial Action Task Force (FATF) and the International Monetary Fund (IMF) who reviewed, discussed and tested existing UAE laws and regulations. This led the FATF to decide in January 2002 that the UAE had put in place adequate Anti Money Laundering systems. Although the Central Bank is responsible for regulating all Banks, Exchange Houses, Investment Companies and other financial institutions in the UAE The Dubai Financial Services Authority regulates all banking and financial services activities in the Dubai Financial Centre. Accounting Standards Since 1st January, 1999 all banks have been required to prepare the financial statements in accordance with International Financial Reporting Standards (formerly International Accounting Standards (IAS)). However, there has been some resistance to this and as a consequence there is still some variation in the quality and depth of disclosure across the banking sector. Structure of the Banking System Banking institutions in the UAE fall into a number of categories, as defined by the Union Law. Domestic commercial banks, also known as ββNationalββ banks, of which there were 21 at the end of 2005, are required to be public shareholding companies with a minimum of AED40 million of share capital. Licensed foreign banks (25 at the end of 2005) need to demonstrate that at least AED40 million has been allocated as capital funds for their operations in the UAE. The Union Law also licenses ββfinancial institutionsββ (institutions whose principal functions are to extend credit, carry out financial transactions, invest in moveable property and other activities, but are not permitted to accept funds in the form of deposits) and Financial and Monetary intermediaries (money and stock brokers). Recent trends in Commercial Banking Profitability As stated above, the performance of the UAE banks is heavily influenced by oil price, which directly affects fiscal revenues and hence determines the level of investment in government projects in the country. The collapse of the oil price in 1999 resulted in a poor year for the banking sector, but results recovered in 2000 as the oil price rebounded. Return on equity for most UAE banks compares well internationally, reflecting the high margins that can be earned, particularly on retail lending and low cost income ratios. 103 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 Capital The national banks are comfortably capitalised by international standards. The Central Bank requires all UAE banks to have capital adequacy ratios above 10 per cent., but many are above 15 per cent. This reflects a lack of suitable lending opportunities in an over-banked market, but also a tendency amongst banks to be more concerned about safeguarding shareholderβs interests rather than maximising returns. It should be noted that, though the calculation of capital adequacy ratios in the UAE follows the BIS guidelines, GCC sovereign debt is risk-weighted at nil per cent. Lending and Asset Quality In 2005 credit extended by banks operating in the country increased by 37 per cent. to AED395 billion, against an increase of 26 per cent. in 2004. The growth in this area mainly occurred in providing credit to local industrial and trading enterprises and of this growth, loans to commercial and industrial entities made up 51 per cent. of credit extended. Liquidity Most of the UAE banks are funded through customer deposits, which are generally either retail or governmental in nature. Retail deposits have historically been a stable and low cost source of funding, whereas corporate deposits tend to be more volatile and price sensitive. Since 1999 the banks have increasingly approached the international markets for term funding and the Guarantor has been at the forefront of this activity. Position of Depositors There are no formal deposit protection schemes in the UAE. Whilst no bank, so far, has been permitted to fail, a number have needed to be rescued by the Authorities. In the mid 1980s, a collapse in the oil price led to a prolonged recession in the country. The build up of non-performing loans eroded the capital of a number of banks, requiring various rescue packages to be put together. EBI was formed from the merger of three banks β Union Bank of the Middle East, Dubai Bank and Emirates National Bank and funds provided by the Emirate of Dubai. Abu Dhabi Commercial Bank was formed from three retailbanks β Emirates Commercial Bank, Federal Commercial Bank and Khalij Commercial Bank. In this instance, the Central Bank provided temporary support funds, but eventually, the Government of Abu Dhabi had to step in with additional liquidity and equity. In 1988, a rescheduling of debt by the Government of Sharjah caused significant problems for the banks based in the Emirate. The Central Bank provided short term technical and liquidity support to the concerned institutions and financial support for the Emirate came from external sources in the GCC. In 1991, the Luxembourg incorporated Bank of Credit and Commerce International (BCCI) collapsed taking with it its UAE associate, the Bank of Credit and Commerce Emirates (BCCE). ADIA stepped in and acquired BCCIβs 40 per cent. holding in BCCE. The bank remains in government control and has since been renamed Union National Bank. Dubai Islamic Bank was the target of an unusual fraud in 1988, which resulted in it being embezzled out of a large sum of money. As a consequence, the bank had to restructure its capital, with the Government of Dubai taking an increased stake. First Gulf Bank suffered particularly badly as a result of the Solo Industries fraud in 1999, which led to it being re-capitalised by the Government of Abu Dhabi. 104 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 Prudential Regulations The Central Bank has supervisory responsibility for all banking institutions in the UAE. Supervision is carried out through on-site inspections and review of periodic submissions from the banks. The frequency of inspection depends on the perceived risk of the bank, but is at least once every 18 months. Prudential returns are made monthly, quarterly, semi annually or annually, depending on the nature of the information they contain. An improved risk management framework is currently being implemented aimed at providing the Central Bank with more up to date information on credit, market and operational risks within the banking sector. Capital Adequacy All banks are required to follow the principles of the Basel accord in calculating their capital adequacy ratios. Since 1993, the Central Bank has imposed a 10 per cent. minimum on the total capital ratio. The Tier 1 ratio must be above six per cent. and the Tier 2 ratio is not allowed to exceed 67 percent. of Tier 1 capital. Tier 2 capital includes undisclosed reserves, revaluations of assets (limited to a maximum of 45 per cent. of the excess of market value over net book value and property revaluation reserves are excluded). Hybrid capital instruments and subordinated term loans. Profits for the current period, goodwill, other intangibles, unrealised gains on investments and any shortfall in loan loss provisions are deducted from regulatory capital. GCC sovereign debt is risk-weighted at 0 per cent. Under Union Law No. 10 of 1980, banks are required to transfer 10 per cent. of profit each year into a statutory reserve until this makes up 50 per cent. of capital. Distributions cannot be made from this reserve, except in special legally defined circumstances. All dividends have to be authorised by the Central Bank. Liquidity The Central Bank closely monitors the level of liquidity in the banking system. It also requires that banks have adequate systems and controls to manage their liquidity positions and contingency plans in place to cope with periods of liquidity stress. Banks must also adhere to a maximum loan to deposit ratio of 100 per cent. set by the Central Bank. In this context, loans comprise loans and advances to customers and interbank assets maturing after three months. Deposits comprise 85 per cent. of all customer demand deposits and customer fixed deposits up to six months, interbank borrowings and customer deposits maturing after six months and free capital and reserves. Reserve Requirements Reserve requirements are used by the Central Bank as a means of prudential supervision and to control credit expansion. The reserve requirements are 1 per cent. for term deposits and 14 per cent. for all other customer balances. Diversification of Risk Banks are required to establish credit policies and procedures commensurate with their size and activities. They must also have a proper credit assessment and approval process and adequate controls in place to monitor credit concentrations to individual borrowers, economic sectors, foreign countries etc. The Central Bank defines large exposures as any funded on-or-off balance sheet exposure to a single borrower or group of related borrowers exceeding a prescribed set of limits. The large exposure limits (defined as a percentage of the bankβs capital base) are as follows: β’ To a single borrower or group of borrowers β 7 per cent. 105 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 β’ To a shareholder of the bank holding more than 5 per cent., of the bankβs capital β 7 per cent. β’ Overseas interbank exposures β 30 per cent. (UAE interbank exposures are subject to a 25 per cent. limit if their maturity is over one year, otherwise they are exempt from the regulations). β’ To the bankβs parent company, subsidiaries or affiliates β 20 per cent. (60 per cent. for all such exposures in aggregate). β’ To Board members β 5 per cent. (25 per cent. in aggregate). Exposures about the limits require Central Bank approval. Exposures to the Government are exempt from the regulations. The following lending limits also apply: β’ No commercial bank can hold shares or bonds issued by commercial companies in excess of 25 per cent. of the banks own funds. β’ No bank can grant loans or advances for the purpose of constructing commercial or residential real estate exceeding 20 per cent. of its total deposits, unless it has authorisation from the Central Bank as an institution specialising in this type of business. Provisions for Loan Losses The Central Bank stipulates that non-performing credits should be classified as either substandard, doubtful and loss depending on the likelihood of recovery, with provisions charged at a minimum of 25 per cent., 50 per cent. and 100 per cent., respectively. Any loans with either interest or principal in arrears by more than 180 days must be put on non-accrual and classified as nonperforming. In practice, several banks operate more stringent policies and place loans on nonaccrual as soon as their recovery is in doubt. Banks in the UAE are not permitted to write off non-performing loans from their books until all legal avenues of recovery have been exhausted. This tends to inflate the level of impaired loans relative to more developed banking systems. 106 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 GENERAL DESCRIPTION OF THE CO-OWNERSHIP ASSETS The Co-ownership Assets which are the subject of the Trust constituted for each Series of Trust Certificates may comprise, inter alia, a co-ownership interest in a portfolio of rights in Income Generating Assets. The Co-ownership Assets in respect of each Series of Trust Certificates will be originated or owned by the Bank and will, in the case of ijara contracts, represent obligations of lessees and obligors in the United Arab Emirates1. The Bank will represent in the Master Purchase Agreement that the co-ownership interests in Co-ownership Assets transferred to the Trustee in respect of each Series of Trust Certificates will be Sharia compliant assets. An outline summary of the co-ownership interests in Co-ownership Assets, which will be purchased by the Issuer on the Issue Date of the relevant Series of Trust Certificates, will be set out in the applicable Final Terms. The composition of the Co-ownership Assets may change over the life of each Series of Trust Certificates as such assets may mature and as the Managing Agent may utilise the Issuerβs share of collections from the relevant Co-ownership Assets to purchase rights in additional Income Generating Assets. No investigation or enquiry will or has been made and no due diligence will or has been conducted by or on behalf of any Dealer, the Issuer, the Guarantor or the Trustee in respect of any Co-ownership Assets or their transferability under relevant local law. Reference should be made to the paragraphs under βRisk Factors β Risk factors relating to the Coownership Assetsβ. 107 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 SUMMARY OF THE PRINCIPAL TRANSACTION DOCUMENTS The following is a summary of certain provisions of the principal Transaction Documents and is qualified in its entirety by reference to the detailed provisions of the principal Transaction Documents. Copies of the Transaction Documents will be available for inspection at the offices of the Principal Paying Agent (as defined in the Conditions). The Master Trust Deed, as supplemented by each Supplemental Trust Deed The Master Trust Deed is entered into on 7 June 2007 between the Bank, the Guarantor, the Issuer, the Trustee and the Delegate and is governed by English law. A Supplemental Trust Deed between the same parties shall be entered into on the Issue Date of each Series of Trust Certificates and shall also be governed by English law. Upon issue of the Global Trust Certificate initially representing the Trust Certificates of any Series, the Master Trust Deed and the relevant Supplemental Trust Deed shall together constitute the Trust declared by the Trustee in relation to such Series. The Trust Assets in respect of each Series of Trust Certificates comprise (unless otherwise specified in the relevant Supplemental Trust Deed), inter alia, the Issuerβs co-ownership interest in the Co-ownership Assets, its rights under the Transaction Documents and any amounts it may have deposited in the relevant Transaction Account, subject to the terms of the relevant Supplemental Trust Deed. The Master Trust Deed specifies that, on or after the relevant Maturity Date or, as the case may be, Dissolution Date of a Series of Trust Certificates, the rights of recourse in respect of Trust Certificates shall be limited to the amounts from time to time available and comprising the relevant Trust Assets of that Series, subject to the priority of payments set out in the Master Trust Deed, the relevant Supplemental Trust Deed, the relevant Trust Certificates and the Conditions. The Certificateholders have no claim or recourse against the Issuer or the Trustee in respect of any amount which is or remains unsatisfied and any unsatisfied amounts will be extinguished. Pursuant to the Master Trust Deed, the Trustee will, in relation to each Series of Trust Certificates, inter alia: (a) hold the Trust Assets; (b) enforce the Trust Assets including, insofar as it is able, taking all reasonably necessary steps to enforce each of the Purchase Undertaking Deed, the Guarantee and any other relevant Transaction Document if the Bank or, as the case may be, the Guarantor shall have at any time failed to perform its obligations under it; (c) collect and invest the proceeds of the Trust Assets in accordance with the terms of the Master Trust Deed and, if applicable, the terms of the relevant Supplemental Trust Deed; (d) distribute the proceeds of any enforcement of the Trust Assets, as described in the Master Trust Deed and in the Management Agreement (see the section entitled βSummary of the Principal Transaction Documents β Management Agreementβ); (e) maintain proper books of account in respect of the relevant Trust; and (f) take such other steps as are reasonably necessary to ensure that the Certificateholders of each Series receive the distributions to be made to them in accordance with the Transaction Documents. 108 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 In the Master Trust Deed the Trustee also undertakes that, inter alia: (a) it may or shall upon being directed to do so by the Certificateholders enforce the obligations of the Bank and the Guarantor under the Master Trust Deed, the Purchase Undertaking Deed and any other Transaction Document to which the Bank or the Guarantor is a party; (b) to the extent that it prepares accounts, it shall cause to be prepared and certified by its auditors in respect of each financial accounting period accounts in such form as will comply with all relevant legal and accounting requirements and all requirements for the time being of any stock exchange on which the Trust Certificates are listed; and (c) following the occurrence of a Dissolution Event in respect of any Series of Trust Certificates and subject to Condition 14 (Dissolution Events), it shall (i) promptly notify the Certificateholders of the occurrence of such Dissolution Event, and (ii) take all such steps as are necessary to enforce the obligations of the Bank and the Guarantor under the Master Trust Deed, the Purchase Undertaking Deed and any other Transaction Document to which the Bank or the Guarantor, as the case may be, is a party. A Transaction Account will be established in respect of each Series of Trust Certificates. Monies received in the Transaction Account in respect of each Series will, inter alia, comprise (i) payments from the relevant Return Collection Account immediately prior to each Periodic Distribution Date (see βSummary of the Principal Transaction Documents β Management Agreementβ below) and (ii) the Exercise Price received from the Bank under the relevant Sale Agreement (see βSummary of the Principal Transaction Documents β Purchase Undertaking Deedβ below). The Master Trust Deed provides that all monies credited to the Transaction Account in respect of each Series will be applied in the following order of priority: (a) first, to the Delegate in respect of all amounts owing to it under the Transaction Documents in its capacity as Delegate; (b) second, to the Principal Paying Agent for application in or towards payment pari passu and rateably of all Periodic Distribution Amounts due and unpaid; (c) third, only if such payment is made on the Maturity Date or any Dissolution Date, to the Principal Paying Agent for application in or towards payment pari passu and rateably of the relevant Dissolution Amount; and (d) fourth, only if such payment is made on the Maturity Date or any Dissolution Date, to the Issuer. The Guarantor will, in the Master Trust Deed, unconditionally and irrevocably guarantee (the Guarantee) the due and punctual payment in accordance with the provisions of the Transaction Documents of all amounts payable by the Bank under the Transaction Documents and the due and punctual performance and observance by the Bank of each of the other provisions of the Transaction Documents to be performed or observed by the Bank. In the Guarantee, the Guarantor will undertake, in relation to each Series of Trust Certificates, that, until the Trust Certificates of the relevant Series have been redeemed in accordance with the Conditions, it will ensure that no indebtedness of, or Guarantee of indebtedness given by, it or any of its Relevant Subsidiaries will be subject to any Encumbrance, other than a Permitted Encumbrance, upon, or with respect to, any of the present or future business, undertaking, assets or revenues (including any uncalled capital) of the Guarantor or any of its Relevant Subsidiaries unless the Guarantor shall, in the case of the creation of the Encumbrance, before or at the same time and, in any other case, promptly, take any and all action necessary to ensure that: (i) all amounts payable by it under the Guarantee are secured by the Encumbrance equally and rateably with the indebtedness; or 109 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 (ii) such other Encumbrance or other arrangement (whether or not it includes the giving of a Encumbrance) is provided as shall be approved by the holders of the Trust Certificates of the relevant Series by an Extraordinary Resolution or by the Delegate. For this purpose: Auditors means a firm of independent auditors of good repute appointed by the Guarantor. Encumbrance means (i) a mortgage, charge, pledge, lien or other encumbrance securing any obligation of any person, (ii) any arrangement under which money or claims to, or the benefit of, a bank or other account may be applied, set off or made subject to a combination of accounts so as to effect discharge of any sum owed or payable to any person or (iii) any other type of preferential arrangement (including any title transfer and retention arrangement) having a similar effect. Guarantee means, in relation to any indebtedness of any person, any obligation of another person to pay such indebtedness following demand or claim on that person including (without limitation): (a) any obligation to purchase such indebtedness; (b) any obligation to extend financing, to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such indebtedness; (c) any indemnity against the consequences of a default in the payment of such indebtedness; and (d) any other agreement to be responsible for such indebtedness. Group means the Guarantor, its holding company (if any) and the Subsidiaries of the Guarantor or any such holding company for the time being. Permitted Encumbrance means: (i) any Encumbrance arising in the ordinary course of banking transactions including, without limitation, sale and repurchase transactions and share, loan and bond lending transactions, provided that any such Encumbrance is limited to the assets which are the subject of the relevant transaction; (ii) any Encumbrance (other than any Encumbrance created under sub-paragraph (v) below) in respect of any indebtedness, provided that the aggregate outstanding amount secured thereby shall not at any time exceed an amount equal to 10 per cent. of the aggregate of the share capital and reserves of the Guarantor and its Relevant Subsidiaries, as provided in its most recent audited accounts; (iii) any Encumbrance created or outstanding with the prior approval of the Delegate or of an Extraordinary Resolution of the holders of the Trust Certificates of the relevant Series; (iv) any lien arising by operation of law and in the normal course of business, if such lien is discharged within thirty days of arising; and (v) any Encumbrance created or given by, or arising over, the assets from time to time of, Union Properties PJSC, a member of the Group engaged in estate development and management, provided that any such Encumbrance is created in connection with the business of Union Properties PJSC whilst engaged in estate development and management. Relevant Subsidiary shall mean a company or corporation: (i) 75 per cent. or more of the issued capital of which is beneficially owned, directly or indirectly, by the Guarantor; and 110 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 (ii) the book value of the assets of which exceeds five per cent. of the book value of the assets of the Group taken as a whole or the revenues of which exceed five per cent. of the revenues of the Group taken as a whole and, for these purposes: (A) the book value of the assets and the revenues of such company or corporation shall be determined by reference to its then most recent audited annual financial statements (or, if none, its then most recent management accounts); and (B) the book value of the assets and the revenues of the Group shall be determined by reference to its then most recent audited annual consolidated financial statements, in each case adjusted, as the Auditors may consider appropriate, to take account of any changes in circumstances since the date as of which such financial statements (or management accounts) were prepared. A report of the Auditors that in their opinion a company or corporation is or is not or was or was not at any particular time or throughout any specified period a Relevant Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties. In the Guarantee, the Guarantor will agree that each of the following events will constitute a Guarantor Event: (i) the Guarantor makes default in the payment of any amount due in respect of the Guarantee and the default continues for a period of seven Business Days; or (ii) the Guarantor fails to perform or observe any of its other obligations under the Transaction Documents to which it is a party and (except in any case where the failure is incapable of remedy when no such continuation or notice as is hereinafter mentioned will be required) the failure continues for the period of 30 days next following the service by the Delegate on the Guarantor of notice requiring the same to be remedied; or (iii) any indebtedness of the Guarantor or any Material Subsidiary is not paid when due or within any applicable grace period or becomes due and payable prior to its specified maturity (and, in the case of a guarantee or indemnity, is called), provided that it shall not constitute a Guarantor Event unless the aggregate amount (or its equivalent in US dollars) of all such indebtedness either alone or when aggregated with all other such indebtedness which shall remain unpaid or unsatisfied, as the case may be, shall be more than US$5,000,000; or (iv) the Guarantor or any Material Subsidiary takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, nationalisation, dissolution, administration or re-organisation (whether by way of voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any substantial part or all of its revenues and assets and such proceedings are not frivolous or vexatious or are not being actively contested in good faith by the Guarantor or, as the case may be, such Material Subsidiary save, in the case of the Guarantor, for the purposes of reorganisation on terms approved by an Extraordinary Resolution or, in the