IPO Prospectus - Qatar Stock Exchange

IPO
Prospectus
31 December 2013
(This Prospectus was approved by the Qatar Financial
Markets Authority in the Arabic language on 23 December
2013, following the approval of the Ministry of Economy
and Commerce)
MESAIEED PETROCHEMICAL HOLDING COMPANY Q.S.C.
(an Article 68 company incorporated in the State of Qatar with commercial registration no. 60843)
Offer of 323,187,677 shares
representing 25.725% of the Company’s issued share capital
at an Offer Price of QAR 10 per Offer Share
(plus Offering and Listing Costs of QAR 0.20 per Offer Share)
Lead Financial Advisor
QNB CAPITAL LLC
Financial Advisor
DEUTSCHE BANK
Independent Auditors to the Company
ERNST & YOUNG (QATAR BRANCH)
Lead Receiving Bank
QATAR NATIONAL BANK S.A.Q.
Receiving Banks
AL AHLI BANK Q.S.C.
BARWA BANK Q.S.C.
INTERNATIONAL BANK OF QATAR (Q.S.C.)
MASRAF AL RAYAN Q.S.C.
AL KHALIJI COMMERCIAL BANK Q.S.C.
COMMERCIAL BANK OF QATAR Q.S.C.
QATAR INTERNATIONAL ISLAMIC BANK Q.S.C.
QATAR ISLAMIC BANK Q.S.C.
ARAB BANK PLC
DOHA BANK Q.S.C.
MASHREQBANK P.S.C.
The Lead Receiving Bank and each of the Receiving Banks listed above is a bank incorporated in Qatar, with the exception of Arab Bank plc, which is incorporated in Jordan;
and Mashreqbank P.S.C., which is incorporated in the United Arab Emirates. The Lead Receiving Bank and each of the Receiving Banks listed above is licensed by the Qatar Central Bank
to conduct business in Qatar. QNB Capital LLC is a limited liability company incorporated in the QFC and authorised and regulated by the QFCRA. Deutsche Bank AG Doha (QFC Branch)
is registered in the QFC as a branch of Deutsche Bank AG, a company incorporated in the Federal Republic of Germany, and is authorised and regulated in the QFC by the QFCRA.
The Qatar Financial Markets Authority (the “QFMA”) shall bear no liability for the validity, comprehensiveness and sufficiency of the details contained in this Prospectus, or the
Arabic language version of this Prospectus (the “Arabic Prospectus”), and the QFMA explicitly declares that it bears no liability for any loss incurred by any person taking decisions
based upon all or part of the details and information contained in this Prospectus.
This English language Prospectus is an unofficial English language translation of the Arabic Prospectus. The QFMA has reviewed the Arabic Prospectus and approved its publication,
but has not formally approved this English Prospectus. The QFMA takes no responsibility for the contents of this Prospectus nor the Arabic Prospectus, makes no representations
as to their accuracy or completeness, and expressly disclaims any liability whatsoever for any loss howsoever arising in reliance upon any part of the contents of this Prospectus
or the Arabic Prospectus.
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We, the members of the Board of Directors of Mesaieed Petrochemical Holding Company Q.S.C., whose names and signatures appear below, shall be jointly and severally
responsible for all of the information and statements set out in this Prospectus and declare that the information and details included herein are true and do not omit any
information that would make the information less significant, comprehensive and sufficient.
Board of Directors
Name
Signature
Position
Dr. Mohammed bin Saleh Al-Sada
Chairman and Director
Mr. Abdulrahman Ahmad Al-Shaibi
Vice Chairman and Director
Mr. Mohammed Nasser Mubarak Al-Hajri
Director
Key Dates
IPO Opening Date
31 December 2013
IPO Closing Date
21 January 2014
Allotment of Offer Shares and refund of
excess application amounts, if any
By 30 January 2014
First Award Date for Incentive Shares
31 December 2018
Second Award Date for Incentive Shares
31 December 2023
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In order to obtain information on the risks that investors in the Offer Shares should take into consideration, please
refer to the risk factors contained in this Prospectus from pages 15 to 33 of this Prospectus.
Qatar Petroleum ("Qatar Petroleum" or "QP") is offering 323,187,677 existing ordinary shares (the "Offer Shares" and each
an "Offer Share") with a nominal value of QAR 10 each, of Mesaieed Petrochemical Holding Company Q.S.C., a company
incorporated in the State of Qatar as an Article 68 Qatari Shareholding Company with commercial registration number
60843 (the "Company"), through an Initial Public Offering (the "Offering"). The Offer Shares represent 25.725% of the
total issued share capital of the Company, and are offered to individual Qatari citizens only (the "Individual Investors")
and certain selected Qatari institutions (the "Selected Institutions"). The Offer Shares are being offered at QAR 10 per
Offer Share (the "Offer Price"), plus offering and listing costs (the "Offering and Listing Costs") of QAR 0.20 per Offer
Share. In addition, in line with the stated policy of the State of Qatar to encourage long-term investments and the continued development of a personal savings culture in Qatar, QP has committed that each Individual Investor will receive, for
each Offer Share allocated to him or her in the Offering, the conditional right to receive incentive Shares (the "Incentive
Shares" and each an "Incentive Share") free of charge on the First Award Date and the Second Award Date (which will
occur after 5 years and 10 years, respectively). For the avoidance of doubt, save as otherwise set out in this Prospectus,
the right to receive Incentive Shares is only attached to Offer Shares acquired by Individual Investors in the Offering
and no right to receive Incentive Shares will attach to any Shares purchased on the secondary market after the Offering.
The Company was incorporated under the Commercial Companies Law (Law No. 5 of 2002) of the State of Qatar (the
"Companies Law") as a Qatari shareholding company by its founding shareholder, Qatar Petroleum. The Company is
an "Article 68 Company", having been incorporated under Article 68 of the Companies Law. As set forth in the provisions of the Companies Law, Article 68 Company status is only reserved for those companies with a certain form of
ultimate Government ownership. The Company is registered and incorporated in Qatar with commercial registration
number 60843. The Company was incorporated on 29 May 2013 for an initial period of 99 years, following Decision of
H.E. the Minister of Economy and Commerce No. 22 of 2013, issued on 21 May 2013.
The Company holds 49% of the issued share capital of each of Qatar Chemical Company Ltd. ("Q-Chem I") and Qatar
Chemical Company II Ltd. ("Q-Chem II") and 55.2% of the issued share capital of Qatar Vinyl Company Limited (QVC)
Q.S.C. ("QVC"). Each of Q-Chem I, Q-Chem II and QVC is referred to in this Prospectus as a "Portfolio Company" and,
together, as the "Portfolio Companies". The shares in each of the Portfolio Companies held by the Company (the "Portfolio Company Shares") were previously held directly by Qatar Petroleum, and were transferred to the Company with
effect from 9 September 2013 pursuant to the "Share Swap" (as described on page 12 of this Prospectus).
The Company was incorporated with an initial share capital of QAR 10,000,000, divided into 999,999 ordinary Shares
and one Special Share with a nominal value of QAR 10 each (together, the "Shares"). In connection with the Share
Swap (pursuant to which newly-issued Shares in the Company were issued and allotted to QP in consideration for the
transfer of the Portfolio Company Shares to the Company), the share capital of the Company was increased and additional shares were issued to QP. Accordingly, as at the date of this Prospectus and immediately prior to the Offering,
the share capital of the Company is QAR 12,563,175,000, divided into 1,256,317,499 ordinary Shares and one Special
Share. Each Share has a nominal value of QAR 10. All Shares are fully paid up.
The legal and commercial name of the Company is Mesaieed Petrochemical Holding Company Q.S.C. and its registered
office is located at P.O. Box 3212, Doha, State of Qatar. The Company’s commercial registration number is 60843.
Prior to the Offering, there has been no public market for the Shares. Prior to the Closing Date, the Company will
submit an application to the QFMA and to the QE to list the Shares on the QE. It is proposed that allotment of Offer
Shares and refunds of excess application amounts, if any, will occur by 30 January 2014. Holders of the Shares after
completion of the Offering will be entitled to receive dividends declared by the Company on such Shares in line with
the policies and recommendations of the Board and General Assembly approval. See "Dividend Policy".
This public offering is subject to the Company’s Constitutional Documents and the Companies Law.
This Prospectus has been prepared in accordance with the requirements of the QFMA and shall be valid for a period of
six months from the date of the Prospectus set out on the front cover of this Prospectus. The date of this Prospectus
is 31 December 2013.
The Offering Period opens on 31 December 2013 and ends at close of business (Doha time) on 21 January 2014.
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CONTENTS
Page
IMPORTANT NOTICE ....................................................................................................................................................................................................................................................3
SUMMARY.................................................................................................................................................................................................................................................................................10
RISK FACTORS......................................................................................................................................................................................................................................................................15
THE OFFERING.....................................................................................................................................................................................................................................................................34
USE OF PROCEEDS.........................................................................................................................................................................................................................................................43
BUSINESS OF THE COMPANY............................................................................................................................................................................................................................44
BUSINESS OF Q-CHEM I...........................................................................................................................................................................................................................................51
BUSINESS OF Q-CHEM II.........................................................................................................................................................................................................................................64
BUSINESS OF QVC..........................................................................................................................................................................................................................................................76
THE ECONOMY OF QATAR.....................................................................................................................................................................................................................................88
THE PETROCHEMICALS INDUSTRY.............................................................................................................................................................................................................90
INDEPENDENT PRACTITIONER’S ASSURANCE REPORT ON THE COMPILATION
OF PRO FORMA FINANCIAL INFORMATION......................................................................................................................................................................................96
PRO FORMA FINANCIAL INFORMATION................................................................................................................................................................................................99
MANAGEMENT DISCUSSION AND ANALYSIS..................................................................................................................................................................................102
DIVIDEND POLICY............................................................................................................................................................................................................................................................127
MANAGEMENT AND CORPORATE GOVERNANCE......................................................................................................................................................................128
EXISTING SHAREHOLDER.......................................................................................................................................................................................................................................132
RELATED PARTY TRANSACTIONS..................................................................................................................................................................................................................133
THE QATAR EXCHANGE.............................................................................................................................................................................................................................................139
DESCRIPTION OF THE SHARES........................................................................................................................................................................................................................140
TAXATION..................................................................................................................................................................................................................................................................................147
UNDERTAKINGS BY THE COMPANY............................................................................................................................................................................................................148
LEGAL COUNSEL’S REPORT.................................................................................................................................................................................................................................149
TRANSFER AND SELLING RESTRICTIONS............................................................................................................................................................................................150
CLEARING AND SETTLEMENT............................................................................................................................................................................................................................152
GENERAL INFORMATION.........................................................................................................................................................................................................................................153
GLOSSARY OF DEFINED TERMS......................................................................................................................................................................................................................159
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IMPORTANT NOTICE
The information in this Prospectus is provided to potential investors to inform their decision whether to invest in the
Offer Shares pursuant to the Offering, in accordance with the terms and conditions described in this Prospectus and
in accordance with the Company’s Constitutional Documents. This Prospectus does not contain misleading information, nor has any material information been intentionally omitted that might affect potential investors’ decisions
regarding their investment in the Offer Shares.
Potential investors are required to carefully review the entire contents of this Prospectus prior to making an investment
decision regarding the Offer Shares, taking into account all facts described therein in light of their own investment
considerations.
The QFMA take no responsibility for the contents of this Prospectus or the Arabic Prospectus, make no representations
as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from
or in reliance upon any part of the contents of this Prospectus or the Arabic Prospectus.
The distribution of this Prospectus and the offer of the Offer Shares may, in certain jurisdictions, be restricted by law
or may be subject to prior regulatory approvals. This Prospectus does not constitute an offer to sell or an invitation
by or on behalf of Qatar Petroleum, the Company or the Financial Advisors to purchase any of the Offer Shares in any
jurisdiction outside of Qatar or from or within the Qatar Financial Centre. This Prospectus may not be distributed in
any jurisdiction where such distribution is, or may be deemed, unlawful. Qatar Petroleum, the Company, the Financial
Advisors and the Receiving Banks require persons into whose possession this Prospectus comes to inform themselves
of and observe all such restrictions. None of Qatar Petroleum, the Company, the Financial Advisors or any of the
Receiving Banks accepts any legal responsibility for any violation of any such restrictions on the sale, offer to sell or
solicitation to purchase the Offer Shares by any person, whether or not a prospective purchaser of the Offer Shares is
in any jurisdiction outside of Qatar, and whether such offer or solicitation was made orally or in writing, including by
electronic mail.
No action has been or will be taken in any jurisdiction other than Qatar that would permit a public offering of the Offer
Shares, or possession or distribution of this Prospectus or any other offering material in any country or jurisdiction
other than Qatar where action for that purpose is required. Accordingly, the Offer Shares may not be offered or sold,
directly or indirectly, and neither this Prospectus nor any other offering material or advertisement in connection with
the Offer Shares may be distributed or published in or from any country or jurisdiction except under circumstances
that will result in compliance with any and all applicable rules and regulations of any such country or jurisdiction.
Persons into whose possession this Prospectus comes should inform themselves about and observe any restrictions
on the distribution of this Prospectus and the Offering and sale of the Offer Shares, including those in the paragraphs
below. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. This Prospectus does not constitute an offer to buy any of the Offer Shares to any person in any jurisdiction to
whom it is unlawful to make such offer or solicitation in such jurisdiction.
THE OFFER SHARES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAW OF ANY STATE OR TERRITORY OF THE UNITED STATES AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO, OR FOR
THE ACCOUNT OR BENEFIT OF, A U.S. PERSON (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT), EXCEPT
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAW.
Neither this Prospectus nor any other document issued in connection with the Offering may be passed on to any person
in the United Kingdom. All applicable provisions of the Financial Services and Markets Act of 2000, as amended, must be
complied with in respect of anything done in relation to the Offer Shares in, from or otherwise involving the United Kingdom.
No person is or has been authorised to give any information or to make any representations other than the information
and those representations contained herein in connection with the Offering. If given or made, such information or
representations must not be relied upon as having been authorised by Qatar Petroleum, the Company, the Financial
Advisors or any of their respective legal or accounting advisers, or any of the Receiving Banks. Each prospective
investor should conduct its own assessment of the Offering and consult its own independent professional advisers.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, constitute a
recommendation to purchase Offer Shares or create any implication that there has been no change in the affairs of
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the Company or the Group since the date hereof or that the information contained herein is correct as of any time
subsequent to its date. The content of this Prospectus may, however, still be subject to change until the completion of
the Offering. If required, these changes will be made through an amendment to this Prospectus. The Lead Financial
Advisor, QNB Capital LLC, is acting for the Company and Qatar Petroleum in connection with the matters described
in this document, is not acting for any other person and will not be responsible to any other person for providing the
protections afforded to customers of the Financial Advisors or for advising any other person in connection with the
matters described in this document.
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ENFORCEMENT OF JUDGMENTS AND SERVICE OF PROCESS IN QATAR
Qatari law relating to the enforcement of foreign judgments varies from that prevalent in certain other jurisdictions
that investors may be familiar with. In general, as a matter of Qatari law, Qatari courts will enforce a foreign judgment
upon the conditions determined in the foreign jurisdiction for the enforcement of a Qatari judgment as long as (a) the
foreign judgment is a final award that has been handed down by a court of competent jurisdiction, (b) the party against
whom the foreign judgment is to be enforced was properly served and represented in the proceedings in the foreign
court, (c) the foreign judgment does not violate the public policy or morality of Qatar, (d) the issue in question was
not res judicata in Qatar and (e) the subject matter was not reserved for the exclusive jurisdiction of the Qatari courts.
Qatar has entered into a treaty governing the reciprocal enforcement of foreign judgments with the other member
states of the GCC. Judgments obtained in the courts of a GCC member state shall be enforceable in the courts of any
other GCC member state, provided that the conditions to enforcement in the treaty have been met.
Neither the Government nor any Government-owned entity is immune from suit in the Civil Court in Qatar in respect
of its commercial activities. However, pursuant to the State Property Law No. 10 of 1987 (the "State Property Law"), the
State is immune from sequestration and execution by the Civil Court, unless waived by the Government or the relevant
Government-owned entity in respect of its public and private assets invested in financial, commercial or industrial
activities or deposited in banks.
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FINANCIAL INFORMATION
Unless otherwise indicated, the financial information set out in this Prospectus has been derived from:
(i)
the consolidated audited financial statements of Q-Chem I for the fiscal years ended 31 December 2010, 31
December 2011 and 31 December 2012 (the "Q-Chem I Consolidated Financial Statements"), the consolidated
audited financial statements of Q-Chem II for the fiscal years ended 31 December 2010, 31 December 2011 and
31 December 2012 (the "Q-Chem II Consolidated Financial Statements") and the audited financial statements
of QVC for the fiscal years ended 31 December 2010, 31 December 2011 and 31 December 2012 (the "QVC
Financial Statements" and, together with the Q-Chem I Consolidated Financial Statements and the Q-Chem II
Consolidated Financial Statements, the "Financial Statements"); and
(ii)
the unaudited pro forma financial information of the Company as of 31 December 2012 (the "Pro Forma Financial Information").
The Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").
The functional and presentation currency used by the Portfolio Companies is the US Dollar. The functional and presentation currency used by the Company is the Qatari Riyal.
Rounding Adjustments
Certain financial data in this Prospectus has been rounded. Consequently, figures shown for the same category presented in different tables may vary slightly, and figures shown as totals in certain tables may not be an arithmetic
aggregation of the figures which precede them.
The Company presents its financial statements in Qatari Riyals. The Qatari Riyal is, and since July 2001 has been,
pegged to the US Dollar at a fixed exchange rate of QAR 3.64 per US$1.00 and, accordingly, translations of amounts
from US Dollars to Qatari Riyals have been made at this exchange rate for all periods in this Prospectus. However,
please note that these rates may differ from the actual rates used in the preparation of the financial statements of the
Company and financial information derived from the financial statements that appear in this Prospectus.
No representation is made that any particular currency referred to in this Prospectus could have been converted into
US Dollars or Qatari Riyals, as the case may be, at any particular rate or at all.
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MARKET AND INDUSTRY INFORMATION
This Prospectus contains historical market data and industry forecasts, which have been obtained from market research,
publicly available information and industry publications or other sources considered to be generally reliable. Such information has not been independently verified, although the Company and the Lead Financial Advisor have a reasonable
belief that such information contained in this Prospectus is reliable. No representation is made regarding the accuracy,
adequacy or completeness of such information.
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FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are subject to risks and uncertainties, including statements
about the Company’s management’s beliefs and expectations. All statements other than statements of historical or
current fact included in this Prospectus are forward-looking statements. Forward-looking statements express the
current expectations and projections of the management of the Company relating to the condition, results of operations, plans, objectives, future performance and business of the Company and the Portfolio Companies, as well as
their expectations in relation to external conditions and events relating to the Company, the Portfolio Companies
and their respective sectors, operations and future performance. Prospective investors can identify forward-looking
statements by the fact that they do not relate strictly to historical or current facts. The statements may include words
such as "anticipate", "estimate", "believe", "project", "plan", "intend", "prospective" and other words and terms of similar
meaning in connection with any discussion of the timing or nature of future operating or financial performance or
other events.
These forward-looking statements are based on assumptions that the management of the Company has made in light
of its experience in the industries in which it operates, as well as its perceptions of historical trends, current conditions,
expected future developments and other factors which the Company’s management believes are appropriate under
the circumstances. As prospective investors read and consider this Prospectus, they should understand that these
statements are not guarantees of future performance or results. They involve risks, uncertainties (some of which are
beyond the control of the management of the Company) and assumptions. Although the management of the Company
believes that these forward-looking statements are based on reasonable assumptions, prospective investors should
be aware that many factors could affect the Company’s actual financial condition or results of operations and cause
actual results to differ materially from those in the forward-looking statements. These factors include, among other
things, those discussed under the heading "Risk Factors" in this Prospectus.
Due to these factors, the Company’s management cautions that prospective investors should not place undue reliance
on any forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is
made. New risks and uncertainties arise from time-to-time, and it is impossible to predict these events or how they may
affect the Company and/or the Portfolio Companies. Except as required by Qatari law, the regulations of the QFMA
or the rules of the QE, the management of the Company has no duty to, and does not intend to, update or revise the
forward-looking statements in this Prospectus after the date of this Prospectus.
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VALUATION APPROACH
A number of different potential valuation methodologies may be used to evaluate the value of the Company. Because
MPHC acts as the holding company of the three Portfolio Companies – Q-Chem I, Q-Chem II and QVC, a “sum of the
parts” valuation approach is one key methodology used to calculate an implied valuation for MPHC. As at the date
of the Offering, MPHC is the direct holder of 49%, 49% and 55.2% of the issued share capital of Q-Chem I, Q-Chem
II and QVC, respectively. Based on such valuation techniques, an appropriate assessment may be made as to what
the Offer Price should be. Potential investors in the Company must make their own assessment of the valuation of
the Company and should note that the day-to-day trading price of the Shares after the Offering may be greater or
lesser than, the Offer Price, and may or may not necessarily accurately reflect the underlying value of the Company.
In particular, potential investors in the Offering must read and understand this Prospectus in its entirety, including the
section entitled “Risk Factors”.
In assessing the valuation of the Company, information provided by the management teams of the Portfolio Companies, as well as public market data and industry research were utilised and certain financial assumptions were made.
The management teams of the Portfolio Companies have provided information and guidance on the historic performance and financial statements of the businesses, business plans including financial forecasts as well as industry
specific insights. The business plans of the Portfolio Companies have been developed individually by the Q-Chem
I, Q-Chem II and QVC management teams, respectively. Key assumptions in the business plans were based on both
third party consultant data and management’s market views. Feedstock pricing is derived from current contractual
arrangements and capital expenditures based on management projections. This information was analysed to understand historic and future performance trends as well as to conduct an industry comparative analysis.
Common internationally accepted valuation methodologies that may be used in assessing the valuation of the
Company include the discounted cash flow method, comparable companies market multiples method and discounted
dividend calculation. The discounted cash flow approach reflects a long term fundamental intrinsic valuation of the
company and involves estimating the present value of the future cash flows that the business is expected to generate.
The comparable companies market multiples method focuses on trading multiples that reflect current market conditions and utilise ratios of the companies’ operating profit or earnings. Valuations differ between methodologies due
to the multiples-based approach being driven by current public company market trading levels and the comparability
of peers, whilst the discounted cash flow approach is based on long term forecasted cash flows and specific assumptions. The discounted dividend valuation is primarily driven by MPHC dividend policy going forward.
Any valuation is subjective and dependent on a number of factors including valuation methodologies used, financials
forecasts, comparability of peers and key assumptions used. It is important to note that it is up to each individual
investor to make an assessment as to whether or not he or she considers that the Offer Price reflects accurately the
value of the Company and whether they should invest in the Offering.
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SUMMARY
No civil liability will attach to those persons who are responsible for this summary solely on the basis of this summary,
unless it is materially misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus.
The following summary information should be read as an introduction to the more detailed information appearing elsewhere in this Prospectus. Any decision to invest in the Offer Shares should be based on consideration of this Prospectus
as a whole, including the information discussed in "Forward-Looking Statements" and "Risk Factors", and not solely on
this summarised information.
The legal and commercial name of the Company is Mesaieed Petrochemical Holding Company Q.S.C. The Company’s
commercial registration number is 60843. The Company is an Article 68 Company incorporated in Qatar under the Companies Law. Article 68 Company status is only reserved for those companies with a certain form of ultimate Government
ownership. The Company holds 49% of the issued share capital of each of Q-Chem I and Q-Chem II, and 55.2% of the
issued share capital of QVC. These Portfolio Company Shares were previously held directly by Qatar Petroleum, and were
transferred to the Company with effect from 9 September 2013 pursuant to the Share Swap (as described on page 12 of
this Prospectus).
As at the date of this Prospectus and immediately prior to the Offering, the share capital of the Company is QAR
12,563,175,000, divided into 1,256,317,499 ordinary Shares and one Special Share. Each Share has a nominal value of
QAR 10. All Shares are fully paid up.
As at 31 December 2012, the Company was not incorporated and thus had no indebtedness. Moreover, as at the date
of this Prospectus, the Company has no indebtedness.
Objectives and Activities
The objects of the Company are to establish, manage, own and/or hold shares, assets and interests in companies
(and their subsidiaries and/or associated undertakings) engaged in all manner of processing and/or manufacturing of
petrochemical products, together with any other objective or undertaking which the Company deems beneficial to its
business, diversification or expansion from time to time, including the following:
1.
to establish, issue, own, hold, buy, sell subscribe for, transfer and allot or redeem shares, loan notes, bonds,
sukuk and any interests in itself, any affiliate and/or any company or undertaking;
2.
to invest any of the Company’s assets, bonds and financial instruments;
3.
to participate in the management, coordination, operation and financing of the Company, any affiliate, and/or
any company or person in which it holds shares or has an interest or commitment;
4.
to provide support to QP’s affiliates or its affiliates of third parties related to QP;
5.
to own patents, commercial businesses, franchises and any other rights, and the exploitation and lease thereof
to or for QP’s affiliates or otherwise;
6.
to own tangible and intangible moveable assets, personal and real property necessary or conducive for the
furtherance of its objects;
7.
to enter into contracts, agreements and arrangements with any person which the Company deems beneficial
to its business or to be in furtherance of its objects;
8.
to establish, acquire, undertake, manage and carry on the whole or any part of the business, property and liabilities of any person carrying on any business, which may in the opinion of the Directors be capable of being
conveniently carried on or calculated directly or indirectly to enhance the value of or make profitable any of the
Company’s or any of its affiliate’s property or rights, or any property suitable for the purposes of the Company
or any of its affiliate;
9.
to borrow, mortgage, guarantee incur liability, raise and secure the payment of money in any way the Directors
think fit, including, without limitation, by the issue of debentures and other securities (including derivatives),
perpetual or otherwise, charged on all or any of the Company’s property (present and future) or any of its
paid-up capital, and to purchase, redeem and pay off those securities;
10
10.
to enter into Islamic finance transactions and dispose of any underlying assets for the purposes of raising
finance in relation to such Islamic finance transactions;
11.
to do all things that are in the opinion of the Directors incidental or conducive to the attainment of all or any of
the Company’s objects, or the exercise of all or any of its powers;
12.
to carry on any other business or activities that are unusual to or may be carried on by companies involved in a
business similar to that of the Company and/or its affiliates; and
13.
to do any other act as if a natural person.
The principal activity of the Company is to operate as a holding company, serving as the immediate legal owner of the
Portfolio Company Shares. As at the date of this Prospectus, the Company is the direct legal owner of, and directly
controls the exercise of voting rights in respect of:
1.
49% of the issued share capital of Q-Chem I, a company which operates an integrated petrochemical plant for
the production of MDPE, HDPE and 1-Hexene. QP has initially directly retained 2% of the issued share capital of
Q-Chem I, while the remaining 49% is held by Chevron Phillips Chemical International Qatar Holdings LLC, a
limited liability company incorporated in the State of Qatar ("CPCIQH"). CPCIQH is a subsidiary of Chevron Phillips Chemical Company LLC ("CP-Chem"), which is a 50/50 joint venture between two major US multinational
companies – Chevron Corporation ("Chevron") and Phillips 66;
2.
49% of the issued share capital of Q-Chem II, a company which operates an ethylene cracker unit and a largescale petrochemical project producing HDPE and NAO. As with Q-Chem I, QP has initially directly retained 2%
of the issued share capital of Q-Chem II, while the remaining 49% is held by CPCIQH; and
3.
55.2% of the issued share capital of QVC, a company which operates a plant for the production of chlorine, Caustic Soda and subsequently EDC and VCM. The other shareholders in QVC are Qatar Petrochemical Company (QAPCO) Q.S.C., a company incorporated in the State of Qatar ("QAPCO"), holding 31.9%,
and QP, which holds 12.9%. It should be noted that, prior to 11 November 2013, QVC was operated as a joint
venture between MPHC, QAPCO and Arkema France (“Arkema”), which held 12.9% of the issued share capital
of QVC. Arkema’s interest in QVC was transferred to QP with effect from 11 November 2013, whereupon
Arkema ceased to be a party to the joint venture arrangements in relation to QVC. As at the date of this Prospectus, QAPCO, QP and the Company are the parties to the joint venture arrangements in relation to QVC.
Competitive Strengths
The Company believes that its business and those of the Portfolio Companies are characterised by the competitive
strengths that are highlighted below and that these competitive strengths will enable the Company to successfully
implement its strategy and continue its growth.
Integrated regional producer and exporter in the petrochemicals sector
The formation of the Company through the contribution of Qatar Petroleum’s existing equity stakes in the Q-Chem
I, Q-Chem II and QVC joint ventures respectively has allowed the creation of an integrated regional producer and
exporter in the petrochemicals sector. The integration and access to infrastructure at Mesaieed Industrial City ("MIC")
and Ras Laffan Industrial City ("RLIC") at the facilities of each Portfolio Company also contributes towards efficient
production, minimising logistic costs and product wastage in the production chain.
Robust global industry sector and product range with favourable supply-demand dynamics
Each Portfolio Company has a customer base that represents a global and diverse market encompassing the manufacturing and consumer sectors. The Asian markets are currently a major consumer and demand driver for Caustic Soda, EDC,
polyethylene, olefins and VCM, driven by the recent rapid expansion in the region’s industrial and manufacturing sectors.
Supply of feedstock
The Portfolio Companies benefit from proximity to the significant gas reserves of Qatar’s North Field. Q-Chem I and
Q-Chem II have secured a supply for their ethane feedstock requirements, pursuant to long-term supply agreements
with Qatar Petroleum. Most of QVC’s ethylene feedstock is sourced from a long-term supply agreement with QAPCO.
Q-Chem I and Q-Chem II produce their own ethylene.
11
Profitable businesses with significant cash generation ability
The combination of reliable feedstock, low energy costs and efficient and integrated operations has allowed the Portfolio Companies as a whole to enjoy a competitive advantage whilst achieving profitability that has been relatively
resilient to global economic cycles.
Strong Shareholder support and technology and operational expertise
The Portfolio Companies have all benefited from the on-going support of their shareholders. Each Portfolio Company
is managed through joint-venture agreements with Qatar Petroleum and related entities and has benefitted from the
paticipation of best-in-class strategic international partners. Qatar Petroleum is wholly owned by the State and is
responsible for all phases of the oil and gas industry in Qatar. CP-Chem, with major operations in North America,
Europe and Asia, is one of the largest petrochemical companies in the world and is a shareholder (through CPCIQH)
in Q-Chem I and Q-Chem II. CP-Chem is a 50/50 joint venture between two major US multinational companies –
Chevron and Phillips 66. The international partners with whom the Portfolio Companies have combined with each
have their own strong track records in operating similar production facilities to those of the Portfolio Companies
worldwide. In particular, Q-Chem I and Q-Chem II benefit from the technical, commercial and management expertise
made available through various project agreements with CP-Chem.
Q-Chem II benefits from operational synergies with Q-Chem I and economies of scale
Q-Chem II was deliberately constructed on a site adjacent to Q-Chem I and generates cost savings as a result of operational synergies with Q-Chem I. In addition, Q-Chem II takes advantage of economies of scale achieved through the
sharing of a cracker (the "Cracker") – owned by Ras Laffan Olefins Company ("RLOC") - with Qatofin, another QP-related petrochemical producer.
Strategic location, close in proximity to key markets
The Company’s management believes that demand for petrochemicals, mainly from Asian markets, is likely to experience growth driven by a combination of non-cyclical factors including wider-scale investments in manufacturing
industries, rising income per capita levels and growing populations. The strategic location of the Portfolio Companies
production facilities in Qatar in the Gulf, ensures that the Portfolio Companies benefit from good global connections,
particularly with Asia, at competitive regional shipping rates.
Strategy
The Company’s strategy is to maximise shareholder value by capitalising on the Portfolio Companies’ competitive
strengths and positions in the petrochemical segment of Qatar’s oil and gas industry, thereby supporting Qatar’s
National Development Strategy by enabling Qatari nationals to share in Qatar’s growth strategy and contributing to the
national economy of Qatar. The Company intends to improve the overall value and return to shareholders by:
•
monitoring implementation plans and results of the Portfolio Companies through discussions and reviews
between the Board and the board of directors of each of the Portfolio Companies;
•
monitoring the cash management operations of the Portfolio Companies and providing input on optimal cash
allocation and cash utilisation; and
•
evaluating, at the level of each Portfolio Company, the capital investment requirements, if any, by the Company.