case of a Material Subsidiary (A) for the purposes of a solvent consolidation, amalgamation or restructuring, pursuant to which some or all the assets of such Material Subsidiary are transferred to any one or more members of the Group or (B) for the purposes of reorganisation on terms previously approved by an Extraordinary Resolution provided that a bona fide disposal for full value on an armβs length basis of the whole or a substantial part of the business of the Guarantor or a Material Subsidiary shall not be deemed in any event to be a Guarantor Event for the purposes of this sub-paragraph; or (v) the Guarantor ceases to carry on the whole or a substantial part of its business, or any Material Subsidiary ceases to carry on 50 per cent. or more of the whole of its business save, in the case of the Guarantor, for the purposes of reorganisation on terms previously 111 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 approved by an Extraordinary Resolution or, in the case of a Material Subsidiary (A) for the purposes of a solvent consolidation, amalgamation or restructuring, pursuant to which some or all the assets of such Material Subsidiary are transferred to any one or more members of the Group or (B) for the purposes of reorganisation on terms previously approved by an Extraordinary Resolution provided that a bona fide disposal for full value on an armβs length basis of (1), in the case of the Guarantor, the whole or a substantial part of the business of the Guarantor or (2), in the case of a Material Subsidiary, 50 per cent. or more of the business of such Material Subsidiary shall not be deemed in any event to be a Guarantor Event for the purposes of this sub-paragraph; or (vi) the Guarantor or any Material Subsidiary is unable to pay its debts as they fall due, commences negotiations with its creditors as a whole or any one or more classes of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of or a composition with its creditors; or (vii) any execution or distress is levied against, or an encumbrancer takes possession of, (A) the whole or any substantial part of the property, undertaking or assets of the Guarantor or (B) 50 per cent. or more of the whole of the property, undertaking or assets of any Material Subsidiary or any event occurs which under the laws of any jurisdiction has a similar or analogous effect, unless such enforcement proceedings are frivolous or vexatious or are being actively contested in good faith by the Guarantor or such Material Subsidiary, as the case may be; or (viii) the Guarantor or any Material Subsidiary fails to comply with or pay any sum which amount shall not be less than US$5,000,000 due from it under any final non-appealable judgment or any final non-appealable order made or given by any court of competent jurisdiction and such failure continues for period of 30 days next following the service by the Delegate on the Guarantor of notice requiring the same to be paid/remedied; or (ix) by or under the authority of any government, (A) the management of the Guarantor or any Material Subsidiary is wholly or partially displaced or the authority of the Guarantor or any Material Subsidiary in the conduct of its business is wholly or partially curtailed or (B) all or a majority of the issued shares of the Guarantor or any Material Subsidiary or the whole or any part (the book value of which is 20 per cent. or more of the book value of the whole) of its revenues or assets is seized, nationalised, expropriated or compulsorily acquired; or (x) at any time it is or becomes unlawful for the Guarantor to perform or comply with any or all of its obligations under or in respect of the Transaction Documents or any of the material obligations of the Guarantor thereunder are not or cease to be legal, valid, binding and enforceable; or (xi) the United Arab Emirates ceases to be a member in good standing or becomes ineligible to use the resources of the International Monetary Fund; or (xii) the Government of Dubai at any time ceases to own directly or indirectly not less than 51 per cent. of the issued share capital of the Guarantor. For these purposes: a holding company of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a Subsidiary; indebtedness shall be construed so as to include any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent; Material Subsidiary shall mean a Subsidiary from time to time of the Guarantor, the book value of the assets of which exceeds five per cent., of the book value of the assets of the Group taken 112 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 as a whole or the revenues of which exceed five per cent. of the revenues of the Group taken as a whole and, for these purposes: (i) the book value of the assets and the revenues of such Subsidiary shall be determined by reference to its then most recent audited annual financial statements (or, if none, its then most recent management accounts); and (ii) the book value of the assets and the revenues of the Group shall be determined by reference to its then most recent audited annual consolidated financial statements, in each case adjusted, as the Auditors may consider appropriate, to take account of any changes in circumstances since the date as of which such financial statements (or management accounts) were prepared. A report of the Auditors that in their opinion a Subsidiary of the Guarantor is or is not or was or was not at any particular time or throughout any specified period a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties; a Subsidiary of a company or corporation shall be construed as a reference to any company or corporation: (i) which is controlled, directly or indirectly, by the first-mentioned company or corporation; or (ii) more than half the issued share capital of which is beneficially owned, directly or indirectly, by the first-mentioned company or corporation; or (iii) which is a subsidiary of another subsidiary of the first-mentioned company or corporation, and, for these purposes, a company or corporation shall be treated as being controlled by another if that other company or corporation is able to direct its affairs and/or to control the composition of its board of directors or equivalent body. the winding-up, dissolution or administration of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtor. The Master Purchase Agreement, as supplemented by each Supplemental Purchase Contract The Master Purchase Agreement is entered into on 7 June 2007 between the Bank and the Issuer (including in its capacity as trustee). In relation to each Series of Trust Certificates, a Supplemental Purchase Contract will be entered into by the Bank and the Issuer (including in its capacity as trustee) which shall set out the details of the sale of the co-ownership interest in the relevant Coownership Assets. The Master Purchase Agreement and each Supplemental Purchase Contract applicable to a Series of Trust Certificates are, and will be, governed by UAE law. Sale of co-ownership interest in Co-ownership Assets On the Issue Date of the relevant Series, the Bank agrees to sell to the Issuer a co-ownership interest in the Co-ownership Assets identified in a schedule to the relevant Supplemental Purchase Contract. To the extent that any transfer of such co-ownership interest in any of the Coownership Assets is not effective in any jurisdiction for any reason, the Bank has, in the Purchase Undertaking Deed, agreed to make restitution in respect of all amounts received by it in respect of those Co-ownership Assets. 113 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 Purchase Price The purchase price payable for the co-ownership interest in the Co-ownership Assets of any relevant Series of Trust Certificates will be set out in the relevant Supplemental Purchase Contract and will equal the face amount of the relevant Series of Trust Certificates. Records All records in respect of the Co-ownership Assets will be retained by the Bank. Representations and Warranties The Bank will only provide very limited representations and warranties in respect of the Coownership Assets on the Issue Date of the relevant Series. Undertakings of the Bank The Bank provides only very limited undertakings in the Master Purchase Agreement. Management Agreement The Management Agreement is entered into on 7 June 2007 between the Issuer (including in its capacity as trustee) and the Bank, in its capacities as a co-owner and as managing agent of the Co-ownership Assets (in such latter capacity, the Managing Agent) and is governed by UAE law. Appointment of the Bank as Managing Agent The Issuer will appoint the Managing Agent to service its co-ownership interest in the Coownership Assets applicable to each Series of Trust Certificates. In particular, the Managing Agent will: (a) use its best endeavours to do all acts and things (including execution of such documents, issue of notices and commencement of any proceedings) to ensure the assumption and compliance by each ijara or sukuk transaction party or any other transaction party of its covenants, undertakings or other obligations under the ijara contracts or sukuk (or other contracts in relation to Co-ownership Assets) to which it is party in accordance with applicable law and terms of the ijara contracts or sukuk (or other contracts in relation to Coownership Assets); (b) use its best endeavours to discharge all obligations in respect of any assets that are at any time the subject of an ijara contract (the Leased Co-ownership Assets) required by the Sharia to be assumed by a lessor, including: (A) all structural repair and major maintenance without which the Leased Co-ownership Assets could not be reasonably and properly used by a lessee; and (B) payment of all Taxes in relation to the Leased Co-ownership Assets by law imposed, charged or levied against a proprietor, but excluding all Taxes that are by law imposed, charged or levied against a lessee; (c) use its best endeavours to procure that any service agent appointed by the Bank in respect of the Leased Co-ownership Assets carries out the duties that it has contracted to perform; (d) use its best endeavours to ensure the timely receipt of all Co-ownership Revenues, investigate non-payment of Co-ownership Revenues and generally make all reasonable efforts to collect or enforce the collection of such Co-ownership Revenues under the relevant contract as and when the same shall become due; (e) maintain each Collection Account in accordance with the Management Agreement; 114 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 (f) obtain all necessary authorisations in connection with any of the Co-ownership Assets and its obligations under or in connection with the Management Agreement; (g) provide Sharia compliant funding without recourse to the Co-ownership Assets to ensure, among other matters, that the Issuerβs entitlement to Co-ownership Revenues is paid to the Issuer on a timely basis and in accordance with the Management Agreement; and (h) carry out any incidental matters relating to any of the above. Standard of Care The Managing Agent shall perform its duties under the Management Agreement in accordance with all applicable laws and regulations, with the degree of skill and care that it would exercise in respect of its own assets and in a manner that is not repugnant to the Sharia. Fees The Bank shall be entitled to receive a fee for acting as Managing Agent which will comprise a fixed basic fee of US$100 and may also receive an incentive fee calculated as the remaining amounts available from the application of profit collections, as more particularly described in βOperation of the Collection Accountsβ below. Operation of Collection Accounts The Managing Agent will maintain two ledger accounts (referred to as the Base Amount Collection Account and the Return Collection Account) in respect of each Series of Trust Certificates. All monies received by the Managing Agent in respect of Co-ownership Assets of each Series will be recorded, to the extent that they comprise return in respect of profit on Co-ownership Assets (Return Co-ownership Revenues), in the Return Collection Account and, to the extent that they are not Return Co-ownership Revenues, in the Base Amount Collection Account. In the case of Return Co-ownership Revenues credited to the Return Collection Account, the revenues will be applied by the Managing Agent in the following order of priority: (a) first, payment of all or any due and payable Co-ownership Liabilities Amounts including the repayment of any amounts advanced to the Issuer by the Managing Agent by way of Sharia compliant funding; (b) second, to the Co-owners in proportion to their respective co-ownership interests. In the case of the Return Co-ownership Revenues attributable to the Issuerβs co-ownership interest, such revenues will be paid into the relevant Transaction Account immediately prior to the next following Periodic Distribution Date; and (c) third, but only to the extent permitted by the Management Agreement, in payment of incentive fees. In respect of the Co-ownership Revenues credited to the Base Amount Collection Account, the revenues will be paid to the Co-owners in proportion to their respective co-ownership interests. In the case of such Co-ownership Revenues attributable to the Issuerβs co-ownership interest, the revenues will be applied by the Managing Agent in acquiring co-ownership interests in further assets of the Bank such that the assets become Co-ownership Assets, all on and subject to the terms of the Transaction Documents and, before such application, may be invested in Sharia compliant investments provided that at all times pending the payment by the Bank of the Exercise Price under the Purchase Undertaking Deed, the Managing Agent will ensure that at least 30 per cent. of the value of the Co-ownership Assets from time to time will be comprised of Income Generating Assets. 115 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 Representations and Warranties The Managing Agent shall make certain limited representations and warranties including, inter alia, as to due incorporation, power and authority and the validity of its obligations under the Management Agreement. Termination of Appointment The Bankβs appointment as Managing Agent may be terminated without notice upon the occurrence of any Bank Event (see βSummary of the Principal Transaction Documents β Purchase Undertaking Deedβ below) or Guarantor Event (see βSummary of the Principal Transaction Documents β The Master Trust Deed, as supplemented by each Supplemental Trust Deedβ above). The occurrence of a Bank Event or a Guarantor Event will also be a Dissolution Event allowing the Trustee, at its option to declare (or, upon written request of Certificateholders representing not less than one-fifth in face amount of the relevant Series of Trust Certificates for the time being outstanding and being indemnified and/or secured to its satisfaction, requiring it to declare) the Trust Certificates of the relevant Series to be immediately due and payable. The payment obligations of the Managing Agent under the Management Agreement are and will be direct, unconditional, unsecured and general obligations of the Managing Agent and shall rank at least pari passu with all other unsecured, unsubordinated and general obligations of the Managing Agent. Purchase Undertaking Deed The Purchase Undertaking Deed is entered into on 7 June 2007 between the Bank and the Issuer (including in its capacity as trustee) and is governed by English law. The Bank will irrevocably undertake in favour of the Issuer (including in its capacity as trustee) to purchase all of the Issuerβs co-ownership interest in the Co-ownership Assets of each Series of Trust Certificates on the relevant Maturity Date or, if earlier, on the Dissolution Date of the relevant Series of Trust Certificates. The price (the Exercise Price) payable by the Bank shall be equal to the outstanding face amount of the relevant Series of Trust Certificates, which shall be calculated as the Aggregate Face Amount of such Series of Trust Certificates. The specific terms applicable to each such sale will be confirmed in a Sale Agreement, to be executed by the Issuer (including in its capacity as trustee) and the Bank on the Dissolution Date or, as the case may be, the Maturity Date of the relevant Series of Trust Certificates. The form of each such Sale Agreement is appended to the Purchase Undertaking Deed. In the Purchase Undertaking Deed, the Bank will undertake (in the event that the Bank ceases to be a Relevant Subsidiary of the Guarantor) that, until the Trust Certificates have been redeemed in accordance with the Conditions, it shall ensure that no indebtedness of, or any Guarantee of indebtedness given by, it or any of its Subsidiaries will be subject to any Encumbrance, other than a Permitted Encumbrance, upon, or with respect to, any of the present or future business, undertaking, assets or revenues (including any uncalled capital) of the Bank or any of its Subsidiaries unless the Bank shall, in the case of the creation of the Encumbrance, before or at the same time and, in any other case, promptly, take any and all action necessary to ensure that: (i) all amounts payable by it under the Transaction Documents are secured by the Encumbrance equally and rateably with the indebtedness; or (ii) such other Encumbrance or other arrangement (whether or not it includes the giving of a Encumbrance) is provided as shall be approved by the Certificateholders by an Extraordinary Resolution or by the Delegate. 116 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 For these purposes: Permitted Encumbrance means: (i) any Encumbrance arising in the ordinary course of banking transactions including, without limitation, sale and repurchase transactions and share, loan and bond lending transactions, provided that any such Encumbrance is limited to the assets which are the subject of the relevant transaction; (ii) any Encumbrance in respect of any indebtedness, provided that the aggregate outstanding amount secured thereby shall not at any time exceed an amount equal to 10 per cent. of the aggregate of the share capital and reserves of the Guarantor and its Subsidiaries, as provided in its most recent audited accounts; (iii) any Encumbrance created or outstanding with the prior approval of the Delegate or of an Extraordinary Resolution of the Certificateholders; and (iv) any lien arising by operation of law and in the normal course of business, if such lien is discharged within thirty days of arising. Relevant Subsidiary shall mean a company or corporation: (i) 75 per cent. or more of the issued capital of which is beneficially owned, directly or indirectly, by the Guarantor; and (ii) the book value of the assets of which exceeds five per cent. of the book value of the assets of the Group taken as a whole or the revenues of which exceed five per cent. of the revenues of the Group taken as a whole and, for these purposes: (A) the book value of the assets and the revenues of such company or corporation shall be determined by reference to its then most recent audited annual financial statements (or, if none, its then most recent management accounts); and (B) the book value of the assets and the revenues of the Group shall be determined by reference to its then most recent audited annual consolidated financial statements, in each case adjusted, as the Auditors may consider appropriate, to take account of any changes in circumstances since the date as of which such financial statements (or management accounts) were prepared. A report of the Auditors that in their opinion a company or corporation is or is not or was or was not at any particular time or throughout any specified period a Relevant Subsidiary shall, in the absence of manifest error, be conclusive and binding on all parties. The terms Encumbrance, Guarantee and Subsidiary will have the same meanings as set out in the Master Trust Deed. In addition, the Bank has agreed that each of the following events will constitute a Bank Event: (a) the Bank fails to pay any amount payable pursuant to any Transaction Document to which it is a party unless its failure to pay is caused by an administrative or technical error and such payment is made within 7 business days of its due date; or (b) the Bank fails to perform or observe any of its covenants and/or obligations or is in breach of any of its representations and warranties in each case under the Management Agreement or under any other Transaction Document to which it is a party and such breach is, in the opinion of the Delegate, materially prejudicial to the interests of the Certificateholders; or (c) any indebtedness of the Bank is not paid when due or within any originally applicable grace period or becomes due and payable prior to its specified maturity (and, in the case of a guarantee or indemnity, is called) provided that it shall not constitute a Bank Event unless 117 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 the aggregate amount (or its equivalent in US dollars) of all such indebtedness, either alone or when aggregated with all other indebtedness which shall remain unpaid or unsatisfied, as the case may be, shall be more than US$5,000,000; or (d) the Bank takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, nationalisation, dissolution, administration or re-organisation (whether by way of voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any substantial part or all of its revenues and assets and such proceedings are not frivolous or vexatious or are not being actively contested in good faith by the Bank save for the purposes of reorganisation on terms approved by an Extraordinary Resolution; or (e) the Bank ceases to carry on the whole or a substantial part of its business save for the purposes of reorganisation on terms previously approved by an Extraordinary Resolution provided that a bona fide disposal for full value on an armβs length basis of the whole or a substantial part of the business of the Bank shall not be deemed in any event to be a Bank Event for the purposes of this sub-paragraph; or (f) the Bank is unable to pay its debts as they fall due, commences negotiations with its creditors as a whole or any one or more classes of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of or a composition with its creditors; or (g) any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any substantial part of the property, undertaking or assets of the Bank or any event occurs which under the laws of any jurisdiction has a similar or analogous effect, unless such enforcement proceedings are frivolous or vexatious or are being actively contested in good faith by the Bank; or (h) the Bank fails to comply with or pay any sum which amount shall not be less than US$5,000,000 due from it under any final non-appealable judgment or any final nonappealable order made or given by any court of competent jurisdiction and such failure continues for period of 30 days next following the service by the Delegate on the Bank of notice requiring the same to be paid/remedied; or (i) by or under the authority of any government, (A) the management of the Bank is wholly or partially displaced or the authority of the Bank in the conduct of its business is wholly or partially curtailed or (B) all or a majority of the issued shares of the Bank or the whole or any part (the book value of which is 20 per cent. or more of the book value of the whole) of its revenues or assets is seized, nationalised, expropriated or compulsorily acquired; or (j) at any time it is or becomes unlawful for the Bank to perform or comply with any or all of its obligations under or in respect of the Transaction Documents or any of the material (in the opinion of the Delegate) obligations of the Bank thereunder are not or cease to be legal, valid, binding and enforceable; or (k) the Guarantor at any time ceases to own directly or indirectly not less than 51 per cent. of the issued share capital of the Bank. For this purpose, the winding-up, dissolution or administration of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors. 118 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 06 : 3700 Section 06 The Bank will agree in the Purchase Undertaking Deed that, to the extent that the sale and purchase or transfer of any co-ownership interest in its undivided rights, title, interests, benefits and entitlements in any Co-ownership Assets is not effective in any jurisdiction for any reason, it will agree in consideration for the payment of the relevant purchase price to make payment of the relevant purchase price by way of restitution to the Issuer immediately upon request. The Bank will agree in the Purchase Undertaking Deed that all payments by it under the Purchase Undertaking Deed, any Sale Agreement and the Management Agreement will be made without any deductions or withholding for or on account of tax unless required by law and without set-off or counterclaim and, in the event that there is any deduction, withholding, set off or counterclaim, the Bank shall pay all additional amounts as will result in the receipt by the Issuer of such net amounts as would have been received by it if no withholding, deduction, set-off or counterclaim had been made. The payment obligations of the Bank under the Purchase Undertaking Deed are and will be direct, unconditional, unsecured and general obligations of the Bank and shall rank at least pari passu with all other unsecured, unsubordinated and general obligations of the Bank. Costs Undertaking Deed Pursuant to a Costs Undertaking Deed given by the Bank and the Guarantor, each of them will pay certain fees and expenses of, and indemnify against certain losses of, among others, the Trustee, the Delegate, the Principal Paying Agent, the Payment Administrator, the Transfer Agent, the Replacement Agent, the Calculation Agent and the Registrar. Representations of No Immunity In each of the Transaction Documents to which the Bank and/or the Guarantor is a party, the Bank and/or the Guarantor, as the case may be, has represented and warranted that it has entered into such Transaction Document in connection with the exercise of its powers to raise money or to provide a guarantee in connection with the raising of money, as the case may be. Accordingly, the Bank and/or the Guarantor has, in each of those Transaction Documents to which either of them is a party (or both of them are parties), acknowledged and agreed that each or both of them, as the case may be, is/are not entitled to claim for itself/themselves or any of its/their assets immunity from legal process in actions taken in relation to any Transaction Document and brought against the Bank and/or the Guarantor in a court of competent jurisdiction irrespective of the identity of the holders of beneficial interests in the Trust Certificates. 119 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 TAXATION The following is a general description of certain tax considerations relating to the Trust Certificates. It does not purport to be a complete analysis of all tax considerations relating to the Trust Certificates. Prospective purchasers of Trust Certificates should consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes of acquiring, holding and disposing of Trust Certificates and receiving payments of profit, principal and/or other amounts under the Trust Certificates. This summary is based upon the law as in effect on the date of this Base Prospectus and is subject to any change in law that may take effect after such date. United Arab Emirates The following summary of the anticipated tax treatment in the UAE in relation to the payments on the Trust Certificates is based on the taxation law and practice in force at the date of this Base Prospectus, and does not constitute legal or tax advice and prospective investors should be aware that the relevant fiscal rules and practice and their interpretation may change. Prospective investors should consult their own professional advisers on the implications of subscribing for, buying, holding, selling, redeeming or disposing of Trust Certificates and the receipt of any payments in respect of any Periodic Distribution Amounts and distributions (whether or not on a winding-up) with respect to such Trust Certificates under the laws of the jurisdictions in which they may be liable to taxation. There is currently in force in the Emirates of Abu Dhabi and Dubai legislation establishing a general corporate taxation regime (the Abu Dhabi Income Tax Decree 1965 (as amended) and the Dubai Income Tax Decree 1969 (as amended)). The regime is, however, not enforced save in respect of companies active in the hydrocarbon industry, some related service industries and branches of foreign banks operating in the United Arab Emirates. It is not known whether the legislation will or will not be enforced more generally or within other industry sectors in the future. Under current legislation, there is no requirement for withholding or deduction for or on account of UAE, Abu Dhabi or Dubai taxation in respect of payments on debt securities (including Periodic Distribution Amounts or the Dissolution Amounts in relation to the Trust Certificates). The Constitution of the UAE specifically reserves to the federal government of the UAE the right to raise taxes on a federal basis for purposes of funding its budget. It is not known whether this right will be exercised in the future. The United Arab Emirates has entered into Double Taxation Arrangements with certain other countries, but these are not extensive in number. Cayman Islands There are no income, corporation, capital gains or other taxes in effect in the Cayman Islands on the basis of present legislation. The Issuer has applied for and expects to obtain an undertaking from the Governor in Cabinet of the Cayman Islands, pursuant to the Tax Concessions Law (as revised) of the Cayman Islands, that for a period of 20 years from the date of grant of that undertaking no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Issuer or its operations and, in addition, that no tax to be levied on profits, income, gains or appreciations which is in the nature of estate duty or inheritance tax shall be payable on or in respect of the shares, debentures or other obligations (which includes the Trust Certificates) of the Issuer or by way of the withholding in whole or part of any relevant payment. No capital or stamp duties are levied in the Cayman Islands on the issue, transfer or redemption of Trust Certificates. However, an instrument transferring title to such Trust Certificates, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty. An annual registration fee is payable by the Trustee to the Cayman Islands Registrar of Companies which is calculated by reference to the nominal amount of its 120 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 authorised capital. At current rates, this annual registration fee is approximately US$575. The foregoing is based on current law and practice in the Cayman Islands and this is subject to change therein. EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are required to provide to the tax authorities of another Member State details of payments of interest (or similar income, which may include Periodic Distribution Amounts) paid by a person within its jurisdiction to an individual resident in that other Member State. However, for a transitional period, Belgium, Luxembourg and Austria are instead required (unless during that period they elect otherwise) to operate a withholding system in relation to such payments (the ending as of such transitional period being dependent upon the conclusion of certain other agreements relating to information exchange with certain other countries). A number of non-EU countries and territories including Switzerland have adopted similar measures (a withholding system in the case of Switzerland) with effect from the same date. 121 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 SUBSCRIPTION AND SALE The Dealers have, in a programme agreement (the Programme Agreement) dated 7 June 2007, agreed with the Issuer, the Bank and the Guarantor a basis upon which they or any of them may from time to time agree to purchase Trust Certificates. Any such agreement will extend to those matters stated under βTerms and Conditions of the Trust Certificatesβ. In the Programme Agreement, each of the Issuer, the Bank and the Guarantor has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment and any future update of the Programme and the issue of Trust Certificates under the Programme. United States The Trust Certificates have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Each Dealer has represented and agreed that it has offered and sold any Trust Certificates, and will offer and sell any Trust Certificates (a) as part of their distribution at any time and (b) otherwise until 40 days after the completion of the distribution of all Trust Certificates of the Series of which such Trust Certificates are a part as determined and certified as provided below, only in accordance with Rule 903 of Regulation S under the Securities Act. Each Dealer who purchases Trust Certificates of a Series (or in the case of a sale of a Series of Trust Certificates issued to or through more than one Dealer, each of such Dealers as to the Trust Certificates of such Series to be purchased by or through it or, in the case of a syndicated issue, the relevant Lead Manager) shall determine and certify to the Principal Paying Agent the completion of the distribution of the Trust Certificates of such Series. On the basis of such notification or notifications, the Principal Paying Agent has agreed to notify such Dealer/Lead Manager of the end of the distribution compliance period with respect to such Series. Each Dealer has also agreed that, at or prior to confirmation of sale of Trust Certificates, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Trust Certificates from it during the distribution compliance period a confirmation or notice to substantially the following effect: βThe Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Securities as determined and certified by the relevant Dealer, in the case of a non-syndicated issue, or the Lead Manager, in the case of a syndicated issue, and except in either case in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S.β Terms used in this sub-section have the meanings given to them by Regulation S. Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it, its affiliates or any persons acting on its or their behalf have not engaged and will not engage in any directed selling efforts with respect to any Trust Certificate, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Trust Certificates to the public in that Relevant Member State, except that it may, 122 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 with effect from and including the Relevant Implementation Date, make an offer of Trust Certificates to the public in that Relevant Member State: (a) in (or in Germany, where the offer starts within) the period beginning on the date of publication of a prospectus in relation to those Trust Certificates which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive and ending on the date which is 12 months after the date of such publication; (b) at any time to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities; (c) at any time to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year; (ii) a total balance sheet of more than β¬43,000,000 and (iii) an annual net turnover of more than β¬50,000,000, as shown in its last annual or consolidated accounts; or (d) at any time in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Trust Certificates to the public in relation to any Trust Certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Trust Certificates to be offered so as to enable an investor to decide to purchase or subscribe the Trust Certificates, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State. United Kingdom Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Trust Certificates in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer, the Bank or the Guarantor; and (b) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to any Trust Certificates in, from or otherwise involving the United Kingdom. United Arab Emirates Each Dealer has acknowledged and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) the Trust Certificates to be issued under the Programme have not been and will not be publicly offered, sold or promoted or advertised by it in the United Arab Emirates other than in compliance with any laws applicable in the United Arab Emirates governing the issue, offering and sale of securities; and (b) the information contained in this Base Prospectus does not constitute an offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law (Federal Law No. 8 of 1986 (as amended)) or otherwise and is not intended to be a public offer and 123 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 the information contained in this Base Prospectus is not intended to lead to the conclusions of any contract of whatsoever nature within the territory of the United Arab Emirates. Kingdom of Saudi Arabia Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that the Trust Certificates may only be offered and sold in the Kingdom of Saudi Arabia in accordance with the Offer of Securities Regulations issued by the Board of the Saudi Capital Markets Authority in 2004, as amended (the Regulations). The Regulations state that if securities are offered to no more than 60 offerees in the Kingdom of Saudi Arabia and the minimum consideration payable is not less than the US$ equivalent of Saudi Riyals 1 million per offeree, such offer of securities shall be deemed to be an exempt offer for the purposes of the Regulations, but is subject to the following restrictions on secondary market activity: (a) A Saudi Investor (the transferor) who has acquired Trust Certificates pursuant to this exempt offer may not offer or sell Trust Certificates to any person (referred to as a transferee) unless the price to be paid by the transferee for such Trust Certificates equals or exceeds SR1 million. (b) If the provisions of paragraph (a) cannot be fulfilled because the price of the Trust Certificates being offered or sold to the transferee has declined since the date of the original exempt offer, the transferor may offer or sell the Trust Certificates to the transferee if their purchase price during the period of the original exempt offer was equal to or exceeded SR1 million. (c) If the provisions of paragraphs (a) and (b) cannot be fulfilled, the transferor may offer or sell Trust Certificates if he/she sells his entire holding of Trust Certificates to one transferee. (d) The provisions of paragraphs (a), (b) and (c) shall apply to all subsequent transferees of the Trust Certificates. Kingdom of Bahrain Each Dealer has represented, warranted and undertaken, and each further Dealer appointed under the Programme will be required to represent, warrant and undertake, that it has not offered and will not offer Trust Certificates to the Public (as defined in Articles 142-146 of the Commercial Companies Law (decree Law No. 21/2001) of Bahrain) in Bahrain. Dubai International Financial Centre Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it has not offered and will not offer Trust Certificates to any person in the Dubai International Financial Centre unless such offer is (a) deemed to be an βExempt Offerβ in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the Rules); and (b) made only to persons of a type specified in the Rules. Malaysia Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that the Certificates may only being offered in Malaysia: (a) to corporations with total net assets exceeding MYR10,000,000 (ten million Malaysian Ringgit), or its foreign currency equivalent, based on the latest audited accounts; and (b) for purchase in the secondary market only. 124 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 Hong Kong Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Trust Certificates other than (i) to persons whose ordinary business is to buy or sell shares on debentures (whether as principal or agent); or (ii) in other circumstances which do not result in the document being an offer to the public within the meaning of the Companies Ordinance (Cap. 32) (the CO); or (iii) to βprofessional investorsβ within the meaning of the Securities and Futures Ordinance (Cap. 571) (the SFO) and any rules made under the SFO; or (iv) in other circumstances which do not result in the document being a βprospectusβ which do not constitute an offer to the public within the meaning of the CO; and (b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue (in each case whether in Hong Kong or elsewhere), any advertisement, invitation or document relating to any Trust Certificates, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to any Trust Certificates which are or are intended to be disposed of only to persons outside Hong Kong or only to βprofessional investorsβ within the meaning of the SFO and any rules made under the SFO. Cayman Islands Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it shall not make any invitation to the public in the Cayman Islands to subscribe for any Trust Certificates. The Base Prospectus must not be circulated to the public in the Cayman Islands. General Each Dealer has agreed, and each further Dealer appointed under the Programme will be required to agree, that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Trust Certificates or possesses or distributes this Base Prospectus and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Trust Certificates under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and none of the Issuer, the Bank, the Guarantor, the Delegate and any other Dealer shall have any responsibility therefor. None of the Issuer, the Bank, the Guarantor, the Delegate and any of the Dealers represents that Trust Certificates may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating any such sale. With regard to each Series, the relevant Dealer will be required to comply with any additional restrictions agreed between the Issuer and the relevant Dealer and set out in the applicable Final Terms. 125 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 GENERAL INFORMATION Authorisation The establishment of the Programme and the issue of Trust Certificates have been duly authorised by a resolution of the Board of Directors of the Issuer dated 6 June 2007. The Issuer has obtained all necessary consents, approvals and authorisations in the Cayman Islands in connection with the issue and performance of the Trust Certificates. The entry into the Transaction Documents to which it is a party (other than any supplemental documents specific to a particular Series) was authorised, respectively, by the directors of the Bank on 14 May 2007 and the directors of the Guarantor on 28 March 2007. Listing of Trust Certificates It is expected that each Series of Trust Certificates which is to be admitted to the Official List and to trading on the London Stock Exchangeβs Gilt Edged and Fixed Interest Market will be admitted separately as and when issued, subject only to the issue of a Global Trust Certificate initially representing the Trust Certificates of such Series. Application has been made to the UK Listing Authority for Trust Certificates issued under the Programme to be admitted to the Official List and to the London Stock Exchange for such Trust Certificates to be admitted to trading on the London Stock Exchangeβs Gilt Edged and Fixed Interest Market. The listing of the Programme in respect of Trust Certificates is expected to be granted on or before 12 June 2007. Documents Available For the period of 12 months following the date of this Base Prospectus, copies of the following documents will, when published, be available for inspection from the registered office of the Issuer and from the specified office of the Paying Agent for the time being in London: (a) the Amended and Restated Memorandum and Articles of Association of the Issuer; (b) the consolidated audited financial statements of the Bank in respect of the financial years ended 31 December 2005 and 31 December 2006. The Bank currently prepares audited consolidated accounts on an annual basis; (c) the consolidated audited financial statements of the Guarantor in respect of the financial years ended 31 December 2005 and 31 December 2006. The Guarantor currently prepares audited consolidated accounts on an annual basis; (d) the most recently published consolidated unaudited interim financial statements (if any) of the Bank. The Bank currently prepares unaudited consolidated interim accounts on a quarterly basis; (e) the most recently published consolidated unaudited interim financial statements (if any) of the Guarantor. The Guarantor currently prepares unaudited consolidated interim accounts on a quarterly basis; (f) the Programme Agreement, the Master Trust Deed, the Agency Agreement, the Management Agreement, the Purchase Undertaking Deed (which contains the form of Sale Agreement), and the forms of the Global Trust Certificate and the Trust Certificates in definitive form; (g) any Supplemental Trust Deed in relation to Trust Certificates which are admitted to listing, trading and/or quotation by any listing authority, stock exchange and/or quotation system; (h) a copy of this Base Prospectus; 126 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 (i) any future offering circulars, prospectuses, information memoranda and supplements including Final Terms (save that a Final Terms relating to a Trust Certificate which is neither admitted to trading on a regulated market in the European Economic Area nor offered in the European Economic Area in circumstances where a prospectus is required to be published under the Prospectus Directive will only be available for inspection by a holder of such Trust Certificate and such holder must produce evidence satisfactory to the Issuer and the Principal Paying Agent as to its holding of Trust Certificates and identity) to this Base Prospectus and any other documents incorporated herein or therein by reference; and (j) in the case of each issue of Trust Certificates which is listed on the London Stock Exchange subscribed pursuant to a subscription agreement, the subscription agreement (or equivalent document). Clearing Systems The Trust Certificates have been accepted for clearance through Euroclear and Clearstream, Luxembourg (which are the entities in charge of keeping the records). The appropriate Common Code and ISIN for each Series of Trust Certificates allocated by Euroclear and Clearstream, Luxembourg will be specified in the applicable Final Terms. If the Trust Certificates are to clear through an additional or alternative clearing system the appropriate information will be specified in the applicable Final Terms. The address of Euroclear is Euroclear Bank SA/NV, 1 Boulevard du Roi Albert II, B-1210 Brussels and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L1855 Luxembourg. Significant or Material Change There has been no significant change in the financial or trading position of the Bank and its subsidiaries since 31 March 2007 and there has been no material adverse change in the financial position or prospects of the Bank and its subsidiaries since 31 December 2006. There has been no significant change in the financial or trading position of the Guarantor and its subsidiaries since 31 March 2007 and there has been no material adverse change in the financial position or prospects of the Guarantor and its subsidiaries since 31 December 2006. There has been no significant change in the financial or trading position of the Issuer and no material adverse change in the financial position or prospects of the Issuer, in each case, since the date of its incorporation. Litigation None of the Issuer, the Bank (including any of its subsidiaries) or the Guarantor (including any of its subsidiaries) is or has been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Issuer, the Bank or the Guarantor is aware) in the 12 months preceding the date of this document which may have or have in such period had a significant effect on the financial position or profitability of the Issuer, the Bank (including any of its subsidiaries) or the Guarantor (including any of its subsidiaries). Auditors The auditors of the Bank are KPMG, Chartered Accountants, who have audited the Bankβs accounts, without qualification, in accordance with International Standards on Auditing for each of the two financial years ended on 31 December 2006. The auditors of the Bank have no material interest in the Bank. 127 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:23 pm β mac5 β 3700 Section 07 : 3700 Section 07 The auditors of the Guarantor are KPMG, Chartered Accountants, who have audited the Guarantorβs accounts, without qualification, in accordance with International Standards on Auditing for each of the two financial years ended on 31 December 2006. The auditors of the Guarantor have no material interest in the Guarantor. The auditors of the Issuer are KPMG, Chartered Accountants. The Issuer has not prepared any financial statements to date. The auditors of the Issuer have no material interest in the Issuer. Dealers transacting with the Bank and/or the Guarantor Certain of the Dealers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services for the Bank (and its affiliates) and/or the Guarantor (and its affiliates) in the ordinary course of business. 128 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:19 pm β mac5 β 3700 Section 08 : 3700 Section 08 FINANCIAL INFORMATION Independent review report in respect of the interim consolidated financial information of Emirates Islamic Bank PJSC for the 3 months ended 31 March 2007 .................... F-1 Interim consolidated financial statements of Emirates Islamic Bank PJSC for the 3 months ended 31 March 2007.................................................................................... F-2 Independent auditorsβ report in respect of the consolidated financial statements of Emirates Islamic Bank PJSC for the year ended 31 December 2006 ...................... F-21 Consolidated financial statements of Emirates Islamic Bank PJSC for the year ended 31 December 2006 ........................................................................................................ F-23 Independent auditorsβ report in respect of the consolidated financial statements of Emirates Islamic Bank PJSC for the year ended 31 December 2005 ...................... F-54 Consolidated financial statements of Emirates Islamic Bank PJSC for the year ended 31 December 2005 ........................................................................................................ F-55 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a F-1 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT For the three months ended 31 March 2007 (un-audited) For 3 months ended 31 March 2007 For 3 months ended 31 March 2006 Restated AEDβ000 Note AEDβ000 3 113,127 58,763 17,259 7,826 13,041 46,135 ΕΕΕΕΕΕΕΕ 189,562 ΕΕΕΕΕΕΕΕ 923 19,104 ΕΕΕΕΕΕΕΕ 86,616 ΕΕΕΕΕΕΕΕ 5 52,439 1,251 33,424 319 6 17,328 980 ΕΕΕΕΕΕΕΕ 71,018 ΕΕΕΕΕΕΕΕ 118,544 ΕΕΕΕΕΕΕΕ 34,723 ΕΕΕΕΕΕΕΕ 51,893 (76,541) ΕΕΕΕΕΕΕΕΕ 42,003 (29,212) ΕΕΕΕΕΕΕΕΕ 22,681 ΕΕΕΕΕΕΕΕΕ 0.056 ΕΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕΕ 0.030 ΕΕΕΕΕΕΕΕΕ INCOME Income from financing activities and investments Income from short term Murabaha, with Group Holding Company Property related income Commissions, fees and other income, net 4 TOTAL INCOME EXPENSES General and administrative expenses Provision for depreciation of investment properties Impairment allowances net of (Recoveries) TOTAL EXPENSES NET OPERATING INCOME Depositorsβ share of profit 7 SHAREHOLDERSβ PROFIT (NET INCOME) Earnings per share (Dirham) 8 The attached notes 1 to 26 form part of these condensed consolidated Interim financial statements. The auditorsβ report is set out on page 1. 