Recent Developments
Acquisition of the Portfolio Company Shares
The Company is a newly-incorporated entity. Upon incorporation on 29 May 2013, the Company did not own the
Portfolio Company Shares, which remained at that time directly held by Qatar Petroleum. Pursuant to a Share Swap
Agreement entered into between Qatar Petroleum and the Company dated 4 August 2013 (the “Share Swap Agreement”), the Company agreed to acquire from Qatar Petroleum the Portfolio Company Shares in consideration for the
issue and allotment by the Company to Qatar Petroleum of an additional 1,255,317,500 newly-issued ordinary Shares
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in the Company (the “Swap Shares”). The execution of the Share Swap Agreement, the acquisition of the Portfolio
Company Shares and the issuance and allotment to Qatar Petroleum of the Swap Shares was approved at a meeting
of the Extraordinary General Assembly of the Company held on 8 July 2013. Separately, the transfers of the Portfolio
Company Shares from Qatar Petroleum to the Company were also approved by the Extraordinary General Assemblies
of the relevant Portfolio Companies – Q-Chem I, Q-Chem II and QVC. Such transfers were registered on 9 September
2013. Accordingly, as at the date of this Prospectus, and immediately prior to the Offering, Qatar Petroleum holds
100% of the issued share capital of the Company (a total of 1,256,317,499 ordinary Shares and one Special Share, as
compared in 999,999 ordinary Shares and one Special Share prior to the Share Swap). In turn, the Company holds
49% of the issued share capital of Q-Chem I (corresponding to 55,272 shares), 49% of the issued share capital of
Q-Chem II (corresponding to 245 shares) and 55.2% of the issued share capital of QVC (corresponding to 1,017,413
shares), having acquired the Portfolio Company Shares from Qatar Petroleum. QP has initially directly retained 2% of
the issued share capital of Q-Chem I and Q-Chem II.
Muntajat Decree
On 4 November 2012, Decree No. (11) of 2012 (the "Muntajat Decree") was enacted as law in Qatar. The full extent of
the Muntajat Decree’s impact over the businesses of each of the Portfolio Companies is currently uncertain. Under the
Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company
(Muntajat) Q.J.S.C. ("Muntajat") – has been mandated by the State to be exclusively responsible for the sale, purchase
and marketing of certain petrochemical products as defined under the Muntajat Decree (such products, the "Regulated Products"). The Regulated Products include certain products produced by the Portfolio Companies. Accordingly, compliance with the requirements of the Muntajat Decree is likely to have an impact over the current and historic
marketing and offtake arrangements of each of the Portfolio Companies and may also require certain third party
consents from contractual or financial arrangements entered into where the relevant Portfolio Company is a party.
The Muntajat Decree is currently in its implementation stage and the full extent to which the Portfolio Companies will
be affected is uncertain. In the case of QVC, Muntajat has already assumed all sales and marketing responsibilities
in relation to QVC’s VCM, EDC and Caustic Soda products as of April 2013, and accordingly QVC’s internal sales and
marketing function has been transferred to Muntajat.
Founding General Assembly
In accordance with Article 90 of the Companies Law, the Company’s Founding General Assembly met in Doha, Qatar
on 8 July 2013. At the meeting, Qatar Petroleum (as the Company’s sole shareholder) approved a number of resolutions in relation to the establishment of the Company, including (i) approving a Founding General Assembly Report
relating to the Company’s incorporation; (ii) approving and formally adopting the Memorandum of Association and
Articles of Association of the Company; (iii) approving the appointment of the Board of Directors; (iv) approving the
appointment of Ernst & Young as the Company’s initial Independent Auditors; (v) approving certain matters in relation
to the Company’s share capital; and (vi) formally declaring the Company to have been officially incorporated.
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Existing Shareholder
As at the date of this Prospectus, and immediately prior to the Offering, Qatar Petroleum holds 100% of the issued
share capital of the Company (a total of 1,256,317,499 ordinary Shares and one Special Share).
Risk Factors
Potential investors in the Offering should take into consideration that any investment in Shares involves a certain
degree of risk. Details of the following categories of risk that may have an influence over any investment decision are
detailed in the section entitled "Risk Factors" in this Prospectus:
•
•
•
•
•
•
•
risks relating to the Group in general;
risks relating to the Company;
risks relating to the Portfolio Companies and their respective business operations;
risks relating to Q-Chem I and its business operations;
risks relating to Q-Chem II and its business operations;
risks relating to QVC and its business operations; and
risks relating to the Offering, the Offer Shares and the trading market.
14
RISK FACTORS
Prior to investing in the Offer Shares, prospective investors should carefully consider the risk factors relating to the
Group, the Company and the business of each of the Portfolio Companies, together with all other information contained in this Prospectus. These risks and uncertainties are not the only issues that the Group companies face; additional risks and uncertainties not presently known to them or that they currently believe not to be material may also
have a material adverse effect on the Company’s or the respective Portfolio Company’s financial condition or business
success. If any or a combination of these risks actually occurs, the Company’s or the respective Portfolio Company’s
business, financial condition and operating results could be adversely affected. If this occurs, the price of the Company’s Offer Shares may decline and investors could lose part of or all of their investment. In addition, this Prospectus
contains forward-looking statements that also involve risks and uncertainties. The Group’s actual results could differ
materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks
faced by the Group as described below.
Risks relating to the Group in general
Qatar’s economic growth may not continue at the same rate.
The Company and each of the Portfolio Companies is based, and each of their primary operating assets is situated, in
Qatar, and the performance of each of the Portfolio Companies and subsequently the Company is dependent on the
economic and political conditions in Qatar. Qatar has enjoyed exceptional economic growth over recent years. There
can be no assurance that such growth will continue or that it will continue at the same rate. No assurance can be given
that the Government will not implement regulation 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 Group’s businesses, financial condition,
results of operations or prospects.
Qatar is located in a region that is subject to on-going political and security concerns.
Qatar is located in the Middle East, a region that is strategically important and subject to ongoing political and security
concerns. The Middle East region is currently experiencing an unprecedented level of political instability, turmoil and
conflict, as evidenced by recent events that may or may not directly involve Qatar, which could have an adverse effect
on Qatar’s ability to engage in international trade and which could also indirectly have a material adverse effect on the
Group’s businesses, financial condition, results of operations or prospects.
The wider MENA region in which Qatar is located is subject to a number of geopolitical and security risks and ongoing
unrest. Beginning in the first half of 2011, a number of countries in the MENA region, including Tunisia, Egypt, Libya,
Bahrain, Yemen and Syria have witnessed serious unrest, in some instances leading to civil disorder, foreign military
intervention and a change of government. As at the date of this Prospectus, a conflict is ongoing in Syria. The Syrian
government has recently been subjected to heightened international diplomatic pressure in relation to its handling of the
civil war. The situation in Syria is fluid and the potential exists for it to further deteriorate. There is also significant ongoing
political instability and disorder in Egypt. In January 2013, terrorists over-ran a gas facility at In Amenas in Algeria, in which
a large number of workers (including a significant number of foreign nationals) were killed during the attack as well as
during a subsequent rescue mission led by the Algerian security forces. Historically, there are on-going security concerns
in and around the Palestine and Lebanon areas with such conflicts having the ability to increase in scale and severity in
a particularly short period of time. In recent years, there have been instances of political unrest in Iran, particularly surrounding presidential and parliamentary elections. There is also continuing tension regarding Iran’s nuclear programme,
which the Iranian government has maintained is limited to developing a civilian nuclear energy programme, but which
the United States, the European Union and others publicly suspect is aimed at developing a nuclear weapons capability.
This has the potential to give rise to further tension regarding Iran, and possibly to foreign military action against Iran and
possible Iranian retaliatory action. Particularly, there may be a risk that the Straits of Hormuz in the Gulf may be subject to a
blockade therefore restricting or even stopping marine traffic to or from Qatar. Such blockade might impact the Portfolio
Companies’ ability to import raw materials and export finished product as it represents the main channel for the shipping
of the Portfolio Companies’ products. While the Portfolio Companies may stockpile their finished products in the event
they were unable to ship their products, the Portfolio Companies only have limited storage facilities and a prolonged
disruption to the Portfolio Companies’ ability to export finished product could lead to a shutdown of their respective production plants. Regional risks could also affect investor sentiment in the MENA region as a whole and potentially have a
material and adverse effect on the Group’s businesses, financial condition and results of operations.
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The global financial crisis had, and the current economic downturn has had and may continue to have,
an impact on the financial condition of Qatar, including on its financial sector, and may expose Qatar to
certain additional liabilities.
As widely reported, global economic conditions have deteriorated over the period since 2008. Financial markets in
the United States, Europe and Asia have experienced a period of unprecedented turmoil and upheaval characterised
by extreme volatility and declines in security prices, severely diminished liquidity and credit availability, inability to
access capital markets, the bankruptcy, failure, collapse or sale of various financial institutions and an unprecedented
level of intervention from the United States government and other governments. Unemployment has risen while business and consumer confidence have declined and fears of a prolonged global recession remain. These circumstances
have been further exacerbated by the deteriorating economic situation in certain European countries, such as Greece,
Portugal and Spain, among others, political instability, turmoil and conflict in the Middle East region and natural disasters or other catastrophic events thereby potentially having a material adverse effect on the Group’s businesses,
financial condition, results of operations or prospects.
Although Qatar cannot predict the impact on it of these deteriorating economic conditions, such conditions could
result in Qatar or one of its agencies being required to provide financial support to the financial sector or other sectors
of the Qatari economy. For example, starting in early 2009, the Qatar Investment Authority (the "QIA"), established
pursuant to Emiri Decision No. (22) of 2005 for the purpose of investing Qatar’s financial reserves domestically and
abroad, began making direct capital injections in Qatar’s commercial banking sector and between 2009 and 2011
purchased equity ownership interests of up to 20% in all domestic banks listed on the Qatar Exchange. In addition, on
9 March 2009, the QIA began to purchase the investment portfolios of seven of the nine domestic banks listed on the
Qatar Exchange. These purchases were completed on 22 March 2009 at a total purchase price of approximately QAR
6,500 million (US$1,786 million). In early June 2009, the QIA made a second round of investments and bought the
real estate portfolios and investments of nine domestic commercial banks at a sale price equivalent to the net book
value of such portfolios and investments with a total ceiling amount of QAR 15,000 million (US$4,121 million). The total
support by the QIA to the banking sector, which includes equity injections, purchases of real estate and investment
portfolios in domestic banks, has been QAR 32,700 million (US$8,984 million).
Should economic conditions in Qatar deteriorate again, Qatar may find it necessary to assume responsibility for the
financial liabilities of both State-owned and non-State-owned enterprises in Qatar. Any such intervention by Qatar
could materially adversely affect its economy and financial condition, and expose Qatar to additional liabilities and
reduce amounts available to fund ongoing and future projects. Additionally, due to capital expenditures and past interventions, Qatar’s ratio of total indebtedness to nominal GDP increased from 7.8% as of 31 March 2008 to 41.9% as of
31 March 2012. Qatar’s ability to intervene in the future may be limited due to these increased levels of indebtedness.
Prior to 2009, Qatar had a high rate of inflation.
Qatar has had a mix of inflation and deflation (measured by a movement in Qatar’s Consumer Price Index as opposed
to a core inflation measurement) recently with an increase in inflation of 0.3% in the first quarter of 2012 which was
preceded by an inflation rate of 1.9% in 2011 and a negative inflation rate of 2.4% in 2010. Prior to 2009, Qatar had high
levels of inflation and the overall annual inflation rate was 15.2% in 2008 compared to 13.6% in 2007 and 11.8% in 2006.
The high levels of inflation prior to 2009 were primarily accounted for by the rapid and sustained increase in real estate
prices, as well as an increase in international food and raw material prices. In order to address the domestic housing
shortage and control housing prices, the Government supported several domestic and residential construction projects near completion and cost pressure abated. In 2009 and 2010, the decrease in housing costs contributed to the
negative inflation rates in Qatar, but a recent rise in core inflation has led to a return of overall inflation in 2011. In a
report on Qatar issued by the IMF in January 2011, the IMF noted that the country’s projected high growth rates require
careful monitoring of aggregate demand to ward off the risk of inflation at the high levels seen previously. There can
be no guarantee that the Government or the Qatar Central Bank (the "QCB") will always be able to achieve or maintain
price stability, in the real estate market or otherwise, and thus control inflation. Additionally, the past deflationary trend
in the real estate market may not be sufficient to offset a further increase in core inflation.
The Group’s management information systems, accounting systems and internal controls may be inadequate or may fail.
The Group’s information technology and accounting systems are designed to enable the Group to use its resources
as efficiently as possible and monitor and control all aspects of the Group’s operations. Any failure or breakdown in
these systems could interrupt the Group’s normal business operations and result in a significant slowdown in opera16
tional and management efficiency for the duration of such failure or breakdown or thereafter. Any prolonged failure or
breakdown could dramatically impact a particular Portfolio Company’s ability to maintain production at optimal levels,
which could have a material adverse effect on its business, financial condition and results of operations. Further,
the Group cannot guarantee that the information technology and accounting systems currently employed by the
Company and each of the Portfolio Companies will continue to be adequate or appropriate (in whole or in part) for
any future operations, or that they will not need replacement, amendment or upgrading, any of which could have a
material adverse effect on the Group’s businesses, financial condition and results of operations. Notwithstanding the
above, the Directors believe that the Group’s financial reporting systems are sufficient to ensure compliance with the
requirements of the QFMA and the Qatar Exchange as a listed company.
Each Portfolio Company’s operations may subject it to foreign exchange and commission rate risk, as well
as risks relating to any future adjustment of the Qatari Riyal – US Dollar currency peg.
The Qatari Riyal is, as of the date of this Prospectus, pegged to the US Dollar (at an exchange rate of QAR 3.64 to
US$1.00) in accordance with the Qatari Government’s current monetary policy. Although the Qatari Government has
not given any official indication of a change in this policy, there can be no assurance that the exchange rate will remain
fixed. It is anticipated that the Company will receive its revenues in US Dollars by way of its share of dividends from
the Portfolio Companies, the Portfolio Companies have foreign currency exposure. In particular, the products sold
by Each Portfolio Company are paid for predominantly in US Dollars and any adverse movements in the value of the
US Dollar against other currencies, each other, including the Qatari Riyal, may negatively impact each of the Portfolio
Company’s business, financial condition, results of operations or prospects. The Portfolio Companies do not generally
engage in hedging activities to mitigate against foreign currency fluctuations. In addition, any removal or adjustment
of the Qatari Riyal-US Dollar peg may have an adverse effect on the Group’s financial condition or results of operations.
The Group predominately maintains a significant number of its accounts, in US Dollars. As at the date of this Prospectus, the Qatari Riyal remains pegged to the US Dollar. There can be no assurance, however, that the Qatari Riyal would
not be de-pegged from the US Dollar in the future or that the existing peg will not be adjusted in anyway. Any such
de-pegging or adjustment could have an adverse effect on the Company’s financial condition or results of operations.
GCC member states may enter into a monetary union.
In 2001, the Gulf Cooperation Council (the "GCC") proposed to establish a common currency by 2010 with a view to
deepening economic integration. In December 2008, finance ministers of the GCC member states (other than Oman)
signed an agreement establishing the framework for the GCC monetary union. This agreement also provides for the
establishment of a GCC monetary council, which will finalise the details of the GCC monetary union and is expected to
eventually be converted into a GCC central bank. The agreement must be ratified by each member state in order for it
to take effect. Currently, four of the six GCC members have signed the accord to join the GCC monetary union – Qatar,
Kuwait, Saudi Arabia and Bahrain — while the United Arab Emirates and Oman have decided not to join. In May 2009,
the GCC members that plan to join the GCC monetary union decided that Riyadh would be home to the new GCC
monetary council, a precursor to a GCC central bank. As yet there has been no announcement of an official timetable
for the progression of the GCC monetary union or whether indeed it will be implemented. In October 2009, Kuwait’s
Ministry of Finance called for a delay of the GCC monetary union. In March 2010, however, Qatar, Kuwait, Saudi Arabia
and Bahrain unanimously elected Saudi Arabia’s Monetary Agency Governor as the first chairman of the GCC monetary
council, representing the latest step in launching a single currency and laying the foundation for a GCC central bank.
Prospective investors should be aware that new legislation and any resulting shifts in monetary policy and procedures
in Qatar could have an adverse effect on the Group’s businesses, financial condition, results of operations or prospects.
Investors may experience difficulties in enforcing arbitration awards and obtaining judgments in Qatar.
In the event that proceedings are brought against the Group in Qatar, the Qatari courts would, in accordance with
their normal practice, enforce the contractual terms of the subscription for the Offer Shares. Although Qatari courts
have consistently enforced commercial interest obligations computed in accordance with the terms of the relevant
agreement, there is no guarantee of this given that Qatar does not have a binding doctrine of precedent.
In addition, decisions of Qatari courts are not published. As a result, any experience with and knowledge of prior rulings
of Qatari courts may not be a reliable basis from which to predict decisions that Qatari courts may adopt in the future.
Thus the outcome of any legal disputes involving the Group, whether as a defendant in a proceeding related to the
terms of the transaction documents in respect of the Shares or otherwise, or as a plaintiff, in Qatar remains uncertain.
Pursuant to Decree No. 29 of 2003, Qatar joined the New York Convention on the Recognition and Enforcement of
Foreign Arbitral awards of 1958 (the "New York Convention"). Accordingly, whenever the New York Convention applies
17
to a foreign arbitral award, that award should be recognised and enforced in compliance with the requirements of
the New York Convention. However, enforcement of foreign arbitral awards is underdeveloped in Qatar and largely
untested and thus there can be no assurance that any arbitration relating to the Group would protect the interests of
investors to the same extent as would be expected in certain other jurisdictions.
Qatarisation.
The Government of Qatar has embarked on a Qatarisation plan (the "Qatarisation Plan") entitled "Quality Qatarisation"
to achieve a quality 50% Qatari national workforce in the energy and industry sector in Qatar. The Qatarisation Plan
was put into effect on 1 June 2000 and its implementation has been extended beyond its initial five-year term. The
industry-wide Plan targets both operating and non-Portfolio Companies. The Group has in place Qatarisation programmes, in line with the Qatarisation Plan. There is no assurance that the Group will be able to meet (either on time
or at all) the Qatarisation level prescribed by the Government. Failure to meet the requirement of the Qatarisation Plan
may subject the Group to administrative restrictions or other impositions that may affect its business performance.
Furthermore, the labour market in Qatar will become more competitive for those Qatari nationals with an appropriate
skill set, and this may have an effect on the Group’s employment costs. In addition, the skills of long-time expatriate
personnel may be lost if they are replaced by less experienced Qatari nationals.
Pensions and end-of-service gratuities risks.
As is common in the Middle East and emerging markets in which the Group operates, the Group does not operate a
Group pension plan or make contributions into pension schemes for its employees. However, the Group makes appropriate provisions in its financial accounts for statutory payments under all applicable laws relating to end-of-service gratuities. However, there can be no guarantee that the actual amount owed to an employee after the end of their employment
with the Group will not exceed the amount provided for, or that legislative or regulatory changes in the markets in which
the Group operates will not introduce additional benefits currently not provided for. The above risks, if they were to
materialise, could have a material adverse effect on the Group’s businesses, financial condition and results of operations.
Changes in global or regional prices or supply of natural gas, crude oil and other hydrocarbons and a decline
in Qatar’s future production of hydrocarbons.
Qatar’s revenues are affected by international oil and natural gas prices, which have fluctuated widely over the past
two decades. The oil and gas sector contributed 85.1% and 81.1% to the annual revenues of Qatar in the fiscal years
ended 31 March 2011 and 2012, respectively, while contributing 51.7% and 57.7% to its total nominal GDP for the years
ended 31 December 2010 and 2011, respectively. International prices for crude oil have fluctuated substantially during
the last five years as a result of many factors, including global demand for oil and natural gas, changes in governmental regulations, weather, general economic conditions and competition from other energy sources. Furthermore,
as crude oil prices provide a benchmark for gas and petrochemical feedstock prices, changes in crude oil prices
may also have an impact on gas and petrochemical prices. The price of crude oil (based on West Texas Intermediate
spot) has averaged US$94.11 per barrel between 1 January 2012 and 31 December 2012, compared to US$95.05 per
barrel for the same period in 2011. In addition, the price of crude oil has fallen from its 2008 monthly average peak of
US$133.93 per barrel in June 2008 to US$100.50 per barrel in October 2013.
International prices for natural gas have also fluctuated significantly in the past depending on global supply and
demand and the availability and price of alternative energy sources. The development of fracking technology in the
United States has increased both United States gas reserves and gas production, which has led to depressed gas
prices in the United States and a divergence of those gas prices from prices in Asia and Europe. Qatar’s ability to
benefit from higher Asian and European gas prices may be negatively affected by a number of LNG projects coming
on stream in the next several years that will increase the supply of LNG, including large LNG projects in Australia which
are close to the Asian market and consequently any surplus delivered to the Asian market may negatively impact the
Asian gas market. This, together with other factors such as the global economic downturn, could put further downward pressure on natural gas prices.
In the past, Qatar has been able to partially offset lower hydrocarbon prices by increases in hydrocarbon production,
but the future rate of growth in Qatar’s hydrocarbon production is expected to slow down. Most of Qatar’s oilfields
are mature and oil production may have peaked in 2011. Additionally, the reserves at Al Shaheen, one of Qatar’s most
productive oil fields, were recently reduced after drilling results led to a reserves reassessment. Qatar has reached the
end of a 20 year development cycle for LNG projects and LNG production has reached a plateau. With a moratorium
18
on the development of new gas projects in the North Field in place until at least 2014 (excluding the Barzan gas pipeline project which is targeted for local consumption), and given the long lead time to develop gas projects, Qatar may
not be able to significantly increase gas production in the near future through new gas projects.
Thus, any material reduction in the prices of natural gas, crude oil and other hydrocarbons may have a significant
impact on the value of Qatar’s reserves and may materially adversely impact its revenues and financial condition.
Qatar Petroleum, which manages Qatar’s interests in all oil, gas, petrochemical and refining enterprises in Qatar and
abroad, does not generally engage in hedging activities to mitigate against fluctuations in natural gas or crude oil
prices and, accordingly, any material reduction in the price of natural gas or crude oil may materially adversely affect
the financial condition of Qatar and indirectly, the Group.
International sanctions applied against neighbouring states may not continue.
Currently, petrochemical producers within certain states that are subject to international sanctions are prevented by
such sanctions from doing business with a number of countries around the world. There can be no guarantee that such
sanctions would not be lifted to permit such states to export to those countries to which they currently restricted from
exporting. In particular, strict US and certain international sanctions exist with respect to Iran. If the sanctions applicable to Iran were to be lifted then, depending on the outcome of the development phase for petrochemical products,
Iran may compete in the markets for the Group’s products, which may adversely affect the pricing of such products.
Furthermore, the geographical position of certain potential future competitors (such as Iran) gives a similar advantage
as the Group benefits from with respect to distribution to the markets in which the Group currently operates. If such
sanctions were to be lifted and new exporting producers begin to compete with the Group, such competition may
erode the Group’s margins and product prices and, hence, may have an adverse effect on the Group’s businesses,
financial condition, results of operations or prospects.
Risks relating to the Company
Short operating history.
The financial performance of the Company will be dependent on the financial performance of the Portfolio Companies, which are established, income-generating businesses. However, the Company is a newly incorporated company
and has only recently acquired shares in each of the Portfolio Companies pursuant to the Share Swap, further details
of which are set out on page 12 of this Prospectus.
The impact (if any) of the Share Swap has yet to be established. However, the Company’s future success will depend in
part on its ability to successfully monitor and manage the independent activities and operations of the Portfolio Companies and successfully implement the long-term strategies set for them as component parts of a holding company.
Risks relating to control and limitations on ownership.
As at the date of this Prospectus, all of the Shares of the Company are owned by Qatar Petroleum. On completion of
the Offering, Qatar Petroleum will own 74.275% of the Shares and hold one "Special Share" in the Company giving it
rights in addition to those held by other Shareholders (such as, but not limited to, the ability to block amendments to
the Articles, certain other Shareholder decisions and the right to appoint all members of the Board). Accordingly, upon
Admission, Qatar Petroleum will maintain control over Board decisions (including dividend policy, expansion plans,
budget approval, the timing and amount of dividend payments (if any) and other material issues of the Company)
and significant control over Shareholder decisions that require either a majority decision of the Shareholders or the
consent of the holder of the Special Share. Consequently, Qatar Petroleum retains a significant degree of control over
the Company and its operations. Qatar Petroleum will, therefore, be able to influence all matters requiring Shareholder
or Board approval. As a result, Qatar Petroleum could exercise its control over the Company in a manner that may not
be in the best interests of other shareholders or that could have a material adverse effect on the Group’s businesses,
financial condition, results of operations or prospects. Furthermore, any change in the business strategy and/or policy
towards the Group by Qatar Petroleum could result in the interests of Qatar Petroleum and the interests of other
shareholders no longer being aligned. Any such divergence of interests could adversely affect the market price of the
Shares. In addition, the Articles restrict any person, whether legal or natural, with the exception of Qatar Petroleum
(and its affiliates) and the Selected Institutions, from owning more than a specified maximum number of Shares, as
determined by the Board from time to time (currently set at 1,000,000 Shares). See the section of the Prospectus
entitled "Description of the Shares".
19
The Company may not pay dividends or may pay smaller dividends than expected.
Subject to the Memorandum of Association and Articles of Association, any decision to pay dividends to Shareholders
and the amount of such dividends will be at the discretion and upon the recommendation of the Board. The amount of
any dividends may vary from year to year. The distribution of dividends will be dependent upon a number of factors,
including the future profit, financial position, capital requirements, legal reserve requirements, distributable reserves,
available credit of the Company and general economic conditions and other factors that the directors deem significant from time to time. Also, the Company’s ability to declare and pay cash dividends on the Shares may be restricted
by, among other things, covenants in any credit facilities that the Company may enter into in the future, the recovery
of any accumulated losses in the future and the provisions of Qatari law. Therefore, there can be no assurance that any
dividend will ever be paid, nor can there be an assurance as to the amount, if any, which will be paid in any given year.
Inability of the Company and the Portfolio Companies to develop new business.
A primary assumption of management in relation to the future development of the Company and the Portfolio Companies is that they will, post-Offering, be able to develop and grow (and in the case of the Portfolio Companies, to
continue to develop and grow further) their respective businesses. There inevitably can be no assurance that such
development and growth will occur. Since the value of the Company principally derives from the financial results of
the Portfolio Companies, the inability of the Portfolio Companies to develop new business is likely to have an effect on
the value of the Shares and the ability of the Company to pay dividends.
Future changes in corporate tax regulations.
Pursuant to Qatari Tax Law No. 21 of 2009, the Company is currently exempt from corporate taxation in Qatar, other
than certain duties on its profits, as a result of its entire issued share capital being wholly owned by Qatar Petroleum,
which is a Qatari legal person domiciled in Qatar. However, although the Offering is only open to Eligible Investors,
being Qatari Individual Investors and certain selected Qatari Institutions, it is likely that, subject to the foreign ownership limits imposed by Qatari law and the Company’s constitutional documents, foreign (i.e. non-GCC) nationals will
become Shareholders in the Company – principally by acquiring Shares on the secondary market. Accordingly, the
Company would ordinarily become subject to Qatari corporate income tax computed on the proportion of its issued
share capital that is held by foreign Shareholders. However, Qatari Law No. 20 of 2008 grants an exemption in the case
of companies whose shares are admitted to trading on the Qatar Exchange. Therefore, it is anticipated that, notwithstanding the Offering, the Company’s profits will remain exempt from corporate income tax in Qatar. However, there
can be no assurance that the State will not in the future introduce additional taxes, charges or levies on the Company
or the Portfolio Companies and/or their operations, or that the current tax laws and regulations in Qatar will not be
amended. In accordance with Qatari Law No. 13 of 2008 (as amended) on the Contribution of Shareholding Companies
to Social and Sports Activities, the Company and each Portfolio Company is required to pay an amount equal to 2.5% of
its net profits. This amount is payable to a fund to support sports, cultural, social and charitable activities. See further
the section of the Prospectus entitled “Taxation”, which also addresses certain tax implications for Individual Investors.
Risks relating to the Portfolio Companies and their respective business operations
Increases in feedstock costs or decreases in the availability of feedstock.
The operations of each Portfolio Company depends on receiving sufficient quantities of high quality feedstock and
other raw materials in a timely manner. The availability of such feedstock and raw materials involves risks typically connected with commercial arrangements which can include political and economic instability, regulatory uncertainties
and risks due to local production and/or delivery conditions. Supply may also be affected by material delays, suspension or refusal by key suppliers in supplying feedstock to the Portfolio Companies, or by any other third party supplier
in supplying feedstock, other raw materials or utilities to its relevant production facility, particularly if it is not possible,
on short notice, to shift to alternative sources of supply.
In addition, most of the integrated production processes rely on shared utilities or infrastructure such that any disruption or other interference in the maintenance or provision of such services or infrastructure may adversely affect
production rates and sales at multiple production facilities. Even if each Portfolio Company is able to obtain sufficient
quantities of high quality feedstock and other raw materials, there is no assurance that the prices for such materials
will be sustained at levels which will enable the respective Portfolio Company to operate profitably.
20
The price of various feedstock and raw materials could be affected by a number of factors outside of the particular
Portfolio Company’s control, including changes in economic conditions in the countries from whom the particular
Portfolio Company receives feedstock or raw materials, the economic policies of the governments of such countries,
global and/or regional economic conditions and international treaties or other similar commitments to which such
countries are or become a party. In particular, each of Q-Chem I and Q Chem II benefits from having its feedstock
pricing fixed by contractual agreement with contractually agreed price increases, although QVC does not have fixed
contractual prices in place, rather it typically has regular price revisions in place.
In the event that a Portfolio Company does not receive feedstock or utilities as contracted for or the prices of such
utilities increases significantly, then this could have a material adverse effect on that Portfolio Company’s business,
financial condition, results of operations or prospects.
Risks relating to dependency on Qatar Petroleum and the Services Agreement.
Because the Company is primarily a holding company without a significant number of employees or human resources
of its own, the majority of its administrative functions are performed on its behalf by employees of Qatar Petroleum or
its affiliates. These include certain administrative, legal, HR, IT, record-keeping, marketing, public relations, secretarial,
reporting, securities exchange compliance and other day-to-day back office functions on behalf of the Company. The
Company and Qatar Petroleum have entered into a Services Agreement formalising the basis upon which such functions are performed by Qatar Petroleum on request for the benefit of MPHC. The Services Agreement is expressed to
be governed by the laws of the State of Qatar. In consideration of those services set out in the Services Agreement,
the Company has agreed to pay to Qatar Petroleum certain fees and expenses. Because the Company lacks its own
administrative resources, it is highly dependent on Qatar Petroleum and the continued performance by Qatar Petroleum of the relevant functions, as itemised in the Services Agreement. In the event the Services Agreement were to
be terminated or Qatar Petroleum were otherwise to fail to provide the relevant services, the Company may not be in
a position to immediately replace the lost administrative support or develop its own resources, and this could have a
material adverse effect on the Company’s ability to promptly discharge its regulatory obligations and upon its business, financial condition, results of operations or prospects.
Risks relating to the supply of Ethylene feedstock to QVC.
QVC is principally supplied with ethylene by QAPCO pursuant to an Ethylene Supply Agreement dated 21 September
1998 (the “Ethylene Supply Agreement”). However, notwithstanding the Ethylene Supply Agreement, in 2013 QVC
experienced additional demand for ethylene feedstock, caused in part by reductions in supply from QAPCO due to
the start-up of QAPCO’s new polyethylene plant. Qatar Petroleum sought to address this by arranging for QVC to
receive additional ethylene from RLOC. In April 2013, QVC entered into a contractual arrangement with Q-Chem II and
Qatofin (the “Additional Ethylene Supply Agreement”) which provided for the supply of up to 50,000 metric tons
of additional ethylene to QVC from RLOC. The Additional Ethylene Supply Agreement expires on 31 December 2013
and it is not proposed that it be renewed. QVC is currently in the process of negotiating alternative arrangements for
the supply to QVC of ethylene feedstock – principally from suppliers situated within the GCC region – and is highly
confident that, should it experience additional requirements for ethylene feedstock in 2014 and beyond, it will be able
to procure such ethylene feedstock on reasonable terms (including as to cost). However, there can be no guarantee
in this respect, and a risk inevitably exists that QVC may not be able to source the ethylene feedstock it requires on
commercially acceptable terms (or at all), which may cause QVC feedstock supply issues.
The loss of key customers and/or suppliers.