1 F-2 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a 2 F-3 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS For three months ended 31 March 2007 (un-audited) For 3 months ended 31 March 2007 OPERATING ACTIVITIES Note Profit for the period Adjustments: Impairment allowance on loans and advances Impairment allowances on financing receivables Gain on sale of investment properties Loss on revaluation of investment securities Gain on redemption of investment securities Dividend Income Depreciation on investment properties Depreciation on fixed assets Directorsβ Remuneration Operating profit before changes in assets and liabilities Change in reserve with U.A.E. Central Bank Change in due from Group Holding Company Change in financing receivables Change in loans and receivables Change in prepayments and other assets Net effect of IPO Subscription Change in customersβ accounts Change in other liabilities Zakat Payable Net cash (used in) from operating activities INVESTING ACTIVITIES Purchase of investment properties Proceeds from sale of investments properties Purchase of investment securities Proceeds from sale of investment securities Dividend Received Loss on revaluation of Investment securities Additions to property and equipments Proceed from sale of fixed assets Net cash (used in) investing activities Increase/(Decrease) in cash and cash equivalents Cash and Cash equivalent at the beginning of the period Cash and cash equivalents at the end of the period 23 The attached notes 1 to 26 form part of these financial statements. The auditorsβ report is set out on page 1. 4 F-4 AED'000 For 3 months ended 31 March 2006 Restated AEDβ000 42,003 22,681 17,328 (9,430) 9,714 (1,000) 1,251 3,451 (2,100) ΕΕΕΕΕΕΕΕ 61,217 980 (10,715) (661) 319 1,460 (1,400) ΕΕΕΕΕΕΕΕ 12,664 (103,771) 44,465 (897,394) 338 (163,004) 1,767,979 252,716 (1,284) ΕΕΕΕΕΕΕΕΕ 961,262 ΕΕΕΕΕΕΕΕΕ (86,500) 158,935 (1,214,305) 1,869 9,697 152,956 675,911 66,520 (5,704) ΕΕΕΕΕΕΕΕΕ (227,957) ΕΕΕΕΕΕΕΕΕ (41,943) 28,797 (77,880) 1,000 (14,248) (11,180) 50 ΕΕΕΕΕΕΕΕΕΕΕ (115,404) ΕΕΕΕΕΕΕΕΕΕΕ 845,858 (45,799) (212,295) 34,190 10,715 (2,240) ΕΕΕΕΕΕΕΕΕ (215,429) ΕΕΕΕΕΕΕΕΕ (443,386) 318,609 1,317,334 ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕΕ 1,164,467 873,948 ΕΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕΕ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN SHAREHOLDERSβ EQUITY For the three months ended 31 March 2007 (un-audited) Share Capital Statutory Reserve General Reserve Retained earning Total AEDβ000 Land Revaluation reserve AEDβ000 AEDβ000 AEDβ000 AEDβ000 AEDβ000 At 1 January 2006 (as previously reported) 650,000 112,000 55,075 - 42,766 859,841 Change in accounting policy (refer note 2(iv)) - - - - 3,851 3,851 ---------650,000 ---------112,000 --------55,075 ---- ---------46,617 ---------863,392 - - - - 18,830 18,830 ΕΕΕΕΕΕΕΕ 650,000 ΕΕΕΕΕΕΕΕ 112,000 ΕΕΕΕΕΕΕΕ 55,075 ΕΕΕΕΕΕΕΕ - ΕΕΕΕΕΕΕΕ 65,447 ΕΕΕΕΕΕΕΕ 882,522 ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 650,000 123,746 65,000 - 127,126 965,872 Issue of bonus shares 97,500 - - - (97,500) - Fair value revaluation - - - 120,000 - 120,000 ΕΕΕΕΕΕΕΕ 747,500 ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 123,746 ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 65,000 ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 120,000 ΕΕΕΕΕΕΕΕ 42,003 ΕΕΕΕΕΕΕΕ 71,629 ΕΕΕΕΕΕΕΕ 42,003 ΕΕΕΕΕΕΕΕ 1,127,875 ΕΕΕΕΕΕΕΕ At 1 January 2006 (as restated) Net income for the period (as restated) Balances as of 31 March 2006 (as restated) As of 1 January 2007 Net income for the period As of 31 March 2007 The attached notes 1 to 26 form part of these financial statements. The auditorsβ report is set out on page 1. 5 F-5 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 1. ACTIVITIES Emirates Islamic Bank PJSC formerly Middle East Bank (the βBankβ) was incorporated by a decree of His Highness the Ruler of Dubai as a conventional Bank with limited liability in the Emirate of Dubai in 3rd of October 1975. The Bank was reregistered as a Public Joint Stock Company in July 1995. At an extraordinary general meeting held on 10th, March 2004 a resolution was passed to transform the Bankβs activities to be in full compliance with the Islamic Sharia. The entire process was completed on October 9th, 2004 (the βTransformation Dateβ) when the Bank obtained UAE Central Bank and other UAE authoritiesβ approvals. The Bank is a subsidiary of Emirates Bank International PJSC, Dubai (the βGroup Holding Companyβ). In addition to its head office in Dubai, the Bank operates through 18 branches in the UAE. The accompanying consolidated interim financial statements combine the activities of the Bankβs head office and its branches and its subsidiary. During the year ended December 31, 2006 the Bank' has setup a brokerage company 'Emirates Islamic Financial Brokerage'(the βSubsidiaryβ) a wholly owned subsidiary. The Bank provides full banking services, and a variety of products through Islamic financing and investing instruments. As of 31 March 2007 the Bank employed 843 employees (2006: 801 employees). The Bankβs registered office address is P.O. Box 6564, Dubai, United Arab Emirates. 2. SIGNIFICANT ACCOUNTING POLICIES i. Basis of preparation These condensed interim financial statements have been prepared in accordance with International Accounting Standard (βIASβ) 34 βInterim Financial Reportingβ. The condensed consolidated interim financial statements are prepared on a fair value basis for financial assets held at fair value through profit and loss and available for sale assets. Other financial assets and liabilities are stated at amortized cost or historical cost. The accounting policies applied in the preparation of the condensed consolidated interim financial statements are consistent with those applied in the annual financial statements of the Bank for the year ended 31 December 2006 except for Zakat which will be accrued and disbursed to Sharia channels at the year end. These condensed consolidated interim financial statements should be read in conjunction with the financial statements for year ended 31 December 2006. ii. New standards and interpretation IAS 1 and IFRS 7(superseding certain aspects of IAS 30 and IAS 32) which become mandatory for the Group's financial statements are not expected to have any impact on the consolidated financial statements of the Group except for the disclosures as required under the representative IAS and IFRS. 6 F-6 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 2. SIGNIFICANT ACCOUNTING POLICIES (continued) iii. Basis of consolidation A subsidiary is an entity over which the Bank exercises control, directly or indirectly over the financial and operating policies so as to obtain benefits from its activities. A subsidiary is fully consolidated from the date on which the Bank exercises control. It is de-consolidated from the date that control ceases. These condensed consolidated interim financial statements include the operations of the subsidiary over which the Bank has control. Intercompany transactions, balances and unrealized gain on transactions between the Bank and the subsidiary are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. iv. Change in accounting policy The Bank has changed its accounting policy related to amortization of deferred income on financing receivables in the year 2006. Previously the Bank used to amortize its deferred income on straight line basis (equally over the period of the contract) and during last quarter ended 2006; the Bank adopted the effective rate of return method in accordance with IAS 39. The impact of change in accounting policy for the three months ended 31 March 2006 was increase in income by AED 8,150,000, depositor share of profit by AED 4,299,000 and net profit by AED 3,851,000. v. Use of Estimates The preparation of the condensed consolidated interim financial statements requires management to make estimates and assumptions that affect the reported amount of financial assets and liabilities and the resultant provisions and fair value. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provisions required for impaired credit facilities as well as impairment provision of unquoted investments. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and uncertainty and actual results may differ resulting in future changes in provisions. The interim condensed consolidated financial statements have been presented in UAE Dirham, rounded to the nearest thousand. 7 F-7 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 3. INCOME FROM FINANCING ACTIVITIES AND INVESTMENTS For 3 months ended 31 March 2007 AED'000 Financing activities 18,673 Commodities Murabaha 32,943 Vehicles Murabaha 2,484 Real Estate Murabaha 13,355 Syndication Murabaha 35,340 Ijarah 4,952 Istisnaa 1,203 Others ΕΕΕΕΕΕΕΕ 108,950 ΕΕΕΕΕΕΕ Investments 12,891 Sukuk & Funds 1,000 Dividend income (9,714) Gain (Loss) on investments ΕΕΕΕΕΕΕΕ 4,177 ΕΕΕΕΕΕΕΕ Total income from financing activities and 113,127 investments ΕΕΕΕΕΕΕΕ For 3 months ended 31 March 2006 AED'000 7,901 15,297 2,082 5,408 10,630 1,081 ΕΕΕΕΕΕΕ 42,399 ΕΕΕΕΕΕΕ 4,988 11,376 ΕΕΕΕΕΕΕΕ 16,364 ΕΕΕΕΕΕΕ 58,763 ΕΕΕΕΕΕΕΕ 4. COMMISSIONS, FEES AND OTHER INCOME, NET Commissions and fees, net Foreign exchange gains, net Other income For 3 months ended 31 March 2007 AED'000 For 3 months ended 31 March 2006 AED'000 13,427 1,880 30,828 ΕΕΕΕΕΕΕ 46,135 ΕΕΕΕΕΕΕ 5,504 2,665 10,935 ΕΕΕΕΕΕΕ 19,104 ΕΕΕΕΕΕΕ For 3 months ended 31 March 2007 AED'000 For 3 months ended 31 March 2006 AED'000 39,224 7,201 2,563 3,451 ΕΕΕΕΕΕΕΕ 24,140 3,784 4,040 1,460 ΕΕΕΕΕΕΕΕ 52,439 ΕΕΕΕΕΕΕΕ 33,424 ΕΕΕΕΕΕΕΕ 5. GENERAL AND ADMINISTRATIVE EXPENSES Staff related expenses Operating expenses Administrative expenses Depreciation of property and equipment 8 F-8 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 6. IMPAIRMENT ALLOWANCES NET OF RECOVERIES Impairment allowance for financing receivables Recoveries For 3 months ended 31March 2007 AED'000 For 3 months ended 31 March 2006 AED'000 (20,421) 3,093 ΕΕΕΕΕΕΕΕ (3,110) 2,130 ΕΕΕΕΕΕΕΕ (17,328) ΕΕΕΕΕΕΕΕ 980 ΕΕΕΕΕΕΕΕ 7. DEPOSITORSβ SHARE OF PROFIT The distribution of profit between depositors and shareholders is made, quarterly, in accordance with the method approved by the Bankβs Fatwa and Sharia Supervisory Board. 8. EARNINGS PER SHARE The calculation of earnings per share is based on earnings of AED 42,003,000 (31 March 2006: AED 22,681,000), for the period divided by the weighted average of the number of shares outstanding during the period (2007: 747,500,000 shares /2006: 747,500,000 Shares). 9. CASH AND BALANCES WITH U.A.E. CENTRAL BANK Cash in hand Balances with UAE Central Bank: Current accounts Reserve requirement 31 March 2007 AED'000 Audited 31 December 2006 AEDβ000 59,509 57,624 493,647 ΕΕΕΕΕΕΕΕ 5,837 389,876 ΕΕΕΕΕΕΕΕ 553,156 ΕΕΕΕΕΕΕΕ 453,337 ΕΕΕΕΕΕΕΕ 31March 2007 AED'000 Audited 31 December 2006 AED'000 2,273,940 (109,135) (228,048) ΕΕΕΕΕΕΕΕΕΕ 1,347,976 47,711 (213,613) ΕΕΕΕΕΕΕΕΕΕ 1,936,757 ΕΕΕΕΕΕΕΕΕΕ 1,182,074 ΕΕΕΕΕΕΕΕΕΕ 10. DUE FROM GROUP HOLDING COMPANY Due from Group Holding Company comprise: Murabaha, short term Deposit exchange (profit free), net Other balances 9 F-9 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 11. FINANCING RECEIVABLES Audited 31 March 2007 AED'000 31 December 2006 1,214,238 2,015,036 425,964 123,398 ΕΕΕΕΕΕΕΕΕ 3,778,636 989,023 1, 938,264 389,407 126,717 ΕΕΕΕΕΕΕΕΕ 3,443,411 Istisnaa Ijarah Credit card receivables Others 414,754 1,870,321 222,524 1,127,058 ΕΕΕΕΕΕΕΕΕ 7,413,293 259,278 1,753,197 185,192 881,438 ΕΕΕΕΕΕΕΕΕ 6,522,516 Less: Deferred income Less: Impairment Allowance (388,469) (112,207) ΕΕΕΕΕΕΕΕΕ 6,912,617 (375,964) (94,113) ΕΕΕΕΕΕΕΕΕ 6,052,439 Wakala 525,759 ΕΕΕΕΕΕΕΕΕ 7,438,376 ΕΕΕΕΕΕΕΕΕ 505,870 ΕΕΕΕΕΕΕΕΕ 6,558,309 ΕΕΕΕΕΕΕΕΕ 19,068 180,336 1,849,734 1,573,824 19,283 4,013,248 283,559 ΕΕΕΕΕΕΕΕΕΕ 7,939,052 23,514 166,721 1,593,222 1,429,042 13,059 3,544,095 258,733 ΕΕΕΕΕΕΕΕΕΕ 7,028,386 (388,469) (112,207) ΕΕΕΕΕΕΕΕΕΕ 7,438,376 ΕΕΕΕΕΕΕΕΕΕ (375,964) (94,113) ΕΕΕΕΕΕΕΕΕΕ 6,558,309 ΕΕΕΕΕΕΕΕΕΕ Financing comprise: Commodities Murabaha Vehicles Murabaha Syndication Murabaha Real Estate Murabaha Total Murabaha Total financing receivables Analysis by Economic Activity Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and personal Others Less: Deferred income Less: Allowance for impairment 10 F-10 AED'000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 11. FINANCING ΛΆRECEIVABLES (continued) 31 March 2007 Audited 31 December 2006 AED'000 AED'000 94,113 20,421 (2,327) ΕΕΕΕΕΕΕ 112,207 ΕΕΕΕΕΕΕΕ 46,990 47,123 ΕΕΕΕΕΕΕ 94,113 ΕΕΕΕΕΕΕΕ Movement in impairment allowance: Balances at the beginning of the period / year Charge made during the period / year Recoveries At the end of the period / year 11 F-11 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 12. LOANS AND RECEIVABLES 31 March 2007 AED'000 Overdraft Time loans Loans against trust receipts Bills discounted Others Less: Impairment Allowances Analysis by Economic Activity Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and Personal Less: Impairment Allowances Audited 31 December 2006 AED'000 22,256 71,461 10,420 3,023 1,337 ΕΕΕΕΕΕΕ 108,497 (66,363) ΕΕΕΕΕΕΕΕ 42,134 ΕΕΕΕΕΕΕΕ 23,678 71,977 10,209 2,442 1,295 ΕΕΕΕΕΕΕ 109,601 (67,129) ΕΕΕΕΕΕΕΕ 42,472 ΕΕΕΕΕΕΕΕ 2,316 15,661 8,809 16,686 41,500 23,525 ΕΕΕΕΕΕΕ 108,497 (66,363) ΕΕΕΕΕΕΕΕ 42,134 ΕΕΕΕΕΕΕΕ 2,276 15,351 8,974 13,327 41,822 27,851 ΕΕΕΕΕΕΕ 109,601 (67,129) ΕΕΕΕΕΕΕΕ 42,472 ΕΕΕΕΕΕΕΕ 67,129 (766) ΕΕΕΕΕΕΕ 66,363 ΕΕΕΕΕΕΕ 80,349 (13,220) ΕΕΕΕΕΕΕ 67,129 ΕΕΕΕΕΕΕ Movement in impairment allowance Balance at the beginning of the period Recoveries At the end of the period / year 12 F-12 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 13. INVESTMENT SECURITIES At fair value through Profit and Loss Held to Maturity - Sukuk Available for Sale Investment securities comprise: Quoted Unquoted Total investments 31 March 2007 AED'000 Audited 31 December 2006 AED'000 989,272 548,505 161,936 ΕΕΕΕΕΕΕΕΕΕ 1,699,713 ΕΕΕΕΕΕΕΕΕΕ 994,914 501,212 121,173 ΕΕΕΕΕΕΕΕΕΕ 1,617,299 ΕΕΕΕΕΕΕΕΕΕ 737,828 961,885 ΕΕΕΕΕΕΕΕΕΕ 1,699,713 ΕΕΕΕΕΕΕΕΕΕ 741,065 876,234 ΕΕΕΕΕΕΕΕΕΕ 1,617,299 ΕΕΕΕΕΕΕΕΕΕ Income from investment recognized in the Income Statement is made up as follows: Revaluation (loss) gains- Investments at fair value Dividend Sukuk Income 13 F-13 For 3 months ended 31 March 2007 For 3 months ended 31 March 2006 (9,714) 11,376 1,000 12,891 ΕΕΕΕΕΕΕΕ 4,177 ΕΕΕΕΕΕΕΕ 4,988 ΕΕΕΕΕΕΕΕ 16,364 ΕΕΕΕΕΕΕΕ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 14. INVESTMENT PROPERTIES Balance at the beginning of the period Property purchased Property sold Less: Accumulated depreciation Investment properties comprise: Land Buildings, net 31 March 2007 AED'000 Audited 31 December 2006 AED'000 271,533 41,943 (19,367) (2,737) ΕΕΕΕΕΕΕΕ 291,372 ΕΕΕΕΕΕΕΕ 128,729 241,353 (98,549) (1,485) ΕΕΕΕΕΕΕΕ 270,048 ΕΕΕΕΕΕΕΕ 132,708 158,664 ΕΕΕΕΕΕΕΕ 291,372 ΕΕΕΕΕΕΕΕ 142,263 127,785 ΕΕΕΕΕΕΕΕ 270,048 ΕΕΕΕΕΕΕΕ Management assessed that the fair value of investment properties as of March 31, 2007 have not materially changed from their fair value, which was conducted by independent valuers, of AED 296,652,000 as of December 31,2006. 15. PREPAYMENTS AND OTHER ASSETS Audited 31March 31 December 2007 2006 AED'000 AED'000 Dividend receivables Overdraft account (profit free) Bills under LC s Prepaid expenses Deferred sales commissions Contingent customer acceptances Goods available for sale IPO application Others Less: Allowance for impairment 14 F-14 1,000 17,627 49,576 8,046 19,901 170,418 21,030 121,912 5,479 ΕΕΕΕΕΕΕΕ 9,111 42,418 29,122 10,975 19,263 108,397 13,087 14,525 5,087 ΕΕΕΕΕΕΕΕ 414,989 (4,705) ΕΕΕΕΕΕΕΕ 410,284 ΕΕΕΕΕΕΕΕ 251,985 (4,705) ΕΕΕΕΕΕΕΕ 247,280 ΕΕΕΕΕΕΕΕ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 16. PROPERTY & EQUIPMENT Capital work in progress & Leasehold Improvement Other Assets Total AED'000 AEDβ000 AEDβ000 53,221 6,186 120,000 4,256 ΕΕΕΕΕΕΕ 183,663 ΕΕΕΕΕΕΕ 34,091 4,994 (4,256) (55) ΕΕΕΕΕΕΕ 34,774 ΕΕΕΕΕΕΕ 87,312 11,180 120,000 (55) ΕΕΕΕΕΕΕ 218,437 ΕΕΕΕΕΕΕ 11,349 1,820 ΕΕΕΕΕΕΕ 11,499 1,631 (5) ΕΕΕΕΕΕΕ 22,848 3,451 (5) ΕΕΕΕΕΕΕ 13,169 ΕΕΕΕΕΕΕ 13,125 ΕΕΕΕΕΕΕ 26,294 ΕΕΕΕΕΕΕ 170,494 ΕΕΕΕΕΕΕΕΕΕ 21,649 ΕΕΕΕΕΕΕΕΕΕ 192,143 ΕΕΕΕΕΕΕΕΕ 41,872 ΕΕΕΕΕΕΕΕΕΕ 22,594 ΕΕΕΕΕΕΕΕΕΕ 64,466 ΕΕΕΕΕΕΕΕΕΕ Cost As of 1 January 2006 Additions Revaluation Transfer Disposals As of 31 March 2007 Accumulated Depreciation As of 1 January 2007 Charges for the period Disposals As of 31 March 2007 Net Book Value 31 March 2007 31 December 2006- Audited Capital work in progress includes civil construction work undertaken amounted to AED 27,958,000 (December 31, 2006 β AED 21,772,000).Capital work in progress and leasehold improvements includes a land received as a gift from the Government of Dubai, during year 2006. During the period the bank revalued the said land at AED 120,000,000 (refer to note 21). 17. CUSTOMERSβ ACCOUNTS Current accounts Saving accounts Investment accounts Margins Profit equalization reserve 15 F-15 31 March 2007 AED'000 Audited 31 December 2006 AED'000 1,887,988 1,382,372 7,454,273 59,042 30,399 ΕΕΕΕΕΕΕΕΕΕ 10,814,074 ΕΕΕΕΕΕΕΕΕΕ 1,923,983 955,417 6,079,546 46,069 41,080 ΕΕΕΕΕΕΕΕΕΕ 9,046,095 ΕΕΕΕΕΕΕΕΕΕ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 18. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Current Accounts Clearing accounts with U.A.E Central Bank Overdraft with correspondents 31March 2007 AED'000 Audited 31 December 2006 AED'000 10,254 4,537 ΕΕΕΕΕΕΕΕ 14,791 ΕΕΕΕΕΕΕΕ 357 55,626 ΕΕΕΕΕΕΕΕ 55,983 ΕΕΕΕΕΕΕΕ 19. OTHER LIABILITIES Depositorsβ share of profit Provision for employee benefits Manager Cheques Trade payables Contingent customer acceptances Board of Directorsβ remuneration Contractsβ Retentions Forfeited income Share application margin - private placements Tax liability β Egypt, Cairo branch Others 31 March 2007 AED'000 Audited 31 December 2006 AED'000 87,697 38,044 178,830 71,382 170,418 31,814 109 23,360 20,000 79,748 31,884 51,149 40,616 108,397 2,100 22,056 214 8,489 20,000 24,149 ΕΕΕΕΕΕΕΕ 645,803 ΕΕΕΕΕΕΕΕ 30,534 ΕΕΕΕΕΕΕΕ 395,187 ΕΕΕΕΕΕΕΕ Share application margins represents margin collected from customer for share application of IPO and private placements. Tax liability of AED 20,000,000 represents a provision for a closed Bank branch in Cairo. The branch was closed during the 1990βs before the transformation of the Bankβs activities into Islamic Banking. The tax liability is subject to legal jurisdiction. 16 F-16 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 20. SHARE CAPITAL At the Extraordinary General Meeting of the shareholders of the Bank held on 20 March 2007, the shareholders resolved to increase the authorized share capital to AED 747,500,000 and declared issue of bonus share at par amounting to AED 97,500,000. The issue of bonus shares increased the number of shares to 747,500,000 and correspondingly share capital increased to AED 747,500,000 (31 December 2006: 650,000,000 of AED 1 each). 21. Revaluation RESERVE The Government of Dubai has donated non-monetary asset in the form of land, which has been recognized at a nominal value of AED1 in the financial year ended December 31, 2006. During current period the bank revalued the said land at its fair value of AED 120,000,000 and correspondingly, revaluation reserve has been created under equity. Such land is included under fixed assets (note 16). 22. COMMITMENTS AND CONTINGENT LIABILITIES The Bank provides letters of guarantees and letters of credit to meet the requirements of its customers. These commitments have fixed limits and expirations, and are not concentrated in any period, and are arising in the normal course of business. Letters of guarantee Letters of credit 31 March 2007 AED'000 Audited 31 December 2006 AED'000 1,344,837 584,069 ΕΕΕΕΕΕΕΕΕΕ 1,928,906 ΕΕΕΕΕΕΕΕΕΕ 1,113,720 440,164 ΕΕΕΕΕΕΕΕΕΕ 1,553,884 ΕΕΕΕΕΕΕΕΕΕ 23. CASH AND CASH EQUIVALENTS Cash Current account with UAE Central Bank Due from Group Holding Company maturing within 3 months Due from banks Due to banks 17 F-17 31 March 2007 AED'000 31 March 2006 AED'000 59,509 (10,254) 1,071,812 47,937 (4,537) ΕΕΕΕΕΕΕΕΕ 1,164,467 ΕΕΕΕΕΕΕΕΕ 53,035 (9,457) 818,018 13,996 (1,644) ΕΕΕΕΕΕΕΕΕ 873,948 ΕΕΕΕΕΕΕΕΕ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Emirates Islamic Bank (PJSC) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) 24. RELATED PARTY TRANSACTIONS The Bank has transactions carried out in the normal course of business with the Emirates Bank International Group and with certain staff, shareholders, directors and entities in which the Bank, its shareholders and directors have significant interests. Related party transactions are as follows: Audited 31 March 31 December 2007 2006 AED'000 AED'000 Balance sheet 1,936,757 1,182,074 Due from Group holding company 284,825 281,708 Investment in EREF 112,333 96,350 Financing assets- Directors 31,234 36,903 Financing assets- Key management personnel 6,592 4,091 Current/investment accounts- Directors 3,846 Current/investment accounts- Key management personnel 31 March 2007 AED'000 Income Statement Redemption of units in EREF Profit from Murabaha group holding company Key management personal compensations Key management personal compensations- Retirements benefits 31 March 2006 AED'000 17,259 1203 34,080 7,826 2,175 72 38 25. SEGMENT REPORTING The Bankβs activities comprise the following main business segments: Corporate and Investment Within this business segment the Bank provides to corporate customers a range of products and services and accepts their deposits. This segment invests in investment securities, Sukuk, Funds and Real Estate. Retail The retail segment provides a wide range of products and services to individuals and accepts their deposits. Treasury This segment mainly includes Murabaha deals with the group holding company. Subsidiary The wholly owned subsidiary 'Emirates Islamic Financial Brokerage' (βthe subsidiaryβ), a brokerage company engaged in offering brokerage services for trading in Islamic Sharia compliant shares. The consolidated financial statements included the following relating to the subsidiary; assets, liabilities and net losses for the year AED 24,851,000, AED 544,000 and AED 2,080,000 respectively. 18 F-18 F-19 Shareholders' profit, (Net profit for the period) Net operating income Depositors' share of profit for the period Subsidiary loss Total expenses General and administrative expenses Depreciation of investment properties Impairment allowances net of recoveries Total income Income Statement Segment income Inter segment wakala income Commission, fees & other income ΕΕΕΕΕΕΕΕ 39,448 (9,191) - ΕΕΕΕΕΕΕ 30,257 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 26,506 ΕΕΕΕΕΕ ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 56,635 (30,129) (7,394) ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ (14,859) (7,673) (319) 598 (15,315) (1,251) 1,707 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 90,834 (43,538) 24,198 ΕΕΕΕΕΕΕΕ 41,017 (8,539) 14,364 ΕΕΕΕΕΕΕΕ 46,842 ΕΕΕΕΕΕΕ 31 March 2007 71,494 For the three months ended 31 March 2006 25. SEGMENT REPORTING (continued) Corporate & Investment 19 318 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 46,730 (46,412) - ΕΕΕΕΕΕΕ (53,729) ΕΕΕΕΕΕΕ (34,694) (19,035) ΕΕΕΕΕΕΕ 100,459 ΕΕΕΕΕΕΕ 34,984 43,538 21,937 ΕΕΕΕΕΕΕ 31 March 2007 Retail (15,402) ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 4,619 (20,021) - ΕΕΕΕΕΕΕ (27,329) ΕΕΕΕΕΕΕ (25,751) (1,578) ΕΕΕΕΕΕΕ 31,948 ΕΕΕΕΕΕΕ 18,669 8,539 4,740 ΕΕΕΕΕΕΕ For the three months ended 31 March 2006 NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) Emirates Islamic Bank (PJSC) 17,259 ΕΕΕΕΕΕ ΕΕΕΕΕΕ 17,259 - ΕΕΕΕΕΕ - ΕΕΕΕΕΕ - ΕΕΕΕΕΕ 17,259 ΕΕΕΕΕΕ 17,259 - ΕΕΕΕΕΕ 31 March 2007 7,826 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 7,826 - ΕΕΕΕΕΕΕ - ΕΕΕΕΕΕΕ - ΕΕΕΕΕΕΕ 7,826 ΕΕΕΕΕΕΕ 7,826 - ΕΕΕΕΕΕΕ For the three months ended 31 March 2006 Treasury 42,003 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 120,624 (76,541) (2,080) ΕΕΕΕΕΕΕ (68,588) ΕΕΕΕΕΕΕ (50,009) (1,251) (17,328) ΕΕΕΕΕΕΕ 189,212 ΕΕΕΕΕΕΕ 143,077 46,135 ΕΕΕΕΕΕΕ 31 March 2007 AED'000 Total 22,681 ΕΕΕΕΕΕ ΕΕΕΕΕΕ 51,893 (29,212) - ΕΕΕΕΕΕ ΕΕΕΕΕΕ (34,723) (33,424) (319) (980) ΕΕΕΕΕΕ 86,616 ΕΕΕΕΕΕ 67,512 19,104 ΕΕΕΕΕΕ For the three months ended 31 March 2006 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a F-20 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 3,747,172 ΕΕΕΕΕΕΕ 3,747,172 - 4,590,898 4,590,898 ΕΕΕΕΕΕΕ 6,470,164 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 7,392,371 ΕΕΕΕΕΕ 6,470,164 7,392,371 ΕΕΕΕΕΕΕ 6,334,897 ΕΕΕΕΕΕΕ 6,334,897 - 2,079,224 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ - 2,079,224 ΕΕΕΕΕΕΕ 5,298,923 ΕΕΕΕΕΕΕ 5,298,923 - 2,017,964 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ - 2,017,964 ΕΕΕΕΕΕ 1,127,873 ΕΕΕΕΕΕ 1,127,873 - 2,658,452 ΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 2,164,805 493,647 - 965,872 ΕΕΕΕΕΕ ΕΕΕΕΕΕΕ 965,872 - 1,550,409 ΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 1,182,074 368,335 - ΕΕΕΕΕΕΕ 12,611,872 ΕΕΕΕΕΕΕΕ 12,053,005 558,204 12,611,872 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕΕ 11,636,400 493,647 481,825 31 March 2007 AED'000 20 Certain prior period / year balances have been reclassified/ restated, wherever necessary to confirm to the presentation adopted in these condensed consolidated financial statements (refer to note 2 (iv)). 26. COMPARATIVE FIGURES Total liabilities and Equity Liabilities Segment liabilities and equities Unallocated liabilities Total assets Segment assets Central Bank Reserve Requirement Unallocated assets 31 March 2007 AED'000 Audited 31 December 2006 AED'000 31 March 2007 AED'000 Audited 31 December 2006 AED'000 31 March 2007 AED'000 Treasury Retail Audited 31 December 2006 AED'000 Corporate & Investment 25. SEGMENT REPORTING (continued) NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS For 3 months ended 31 March 2007 (un-audited) Emirates Islamic Bank (PJSC) Total ΕΕΕΕΕΕ 10,473,750 ΕΕΕΕΕΕ 10,011,967 461,783 10,473,750 ΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕ 9,670,202 368,335 435,213 Audited 31 December 2006 AED'000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:08 pm β mac5 β 3700 Section 08a : 3700 Section 08a Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b 1 F-21 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b 2 F-22 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) CONSOLIDATED INCOME STATEMENT For year ended December 31, 2006 Note 2006 AEDβ000 Restated 2005 AEDβ000 4 403,482 99,971 5 42,521 19,921 87,953 34,990 28,716 35,661 553,877 199,338 161,695 105,088 2,508 3,200 33,903 (6,575) TOTAL EXPENSES 198,106 101,713 NET OPERATING INCOME 355,771 97,625 (238,311) (46,872) 117,460 50,753 0.18 0.08 INCOME Income from financing activities and investments Income from short term Murabaha, with Group Holding Company Property related income Commissions, fees and other income, net TOTAL INCOME EXPENSES General and administrative expenses 6 Provision for depreciation of investment properties Impairment allowances net of (Recoveries) 7 Depositorsβ share of profit 8 SHAREHOLDERSβ PROFIT (NET INCOME) Earnings per share (Dirham) 9 The attached notes 1 to 33 form part of these financial statements. The auditorsβ report is set out on page 1. 3 F-23 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b 4 F-24 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) CONSOLIDATED STATEMENT OF CASH FLOWS For year ended 31 December 2006 Restated 2006 AED'000 2005 AEDβ000 117,460 50,753 47,122 (4,697) (12,822) (66,033) (661) 2,508 7,670 (5,704) 2,932 5,335 (19,730) (6,587) (361) 3,200 3,738 (2,080) 84,843 37,200 (197,852) (750,473) (4,494,878) 2,302 (103,315) 5,446,539 78,528 (82,716) (158,935) (1,652,295) (7,948) (71,476) 2,367,615 241,377 65,694 672,822 (241,353) 110,314 (916,653) 31,086 (50,178) 31 (310,969) 61,289 (377,937) 25,743 (15,473) 110 Net cash used in investing activities (1,066,753) (617,237) Increase/(Decrease) in cash and cash equivalents (1,001,059) 55,585 1,319,668 1,264,083 318,609 1,319,668 OPERATING ACTIVITIES Note Profit for the year Adjustments: Impairment allowance on loans and advances Impairment allowances on financing receivables Gain on sale of investments Gain on sale of investment properties Gain on revaluation of investment securities Gain on redemption of investment securities Depreciation on investment properties Depreciation on fixed assets Zakat paid Operating profit before changes in assets and liabilities (Increase) in reserve with U.A.E. Central Bank (Increase) in due from Group Holding Company (Increase) in financing receivables Decrease/(Increase) in loans and receivables (Increase) in prepayments and other assets Increase in customersβ accounts Increase in other liabilities Net cash from operating activities INVESTING ACTIVITIES Purchase of investment properties Proceeds from sale of investments properties Purchase of investment securities Proceeds from sale of investment securities Additions to property and equipments Proceed from sale of fixed assets Cash and Cash equivalent at the beginning of the year Cash and cash equivalents at the end of the period 26 The attached notes 1 to 33 form part of these financial statements. 5 F-25 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERSβ EQUITY For the year ended December 31, 2006 Share Capital As of January 1, 2005 Statutory reserve General reserve Retained earnings Total AEDβ000 AEDβ000 AEDβ000 AEDβ000 AEDβ000 500,000 106,925 144,539 816,321 43,080 43,080 64,857 Net income for the year - - - Change in accounting policy - - - 7,673 Restated net income for the year - - - 50,753 50,753 Transfer to/from reserve (note 23) - 5,075 (9,782) 4,707 - 150,000 - - (150,000) Zakat Payable - - - (5,833) (5,833) Directorsβ remuneration - - - (1,400) (1,400) 650,000 112,000 55,075 Issue of bonus shares Restated balances as of 31 December 2005 42,766 7,673 - 859,841 Opening balances As of January 1, 2006 650,000 Net income for the year - 112,000 55,075 42,766 859,841 - - 117,460 117,460 Transfer to/from reserve (Note 23) - 11,746 9,925 (21,671) Zakat Payable - - - (9,329) (9,329) Directorsβ remuneration - - - (2,100) (2,100) 650,000 123,746 65,000 As of 31 December 2006 127,126 - 965,872 In accordance with the Ministry of Economy & Commerce interpretation of Article (118) of Commercial Companies Law No: (8) of 1984, Directorsβ remuneration has been treated as an appropriation from equity. The attached notes 1 to 33 form part of these financial statements. 6 F-26 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 1. ACTIVITIES Emirates Islamic Bank formerly Middle East Bank (the βBankβ) was incorporated by a decree of His Highness the Ruler of Dubai as a conventional Bank with limited liability in the Emirate of Dubai in 3rd of October 1975. The Bank was reregistered as a Public Joint Stock Company in July 1995. At an extraordinary general meeting held on 10th, March 2004 a resolution was passed to transform the Bankβs activities to be in full compliance with the Islamic Sharia. The entire process was completed on October 9th, 2004 (the βTransformation Dateβ) when the Bank obtained UAE Central Bank and other UAE authoritiesβ approvals. The Bank is a subsidiary of Emirates Bank International PJSC, Dubai (the βGroup Holding Companyβ). In addition to its head office in Dubai, the Bank operates through 17 branches in the UAE. The accompanying consolidated financial statements combine the activities of the Bankβs head office and its branches and its subsidiaries. During the year ended December 31, 2006 the Bank' setup a brokerage company 'Emirates Islamic Financial Brokerage'(the βSubsidiaryβ) a wholly owned subsidiary. The subsidiary has not commenced its commercial activities pending the necessary approval from Regulatory Authorities. The Bank provides full banking services, and a variety of products through Islamic financing and investing instruments. As of 31 December 2006 the Bank employed 801 employees (2005: 510 employees). The Bankβs registered office address is P.O. Box 6564, Dubai, United Arab Emirates. 2. SIGNIFICANT ACCOUNTING POLICIES Accounting convention The consolidated financial statements have been prepared under the historical cost convention as modified for the re-measurement of financial assets carried at fair value through income statement and available for sale investments. Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, Sharia rules and principles as approved by the Bankβs Fatwa and Sharia Supervisory Board, and applicable requirements of the U.A.E Laws. The financial statements have been presented in UAE Dirham, rounded to the nearest thousand. Basis of consolidation A subsidiary is an entity over which the Bank exercises control, directly or indirectly over the financial and operating policies so as to obtain benefits from its activities. A subsidiary is fully consolidated from the date on which the Bank exercises control. It is de-consolidated from the date that control ceases. These consolidated financial statements include the operations of the subsidiary over which the Bank has control. 7 F-27 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation (continued) Inter-company transactions, balances and unrealized gain on transactions between the Bank and the subsidiary are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of impairment of the asset transferred. Due from banks and other financial institutions Represents the Bankβs balances with correspondent banks, and are stated at cost less allowance for impairment, if any. Financial instruments (i) Classification The Bankβs classification of financial assets include the following categories: financing receivables, leased assets (βIjarahβ), loans and advances, held-to-maturity, financial assets at fair value through profit or loss and available for sale financial assets. Management determines the classification of its investment at initial recognition. Financing receivables Murabaha: An agreement whereby the Bank sells to a customer a commodity or a property which the Bank has purchased and acquired based on a promise received from the customer to buy the item purchased according to specific terms and conditions. The selling price comprises of the cost of the commodity and an agreed profit margin. Financing Ijarah: An agreement whereby the Bank (lessor) leases an asset to a customer (lessee), for a specific period against certain rent installments. Ijarah could end in transferring the ownership of the asset to the lessee at the end of the agreement. Also, the Bank transfers substantially all the risks and returns related to the ownership of the leased asset to the lessee. Mudaraba: An agreement between two parties; one of them provides the funds and is called Rub-Ul-Mal and the other provides efforts and expertise and is called Mudarib and he is responsible for investing such funds in a specific enterprise or activity in return for a preagreed percentage of Mudaraba fee. In case of normal loss; Rab-Ul-Mal would bear the loss of his funds while Mudarib would bear the loss of his efforts. However, in case of default, negligence or violation of any of the terms and conditions of the Mudaraba agreement, the Mudarib would bear the losses. The Bank may acts as Mudarib when accepting funds from depositors and as Rub-Ul-Mal when operating such funds on Mudaraba basis. Istisnaa: An agreement between the Bank and a customer whereby the Bank develops and sells a property to the customer according to agreed upon specifications. The Bank may develop the property on its own or through a subcontractor, and then hand it over to the customer on a pre agreed date and against fixed price. Wakala: An agreement whereby the Bank provides a certain sum of money to an agent, who invests it according to specific conditions in return for a certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to guarantee the invested amount in case of default, negligence or violation of any of the terms and conditions of the Wakala. 8 F-28 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Financial instruments (continued) Loans and receivables: are non derivative financial assets not quoted in active market granted by the Bank providing money to a debtor other than those granted for the intention of short term profit taking. Loans and receivables were originated by the Bank before the transformation date of the Bankβs activities to be in full compliance with the Islamic Sharia. These are reported net of impairment allowance to reflect the estimated recoverable amounts. These products have been discontinued since the Bank transformed to an Islamic Bank. Financial assets at fair value through income statement: Financial assets are classified under this category if acquired principally for the purpose of short term profit taking or derivative instrument or so designated by management. Held-to-maturity investments Held-to maturity investments are non derivative financial assets with fixed or determinable payment and fixed maturities that the Bankβs management has the positive intent and ability to hold to maturity. Were the Bank to sell other than an insignificant amount of held to maturity assets, the entire category would be reclassified as available for sale Available-for-sale investments Available-for-sale investments are non derivative investments that are not designated as another category of financial assets. Unquoted equity securities whose fair value can not be reliably measured are carried at cost. All other available for sale investments are carried at fair value (ii)Recognition Financing receivables are recognized on the day the risk on underlying asset is transferred to the counter party or in accordance with the contractual terms. The Bank recognizes the assets at fair value through income statement on the date it commits to purchase the asset. From this date any change in gains and losses arising from the change in the fair value of the asset is recognized. These are derecognized and corresponding receivable from the buyers are recognized as of the date the Bank commits to sell the asset. The financial liabilities are recognized on the date the Bank becomes a party to contractual provisions of the instruments. The financial assets are derecognized when the Bank loses control over the contractual rights that comprise that asset. This occurs when the rights are realized, expire or are surrendered. A financial liability is derecognized when it is extinguished. (iii) Measurement All financial instruments are recognized initially at cost including transactions cost except investment at fair value through profit and loss which is recognized at cost excluding transaction cost. All Financial receivables and loans and receivables are measured at amortized cost less impairment losses if any. Amortized cost is calculated on the effective profit / interest rate method. Transaction cost is included in the carrying amount of the instruments and is amortized based on the effective profit / interest rate of the instrument. 9 F-29 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (iv) Fair value measurement principles Subsequent to initial measurement all assets at fair value through income statements are measured at fair value, except for instruments that do not have quoted market price in an active market and whose fair value can not be measured which are stated at cost, including transaction cost, less any impairment losses. The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on managementβs best estimate and the discount rate is a market related profit rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date. (v) Gains and losses on subsequent measurement Gains and losses arising from a change in the fair value of the assets at fair value through income statement are recognized in the income statement. Gain and loss on available for sale investments are recognized through owners equity. Key accounting estimates and judgments in applying accounting policies The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year and the resultant provisions and fair value. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Impairment Financial assets are reviewed at each balance sheet date to determine whether there is an objective evidence of impairment. If any such indication exists, the assetβs recoverable amount is estimated. The recoverable amount of Islamic financial instruments and loans and receivables are measured at the present value of the expected future cash flows, discounted at the instrumentβs original effective profit/interest rate. Short term balances are not discounted. Financing receivables and loans and receivables are presented net of allowances for impairment. Specific allowance are made against the carrying amount of financing receivables and loans and receivables that are identified as being impaired based on regular reviews of outstanding balances to reduce these financing receivables and loans and receivables to their estimated recoverable amounts at the balance sheet date. The expected cash flows for portfolio of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments or penalties. When a receivable or loan is known to be uncollectible, all the necessary legal procedures have been complete, and the final loss has been determined, the receivable is written off directly. If in a subsequent period the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write down, the write-down or allowance is reversed through the income statement. 10 F-30 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Investment properties Properties acquired by the Bank for development or to be leased out, are classified as investment properties. Investment properties are recognized at cost less accumulated depreciation and impairment allowance, if any. Property and equipment Fixed Assets are recorded at cost, less impairment allowance, if any. Depreciation is provided on a straight-line basis over estimated useful lives of all property and equipment, other than freehold land which is not depreciated. The rates of depreciation are based upon the following estimated useful lives: β’ β’ Leasehold improvement Other assets 4 years 4 years Revenue recognition Murabaha The profit is quantifiable and contractually determined at the commencement of the contract; profit is recognized as it accrues over the life of the contract on effective profit rate method on the balance outstanding. Ijarah Income from Ijarah is recognized on an accrual basis over the period of the contract. Wakala Estimated income from Wakala is recognized on an accrual basis over the period, adjusted by actual income when received. Losses are accounted for on the date of declaration by the agent. Dividend income is recognized when the right to receive it is declared. Commissions and fees Commission and fee income is recognized when the related services are rendered. Forfeited income Forfeited income is resulting from transactions deemed to be incompliant with Islamic Sharia, as per the Fatwa and Sharia Supervisory Board. The Bankβs management has to set aside such income, separate it from the Bankβs income and disclose it in the financial statements. This income is directed towards local social activities. Provisions Provisions are recognized when the Bank has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be reliably measured. Employeesβ end of service benefits The Bank provides end of service benefits to its expatriate employees in accordance with the U.A.E. labor law. The entitlement of these benefits is based upon the employeesβ basic salary and length of service, subject to a completion of a minimum service period. Costs of these benefits are accrued over the period of employment. Provision for employeesβ end of service benefits at the balance sheet date is included under βOther Liabilitiesβ. With respect to its national employees, the Bank makes contributions to a pension fund established by the General Pension and Social Security Authority as a percentage of the employeesβ salaries. The Bankβs obligations are limited to these contributions, which are recognized in the statement of income. 11 F-31 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 2. SIGNIFICANT ACCOUNTING POLICIES (continued) New standards and interpretation not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2006, and have not been applied in preparing these financial statements: IAS 1 Presentation of Financial Statements β Capital disclosures require an entity to disclose information that enables users of its financial statements to evaluate the entityβs objectives, policies and processes for managing capital. IFRS 7 Financial Instruments β Disclosures require various qualitative and quantitative information about exposure to risks arising from financial instruments including specified minimum disclosures about credit risk, liquidity risk and market risk. IFRIC 10 Interim Financial Reporting and Impairment prohibits the reversal of an impairment loss recognized in a previous interim period in respect of goodwill, and investment in an equity instrument or a financial asset carried at cost. IAS 1, IFR 10 and IFRS 7 (superseding IAS 30 and 32) which will becomes mandatory for the 2007 financial statements, are not expected to have any impact on the consolidated financial statements of the Group except for the disclosure as required under the respective IAS and IFRS. Zakat Zakat is computed as per the Bankβs Articles of Association and is approved by the Bankβs Fatwa and Sharia Supervisory Board on the following basis: β’ Zakat on the general provision for financing and investing activities, if any, is deducted from Mudaraba common pool income for the year. β’ Zakat on shareholdersβ equity (except paid up capital) is paid from the net profit of the year. β’ Zakat is disbursed to Sharia channels through a committee formed by management. β’ Shareholders themselves are responsible to pay Zakat on their paid up capital. Distribution of profit between holders of unrestricted investment deposits and the shareholders according to the instructions of Fatwa and Sharia supervisory board: Net gains on all items of income and expenses at the end of each month, is the net profit distributable between the shareholders and the holders with unrestricted investment deposits. The share of the holders of unrestricted investment deposits is calculated out from the net profit on daily basis after deducting the Bankβs agreed upon and declared Mudarib fee percentage. Due to amalgamation of unrestricted investment funds with the Bankβs funds for the purpose of investment, no priority has been given to either party in the appropriation of profit. Cash and cash equivalents For the purpose of preparation of the statement of cash flows, cash equivalents are considered to be cash at bank, current account with the U.A.E. Central Bank, due from banks and Group Holding Company (including short-term Murabaha) less due to banks and Group Holding Company. Cash equivalents are short-term liquid investments that are readily convertible to known amounts of cash with residual maturities up to three months from the balance sheet date. Foreign currencies The accounting records of the Bank and its subsidiary are maintained in UAE Dirham. Transactions in foreign currencies are translated to UAE Dirham at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in 12 F-32 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currencies (continued) foreign currencies at the balance sheet date are translated to UAE Dirham at the foreign exchange ruling at that date. Non-monetary assets and liabilities denominated in foreign currencies that are stated at historical cost, are translated to UAE Dirham at the foreign exchange rate ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Foreign currency gains and losses arising on translation are recognized in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments, which are recognized directly in equity. Contingent liabilities Contingent liabilities are not recognized in the financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. 3. CHANGE IN ACCOUNTING POLICY The Bank has changed its accounting policy related to amortization of deferred income on financing receivables. Previously the Bank used to amortize its deferred income on straight line basis (equally over the period of the contract). During 2006, the Bank adopted the effective rate of return method in accordance with IFRS 39. The impact of the change in accounting policy on income statement iis as follows: Current year financing income increased by AED 39,818,000 (2005: AED 10,316,000); depositorsβ share of profit increased by AED 21,004,000 (2005: AED 2,643,000) and net profit increased by AED 18,814,000 (2005: AED 7,673,000). The impact on the balance sheet is as follows: The financing receivables increased by AED 39,818,000 (2005: AED 10,316,000) and shareholdersβ equity increased by AED 18,332,000 after provision of Zakat of AED 482,000 (2005: AED 7,476,000 on shareholdersβ equity and Zakat AED 197,000). 13 F-33 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 4. INCOME FROM FINANCING ACTIVITIES AND INVESTMENTS Financing activities Commodities Murabaha Vehicles Murabaha Real Estate Murabaha Syndication Murabaha Ijarah Istisnaa Investments Sukuk & Funds Dividend income Gain on investments Total income from financing activities and investments 2006 AED'000 Restated 2005 AEDβ000 53,374 90,531 10,365 39,095 80,426 7,263 10,293 21,207 3,576 17,560 22,546 - 281,054 75,182 31,949 19,088 71,391 8,296 9,545 6,948 122,428 24,789 403,482 99,971 2006 AED'000 2005 AEDβ000 30,320 11,739 6,552 14,881 10,331 14,130 13,863 4,955 15,162 1,681 - 87,953 35,661 2006 AED'000 2005 AEDβ000 116,358 26,256 11,411 7,670 66,066 22,145 13,139 3,738 161,695 105,088 5. COMMISSIONS, FEES AND OTHER INCOME, NET Commissions and fees, net Foreign exchange gains, net Other income Credit card IPO Processing fees Fund Management fees 6. GENERAL AND ADMINISTRATIVE EXPENSES Staff related expenses Operating expenses Administrative expenses Depreciation of property and equipment 14 F-34 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 7. IMPAIRMENT ALLOWANCES NET OF RECOVERIES Impairment allowance for loans and receivables Impairment allowance for financing receivables Recoveries 2006 AED'000 2005 AEDβ000 47,123 (13,220) 2,932 5,335 (14,842) 33,903 (6,575) 8. DEPOSITORSβ SHARE OF PROFIT The distribution of profit between depositors and shareholders is made, quarterly, in accordance with the method approved by the Bankβs Fatwa and Sharia Supervisory Board. Restated 2006 2005 AED'000 AEDβ000 Paid for the previous quarters Payable for the last quarter Transferred to profit equalization reserve during the year 133,611 79,748 24,952 22,738 18,847 5,287 238,311 46,872 9. EARNINGS PER SHARE The calculation of earnings per share is based on earnings of AED 117,460,000 (2005: AED 50,753,000), for the year divided by the weighted average of the number of shares outstanding during the year (2006: 650,000,000 shares /2005: 650,000,000 Shares). 