The Portfolio Companies have, over several years in operation, built strategic relationships with various customers and
suppliers. Should these relationships breakdown, cease to exist or there is any material modification to the contractual
terms under which the Portfolio Companies provide or receive products or services which are not favourable to it, this
could have a materially adverse effect on that Portfolio Company’s business, financial condition, results of operations
or prospects. For example, the recent exploration and development of shale gas in North America in particular might
impact the competitiveness of the Portfolio Companies in markets such as North America and Latin America. While
limited or no business is generally conducted in those markets, the recent increase in production of shale gas has
raised the prospect of stronger competition to the Portfolio Companies’ export markets due to the availability, in North
America, to potentially cheaper natural resources.
21
Developments in technology could result in a Portfolio Company’s operations becoming uncompetitive.
Technologies and processes are being continuously developed in the petrochemical and industrial sectors worldwide. Significant developments in technology could result in existing technologies and processes utilised by any of
the Portfolio Companies becoming uncompetitive, adversely impacting the competitiveness of the relevant Portfolio
Company, which may have a material adverse effect on that Portfolio Company’s business, financial condition, results
of operations or prospects. For example, the recent exploration and development of shale gas in North America in
particular has raised long-term concerns over the future competitiveness of the Portfolio Companies in markets such
as North America and Latin America. While limited or no business is generally conducted in those markets, the recent
increase in production of shale gas has raised the prospect of stronger competition to the Portfolio Companies’ export
markets due to the availability in North America, to potentially cheaper natural resources.
Q-Chem I and Q-Chem II are reliant on third party technology providers.
Q-Chem I and Q-Chem II rely on CPCIQH for the right to use certain technology processes utilised in the production of
its products and certain derivative units. Such technology may be material to the production process. In the event that
CPCIQH withholds the authorisation to use these technologies or does not renew or extend the provisions contained
in the agreements, Q-Chem I or Q-Chem II (as the case may be) would be compelled to search for alternatives that
might not be as efficient or that are more costly to implement, while Q-Chem I or Q-Chem II (as the case may be) may
be subject to delays in any such implementation, which may have a material adverse effect on the business, financial
condition, results of operations or prospects.
Each Portfolio Company is subject to operational risk such as shutdown, breakdown, failure or malfunctioning of equipment or machinery.
The smooth and uninterrupted operation of the plants owned by the Portfolio Companies is largely dependent on the
performance and reliability of the equipment and machinery of these plants. Any unforeseen shutdown, breakdown,
failure or malfunctioning of the equipment/machinery, or any part of the production process, may result in the loss of
plant efficiency and production delays, which could have a material adverse effect on a Portfolio Company’s business,
financial condition, results of operations or prospects notwithstanding that in such an event, Q-Chem I or Q-Chem II
may have the ability to divert feedstock to each other.
In addition, the performance achieved by the production facilities could drop below expected levels of output or
efficiency because of issues such as those relating to their design or specifications. If the production facility fails
to achieve the required level of performance, then this could adversely affect the output of a particular Portfolio
Company, which may have a material adverse effect on that Portfolio Company’s business, financial condition, results
of operations or prospects. See pages 58, 72 and 78 of this Prospectus for further details regarding each Portfolio
Company’s record of shutdowns.
The Portfolio Companies’ workforce is exposed to hazards.
The Group’s operations rely on the workforce of the Portfolio Companies, which is exposed to a range of operational
hazards typical for the petrochemical industry. These hazards arise from working on production sites, operating largescale machinery and performing other hazardous activities. As further described on pages 60, 74 and 83 of this
Prospectus, the Group provides its workforce with occupational health and safety training and believes that its safety
standards and procedures are adequate, however, accidents at its production sites or facilities may occur as a result of
unexpected circumstances, failure of employees to follow proper safety procedures, human error, equipment failure
or otherwise. If any of these circumstances were to occur, they could result in personal injury, business interruption,
possible legal liability, damage to the Group’s business reputation and corporate image and, in severe cases, fatalities.
Any of these risks could, if it were to materialise, materially and adversely affect the Group’s business, financial condition, results of operations or prospects.
The loss of skilled and key personnel.
The business and operations of each Portfolio Company is dependent upon its ability to recruit and retain skilled
personnel. If a Portfolio Company is unable to retain experienced, capable and reliable personnel, especially senior
and middle management with appropriate professional qualifications, or fails to recruit skilled professional and
technical staff, that particular Portfolio Company’s operations may be adversely affected. Experienced and capable
22
personnel with engineering, chemical, oil and gas and other petrochemical related and technical backgrounds remain
in high demand in Qatar due to the limited number of qualified individuals and there is significant competition for their
talents. Consequently, when talented employees leave, that particular Portfolio Company may have difficulty replacing them and may incur additional costs and expenses in securing such replacements.
The loss of any member of the Senior Executive Team (as defined in the "Business of the Company" section of this
Prospectus) or the loss of any other key employees from any of the Portfolio Companies may result in a loss of organisational focus, poor execution of operations, or an inability to identify and execute potential strategic initiatives such
as expansion of capacity. The occurrence of any of these events may have a material adverse effect on a Portfolio
Company’s business, financial condition, results of operations or prospects.
The global demand for each of the Portfolio Companies’ products are cyclical and the Portfolio Companies
have no control over the factors that may have an effect on the demand for its products and the factors that
would influence the market price for its products.
Each Portfolio Company is dependent on the conditions and growth of the economy in the markets that they currently have, and in future intend to have, customers and operations in. These markets are global commodity markets
in nature that are driven by global supply and demand. The Portfolio Companies have no control over the supply and
demand of its products. Historically, the markets for each Portfolio Company’s products have experienced alternating
periods of supply and demand resulting in subsequent price and margin volatility. Such cyclical changes in demand
has a direct impact over the demand for the respective products of each Portfolio Company. The reduction in demand
and/or an over-supply in the market place of a Portfolio Company’s products could result in lower margins or a material
reduction in sales of each Portfolio Company’s product leading to a material adverse effect on each Portfolio Company’s respective financial condition, results of operations or prospects.
Each Portfolio Company is subject to the risks associated with export sale.
The imposition of new legal or regulatory requirements, import quotas, tariffs or duties, sanctions, boycotts and other
measures, whether adopted by individual governments or addressed by regional trade blocks, may impact the competitive position of the products manufactured by the Portfolio Companies or preclude the sale of such products into
certain countries, which could have a material adverse effect on a Portfolio Company’s business, financial condition,
results of operations or prospects.
Each Portfolio Company may not be able to maintain sufficient insurance coverage for the risks associated
with the operation of its business.
The operations of each of the Portfolio Companies may be affected by a number of risks, including terrorist acts and
war related events for which full insurance cover is either not available or not available on commercially reasonable
terms. In addition, the severity and frequency of various other events, such as accidents and other mishaps, business
interruptions or potential damage to its facilities, property and equipment caused by inclement weather, human error,
pollution, labour disputes and natural catastrophes, may result in losses or expose a Portfolio Company to liabilities in
excess of its insurance coverage or significantly impair its reputation. The Portfolio Companies cannot assure investors that their respective insurance coverage will be sufficient to cover losses arising from any, or all of such events, or
that it will be able to renew existing insurance cover on commercially reasonable terms.
Should an incident occur in relation to which a Portfolio Company has no insurance coverage or inadequate insurance coverage, the particular Portfolio Company could lose the capital invested in, and anticipated future revenues
relating to, any property that is damaged or destroyed and, in certain cases, the particular Portfolio Company may
remain liable for financial obligations related to the impacted property. Similarly, in the event that any assessments are
made against a Portfolio Company in excess of any related insurance coverage that it may maintain, its assets could
be subject to attachment, confiscation or restraint under various judicial procedures. Any of these occurrences could
have a material adverse effect on the particular Portfolio Company’s business, financial condition, results of operations or prospects. In addition, certain of the Portfolio Company’s financings (if any) require assignments of insurance
proceeds in favour of the relevant lenders. Thus, any claim that the relevant Portfolio Company may have in respect of
such insurance proceeds will be a residual claim for the proceeds not taken by such lenders.
23
A Portfolio Company may be subject to liabilities as a result of any violation of the environmental and safety
standards and regulations that apply to that Portfolio Company.
The operations of each Portfolio Company is subject to a range of environmental laws and regulations in Qatar including those governing, for example, compliance with waste and waste water treatment and disposal, emissions and
discharge requirements, the general use, storage, transportation, treatment and disposal of hazardous chemicals
and wastes, and employee health and safety matters (See further the sections in this Prospectus titled "Business of
Q-Chem I – Health, Environment and Safety", "Business of Q-Chem II – Health, Environment and Safety" and "Business
of QVC – Health, Environment and Safety").
Compliance with such laws and regulations can be costly and each of the Portfolio Companies incur costs, and will
continue to incur costs, to comply with such requirements. Although the Portfolio Companies have initiated and maintain various safety and monitoring procedures at each production site, should they fail to comply with such laws and
regulations, they may be liable for significant penalties, even where such failure to comply is caused by, or attributable to, a third party. In addition, the contravention of any such environmental law or regulations could result in the
potential damage or harm to, destruction or death (as the case may be) of, properties, production facilities, people
and/or the environment. Any occurrence of environmental damage may result in a disruption of a Portfolio Company’s
services or cause reputational harm and significant liability could be imposed on the particular Portfolio Company for
damages, clean-up costs or penalties, which may have a material adverse effect on that Portfolio Company’s business,
financial condition, results of operations or prospects. In addition, there is no assurance that governmental authorities
in Qatar will not enforce existing environmental laws and regulations more strictly than they have done in the past or
in the future impose stricter environmental standards, or higher levels of fines and penalties for violations, than those
which are in effect at present. Accordingly, each Portfolio Company is unable to estimate the future financial impact
of compliance with or the cost of a violation of any applicable environmental laws or regulations.
The occurrence of any of these events may cause disruption to a Portfolio Company’s projects and operations and
result in additional costs to that Portfolio Companies, which may have a material adverse effect on that Portfolio Company’s business, financial condition, results of operations or prospects.
New legislation in Qatar has been passed that may affect the marketing activities for the products of each
Portfolio Company.
On 4 November 2012, the Muntajat Decree was enacted as law in Qatar. The full extent of the Muntajat Decree’s impact
over the businesses of each of the Portfolio Companies is currently uncertain. Under the Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C. (known as
Muntajat) – has been mandated by the State to be exclusively responsible for the sale, purchase and marketing of certain
Regulated Products (as defined under the Muntajat Decree). The Regulated Products include certain products produced
by the Portfolio Companies. Accordingly, compliance with the requirements of the Muntajat Decree is likely to have an
impact over the current and historic marketing and offtake arrangements of each of the Portfolio Companies and may
also require certain third party consents from contractual or financial arrangements entered into where the relevant
Portfolio Company is a party. The Muntajat Decree is currently in its implementation stage and the full extent to which the
Portfolio Companies will be affected is uncertain. In the case of QVC, Muntajat has already assumed all sales and marketing responsibilities in relation to QVC’s VCM, EDC and Caustic Soda products as of April 2013, and accordingly QVC’s
internal sales and marketing function has been transferred to Muntajat. There can be no assurance that compliance with
the requirements of the Muntajat Decree will not result in disruption to the sales and marketing processes of the Portfolio
Companies’ products. Any such disruption could have a material adverse effect on the business, results of operations
and financial condition of the Portfolio Company(ies) affected. Furthermore, under the Muntajat Decree, each Portfolio
Company is required to pay a fee to Muntajat in relation to the marketing and offtake activities undertaken by Muntajat
on its behalf. A comparatively higher level of fee than the current and/or historical marketing and offtake arrangements
of the Portfolio Companies may have a negative impact over the expected financial condition and results of operations
of the relevant Portfolio Company.
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Each Portfolio Company’s production operations include the production and transportation of hazardous
and highly combustible materials. Each Portfolio Company may be exposed to significant environmental liability if a spill or other contamination event relating to these materials occurs and in relation to the
greenhouse gases it produces.
Each Portfolio Company’s production operations are located at MIC and, in the case of Q-Chem II, RLIC in Qatar and
comprise the processing of feedstock to produce refined petrochemical products, and in the case of QVC, comprise
the processing of ethylene into refined petrochemical products.
The refined products to be produced by the Portfolio Companies are, by their nature, hazardous materials that are highly
combustible. The nature of the Portfolio Company’s future production operations exposes it to heightened risks from accidents involving explosions and fire. Each Portfolio Company’s operations are also subject to operational risks common in
the petrochemicals sector, such as interruptions to power supplies, technical failures, flooding, or other accidents.
Such risks and hazards could result in damage or harm to, destruction or death (as the case may be) of, properties,
production facilities, people and/or the environment. In addition, if a spill or other contamination results from a Portfolio Company’s production, storage, export, shipment or sale of its refined products, the particular Portfolio Company
could be exposed to significant environmental liabilities. Claims could be brought against the particular Portfolio
Company even if the spill or contamination was caused by or attributable to a third party, or party acting on the
Portfolio Company’s behalf as its agent or who is transporting products for the Portfolio Company. Any or all of these
hazards, as well as the possible legal liability of a Portfolio Company arising therefrom, could have a material adverse
effect on the Portfolio Company’s financial condition, results of operations or prospects.
Although each Portfolio Company maintains insurance against certain risks and losses, not all operating risks are insurable at commercial reasonable terms (as to which see further the risk factor above entitled "Each Portfolio Company
may not be able to maintain sufficient insurance coverage for the risks associated with the operation of its business")
and the occurrence of any such event that affects operations and is not fully covered by insurance could have a material adverse effect on its financial condition, results of operations or prospects.
Each Portfolio Company is subject to significant compliance obligations under applicable environmental,
health and safety laws and regulations.
Each Portfolio Company is subject to and will comply with various environmental, health and safety laws and regulations
that impose operational compliance and remediation obligations. Operational compliance obligations can result in significant costs to install and maintain pollution controls, as well as fines and penalties resulting from any failure to comply.
These costs could be significant and limitations could be imposed on each Portfolio Company’s ability to operate.
Environmental remediation obligations can result in significant costs associated with the investigation and clean-up of
contaminated properties or water bodies as well as claims for damage to property. In addition, a Portfolio Company
could face claims of death or injury to persons resulting from exposure to hazardous materials or of adverse impacts
on natural resources resulting from its operations.
It is not possible for each Portfolio Company to estimate exactly the amount and timing of all future expenditures
related to environmental matters because of:
(a)
the potential for periodic discovery of new environmental conditions or additional information about existing
conditions;
(b)
the inherent uncertainties in estimating pollution control and clean-up costs;
(c)
the inherent uncertainty in quantifying liability under environmental laws that impose liability without fault on
potentially responsible parties; and
(d)
the evolving nature of environmental laws and regulations and their interpretation and enforcement.
A number of legislative and regulatory measures to address greenhouse gas emissions are in various stages of discussion or implementation, including, but not limited to, the Kyoto Protocol and the existing international agreement on
reducing emissions of greenhouse gases of which the initial commitment expired at the end of 2012. On-going dis-
25
cussions with other nations, including those related to or arising from the United Nations climate change conference
in Doha, Qatar in November 2012 may lead to other future treaty obligations assumed by Qatar or similar steps being
taken by the Government to reduce and remedy environmental damage from greenhouse gas emissions. These measures could result in increased costs (including a potential tax on emissions or other regulatory regimes) for the Portfolio Companies to, among other things: (i) operate and maintain their respective operating plants; (ii) install new emission controls at their operating plants; and (iii) administer and manage a greenhouse gas emissions programme. In
addition, these and other potential regulatory measures could reduce demand for its refined products, in the markets
where the particular Portfolio Company operates or impacts the consumption of refined products by the respective
Portfolio Company’s customers, thereby affecting its results of operations and financial condition.
Each Portfolio Company is subject to the risks associated with the use of pipelines.
In the case of Q-Chem I, ethane gas is supplied by Qatar Petroleum to the Cracker through a pipeline owned by Q-Chem
I and operated by Qatar Petroleum. In relation to Q-Chem II, ethane gas is supplied by Qatar Petroleum to the Cracker
through a pipeline operated by Qatar Petroleum. Subsequently ethylene produced by the Cracker is supplied to the
HDPE Unit and NAO Units through a pipeline owned by RLOC in the case of the main pipeline and Q-Chem II in the case
of the branch pipeline and in either case operated by Qatar Petroleum. The Cracker and the HDPE and NAO Units therefore rely on the security measures adopted by Qatar Petroleum for the operation of these pipelines and there can be no
guarantee that such security will be effective and the pipeline could be subject to sabotage or terrorist attack. In the
case of QVC, a complex of pipelines is used to provide feedstock to its production units, including pipelines for providing ethylene from the adjoining QAPCO plant, methane gas from Qatar Petroleum and for offtaking Caustic Soda, EDC
and VCM. In addition, each of the Portfolio Companies is subject to all of the usual operating risks associated with using
pipelines, including the possibility of leaks and explosions, any of which could cause personal injury, result in damage
to, or destruction of, the pipeline, production facilities and equipment and the environment. In addition to the impact on
the environment, such an accident may cause a material delay or interruption in the supply of ethane gas to the Cracker
or ethylene to the HDPE unit or the NAO Unit or QVC’s EDC and VCM units which, in turn, could have a material adverse
effect on the respective Portfolio Company’s business, financial condition, results of operations or prospects.
Q-Chem I and Q-Chem II receive all of their ethane gas and QVC receives the majority of its ethylene under
their respective feedstock supply agreements as well as certain other essential goods and services from
other suppliers. Non-performance by counterparties to these arrangements could materially affect the
operations of the respective Portfolio Companies, as applicable.
Q-Chem I and Q-Chem II rely upon QP and QVC upon QAPCO to provide in a timely manner the volumes of ethane gas
and ethylene in the case of QVC which they are obliged to supply under their respective feedstock supply agreements.
Potential investors should note that the feedstock supply agreements provide only limited remedies to Q-Chem I and
Q-Chem II as applicable in the event of a failure in supply of ethane gas, or ethylene in the case of QVC. In respect of
a continuous failure to supply ethane gas the relevant Q-Chem I or Q-Chem II’s only remedy is the right to terminate
the relevant feedstock supply agreement.
Under the terms of the feedstock supply agreements for Q-Chem I and Q-Chem II, Qatar Petroleum is relieved of
its obligation to supply upon the occurrence of an event outside its reasonable control (referred to in the feedstock
supply agreements as a "force majeure" event), without being subject to a requirement to pay monetary damages or
other remedies. In addition, delivery of ethane gas by Qatar Petroleum could be interrupted for a variety of reasons,
including production or operational difficulties at the gas fields from which ethane gas is sourced, operational difficulties in the distribution network, industrial accidents or equipment failures.
Under the terms of the ethane gas feedstock supply agreements for each of Q-Chem I and Q-Chem II, Qatar Petroleum’s obligation to deliver ethane gas is subject to applicable law, availability within Qatar of ethane gas from Qatar
Petroleum and the ethane gas production policies of Qatar in effect from time to time. In addition, under the feedstock supply agreements, should Qatar Petroleum fail to deliver the full daily quantity required, it is only required to
use its best efforts to make up the shortfall subject to, in the case of Q-Chem I, liquidated damages for natural gas
liquefaction plant shutdowns exceeding 30 days per 12-month period and, in the case of Q-Chem II, discounts for
the shortfall quantities exceeding a threshold amount. In the event that supply becomes scarce and Qatar Petroleum
fails to comply with its contractual obligations, for whatever reason, Q-Chem I or Q-Chem II may not be able to satisfy
its production requirements as Qatar Petroleum is the sole provider of the required ethane gas in Qatar. As a result,
Q-Chem I or Q-Chem II may be required to pay more to obtain its ethane gas requirements, which could have a material adverse effect on its financial condition, results of operations or prospects.
26
Under the terms of the Ethylene Supply Agreement for QVC, QAPCO has agreed to sell to QVC an average annual
volume of 140,000 tonnes of ethylene to be used as feedstock for the QVC plant. The price payable by QVC for ethylene is determined in accordance with the formula set forth in the agreement. The price formula is intended to be
market-related with reference to easily accessible, recognised statistical data for ethylene prices and will reflect: (i)
the price that QAPCO could potentially obtain in the export market on an arms-length long-term contract basis, (ii)
QVC’s need to have access to ethylene at competitive market prices, and (iii) long-term, material trends in the ethylene
market. It should be noted that, on 1 January 2014, the formula by which the price payable by QVC under the Ethylene
Supply Agreement is subject to revision, which could lead to a higher or lower price being payable by QVC.
Each Portfolio Company requires the supply, in a timely manner, of contracted volumes of other inputs and services.
Substantially all of the supply contracts that each Portfolio Company has entered into contain provisions that relieve
the supplier of its obligation to supply upon the occurrence of a force majeure event, without being subject to monetary damages or other remedies. For example, Qatar Petroleum would be restricted in delivering natural gas under the
fuel gas supply agreements should the Government of Qatar restrict its ability to do so.
If any of the suppliers of these inputs or services defaults in its obligation to supply, or is relieved of its obligation to
supply due to a force majeure event, the business and operations of the particular Portfolio Company may be interrupted. In certain cases, it may not be possible or commercially feasible for a Portfolio Company to arrange alternative
sources of supply and, accordingly, any such interruption may be prolonged. There can be no assurance that suppliers
to the Portfolio Companies will supply all of the inputs and services required in accordance with the relevant supply
agreements, or that any shortfall or interruption in such supply would not have a materially adverse effect on a Portfolio Company’s results of operations. The failure to receive the necessary inputs under such contracts could result in
a material diminution in a Portfolio Company’s operating revenues which could have a material adverse effect on its
financial condition, results of operations or prospects.
Each Portfolio Company depends upon certain of its Shareholders and their affiliates for its operations and
is involved in numerous related party transactions that could create conflicts of interest.
Each Portfolio Company is involved in and, in certain circumstances, is dependent upon numerous related party
transactions with Qatar Petroleum and with other companies controlled by Qatar Petroleum. Qatar Petroleum or its
affiliates are its key service providers and supplier of feedstock. See further the section of this Prospectus entitled
"Related Party Transactions".
Under the offtake and credit risk agreement, Q-Chem I and Q-Chem II would not be compensated for a failure by
CPCIQH to take the stipulated quantity of products if there is no material adverse effect resulting therefrom or if the
relevant products are capable of being stored. The offtake and credit risk agreement does not provide for any termination compensation nor does it address alternative disposal if CPCIQH fails to take the stipulated quantity of products.
However, a high inventory level triggers an exception from the requirement of CPCIQH to take up the contractually
stipulated quantity while a failure of CPCIQH to take up such stipulated amount may lead to a breach of the offtake
and credit risk agreement and could result in a claim for damages. This risk is compounded by the fact that there are
no local alternative customers for this product and limited ability to store it. In addition, the offtake and credit risk
agreement offers a 60-day cure period for all events of default, including payment and insolvency default. The fact
that a Portfolio Company may not be compensated for a failure to take products by the relevant offtaker, may not take
action for non-payment for 60 days and, under certain contracts, will not be entitled to termination compensation
could, if such circumstances arise, negatively affect that particular Portfolio Company’s financial condition, results of
operations or prospects.
There can be no guarantee that QVC will benefit from any expansion of QAPCO production, including any decrease in
the price of ethylene supplied to QVC.
There can be no assurance that these arrangements provide, or will provide, terms to a Portfolio Company that are
substantially similar to those that might have been obtained by it from unaffiliated third parties, or that these arrangements may be replaceable with arrangements with third parties on similar terms, should replacement become necessary. In addition, there can be no assurance that a Portfolio Company will pursue any claims under these arrangements
as vigorously as it might if such arrangements were with unaffiliated third parties, should it suffer from non-performance by a related party.
There can also be no assurance that the Portfolio Companies, controlled by Qatar Petroleum, may not take or refrain
from taking certain actions, or act in a certain way, in relation to any agreement which it has with a related party, which
27
might not be the case were the agreement to be with an unrelated counterparty. Accordingly, dependence by each
Portfolio Company on numerous related party transactions could in certain circumstances result in a material diminution in that Portfolio Company’s financial condition, results of operations or prospects.
Each Portfolio Company is exposed to the risks of terrorism or sabotage.
Each Portfolio Company employs systems of physical security measures to protect its employees, operations and
assets. A security breach could lead to significant damage to a Portfolio Company’s assets or in injury or loss of life
to its personnel. Some or all of the costs associated with any such breach and the resulting losses may be uninsured,
and in particular QVC does not, and is not required to, maintain any sabotage and terrorism insurance while Q-Chem
I and Q-Chem II has such insurance coverage in place and Q-Chem II is required to do so (as to which see further the
risk factor above entitled "Each Portfolio Company may not be able to maintain sufficient insurance coverage for the
risks associated with the operation of its business"). The occurrence of any significant and public security breach could
result in a general loss of business confidence, which could potentially lead to an economic downturn and reduced
demand for hydrocarbon products, leading to a material adverse effect on the Group’s financial condition, results of
operations or prospects.
Each Portfolio Company is exposed to disruption of international maritime trade, including piracy.
Maritime piracy remains a serious and costly issue and in recent years piracy attacks on vessels have increased in
frequency particularly off the coast of East Africa and in the wid er Indian Ocean. The possibility of a pirate or terrorist attack being carried out on a vessel or port which the Group uses may result in a decrease in revenue due to
an increase in security costs and delays in operations. In the event that pirate or terrorist attacks occur in the same
region over a period of time, such a region may be seen as an unsafe and unstable region and a significant amount of
international shipping traffic may be diverted from the region and economic growth may be negatively affected. Such
occurrences may adversely affect the business, financial condition, results of operations or prospects of the Group.
It is not possible to predict the occurrence of such or similar events in advance or the impact of such occurrences.
Each Portfolio Company is highly dependent on the international maritime freight distribution network
to transport its products to market.
Each Portfolio Company is highly dependent on the international maritime freight distribution network to distribute
its products to its customers. While each Portfolio Company benefits from comparatively low freight cost and comparative geographic proximity to its main customer base (when compared to some of its global competitors), there
can be no guarantee that the freight cost for transporting each Portfolio Company’s products to market will remain
comparatively low. While each of the Portfolio Company is a low-cost producer of its respective products, thereby
allowing them to absorb negative market forces comparatively better that some of their competitors, in the event that
such freight costs increase, such an increase may have an adverse material impact on each of the Portfolio Company’s
margins and consequently have an adverse material impact on each Portfolio Company’s business, financial condition, results of operation or prospects.
Q-Chem I is dependent on its own ethylene plant.
Q-Chem I produces its own ethylene from the ethane feedstock supplied by Qatar Petroleum. There can be no guarantee that Q-Chem I can continue to be able to produce sufficient quantities of ethylene for its own use in the production
process for HDPE and 1-Hexene. Any disruption to its ethylene production capability may have an adverse material
impact over Q-Chem I’s ability to maintain production levels of HDPE and 1-Hexene thereby having a material adverse
effect over Q-Chem I’s business, financial condition, results of operation or prospects. Furthermore, while a certain
amount of ethylene may be supplied by Q-Chem II, should Q-Chem I be required to purchase ethylene from the open
market, the cost of so purchasing may have an adverse material impact on Q-Chem I’s margins and profitability.
Each Portfolio Company is dependent upon access to MIC and its port facilities.
Each Portfolio Company is dependent on access to the port facilities at MIC to deliver its refined products to customers worldwide. Each of the Portfolio Companies have entered into a separate land lease agreement and berth and port
users agreement with Qatar Petroleum that enables each of the Portfolio Companies the right to access and use the
land leased by Qatar Petroleum at MIC and access and use of the port facilities at MIC. Should a Portfolio Company
breach any provision of its lease agreement or berth and port users agreement, Qatar Petroleum shall have the right
28
to terminate such agreements. See the section entitled "Related Party Transactions" of this Prospectus for a further
description of each of the Portfolio Companies’ obligations thereunder. Upon a force majeure event, Qatar Petroleum
also has the right to discontinue access to the land and port (a force majeure event includes laws, regulations and acts
of the Government of Qatar so long as such laws, regulations and acts are generally applied to all industries at MIC).
Without land or port access, each Portfolio Company would have extreme difficulty in producing and delivering its
refined products to its customers. This in turn would be likely to lead to a material diminution in the operating revenues
of each of Q-Chem I, Q-Chem II and QVC.
Q-Chem II has a relatively short operating history.
The Q-Chem II plant experienced its first full-year of commercial operations during the year ended 31 December 2011.
During that period, while production rates were increased, Q-Chem II experienced some significant unscheduled
shutdown and outage periods. For example, on 22 June 2012, the Q-Chem II plant was shutdown for a period of 71
days due principally to corrosive materials used in the Q-Chem II plant. Management of the Company expects that
such incidents are part of the "growing" phase of the Q-Chem II plant. It cannot be guaranteed, due to Q-Chem II’s
relatively short period of operation, that there will not be any further material unscheduled shutdowns and outages
that would have an adverse material impact over the ability of Q-Chem II to produce its petrochemical products. A
failure to produce products may mean that Q-Chem II’s revenue stream will be materially impaired which may have an
adverse material impact over Q-Chem II’s business, financial condition, results of operation or prospects.
Q-Chem II currently has commercial debt financing in place.
Q-Chem II currently has significant amounts of outstanding interest bearing indebtedness consisting of commercial
financing arrangements with US Exim and a consortium of commercial banks. While the Company’s management
believes that Q-Chem II will be able to continue servicing this debt, there can be no assurance that Q-Chem II will
be in a financial position to continue servicing its current indebtedness. Furthermore, there can be no guarantee that
certain events will not occur that would result in an acceleration of debt repayment obligations. If the debt owed by
Q-Chem II is accelerated Q-Chem II may not be able to refinance the indebtedness on commercially reasonable terms
or repay the indebtedness. If such events occur it may trigger an event of default situation under the various agreements underlying such indebtedness. Any enforcement action may have a material adverse effect on Q-Chem II’s
business, results of operations and overall financial condition and prospects. It should also be noted that, in Q-Chem
II’s contractual cash waterfall which governs the application of proceeds of Q-Chem II’s sales of products, the right
of the lenders under such debt financing arrangements to be repaid has a higher order of priority to the rights of
Q-Chem II’s shareholders. Accordingly, the availability of funds to be distributed to the Company (as a shareholder in
Q-Chem II) and ultimately to Investors (as shareholders in the Company) is subject to the repayment of amounts owed
to lenders.
Q-Chem II is dependent on access to land and infrastructure in RLIC for the operation of RLOC.
Q-Chem II relies on ethylene feedstock that is provided to it from RLOC under a feedstock supply agreement. Q-Chem
II owns 53.31% of the entire issued share capital of RLOC and receives 53.85% of RLOC’s output production of ethylene
as feedstock for Q-Chem II’s production of its products. RLOC has its cracker operations located at RLIC through a
land lease agreement with Qatar Petroleum. As such, Q-Chem II is, indirectly through RLOC, dependent on the access
to land and other infrastructure at RLIC for its own operations. Qatar Petroleum has the right to terminate the land lease
agreement upon a breach of its terms by RLOC or a upon a force majeure event (a force majeure event includes laws,
regulations and acts of the Government of Qatar so long as such laws, regulations and acts are generally applied to all
industries at MIC). Without access to land and infrastructure at RLIC, RLOC would have extreme difficulty in producing
ethylene and, consequently, RLOC’s ability to provide a reliable source of feedstock to Q-Chem II would be diminished
which would have an adverse material effect on Q-Chem II’s ability to produce its products and thereby having an
adverse material effect on Q-Chem II’s financial condition, results of operations and prospects.
QVC’s results of operations may be affected by a reduction of global demand for aluminium.
Caustic Soda is one of the key ingredients for the production of alumina, a chemical compound used to produce aluminium metal. One of QVC’s main markets for Caustic Soda is Australia. In recent years, the demand in aluminium has
remained strong due to demand for aluminium from China. There can be no guarantee that the demand for aluminium
from China, or indeed, global demand for aluminium, will continue at current levels. Any reduction in global demand
for aluminium, particularly from China, will have a material impact on the production levels of aluminium in Australia
29
and, as a result, demand for Caustic Soda from QVC which may require QVC to divert volumes of Caustic Soda to other
less profitable markets which may in turn, have a material adverse effect on QVC’s business, financial condition and
results of operations or prospects.
QVC is exposed to risks associated with prolonged monsoon conditions in the Indian Subcontinent.
Salt is currently used in the production process for QVC’s products and is considered a key raw material for QVC.
Currently, QVC sources the salt from suppliers located in India. A prolonged delay in the supply of salt due to adverse
weather conditions caused by comparatively abnormal monsoons during the monsoon season in the Indian Subcontinent could have an adverse material impact over the production levels of QVC’s products. QVC has alternatives to
source salt from other markets and other regions. However the relative proximity of India to Qatar means that any
alternative sources for the supply of salt will increase the costs which will ultimately be passed on to QVC which, in
turn, could have a material adverse effect on QVC’s businesses, financial condition, results of operations or prospects.