10. CASH AND BALANCES WITH U.A.E. CENTRAL BANK Cash in hand Balances with UAE Central Bank: Current accounts Reserve requirement 2006 AED'000 2005 AEDβ000 57,624 44,500 5,837 389,876 2,334 192,024 453,337 238,858 2006 AED'000 2005 AEDβ000 1,347,976 47,711 (213,613) 664,977 381,414 308,222 1,182,074 1,354,613 11. DUE FROM GROUP HOLDING COMPANY Due from Group Holding Company comprise: Murabaha, short term Deposit exchange (profit free), net Other balances 15 F-35 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 12. FINANCING RECIEVABLES 2006 AED'000 Restated 2005 AEDβ000 989,023 1, 938,264 389,407 126,717 364,786 812,137 328,746 110,916 Total Murabaha 3,443,411 1,616,585 Istisnaa Ijarah Credit card receivables Others 259,278 1,753,197 185,192 881,438 15,821 603,582 37,468 47,968 6,522,516 2,321,424 (375,964) (94,113) (182,246) (46,990) 6,052,439 2,092,188 505,870 18,365 6,558,309 2,110,553 23,514 166,721 1,593,222 1,429,042 13,059 3,544,095 258,733 26,660 130,244 617,273 604,668 3,905 936,265 20,774 7,028,386 2,339,789 (375,964) (94,113) (182,246) (46,990) 6,558,309 2,110,553 Financing comprise: Commodities Murabaha Vehicles Murabaha Syndication Murabaha Real Estate Murabaha Less: Deferred income Less: Impairment Allowance Wakala Total financing receivables Analysis by Economic Activity Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and personal Others Less: Deferred income Less: Allowance for impairment 16 F-36 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 12. FINANCING ΩRECEIVABLES (continued) 2006 AED'000 Restated 2005 AEDβ000 46,990 47,123 41,655 5,335 94,113 46,990 impairment allowances of financing receivables Recoveries 47,123 (13,220) 5,335 (11,910) Impairment allowances net of (recoveries) 33,903 (6,575) Movement in allowances for impairment: Balances at the beginning of the year Impairment allowances made during the year Net impairment of loans and receivables 17 F-37 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 13. LOANS AND RECEIVABLES Overdraft Time loans Loans against trust receipts Bills discounted Others Gross loans and receivables Less: Impairment Allowances Analysis by Economic Activity Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and Personal Gross Loans and receivables Less: Impairment Allowances 2006 AED'000 2005 AEDβ000 23,678 71,977 10,209 2,442 1,295 25,136 84,191 10,508 4,091 1,197 109,601 (67,129) 125,123 (80,349) 42,472 44,774 2,276 15,351 8,974 13,327 41,822 27,851 2,081 14,831 5,772 11,915 47,689 42,835 109,601 (67,129) 125,123 (80,349) 42,472 44,774 80,349 (13,220) - 93,922 2,932 (12,852) (3,653) 67,129 80,349 Movement in specific and general allowance for impairment loans Balance at the beginning of the period Charge made during the year Recoveries Amount written off At the end of the year During 2004, the Bank transferred some of its corporate and retail loans at book value with associated allowance for impairment to the Holding Company. Included in the βOthersβ above are delinquent loans and receivables that were identified at the time of acquisition of Middle East Bank PJSC by the Holding Company. These are managed in a workout situation. The loan balances on these accounts amounted to AED 233,713,000 (2005: AED 241,180,000) against which provision for impairment of AED 233,713,000 (2005: AED 241,180,000) are applied. Net recoveries of the AED 909,000 (2005: AED 2,645,000) have been credited to the income statement. 18 F-38 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 14. INVESTMENT SECURITIES At fair value through Profit and Loss Held to Maturity - Sukuk Available for Sale Investment securities comprise: Quoted Unquoted Total investments 2006 AED'000 2005 AEDβ000 994,914 501,212 121,173 318,002 305,187 37,069 1,617,299 660,258 741,065 876,234 368,165 292,093 1,617,299 660,258 Income from investment recognized in the Income Statement is made up as follows: Revaluation gains- Investments at fair value Profit on sale of investments & others Dividend Sukuk Income 19 F-39 66,033 5,358 19,088 31,949 6,587 361 9,545 8296 122,428 24,789 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 15. INVESTMENT PROPERTIES Balance at the beginning of the period Property purchased Property sold Less: Accumulated depreciation Investment properties comprise: Land Buildings, net 2006 AED'000 2005 AEDβ000 128,729 241,353 (98,549) (1,485) 172,455 310,969 (354,695) - 270,048 128,729 142,263 127,785 91,829 36,900 270,048 128,729 The fair value of investment properties as of December 31, 2006 is AED 296,652,000 (2005: AED 151,310,000), as per valuation conducted by independent valuers. 16. PREPAYMENTS AND OTHER ASSETS Dividend receivables Overdraft account (profit free) Bills under LC s Prepaid expenses Deferred sales commissions Contingent customer acceptance Goods available for sale Share Application- Private placement Others Less: Allowance for impairment 2006 AED'000 2005 AEDβ000 9,111 42,418 29,122 10,975 19,263 108,397 13,087 14,525 5,087 9,545 18,308 13,155 6,645 7,492 66,187 18,605 8,733 251,985 148,670 (4,705) (4,705) 247,280 143,965 Share application-private placements represent share application to ESCAN private placements on the behalf of customers. 20 F-40 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 17. PROPERTY & EQUIPMENT Capital work in progress & Leasehold Improvement Other Assets Total AED'000 AEDβ000 AEDβ000 15,361 37,860 - 21,803 12,319 (31) 37,164 50,179 (31) 53,221 34,091 87,312 7,372 3,977 - 7,835 3,693 (31) 15,207 7,670 (31) As of 31 December 2006 11,349 11,497 22,846 Net Book Value 31 December 2006 41,872 22,594 64,466 31 December 2005 13,613 8,342 21,955 Cost As of 1 January 2006 Additions Disposals As of 31 December 2006 Accumulated Depreciation As of 1 January 2006 Charges for the year Disposals Capital work in progress includes civil construction work undertaken amounted to AED 21,772,000. Included in capital work in progress and leasehold improvements a land received as a gift from the Government of Dubai. This land is valued at a nominal value of AED1. 18. CUSTOMERSβ ACCOUNTS 2006 AED'000 Restated 2005 AEDβ000 1,923,983 955,417 6,079,546 46,069 41,080 1,423,280 402,168 1,720,591 48,366 5,151 9,046,095 3,599,556 Movement in profit equalization reserve: Balance at the beginning of the year Transfer from depositorsβ share of profit Zakat payable 5,151 37,016 (1,087) 5,287 (136) Balance at end of the year 41,080 5,151 Current accounts Saving accounts Fixed deposits Margins Profit Equalization Reserve 21 F-41 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 18. CUSTOMERSβ ACCOUNTS (continued) Profit equalization reserve has been made in the year 2005 upon the approval of the Board of Directors and Fatwa and Sharia Supervisory Board. Zakat on this reserve is included under Zakat payable (note 21). 19. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Current Accounts Clearing accounts with U.A.E Central Bank Overdraft with correspondents 2006 AED'000 2005 AEDβ000 357 55,626 3,732 14,200 - 55,983 17,932 2006 AED'000 Restated 2005 AEDβ000 79,748 31,884 51,149 40,616 108,397 2,100 22,056 214 8,489 20,000 18,847 22,901 138,081 22,446 66,187 1,400 2,872 15 20,000 30,534 22,746 395,187 315,495 20. OTHER LIABILITIES Depositorsβ share of profit Provision for employee benefits Manager Cheques Trade payables Contingent customer acceptances Board of Directorsβ remuneration Contractsβ Retentions Forfeited income Share application margin - private placements Tax liability β Egypt, Cairo branch Others Share application margins represents margin collected from customer for share application ESCAN private placements. of Tax liability of AED 20,000,000 represents a provision for a closed Bank branch in Cairo. The branch was closed during the 1990βs before the transformation of the Bankβs activities into Islamic Banking. The tax liability is subject to legal jurisdiction. 22 F-42 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 21. ZAKAT PAYABLE Zakat on shareholdersβ equity (except for share capital) Zakat liability due to restatement Zakat on profit equalization reserve (Note 18) 2006 AED'000 Restated 2005 AEDβ000 9,329 197 1,087 5,636 197 136 10,613 5,969 The amount of AED 197,000 under 2006, represents the balance of Zakat payable for 2005 as a result of the change in accounting policy (note 3). 22. SHARE CAPITAL At the Extraordinary General Meeting of the shareholders of the Bank held on 21 December 2005, the shareholders resolved to split the share to ten shares of AED 1 each, and to increase the authorized and paid-up capital to AED 650,000,000 by the issuing of bonus shares of AED 150,000,000 at par transferred from the retained earnings at the above mentioned date. Accordingly and after obtaining the necessary approval from Regulatory Authorities, the authorized and paid-up capital as ate 31 December 2006 comprises of 650,000,000 shares of AED 1 each (2005: 650,000,000 of AED 1 each). 23. STATUTORY AND GENERAL RESERVES In accordance with the Bankβs Articles of Association, Article (82) of Union Law no. 10 of 1980 and Federal Commercial Companies Law, the Bank transfers 10% of shareholdersβ annual net income, if any, to the statutory reserve until such reserve equals 50% of the paid-up share capital. This reserve is not available for distribution. A further 10% of shareholdersβ annual net income, if any, is transferred to a general reserve. Transfer to general reserve is suspended by an ordinary General Meeting, based on Board of Directorsβ recommendation, or if it reaches 10% of the Bankβs paid-up capital. The Board of Directors proposes the use of the general reserve at its discretion. During 2005, the general reserve was in excess of the stated limit, the excess of AED 14,857,000 has been transferred to retained earnings. According to the resolution of the Extraordinary General Meeting mentioned above, the Bank resumed the transfer to the general reserve. 24. DONATED LAND The Government of Dubai has donated non-monetary asset in the form of land, which has been recognized at a nominal value of AED1. Such land is included under fixed assets (note 17). 23 F-43 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 25. COMMITMENTS AND CONTINGENT LIABILITIES The Bank provides letters of guarantees and letters of credit to meet the requirements of its customers. These commitments have fixed limits and expirations, and are not concentrated in any period, and are arising in the normal course of business, as follows: Letters of guarantee Letters of credit Other contingent liabilities 2006 AED'000 2005 AEDβ000 1,113,720 440,164 85,776 518,580 368,335 51,217 1,639,660 938,132 The Bank has capital commitment of AED 7,455,000 for the purchase of Fixed Assets(2005: AED 4,491,000) 26. CASH AND CASH EQUIVALENTS Cash Current account with UAE Central Bank Due from Group Holding Company maturing within 3 months Due from banks Due to banks 2006 AED'000 2005 AEDβ000 57,624 5,837 272,666 38,465 (55,983) 44,500 2,334 1,195,678 95,088 (17,932) 318,609 1,319,668 27. RELATED PARTY TRANSACTIONS The Bank has transactions carried out in the normal course of business with the Emirates Bank International Group and with certain staff, shareholders, directors and entities in which the Bank, its shareholders and directors have significant interests. Related party transactions are as follows: 2005 2006 AED'000 AEDβ000 Balance sheet 1,354,613 1,182,074 Due from Group holding company 339,470 281,708 Investment in EREF 34,375 96,350 Financing assets- Directors 36,903 Financing assets- Key management personnel 4,091 6,137 Current/investment accounts- Directors Income Statement Sale of investment properties EREF Redemption of units in EREF Profit from Murabaha group holding company Key management personal compensations Key management personal compensations- Retirements benefits 24 F-44 100,482 34,080 42,521 6,538 200 293,399 18,365 34,990 4,894 178 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 28. SEGMENT REPORTING The Bankβs activities comprise the following main business segments: Corporate and Investment Within this business segment the Bank provides to corporate customers a range of products and services and accepts their deposits. This segment invests in investment securities, Sukuk, Funds and Real Estate. Retail The retail segment provides a wide range of products and services to individuals and accepts their deposits. Treasury This segment mainly includes Murabaha deals with Emirates Bank International (PJSC). Subsidiary The wholly owned subsidiary 'Emirates Islamic Financial Brokerage' (βthe subsidiary), a brokerage company engaged in offering brokerage services for trading in Islamic Sharia compliant shares. The consolidated financial statements included the following relating to the subsidiary; assets, liabilities and net losses for the year fro AED 27,603,000, AED 1,215,000 and AED 3,612,000 respectively. 25 F-45 F-46 Total liabilities and Equity Liabilities Segment liabilities Unallocated liabilities Total assets Balance Sheet Assets Segment assets Unallocated assets Shareholders' profit (Net profit for the period) Depositors' share of profit for the period Net operating income Impairment allowance net of recoveries Total expenses General and administrative expenses Depreciation of investment properties Total income Income Statement Segment income Inter segment wakala income 91,530 (21,361) βββββββ 237,992 (92,493) ββββββββ βββββββ βββββββ 1,719,776 βββββββ ββββββββ 3,747,172 ββββββββ 1,719,776 - 3,747,172 2,451,010 βββββββ ββββββββ 6,470,164 βββββββ 2,451,010 - 6,470,164 - 70,169 βββββββ βββββββ ββββββββ 145,499 ββββββ 86,316 5,214 βββββββ ββββββββ 235,235 2,757 (31,006) βββββββ ββββββββ (43,108) (27,806) (3,200) βββββββ ββββββββ (40,600) (2,508) 117,322 βββββββ ββββββββ 278,343 130,835 (13,513) βββββββ 382,403 (104,060) ββββββββ 28. SEGMENT REPORTING (continued) Corporate & Investment Restated 2005 2006 5,298,923 βββββββ βββββββ 5,298,923 - 2,017,964 βββββββ βββββββ 2,,017,964 - (70,560) βββββββ βββββββ 75,258 (145,818) βββββββ 111,918 (36,660) βββββββ (121,095) βββββββ (121,095) - βββββββ 233,013 βββββββ 128,953 104,060 βββββββ 26 Retail 2006 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Emirates Islamic Bank (PJSC) 1,918,756 βββββββ βββββββ 1,918,756 - 784,684 βββββββ βββββββ 784,684 - (43,786) βββββββ βββββββ (18,275) (25,511) βββββββ (19,636) 1,361 βββββββ (77,282) βββββββ (77,282) - βββββββ 57,646 βββββββ 33,267 24,379 βββββββ Restated 2005 965,872 ββββββ ββββββ 965,872 - 1,182,074 ββββββ ββββββ 1,182,074 - 42,521 ββββββ ββββββ 42,521 - ββββββ 42,521 - ββββββ - ββββββ - ββββββ 42,521 ββββββ 42,521 - ββββββ 2006 βββββββ 24,370 - βββββββ 24,370 - βββββββ - βββββββ - βββββββ 24,370 βββββββ 35,236 (10,866) βββββββ Restated 2005 859,841 ββββββ βββββββ 859,841 - 1,046,391 βββββββ βββββββ 1,046,391 - 24,370 βββββββ Treasury 10,473,750 ββββββββ βββββββ 10,011,967 461,783 10,473,750 ββββββββ βββββββ 9,670,202 803,548 117,460 βββββββ βββββββ 355,771 (238,311) βββββββ 389,674 (33,903) βββββββ (164,203) βββββββ (161,695) (2,508) βββββββ 553,877 βββββββ 553,877 - βββββββ 2006 Total 4,798,793 ββββββ ββββββ 4,498,373 300,420 4,798,793 ββββββ ββββββ 4,282,085 516,708 50,753 ββββββ ββββββ 97,625 (46,872) ββββββ 91,050 6,575 ββββββ (108,288) ββββββ (105,088) (3,200) ββββββ 199,338 ββββββ 199,338 - ββββββ Restated 2005 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 29. RISK MANAGEMENT a) Credit risk and concentration of risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Bank attempts to control credit risk by monitoring credit exposure, limiting transactions with specific counterparties, and continually assessing the creditworthiness of the counterparties. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Bankβs performance to develop affecting a particular industry or geographical location. The Bank seeks to manage its credit risk exposure through diversification of financing and investing to avoid undue concentrations of risks with individuals or groups of customers in specific locations or businesses. The Bank also obtains security when appropriate. For the composition of financing receivables and loans and receivables, refer to note 12 and 13 respectively. Details of the geographic distribution of risk assets and liabilities are set out in note 32. b) Market risk The Bank is not exposed to market risk in terms of profit margins as all deposit contracts are on the basis of Mudaraba. The Bank, who is the Mudarib, has no commitment to the depositors in terms of profit. In case of normal loss the depositor, who is Rab-Al Mal, bears the loss and the Mudarib loses his efforts. (Refer to definitions- note 2). c) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank is not exposed to currency risks resulting from foreign currencies transactions undertaken by the Bank for its customers. Customers bear all currency risks as per the contractual terms. The Bank does not have any material assets / liabilities in foreign currencies other than US Dollar. The Bank neither deals in derivatives such as forward foreign exchange contracts and foreign currency swaps nor undertakes any hedging transactions as this is considered to be incompliant with Islamic Sharia. d) Liquidity risk Liquidity risk is the risk that an institution will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain source of funding to dry up immediately. To guard against this risk, management has diversified funding sources and assets are managed with liquidity in mind, maintaining a healthy balance of cash and cash equivalents. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date and do not take into account the effective maturities as indicated by the Bankβs deposit retention history and the availability of funds. 27 F-47 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 29. RISK MANAGEMENT (continued) d) Liquidity risk (continued) The maturity profile is monitored by management to ensure adequate liquidity is maintained. Details of maturity profile of the assets and liabilities of the Bank are set out in note 33. 30. FAIR VALUE - Fair value represents the amount at which an asset can be exchanged, or a liability settled, between knowledgeable, willing parties in an armβs length transaction. Difference can therefore arise between book value under the historical cost method and fair value estimates. - The fair value of the Bankβs financial instruments approximate to the amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an armβs length transaction. The fair value of the Bankβs assets and liabilities is not materially different from the carrying value at 31 December 2006 for the reasons set out below: b) Due from banks Due from banks includes current accounts with these banks. c) Due from Group Holding Company Due from Group Holding Company comprises the Bankβs Murabaha, deposit exchange and other balances. Such Murabaha contracts are short term and priced with reference to the market rates at the contractual date. The Murabaha is expected to be realized on maturity. d) Financing receivables - Financing receivables are net of deferred income and impairment allowances. - Ijarah facilities are given at a variable rate determined, generally, with reference to the market rates besides the usual parameters of tenor and risk evaluation. - The average profit rate on financing receivables at the year end is in line with the rate charged for such financing in the local banking market. e) Loans and receivables - Loans and receivables are net of impairment allowances. - Loans and receivables were given, prior to Transformation Date, at variable interest rates. Such rates were in line with the local banking market at the granting dates, and based on the usual parameters of tenor and risk evaluation. f) Investments securities Investments securities comprise foreign quoted and local unquoted equity securities. The quoted equity securities are valued at fair value through profit and loss, and the unquoted securities are stated at cost less any provision for impairment. The assessment of the fair value of unquoted investments cannot be determined in an accurate measurement. g) Investment properties Investment properties are stated at cost. The building was acquired in late December 2005. The fair value of investment properties is disclosed in not 15. 28 F-48 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Emirates Islamic Bank (PJSC) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 30. FAIR VALUE (continued) h) Customersβ accounts A significant portion of customersβ accounts comprise investment accounts with an original maturity up to two years. A significant portion of these deposits has been maintained with the Bank for a number of years on a roll over basis. Customersβ accounts primarily comprising profit bearing saving and investment accounts, paid on quarterly basis, and non-profit bearing current accounts, repayable on demand. i) Due to banks Due to banks includes non-profit bearing current accounts payable on demand. j) Other assets and liabilities Other assets and liabilities primarily comprise assets and liabilities which are primarily short term in nature. 31. COMPARATIVE FIGURES Certain prior year balances have been reclassified to conform to the current year presentation. 29 F-49 F-50 10,420,798 30 - ΕΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕΕΕΕ TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY - Customersβ accounts 9,045,373 Due to banks and other financial institutions 3,753 Other liabilities 395,187 Zakat payable 10,613 Shareholdersβ Equity 965,872 LIABILITIES: 195,430 ΕΕΕΕΕΕΕΕ 10,225,827 ΕΕΕΕΕΕΕΕΕΕ TOTAL ASSETS 361 195,069 - ASSETS: Cash, and deposits with UAE Central Bank 453,337 Due from banks and other financial institutions 29,089 1,182,074 Due from Group Holding Company Financing receivables and investments 6,344,592 Loans and receivables 42,472 Investment securities 1,592,469 Investments properties 270,048 247,280 Prepayment and other assets Fixed assets 64,466 2006 722 ΕΕΕΕΕΕΕ 722 - 30,719 ΕΕΕΕΕΕΕ 5,889 24,830 - Other GCC Middle East Europe AEDβ000 AEDβ000 AEDβ000 32. GEOGRAPHICAL DISTRIBUTION OF ASSETS AND LIABILITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Emirates Islamic Bank (PJSC) 52,227 ΕΕΕΕΕΕΕ 52,227 - 2,081 ΕΕΕΕΕΕΕ 2,081 - - ΕΕΕΕΕΕΕ - 18,956 ΕΕΕΕΕΕΕ 308 18,648 - North Asia America AEDβ000 AEDβ000 3 ΕΕΕΕΕΕΕ 3 - 440 ΕΕΕΕΕΕΕ 440 - Far East AEDβ000 ΕΕΕΕΕΕΕΕΕΕΕ 453,337 38,465 1,182,074 6,558,309 42,472 1,617,299 270,048 247,280 64,466 Total AEDβ000 ΕΕΕΕΕΕΕΕΕΕΕ 9,046,095 55,983 395,187 10,613 965,872 - 10,473,750 ΕΕΕΕΕΕΕΕ - 297 10,473,750 ΕΕΕΕΕΕΕΕ 297 - Others AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b F-51 4,797,977 31 - ββββββββ ββββββββββ TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY - Customersβ accounts 3,598,867 Due to banks and other financial institutions 17,805 Other liabilities 315,495 Zakat payable 5,969 Shareholdersβ Equity 859,841 LIABILITIES: 46,285 4,618,442 ββββββββ TOTAL ASSETS ββββββββββ 302 45,983 - ASSETS: Cash, and deposits with UAE Central Bank 238,858 Due from banks and other financial institutions 2,057 Due from Group Holding Company 1,353,059 Financing receivables 2,027,005 Loans and receivables 44,774 Investment securities 660,258 Investments properties 128,729 Prepayment and other assets 141,747 Fixed assets 21,955 Restated 2005 689 βββββββ 689 - 6,964 βββββββ 5,153 1,532 279 - Other GCC Middle East Europe AEDβ000 AEDβ000 AEDβ000 3 βββββββ 3 - 88,334 βββββββ 86,395 1,939 - - βββββββ - 17,292 βββββββ 456 22 16,814 - North America Asia AEDβ000 AEDβ000 32. GEOGRAPHICAL DISTRIBUTION OF ASSETS AND LIABILITIES (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Emirates Islamic Bank (PJSC) 124 βββββββ 124 - 488 βββββββ 488 - Far East AEDβ000 - ββββββββ - 20,988 ββββββββ 237 20,751 - Others AEDβ000 4,798,793 βββββββββββ 3,599,556 17,932 315,495 5,969 859,841 4,798,793 βββββββββββ 238,858 95,088 1,354,613 2,110,553 44,774 660,258 128,729 143,965 21,955 Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b F-52 (632,019) (632,019) Cumulative Liquidity gap 32 (1,760,023) (1,128,004) 3,842,879 ββββββββββ ββββββββββ 3,321,165 3,842,879 - 2,859,382 55,983 395,187 10,613 - Liquidity gap TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY LIABILITIES: Customersβ accounts Due to banks and other financial institutions Other liabilities Zakat payable Shareholdersβ Equity 2,714,875 ββββββββββ 2,689,146 ββββββββββ TOTAL ASSETS 909,048 1,049,513 486,266 270,048 - - Over 3 months to 1 year AEDβ000 ASSETS: Cash, and deposits with UAE Central Bank 453,337 Due from banks and other financial institutions 38,465 Due from Group Holding Company 273,026 Financing receivables 1,634,566 Loans and receivables 42,472 Investment securities Investment properties Prepayment and other assets 247,280 Fixed assets - 2006 Within 3 months AEDβ000 33. MATURITY PROFILE OF ASSETS AND LIABILITIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Emirates Islamic Bank (PJSC) (1,345,055) 414,968 2,343,834 ββββββββββ 2,343,834 - 2,758,802 ββββββββββ 1,936,443 822,359 - Over 1 year to 3 years AEDβ000 (290,003) 1,055,052 - ββββββββββ - 1,055,052 ββββββββββ 746,378 308,674 - Over 3 years to 5 years AEDβ000 - 290,003 965,872 ββββββββββ 965,872 1,255,875 ββββββββββ 1,191,409 64,466 Over 5 years AEDβ000 10,473,750 ββββββββββ 9,046,095 55,983 395,187 10,613 965,872 10,473,750 ββββββββββ 453,337 38,465 1,182,074 6,558,309 42,472 1,617,299 270,048 247,280 64,466 Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b F-53 TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY LIABILITIES: Customersβ accounts Due to banks and other financial institutions Other liabilities Zakat payable Shareholdersβ Equity 1,330,426 ββββββββββ ββββββββββ 1,370,383 1,330,426 - 1,030,987 17,932 315,495 5,969 - 730,326 ββββββββββ ββββββββββ TOTAL ASSETS 2,019,835 158,935 442,662 128,729 - ASSETS: Cash, and deposits with UAE Central Bank 238,858 Due from banks and other financial institutions 95,088 Due from Group Holding Company 1,195,678 Financing receivables 314,006 Loans and receivables 32,240 Investment securities Investment properties Prepayment and other assets 143,965 Fixed assets - Restated 2005 Over 3 months to 1 year AEDβ000 Within 3 months AEDβ000 33. MATURITY PROFILE OF ASSETS AND LIABILITIES (continued) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of 31 December 2006 Emirates Islamic Bank (PJSC) 1,238,143 ββββββββββ 1,238,143 - 1,113,778 ββββββββββ 814,142 299,636 - Over 1 year to 3 years AEDβ000 - ββββββββββ - 781,419 ββββββββββ 421,136 360,283 - Over 3 years to 