Furthermore, a prolonged monsoon season may also have a material adverse impact over the demand of QVC’s products from India, one of QVC’s main markets for its products.
QVC may have to rely on third party suppliers of ethylene feedstock for the production of its products.
QVC relies on the supply of ethylene (as well as salt from other suppliers) in relation to its production process to
produce its products. The majority of QVC’s ethylene requirements are supplied by QAPCO under a long-term feedstock supply agreement. While volumes and prices of ethylene are contractually regulated between QVC and QAPCO,
nonetheless, any delay or interruption to the supply of ethylene to QVC could have a material impact over the efficiency of QVC’s production processes. Should any delay or interruption to the production process is prolonged, it
could have an adverse material impact over QVC’s businesses, financial condition, results of operations or prospects.
Furthermore, QVC does not have capacity to store ethylene. QVC’s current production levels for its products requires
a higher level of ethylene that QAPCO is contractually bound to provide under the feedstock supply agreement.
While historically, such excess requirements of ethylene by QVC have been, on the whole, supplied by QAPCO, QVC
is required to source ethylene from other suppliers and, in doing so, exposes QVC to price fluctuation risks. Such
"market" purchases of ethylene could have a material impact over the costs of production for QVC which may have an
adverse material impact of QVC’s margins and, as a consequence, on QVC’s businesses, financial condition, results
of operations or prospects. QVC’s business has performed exceptionally well in recent years and such performance
may not be repeated going forward.
During the financial years ended 31 December 2012, 2011 and 2010, QVC experienced exceptionally good financial
performance as a result of a number of factors contributing to strong global demand for its vinyl products during such
period, particularly from China and other emerging economies. In addition, QVC enjoyed a highly reliable and steady
supply of ethylene during such period. QVC’s financial performance during the financial years ended 31 December
2012, 2011 and 2010 was significantly better than in previous years. There can be no guarantee or assurance that such
exceptional levels of performance will continue during 2013 or beyond. Demand from China has slowed as the Chinese
economy has been affected by difficult global economic conditions. In addition, QVC has experienced reductions in
its supply of ethylene from QAPCO. While this was addressed in 2013 by the supply to QVC of additional ethylene by
RLOC pursuant to the Additional Ethylene Supply Agreement, it should be noted that the Additional Ethylene Supply
Agreement expires on 31 December 2013, and it is not proposed that it be renewed. QVC is currently in the process of
negotiating alternative arrangements for the supply to QVC of ethylene feedstock – principally from suppliers situated
within the GCC region – and is highly confident that, should it experience additional requirements for ethylene feedstock in 2014 and beyond, it will be able to procure such ethylene feedstock on reasonable terms (including as to cost).
However, there can be no guarantee in this respect, and a risk inevitably exists that QVC may not be able to source the ethylene feedstock it requires on commercially acceptable terms (or at all), which may cause QVC feedstock supply issues.
Risks relating to the Offering, the Offer Shares and the trading market
Investments in shares of issuers from emerging markets such as Qatar generally involves a higher degree
of risk than investments in securities of issuers from more developed countries.
A significant proportion of the Group’s business operations are conducted, and all of their assets are located in, Qatar.
Investments in securities of issuers from emerging markets such as Qatar generally involves a higher degree of risk
than investments in securities of issuers from more developed countries. Although historically Qatar has not been
affected by comparative political instability that other countries in the region have experienced, there can be no
assurance that any political, economic, market or social conditions affecting Qatar or the Middle East region generally
30
would not have a material adverse effect on the Group’s businesses, financial condition, results of operations or prospects. In addition, the Qatar Exchange and securities listed thereon, such as the Shares, have in the past been, and
may in the future be, subject to a high degree of volatility with limited liquidity.
Specific risks in Qatar and the Middle East region that could have a material impact on the Group’s businesses, financial condition and results of operations or prospects include, without limitation, the following:
•
political, economic or social instability;
•
increases in inflation;
•
increased governmental regulation or adverse governmental action;
•
changing tax regimes and tax laws, including the imposition of taxes in tax-free jurisdictions or the increase of
taxes in low-tax jurisdictions;
•
difficulties or delays in obtaining or renewing necessary licenses, permits or consents;
•
the lack or material curtailment of industrial and economic infrastructure development;
•
limited availability of capital or debt financing; and
•
a volatile global and regional economic environment.
Accordingly, prospective investors should exercise particular care in evaluating the risks involved and must determine
for themselves whether, in light of those risks, their investment is appropriate.
After the Offer, Qatar Petroleum will continue to be able to exercise significant influence over the Company,
its management, strategy and operations.
As at the date of this Prospectus, the Company is controlled by Qatar Petroleum, which holds in aggregate 100% of
the issued share capital of the Company. Full details relating to Qatar Petroleum are set out on page 88 of this Prospectus. Immediately following the Offering, assuming full take-up of the Offering, Qatar Petroleum will continue to
hold approximately 74.275% of the issued share capital of the Company. This will enable Qatar Petroleum to exercise
control over the Company, its management, strategy, policies and operations, including in terms of voting at shareholders’ meetings and on matters such as the election and re-election of Directors, the approval of dividends and
budgets, the issuance of securities, significant disposals or acquisitions, changes to share capital and amendments to
the Company’s constitutional documents. There can be no guarantee that the interests of Qatar Petroleum will coincide with new investors’ interests or the interests of the Company as a whole.
Absence of prior trading market and potential volatility of share price.
Prior to the Offering, there has been no public market for the Shares. Furthermore, there can be no assurance that
an active trading market for the Shares will develop or be sustained after the Offering. If no active trading market for
the Shares develops, the liquidity of the Shares will be affected, and this may negatively affect the market price of the
Shares. Investors may in this case find it difficult or impossible to exit from their investment in the Offer Shares.
The market price of the Shares may fluctuate widely in response to different factors.
Following Admission, the market price of the Shares could be subject to significant fluctuations due to a change in
sentiment in the stock market regarding the Shares or securities similar to them or in response to various factors and
events, including any regulatory changes affecting the Group’s operations, variations in its half yearly or yearly operating results and its business developments or those of its competitors, as well as macro-economic and geopolitical
events affecting the countries and territories in which the Group operates. The market price of the Shares may also
be affected by market rumours and media speculation (even if such rumours and speculation are unfounded or inaccurate). The market price of the Shares may also be affected by the release onto the market following the First Award
Date and the Second Award Date of a large number of additional Shares in the form of the Incentive Shares, and the
31
market price may also be affected in the period leading up to the First Award Date and the Second Award Date as the
pending release of the Incentive Shares is priced in to the market price of the Shares.
In addition, stock markets have from time to time experienced extreme price and volume volatility, which in addition
to general economic and political conditions, could adversely affect the market price for the Shares. To optimise
returns, investors may need to hold the Shares on a long-term basis and they may not be suitable for short-term
investment. The value of the Shares may go down as well as up and the market price of the Shares may not reflect the
underlying value of the Group’s investments. Investors could lose the whole or a substantial part of their investment.
Substantial future sales of Shares by current shareholders may adversely impact the share price.
Sales of substantial amounts of the Shares in the public market following the completion of the Offering, or the perception that these sales will occur, could adversely affect the market price of the Shares. The sale of a substantial
number of Shares by Qatar Petroleum or generally by any other significant shareholder could have an adverse effect
on the market for the Shares and result in a lower market price of the Shares.
Shareholdings in the Company may be diluted in the future through the issuance of new Shares.
The Company does not currently intend to issue additional Shares immediately following the Offering. If and when the
Company issues Shares in the future, the percentage holding of a Shareholder in the Company (and, therefore, the
economic investment made by the Shareholder) will be diluted if such Shareholder does not acquire its proportional
entitlement of additional new Shares.
The Qatar Exchange is a relatively new market and there can be no assurance to investors as to the level of
liquidity that will develop.
The Qatar Exchange is substantially smaller in size and trading volume than established securities markets, such as
those in the United States and the United Kingdom. The Qatar Exchange has been open for trading since 1997 but its
future success and liquidity in the market for the Shares cannot be guaranteed. Brokerage commissions and other
transaction costs on the Qatar Exchange can be higher than those in other stock exchanges. Such factors could generally decrease the liquidity and increase the volatility of the price of the Shares and impair the ability of a holder of
Shares to sell any Shares in the amount and at the price and time such holder wishes to do so.
In certain circumstances, an investor may lose the right to receive Incentive Shares on the First Award Date
and the Second Award Date.
As explained in more detail on page 145 of this Prospectus, and in line with the stated policy of the State of Qatar to
encourage long-term investments and the continued development of a personal savings culture in Qatar, QP has committed that each Individual Investor (i.e., each Qatari national individual who subscribes in the Offering) will receive,
for each Offer Share allocated to him or her in the Offering, the conditional right to receive an Incentive Share free
of charge. Incentive Shares are ordinary Shares of the Company which rank pari passu with the Offer Shares in all
respects. However, the right to receive Incentive Shares is conditional. Incentive Shares will be awarded on the dates
falling 5 years and 10 years after the date of the Offering (the "First Award Date" and the "Second Award Date", respectively) to Individual Investors who have retained at all times at least 50% of their Offer Shares by such Award Date. 50%
of the Incentive Shares will be awarded to qualifying Shareholders on the First Award Date (1.00 p.m. (Doha time) on
31 December 2018), with the remaining 50% of the Incentive Shares awarded to qualifying Shareholders on the Second
Award Date (1.00 p.m. (Doha time) on 31 December 2023). For example, an Individual Investor who subscribes for 500
Offer Shares in the Offering and retains at all times at least 50% of such Offer Shares (i.e 250 Offer Shares) for 5 years
after the Offering, will receive, free of charge, 250 Incentive Shares on the First Award Date. If such Individual Investor
retains at all times at least 50% of his or her original Offer Shares (i.e. 250 Offer Shares) for a further 5 years, he or she
will receive an additional 250 Incentive Shares on the Second Award Date.
In order to qualify to receive Incentive Shares on the relevant Award Date, it is a requirement that Individual Investors
have retained at all times at least 50% of their Offer Shares by the relevant Award Date. An Individual Investor who sells
or otherwise transfers more than 50% of his original Offer Shares prior to the First Award Date will receive no Incentive
Shares on the First Award Date or the Second Award Date. An Individual Investor who has retained at all times at least
50% of his or her Offer Shares by the First Award Date, but subsequently sells or otherwise transfers more than 50% of
their Offer Shares before the Second Award Date, will receive Incentive Shares on the First Award Date but not on the
32
Second Award Date. There is therefore a risk that an Individual Investor may, unintentionally or otherwise, sell or otherwise transfer more than 50% of those Offer Shares originally subscribed by him in the Offering, whereupon such investor will immediately forfeit and lose any right to receive Incentive Shares on the relevant Award Date. Investors who are
not Individual Investors (i.e. Selected Institutions) will not qualify for Incentive Shares. For the avoidance of doubt, save
as otherwise set out in this Prospectus, the right to receive Incentive Shares is only attached to Offer Shares acquired
by Individual Investors in the Offering and no right to receive Incentive Shares will attach to any Shares purchased on
the secondary market after the Offering. It is important to note that, in order to qualify for Incentive Shares on the relevant Award Date, an Individual Investor must have retained at least 50% of his or her original Offer Shares at all times
since the Offering. An Individual Investor who sells or otherwise transfers more than 50% of their Offer Shares prior
to the relevant Award Date will not qualify for Incentive Shares on such Award Date, even if they have since acquired
additional Shares on the secondary market and restored their shareholding to its original level (or above) prior to the
relevant Award Date. Incentive Shares will only be awarded to shareholders who have continually held on to at least
50% of their original Offer Shares. Where the number of Offer Shares allocated to a qualifying Shareholder is an odd
number not divisible by two without resorting to fractions, such qualifying Shareholder shall be entitled on the First
Award Date and the Second Award Date, assuming he remains a qualifying Shareholder on those dates, to a number
of Incentive Shares calculated as follows: (i) on the First Award Date, the number of Offer Shares allocated to such
qualifying Shareholder in the Offering plus one additional Offer Share, divided by two; and (ii) on the Second Award
Date, the number of Offer Shares allocated to such qualifying Shareholder less one Offer Share, divided by two. For
example, if an Individual Investor is allocated 501 Offer Shares in the Offering, such Individual Investor will be entitled
to 251 Incentive Shares on the First Award Date and 250 Incentive Shares on the Second Award Date, assuming he
remains a qualifying Shareholder on such dates.
In order to prevent an Individual Investor from unintentionally or inadvertently forfeiting the right to receive Incentive Shares, the Company has entered into certain arrangements with the Qatar Exchange whereby (i) in the case
of an adult Individual Investor, 50% of the Offer Shares originally subscribed by him or her in the Offering will be
automatically prevented from being transferred or sold (i.e. they will be subject to a bar on transfer or sale) until the
Second Award Date. The amount of Shares subject to such block is referred to as the "Protected Amount". An adult
Individual Investor is free to override such block by formally applying to the Qatar Exchange to have the block on
his or her Protected Amount lifted. Such an Individual Investor will be required to complete and submit to the Qatar
Exchange an "Application to Release Protected Amount Acquired at the IPO", which may be obtained on request from
the offices of the Qatar Exchange following Admission. Unless otherwise permitted by the Qatar Exchange, this will
require the individual Investor to attend in person the offices of the Qatar Exchange in Doha. An Individual Investor
who applies to the Qatar Exchange to have the block on his or her Protected Amount lifted should note that, in the
event he or she then proceeds to sell or otherwise transfer more than 50% of the Offer Shares subscribed by him or
her in the Offering, he or she will thereupon forfeit any right to receive Incentive Shares; and (ii) in the case of a Minor
(i.e. an Individual Investor who has not yet attained the age of 18 years) or a person who subscribes in the Offering
on behalf of a Minor, the Protected Amount shall apply to (i) 50% of the Offer Shares originally subscribed by or on
behalf of such Minor in the Offering; and (ii) 100% of the Incentive Shares awarded to or for the benefit of such Minor
on the First Award Date and the Second Award Date (to the extent the Minor remains a Minor as at such dates). In
order to safeguard the value of investments in the Company made by or on behalf of Minors, the block on a Minor’s
Protected Amount may not, for as long as such Minor remains a Minor, be voluntarily lifted. Any additional Shares
issued or transferred to an Eligible Investor at the direction of QP or a Receiving Bank in order to rectify or remedy any
defect or error in the allocation process shall be treated for all purposes as Offer Shares, including for the purpose
of determining entitlement to Incentive Shares and the calculation of such Eligible Investor’s Protected Amount.
Where the number of Offer Shares allocated to an Individual Investor is an odd number not divisible by two without
resorting to fractions, the Protected Amount shall apply to the number of Offer Shares allocated to such Individual
Investor less one Offer Share, divided by two. Accordingly, such Individual Investor will be free to transfer or sell,
without being restricted by the block on his Protected Amount, up to the number of Offer Shares allocated to such
Individual Investor plus one additional Offer Share, divided by two. For example, if an Individual Investor is allocated
501 Offer Shares, the Protected Amount shall apply to 250 Offer Shares and the Individual Investor shall be free to
transfer up to 251 Offer Shares without being restricted by the block on his Protected Amount.
Notwithstanding the arrangements described above in relation to the Protected Amount, there nonetheless exists a
risk that, due to a technical or administrative oversight, deliberate action, or otherwise, an Individual Investor could
(unintentionally or otherwise) sell or otherwise transfer Shares above and beyond the amount of the Protected Amount,
with the result that such Individual Investor (and any on whose behalf he or she has subscribed) would immediately
forfeit and lose any right to receive Incentive Shares on the relevant Award Date.
33
THE OFFERING
The Company
The Company, organised as a Qatari Shareholding Company under the laws
of the State of Qatar. The Company is an Article 68 Company, having been
incorporated on 29 May 2013 under Article 68 of the Companies Law, following Decision of H.E. the Minister of Economy and Commerce No. 22 of 2013.
The Company’s commercial registeration number is 60843.
Share capital and total Shares
of the Company
The Company’s issued share capital consists of QAR 12,563,175,000, divided
into 1,256,317,499 ordinary Shares and one Special Share. Each Share has a
nominal value of QAR 10. All Shares are fully paid up.
The Company’s Shares are subject to applicable provisions of Qatari legislation and the Company’s constitutional documents, being the Memorandum
of Association and Articles of Association of the Company (together, the
"Constitutional Documents" or the "Articles"), and have the rights described
in "Description of the Shares".
As at the date of this Prospectus and immediately prior to the Offering, the
Company’s sole Shareholder is Qatar Petroleum. Qatar Petroleum subscribed
for 999,999 ordinary Shares and one Special Share in the capital of the
Company upon incorporation on 29 May 2013. Qatar Petroleum subscribed
for a further 1,255,317,500 Shares pursuant to the Share Swap Agreement
(such further Shares having been issued to Qatar Petroleum in consideration
for the transfer to the Company of shares in each of the Portfolio Companies previously held by Qatar Petroleum). See "Material Contracts" under the
heading "General Information". Accordingly, as at the date of this Prospectus,
and immediately prior to the Offering, Qatar Petroleum holds 100% of the
issued share capital of the Company (a total of 1,256,317,499 ordinary Shares
and one Special Share), and the Company in turn holds 49% of the issued
share capital of each of Q-Chem I and Q-Chem II and 55.2% of the issued
share capital of QVC. QP has initially directly retained 2% of the issued share
capital of Q-Chem I and Q-Chem II.
Qatar Petroleum is retaining the Special Share in the capital of the Company
in accordance with the Memorandum of Association and Articles of Association of the Company. In addition to the rights as a holder of Shares, the
Special Share confers its holder certain special rights (as more fully described
in "Description of the Shares" of this Prospectus under the heading "Rights
attached to Special Share").
Offer Shares and Incentive Shares
In line with the stated policy of the State of Qatar to encourage long-term
investments and the continued development of a personal savings culture in
Qatar, QP has committed that each Individual Investor, being a Qatari national
individual who subscribes in the Offering, will receive, for each Offer Share
allocated to him or her in the Offering, the conditional right to receive an Incentive Share free of charge. Incentive Shares are ordinary Shares of the Company
which rank pari passu with the Offer Shares in all respects. However, the right
to receive Incentive Shares is conditional. Incentive Shares will be awarded on
the dates falling 5 years and 10 years after the date of the Offering (the "First
Award Date" and the "Second Award Date", respectively) to Individual Investors
who have retained at all times at least 50% of their Offer Shares by such Award
Date. 50% of the Incentive Shares will be awarded to qualifying Shareholders
on the First Award Date (1.00 p.m. (Doha time) on 31 December 2018), with
the remaining 50% of the Incentive Shares awarded to qualifying Shareholders
on the Second Award Date (1.00 p.m. (Doha time) on 31 December 2023). For
example, an Individual Investor who subscribes for 500 Offer Shares in the
Offering and retains at all times at least 50% of such Offer Shares (i.e. 250 Offer
Shares) for 5 years after the Offering, will receive, free of charge, 250 Incentive
Shares on the First Award Date. If such Individual Investor retains at all times at
least 50% of his or her original Offer Shares (i.e. 250 offer shares) for a further 5
years, he or she will receive an additional 250 Incentive Shares on the Second
Award Date.
34
Offer Shares and Incentive Shares
(continued)
In order to qualify to receive Incentive Shares on the relevant Award Date, it is
a requirement that Individual Investors have retained at all times at least 50%
of their Offer Shares by the relevant Award Date. An Individual Investor who
sells or otherwise transfers more than 50% of his original Offer Shares prior to
the First Award Date will receive no Incentive Shares on the First Award Date
or the Second Award Date. An Individual Investor who has retained at least
50% of his or her Offer Shares by the First Award Date, but subsequently sells
or otherwise transfers more than 50% of their Offer Shares before the Second
Award Date, will receive Incentive Shares on the First Award Date but not on
the Second Award Date.
Investors who are not Individual Investors (i.e. Selected Institutions) will not
qualify for Incentive Shares. For the avoidance of doubt, save as otherwise set
out in this Prospectus, the right to receive Incentive Shares is only attached to
Offer Shares acquired by Individual Investors in the Offering and no right to
receive Incentive Shares will attach to any Shares purchased on the secondary market after the Offering. It is important to note that, in order to qualify
for Incentive Shares on the relevant Award Date, an Individual Investor must
have retained at all times at least 50% of his or her original Offer Shares at all
times since the Offering. An Individual Investor who sells or otherwise transfers more than 50% of their Offer Shares prior to the relevant Award Date
will not qualify for Incentive Shares on such Award Date, even if they have
since acquired additional Shares on the secondary market and restored their
shareholding to its original level (or above) prior to the relevant Award Date.
Incentive Shares will only be awarded to shareholders who have continually
held on to at least 50% of their original Offer Shares. Where the number of
Offer Shares allocated to a qualifying Shareholder is an odd number not divisible by two without resorting to fractions, such qualifying Shareholder shall
be entitled on the First Award Date and the Second Award Date, assuming
he remains a qualifying Shareholder on those dates, to a number of Incentive Shares calculated as follows: (i) on the First Award Date, the number of
Offer Shares allocated to such qualifying Shareholder in the Offering plus one
additional Offer Share, divided by two; and (ii) on the Second Award Date,
the number of Offer Shares allocated to such qualifying Shareholder less one
Offer Share, divided by two. For example, if an Individual Investor is allocated
501 Offer Shares in the Offering, such Individual Investor will be entitled to
251 Incentive Shares on the First Award Date and 250 Incentive Shares on the
Second Award Date, assuming he remains a qualifying Shareholder on such
dates.
Details regarding the rights attaching to each Offer Share and each Incentive
Share are set out on page 140 of this Prospectus.
Number of Offer Shares
323,187,677 Offer Shares representing 25.725% of the Shares. The remaining
933,129,822 ordinary Shares, representing 74.275% of the Shares, together
with the one Special Share, will be retained by Qatar Petroleum.
Selling Shareholder
All of the Offer Shares are being offered by Qatar Petroleum. Following the
successful completion of the Offering, it is intended that Qatar Petroleum will
own 74.275% of the Shares, with the balance thereof (25.725%) intended to be
owned by the new shareholders.
Offer Price
The Offer Shares are offered at an Offer Price of QAR 10 per Offer Share, plus
Offering and Listing Costs of QAR 0.20 per Offer Share.
Offering Split
The Offer Shares are offered to the following:
• Individual Investors: 292,407,897 Offer Shares (representing 23.275% of
the Shares), are offered solely to, and are only capable of acceptance by,
Individual Investors, subject to the terms of the Offering as set out in this
Prospectus.
35
Offering Split (continued)
• Selected Institutions: 30,779,780 Offer Shares (representing 2.450% of
the Shares) will be offered to Selected Institutions, namely: the General
Retirement and Social Insurance Authority and the Qatar Foundation for
Education, Science and Community Development. These Selected Institutions will be guaranteed their full allocation of Offer Shares up to a total of
30,779,780 Offer Shares. Any allocation to the Selected Institutions above
such amount will be dependent on subscriptions received from Individual
Investors and will be made at the discretion of QP.
After the Closing Date, all institutions and individuals will be allowed to purchase Shares on the secondary market in accordance with applicable laws
and the regulations of the QFMA, the QE and the Articles. For the avoidance of
doubt, save as otherwise set out in the Prospectus, the right to receive Incentive Shares is only attached to Offer Shares acquired by Individual Investors in
the Offering and no right to receive Incentive Shares will attach to any Shares
purchased on the secondary market after the Offering.
Applications by Individual Investors
The minimum application by an Individual Investor is set at 50 Offer Shares
("Minimum Application"). No application by an Individual Investor for less than
50 Offer Shares (the "Minimum Amount") shall be accepted. Any application
exceeding the Minimum Application shall be in multiples of 50 Offer Shares. The
Minimum Allocation of 50 Offer Shares may be revised downwards depending
on the number of applications received in the case of Individual Investors.
The maximum application by an Individual Investor is set at 1,000,000 Offer
Shares ("Maximum Application"). Any Application received from an Individual
Investor exceeding the Maximum Application will be scaled back and treated
as an Application for the Maximum Amount only.
Moreover, the Articles of Association of the Company restrict any person,
whether legal or natural, with the exception of Qatar Petroleum (and its
affiliates) and the Selected Institutions, from owning more than a specified
maximum number of Shares, as determined by the Board from time to time
(currently set at 1,000,000 Shares). In addition, non-Qatari persons are
restricted from owning, in aggregate, in excess of 15% of the portion of the
Company’s shares made available for subscription.
Multiple applications in the name of the same Individual Investor are prohibited. In the event of multiple applications being received in the name of the
same Individual Investor, only one application will be processed (at the absolute discretion of the relevant Receiving Bank), and any other applications will
be rejected in their entirety. Notwithstanding the above, an application by (i) a
parent or legal guardian on behalf of a Minor; or (ii) a duly authorised Applicant
on behalf of a third party, does not prevent such person from also submitting
an application in his or her own name under a separate Application Form.
Applications by Selected
Institutions
Applications by Selected Institutions to subscribe for Offer Shares in the
Offering will be handled by QP, the Company and the Lead Financial Advisor
separately to applications received from Individual Investors.
Allocation Strategy
The allocation of Offer Shares to Individual Investors will be made in whole
numbers of Shares only. Subject to the allocation of Offer Shares to certain
Selected Institutions as described below, and without allocating to any Individual Investor a number of Offer Shares less than the Minimum Allocation,
Offer Shares will be allocated to Individual Investors in tranches, as follows:
• In the "First Allocation Tranche", subscriptions of between 50 and 750
Offer Shares (inclusive) will be allotted in full.
• In the "Second Allocation Tranche", subscriptions above 750 Offer Shares
will be allotted in multiples of 50 Offer Shares, provided and to the extent
that the number of remaining Offer Shares available for subscription is
sufficient to satisfy all such subscriptions in full and equally.
36
Allocation Strategy (continued)
• In the event that, following the First Allocation Tranche and the Second
Allocation Tranche, there remains available a number of Offer Shares not
divisible by 50 (ignoring fraction), then such remaining Offer Shares may be
allocated to investors at the direction of the Board in its absolute discretion
(the "Third Allocation Tranche"). It is intended that any such Offer Shares
remaining be allocated equally (or as near as equally as is reasonably practicable) among subscribers who, following completion of the First Allocation Tranche and the Second Allocation Tranche, have not yet received the
total number of Offer Shares for which they applied in the Offering.
In the event that, following the First Allocation Tranche, the Second Allocation
Tranche and the Third Allocation Tranche, there remain any unallocated Offer
Shares (or fractions thereof), then such unallocated Offer Shares (and fractions thereof) shall be aggregated together and allocated to QP.
It should be noted that two Selected Institutions in Qatar – the General Retirement and Social Insurance Authority and the Qatar Foundation for Education,
Science and Community Development – will be guaranteed their full allocation
of Offer Shares up to a total of 30,779,780 Offer Shares. Any allocation to the
Selected Institutions above such amount will be dependent on subscriptions
received from Individual Investors and will be made at the discretion of QP.
It is proposed that allotment of Offer Shares and refunds of excess application amounts, if any, will occur by 30 January 2014.
Listing and Trading
Prior to the Closing Date, the Company will submit an application to the QFMA
and the Qatar Exchange to list all of the Shares on the Qatar Exchange in
accordance with the requirements of the QFMA and the Qatar Exchange.
Trading in the Shares will be effected on an electronic basis, through the
Company’s share registry maintained by the Qatar Exchange.
Prior to the Offering, there has been no market for the Shares. This Prospectus
has been prepared in connection with the application for the admission of the
Shares to the QE ("Admission") and the public offering of the Shares in Qatar.
It is anticipated that Admission will occur during February 2014.
Use of Proceeds
The net proceeds of the Offering will be received by Qatar Petroleum.
For more details see "Use of Proceeds".
Taxation
For a discussion of certain Qatari tax consequences of purchasing and holding
the Offer Shares, see "Taxation".
Dividend Policy
For details of the Company’s dividend policy see "Dividend Policy".
Incentive Shares
As described above, QP has committed that each Individual Investor will
receive, for each Offer Share allocated to him or her in the Offering, the conditional right to receive an Incentive Share free of charge. Incentive Shares are
ordinary Shares of the Company which rank pari passu with the Offer Shares
in all respects. However, the right to receive Incentive Shares is conditional.
Incentive Shares will be awarded on the First Award Date and the Second
Award Date to Individual Investors who have retained at all times at least 50%
of their Offer Shares by such Award Date. 50% of the Incentive Shares will be
awarded to qualifying Shareholders on the First Award Date (1.00 p.m. (Doha
time) on 31 December 2018), with the remaining 50% of the Incentive Shares
awarded to qualifying Shareholders on the Second Award Date (1.00 p.m.
(Doha time) on 31 December 2023). For example, an Individual Investor who
subscribes for 500 Offer Shares in the Offering and retains at all times at least
50% of such Offer Shares (i.e. 250 Offer Shares) for 5 years after the Offering,
will receive, free of charge, 250 Incentive Shares on the First Award Date. If
such Individual Investor retains at all times at least 50% of his or her original
Offer Shares (i.e. 250 Offer Shares) for a further 5 years, he or she will receive
an additional 250 Incentive Shares on the Second Award Date.
37
Incentive Shares (continued)
In order to qualify to receive Incentive Shares on the relevant Award Date, it
is a requirement that Individual Investors have retained at least 50% of their
Offer Shares by the relevant Award Date. An Individual Investor who sells or
otherwise transfers more than 50% of his original Offer Shares prior to the
First Award Date will receive no Incentive Shares on the First Award Date or
the Second Award Date. An Individual Investor who has retained at all times at
least 50% of his or her Offer Shares by the First Award Date, but subsequently
sells or otherwise transfers more than 50% of their Offer Shares before the
Second Award Date, will receive Incentive Shares on the First Award Date but
not on the Second Award Date.
Investors who are not Individual Investors (i.e. Selected Institutions) will not
qualify for Incentive Shares. For the avoidance of doubt, save as otherwise set
out in this Prospectus, the right to receive Incentive Shares is only attached to
Offer Shares acquired by Individual Investors in the Offering and no right to
receive Incentive Shares will attach to any Shares purchased on the secondary market after the Offering. It is important to note that, in order to qualify
for Incentive Shares on the relevant Award Date, an Individual Investor must
have retained at least 50% of his or her original Offer Shares at all times since
the Offering. An Individual Investor who sells or otherwise transfers more than
50% of their Offer Shares prior to the relevant Award Date will not qualify for
Incentive Shares on such Award Date, even if they have since acquired additional Shares on the secondary market and restored their shareholding to its
original level (or above) prior to the relevant Award Date. Incentive Shares will
only be awarded to shareholders who have continually held on to at least 50%
of their original Offer Shares. Where the number of Offer Shares allocated
to a qualifying Shareholder is an odd number not divisible by two without
resorting to fractions, such qualifying Shareholder shall be entitled on the
First Award Date and the Second Award Date, assuming he remains a qualifying Shareholder on those dates, to a number of Incentive Shares calculated as follows: (i) on the First Award Date, the number of Offer Shares allocated to such qualifying Shareholder in the Offering plus one additional Offer
Share, divided by two; and (ii) on the Second Award Date, the number of Offer
Shares allocated to such qualifying Shareholder less one Offer Share, divided
by two. For example, if an Individual Investor is allocated 501 Offer Shares in
the Offering, such Individual Investor will be entitled to 251 Incentive Shares
on the First Award Date and 250 Incentive Shares on the Second Award Date,
assuming he remains a qualifying Shareholder on such dates.