5 years AEDβ000 859,841 ββββββββββ 859,841 153,435 ββββββββββ 118,607 12,534 339 21,955 Over 5 years AEDβ000 4,798,793 ββββββββββ 3,599,556 17,932 315,495 5,969 859,841 4,798,793 ββββββββββ 238,858 95,088 1,354,613 2,110,553 44,774 660,258 128,729 143,965 21,955 Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:09 pm β mac5 β 3700 Section 08b : 3700 Section 08b Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c F-54 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) INCOME STATEMENT Year Ended 31 December 2005 Note INCOME Income from financing and investing activities Income from short term Murabaha, with Group Holding Company Property related income Commissions, fees and other income, net 4 5 Total income before net interest income Interest income Interest expense 6 6 NET INTEREST INCOME TOTAL INCOME 2005 AED'000 (Restated) 2004 AEDβ000 89,655 2,089 34,990 8,986 55,391 ΕΕΕΕΕΕΕ 189,022 ΕΕΕΕΕΕΕ ΕΕΕΕΕΕΕ _______ 6,415 25,552 ΕΕΕΕΕΕΕ 34,056 ΕΕΕΕΕΕΕ 39,932 (9,045) ΕΕΕΕΕΕΕ 30,887 _______ 189,022 ______ 64,943 ______ 105,088 3,200 (6,575) ΕΕΕΕΕΕΕ 101,713 ΕΕΕΕΕΕΕ 58,900 (16,523) ΕΕΕΕΕΕΕ 42,377 ΕΕΕΕΕΕΕ 87,309 22,566 (44,229) ΕΕΕΕΕΕΕ 43,080 ΕΕΕΕΕΕΕ (2,996) ΕΕΕΕΕΕΕ 19,570 ΕΕΕΕΕΕΕ EXPENSES General and administrative expenses 7 Provision for depreciation of investment properties Recoveries net of impairment allowances 8 TOTAL EXPENSES NET OPERATING INCOME Depositorsβ share of profit 9 SHAREHOLDERSβ PROFIT (NET INCOME) Earnings per share (Dirham) 10 The attached notes 1 to 34 form part of these financial statements. The auditorsβ report is set out on page 1. F-55 0.07 0.03 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c F-56 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) STATEMENT OF CASH FLOWS Year Ended 31 December 2005 Note OPERATING ACTIVITIES Shareholdersβ profit (Net income for the year) Adjustments for: Impairment allowances on loans and advances Impairment allowances on financing receivables and investments Gain on sale of investments Gain on revaluation of investment funds Gain on redemption of units in funds Depreciation on property and equipment Depreciation on investment properties Profit equalization reserve Directorsβ remuneration 2005 AED'000 43,080 19,570 2,932 2,625 5,335 (19,730) (6,587) (361) 3,738 3,200 2,576 βββββββ Operating profit before changes in operating assets and liabilities 34,183 Increase in balances with U.A.E. Central Bank (85,050) (Increase) / decrease in due from Group Holding Company (158,935) Increase in financing receivables and investments (1,988,897) (Increase) / decrease in loans and receivables (7,948) Increase in prepayments and other assets (71,476) Increase in customersβ deposits 2,362,464 Increase in other liabilities 215,603 Zakat payable 3,625 βββββββ Net cash provided by (used in) operating activities 303,569 INVESTING ACTIVITIES βββββββ Purchase of investment properties (310,969) Sale of investments properties 61,289 Proceeds from sale of other investments 18,365 Profit from sale of investment properties 7,378 (Purchase)/ sale of other investment (11,019) Proceeds from sale of properties and equipment 111 Purchase of property and equipment (15,473) ββββββββ Net cash used in investing activities (250,318) ββββββββ FINANCING ACTIVITIES Dividends paid ββββββββ Net cash used in financing activities ββββββββ INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 53,251 Cash and cash equivalents at the beginning of the year 26 1,264,083 ββββββββββ CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 26 1,317,334 ββββββββββ The attached notes 1 to 34 form part of these financial statements. The auditorsβ report is set out on page 1. F-57 (Restated) 2004 AEDβ000 (3,524) 1,155 (500) βββββββ 19,326 (9,867) 13,450 (463,593) 252,500 (64,509) 27,373 59,720 βββββββ (165,600) βββββββ (172,455) 17,699 (8,738) βββββββ (163,494) βββββββ (25,000) βββββββ (25,000) βββββββ (354,094) 1,618,177 ββββββββββ 1,264,083 ββββββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) STATEMENT OF CHANGES IN SHAREHOLDERSβ EQUITY Year Ended 31 December 2005 Share Capital AEDβ000 As of 1 January 2004 Net income for the year Add: restatement (note 3) Restated net income for the year 500,000 ββββββββ - Statutory reserve General reserve AEDβ000 AEDβ000 104,968 62,900 ββββββββ ββββββββ - Retained earnings Total AEDβ000 AEDβ000 155,963 823,831 16,596 16,596 2,974 2,974 ββββββββ ββββββββ 19,570 19,570 Dividends paid - - - Transfer to reserves - 1,957 1,957 (3,914) - Zakat - - - (2,080) (2,080) Restated balances As of 31 December 2004 As of 1 January 2005 (25,000) (25,000) ββββββββ ββββββββ ββββββββ ββββββββ ββββββββ 500,000 ββββββββ 106,925 64,857 ββββββββ ββββββββ 144,539 816,321 ββββββββ ββββββββ 500,000 106,925 64,857 144,539 816,321 Net income for the year - - - 43,080 43,080 Transfer to/from reserve (note 24) - 4,308 (10,549) 6,241 - Issue of bonus shares Zakat Directorsβ remuneration As of 31 December 2005 150,000 - - (150,000) - - - - (5,636) (5,636) ββββββββ 650,000 ββββββββ ββββββββ ββββββββ 111,233 54,308 ββββββββ ββββββββ (1,400) (1,400) ββββββββ ββββββββ 36,824 852,365 ββββββββ ββββββββ In accordance with the Ministry of Economy & Commerce interpretation of Article (118) of Commercial Companies Law No (8) of 1984, Directorsβ remuneration has been treated as an appropriation from equity. The attached notes 1 to 34 form part of these financial statements. F-58 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 1. ACTIVITIES Emirates Islamic Bank formerly Middle East Bank (the Bank) was incorporated by a decree of His Highness The Ruler of Dubai as a conventional Bank with limited liability in the Emirate of Dubai on 4th October 1975. The Bank was reregistered as a Public Joint Stock Company in July 1995. At an extraordinary general meeting held on 10th, March 2004 a resolution was passed to transform the Bankβs activities to be in full compliance with the Islamic Sharia. The entire process was completed on October 9th, 2004 (the transformation date) when the Bank obtained UAE Central Bank and other UAE authoritiesβ approvals. The Bank is a subsidiary of Emirates Bank International PJSC, Dubai (the Group Holding Company). In addition to its head office in Dubai, the Bank operates through 11 branches in the UAE. The accompanying financial statements combine the activities of the Bankβs head office and its branches. The Bank provides full banking services, and a variety of products through Islamic financing and investing instruments. As of 31 December 2005 the Bank employed 510 employees (2004: 284 employees). The Bankβs registered office address is P.O. Box 6564, Dubai, United Arab Emirates. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards, Sharia rules and principles as approved by the Bankβs Fatwa and Sharia Supervisory Board, and applicable requirements of the U.A.E Laws. Accounting convention The financial statements have been prepared under the historical cost convention as modified for the measurement at fair value of financial assets carried at fair value through income statement. The financial statements have been presented in UAE Dirham, rounded to the nearest thousand. Islamic financing instruments o Murabaha: An agreement whereby the Bank sells to a customer a commodity or a property which the Bank has purchased and acquired based on a promise received from the customer to buy the item purchased according to specific terms and conditions. The selling price comprises of the cost of the commodity and an agreed profit margin. F-59 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Islamic financing instruments (continued) o Financing Ijarah: An agreement whereby the Bank (lessor) leases an asset to a customer (lessee), for a specific period and against certain rent installments. Ijara could end by transferring the ownership of the asset to the lessee at the end of the agreement. Also, where the bank transfers substantially all the risks and returns related to the ownership of the leased asset to the lessee. o Mudaraba: An agreement between two parties; one of them provides the funds and is called Rub-Ul-Mal and the other provides efforts and expertise and is called Mudarib and he is responsible for investing such funds in a specific enterprise or activity in return for a pre-agreed percentage of Mudaraba fee. In case of normal loss; Rab-Ul-Mal would bear the loss of his funds while Mudareb would bear the loss of his efforts. However, in case of default, negligence or violation of any of the terms and conditions of the Mudaraba agreement, only Mudareb would bear the losses. The Bank may acts as Mudareb when accepting funds from depositors and as Rub-Ul-Mal when operating such funds on Mudaraba basis. o Istisnaa: An agreement between the Bank and a customer whereby the Bank develops and sells a property to the customer according to agreed upon specifications. The Bank may develop the property on its own or through a subcontractor, and then hand it over to the customer on a pre agreed date and against fixed price. o Wakala: An agreement whereby the Bank provides a certain sum of money to an agent, who invests it according to specific conditions in return for a certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to guarantee the invested amount in case of default, negligence or violation of any of the terms and conditions of the Wakala. Due from banks and other financial institutions Represents the Bankβs balances with correspondent banks, and are stated at cost less allowance for impairment, if any. Financial instruments (i) Classification Loans and receivables: are loans and receivables granted by the Bank providing money to a debtor other than those granted for the intention of short term profit taking. Loans and receivables were originated by the Bank before the transformation date of the Bankβs activities to be in full compliance with the Islamic Sharia. These are reported net of impairment allowance to reflect the estimated recoverable amounts. These products have been discontinued since the Bank transformed to an Islamic Bank. Financial assets at fair value through income statement: Financial assets are classified under this category if acquired principally for the purpose of selling in the short term or so designated by management. F-60 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) (ii) Recognition Financing receivables are recognized on the day the underlying asset is delivered to the counter party or in accordance with the contractual terms. The Bank recognizes the assets at fair value through income statement on the date it commits to purchase the asset. From this date any change in gains and losses arising from the change in the fair value of the asset is recognized. These are derecognized and corresponding receivable from the buyers are recognized as of the date the Bank commits to sell the asset. The financial liabilities are recognized on the date the Bank becomes a party to contractual provisions of the instruments. The financial assets are derecognized when the Bank loses control over the contractual rights that comprise that asset. This occurs when the rights are realized, expire or are surrendered. A financial liability is derecognized when it is extinguished. (iii) Measurement All financial instruments are recognized initially at cost including transactions cost. All Financial Instruments and loans and receivables are measured at amortized cost less impairment losses if any. Amortized cost is calculated on the effective profit / interest rate method. Transaction cost is included in the carrying amount of the instruments and is amortized based on the effective profit / interest rate of the instrument. Subsequent to initial measurement all assets at fair value through income statements are measured at fair value, except that an instrument that does not have quoted market price in an active market and whose fair value can not be measured is stated at cost, including transaction cost, less any impairment losses. (iv) Fair value measurement principles The fair value of financial instruments is based on their quoted market price at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, the fair value of the instrument is estimated using pricing models or discounted cash flow techniques. Where discounted cash flow techniques are used, estimated future cash flows are based on managementβs best estimate and the discount rate is a market related profit rate at the balance sheet date for an instrument with similar terms and conditions. Where pricing models are used, inputs are based on market related measures at the balance sheet date. (v) Gains and losses on subsequent measurement Gains and losses arising from a change in the fair value of the assets at fair value through income statement are recognized in the income statement. F-61 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Impairment Financial assets are reviewed at each balance sheet date to determine whether there is an objective evidence of impairment. If any such indication exists, the assetβs recoverable amount is estimated. The recoverable amount of Islamic financial instruments and loans and receivables are measured at the present value of the expected future cash flows, discounted at the instrumentβs original effective profit/interest rate. Short term balances are not discounted. Financing receivables and loans and receivables are presented net of allowances for impairment. Specific allowance are made against the carrying amount of financing receivables and loans and receivables that are identified as being impaired based on regular reviews of outstanding balances to reduce these financing receivables and loans and receivables to their estimated recoverable amounts at the balance sheet date. The expected cash flows for portfolio of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments or penalties. When a receivable or loan is known to be uncollectible, all the necessary legal procedures have been complete, and the final loss has been determined, the receivable is written off directly. If in a subsequent period the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write down, the write-down or allowance is reversed through the income statement. Investment properties Properties acquired by the Bank for development or to be leased out, are classified as investment properties. Investment properties are recognized at cost less accumulated depreciation and impairment allowance, if any. Property and equipment Property and equipment are recorded at cost, less impairment allowance, if any. Depreciation is provided on a straight-line basis over estimated useful lives of all property and equipment, other than freehold land which is not depreciated. The rates of depreciation are based upon the following estimated useful lives: β’ β’ Leasehold improvement Other assets 4 years 4 years Revenue recognition Murabaha Where the profit is quantifiable and contractually determined at the commencement of the contract, profit is recognized as it accrues over the life of the contract. Ijara Income from Ijara is recognized on an accrual basis over the period of the contract. Wakala Estimated income from Wakala is recognized on an accrual basis over the period, adjusted by actual income when received. Losses are accounted for on the date of declaration by the agent. Dividend income is recognized when the right to receive it is declared. F-62 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Commissions and fees Commission and fee income is recognized when the related services are rendered. Forfeited income Forfeited income is resulting from transactions deemed to be incompliant with Islamic Sharia, as per the Fatwa and Sharia Supervisory Board. The Bankβs management has to set aside such income, separate it from the bankβs income and disclose it in the financial statements. This income is directed towards local social activities. Provisions Provisions are recognized when the bank has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be reliably measured. Employeesβ end of service benefits The Bank provides end of service benefits to its expatriate employees in accordance with the U.A.E. labor law. The entitlement of these benefits is based upon the employeesβ basic salary and length of service, subject to a completion of a minimum service period. Costs of these benefits are accrued over the period of employment. Provision for employeesβ end of service benefits at the balance sheet date is included under βOther Liabilitiesβ. With respect to its national employees, the Bank makes contributions to a pension fund established by the General Pension and Social Security Authority as a percentage of the employeesβ salaries. The Bankβs obligations are limited to these contributions, which are recognized in the statement of income. Zakat Zakat is computed as per the Bankβs Articles of Association and is approved by the Bankβs Fatwa and Sharia Supervisory Board on the following basis: β’ Zakat on the general provision for financing and investing activities, if any, is deducted from Mudaraba common pool income for the year. β’ Zakat on shareholdersβ equity (except paid up capital) is paid from the net profit of the year. β’ Zakat is disbursed to Sharia channels according to the management instructions. β’ Shareholders themselves are responsible to pay Zakat on their paid up capital. Allocation of profit Allocation of profit between depositors and shareholders is processed according to the Bankβs standard procedures and is approved by the Bankβs Fatwa and Sharia Supervisory Board. Cash and cash equivalents For the purpose of preparation of the statement of cash flows, cash equivalents are considered to be cash and balances with the U.A.E. Central bank, due from banks and Group Holding Company (including short-term Murabaha) less due to banks and Group Holding Company. Cash equivalents are short-term liquid investments that are readily convertible to known amounts of cash with residual maturities up to three months from the balance sheet date. F-63 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Foreign currencies Transactions in foreign currencies are recorded at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are reported at the exchange rates prevailing at that date. Any gain or loss arising from changes in exchange rates subsequent to the date of a transaction is recognized in the income statement. Contingent liabilities Contingent liabilities are not recognized in the financial statements. These are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. 3. RESTATEMENT OF RETAINED EARNINGS The net income for the year ended 31 December 2004 had been understated by AED 2,974,048 due to a mathematical error in the computation of deferred income of some transactions. Accordingly, the retained earnings as at 31 December 2004 have been restated. 4. INCOME FROM FINANCING AND INVESTING ACTIVITIES Financing activities Commodities Murabaha Vehicles Murabaha Real Estate Murabaha Syndication Murabaha Ijara Investing Activities Sukuk Funds Dividend income Gain on investments Total income from financing and investing activities 2005 AED'000 2004 AEDβ000 10,057 11,994 2,709 17,560 22,546 βββββββ 64,866 βββββββ 844 33 2 1,118 92 βββββββ 2,089 βββββββ 7,284 1,012 9,545 6,948 ββββββ 24,789 βββββββ βββββββ βββββββ 89,655 βββββββ 2,089 βββββββ - Total income from financing and investing activities is presented net of forfeited income of AED 15,000 (2004: Nil), (Note 2). F-64 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 5. COMMISSIONS, FEES AND OTHER INCOME, NET Commissions and fees, net Foreign exchange gains, net Profit on sale of investments Other income 2005 AED'000 2004 AEDβ000 15,012 5,153 19,730 15,496 βββββββ 55,391 βββββββ 11,272 3,752 3,524 7,004 βββββββ 25,552 βββββββ 6. INTEREST INCOME AND EXPENSE Effective from October 9th, 2004 (transformation date) and as per Fatwa and Sharia Supervisory Board, net interest income (expense) resulting from transactions executed before that date and not converted is taken to shareholdersβ profit 7. GENERAL AND ADMINISTRATIVE EXPENSES Staff related expenses Operating expenses Administrative expenses Transformation to Islamic Bank expenses Depreciation on property and equipment 2005 AED'000 2004 AEDβ000 66,066 22,145 13,139 3,738 βββββββ 105,088 βββββββ 30,644 8,363 4,232 14,506 1,155 βββββββ 58,900 βββββββ 2005 AED'000 2004 AEDβ000 8. RECOVERIES NET OF IMPAIRMENT ALLOWANCES Impairment allowance for loans and receivables Impairment allowance for financing receivables and investments Recoveries F-65 (2,932) (5,335) 14,842 βββββββ 6,575 βββββββ (2,625) 19,148 βββββββ 16,523 βββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 9. DEPOSITORSβ SHARE OF PROFIT The distribution of profit between depositors and shareholders is made, quarterly, in accordance with the method approved by the Bankβs Fatwa and Sharia Supervisory Board effective from October 9th, 2004. Paid for the period ended 30 September 2005 Payable for the last quarter Transferred to profit equalization reserve during the year (note 19) Depositorsβ share of profit for the year 2005 AED'000 2004 AEDβ000 22,738 18,847 2,996 2,644 βββββββ 44,229 βββββββ βββββββ 2,996 βββββββ 10. EARNINGS PER SHARE The calculation of earnings per share is based on earnings of AED 43,080,000 (2004: AED 19,570,000), being the income for the year ended 31 December 2005 attributable to 650,000,000 shares (2004: 650,000,000 Shares). The 2004 earnings per share has been adjusted to reflect the share split and the bonus issue made during 2005. 11. CASH AND BALANCES WITH U.A.E. CENTRAL BANK Cash in hand Balances with UAE Central Bank: Current accounts Reserve requirements 2005 AED'000 2004 AEDβ000 44,500 39,456 2,334 192,024 ββββββββ 238,858 ββββββββ 17,362 91,946 ββββββββ 148,764 ββββββββ 2005 AED'000 (Restated) 2004 AEDβ000 12. DUE FROM / TO GROUP HOLDING COMPANY Due from Group Holding Company comprises: Murabaha, short term Deposits exchange (profit free), net Other balances Due to Group Holding Company comprises: Current and other accounts F-66 664,977 381,414 308,222 βββββββββ 1,354,613 βββββββββ 1,416,820 796 βββββββββ 1,417,616 βββββββββ ββββββββ 198,066 ββββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 13. FINANCING ΩRECEIVABLES AND INVESTMENTS Financing receivables comprise: Commodities Murabaha Vehicles Murabaha Syndication Murabaha Real Estate Murabaha Total Murabaha Istisna Ijara Credit card receivables Others Less: Deferred income Allowance for impairment Investments comprise: Sukuk Funds 2005 AED'000 2004 AEDβ000 364,786 812,137 408,842 110,916 βββββββ 1,696,681 101,201 63,615 219,673 βββββββ 384,489 15,821 603,582 37,468 47,968 βββββββ 2,401,520 129,456 41,860 βββββββ 555,805 (195,459) (66,990) ββββββββ 2,139,071 ββββββββ (30,557) (61,655) βββββββ 463,593 βββββββ 271,734 36,350 ββββββββ 308,084 ββββββββ 2,447,155 ββββββββ βββββββ ββββββββ 463,593 ββββββββ The allowance for impairment for financing receivables and investment as of 31 December 2005 amounting to AED 66,990,000 includes an amount of AED 61,655,000 was transferred from the allowance for impairment for loans and receivables which were transformed to financing receivables in 2004 Movement in Financing Receivables and Investments Allowance for Impairment 2005 AED'000 61,655 5,335 ββββββββ 66,990 ββββββββ Balance at the beginning of the year Transfer during the year Allowance made during the year Balance at the end of the year F-67 2004 AEDβ000 61,655 ββββββββ 61,655 ββββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 13. FINANCING ΩRECEIVABLES AND INVESTMENTS (continued) Financing receivables and investments by Economic Sector Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and personal Others Less: Deferred income Allowance for impairment of loans 14. LOANS AND RECEIVABLES Overdraft Time and installment loans Loans against trust receipts Bills discounted Others Less: Allowance for impairment Loans and Receivable by Economic Sector Agriculture and related activities Manufacturing Construction Trade Transportation and communication Services and personal Others Less: Allowance for impairment F-68 2005 AED'000 2004 AEDβ000 26,660 130,244 617,273 604,668 3,905 1,306,080 20,774 βββββββ 2,709,604 163,316 49,547 49,753 61,658 6,001 211,040 14,490 βββββββ 555,805 (195,459) (66,990) ββββββββ 2,447,155 ββββββββ (30,557) (61,655) βββββββ 463,593 βββββββ 2005 AED'000 64,766 44,561 10,508 4,091 1,196 βββββββ 125,122 (80,348) ββββββββ 44,774 ββββββββ 2004 AEDβ000 77,173 35,232 14,675 4,122 2,478 βββββββ 133,680 (93,922) ββββββββ 39,758 ββββββββ 2,081 14,831 5,772 11,915 47,689 42,834 βββββββ 125,122 (80,348) ββββββββ 44,774 ββββββββ 1,194 21,358 25,111 10,864 43,972 30,935 246 βββββββ 133,680 (93,922) ββββββββ 39,758 ββββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 14. LOANS AND RECEIVABLES (continued) Movement in loans and receivables allowance for impairment 2005 AED'000 Balance at the beginning of the year Charge made during the year Recoveries Transfers Write off 93,922 2,932 (12,852) (3,654) βββββββ 80,348 βββββββ 2004 AEDβ000 173,183 2,625 (13,610) (61,655) (6,621) ββββββββ 93,922 ββββββββ During 2004, the Bank transferred some of its corporate and retail loans at book value with associated allowance for impairment to the Holding Company. Included in the βOthersβ above are delinquent loans and receivables that are identified at the time of acquisition of Middle East Bank PJSC by the Holding Company. These are managed in a workout situation. The loan balances on these accounts amounted to AED 241,180,000 (2004: AED 242,665,000) against which provision for impairment of AED 241,180,000 (2004: AED 242,665,000) are applied. Net recoveries of the AED 2,645,000 (2004: AED 2,875,000) have been credited to the income statement. 