Protected Amount. In order to prevent an Individual Investor from unintentionally or inadvertently forfeiting the right to receive Incentive Shares, the
Company has entered into certain arrangements with the Qatar Exchange
whereby (i) in the case of an adult Individual Investor, 50% of the Offer Shares
originally subscribed by him or her in the Offering will be automatically prevented from being transferred or sold (i.e. they will be subject to a bar on transfer or sale) until the Second Award Date. The amount of Shares subject to such
block is referred to as the "Protected Amount". An adult Individual Investor is
free to override such block by formally applying to the Qatar Exchange to have
the block on his or her Protected Amount lifted. Such an Individual Investor
will be required to complete and submit to the Qatar Exchange an "Application
to Release Protected Amount Acquired at the IPO", which may be obtained on
request from the offices of the Qatar Exchange following Admission. Unless
otherwise permitted by the Qatar Exchange, this will require the Individual
Investor to attend in person the offices of the Qatar Exchange in Doha. An
Individual Investor who applies to the Qatar Exchange to have the block on
his or her Protected Amount lifted should note that, in the event he or she
then proceeds to sell or otherwise transfer more than 50% of the Offer Shares
subscribed by him or her in the Offering, he or she will thereupon forfeit any
right to receive Incentive Shares; and (ii) in the case of a Minor (i.e. an Individual Investor who has not yet attained the age of 18 years) or a person who
subscribes in the Offering on behalf of a Minor, the Protected Amount shall
apply to (i) 50% of the Offer Shares originally subscribed by or on behalf of
such Minor in the Offering; and (ii) 100% of the Incentive Shares awarded to or
38
Incentive Shares (continued)
for the benefit of such Minor on the First Award Date and the Second Award
Date (to the extent the Minor remains a Minor as at such dates). In order to
safeguard the value of investments in the Company made by or on behalf of
Minors, the block on a Minor’s Protected Amount may not, for as long as such
Minor remains a Minor, be voluntarily lifted. Any additional Shares issued or
transferred to an Eligible Investor at the direction of QP or a Receiving Bank in
order to rectify or remedy any defect or error in the allocation process shall be
treated for all purposes as Offer Shares, including for the purpose of determining entitlement to Incentive Shares and the calculation of such Eligible Investor’s Protected Amount. Where the number of Offer Shares allocated to an
Individual Investor is an odd number not divisible by two without resorting to
fractions, the Protected Amount shall apply to the number of Offer Shares allocated to such Individual Investor less one Offer Share, divided by two. Accordingly, such Individual Investor will be free to transfer or sell, without being
restricted by the block on his Protected Amount, up to the number of Offer
Shares allocated to such Individual Investor plus one additional Offer Share,
divided by two. For example, if an Individual Investor is allocated 501 Offer
Shares, the Protected Amount shall apply to 250 Offer Shares and the Individual Investor shall be free to transfer up to 251 Offer Shares without being
restricted by the block on his Protected Amount.
Release of Incentive Shares on death. In the event that an Individual Investor
(including an Individual Investor who is a Minor) dies prior to an Award Date,
the Incentive Shares to which such Individual Investor would otherwise have
become entitled on an Award Date shall, as soon as reasonably practicable, be
released by QP and transferred to the deceased Individual Investor’s estate.
Registration of Shares. Prior to being awarded to a qualifying Shareholder on
the relevant Award Date, Incentive Shares shall remain registered in the name
of QP. Unless otherwise agreed between the Applicant and the Company, all
Offer Shares issued to an Applicant (or to a Minor or third party on whose
behalf an Applicant is applying) will be registered in the full legal name of
such Applicant or the relevant Minor or third party (as applicable).
Shares fully paid up. All Offer Shares and Incentive Shares will be fully paid-up.
Right to receive dividends. Each Individual Investor shall at all times be entitled to receive any dividend which is declared and paid in respect of the Offer
Shares registered in his name at the relevant date pursuant to the Memorandum
and Articles of Association and applicable law. However, all dividends declared
and paid in respect of Incentive Shares prior to the relevant Award Date shall
be paid directly to QP as the legal holder of such Incentive Shares. QP will not
accrue such dividends for the benefit of future holders of the Incentive Shares.
For so long as QP is the registered holder of such Incentive Shares, any dividends payable in respect of such Incentive Shares will be paid to QP and not to
Individual Investors.
Voting Rights For details of the voting rights attributable to the Shares please see "Description of the Shares" section of this Prospectus.
Transfer and Selling Restrictions The Shares will be subject to certain restrictions as described under "Transfer
and Selling Restrictions".
Settlement and Transfer In order to purchase Shares through the Receiving Banks, investors must pay for
the Shares in same-day funds, in Qatari Riyals, on or prior to the Closing Date.
The Shares are being offered subject to receipt and acceptance by the
Company and subject to the right of the Company to reject any order in whole
or in part prior to Admission. The Company and/or Qatar Petroleum and/ or
the Receiving Banks reserve the right to reject any Application Form which is
not duly or fully completed,
39
Settlement and Transfer (continued)
and/or if any documents which are required to be attached (as stated in this
Prospectus and/or the Application Form itself) are missing. This could include,
without limitation, an Application Form that is illegible, has been completed by
or on behalf of an applicant who is not an Eligible Investor, has been completed
by a Minor, is incomplete, contains erroneous or contradictory information or
which is otherwise defective or not compatible with applicable law and regulations, or which fails to attach appropriate supporting documentation.
Shares trading symbol on the QE
"MPHC"
Offering procedures for Individual Investors
Offer Period
The Offering will be open during the Offering Period, which starts on 31 December 2013 (the "Opening Date") and ends
at close of business (Doha time) on 21 January 2014 (the "Closing Date") (inclusive). During the Offer Period, Individual
Investors may apply for Offer Shares by completing and submitting a special application form (the "Application Form").
The Receiving Banks
The only persons authorised to distribute Application Forms to Individual Investors on behalf of Qatar Petroleum are
the Receiving Banks. Distribution and collection of all Application Forms and orders and collection of proceeds during
the Offering Period shall be solely performed by and processed through the Receiving Banks. Notification of final allocation of Offer Shares and refunds of proceeds for unallocated Offer Shares (if any) shall be solely performed by, and
processed through, the Lead Receiving Bank.
The Receiving Banks are the following banking and financial institutions:
Qatar National Bank S.A.Q. (Lead Receiving Bank)
International Bank of Qatar (Q.S.C.)
Al Ahli Bank Q.S.C.
Mashreqbank P.S.C.
Al Khaliji Commercial Bank Q.S.C.
Masraf Al Rayan Q.S.C.
Arab Bank plc
Qatar International Islamic Bank Q.S.C.
Barwa Bank Q.S.C.
Qatar Islamic Bank Q.S.C.
Doha Bank Q.S.C.
Commercial Bank of Qatar Q.S.C.
Application for Offer Shares
During the Offer Period, Individual Investors may apply for Offer Shares by completing the Application Form and complying with the instructions set out in the Application Form and this Prospectus. Any Application Form in connection
with Offer Shares that is completed without fully complying with the requirements indicated in such Application Form
may be rejected without any right to damages or any other recourse. Each Individual Investor waives any right to take
any action against any of Qatar Petroleum, the Company, the Financial Advisors or any of the Receiving Banks.
Multiple Applications in the name of the same Individual Investor are prohibited. In the event of multiple applications
being received in the name of the same Individual Investor, only one application will be processed (at the absolute
discretion of the relevant Receiving Bank), and any other applications will be rejected in their entirety. Notwithstanding
the above, an application by (i) a parent or legal guardian on behalf of a Minor; or (ii) a duly authorised Applicant on
behalf of a third party, does not prevent such person from also submitting an application in his or her own name under
a separate Application Form. It is the sole responsibility of each Individual Investor to ensure that their Application
Form is duly completed in all respects and submitted to any designated branch of any of the Receiving Banks before
the Closing Date. The Receiving Banks will not accept any Application Forms submitted to them after the normal
working hours on the Closing Date.
Full payment for Offer Shares (plus Offering and Listing Costs) will be required upon submission of Application Forms.
Payment may be made by debit from funds held on account with any one of the Receiving Banks. Each Individual
Investor shall be required to attach a copy of his/her passport or identity card to the Application Form. The Company
40
and/or Qatar Petroleum and/ or the Receiving Banks reserve the right to reject any Application Form which is not duly
or fully completed, and/or if any documents which are required to be attached (as stated in this Prospectus and/or
the Application Form itself) are missing. This could include, without limitation, an Application Form that is illegible,
has been completed by or on behalf of an applicant who is not an Eligible Investor, has been completed by a Minor, is
incomplete, contains erroneous or contradictory information or which is otherwise defective or not compatible with
applicable law and regulations, or which fails to attach appropriate supporting documentation.
With regard to a Minor, the guardian of such Minor shall apply for Offer Shares on behalf of the Minor. In this case, the
guardian will be required to enclose the document evidencing his/her appointment as the guardian of the relevant
Minor with the Application Form, together with copies of the identity card of the guardian and the relevant Minor (or,
in the case of the Minor, an original birth certificate or Qatari identification). An application by a guardian on behalf of
a Minor does not prevent the guardian from subscribing in the Offer Shares in his/her own name.
Application Forms submitted on behalf of third parties must be accompanied by a duly certified power of attorney. In all
cases, applicants should ensure that where copies of documents are to be annexed to an Application Form, the original
of each document is available for inspection by the Receiving Bank to which the Application Form is being presented.
By subscribing or seeking to subscribe in the Offer Shares, each Individual Investor undertakes to indemnify Qatar
Petroleum, the Company, the Receiving Banks and their respective advisors against all and any losses which result
or which may result from any non-compliance with the terms of the Application Form and/or any failure or omission
on the part of an Individual Investor to fulfil the requirements set out in the Application Form and/or this Prospectus.
Any additional Shares issued or transferred to an Eligible Investor at the direction of QP, the Company or a Receiving
Bank in order to rectify or remedy any defect or error in the allocation process shall be treated for all purposes as Offer
Shares, including for the purpose of determining entitlement to Incentive Shares and the calculation of such Eligible
Investor’s Protected Amount.
It should be noted that an Application Form may be used by the Receiving Banks and/or the Qatar Exchange to update
the details (including as to payments of dividends) as may currently be held in connection with any other securities
traded on the Qatar Exchange that are currently owned by such or by the person on whose behalf the applicant submitting such Application Form.
Copies of this Prospectus, Application Forms and the Memorandum of Association and Articles of Association of the
Company are available at the designated branches of the Receiving Banks.
It should be noted that individual participating branches of the Receiving Banks in Qatar have their own opening
hours. Individual Investors are advised to check the opening hours of their local participating Receiving Bank branch
to ensure they do not miss out on their opportunity to take part in the IPO.
National Investor Number
It is not necessary for an applicant to have a National Investor Number (NIN) as part of the application process.
Trading Account
It is not a requirement that an applicant have a trading account. However, if the applicant wishes to be able to trade
his or her Shares after the Offering, he or she must have a trading account established with a QE-licensed broker. An
applicant who does not have a trading account will not be able to trade his or her Shares on the QE after the Offering.
Guidance on opening a trading account may be obtained from the offices of the QE in Doha or from participating
branches of the Receiving Banks throughout Qatar.
The Qatar Exchange-licensed brokerage firms are: The Group Securities (Q.S.C.), Dlala Brokerage Company (W.L.L.),
Dlala Islamic Brokerage Company (W.L.L.), Qatar Securities Company Q.S.C., Islamic Brokerage, International Financial
Securities Co. (IFSC), Gulf Investment Group, QNB Financial Services, Commercial Bank Investment Services, Ahli
Brokerage Company and Al Rayan Financial Brokerage.
Allocation of Offer Shares and refund of excess application amounts, if any
Individual Investors who have duly completed and submitted their Application Forms and deposited the corresponding funds (Offer Price multiplied by the number of Offer Shares applied for, plus Offering and Listing Costs) with the
Receiving Banks during the Offer Period are expected to obtain information with regard to their allocations and refund
of excess application, if any, within two weeks of the Closing Date.
41
Any additional funds in respect of Offer Shares not so allocated (if any) will be refunded following the Closing by credit
of account, It is proposed that allotment of Offer Shares and refunds of excess application amounts, if any, will occur
by 30 January 2014.
Listing and trading of the Shares
Prior to the Closing Date, the Company will submit an application to the QFMA and to the QE to list all of the Shares
on the QE in accordance with the requirements of the QFMA and the QE. Trading in the Shares will be effected on
an electronic basis, through the Company’s share registry maintained by the QE. It is anticipated that Admission will
occur during February 2014.
After the Closing Date, and following commencement of trading in the Shares on the QE, all institutions and individuals will be allowed to purchase shares on the secondary market in accordance with the applicable laws and the
rules of the QE. The Shares may be freely traded and transferred in accordance with the rules and regulations of the
QE and in compliance with applicable laws in Qatar but subject to the restrictions on sale and transfer discussed
elsewhere in this Prospectus in relation to Incentive Shares (including the Protected Amount). In order to prevent an
Individual Investor from unintentionally or inadvertently forfeiting the right to receive Incentive Shares, the Company
has entered into certain arrangements with the Qatar Exchange whereby (i) in the case of an adult Individual Investor,
50% of the Offer Shares originally subscribed by him or her in the Offering will be automatically prevented from being
transferred or sold (i.e. they will be subject to a bar on transfer or sale) until the Second Award Date. The amount of
Shares subject to such block is referred to as the "Protected Amount". An adult Individual Investor is free to override
such block by formaly applying to the Qatar Exchange in Doha in person to apply to have the block on his or her Protected Amount lifted. Such an Individual Investor will be required to complete and submit to the Qatar Exchange an
"Application to Release Protected Amount Acquired at the IPO", which may be obtained on request from the offices
of the Qatar Exchange following Admission. Unless otherwise permitted by the Qatar Exchange, this will require the
Individual Investor to attend in person the offices of the Qatar Exchange in Doha. An Individual Investor who applies
to the Qatar Exchange to have the block on his or her Protected Amount lifted should note that, in the event he or she
then proceeds to sell or otherwise transfer more than 50% of the Offer Shares subscribed by him or her in the Offering,
he or she will thereupon forfeit any right to receive Incentive Shares; and (ii) in the case of a Minor (i.e. an Individual
Investor who has not yet attained the age of 18 years) or a person who subscribes in the Offering on behalf of a Minor,
the Protected Amount shall apply to (i) 50% of the Offer Shares originally subscribed by or on behalf of such Minor in
the Offering; and (ii) 100% of the Incentive Shares awarded to or for the benefit of such Minor on the First Award Date
and the Second Award Date (to the extent the Minor remains a Minor as at such dates). In order to safeguard the value
of investments in the Company made by or on behalf of Minors, the block on a Minor’s Protected Amount may not, for
as long as such Minor remains a Minor, be voluntarily lifted. Any additional Shares issued or transferred to an Eligible
Investor at the direction of QP or a Receiving Bank in order to rectify or remedy any defect or error in the allocation
process shall be treated for all purposes as Offer Shares, including for the purpose of determining entitlement to
Incentive Shares and the calculation of such Eligible Investor’s Protected Amount. Where the number of Offer Shares
allocated to an Individual Investor is an odd number not divisible by two without resorting to fractions, the Protected
Amount shall apply to the number of Offer Shares allocated to such Individual Investor less one Offer Share, divided
by two. Accordingly, such Individual Investor will be free to transfer or sell, without being restricted by the block on
his Protected Amount, up to the number of Offer Shares allocated to such Individual Investor plus one additional Offer
Share, divided by two. For example, if an Individual Investor is allocated 501 Offer Shares, the Protected Amount shall
apply to 250 Offer Shares and the Individual Investor shall be free to transfer up to 251 Offer Shares without being
restricted by the block on his Protected Amount.
Indicative timetable of key events
The dates set out below are indicative only of the expected timing of certain key events relating to the Offering. Qatar
Petroleum and the Company reserve the right to change any of the dates or times and/or shorten or extend the time
periods (in accordance with applicable rules and regulations).
Date
Event
31 December 2013
Opening Date
21 January 2014
Closing Date
By 30 January 2014
Allotment of Offer Shares and refund of excess application amounts, if any
31 December 2018
First Award Date for Incentive Shares
31 December 2023
Second Award Date for Incentive Shares
42
USE OF PROCEEDS
Use of Net Proceeds
It is expected that the net proceeds (the expected proceeds of the Offering of QAR 3,296,514,305 less the expected
Offering and Listing Costs of QAR 64,637,535) from the Offering will amount to QAR 3,231,876,770. Qatar Petroleum
will receive all of the net proceeds in relation to the Offering, which proceeds will be applied by Qatar Petroleum at its
discretion for its own corporate purposes or as otherwise determined by Qatar Petroleum.
Listing Costs
In addition to the Offer Price of QAR 10 per Offer Share, Offering and Listing Costs in the amount of QAR 0.20 per Offer
Share (i.e. total Offering and Listing Costs of QAR 64,637,535) will be payable by Individual Investors and Selected
Institutions. The Offering and Listing Costs charged in connection with the Offering will cover, among other things:
•
the costs and fees associated with the solicitation, distribution and processing of Offer Shares by, and the
opening and maintaining of bank accounts with, the Receiving Banks in connection with the Offering;
•
the settlements of the costs of professional advisers relating to the structuring and preparation of the Offering
(including, without limitation, the Lead Financial Advisor, Financial Advisor, Legal Counsel and the Independent
Auditors);
•
the regulatory costs and fees of listing the Shares on the QE; and
•
other costs associated with the Offering (including, but not limited to, public relations, Offering launch events,
advertising, printing and publishing costs).
The Company shall bear any additional costs which it incurs in connection with the Offering. If, following payment of
the Offering and Listing Costs, there is an excess of funds available from the total Offering and Listing Costs then that
excess will be transferred into a legal reserve account held by the Company.
43
BUSINESS OF THE COMPANY
The Company was incorporated under the Companies Law as a Qatari shareholding company by its founding shareholder, Qatar Petroleum. The Company is an Article 68 Company, having been incorporated under Article 68 of the
Companies Law, following Decision of H.E. the Minister of Economy and Commerce No. 22 of 2013, issued on 21 May
2013. As set forth in the provisions of the Companies Law, Article 68 Company status is only reserved for those companies with a certain form of ultimate Government ownership. The Company is registered and incorporated in Qatar
with commercial registration number 60843. The Company was incorporated for an initial period of 99 years.
The Company holds 49% of the issued share capital of each of Qatar Chemical Company Ltd. ("Q-Chem I") and Qatar
Chemical Company II Ltd. ("Q-Chem II") and 55.2% of the issued share capital of Qatar Vinyl Company Limited (QVC)
Q.S.C. ("QVC"). Each of Q-Chem I, Q-Chem II and QVC is referred to in this Prospectus as a "Portfolio Company" and,
together, as the "Portfolio Companies". The shares in each of the Portfolio Companies held by the Company (the "Portfolio Company Shares") were previously held directly by Qatar Petroleum, and were transferred to the Company with
effect from 9 September 2013 pursuant to the "Share Swap" (as described on page 12 of this Prospectus).
The Company was incorporated with an initial share capital of QAR 10,000,000, divided into 999,999 ordinary Shares
and one Special Share. In connection with the Share Swap (pursuant to which newly-issued Shares in the Company were
issued and allotted to QP in consideration for the transfer of the Portfolio Company Shares to the Company), the share
capital of the Company was increased and additional shares were issued and allotted to QP. Accordingly, as at the date of
this Prospectus, the Company’s issued share capital consists of QAR 12,563,175,000, divided into 1,256,317,499 ordinary
Shares and one Special Share. Each Share has a nominal value of QAR 10. All Shares are fully paid up.
As at 31 December 2012 and as at the date of this Prospectus, the Company was not incorporated and thus had no
indebtedness.
The legal and commercial name of the Company is Mesaieed Petrochemical Holding Company Q.S.C. and its registered
office is located at P.O. Box 3212, Doha, State of Qatar. The Company’s commercial registeration number is 60843.
Objectives and Activities
The objects of the Company are to establish, manage, own and/or hold shares, assets and interests in companies
(and their subsidiaries and/or associated undertakings) engaged in all manner of processing and/or manufacturing of
petrochemical products, together with any other objective or undertaking which the Company deems beneficial to its
business, diversification or expansion from time to time, including the following:
1.
to establish, issue, own, hold, buy, sell subscribe for, transfer and allot or redeem shares, loan notes, bonds,
sukuk and any interests in itself, any affiliate and/or any company or undertaking;
2.
to invest any of the Company’s assets, bonds and financial instruments;
3.
to participate in the management, coordination, operation and financing of the Company, any affiliate, and/or
any company or person in which it holds shares or has an interest or commitment;
4.
to provide support to QP’s affiliates or its affiliates of third parties related to QP;
5.
to own patents, commercial businesses, franchises and any other rights, and the exploitation and lease thereof
to or for QP’s affiliates or otherwise;
6.
to own tangible and intangible moveable assets, personal and real property necessary or conducive for the
furtherance of its objects;
7.
to enter into contracts, agreements and arrangements with any person which the Company deems beneficial
to its business or to be in furtherance of its objects;
8.
to establish, acquire, undertake, manage and carry on the whole or any part of the business, property and liabilities of any person carrying on any business, which may in the opinion of the Directors be capable of being
conveniently carried on or calculated directly or indirectly to enhance the value of or make profitable any of the
Company’s or any of its affiliate’s property or rights, or any property suitable for the purposes of the Company
or any of its affiliate;
44
9.
to borrow, mortgage, guarantee incur liability, raise and secure the payment of money in any way the Directors
think fit, including, without limitation, by the issue of debentures and other securities (including derivatives),
perpetual or otherwise, charged on all or any of the Company’s property (present and future) or any of its
paid-up capital, and to purchase, redeem and pay off those securities;
10.
to enter into Islamic finance transactions and dispose of any underlying assets for the purposes of raising
finance in relation to such Islamic finance transactions;
11.
to do all things that are in the opinion of the Directors incidental or conducive to the attainment of all or any of
the Company’s objects, or the exercise of all or any of its powers;
12.
to carry on any other business or activities that are unusual to or may be carried on by companies involved in a
business similar to that of the Company and/or its affiliates; and
13.
to do any other act as if a natural person.
The following diagram sets out the structure by means of which the Company holds its interests in the Portfolio Companies:
Mesaieed Petrochemical
Holding Company Q.S.C
49%
49%
Q-Chem I
55.2%
Q-Chem II
QVC
The principal activity of the Company is to operate as a holding company, serving as the immediate legal owner of the
Portfolio Company Shares. As at the date of this Prospectus, the Company is the direct legal owner of, and directly
controls the exercise of voting rights in respect of:
1.
49% of the issued share capital of Q-Chem I, a company which operates an integrated petrochemical plant for
the production of MDPE, HDPE and 1-Hexene. QP has initially directly retained 2% of the issued share capital of
Q-Chem I, while the remaining 49% is held by CPCIQH;
2.
49% of the issued share capital of Q-Chem II, a company which operates an ethylene cracker unit and a largescale petrochemical project producing HDPE and NAO. As with Q-Chem I, QP has initially directly retained 2%
of the issued share capital of Q-Chem II, while the remaining 49% is held by CPCIQH; and
3.
55.2% of the issued share capital of QVC, a company which operates a plant for the production of chlorine,
Caustic Soda and subsequently EDC and VCM. The other shareholders in QVC are QAPCO, holding 31.9%, and
QP, which holds 12.9%. It should be noted that, prior to 11 November 2013, QVC was operated as a joint venture
between MPHC, QAPCO and Arkema which held 12.9% of the issued share capital of QVC. Arkema’s interest in
QVC was transferred to QP with effect from 11 November 2013, whereupon Arkema ceased to be a party to the
joint venture arrangements in relation to QVC. As at the date of this Prospectus, QAPCO, QP and the Company
are the parties to the joint venture arrangements in relation to QVC.
Relationship with Qatar Petroleum
Qatar Petroleum, previously known as Qatar General Petroleum Corporation, was established as a public corporation
pursuant to Qatari Decree Law No. 10 of 1974. The principal activities of Qatar Petroleum and its subsidiaries and joint
ventures cover exploration, drilling and production, storage and transport, and the sale of crude oil, pipeline gas, LNG,
petrochemicals, GTL, steel, fertilisers and other products and services. Certain regulated products are purchased by
and marketed and sold by Qatar International Petroleum Marketing Company (Tasweeq). In addition, with effect from
April 2013, certain Regulated Products (as defined under the Muntajat Decree) are marketed and sold by Muntajat.
Qatar Petroleum has its headquarters in Doha, and is the parent company of a broadly diversified group of oil and gas,
chemicals, petrochemicals and industrial joint ventures and companies in the upstream, midstream and downstream
petroleum sector. Qatar Petroleum’s products are exported to and sold in numerous countries.
45
The Portfolio Companies will continue to have a close relationship with Qatar Petroleum in many areas of their respective businesses, and may seek to extend their business through additional service contracts with Qatar Petroleum and
other companies affiliated with Qatar Petroleum. It should be noted that because of the unique size of its shareholding
and the rights accorded to it as a result of it holding the Special Share (see "Description of the Shares" section of this
Prospectus), Qatar Petroleum will continue to act as if it were the parent of the Company notwithstanding the Share
Swap. In addition, for at least the foreseeable future, the Qatar Petroleum Group will remain the principal supplier
of raw materials and feedstock to the Portfolio Companies and, accordingly, the Group will be reliant on the Qatar
Petroleum Group for the bulk of its raw material and feedstock supplies. In this regard, the attention of prospective
shareholders is drawn to the wording in the section of this Prospectus headed "Risk Factors".
Business strategy
The Company’s strategy is to maximise shareholder value by capitalising on the Portfolio Companies’ competitive
strengths and positions in the petrochemical segment of Qatar’s oil and gas industry, thereby supporting Qatar’s
National Development Strategy by enabling Qatari nationals to share in Qatar’s growth strategy and contributing to the
national economy of Qatar. The Company intends to improve the overall value and return to shareholders by:
•
monitoring implementation plans and results of the Portfolio Companies through discussions and reviews
between the Board and the board of directors of each of the Portfolio Companies;
•
monitoring the cash management operations of the Portfolio Companies and providing input on optimal cash
allocation and cash utilisation; and
•
evaluating, at the level of each Portfolio Company, the capital investment requirements, if any, by the Company.
The day-to-day management of the Portfolio Companies and all operational decision-making at the level of each Portfolio Company will remain with the respective management teams of the Portfolio Companies. The centralisation of
the ownership structure at the Company level, as a result of the Share Swap, will have no significant or adverse effect
on the decision-making process at the level of each Portfolio Company. The Company expects that allocations of
revenues and expenses at the level of each of the Portfolio Companies will remain unchanged and will be combined
at the Company level. Consequently, investors are cautioned to place proper reliance on historic Portfolio Company
operating revenues, operating expenses and operating income as measures of the economic efficiency and financial
performance of each such Portfolio Company and to treat the total combined revenues of the Portfolio Companies as
the aggregate economic return to the Company.
The Company has identified the following key initiatives in order to achieve its strategic vision:
Enhance production capacity and profitability
The Company intends to assist and propose plans to, where possible, increase production capacity through enhancements to existing facilities of the Portfolio Companies or source additional feedstock for production. The Company will
ensure that the Portfolio Companies pursue cost-efficient opportunities to increase output, enhance efficiency and
reduce production cost, including, where possible, changes to the configuration of existing production processes.
Empowerment of management teams at Portfolio Companies
It is envisaged that each of the Portfolio Companies will retain its own management team, with the Board responsible for
the overall performance of the Company. The Company will aim to de-centralise certain operational decisions through
the empowerment of the respective management teams to continue conducting independently all day-to-day operational matters. However, the Company will carefully monitor the implementation plans and results of the Portfolio Companies through discussions and reviews between the Board and the management of each of the Portfolio Companies.
Maintain dividend levels to shareholders by maintaining profitability levels
The combination of reliable feedstock, low energy costs and efficient operations, among other things, has allowed the
Portfolio Companies to enjoy a competitive advantage whilst achieving a track record of profitability that has been
relatively resilient to economic cycles. These characteristics have allowed the Portfolio Companies to generate a level
46
of profitability that has historically enabled them to declare regular dividends, building on the joint venture partners’
objectives of maximizing distributions to Shareholders. The Company will monitor the cash management operations
of the Portfolio Companies on a regular basis and provide advice on optimal cash allocation and cash utilisation. The
Company will also evaluate the ongoing capital investment requirements of existing and potential new projects to
determine a sustainable annual dividend distribution policy.
Further develop international sales through a more co-ordinated marketing approach
Through a more coordinated approach to sales and marketing, the Company will be better positioned to align the
international sales and distribution coordination of the Portfolio Companies. Historically, the Portfolio Companies
have marketed the majority of their products through their international joint venture partners. The Company will
aim to develop a more coordinated and stream-lined approach in each target market, building on the experience and
expertise at each of the Portfolio Companies enabling the Company to better manage and strengthen its customer
relationships in markets that the Portfolio Companies currently operate through increased collaboration.
Competitive Strengths
The Company believes that its businesses are characterised by the following competitive strengths and that these
competitive strengths will allow the Company to successfully implement its strategy:
Integrated regional producer and exporter in the petrochemicals sector
The formation of the Company through the contribution of Qatar Petroleum’s existing equity stakes in the Q-Chem I,
Q-Chem II and QVC joint ventures respectively has allowed the creation of an integrated regional producer and exporter
in the petrochemicals sector. The Portfolio Companies’ production facilities are located at MIC and RLIC and have proven
operational track records. The integration and access to infrastructure at MIC and RLIC at each Portfolio Company’s facility also allows for efficient production, minimising logistic costs and product wastage in the production chain. Scale, integration, competitively priced ethylene feedstock, competitive utilities and labour costs, proximity to the target markets,
technology and the experience of the international partners have provided a number of competitive advantages. These
advantages, coupled with the Portfolio Companies’ partners’ global reach, are important in meeting customer needs and
to profitably compete against other regional and global petrochemicals companies.
Robust global industry sector and product range with favourable supply-demand dynamics
Each Portfolio Company has a customer base that represents a global and diverse market encompassing the manufacturing and consumer sectors. The Asian markets are currently a major consumer and demand driver for polyethylene,
olefins and VCM, driven by the recent rapid expansion in the region’s industrial and manufacturing sectors, while
comparatively mature markets such as the US and Western Europe, while significant in size, have experienced comparatively lower growth in recent years. Key end markets for the products offered by the Portfolio Companies include
the transportation, packaging, construction, consumer goods and textile industries. With the market sentiments and
outlook for global oil prices remaining relatively robust, the Portfolio Companies’ businesses and operating models are
well-placed to continue to deliver its products to its world-wide customers at profitable margins.
Supply of feed stock
The Portfolio Companies benefit from proximity to the significant gas reserves of Qatar’s North Field, which is estimated
by the Ministry of Energy and Industry to be the largest non-associated gas field in the world and the supply of feedstock.
Qatar is politically stable and is rated AA by S&P and Aa2 by Moody’s, reflecting its considerable financial and economic
strength. Q-Chem I and Q-Chem II have secured a supply for their ethane feedstock requirements, pursuant to long-term
supply agreements with Qatar Petroleum. Q-Chem I and Q-Chem II create their own ethylene feedstock which supplies
their respective derivative units. Most of QVC’s ethylene feedstock is sourced from a long-term supply agreement with
QAPCO, a Qatar Petroleum controlled entity, while historically the balance of QVC’s ethylene requirement is purchased
from a combination of QAPCO and the spot market. The feedstock covered by these agreements, principally ethane
and ethylene, are delivered to facilities via a pipeline network operated by Qatar Petroleum and associated entities.
Qatar Petroleum is a significant shareholder in the Company as well as being the holder of the Special Share. Through
QP’s support, each Portfolio Company is able to benefit from the competitive advantages of being a low-cost producer
through the provision of competitively priced feedstock, with RLOC, a subsidiary of QP, being an example of an in-house
source of supply.
47
Profitable businesses with significant cash generation ability
The combination of reliable feedstock, low energy costs, efficient and integrated operations has allowed Q-Chem
I and QVC to enjoy a competitive advantage whilst achieving profitability that has been relatively resilient to global
economic cycles. Q-Chem II ramped up its production during 2012 and is also benefitting significantly from the same
competitive advantages as well as significant infrastructure cost-savings through the sharing of certain infrastructure
and services with Q-Chem I. During the year ended 31 December 2012, Q-Chem I achieved EBITDA margins of 50%,
Q-Chem II achieved EBITDA margins of 61.3% and QVC achieved EBITDA margins of 36.3%. With proven operating
histories, the Portfolio Companies have significant cash generation capabilities which in turn may potentially enable
the Company to pay attractive levels of dividends.
Strong Shareholder support and technology and operational expertise
The Portfolio Companies have benefited from the on-going support of their shareholders. Each Portfolio Company
is managed through joint-venture agreements made between Qatar Petroleum and related entities, and has benefitted from the participation of best-in-class strategic international partners such as CP-Chem, Norsk Hydro
and Arkema. Qatar Petroleum was established as a public corporation pursuant to Qatari Decree Law No. 10
of 1974 and is responsible for all phases of the oil and gas industry in Qatar. CP-Chem, with major operations in
North America, Europe and Asia, is one of the largest petrochemical companies in the world. The international partners with whom the Portfolio Companies combine with have strong track records in operating similar
production facilities to those of the Portfolio Companies world-wide. In particular, Q-Chem I and Q-Chem II
benefit from the technical, commercial and management expertise made available through arrangements with
CP-Chem. Qatar Petroleum has been able to gain international market access, technology and production knowhow, while the international partners have benefited from access to feedstock and strong local political support.
The Portfolio Companies have also benefited from their ability to attract highly qualified employees partly due to their
links with their international partners.