15. OTHER INVESTMENTS Investments at cost Gain on revaluation of investments Other Investments comprise: Quoted (also refer note 27) Unquoted 2005 AED'000 2004 AEDβ000 286,753 6,587 βββββββ 293,340 βββββββ 339 βββββββ 339 βββββββ 293,001 339 βββββββ 293,340 βββββββ 339 βββββββ 339 βββββββ Investments in unquoted securities are carried at cost less allowance for impairment, if any, as the fair value cannot be reliably measured. F-69 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 16. INVESTMENT PROPERTIES Land Buildings 2005 AED'000 2004 AEDβ000 91,829 36,900 ββββββββ 128,729 ββββββββ 48,726 123,729 βββββββ 172,455 βββββββ The fair value of investment properties as of 31 December 2005 is AED 151,310,000 (2004: AED 172,455,000) as per valuation conducted by independent valuers. No depreciation charge has been recognized for the year since the building was acquired in late December 2005. (2004: late December) Movement in investment properties Balance as at the beginning of the year Property purchased during the year Property sold (Note 27) Balance at the end of the year 2005 AED'000 2004 AEDβ000 172,455 310,969 (354,695) ββββββββ 128,729 ββββββββ 172,455 βββββββ 172,455 βββββββ 2005 AED'000 2004 AEDβ000 17. PREPAYMENTS AND OTHER ASSETS Dividends receivables Overdrafts accounts (profit free) Bills under LC s Prepaid expenses Deferred sales commissions Contingent customer acceptance (refer note 25) Goods available for sale Others Less: Allowance for impairment F-70 9,545 18,308 13,155 6,645 7,492 66,187 18,605 8,733 βββββββ 148,670 (4,705) βββββββ 143,965 βββββββ 14,065 5,163 1,499 33,679 14,243 9,063 βββββββ 77,712 (4,705) βββββββ 73,007 βββββββ Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 18. PROPERTY & EQUIPMENT The movement on property & equipment during the year is as follows: Leasehold Improvement AEDβ000 Cost As of 1 January 2005 Additions Disposals At 31 December 2005 Accumulated depreciation As of 1 January 2005 Charge for the year Disposals At of 31 December 2005 Net book value: 31 December 2005 31 December 2004 Other assets AEDβ000 Total AEDβ000 12,188 8,853 (56) ββββββ 20,985 ββββββ 9,859 6,620 (302) ββββββ 16,177 ββββββ 22,047 15,473 (358) ββββββ 37,162 ββββββ 5,295 2,089 (12) ββββββ 7,372 ββββββ 6,485 1,649 (299) ββββββ 7,835 ββββββ 11,780 3,738 (311) ββββββ 15,207 ββββββ 13,613 ββββββ 6,893 ββββββ 8,342 ββββββ 3,374 ββββββ 21,955 ββββββ 10,267 ββββββ Other assets include a plot of land owned by the Bank amounting to AED 600,000 (2004: AED 600,000). 19. CUSTOMERSβ DEPOSITS Current accounts Saving accounts Investment deposits Margins Profit Equalization Reserve Movement in Profit Equalization Reserve Balance, beginning of year Transfer from depositorsβ share of profit Zakat payable 2005 AED'000 2004 AEDβ000 1,423,280 402,168 1,720,591 48,366 2,576 βββββββββ 3,596,981 βββββββββ 496,120 209,013 506,424 22,960 βββββββββ 1,234,517 βββββββββ 2,644 (68) βββββββββ 2,576 βββββββββ Balance, end of year βββββββββ βββββββββ Profit equalization reserve has been made in the year 2005 upon the approval of the Board of Directors and Fatwa and Sharia Supervisory Board. Zakat on this reserve is included under Zakat payable (note 22). F-71 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 20. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Current accounts Clearing account with UAE Central Bank Overdraft with correspondents 2005 AED'000 2004 AEDβ000 3,732 14,200 βββββββ 17,932 βββββββ 1,135 13,633 βββββββ 14,768 βββββββ 21. OTHER LIABILITIES Interest payable Depositorsβ share of profit (Note 9) Provision for employee benefits Manager cheques Trade payables Contingent customer acceptances (note 25) Board of Directorsβ remuneration Contractorsβ retentions Forfeited income Others 2005 AEDβ000 2004 AED'000 18,847 22,901 138,081 22,446 66,187 1,400 2,872 15 22,746 βββββββ 295,495 βββββββ 52 2,996 19,176 12,575 33,679 11,414 βββββββ 79,892 βββββββ 2005 AEDβ000 (Restated) 2004 AED'000 5,636 68 βββββββ 5,704 βββββββ 2,080 0 βββββββ 2,080 βββββββ 22. ZAKAT PAYABLE Zakat on shareholdersβ equity (except for share capital) Zakat on profit equalization reserve (Note 19) The Zakat payable has been calculated for one full year (2004: October 9th till December 31st, 2004). F-72 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 23. SHARE CAPITAL At the Extraordinary General Meeting of the shareholders of the Bank held on 21 December 2005, the shareholders resolved to split the share to ten shares of AED 1 each, and to increase the authorized and paid-up capital to AED 650,000,000 by the issuing of bonus shares of AED 150,000,000 at par transferred from the retained earnings at the above mentioned date. Accordingly, the authorized and paid-up capital as ate 31 December 2005 comprises of 650,000,000 shares of AED 1 each (2004: 50,000,000 of AED 10 each). 24. STATUTORY AND GENERAL RESERVES In accordance with the Bankβs Articles of Association, Article (82) of Union Law no. 10 of 1980 and Federal Commercial Companies Law, the Bank transfers 10% of shareholdersβ annual net income, if any, to the statutory reserve until such reserve equals 50% of the paid-up share capital. This reserve is not available for distribution. A further 10% of shareholdersβ annual net income, if any, is transferred to a general reserve. Transfer to general reserve is suspended by an ordinary General Meeting, according to Board of Directorsβ recommendation, or if it reaches 10% of the Bankβs paid-up capital. The Board of Directors proposes the use of the general reserve at its discretion. At the beginning of the year, the general reserve was in excess of the stated limit, the excess of AED 14,857,000 has been transferred to retained earnings. According to the resolution of the Extraordinary General Meeting mentioned in note 23, the Bank resumed the transfer to the general reserve. 25. COMMITMENTS AND CONTINGENT LIABILITIES The Bank provides letters of guarantees and letters of credit to meet the requirements of its customers. These commitments have fixed limits and expirations, and are not concentrated in any period, and are arising in the normal course of business, as follows: Letters of guarantee Letters of credit Other contingent liabilities 2005 AEDβ000 2004 AED'000 518,580 368,335 51,217 βββββββββ 938,132 βββββββββ 2,187,970 92,322 74,872 βββββββββ 2,355,164 βββββββββ Under IAS 39 (revised) acceptances are recognized on balance sheet (notes 17 & 21). Accordingly there is no off balance sheet commitment for acceptances. Included in letters of guarantee for 2004 above, a guarantee amounted to AED 1,836,500,000 for Emirates Bank International (Group Holding Company) in favour of UAE Ministry of Economy. This guarantee was canceled in 2005. At any time the Bank has outstanding commitments to extend credit. These commitments take form of approved financing facilities. Outstanding financing facilities have a commitment period that does not extend beyond one year. The contractual amount of commitments to extend credit and financial guarantees are set out above. These commitments and contingent liabilities have off balance sheet credit risk. Many of the commitments and contingent liabilities will expire without being advanced in whole or in part. Therefore the above amounts do not represent future cash flows. The Bank has capital commitments amounting to AED 4,490,762 as at 31 December 2005 (2004-Nil). F-73 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 26. CASH AND CASH EQUIVALENTS 2005 AEDβ000 Cash Due from Holding Company maturing within 3 months Due from banks Due to banks Due to Holding Company maturing within 3 months 44,500 1,195,678 95,088 (17,932) βββββββββ 1,317,334 βββββββββ (Restated) 2004 AED'000 39,456 1,417,616 19,845 (14,768) (198,066) βββββββββ 1,264,083 βββββββββ 27. Investment in Emirates Real Estate Fund During the year, the Bank has sold certain investment properties to Emirates Real Estate Fund (EREF), a fund managed by Belgravia Asset Management Limited, at fair value amounting to AED 293,399,000 in lieu of issue of units in the fund. These units are carried at the latest Net Asset Value as declared by the fund manager and have been classified as fair value through income statement. 28. RELATED PARTY TRANSACTIONS The Bank has transactions carried out in the normal course of business with the Emirates Bank International Group and with certain staff, shareholders, directors and entities in which the bank, its shareholders and directors have significant interests. Related party transactions are as follows: (Restated) 2005 2004 AEDβ000 AED'000 Sale of investment properties to EREF Redemption of EREF Profit from Murabaha with group holding company Financing receivables Deposits Key Management Personal Compensations 293,399 18,365 - 34,990 34,375 6,137 4,465 6,415 2,449 29. SEGMENT REPORTING The Bankβs activities comprise the following main business segments: Corporate Within this business segment the Bank provides to corporate customers a range of products and services and accepts their deposits. This segment includes the investment properties, Syndications, Sukuk and Funds. Retail The retail segment provides a wide range of products and services to individuals and accepts their deposits. Treasury This segment mainly includes Murabaha deals with Emirates Bank International (PJSC). F-74 F-75 Total liabilities Liabilities Segment liabilities Unallocated liabilities Total assets Balance Sheet Assets Segment assets Unallocated assets Shareholdersβ of profit (Net Income) Depositorsβ share of profit for the period - ________ __________ ________ ________ 1,918,756 - ________ 775,235 βββββββ 775,235 - (50,592) βββββββ _______ (22,868) (27,724) _______ 1,361 (77,282) (29,085) _______ - (77,282) 48,197 _______ 23,818 24,379 ________ 800,760 ββββββββ 800,760 - 99,042 βββββββ _______ 99,042 - (15,574) βββββββ _______ (1944) (13,630) _______ 14,801 (52,154) (28,431) _______ - (52,154) 23,723 _______ 23,723 - Retail (Restated) 2005 2004 AEDβ000 AEDβ000 433,757 1,918,756 ββββββββ ββββββββ __________ 1,719,776 βββββββββ 433,757 - 1,719,776 - 599,068 ββββββββ 599,068 - 26,059 βββββββ 69,302 βββββββ 2,446,943 - ________ _______ (1052) 27,111 90,663 (21,361) 1,722 _______ 5,214 (6,711) 25,389 _______ (31,006) 85,449 _______ (3,200) _______ (6,711) (27,806) _______ 32,100 _______ 116,455 2,446,943 ββββββββββ Total expenses Net operating income Recoveries net of impairment allowance Total income General and administrative expenses Depreciation of investment Properties 29. SEGMENT REPORTING (continued) Corporate (Restated) 2005 2004 AEDβ000 AEDβ000 Income Statement Segment income 129,968 32,100 Treasury income (13,513) - As of 31 December 2005 NOTES TO THE FINANCIAL STATEMENTS Emirates Islamic Bank (PJSC) ββββββββ ________ - 1,046,391 ββββββββββ ___________ 1,046,391 - 24,370 βββββββ _______ - 24,370 _______ - 24,370 _______ - - 24,370 _______ 35,236 (10,866) ________ 212,835 ββββββββ 212,835 - 1,583,489 ββββββββββ ___________ 1,583,489 - 9,085 βββββββ _______ - 9,085 _______ - (35) 9,085 _______ - (35) 9,120 _______ 9,120 - Treasury (Restated) 2005 2004 AEDβ000 AEDβ000 __________ 4,768,477 ββββββββββ 3,638,532 1,129,945 4,768,477 ββββββββββ ___________ 4,268,569 499,908 43,080 βββββββ _______ (44,229) 87,309 _______ 6,575 (108,288) 80,734 _______ (3,200) (105,088) 189,022 _______ 189,022 - 2,345,644 ββββββββββ __________ 1,447,352 898,292 2,345,644 βββββββββ __________ 2,281,599 64,045 19,570 βββββββ _______ (2,996) 22,566 _______ 16,523 (58,900) 6,043 _______ - (58,900) 64,943 _______ 64,943 - Total (Restated) 2005 2004 AEDβ000 AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 30. RISK MANAGEMENT a) Credit risk and concentration of risk Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Bank attempts to control credit risk by monitoring credit exposure, limiting transactions with specific counterparties, and continually assessing the creditworthiness of the counterparties. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Bankβs performance to develop affecting a particular industry or geographical location. The Bank seeks to manage its credit risk exposure through diversification of financing and investing to avoid undue concentrations of risks with individuals or groups of customers in specific locations or businesses. The Bank also obtains security when appropriate. For the composition of financing receivables and loans and receivables, refer to note 13 and 14 respectively. Details of the geographic distribution of risk assets and liabilities are set out in note 33. b) Market risk The Bank is not exposed to market risk in terms of profit margins as all deposit contracts are on the basis of Mudaraba. The Bank, who is the Mudarib, has no commitment to the depositors in terms of profit. In case of loss the depositor, who is Rab Al Mal, bears the loss and the Mudarib loses his efforts. (refer to definitions- note 2). c) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank is not exposed to currency risks resulting from foreign currencies transactions undertaken by the Bank for its customers. Customers bear all currency risks as per the contractual terms. The Bank does not have any material assets / liabilities in foreign currencies other than US Dollar. The Bank neither deals in derivatives such as forward foreign exchange contracts and foreign currency swaps nor undertakes any hedging transactions as this is considered to be incompliant with Islamic Sharia. d) Liquidity risk Liquidity risk is the risk that an institution will be unable to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades which may cause certain source of funding to dry up immediately. To guard against this risk, management has diversified funding sources and assets are managed with liquidity in mind, maintaining a healthy balance of cash and cash equivalents. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date and do not take into account the effective maturities as indicated by the Bankβs deposit retention history and the availability of funds. F-76 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 30. RISK MANAGEMENT (continued) d) Liquidity risk (continued) The maturity profile is monitored by management to ensure adequate liquidity is maintained. Details of maturity profile of the assets and liabilities of the Bank are set out in note 34. 31. FAIR VALUE Fair value represents the amount at which an asset can be exchanged, or a liability settled, between knowledgeable, willing parties in an armβs length transaction. Difference can therefore arise between book value under the historical cost method and fair value estimates. The fair value of the Bankβs financial instruments approximate to the amount at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an armβs length transaction. The fair value of the Bankβs assets and liabilities is not materially different from the carrying value at 31 December 2005 for the reasons set out below: a) Due from banks Due from banks includes current accounts with these banks. b) Due from Group Holding Company Due from Group Holding Company comprises the Bankβs Murabaha, deposit exchange and other balances. Such Murabaha contracts are short term and priced with reference to the market rates at the contractual date. The Murabaha is expected to be realized on maturity. c) Financing receivables Financing receivables are net of allowances for impairment. Ijarah facilities are given at a variable rate determined, generally, with reference to the market rates besides the usual parameters of tenor and risk evaluation. The average profit rate on financing receivables at the year end is in line with the rate charged for such financing in the local banking market. d) Loans and receivables Loans and receivables are net of allowances for impairment. Loans and receivables were given, prior to transformation date, at variable interest rates. Such rates were in line with the local banking market at the granting dates, and based on the usual parameters of tenor and risk evaluation. e) Other investments Other investments comprise foreign quoted and local unquoted equity securities. The quoted equity securities are valued at fair value through profit and loss, and the unquoted securities are stated at cost less any provision for impairment. The assessment of the fair value of unquoted investments cannot be determined in an accurate measurement. f) Investment properties Investment properties are stated at cost. The building was acquired in late December 2005. The fair value of investment properties is disclosed in not 16. F-77 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Emirates Islamic Bank (PJSC) NOTES TO THE FINANCIAL STATEMENTS As of 31 December 2005 31. FAIR VALUE (continued) g) Customer deposits A significant portion of customer deposits comprise deposits with an original maturity up to one year. A significant portion of these deposits has been maintained with the Bank for a number of years on a roll over basis. Customer deposits primarily comprising profit bearing saving and fixed deposit accounts, paid on quarterly basis, and non-profit bearing current accounts, repayable on demand. h) Due to banks Due to banks includes non-profit bearing current accounts payable on demand. i) Other assets and liabilities Other assets and liabilities primarily comprise assets and liabilities which are primarily short term in nature. 32. COMPARATIVE FIGURES Certain prior year balances have been reclassified to conform to the current year presentation. F-78 F-79 Customers deposits 3,585,289 Due to banks and other financial institutions 17,805 Due to Group Holding Company Other liabilities 295,495 Zakat payable 5,704 Shareholdersβ Equity 852,365 ------------TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY 4,756,658 ββββββββββ LIABILITIES: ASSETS: Cash and deposits with UAE Central Bank 238,858 Due from banks and other financial institutions 2,057 Due from Group Holding Company 1,353,059 Financing receivables and investments 2,363,607 Loans and receivables 44,774 Other investments 293,340 Investments properties 128,729 Prepayment and other assets 141,747 Property and equipment 21,955 ------------TOTAL ASSETS 4,588,126 ββββββββββ 2005 2,402 --------2,402 βββββββ 1,855 ββββββββ 5,153 1,532 279 --------6,964 βββββββ 1,855 ----------- 302 45,983 ----------46,285 ββββββββ Other GCC Middle East Europe AEDβ000 AEDβ000 AEDβ000 33. GEOGRAPHICAL DISTRIBUTION OF ASSETS AND LIABILITIES As of 31 December 2005 NOTES TO THE FINANCIAL STATEMENTS Emirates Islamic Bank (PJSC) 1,758 βββββββ 1,755 3 --------- 86,395 1,939 --------88,334 βββββββ 4,447 βββββββ 4,447 --------- 456 22 16,814 --------17,292 βββββββ North America Asia AEDβ000 AEDβ000 172 βββββββ 48 124 --------- 488 --------488 βββββββ Far East AEDβ000 1,185 ββββββββ 1,185 ----------- 237 20,751 ----------20,988 ββββββββ Others AEDβ000 4,768,477 ββββββββββ 3,596,981 17,932 295,495 5,704 852,365 ------------- 238,858 95,088 1,354,613 2,447,155 44,774 293,340 128,729 143,965 21,955 -----------4,768,477 βββββββββ Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c F-80 LIABILITIES: Customers deposits 1,233,654 Due to banks and other financial institutions 1,347 Due to Group Holding Company 198,066 Other liabilities 79,892 Zakat payable 2,080 Shareholdersβ Equity 816,321 ------------TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY 2,331,360 ββββββββββ ASSETS: Cash and balances with UAE Central Bank 148,742 Due from banks and other financial institutions 1,195 Due from Group Holding Company 1,416,617 Financing receivables and investments 463,593 Loans and receivables 39,758 Other investments 339 Investment properties 172,455 Prepayments and other assets 70,713 Property and equipment 10,267 ------------TOTAL ASSETS 2,323,679 ββββββββββ 2004 709 --------709 βββββββ 154 ββββββββ 7,868 999 838 --------9,705 βββββββ 154 ----------- 22 313 34 ----------369 ββββββββ Other GCC Middle East Europe AEDβ000 AEDβ000 AEDβ000 13,421 βββββββ 13,421 ---------- 9,091 1,422 --------10,513 βββββββ βββββββ --------- 232 --------232 βββββββ North America Asia AEDβ000 AEDβ000 33. GEOGRAPHICAL DISTRIBUTION OF ASSETS AND LIABILITIES (continued) As of 31 December 2005 NOTES TO THE FINANCIAL STATEMENTS Emirates Islamic Bank (PJSC) βββββββ --------- 637 --------637 βββββββ Far East AEDβ000 ββββββββ ----------- 509 ----------509 ββββββββ Others AEDβ000 2,345,644 ββββββββββ 1,234,517 14,768 198,066 79,892 2,080 816,321 ------------- 148,764 19,845 1,417,616 463,593 39,758 339 172,455 73,007 10,267 ------------2,345,644 ββββββββββ Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c F-81 Liquidity gap Cumulative Liquidity gap 672,292 672,292 ASSETS: Cash and deposits with UAE Central Bank 238,858 Due from banks and other financial institutions 95,088 Due from Group Holding Company 1,195,678 Financing receivables and investments 314,006 Loans and receivables 32,240 Other investments Investment properties Prepayment and other assets 143,965 Property and equipment -----------TOTAL ASSETS 2,019,835 βββββββββ LIABILITIES: Customer deposits 1,028,412 Due to banks and other financial institutions 17,932 Due to Group Holding Company Other liabilities 295,495 Zakat payable 5,704 Shareholdersβ Equity -----------TOTAL LIABILITIES AND SHAREHOLDERSβ EQUITY 1,347,543 βββββββββ 2005 Within 3 months AEDβ000 34. MATURITY PROFILE OF ASSETS AND LIABILITIES As of 31 December 2005 NOTES TO THE FINANCIAL STATEMENTS Emirates Islamic Bank (PJSC) 1,238,143 βββββββββ 1,367,250 βββββββββ (442,366) (113,997) 1,238,143 ------------ 1,330,426 36,824 ------------ (343,923) 328,369 795,777 ----------795,777 ββββββββ Over 1 year to 3 years AEDβ000 158,935 442,662 293,001 128,729 -----------1,023,327 ββββββββ Over 3 months to 1 year AEDβ000 598,058 484,061 ββββββββ ----------- 576,103 21,955 ----------598,058 ββββββββ Over 3 years to 5 years AEDβ000 (484,061) - 815,541 ββββββββ 815,541 ----------- 318,607 12,534 339 ----------331,480 ββββββββ Over 5 years AEDβ000 4,768,477 ββββββββββ 3,596,981 17,932 295,495 5,704 852,365 -------------- 238,858 95,088 1,354,613 2,447,155 44,774 293,340 128,729 143,965 21,955 ------------4,768,477 βββββββββ Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c F-82 99,986 1,830 172,455 ----------274,271 ββββββββ ----------ββββββββ 149,580 325 ----------149,905 ββββββββ 505,766 ----------505,766 ββββββββ (355,861) 292,152 2004 ASSETS: Cash and balances with UAE Central Bank 148,764 Due from banks and other financial institutions 19,845 Due from Group Holding Company 1,417,616 Financing receivables and investments 139,673 Loans and receivables 17,177 Other investments Investment properties Prepayments and other assets 73,007 Property and equipment -----------TOTAL ASSETS 1,816,082 βββββββββ LIABILITIES: Customers deposits 728,751 Due to banks and other financial institutions 14,768 Due to Group Holding Company 198,066 Other liabilities 79,892 Zakat payable 2,080 Shareholdersβ Equity 144,539 -----------TOTAL LIABILITIES AND SHAREHOLDERSβ EQITY 1,168,096 βββββββββ Liquidity gap Cumulative Liquidity gap 647,986 647,986 274,271 566,396 Over 1 year to 3 years AEDβ000 Within 3 months AEDβ000 Over 3 months to 1 year AEDβ000 34. MATURITY PROFILE OF ASSETS AND LIABILITIES (continued) As of 31 December 2005 NOTES TO THE FINANCIAL STATEMENTS Emirates Islamic Bank (PJSC) 92,96 659358 ββββββββ ----------- 62,269 20,426 10,267 ----------92,962 ββββββββ Over 3 years to 5 years AEDβ000 (659,358) - 671,782 ββββββββ 671,782 ----------- 12,085 339 ----------12,424 ββββββββ Over 5 years AEDβ000 2,345,644 ββββββββββ 1,234,517 14,768 198,066 79,892 2,080 816,321 ------------- 148,764 19,845 1,417,616 463,593 39,758 339 172,455 73,007 10,267 ------------2,345,644 βββββββββ Total AEDβ000 Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 08c : 3700 Section 08c Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 09 : 3700 Section 09 ISSUER AND TRUSTEE EIB Sukuk Company Ltd. c/o Deutsche Bank (Cayman) Limited Elizabethan Square P.O. Box 1984 Grand Cayman, KY1-1104 Cayman Islands BANK Emirates Islamic Bank PJSC P.O. Box 6564 Dubai United Arab Emirates GUARANTOR Emirates Bank International PJSC P.O. Box 2923 Dubai United Arab Emirates DELEGATE Deutsche Trustee Company Limited Winchester House 1 Great Winchester Street London EC2N 2DB PRINCIPAL PAYING AGENT, PAYMENT ADMINISTRATOR, CALCULATION AGENT AND REPLACEMENT AGENT Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB REGISTRAR AND TRANSFER AGENT Deutsche Bank Luxembourg S.A. 2, Boulevard Konrad Adenauer L-1115 Luxembourg Luxembourg Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 09 : 3700 Section 09 AUDITORS To the Issuer To the Bank To the Guarantor KPMG Century Yard Cricket Square George Town Grand Cayman Cayman Islands KPMG Emirates Towers Sheikh Zayed Road P.O. Box 3800 Dubai United Arab Emirates KPMG Emirates Towers Sheikh Zayed Road P.O. Box 3800 Dubai United Arab Emirates LEGAL ADVISERS To the Issuer as to Cayman Islands law Turner & Roulstone Strathvale House 90 North Church Street P.O. Box 2636 Grand Cayman, KY1-1102 Cayman Islands To the Issuer, the Bank and the Guarantor as to English and UAE law Clifford Chance LLP 10 Upper Bank Street London E14 5JJ United Kingdom Clifford Chance LLP 3rd Floor, The Exchange Building Dubai International Financial Centre P.O. Box 9380 Dubai United Arab Emirates To the Dealers and the Delegate as to English and UAE law Allen & Overy LLP One Bishops Square London E1 6AO United Kingdom Allen & Overy LLP P.O. Box 28831 1603 API World Tower Sheikh Zayed Road Dubai United Arab Emirates Level: 10 β From: 10 β Wednesday, June 6, 2007 β 6:10 pm β mac5 β 3700 Section 09 : 3700 Section 09 DEALERS Barclays Bank PLC 5 The North Colonnade Canary Wharf London E14 4BB BNP PARIBAS 10 Harewood Avenue London NW1 6AA Citigroup Global Markets Limited Citigroup Centre Canada Square Canary Wharf London E14 5LB Deutsche Bank AG, London Branch Winchester House 1 Great Winchester Street London EC2N 2DB Emirates Islamic Bank PJSC P.O. Box 6564 Dubai United Arab Emirates Standard Chartered Bank 6 Battery Road, #03-00 Singapore 049909 Post Box No: 24989 printed by eprintfinancial.com tel: + 44 (0) 20 7613 1800 document number 3700