Q-Chem II benefits from operational synergies and economies of scale
Q-Chem II was deliberately constructed on a site adjacent to Q-Chem I and takes advantage of economies of scale
achieved through the sharing of RLOC, with Qatofin, another QP-related petrochemical producer, and costs savings
as a result of operational synergies with Q-Chem I. This has been achieved by Q-Chem I acting as operator of Q-Chem
II thereby reducing operating costs and by the sharing of certain common facilities in order to reduce capital costs.
Most notably, the proximity of the Q-Chem I and Q-Chem II facilities has allowed for the rapid movement of valuable
feedstock among them whenever one of the facilities have been subject to maintenance or upgrade. In addition to
the cost savings relative to a stand-alone operation, integration of the management and operations and sharing of
certain assets and services has enabled Q-Chem II to enjoy operating and capital cost savings, as well as benefit from
Q-Chem I’s operating experience. Q-Chem II also benefits from the significant infrastructure at both RLIC and MIC,
resulting in the requirement for minimal site preparation and comparatively lower ongoing infrastructure costs than
elsewhere around the world. These operational synergies and economies of scale as well as existing management
expertise has benefited Q-Chem II and enabled it to achieve good profitability.
Strategic location in close proximity to key markets
The Company’s management believes that demand for petrochemicals, mainly from markets in Asia, is likely to experience
growth driven by a combination of non-cyclical factors including wider-scale investments in manufacturing industries,
rising income per capita levels and growing populations. The strategic location of the Portfolio Companies’ production
facilities in Qatar allows the Portfolio Companies to export their products with comparative ease and cost advantages
compared to some of their other global competitors. The strategic location of the Portfolio Companies production facilities is a key competitive advantage over other global producers who are located further away from such key markets.
A combination of a strong position in its regional market and a strategic position to serve international ones, places the
Company in a position to take advantage of the long-term outlook for the demand for petrochemical products.
48
Recent Developments
Acquisition of the Portfolio Company Shares
The Company is a newly-incorporated entity. Upon incorporation on 29 May 2013, the Company did not own the
Portfolio Company Shares, which remained at that time directly held by Qatar Petroleum. Pursuant to the Share Swap
Agreement entered into between Qatar Petroleum and the Company dated 4 August 2013, the Company agreed
to acquire from Qatar Petroleum the Portfolio Company Shares in consideration for the issue and allotment by the
Company to Qatar Petroleum of an additional 1,255,317,500 newly-issued ordinary Shares in the Company (the Swap
Shares). The execution of the Share Swap Agreement, the acquisition of the Portfolio Company Shares and the issuance and allotment to Qatar Petroleum of the Swap Shares was approved at a meeting of the Extraordinary General
Assembly of the Company held on 8 July 2013. Separately, the transfers of the Portfolio Company Shares from Qatar
Petroleum to the Company were also approved by the Extraordinary General Assemblies of the relevant Portfolio
Companies – Q-Chem I, Q-Chem II and QVC. Such transfers were registered on 9 September 2013. Accordingly, as
at the date of this Prospectus, and immediately prior to the Offering, Qatar Petroleum holds 100% of the issued share
capital of the Company (a total of 1,256,317,499 ordinary Shares and one Special Share, as compared in 999,999
ordinary Shares and one Special Share prior to the Share Swap). In turn, the Company holds 49% of the issued share
capital of Q-Chem I (corresponding to 55,272 shares), 49% of the issued share capital of Q-Chem II (corresponding
to 245 shares) and 55.2% of the issued share capital of QVC (corresponding to 1,017,413 shares), having acquired the
Portfolio Company Shares from Qatar Petroleum. QP has initially directly retained 2% of the issued share capital of
Q-Chem I and Q-Chem II.
Muntajat Decree
On 4 November 2012, the Muntajat Decree was enacted as law in Qatar. The full extent of the Muntajat Decree’s impact
over the businesses of each of the Portfolio Companies is currently uncertain. Under the Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C. (known
as Muntajat) – has been mandated by the State to be exclusively responsible for the sale, purchase and marketing
of certain Regulated Products as defined under the Muntajat Decree. The Regulated Products include certain products produced by the Portfolio Companies. Accordingly, compliance with the requirements of the Muntajat Decree
is likely to have an impact over the current and historic marketing and offtake arrangements of each of the Portfolio
Companies and may also require certain third party consents from contractual or financial arrangements entered into
where the relevant Portfolio Company is a party. The Muntajat Decree is currently in its implementation stage and the
full extent to which the Portfolio Companies will be affected is uncertain. In the case of QVC, Muntajat has already
assumed all sales and marketing responsibilities in relation to QVC’s vinyl and caustic soda products as of April 2013,
and accordingly QVC’s internal sales and marketing function has been transferred to Muntajat.
Founding General Assembly
In accordance with Article 90 of the Companies Law, the Company’s Founding General Assembly met in Doha, Qatar
on 8 July 2013. At the meeting, Qatar Petroleum (as the Company’s sole shareholder) approved a number of resolutions in relation to the establishment of the Company, including (i) approving a Founding General Assembly Report
relating to the Company’s incorporation; (ii) approving and formally adopting the Memorandum of Association and
Articles of Association of the Company; (iii) approving the appointment of the Board of Directors; (iv) approving the
appointment of Ernst & Young as the Company’s initial Independent Auditors; (v) approving certain matters in relation
to the Company’s share capital; and (vi) formally declaring the Company to have been officially incorporated.
Principal Investments
Other than pursuant to the Share Swap Agreement, the Company has not made any other principal investments since
31 December 2012.
Board of Directors
Full details of the Board of Directors of the Company are set out in the section of this Prospectus headed "Management
and Corporate Governance".
49
Litigation
The Company is not, and has not since incorporation, been in any governmental, legal or arbitration proceedings
(including any proceedings which may be pending or threatened of which the Company is aware) which, may have, or
have in the past had, a material effect on the Company’s business, financial position or results of operations.
Employees
The Company operates primarily as a holding company for its Portfolio Companies and, accordingly, the majority of the
Group’s employees are employed directly by the relevant Portfolio Companies and their affiliates. Accordingly, as at the
date of this Prospectus, the Company itself had few employees of its own apart from its senior executive management.
Administrative support for the Company is provided by employees of Qatar Petroleum or its affiliates. The Company
and Qatar Petroleum have entered into a Services Agreement formalising the basis upon which such functions are performed by Qatar Petroleum for the benefit of MPHC. See "Services Agreement" below.
Services Agreement
Because the Company is primarily a holding company without a significant number of employees or human resources
of its own, the majority of its administrative functions are performed on its behalf by employees of Qatar Petroleum or
its affiliates. These include certain administrative, legal, HR, IT, record-keeping, marketing, public relations, secretarial,
reporting, securities exchange compliance and other day-to-day back office functions on behalf of the Company. The
Company and Qatar Petroleum have entered into a Services Agreement (the "Services Agreement") - effective as of 1
October 2013 - which formalises the basis upon which such functions are performed by Qatar Petroleum on request
for the benefit of MPHC. The Services Agreement is expressed to be governed by the laws of the State of Qatar. In
consideration of those services set out in the Services Agreement, the Company has agreed to pay to Qatar Petroleum
certain fees and expenses.
Independent Auditors
At the meeting of the Company’s Founding General Assembly, held in Doha, Qatar on 8 July 2013, Qatar Petroleum (as the
sole shareholder of MPHC) approved the appointment of Ernst & Young as the first Independent Auditors to the Company.
50
BUSINESS OF Q-CHEM I
Overview
Q-Chem I was established on 6 October 1998 by Emiri Decree No. 20 of 1998 as a joint venture between Qatar
Petroleum and CP-Chem for the development, construction, ownership and operation of a world-scale petrochemical
project in Qatar and commenced commercial operations on 1 April 2004. The project facility is located at MIC in the
south-east of Qatar.
Q-Chem I is a joint venture company owned 49% by the Company, 2% by QP and 49% by CPCIQH, a wholly owned
subsidiary of CP-Chem. Q-Chem I was established pursuant to a joint venture agreement for the development of the
Q-Chem I project and has an initial term of 25 years from the commencement of the operations, with provision for
extension for a further 15 years at the option of the shareholders . Upon expiry of the joint venture agreement, CPCIQH
will transfer all of its shares in Q-Chem I to Qatar Petroleum and Qatar Petroleum shall be obliged to pay CPCIQH the
net book value of such shares in accordance with the terms of the joint venture agreement.
Q-Chem I currently operates a world-class petrochemicals complex comprised of three production units for the production
of MDPE, HDPE and 1-Hexene. Q-Chem I provides itself with the majority of its ethylene feedstock through the operation
of its own ethylene plant which has a design capacity enabling production of 500,000 MTPA of ethylene. Q-Chem I also
operates a two-train polyethylene plant which has a design capacity enabling production of 453,000 MTPA and a 1-Hexene
plant enabling production of 47,000 MTPA. The three production units have been and are currently operating in excess of
their respective design capacities following on-going process improvements.
On 7 March 2010, Q-Chem I created Q-Chem I Distribution Company, a wholly-owned subsidiary of Q-Chem I. Pursuant to a Distribution Agreement dated 1 July 2010, Q-Chem I Distribution Company engages in the sale and distribution
of all of Q-Chem I’s products through agency agreements with Muntajat and Chevron Phillips Chemical International
Sales, Inc. ("CPCIS"). It is also responsible for leasing storage facilities worldwide.
Q-Chem I represents an important step to consolidate and augment Qatar’s position as a leading regional producer
and exporter of petrochemicals. It also assists in further monetising, through a value-adding enterprise, Qatar’s gas
reserves.
Location
Q-Chem I’s operations are located at MIC which is approximately 40 kilometres south of Doha and covers an area of
approximately 43 square kilometres. The MIC site is also shared by QAPCO, QAFCO, Qatar Steel, Qatar Fuel Additives
Company Limited ("QAFAC"), Qatar Shipping Company, QALCO, QPPC, Milaha, Qatofin, Qatar Acids, Q-Chem II and
QVC.
Project Participants
Qatar Petroleum was established in 1974 as a national corporation and is wholly owned by the State. It is responsible for all oil
and gas industry processes in Qatar, including exploration and drilling for oil, natural gas and other hydrocarbon substances,
production, refining, transport and storage of the aforementioned substances and any of their derivatives and by-products,
as well as trading in, and the distribution, sale and export of these substances.
CP-Chem, the parent company of CPCIQH, is owned equally by Chevron U.S.A. Inc., an indirect wholly-owned subsidiary of Chevron Corporation, and by certain wholly-owned subsidiaries of Phillips 66. CP-Chem is one of the largest
petrochemical companies in the world. It, along with its joint ventures, has 38 manufacturing and research facilities
in eight countries, including some of the world’s largest polyethylene units at its Pasadena and Cedar Bayou chemical
complexes in the United States, as well as world-scale NAO capacity at Cedar Bayou, Texas. It also has units producing
polyethylene, various other polymers and basic petrochemicals (such as ethylene, styrene, benzene) in plants in other
locations in the United States and around the world.
Q-Chem I’s Competitive Strengths
Q-Chem I believes that its business is characterised by the competitive strengths that are highlighted below and that
these competitive strengths will enable Q-Chem I to successfully implement its strategy and continue its growth.
51
Strong shareholder support
Q-Chem I benefits from having shareholders who have extensive knowledge and experience in the petrochemicals industry bringing with it proven technology and substantial operating experience. CP-Chem has over 50 years of experience
operating similar petrochemical plants all around the world while QP has over 30 years of petrochemical operational experience through QAPCO. Qatar Petroleum being a state-owned national petroleum company has shown its strong support
for Q-Chem I through the provision of advantageously priced feedstock to allow Q-Chem I to compete internationally and
to be a low-cost producer. At the same time, CP-Chem’s polyethylene and 1-Hexene technologies are amongst the most
cost-efficient of various competing process technologies available. A combination of support from Qatar Petroleum and
efficient CP-Chem technologies results in Q-Chem I being among the lowest-cost producers supplying its target markets.
Geographic location
Q-Chem I’s geographical location in Qatar gives it proximity to a wide geographical market, covering most of Europe,
the Middle East and targeted Asian countries at a comparatively lower cost than some of its global competitors.
Q-Chem I’s location at MIC also allows it to take advantage of access to good quality port facilities for fast and reliable
distribution of its products to market. Qatar is one of the most politically stable countries in the Middle East and is rated
AA/Stable by S&P and Aa2/Stable by Moody’s, reflecting its considerable financial and economic strength.
The Cracker
Qatar Petroleum provides the Cracker with a long-term ethane gas feedstock competitive price advantage which is
supported by the significant gas reserves of the North Field and associated gas reserves of Dukhan. The Cracker mitigates the cyclical nature of commodity prices and provides Q-Chem I with a reliable source of ethylene feedstock.
Reliability and safety of operations
Q-Chem I complies with applicable environmental requirements required of petrochemical operations of this kind.
Q-Chem I has an excellent safety record and in the Company’s management’s view, safe operations means less downtime and a more productive operation contributing to stronger financial performance. For the year ended 31 December 2010, Q-Chem I and Q-Chem II were awarded the "Silver" award for safety by Qatar Petroleum for their success in
maintaining the safety of their employees. For the year ended 31 December 2011, Q-Chem I and Q-Chem II were again
recognised by Qatar Petroleum this time being awarded the "Gold" award.
Strong brand recognition
Q-Chem I utilises the strong brand name recognition of the Marlex product which is recognised around the world as a
leading HDPE product in its class. Q-Chem I is therefore able to leverage from the significant goodwill that is attached
to the Marlex brand to increase demand for its HDPE products and leverage from CP-Chem’s marketing knowledge
and experience.
Synergies and costs savings
Q-Chem I leverages off the significant infrastructure at MIC, resulting in low infrastructure costs. The State designated
MIC as a hub for petrochemical and other industrial manufacturing process. The availability of purpose-designed
infrastructure at MIC allows Q-Chem I to make cost savings on infrastructure that it would otherwise need to construct
thereby reducing its cost and increasing its margins. Q-Chem I shares in the use of certain assets and services with
Q-Chem II which enables both Q-Chem I and Q-Chem II to enjoy operational and capital cost savings which contributes to lowering costs and increasing margins.
Continuity of personnel
Many of Q-Chem I’s senior management and operational personnel are secondees from either CP-Chem or Qatar
Petroleum who have been with Q-Chem I for a number of years. Q-Chem I therefore has the advantage of a continuity of well-trained and experienced personnel bringing to bear extensive management expertise and the knowledge
sharing of know-how accumulated through decades of experience. In particular, Q-Chem I personnel are able to
attend training and off-site sessions with personnel of other CP-Chem joint ventures around the world in order to share
and exchange operating knowledge and best practices.
52
Strategy
Since its inception, Q-Chem I has been able to provide reliable production capacity at its plant. Q-Chem I has been
able to leverage the low cost of ethane provided by Qatar Petroleum and utilise the efficiency of CP-Chem’s processing technology to create low-cost and high quality products while at the same time ensuring the safety of its
employees and minimize the impact of its operation on the environment. Q-Chem I has benefitted from the significant
goodwill attaching to the Marlex brand to cement customer relationships throughout Europe, the Middle East and
Asia. In the future, Q-Chem I intends to consolidate its position as the supplier of choice for a number of its customers
throughout Europe, the Middle East and Asia and its position as a low-cost producer of quality petrochemical products
in order to maximise shareholder return.
Q-Chem I has identified the following key initiatives which it will focus on in order to achieve its
strategic vision:
•
maintain the reliability of its plant and production process to minimise any unscheduled shutdowns;
•
continue to deploy the latest technology to maintain, and, if possible, improve efficiency in the production
process of all three production units in order to, and, if possible, maintain margins; and
•
maintain and continue to improve Q-Chem I’s Health, Environment and Safety Management Systems which
define the practices and standards that facilitate safe operation of the facilities, employee health and public
safety.
Business and Strategy
The business of Q-Chem I involves the ownership and operation of a 500,000 MTPA ethylene plant, a two-train
453,000 MTPA polyethylene plant and a 47,000 MTPA 1-Hexene plant. Q-Chem I also owns associated support facilities including a sour gas feed treater, sulphur recovery and tail gas unit, marine dock, nitrogen production plant, flares,
cooling water systems, waste water plant, and storage facilities as well as certain facilities that are shared by Q-Chem
I and Q-Chem II.
Since the commencement of commercial operations in April 2004, the Q-Chem I plant has regularly operated such
that the production output achieved by the plant as a whole has exceeded the maximum capacity for which it was
originally designed (referred to as "name plate capacity"). Production in excess of name plate capacity is achieved not
by exceeding the safe operating limits of any of the many components which comprise the plant, but rather by upgrading and adding to such individual components such that the overall safe capacity of the plant as a whole is increased
beyond its name plate capacity. A relatively minor modification in the form of ‘de-bottlenecking’ has successfully
enabled the Q-Chem I plant to comfortably operate beyond its original name plate capacity. The name plate capacity
and the actual achieved capacity of Q-Chem I’s plants in aggregate for the years ended 31 December 2012, 2011 and
2010 is set out in the table below:
Design Name Plate Capacity (MTPA)
500,000
2010 Actual
2011 Actual
2012 Actual
Production (MT)
Production (MT)
Production (MT)
613,869
545,794
573,108
Products
MDPE and HDPE
Medium Density Polyethylene and High Density Polyethylene are prepared from ethylene through a catalytic production process. MDPE and HDPE are linear polymers. MDPE and HDPE have a slightly higher density than low-density
polyethylene (LDPE). Due to the absence of branching, MDPE and HDPE are stronger than LDPE and have a higher
chemical resistance than LDPE allowing them to withstand higher temperatures. MDPE and HDPE are used primarily in
molding applications to produce bottles, crates, toys and containers and can be extruded into pipes and films.
53
1-Hexene
1-Hexene is extremely flammable and is produced into a colourless liquid with a mild hydrocarbon odor. The primary
use of 1-Hexene is as a comonomer in the production of polyethylene.
Feedstock Supply
The primary feedstock for the ethylene plant is sweet ethane gas. Sour ethane gas is sourced from the North Field
and Dukhan to Qatar Petroleum’s NGL-4 fractionation plant, approximately 5 kilometres from the Q-Chem I site. The
ethane-rich gas is transported by pipeline to Q-Chem I’s acid gas removal plant where the ethane is sweetened.
The Feedstock Supply Agreement between Qatar Petroleum and Q-Chem I provides that Qatar Petroleum will sell
and deliver to Q-Chem I ethane rich gas for the full term of the joint venture agreement in relation to Q-Chem I. The
Feedstock Supply Agreement provides for a supply of sufficient ethane to enable Q-Chem I to produce sufficient
ethylene for its production capacity. Ethane supplied under the agreement is advantageously priced in accordance
with a contractual formula. The primary feedstock for the Polyethylene and 1-Hexene plants is ethylene sourced from
Q-Chem I’s own ethylene plant.
Process Description and Technical Summary
The following is a simplified flow diagram of the Q-Chem I plant:
1-Hexene
unit
QP
Sour Ethane
Acid Gas
removal
Ethylene
unit
Sweet Ethane
Acid Gas
1-Hexene
1-Hexene
C4+Pygas
Supplier
unit
Polyethylene
unit
HDPE,
MPDE
Sulfur
(i) Ethylene (Ethylene plant)
Technology
The ethylene derivative unit was constructed using production and ethylene processing technology from CP-Chem
under the Q-Chem I JAV and relevant technology licensing agreements. Q-Chem I continues to maintain and update
the technology used in the production of ethylene and operational best practices through regular business support
from CP-Chem including, but not limited to, regular off-site information exchange meetings.
Process Description
The diagram below shows a general overview of the process flow scheme for the 500,000 MTPA ethylene plant:
Ethane Recycle
H2
Ethane
Feedstock
Feed
Treatment
Cracking
Furnaces
Quench
Section
Cracked Gas
Compresser
Distillation
Section
Methane
Ethylene
C4+ Pygas
After the fresh ethane feed is treated in the acid gas removal unit to extract the acid gas, it is combined with the
ethane recycle and with a small amount of steam. The resultant stream is directed to the cracking furnaces, where it
54
is thermally cracked at high temperature to produce ethylene, tail gas (methane and hydrogen) and a small amount of
C4 and heavier material. The cracked gas from the furnaces is then cooled. The cooled cracked gas is compressed,
treated to remove remaining acid gases and dried. The treated and dried cracked gas is then cooled with refrigerants
and separated into tail gas, ethane recycle, ethylene product and a C4+ stream. During this separation, the ethylene is
also treated in a hydrogenation reactor to eliminate acetylene.
A small portion of the tail gas is used to separate out a high purity hydrogen stream for use in the Q-Chem I complex,
and the balance tail gas is used as fuel for the cracking furnaces and the auxiliary steam boilers. The ethylene product is
pressurised and heated to be directly fed to the downstream polyethylene and 1-Hexene units. The ethylene unit also has
the capability to produce a minimum of 10% of the ethylene product to cold atmospheric liquid storage when the unit is
operating at full capacity. This gives the ethylene plant the flexibility to cater for upstream and downstream interruptions.
(ii) Polyethylene (Polyethylene plant)
The primary raw material for polyethylene production is ethylene. Isobutane and 1-Hexene are also used in the production of polyethylene and Q-Chem I produces all of the ethylene and 1-Hexene required for Q-Chem I’s production of
polyethylene. The polyethylene is produced in a continuous operation where ethylene polymerises in the presence of
the catalyst. The polyethylene plant technology is based on the Chevron Phillips loop slurry process designed to produce
MDPE and HDPE. Q-Chem I sells HDPE under the Marlex polyethylene brand that is licensed to Q-Chem I from CP-Chem.
Technology
The Polyethylene derivative unit was constituted using production and polyethylene processing technology from
CP-Chem under the JVA and relevant technology licensing agreements. Q-Chem I continues to maintain and update
the technology used in the production of polyethylene and operational best practices through regular business
support from CP-Chem including, but not limited to, regular off-site information exchange meetings.
Process Description
The polyethylene plant is a two-train 453,000 MTPA polyethylene plant. Each train has a separate reactor, finishing
line and packaging line. Feedstock treating, hydrocarbon storage, diluents recovery and catalyst activation facilities
are common to both trains. Both train 1 and train 2 use chrome catalyst to produce MDPE and HDPE. The flow diagram
below illustrates the process for producing HDPE:
Reactor
System
Ethylene
Polymer
Separation
Extruder
Polyethylene
Catalyst Solvent
(iii) 1–Hexene (1-Hexene plant)
The Q-Chem I 1‑Hexene unit is designed to produce 47,000 MTPA of 1-Hexene. 33,000 MTPA is sold to customers and
approximately 14,000 MTPA is used for feed to the on-site polyethylene plant and any excess production is exported for sale.
The market use for 1-Hexene is in producing polyethylene resins. 1-Hexene is one of several possible co-monomer
feedstocks used in polyethylene production to modify the properties of the finished polyethylene products. Other
uses for 1-Hexene are in the manufacture of plasticizer alcohols and synthetic fatty acids.
Technology
Q-Chem I utilises a process scheme for the 1-Hexene derivative unit based on CP-Chem proprietary technology.
CP-Chem’s method selectively produces 1-Hexene from ethylene at high efficiency levels. CP-Chem’s 1-Hexene
process represents a competitive cost option compared with other manufacturing methods. Q-Chem I continues to
maintain and update the technology used in the production of polyethylene and operational best practices through
regular business support from CP-Chem including, but not limited to, regular off-site information exchange meetings.
55
Process Description
The primary feedstock for the process is ethylene (other materials required include a solvent, a small amount of hydrogen and a catalyst).
Reactor product flows from the reactor loops to the fractionation section, where unreacted ethylene and cyclohexane
solvent are recovered for recycle and high purity 1-Hexene product is recovered and sent to storage. The flow diagram
below illustrates the process for producing 1-Hexene:
Ethylene + Solvent
Ethylene
Reactor
System
Fractionantion
Section
1-Hexene
Catalyst Solvent
(iv) Utilities
The Q-Chem I complex uses seawater for once-through cooling. Fresh water for the closed loop cooling water system
and industrial and domestic use sourced from facilities of Kahramaa.
Under a land lease agreement between Qatar Petroleum and Q-Chem I, Qatar Petroleum is responsible for ensuring
that the necessary upstream infrastructure for the supply of electricity and water required for Q-Chem I’s operations
is provided and maintained by the appropriate governmental entities.
The Q-Chem I complex is linked to the Qatar Petroleum fuel gas distribution network, and fuel gas for general fuel
purposes is supplied pursuant to the Fuel Gas Supply Agreement.
Nitrogen for purging and general use is generated on-site for use in the Q-Chem I complex, as is air for instrument
operation and general use. To the extent that there is any shortage in nitrogen, Q-Chem I can make up any shortfall in
supply from Q-Chem II, which in turn purchases nitrogen from Gasal QSC.
(v) Buildings and Facilities
The Q-Chem I complex consists of facilities including a berth and marine dock, product and feedstock storage, buildings and pipelines. The marine dock is used primarily for the export of polyethylene product via twenty‑foot and forty-foot containers and is also used for liquid loading of export of Q-Chem I’s liquid products (principally 1-Hexene). The
buildings at the Q-Chem I complex include an administration building, a control building, a laboratory, a maintenance
shop and garage, an operations warehouse, a fire station, an infirmary, a mosque and all rolling stock, equipment and
furnishings for the operation of the Q-Chem I plant.
Pipelines are also installed connecting the Q-Chem I plant for the purposes of access to:
(i)
the ethane feed from the NGL-4 fractionation plant;
(ii)
fresh water from Kahramaa;
(iii)
mixed butane from Qatar Petroleum’s storage;
(iv)
normal butane return to Qatar Petroleum’s storage; and
(v)
fuel gas supply from point "S" (the location of Qatar Petroleum’s fuel gas distribution facility).
Furthermore, Q-Chem I also has access to storage facilities in Europe and Asia. Q-Chem I has entered into:
(i)
service agreements for the provision of storage facilities for HDPE; and
(ii)
specialised leases for the liquid 1-Hexene product which requires specialist storage facilities.
56
(vi) Common Facilities
Q-Chem I shares common facilities with Q-Chem II and benefits from the synergies of sharing certain assets and operations, including operating and capital cost savings and logistical advantages.
The Q-Chem I common facilities which are owned by Q-Chem I comprise, among other things, shared buildings (laboratory, maintenance and administrative buildings, cafeteria, medical and security facilities, mosque), fire-fighting
facilities, berth and dock facilities (shelter building, loading cranes, liquid loading area) and various utilities equipment
and supply interfaces (such as plant air compressors, boilers, interconnection pipes for, amongst other things, fuel
gas and water) (the "Q-Chem I Common Facilities"). The common facilities to be owned by Q-Chem II and shared with
Q-Chem I (the "Q-Chem II Common Facilities") currently consist solely of a capital spares warehouse. The applicable
agreements provide for the future addition or deletion of common facilities as may be required.
Plant Operations and Maintenance
Operator
Q-Chem I is responsible for the operation and management of the Q-Chem I complex in accordance with an annual
budget and business plan approved by the Q-Chem I Board. Employees fill key operations positions, with contract
labour used only for temporary or non-critical positions. Certain key supervisory positions are filled by personnel
made available by CP-Chem and Qatar Petroleum.
To assist Q-Chem I in its operations, CP-Chem and Qatar Petroleum also provide on-going manpower, management
and technical services under the Support Services Agreements. Under the terms of these agreements, CP-Chem and
Qatar Petroleum provide such services and personnel as may be requested by Q-Chem I from time to time to assist in
operating the Q-Chem I complex. On-going research and development support in respect of the CP-Chem technologies employed in the Q-Chem I complex are also provided.
Plant Availability and Maintenance
The Q-Chem I complex operates 24 hours per day, except for scheduled and unscheduled maintenance downtime.
The plant production based on expected availability levels (after allowance for scheduled and unscheduled maintenance downtime) of 8,000 hours per year (91.3%) is 500,000 MTPA of ethylene, 453,000 MTPA of polyethylene and
47,000 MTPA of 1-Hexene.
Regular tests and inspection programmes are undertaken to prevent unplanned failures of equipment and production outages. Full-time staff perform such tests and inspections, as well as daily maintenance functions. In addition,
Q-Chem I budgets for scheduled plant turnarounds every four years, when major maintenance work will be conducted
on all process units, which is highly integrated with scheduled plant turnarounds of Qatar Petroleum’s NGL-4 fractionation plant. The current maintenance plan assumes the next turnaround will occur in 2016, with a four year cycle for
subsequent turnarounds. The estimated duration of each turnaround is approximately 30 days.
The Q-Chem I complex has operated at above-design capacity since its commercial operation date and continues to
operate reliably. During the second-quarter of the year ended 31 December 2011, the Q-Chem I plant experienced a
significant shutdown affecting production levels for 10 days. One of the key advantages that Q-Chem I and Q-Chem
II both share is the ability for each of them to easily re-divert feedstock to each other to enable the other, during an
outage period experienced by one or other company, to continue production at optimum levels.
57
The table below shows the scheduled and unscheduled shutdown for Q-Chem I for the years ended 31 December
2012, 2011 and 2010:
Q-Chem I shutdown details for 2010, 2011 and 2012
Start date
End date
Days
2-Mar-10
2-Mar-10
1
2-Mar-10
2-Mar-10
1
15-Apr-10
18-Apr-10
4
6-May-10
7-May-10
2
28-May-10
30-May-10
3
15-Jul-10
16-Jul-10
2
18-Aug-10
3-Sep-10
17
4-Sep-10
8-Sep-10
5
10-Oct-10
11-Oct-10
2
11-Oct-10
12-Oct-10
2
2-Feb-11
27-Feb-11
26
4-Feb-11
27-Feb-11
24
15-Mar-11
23-Mar-11
9
15-Mar-11
20-Mar-11
6
18-Mar-11
18-Mar-11
1
19-May-11
21-May-11
3
14-Jul-11
24-Jul-11
11
27-Jul-11
3-Aug-11
8
14-Aug-11
21-Aug-11
8
9-Oct-11
13-Oct-11
5
24-Jan-12
27-Jan-12
4
19-Feb-12*
26-Mar-12
37
14-Sep-12
15-Sep-12
2
15-Oct-12
16-Oct-12
2
18-Oct-12
19-Oct-12
2
* Scheduled shutdown. All other shutdowns were unscheduled.
Product Storage and Logistics
Q-Chem I has approximately 38,000 square metres of warehouse space. Located in this building are modern polyethylene packaging lines and product storage space. Most products are bagged in industry standard 25 kilogram bags, but
some are shipped in bulk for repackaging in Europe. Bulk distribution is not common in Asia, Africa or the Middle East.
Q-Chem I has ethane storage capacity of up to around 2 days of production. Polyethylene is stored in warehouses
whereby storage is expandable and therefore not constrained. 1-Hexene storage tanks are able to hold 5 to 6 weeks
of production.
Q-Chem I has approximately 27 days of stock overseas at its various storage facilities in Europe and Asia. Q-Chem I
has entered into service agreements for the storage of HDPE and while its liquefied 1-Hexene product requires specialised facilities that cannot be mixed with other petrochemical products and, as a result, specialist facilities need to be
leased. The storage locations are shared with Q-Chem II and are currently located in Belgium, Spain, Italy, Singapore
and five locations spread across China. All HDPE production is pelletised with 80% of HDPE production bagged and
stored in freight containers for shipment from the dock at Mesaieed, Qatar, while the remaining 20% is bulk loaded.
Europe is the primary market for the bulk-loaded product. Portions of this market require different packaging and the
product is packaged upon receipt in Europe. The 1-Hexene product is highly specialised and specialist vessels are
used to transport the product which are loaded in liquid form through hoses at the dock at Mesaieed, Qatar.
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Marketing
CP-Chem has a strong, well-established and recognised global marketing organisation with a number of sales personnel working from offices in a variety of locations. With the addition of Q-Chem II, this team was reinforced with added
sales and technical service personnel in Europe, India and Southeast Asia. In addition to its own sales force, CP-Chem
maintains an extensive network of agents worldwide who sell product into smaller countries/markets.
HDPE
Q-Chem I markets its HDPE grades under the industry respected Marlex brand. Marlex polyethylene has been used
by customers in Asia and Europe since the 1960s. Over the years, consistently high quality product produced by the
world class particle form slurry loop reactor and superior sales and technical support around the world have made the
Marlex trademark the most recognised and respected name in the polyethylene industry. HDPE is sold mainly to the
European and Asian markets particularly in China.
1-Hexene
Q-Chem I is designed to produce 47,000 MTPA of 1-Hexene. Approximately 15% of that production is consumed within
the Q-Chem I complex for polyethylene production, with the remainder exported for outside sales. The majority of
external sales are currently in Europe and Asia. Sales and marketing efforts are coordinated with the CP-Chem worldwide marketing plans for 1-Hexene.
Muntajat
On 4 November 2012, the Muntajat Decree was enacted as law in Qatar. The full extent of the Muntajat Decree’s impact
over the businesses of each of the Portfolio Companies is currently uncertain. Under the Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C. (known as
Muntajat) – has been mandated by the State to be exclusively responsible for the sale, purchase and marketing of certain
Regulated Products (as defined under the Muntajat Decree). The Regulated Products may in due course include certain
products produced by Q-Chem I. Accordingly, compliance with the requirements of the Muntajat Decree is likely to have
an impact over the current and historic marketing and offtake arrangements of Q-Chem I and may also require certain
third party consents from contractual or financial arrangements entered into where Q-Chem I is a party. The Muntajat
Decree is currently in its implementation stage and the full extent to which Q-Chem I will be affected is uncertain. Under
the Muntajat Decree, Q-Chem I will be required to pay a fee to Muntajat in relation to the marketing and offtake activities
undertaken by Muntajat on its behalf.
Competition
Q-Chem I competes with a number of other petrochemical producers in its regional and global markets. Q-Chem I
categorises its competitors depending on the geography and product sold and can be summarised as follows:
HDPE
Compared with Q-Chem II, the HDPE produced by Q-Chem I is of a slightly different grade. However, Q-Chem I typically
sees the same competitors in the same regional and global markets as Q-Chem II. Traditionally, Q-Chem I has competed
with entities in the HDPE product market on a regional basis although Q-Chem I’s strategy is global in nature. Q-Chem I
mainly supplies HDPE to Europe and Asia and competes with both regional and domestic producers in those markets as
well as producers based in the Middle East who are exporting HDPE. In Europe, Total, LyondellBasell and Dow are among the
main players in this field. In Asia, PTT and Exxon Mobil are among the main players, although Asia is a large market and diffrent players are active in, for example, China as compared to South-East Asia. Q-Chem I also considers SABIC and Borouge
to be among the major companies producing HDPE in the Middle East and exporting HDPE to outside markets including
Europe and Asia. Currently, Q-Chem I does not supply to the North American or Latin American markets.
1-Hexene
Q-Chem I considers the competitive landscape for 1-Hexene products to be concentrated in a smaller group of competitors compared to HDPE. These competitors are classified by Q-Chem I as competing with Q-Chem I on a global
level as opposed to a regional basis such as for HDPE. Q-Chem I considers Shell and Sasol to be among its main global
competitors in the 1-Hexene global market.
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Health, Environment and Safety
Q-Chem I is required to meet the environmental standards of the Ministry of Environment. Such standards address all
environmental media – water, solid waste, air emissions, noise, spill prevention and control, as well as the on-going monitoring of plant performance. In addition, Q-Chem I measures safety performance using the U.S. Occupational Safety and
Health Administration guidelines for injury classification and reporting.
Non-hazardous wastes, consisting of domestic solid wastes, process solid wastes and sludge from wastewater are
disposed of in accordance with applicable law. Hazardous wastes are treated to a non-hazardous state or incinerated
in accordance with applicable law.
Environmental Permits
The State of Qatar requires the Ministry of Environment to provide a consent to operate prior to initiation of construction of new projects and every year of the project’s operation and renewed annually. Consent to operate for planned
projects is sought through submission of an Environmental Impact Assessment ("EIA"). Q-Chem I’s latest consent to
operate was obtained on 19 February 2013. Q-Chem I is required to renew its operating license on an annual basis from
the Ministry of Environment with its existing operating license due to expire on 18 March 2015.
Safety
Q-Chem I’s facilities are required to comply with internationally accepted standards and codes of practice relating to
safety and firefighting. For example, fire protection standards are required to be in accordance with the US National
Fire Protection Association. Where CP-Chem’s own standards are more exacting, these are followed.
The Q-Chem I complex includes its own fire station and is equipped with fire prevention and firefighting equipment
and alarm systems. In the event of a fire or other civil defence emergency, the complex’s emergency systems and procedures would be placed into operation to ensure the continued safe running of the complex, including in the event
of a power failure or loss of other critical utilities. The Q-Chem I plant design adheres to the “Chevron Standards”
as required for all new projects, and these standards are referenced for any updates, changes, or improvements in
Q-Chem I plant process.
Safety of personnel, equipment and sites is a primary business objective of Qatar Petroleum, and a line of responsibility extends to all levels of management, operation, contractors and subcontractors. Q-Chem I’s Health, Environment
and Safety Management System defines the practices and standards that facilitate safe operation of the facilities,
employee health and public safety. Q-Chem I sees safe operations as resulting in less downtime and a more reliable
and productive operation contributing to stronger financial performance.
For the year ended 31 December 2010, Q-Chem I and Q-Chem II were awarded the "Silver" award for safety by Qatar
Petroleum for its success in maintaining the safety of its employees. For the year ended 31 December 2011, Q-Chem I
and Q-Chem II were again recognised by Qatar Petroleum by being awarded the "Gold" award.
Below is a table showing, for the periods ended 31 December 2012, 2011 and 2010, the number of recordable injuries and the recordable injury rate (RIR), an industry standard safety indicator for industrials, based on United States
Department of Labor, Occupational Safety & Health Administration (OSHA) standards:
Period ended 31 December
Number of recordable injuries
Recordable injury rate (RIR)
2012
7
0.20
2011
1
0.06
2010
2
0.13
A recordable injury is generally defined as an occupational injury or illness that is sustained on-site that requires
medical treatment that is considered more than simple first-aid. Q-Chem I and Q-Chem II consolidate their safety
record keeping and produce data on a consolidated basis for all of their operations. In 2012, Q-Chem I and Q-Chem
II changed the basis of their recordable injuries categorisation. Whereas in the period ended 31 December 2011 and
2010, both Q-Chem I and Q-Chem II only recorded recordable injuries occurring to employees and baseload contractors, from the period ended 31 December 2012 onwards, both Q-Chem I and Q-Chem II began recording recordable
injuries that have occurred to all persons within the Q-Chem I and Q-Chem II complex.
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Insurance
Q-Chem I maintains, via insurance policies in many cases jointly insuring it and Q-Chem II, a comprehensive insurance programme to cover damage to its respective facilities, as well as liabilities to third parties. In addition, Q-Chem I
carries business interruption insurance to cover losses arising due to damage to the Q-Chem I facilities, and third party
onshore facilities that it does not own but which supply feedstock to Q-Chem I, such as the NGL-4 fractionation plant.
The insurance policies which Q-Chem I has in place are subject to maximum limits which are in compliance with the
requirements of Q-Chem II’s financing.
The limit of Q-Chem I’s business interruption and property damage insurance is set at US$1,915,000,000 (with a sublimit of US$250,000,000 where the event in question is related to Q-Chem I’s feedstock supplier’s onshore facilities).
Type of Coverage
Insured Events
Worker's Compensation
Life and medical accident.
Property Damage
"All risk" of physical loss or damage to Q-Chem I facilities, excluding, however,
damage caused by terrorism.
Business Interruption
Loss resulting from the operation of an insured peril under the Property Damage
insurance that leads to a disruption to anticipated gross earnings (net sales less
expenses, such as feedstock costs, that do not continue).
Third Party Liability
Third party liabilities arising out of all operations, including contractual liability,
products liability, and pollution liability.
Cargo
Damage to cargo shipments and product while in storage following shipment.
Management
Board of Directors
The Board of Directors for Q-Chem I is comprised of the following:
Name
Title
Organisation
Dr. Mohammed bin Saleh Al-Sada
Chairman, Director
Qatar Petroleum (Chairman and Managing
Director)
Mr. Ali Hassan Al-Sidiky
Vice-Chairman,
Director
Qatar Petroleum, CEO of Qatar Intermediate Industries Holding Company Limited
(Al-Waseeta).
H.E. Sheikh Hamad bin Jabor Al Thani
Director
Qatar Statistics Authority (President);
General Secretariat for Development Planning (Director-General)
Mr. Peter L. Cella
Director
CP-Chem
Mr. Daniel M. Coombs
Director
CP-Chem
Management
The management team is the same for Q-Chem I and Q-Chem II. The senior management team is comprised of the
following:
Mr. Ahmed Al-Emadi, General Manager
Mr. Al-Emadi is a Qatar Petroleum secondee and has worked at Q-Chem I since 1998 and Q-Chem II since 2005. He was
appointed deputy general manager of Q-Chem I in 1998 and general manager of Q-Chem I and Q-Chem II in 2007. He
has served QP since 1972 including a number of years spent in QP’s NGL operations at Mesaieed. He gained a Higher
National Diploma in chemical engineering at the Institute of Energy at Wirral Metropolitan College in the United Kingdom.
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Mr. Scott Sharp, Deputy General Manager
Mr. Sharp is a CP-Chem secondee and has worked at Q-Chem I and Q-Chem II since 1 October 2011. Mr. Sharp has
been deputy general manager of Q-Chem I since 2011. He has also been Q-Chem I’s production manager and operations manager from 2004 to 2008. He is seconded to Q-Chem I as a vice president of CP-Chem. While at CP-Chem,
he has held various management positions. He gained a bachelor of science degree in chemical engineering from
the University of Missouri, USA. It should be noted that Mr. Sharp is due to return to the United States in 2014 to take
up a new assignment within CP-Chem. Accordingly, pursuant to resolutions adopted on 6 October 2013, the Board of
Directors of each of Q-Chem I and Q-Chem II has accepted Mr. Scott’s resignation as Deputy General Manager, such
resignation to take effect on 15 February 2014, and has appointed in his place Mr. Michael F. Zeglin, currently Executive
President – Saudi Polymers Company (a CP-Chem joint venture in the Kingdom of Saudi Arabia). Mr. Zeglin’s appointment as Deputy General Manager is scheduled to take effect as of 16 February 2014. He joins Q-Chem I and Q-Chem II
with 33 years of relevant experience in the refinery and petrochemical field with CP-Chem and its affiliates, including
significant experience in the GCC region. Mr. Zeglin holds a bachelor’s degree in Chemical Engineering from the University of Texas in the United States.
Mr. Michael Emerson, Finance Manager
Mr. Emerson is a CP-Chem secondee and has worked at Q-Chem I and Q-Chem II since 2011. He was appointed as
finance manager on 1 February 2011. He has 20 years’ experience in corporate finance, project finance, business
development, product line management and internal audit. Starting his career in Phillips Petroleum Company’s corporate headquarters in July 1993, his career has included broad experiences with increasing levels of responsibility
in various managerial roles located in the United States, Asia and the Middle East. He received a bachelor of science
degree majoring in accounting and finance, from the University of Dayton and a master’s degree from Purdue University at Lafayette, Indiana, USA.
Mr. G. Clark Meese, Marketing Manager
Mr. Meese is a CP-Chem secondee and has worked at Q-Chem I and Q-Chem II since 2010. He was appointed as marketing manager on 1 November 2009. From 2008 to 2010, he served as CP-Chem’s PE sales manager in the Western
Region of the United States. From 2001 to 2008, he served as CP-Chem’s PE sales manager in the Eastern Region
of the United States. From 2000 to 2001, he was the PE Molding and Durables business manager for CP-Chem. He
received a bachelor of science degree in business administration from Oklahoma State University, USA.
Mr. Stansbury Dur, Legal Manager
Mr. Dur is a Qatar Petroleum secondee and has worked at Q-Chem I and Q-Chem II since July 2007. Mr. Dur was
appointed as legal manager on 1 July 2007. Since 1997, he has served as an in-house lawyer for Qatar Petroleum, first
as senior counsel (projects) and then as associate general counsel (contracts). Since 1999, he has served as Q-Chem
I’s Board Secretary. He received a bachelor’s degree in economics from the University of Notre Dame, USA. Mr. Dur
also received a Juris Doctor from Louisiana State University, Paul Hebert Law Center and was licensed to practice law
in Louisiana in 1977 and became a member of Texas State Bar Association in 1978.
Mr. Stuart Dick, Internal Auditor
Mr. Dick is a Qatar Petroleum secondee and has worked at Q-Chem I since January 2000 and Q-Chem II since 2005.
Mr. Dick was appointed as Internal Auditor on 1 November 2000. Since 1996, he has served as financial and EDP
auditor for Qatar Petroleum. He received a bachelor’s degree in business administration from the University of New
Brunswick in 1976. He received a CMA from the Society of Management Accountants of Ontario and also received a
CFE from the Association of Certified Fraud Examiners in the United States.
Dr. Said K. Boshorbak, Administration Manager
Dr. Boshorbak is a Qatar Petroleum secondee and has worked at Q-Chem I and Q-Chem II since project inception.
Having begun his career as a school teacher, Dr. Boshorbak joined Qatar Petroleum in 1981 as Head of Training & Development in the Refinery, later becoming Assistant Administration Manager for Human Resources & Manpower Planning
and then Assistant Administration Manager. He was appointed as Q-Chem I’s Administration Manager in 1999. Dr.
Boshorbak received a Master’s Degree in Education Administration from Eastern New Mexico University at Portales,
New Mexico, USA, and in 1994 he received a Ph.D in Education Administration from the University of Leeds in the
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United Kingdom. Dr. Boshorbak is also the current Chairman of the Board for Qatar Academy, Wakrah and a Member
of the Board for Hemaya Security Services Company.
Q-Chem I’s management compensation is expensed to Q-Chem I’s financial accounts. There have been no significant changes in the composition of the senior management team during the last three years with the exception of
the appointment of Michael Emerson in 2011 and Scott Sharp as Deputy General Manager in 2011. No members of
the management team participate in any incentive schemes other than the annual bonus. There are currently no key
dependencies on any individual member of management.
Employees
As at 31 December 2012, Q-Chem I had 779 employees, of which 169 were baseload contractors.
Litigation
From time to time, Q-Chem I may be involved in or exposed to litigation or proceedings that arise in the ordinary
course of its business. Q-Chem I is not, and has not during the past 12 months been, involved in any governmental,
legal or arbitration proceedings (including any proceedings which may be pending or threatened of which Q-Chem
I is aware) which, may have, or have in the past had, a material effect on Q-Chem I’s business, financial position or
results of operations.
Notwithstanding that it is not deemed to be material, the Directors of MPHC make the following disclosure in the interests of transparency for the benefit of potential investors:
M.T. Bow De Feng
In June 2007, a claim was filed against Q-Chem I in Qatar’s Court of First Instance by the owners of the M.T. Bow De
Feng, a chemical tanker vessel registered in Hong Kong. In 2011, a three-judge panel ruled in Q-Chem I’s favour and
dismissed the vessel owners’ case. The vessel owners raised the issue to the appellate court, which subsequently
reversed the lower court’s decision, referring the matter back to the Court of First Instance for trial. The matter is
therefore scheduled to be re-litigated in the Court of First Instance.
The facts of the case are that on 21 February 2006, three liquid cargo tanks aboard the Bow De Feng were purged with
nitrogen at the Q-Chem I dock at MIC, Qatar before loading a cargo of 1-Hexene bound for Singapore. An inspection
conducted after the purge showed that the vessel’s No. 2S tank had ballooned and was damaged. The other two tanks
- Nos. 8S and 8P – were not damaged and were eventually loaded with 1-Hexene cargo. The cost of shipyard repairs
to the damaged tank No. 2S was approximately US$1,000,000 and, together with other related costs (in particular
demurrage and dead freight), this added a further US$500,000 to the total alleged loss. The ship owners claimed
damages in negligence against Q-Chem I of approximately US$1,500,000.
As at 30 November 2013, there has been no material update in this litigation.
63
BUSINESS OF Q-CHEM II
Overview
Q-Chem II was formed on 27 July 2005 as a joint venture between Qatar Petroleum and CP-Chem for the development, construction, ownership and operation of a world-scale petrochemical project in Qatar and commenced operations on 3 December 2010. The project facilities are located on two sites, at RLIC in the north-east of Qatar, and MIC in
the south-east of Qatar. The Ras Laffan site is the location of an ethylene cracker (the Cracker) with a design capacity
of 1,300,000 MTPA, which was developed in a joint venture with Qatofin. The Cracker is owned by RLOC which, in turn,
is owned by Q-Chem II (53.31%), Qatofin (45.69%) and Qatar Petroleum (1%). A 135 kilometre pipeline was constructed
(the "Pipeline") to transport the ethylene produced by the Cracker to MIC. The ethylene is then used (i) by Q-Chem II
as feedstock for a 350,000 MTPA HDPE unit and a 345,000 MTPA normal alpha olefins unit, (together the "Derivatives
Facilities"), and (ii) by Qatofin as feedstock for a new-build linear low density polyethylene unit. The Cracker toll processes, on a not-for-profit basis, ethane gas purchased by Q-Chem II and Qatofin from Qatar Petroleum.
Q-Chem II is a joint venture company owned 49% by the Company, 2% by QP and 49% by CPCIQH, a wholly owned
subsidiary of CP-Chem. Q-Chem II was established pursuant to a joint venture agreement for the development of the
Q-Chem II project and has an initial term of 25 years from the commencement of operations, with provision for extension for a further 15 years at the option of the shareholders. Upon expiry of the joint venture agreement, CPCIQH will
transfer all of its shares in Q-Chem II to Qatar Petroleum and Qatar Petroleum shall be obliged to pay CPCIQH the net
book value of such shares in accordance with the terms of the joint venture agreement.
The Cracker was formed as part of the Q-Chem II project in a joint venture between Q-Chem II, Qatofin and Qatar
Petroleum. The Cracker is owned 53.31% by Q-Chem II, 45.69% by Qatofin, and 1% by Qatar Petroleum. The Cracker
was established primarily to take feedstock of ethane from Qatar Petroleum and to process it into ethylene for the purposes of providing Q-Chem II (and Qatofin) with ethylene feedstock. The allocated capacity for the ethylene feedstock
produced by the Cracker is 53.85% to Q-Chem II and 46.15% to Qatofin.
The Cracker, the Derivatives Facilities and the Pipeline were built under three separate EPC contracts. Q-Chem II uses
CP-Chem’s proprietary technology in its Derivatives Facilities. These are well-established, industry leading processes.
Ethylene technology for the Cracker was supplied by Technip France.
Q-Chem II acts as the operator of the Cracker and Qatar Petroleum operates the Pipeline through which ethylene is
transported to the Derivatives Facilities which were built on a site adjacent to the Q-Chem I facility thus enjoying operational synergies with Q-Chem I. Such synergies are achieved by Q-Chem I acting as operator of Q-Chem II thereby
reducing operating costs and by the sharing of certain common facilities in order to minimise capital costs. In addition
to the cost savings relative to a stand-alone operation, integration of the management and operations with Q-Chem
I provides Q-Chem II with the benefit of the operating and management expertise of the management and staff currently operating Q-Chem I.
In October 2005, Q-Chem II created Q-Chem II Distribution Company, a wholly-owned subsidiary of Q-Chem II.
Q-Chem II engages in the sale and distribution of all of Q-Chem II’s products through agency agreements with Muntajat and CPCIS. It is also responsible for leasing storage facilities worldwide. Q-Chem II Distribution Company commenced operations in December 2010.
Q-Chem II represents an important further step to consolidate and augment Qatar’s position as a leading regional
producer and exporter of petrochemicals. It also assists in further monetising, through a value-adding enterprise,
Qatar’s gas reserves.
The year ended 31 December 2010 saw Q-Chem II ramp up its production and commercial production activity in its
complex and in the year ended 31 December 2011 saw Q-Chem II experience its first full-year of operational production.
Location
Q-Chem II’s operations are located at MIC which is located approximately 40 kilometres south of Doha and covers
an area of approximately 43 square kilometres. The MIC site is also shared by Qatalum, QAPCO, QAFCO, Qatar Steel,
QAFAC, Qatar Shipping Company, QALCO, QPPC, Milaha, Qatofin, Qatar Acids, Q-Chem I and QVC.
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The Cracker is located at RLIC which is located approximately 80 kilometres north of Doha and covers an area of
approximately 106 square kilometres. The RasGas and QatarGas liquefied natural gas projects, which together form
the foundation of Qatar’s natural gas industry, are located within this industrial city, as are the Ras Laffan Power and
ORYX GTL projects. The Cracker provides Q-Chem II with ethylene feedstock through a pipeline from the Cracker at
RLIC to the Q-Chem II complex at MIC.
Project Participants
Qatar Petroleum was established in 1974 as a national corporation and is wholly owned by the State. It is responsible
for all oil and gas industry processes in Qatar, including exploration and drilling for oil, natural gas and other hydrocarbon substances, production, refining, transport and storage of the aforementioned substances and any of their
derivatives and by-products, as well as trading in, and the distribution, sale and export of these substances.
CP-Chem, the parent company of CPCIQH, is owned equally by Chevron U.S.A. Inc., an indirect wholly-owned subsidiary of Chevron Corporation, and by certain wholly-owned subsidiaries of Phillips 66. PC-Chem is one of the largest
petrochemical companies in the world. It has 42 manufacturing and research facilities in eight countries, including
some of the world’s largest polyethylene units at its Pasadena and Cedar Bayou chemical complexes in the United
States, as well as world scale NAO capacity at Cedar Bayou, Texas, USA. It also has units producing polyethylene,
various other polymers and basic petrochemicals (such as ethylene, styrene, benzene, etc.) in plants in other locations
in the United States and around the world.
Q-Chem II’s Competitive Strengths
Q-Chem II believes that its business is characterised by the competitive strengths that are highlighted below and that
these competitive strengths will enable Q-Chem II to successfully implement its strategy and continue its growth.
Strong shareholder support
Q-Chem II benefits from having shareholders who have extensive knowledge and experience in the petrochemicals
industry bringing with it proven technology and substantial operating experience. CP-Chem has over 50 years of
experience operating similar petrochemical plants all around the world while QP has over 30 years of petrochemical
operational experience through QAPCO. Qatar Petroleum, being a state-owned national petroleum company, has
shown its strong support for Q-Chem II through the provision of competitively priced feedstock to allow Q-Chem II to
compete as a low-cost producer on a global scale.
Geographic location
Q-Chem II’s geographical location in Qatar gives it proximity to a wide geographical market, covering most of Europe,
the Middle East and targeted Asian countries at a comparatively lower cost than some of its global competitors.
Q-Chem II’s location at MIC also allows it to take advantage of access to good quality port facilities for fast and reliable distribution of its products to market. Qatar is one of the most politically stable countries in the Middle East and is
rated AA/Stable by Standard & Poor’s and Aa2/Stable by Moody’s, reflecting its considerable financial and economic
strength.
The Cracker
Qatar Petroleum provides the Cracker with a long-term ethane gas feedstock competitive price advantage which is
supported by the significant gas reserves of the North Field and associated gas reserves of Dukhan. The Cracker mitigates the cyclical nature of commodity prices and provides Q-Chem II with a reliable source of ethylene feedstock.
Reliability and safety of operations
Q-Chem II complies with applicable environmental requirements required of petrochemical operations of this kind.
Q-Chem II has an excellent safety record and in the Company’s management’s view, safe operations means less downtime and a more productive operation contributing to stronger financial performance. For the year ended 31 December 2010, Q-Chem I and Q-Chem II were awarded the "Silver" award for safety by Qatar Petroleum for their success in
maintaining the safety of their employees. For the year ended 31 December 2011, Q-Chem I and Q-Chem II were again
recognised by Qatar Petroleum this time being awarded the "Gold" award.
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Strong brand recognition
Q-Chem II utilises the strong brand name recognition of the Marlex product which is recognised around the world as a
leading HDPE product in its class. Q-Chem II is therefore able to leverage from the significant goodwill that is attached
to the Marlex brand to increase demand for its HDPE products and leverage from CP-Chem’s extensive marketing
knowledge and experience.
Synergies and costs savings
Q-Chem II leverages off the significant infrastructure at MIC, resulting in low infrastructure costs. The State designated MIC as a hub for petrochemical and other industrial manufacturing process. The availability of purpose-designed infrastructure at MIC allows Q-Chem II to make cost savings on infrastructure that it would otherwise need
to construct thereby reducing its cost and increasing its margins. Q-Chem II shares in the use of certain assets and
services with Q-Chem I which enables both Q-Chem I and Q-Chem II to enjoy operational and capital cost savings
which contributes to lowering costs and increasing margins.
Continuity of personnel
Many of Q-Chem II’s senior management and operational personnel are secondees from either CP-Chem or Qatar
Petroleum who have been with Q-Chem II for a number of years. Q-Chem II therefore has the advantage of a continuity of well-trained and experienced personnel bringing to bear extensive management expertise and the knowledge
sharing of know-how accumulated through decades of experience. In particular, Q-Chem II personnel are able to
attend training and off-site sessions with personnel of other CP-Chem joint ventures around the world in order to share
and exchange operating knowledge and best practices.
Business and Strategy
The commercial and production operations of the Q-Chem II plant experienced its first year of full operations in the
year ended 31 December 2011. The operations began with a number of shutdowns including one in 22 June 2012
which resulted in 71 days of off-production which was attributed to corrections necessary for the initialization stage
of Q-Chem II’s operations. Similarly, the Cracker also experienced a material shut down on 23 December 2011, which
resulted in a seven day outage. While Q-Chem II has been able to divert any feedstock to Q-Chem I during any
outages, Q-Chem II’s management’s strategic aim at this early stage of operations is to ensure the continued reliability
and safe operations of both the Cracker and the Q-Chem II Derivatives Facilities.
A major focus of Q-Chem II management’s strategy is to improve the reliability of its operations to minimise shutdowns and outages. This includes a focus on ensuring that appropriate lessons are learned from those shutdowns and
outages which do occur from time to time. Q-Chem II’s management believes that this will help to ensure the continued efficient running of the Q-Chem II plant and, in turn, will enable Q-Chem II to continue to leverage the low cost
of ethylene provided by RLOC (which in turn benefits from price advantages from the provision of ethane from Qatar
Petroleum). Q-Chem I and Q-Chem II have benefitted from the significant goodwill attaching to the Marlex brand to
cement customer relationships throughout Europe, the Middle East and Asia. Q-Chem II also benefits from the unique
NAO processing technology for the production of NAO and Q-Chem II’s management intends to exploit Q-Chem II’s
position in the market as a low-cost producer of NAO to maximise shareholder returns.
Q-Chem II has identified the following key initiatives which it will focus on in order to achieve its strategic vision:
•
Maintain the reliability of its plant and production process to minimise any unscheduled shutdowns;
•
The implementation and finalisation of work carried out by the "Reliability Task Force" that was set up by Q-Chem
II immediately after the outages experienced designed to improve the reliability of the Q-Chem II plant;
•
Continue to deploy the latest technology to maintain efficiency in the production process and maintain margins; and
•
Maintain and continue to improve Q-Chem II’s Health, Environment and Safety Management Systems which defined
the practices and standards that facilitate safe operation of the facilities, employee health and public safety.
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Business
The business of Q-Chem II involves the ownership and operation of, in conjunction with Qatofin, the Cracker (an ethylene
processing unit), at RLIC and an ethylene pipeline linking the Cracker with the Derivatives Facilities at MIC. Q-Chem II
owns a majority interest in, and (through Q-Chem II) operates, a petrochemical complex located at MIC for the production,
marketing and sale of HDPE and NAOs as well as certain facilities that are shared by Q-Chem I and Q-Chem II. Q-Chem II
is the follow-on project to Q-Chem I. The Q-Chem I and Q-Chem II project sites are located adjacent to each other.
The Q-Chem II plant has been operating on a regular basis beyond its original name plate capacity for the period
ended 31 December 2012. As discussed above in the context of Q-Chem I, production in excess of name plate capacity is achieved not by exceeding the safe operating limits of any of the many components which comprise the plant,
but rather by upgrading and adding to such individual components such that the overall safe capacity of the plant as
a whole is increased beyond its name plate capacity. For the period between its commencement of operations and
the year ended 31 December 2011, the Q-Chem II plant has experienced some shutdown and outages. The name plate
capacity and the actual achieved capacity of Q-Chem II’s plants in aggregate for the years ended 31 December 2012,
2011 and 2010 is set out in the table below:
Design Name Plate Capacity (MTPA)
695,000
2010 Actual
2011 Actual
2012 Actual
Production (MT)
Production (MT)
Production (MT)
51,591
620,617
623,851
Products
MDPE and HDPE
Medium Density Polyethylene and High Density Polyethylene are prepared from ethylene through a catalytic production process. MDPE and HDPE are linear polymers. MDPE and HDPE have a slightly higher density than low-density
polyethylene (LDPE). Due to the absence of branching, MDPE and HDPE are stronger than LDPE and have a higher
chemical resistance than LDPE allowing them to withstand higher temperatures. MDPE and HDPE are used primarily in
molding applications to produce bottles, crates, toys and containers and can be extruded into pipes and films.
NAO
Normal alpha olefins and their derivatives are used extensively as polyethylene comonomers, plasticisers, synthetic
motor oils, lubricants, automotive additives, surfactants, paper sizing and in a wide range of specialty applications.
NAO is known for its high purity. Q-Chem II produces NAO in 1 fractions ranging from C4, C6, C8, C10, C12, C14, C16,
C18, C20-24, C24-28 to C30+.
Supply of Ethylene to QVC
QVC is principally supplied with ethylene by QAPCO pursuant to the Ethylene Supply Agreement. However, notwithstanding the Ethylene Supply Agreement, in 2013 QVC experienced additional demand for ethylene feedstock, caused
in part by reductions in supply from QAPCO due to the start-up of QAPCO’s new polyethylene plant. Qatar Petroleum
sought to address this by arranging for QVC to receive additional ethylene from RLOC. In April 2013, QVC entered into the
Additional Ethylene Supply Agreement with Q-Chem II and Qatofin which provided for the supply of up to 50,000 metric
tons of additional ethylene to QVC from RLOC. The Additional Ethylene Supply Agreement expires on 31 December 2013
and it is not proposed that it be renewed. QVC is currently in the process of negotiating alternative arrangements for the
supply to QVC of ethylene feedstock – principally from suppliers situated within the GCC region – and is highly confident
that, should it experience additional requirements for ethylene feedstock in 2014 and beyond, it will be able to procure
such ethylene feedstock on reasonable terms (including as to cost). However, there can be no guarantee in this respect,
and a risk inevitably exists that QVC may not be able to source the ethylene feedstock it requires on commercially
acceptable terms (or at all), which may cause QVC feedstock supply issues.
Feedstock Supply
The primary feedstock for the Cracker is ethane gas supplied by Qatar Petroleum (principally the Dolphin Gas Project and
the Al-Khaleej Gas Project) under a feedstock supply agreement with Qatar Petroleum at a competitive price based on a
contractually agreed priced in the feedstock supply agreement. The Cracker processes the ethane feedstock into ethylene
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which is then distributed by pipelines to the Derivatives Facilities of Q-Chem II (53.85% of total production) and to Qatofin
(46.15% of total production). Ethane purchased by Q-Chem II from Qatar Petroleum is converted into ethylene by RLOC
at cost and transferred back to Q-Chem II. Q-Chem II uses the ethylene as feedstock for its production of HDPE and NAO.
Process Description and Technical Summary
The following is a simplified flow diagram of RLOC and the Q-Chem II plants:
Ethylene
QP
Ethane
Ethylene
Cracker Unit
(Ras Laffan
Industrial
City)
Qatofin
NAO Unit
Q-Chem II
(Messaieed
Industrial
City)
Ethylene
Pipeline
NAO
1-Hexene
Polyethylene
unit
HDPE
Ethane (the Cracker)
Technology
The ethylene production technology for the Cracker was supplied by Technip France.
Process Description
The diagram below shows a general overview of the process flow scheme for the 1,300,000 MTPA Ethylene Plant that
is part of the Cracker.
Ethane Recycle
H2
Ethane
Feedstock
Cracking
Fumaces
Quench
Section
Cracked Gas
Compresser
Distillation
Section
Methane
Ethylene
C3/C4
C5+ Pygas
C9+
Fresh ethane feed is combined with the ethane recycle and mixed with steam. The resultant stream is directed to the
cracking furnaces, where it is thermally cracked at high temperature to produce ethylene, tail gas (methane and hydrogen) and a small amount of C3 and heavier material. The cracked gas from the furnaces is then cooled.
The cooled cracked gas is compressed, treated to remove remaining acid gases and dried. The treated and dried cracked
gas is then cooled with refrigerants and separated into tail gas, ethane recycle, ethylene product and a C3/C4+ stream
and hydrated pygas.
(i) Polyethylene (Polyethylene plant)
The primary raw material for polyethylene production is ethylene which is supplied directly to the Q-Chem II polyethylene derivative unit by pipeline from the Q-Chem II Cracker. The polyethylene is produced in a continuous operation
where ethylene polymerises in the presence of a catalyst. The polyethylene plant technology is based on the Chevron
Phillips loop slurry process designed to produce MDPE and HDPE. Q-Chem II sells HDPE under the Marlex polyethylene
brand that is licensed to Q-Chem II from CP-Chem.
Technology
The Polyethylene derivative unit was constructed using production and polyethylene processing technology from
CP-Chem under the Q-Chem II JVA and relevant technology licensing agreements. Q-Chem II continues to maintain and
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update the technology used in the production of polyethylene and operational best practices through regular business
support from CP-Chem including, but not limited to, regular off-site information exchange meetings.
Process Description
Linear polyethylene is made in a continuous operation in which ethylene polymer rises in the presence of a catalyst. Once
formed, the polymer (fluff) in the slurry is removed from the reactor and separated from the diluent by heating the slurry
to vaporise the diluents and unreacted monomers first in a high-pressure and then in a low-pressure flash system.
The fluff is transferred by a closed loop nitrogen transfer system to the finishing area where small amounts of chemical
additives are added to the fluff. The fluff is then melted in an extruder, pressured through a die plate and cut with pelletiser knife blades to produce pellets. The pellets are then screened to remove oversized and undersized pellets and
transferred pneumatically to the bagging line.
A distributed control system and programmable logic controllers control the entire operation. Advanced process control programming is also used to enhance quality and production. The flow diagram below illustrates the process for producing HDPE:
Ethylene
Reactor
System
Catalyst
Polymer
Separation
Extruder
Polyethelene
Diluent
(ii) Normal Alpha Olefins Plant
The NAO plant that is part of the Derivatives Facilities produces 11 different NAO fractions of varying carbon numbers:
C4, C6, C8, C10, C12, C14, C16, C18, C20-24, C24-28, and C30+.
Technology
The Polyethylene derivative unit was constituted using production and NAO processing technology from CP-Chem
under the JVA and relevant technology licensing agreements. Q-Chem II continues to maintain and update the technology used in the production of NAO and operational best practices through regular business support from CP-Chem
including, but not limited to, regular off-site information exchange meetings.
Process Description
The process flow for the production of NAOs using CP-Chem technology has four stages: (i) a compression stage,
where the pipeline ethylene is compressed to reactor pressure; (ii) a reaction stage, where, at the appropriate reactor
conditions, ethylene in the presence of triethylaluminum catalyst undergoes a growth and transalkylation reaction that
yields a catalytic distribution of alpha olefins; (iii) a stabilisation stage, when the alpha olefin products are separated
from unreacted ethylene and catalyst; and (iv) a distillation stage, where a series of distillation columns are used to
purify and separate the 11 NAO fractions.
The flow diagram below illustrates the process for producing NAO:
Ethane Recycle
C4
C6
C8
Ethylene
Reactor
System
Fractionation Section
C10
C10
C12
C14
Catalyst
C16
C19
C20-24
C24-28
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(iii) Utilities
The Cracker (Ras Laffan)
The Cracker plant uses electricity provided by Kahramaa, cooling seawater from RLIC via pipeline, fresh water supplied by RLIC, fuel gas (ethane) supplied by Qatar Petroleum, refrigerant grade propane supplied by RasGas via
a pipeline, together with nitrogen.
Derivatives Facilities
The Q-Chem II complex uses seawater for once-through cooling which is accessed through the Q-Chem I complex.
Fresh water for the closed loop cooling water system and industrial and domestic use is sourced from facilities of
Kahramaa.
Under the land lease agreement, Qatar Petroleum is responsible for ensuring that the necessary upstream infrastructure for the supply of electricity and water required for Q-Chem II’s operations is installed by the appropriate governmental entities.
The Q-Chem II complex is tied in to the Qatar Petroleum fuel gas distribution network, and fuel gas for general fuel
purposes is supplied pursuant to the Fuel Gas Supply Agreement.
Nitrogen is purchased for on-site use in the Q-Chem II complex from Gasal QSC. To the extent that there is any shortage of nitrogen, Q-Chem I, at times, may obtain such shortage from Q-Chem II.
(iv) Building and Facilities
The Cracker
The Cracker’s buildings include a main office building (with an integrated infirmary), a fire station, a control room
building with an integrated laboratory, a maintenance shop and garage, a mosque, all rolling stock, equipment and
furnishings. The Cracker has use of storage facility spheres sufficient to maintain approximately 19 hours of production
and 8,000 tonnes of ethylene product storage and 3,600 MT of ethane storage. The hydrogenated pygas produced
as by-product in the Cracker is stored in an approximately 6000 MT shipping tank in the Cracker’s premises. The
hydrogenated liquid pygas is then periodically loaded into ships via the 12 km pipeline to the port and the loading arm
at the liquid products berth at the port facilities at RLIC owned by Qatar Petroleum and operated by QatarGas where
it is exported and sold.
Derivatives Facilities
The Q-Chem II complex consists of buildings including a control building, chemical storage capable of storing approximately 27 days of HDPE production and separate storage tanks for all 11 NAO fractions able to hold approximately 45
days of NAO production levels of each fraction and a capital spare warehouse. Q-Chem II uses the same berth and
marine dock as Q-Chem I for the export both HDPE and NAO products. Q-Chem II has an independent waste and
storm water treatment system on Q-Chem I’s site which provides the opportunity to share personnel costs associated
with operating the adjacent units. Pipelines also exist and in particular, the pipeline from the Q-Chem II complex to
the Cracker which is operated by Qatar Petroleum. The Q-Chem II site does not have direct marine access and utilises
Q-Chem I’s site to obtain once-through cooling seawater.
(v) Common Facilities
One of the key reasons for locating the Derivatives Facilities at MIC was to enable Q-Chem II to obtain synergies from
sharing certain assets and operations with Q-Chem I, including operating and capital cost savings, logistical advantages, and the benefit of leveraging off Q-Chem I’s operating experience. Please see page 134 of this Prospectus for
further details regarding the Common Facilities.
Q-Chem I also provides Q-Chem II operation, maintenance, administrative and business services that are necessary or
desirable for the operation and maintenance of the Q-Chem I Common Facilities, Q-Chem II Common Facilities and the
70
Derivatives Facilities. The agreement also provides for the processing by Q-Chem I of purge gas produced by Q-Chem II
on a tolling basis. All costs expended by Q-Chem I in the performance of its role as operator or administrator under such
agreements are reimbursed by Q-Chem II on a full cost recovery basis.
Plant Operations and Maintenance
Operator
Q-Chem II is responsible for, with assistance of personnel from Q-Chem I, the operation and management of the
Cracker and the Derivatives Facilities in accordance with an annual operating program approved by the RLOC and
Q-Chem II boards of directors, respectively.
Q-Chem I and Q-Chem II perform all the operating and maintenance services (including administrative services) at
the Cracker that Q-Chem II is responsible for and except in relation to certain administrative services, the personnel
required to perform these services are employees of Q-Chem II.
Q-Chem I performs all operating and maintenance services and administrative services for the Derivatives Facilities.
Full-time employees fill key operational positions in Q-Chem I and Q-Chem II, with contract labour for temporary or
non-critical positions. RLOC does not have any employees.
The chart below illustrates the legal relationship between the parties:
Operating Arrangements
Q-Chem I
Q-Chem II Derivative
Units Operating agreement
Cracker administrative
Services Agreement
Q-Chem II
Cracker Operating Agreement *
RLOC
*Qatar Petroleum and Qatofin were the other parties to the Cracker Operating Agreement
Plant Availability and Maintenance
Both the Cracker and the Derivatives Facilities are designed to operate 24 hours per day, except for scheduled and
unscheduled downtime. The plant production based on expected availability levels (after allowance for downtime) of
8,000 hours per year (91.3%) is 350,000 MTPA of HDPE and 345,000 MTPA of NAO.
In addition, both the Cracker and the Derivatives Facilities budget for scheduled plant turnarounds every four years,
when major maintenance work will be conducted on all process units. The estimated duration of each turnaround is
approximately 45 days. Regular tests and inspection programmes are undertaken to prevent unplanned failures of
equipment and production outages. Full-time staff perform such tests and inspections, as well as daily maintenance
functions. The Cracker has experienced certain operational challenges since commencement of operations that has
created feedstock supply issues for the Derivatives Facilities. In response to these operational issues at the Cracker,
RLOC management established an internal task force known as the "Reliability Task Force" to investigate and look into
the best ways in which to improve and resolve reliability issues. It is expected that during the course of 2013, the majority of the recommendations of the Reliability Task Force will have been addressed. The Reliability Task Force comprises
20 employees including a dedicated project manager.
The Derivatives Facilities have also experienced operational challenges since commencement of their operations. In particular, on 22 June 2012, the NAO Unit was shut down for a period of 71 days. The ability of Q-Chem I and Q-Chem II to
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divert feedstock for use, as appropriate, in either the Q-Chem I plant or the Q-Chem II plant is advantageous to the efficient running of both plants. Since then the operation of the Q-Chem II plant has been reliable. The Company’s management considers these as initializing issues associated with the commencement of operations. For scheduled shutdowns,
the ordinary turnaround time is approximately 45 days for Q-Chem II.
The table below shows the scheduled and unscheduled shutdown for Q-Chem II for the years ended 31 December
2012 and 2011:
Q-Chem II shutdown details for 2011 and 2012
Start date
End date
Days
20-Feb-11
23-Feb-11
4
15-Mar-11*
22-Mar-11
8
2-Apr-11*
14-Apr-11
13
17-Apr-11*
19-Apr-11
3
14-Jul-11
26-Jul-11
13
26-Jul-11*
05-Aug-11
11
16-Oct-11*
23-Oct-11
8
26-Dec-11
30-Dec-11
5
29-Dec-11*
30-Dec-11
3
20-Jan-12
22-Jan-12
3
02-Jan-12
17-Feb-12
16
26-Feb-12
27-Feb-12
2
19-Jun-12
20-Jun-12
2
23-Jun-12*
31-Aug-12
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21-Oct-12
22-Oct-12
2
02-Dec-12*
04-Dec-12
3
* NAO shutdown. All other shutdowns were PE shutdowns. All shutdowns were unscheduled.
Product Storage and Logistics
The production processes are supported by storage facilities suitable for maintaining production rates during temporary interruptions in operations. The Cracker incorporates storage for ethane feed gas, ethylene production, and
co-product production with the following capacities (at maximum production rates):
The Cracker has a storage capacity for ethane of approximately 19 hours at full production rate and ethylene at 8,000
MT. The Cracker can also store up to 472 barrels of C3/C4 co-products and 7,000 MT of C5+ co-products. Ethylene produced by RLOC is transported to the Q-Chem II and Qatofin facilities at Mesaieed via a pipeline. The C3/C4
co-products are sold to the Dolphin Project (delivery via a pipeline) or recycled back to the furnaces as cracking feedstock. The C5+ co-product is sold to markets outside of Qatar and the liquid products berth at RLIC’s port facility is
used to export the C5+ co-product.
The Q-Chem II plant has the capacity to store 45 days’ worth of NAO products (all 11 fractions) at full production rates.
The Q-Chem II plant can also store 27 days’ worth of HDPE at full production rates. Q-Chem II shares storage facilities
overseas with Q-Chem I and these are currently located in Belgium, Spain, Italy, Singapore and five locations spread
across China. All HDPE production is pelletised with 80% of HDPE production bagged and stored in freight containers
for shipment from the dock, while the remaining 20% is bulk loaded. Europe is the primary market for the bulk-loaded
product. Portions of this market require different packaging and the product is packaged upon receipt in Europe. The
NAO products are highly specialised and specialist vessels are used to transport the product which are loaded in liquid
form through hoses at the dock.
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Marketing
CP-Chem has a strong, well-established and recognised global marketing organisation with a number of sales personnel working from offices in a variety of locations. The marketing and sales function for NAO within CP-Chem is
managed on a global basis, consistent with the nature of the market. With the addition of Q-Chem II, this team was
reinforced with added sales and technical service personnel in Europe and China. In addition to its own sales force,
CP-Chem maintains an extensive network of agents worldwide who sell product into smaller countries/markets.
HDPE
Q-Chem II markets its HDPE grades under the industry respected "Marlex" brand. Marlex polyethylene has been used
by customers in Asia and Europe since the 1960s. Over the years, consistently high quality product produced by the
world class particle form slurry loop reactor and superior sales and technical support around the world have made the
Marlex trademark the most recognised and respected name in the polyethylene industry. HDPE is sold mainly to the
European and Asian markets particularly in China.
NAO
Q-Chem II markets its NAO fractions under the brand AlphaPlus brand. NAO is a highly specialised product and few
manufacturers exist for the production of NAO. NAO is sold mainly to European and Asian (particularly Singapore)
markets.
Muntajat
On 4 November 2012, the Muntajat Decree was enacted as law in Qatar. The full extent of the Muntajat Decree’s impact
over the businesses of each of the Portfolio Companies is currently uncertain. Under the Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C. (known as
Muntajat) – has been mandated by the State to be exclusively responsible for the sale, purchase and marketing of certain
Regulated Products (as defined under the Muntajat Decree). The Regulated Products may in due course include certain
products produced by Q-Chem II. Accordingly, compliance with the requirements of the Muntajat Decree is likely to have
an impact over the current and historic marketing and offtake arrangements of Q-Chem II and may also require certain
third party consents from contractual or financial arrangements entered into where Q-Chem II is a party. The Muntajat
Decree is currently in its implementation stage and the full extent to which Q-Chem II will be affected is uncertain. Under
the Muntajat Decree, Q-Chem II will be required to pay a fee to Muntajat in relation to the marketing and offtake activities
undertaken by Muntajat on its behalf.
Competition
Q-Chem II competes with a number of petrochemical producers in the regional and global market. Q-Chem II categorises its competitors depending on the geography and product sold and can be summarised as follows:
HDPE
Compared with Q-Chem I, the HDPE produced by Q-Chem II is of a slightly different grade. However, Q-Chem II typically sees the same competitors in the same regional and global markets as Q-Chem I. As with, Q-Chem I, Q-Chem
II is competing with entities in the HDPE product market on a regional basis although Q-Chem II’s strategy is global in
nature. Q-Chem II mainly supplies HDPE to Europe and Asia and competes with both regional and domestic producers
in those markets as well as producers based in the Middle East who are exporting HDPE. In Europe, Q-Chem II considers Total, LyondellBasell and Dow to be among its main competitors. In Asia, Q-Chem II considers PTT and Exxon Mobil
to be among its key competitors, although Asia is a large market and diffrent players are active in, for example, China
as compared to South-East Asia. Q-Chem II also considers SABIC and Borouge to be the main competition producing
HDPE in the Middle East and exporting HDPE to outside markets including Europe and Asia. Currently, Q-Chem II does
not generally supply to the North American or Latin American markets.
NAO
Q-Chem II considers the competitive landscape for NAO products to be more concentrated in a smaller group of
competitors due to the specialised nature of the NAO product. These competitors are classified by Q-Chem II as competing with Q-Chem II on a global level as opposed to a regional basis as is the case for HDPE. Q-Chem II considers
Shell and Sasol to be among its main global competitors of the NAO global market.
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Health, Environment and Safety
Q-Chem II is required to meet the environmental standards of the Ministry of Environment. In addition, Q-Chem II is
required to meet applicable World Bank Standards and is required to operate in compliance with its own environmental management plan. Such standards address all environmental media – water, solid waste, air emissions, noise, spill
prevention and control, as well as the on-going monitoring of plant performance.
Non-hazardous wastes, consisting of domestic solid wastes, process solid wastes and sludge from wastewater are
disposed of in accordance with applicable law. Hazardous wastes are treated to a non-hazardous state or incinerated
in accordance with applicable law.
Environmental Permits
The State requires that new construction projects must receive a consent to operate, approved by the Ministry of
Environment, prior to the commencement of a new project. Such consent is subject to annual renewal. Consent to
operate for planned projects is sought through submission of an Environmental Impact Assessment (EIA). Q-Chem I’s
latest consent to operate was obtained on 19 February 2013. Q-Chem II is required to renew its operating license on
an annual basis from the Ministry of Environment. Q-Chem II’s existing operating license expires on 18 February 2015.
Safety
Q-Chem II’s facilities are required to comply with internationally accepted standards and codes of practice relating to
safety, health and emergency response activities. The Cracker includes its own fire station. In the case of the Derivatives Facilities, the existing Q-Chem I fire station is shared. These fire stations are equipped with fire prevention and
firefighting equipment and alarm systems. Emergency systems to maintain control and safety in the event of the failure
of power or other important utilities are also included. The plant designs are based on the applicable and up to date
CP-Chem design standards incorporating such additional features as automatic water deluge, explosion-proof equipment, underground fire-water heaters, extra steel support and equipment shielding.
Safety of personnel, equipment and sites is a primary business objective of Q-Chem I and Q-Chem II, and a line of
responsibility extends to all levels of management, operation, contractors and subcontractors. Q-Chem I and Q-Chem
II’s Health, Environment and Safety Management System, which defines the practices and standards that facilitate safe
operation of the facilities, employee health and public safety, has been adapted for use in the Cracker and Derivatives
Facilities. Q-Chem II sees safe operations as resulting in less downtime and a more reliable and productive operation
contributing to stronger financial performance.
For the year ended 31 December 2010, Q-Chem I and Q-Chem II were awarded the "Silver" award for safety by Qatar
Petroleum for its success in maintaining the safety of its employees. For the year ended 31 December 2011, Q-Chem I
and Q-Chem II were again recognised by Qatar Petroleum by being awarded the "Gold" award.
Below is a table showing, for the periods ended 31 December 2012, 2011 and 2010, the number of recordable injuries and the recordable injury rate (RIR), an industry standard safety indicator for industrials, based on United States
Department of Labor, Occupational Safety & Health Administration (OSHA) standards:
Period ended 31 December
Number of recordable injuries
Recordable injury rate (RIR)
2012
7
0.20
2011
1
0.06
2010
2
0.13
A recordable injury is generally defined as an occupational injury or illness that is sustained on-site illness that requires
medical treatment that is considered more than simple first-aid. Q-Chem I and Q-Chem II consolidate their safety
record keeping and produce data on a consolidated basis for all of their operations. In 2012, Q-Chem I and Q-Chem
II changed the basis of their recordable injuries categorisation. Whereas in the period ended 31 December 2011 and
2010, both Q-Chem I and Q-Chem II only recorded recordable injuries occurring to employees and baseload contractors, from the period ended 31 December 2012 onwards, both Q-Chem I and Q-Chem II began recording recordable
injuries that have occurred to all persons within the Q-Chem I and Q-Chem II complex.
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Insurance
Q-Chem II, via insurance policies in many cases jointly insuring it and Q-Chem I, and RLOC, via separate insurance
policies, each maintain a comprehensive insurance programme to cover damage to their respective facilities, as well
as liabilities to third parties. In addition, Q-Chem II carries business interruption insurance to cover losses arising due
to damage to the Derivatives Facilities, the Q-Chem I Common Facilities, the Cracker, the Pipeline, and third party
onshore facilities that it does not own but which supply feedstock to it or RLOC, such as the Dolphin Gas Project’s
fractionation plant, . RLOC does not maintain business interruption insurance coverage because it is not a revenue
generating entity. Instead, RLOC maintains property damage insurance coverage which the management of Q-Chem
II considers to be comprehensive for RLOC's business activities. The insurance policies which Q-Chem II and RLOC
have in place are subject to maximum limits which are in compliance with the requirements of Q-Chem II’s financing.
The limit of Q-Chem II’s business interruption and property damage insurance is set at US$1,915,000,000 (with a sublimit of US$250,000,000 where the event in question is related to Q-Chem II’s feedstock supplier’s onshore facilities).
Type of Coverage
Insured Events
Property Damage
"All risk" of physical loss or damage to the Cracker and Derivatives facilities, excluding, however, damage caused by terrorism.
Business Interruption (RLOC does not maintain business interruption insurance coverage due its non-revenue generation status)
Loss resulting from the operation of an insured peril under the Property Damage insurance that leads to a disruption to anticipated gross
earnings (net sales less expenses, such as feedstock costs, that do not
continue)..
Third Party Liability
Third party liabilities arising out of all operations, including contractual
liability, product liability and pollution liability.
Terrorism
Covering property damage and, as respects Q-Chem II, resulting business interruption losses arising from a terrorist act.
Cargo
Damage to cargo shipments and product while in storage following
shipment.
Management
Board of Directors
The Board of Directors of Q-Chem II is comprised of the same members of the Board of Directors as Q-Chem I, further
details of whom are set out on page 61 of this Prospectus. Q-Chem II benefits from the experience and skill of the
Board of Directors for Q-Chem I.
Management
The senior executive management of Q-Chem II are comprised of the same members as Q-Chem I, further details of
whom are set out on pages 61 to 62 of this Prospectus. Q-Chem II benefits from the experience and skill of the senior
executive management of Q-Chem I in relation to the operation and maintenance of the Q-Chem II plant.
Employees
As at 31 December 2012, Q-Chem II had 308 employees, of which 104 were baseload contractors, while a further 259
employees, of which 37 were baseload contractors, are employed at the Cracker complex.
Litigation
From time to time, Q-Chem II may be involved in or exposed to litigation or proceedings that arise in the ordinary
course of its business. Q-Chem II is not, and has not during the past 12 months been, involved in any governmental,
legal or arbitration proceedings (including any proceedings which may be pending or threatened of which Q-Chem
II is aware) which, may have, or have in the past had, a material effect on Q-Chem II’s business, financial position or
results of operations.
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BUSINESS OF QVC
Overview
QVC is a Qatari joint stock company formed in 1997 to engage in the business of producing and selling Caustic Soda,
EDC and VCM in a petrochemical project based at MIC. QVC was established pursuant to a joint venture agreement
between Qatar Petroleum, QAPCO, Arkema and Norsk Hydro (each of Arkema and Norsk Hydro having since transferred its equity interest in QVC to Qatar Petroleum). QVC began commercial operations in 2001 and its shareholders
are the Company (55.2%), QAPCO (31.9%), a Qatari corporation in which Qatar Petroleum holds indirectly a majority
interest and QP (12.9%). The first bill of lading was dated 2 May 2001. Prior to 11 November 2013, QVC was operated as
a joint venture between MPHC, QAPCO and Arkema, one of France’s leading chemicals producers, which held 12.9%
of the issued share capital of QVC. Arkema’s interest in QVC was transferred to QP with effect from 11 November 2013,
whereupon Arkema ceased to be a party to the joint venture arrangements in relation to QVC. As at the date of this
Prospectus, QAPCO, QP and the Company are the parties to the joint venture arrangements in relation to QVC. The
Company’s management believes that the sale of Arkema’s shares in QVC to QP has not resulted and is not likely to
result in a material change in the operational or financial performance of QVC. Moreover, it is envisaged that Arkema
will continue to play a role in supporting QVC whereby three Arkema personnel currently employed within QVC’s operational team are anticipated to be retained until 2015.
The availability of existing buildings, facilities and services from QAPCO provided the opportunity to limit QVC’s
investment cost and to lower operating costs for both QVC and QAPCO through higher utilisation of QAPCO’s utilities
capacity. Consequently, the QVC plant includes a high degree of integration with QAPCO. QVC and QAPCO share
utility, canteen, healthcare and fire-fighting systems.
The QVC plant comprises four major units: a chlorine unit producing approximately 370,000 MTPA of Caustic Soda for
export and local sales, an EDC unit producing approximately 180,000 MTPA of EDC for export, a VCM unit producing
approximately 355,000 MTPA of VCM, and a power unit. The primary feedstock for the QVC plant is ethylene, which
is principally supplied by the adjoining QAPCO plant with the remaining requirement being imported, as required.
Qatar Petroleum supplies fuel gas for the QVC power plant and QVC’s other energy requirements. QVC’s other major
feedstock, salt, is imported, principally from India. The QVC plant is state-of-the-art, using the latest cost-effective and
proven technologies (such as bipolar membrane for its chlorine unit).
Qatar Petroleum provides QVC with access to and the right to use a portion of the berth at Mesaieed adjacent to QAPCO
battery limits (Berth number 19). QVC has specifically modified its port jetty in order to satisfy QVC’s import requirements
of salt and enable QVC to export its Caustic Soda, EDC for export, and VCM production. The ethylene import requirements
of QVC additional to the ethylene supplied directly by QAPCO are supplied by ship to QAPCO’s ethylene storage units.
Historically, QVC has been able to run its plant at full capacity and find customers for its products even when the
Caustic Soda, EDC and VCM markets have experienced disturbance factors including over-capacities and downward
demand trends. Logistics is an important component of the profitability in the bulk chemical commodities sector.
Location
The QVC plant is located at MIC, 40 kilometers south of Doha, on approximately 321,280 square metres of land leased
from Qatar Petroleum. QVC’s operations are located at MIC and covers an area of approximately 43 square kilometres.
The MIC site is also shared by Qatalum, QAPCO, QAFCO, Qatar Steel, QAFAC, Qatar Shipping Company, QALCO,
QPPC, Milaha, Qatofin, Qatar Acids, Q-Chem I and Q-Chem II.
Project Participants
Qatar Petroleum was established in 1974 as a national corporation and is wholly owned by the State of Qatar. It is
responsible for all oil and gas industry processes in Qatar, including exploration and drilling for oil, natural gas and
other hydrocarbon substances, production, refining, transport and storage of the aforementioned substances and any
of their derivatives and by-products, as well as trading in, and the distribution, sale and export of these substances.
QAPCO produces ethylene, low-density polyethylene and other petrochemical products, including sulphur, at its petrochemical complex at Mesaieed from low-cost ethane-rich gas coming from the adjacent Qatar Petroleum facilities. A
portion of QAPCO’s ethylene production is sold to QVC as feedstock for production of EDC and VCM.
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QVC’s Competitive Strengths
QVC believes that its business is characterised by the competitive strengths that are highlighted below and that these
competitive strengths will enable QVC to successfully implement its strategy and continue its growth.
Strategic Importance of QVC
QVC’s location in Qatar, an AA rated country by S&P and Aa2 rated by Moody’s, and the involvement of Qatar Petroleum
and QAPCO, both well known to international project finance markets, are key investment considerations. Through
Qatar Petroleum, the State of Qatar has a 30-year history of oil exports, as well as a very successful track record in
diversifying its businesses – examples include Qatalum, QAPCO, QAFCO, QAFAC, Qatargas, RasGas, Q-Chem and
Oryx GTL. Using the feedstock of low-cost gas from the North Field (the largest single non-associated gas field in the
world), the diversification has been a relative success. QVC is an important part of the country’s diversification strategy and benefits from the contractual structure of QVC and the commitment of the Company, Qatar Petroleum and
QAPCO to the success of QVC.
Low-Cost Producer
Due to low energy costs, competitively priced ethylene and a low cost of production, QVC’s management believes
that it is one of the lowest cost producers in the world for EDC and VCM. The Company’s competitive position is
further strengthened through the freight advantage it has over European and US competitors in relation to its targeted markets for Caustic Soda, EDC and VCM in the Asia / Pacific region being geographically closer to those target
markets than its competitors.
Experienced Management and Established Technology
Qatar Petroleum and QAPCO have strong track records in operating similar petrochemical plants. QAPCO, for example,
has been operating its own plant since 1981, including completing a major expansion in 1997. QVC also benefits from
the technical, commercial and management expertise made available by Qatar Petroleum and QAPCO who provide
personnel, utilities and infrastructure to QVC. The integration of QVC with existing facilities at MIC, including the
QAPCO facility and the port and berths, provides additional benefit to QVC. QVC uses mature and proven technology
based on Uhde and Hoechst technology. Moreover, notwithstanding the recent sale by Arkema of its shares in QVC
to QP, it is envisaged that Arkema will continue to play a role in supporting QVC whereby three Arkema personnel currently employed within QVC’s operational team are anticipated to be retained untill 2015.
Competitively Priced Feedstock
Qatar’s gas reserves are the third largest in the world, and the North Field is the world’s largest single non-associated
gas field. Contractually, QVC currently sources approximately 140 KTA of its ethylene requirements from QAPCO
under the competitively structured Ethylene Supply Agreement. QVC and Qatar Petroleum have entered into a gas
supply agreement under which, subject to QVC’s requirements, Qatar Petroleum delivers or causes to be delivered to
QVC up to 45,000 MMBTU of fuel gas per day. This means that QVC has low-cost electricity which is a major advantage over its competitors allowing QVC to enjoy higher margins than its competitors. The remaining raw material in
the production process is salt which is readily available on the global market particularly from India which is in close
proximity to Qatar.
Ethylene Feedstock and Gas Supply
QVC and QAPCO have entered into an Ethylene Supply Agreement, pursuant to which QAPCO has agreed to sell to
QVC an annual volume of 140,000MT of ethylene to be used as feedstock for the QVC plant, at competitive pricing.
QVC’s contractual amount represents approximately 20% of QAPCO’s ethylene plant capacity. QVC’s current production levels means that it requires approximately 220,000MT of ethylene feedstock annually. While 140,000MT is
provided by QAPCO through QVC’s ethylene supply agreement with QAPCO, the remaining 60,000 - 80,000MT has
been historically obtained through QAPCO or imported through the market. Production from the QAPCO ethylene
unit, and the ability to import ethylene as required provides QVC with an ethylene supply. However, notwithstanding
the Ethylene Supply Agreement, in 2013 QVC experienced additional demand for ethylene feedstock, caused in part
by reductions in supply from QAPCO due to the start-up of QAPCO’s new polyethylene plant. Qatar Petroleum sought
to address this by arranging for QVC to receive additional ethylene from RLOC. In April 2013, QVC entered into the
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Additional Ethylene Supply Agreement with Q-Chem II and Qatofin, which provided for the supply of up to 50,000
metric tons of additional ethylene to QVC from RLOC. The Additional Ethylene Supply Agreement expires on 31 December 2013 and it is not proposed that it be renewed. QVC is currently in the process of negotiating alternative arrangements for the supply to QVC of ethylene feedstock – principally from suppliers situated within the GCC region – and
is highly confident that, should it experience additional requirements for ethylene feedstock in 2014 and beyond, it
will be able to procure such ethylene feedstock on reasonable terms (including as to cost). However, there can be no
guarantee in this respect, and a risk inevitably exists that QVC may not be able to source the ethylene feedstock it
requires on commercially acceptable terms (or at all), which may cause QVC feedstock supply issues. See "Supply of
Ethylene to QVC" for further details.
Good Operational History
The daily operation of QVC’s plant benefits from the experience of well-trained and highly skilled personnel. QVC has
experienced reliable operational performance with its plant since commencement of operations regularly running at
or above design levels (the chlorine/EDC plant has historically been capable of operating at 128% of design capacity
and the VCM plant at 160% of design capacity) allowing QVC, with the availability of feedstock, to sell more of its products and take advantage of higher product prices, when available.
Business and Strategy
QVC’s strategic vision is to be amongst the preferred suppliers of vinyl intermediaries and Caustic Soda to existing and
new customers. QVC aims to maximise returns for its shareholders through the consolidation of the plant’s reliability
and production capacity. QVC remains committed to the possibility of further expansion of both its product portfolio
and the market where its products are sold while continuing to strive for the highest international safety and environmental standards.
QVC has identified the following key initiatives which it will focus on in order to achieve its strategic vision:
•
Maintain the reliability of its plant and production process to minimise any unscheduled shutdowns.
•
Maintain efficiency in the production process and maintain margins.
•
Secure additional domestic feedstock supplies in order to increase production capacity.
•
Maintain and continue to improve QVC’s Health, Environment and Safety Management Systems which defined
the practices and standards that facilitate safe operation of the facilities, employee health and public safety.
Business
QVC owns and operates a plant, located at MIC, which comprises four major units - a chlorine unit producing approximately 370,000 MTPA of Caustic Soda for export, an EDC unit producing approximately 180,000 MTPA of EDC for
export, a VCM unit producing approximately 355,000 MTPA of VCM, and a power unit. The primary feedstock for the
QVC plant is ethylene, which is primarily supplied by the adjoining QAPCO plant with the remaining requirement being
imported. Qatar Petroleum supplies the fuel gas necessary for the QVC plant’s energy needs. The other major feedstock, salt, is imported, principally from India. The plant is state-of-the-art, using the latest cost-effective and proven
technologies (such as bipolar membrane for its chlorine unit).
QVC also benefits from low cost available utilities and services through its integration with the QAPCO plant, and from
infrastructure already present at MIC, including berth and port services made available by Qatar Petroleum.
Several relatively minor modifications in the form of ‘de-bottlenecking’ have successfully enabled the QVC plant to
comfortably operate beyond its original name plate capacity. As discussed above in the context of Q-Chem I and
Q-Chem II, production in excess of name plate capacity is achieved not by exceeding the safe operating limits of any
of the many components which comprise the plant, but rather by upgrading and adding to such individual components such that the overall safe capacity of the plant as a whole is increased beyond its name plate capacity. The name
plate capacity and the actual achieved capacity of QVC’s plants in aggregate for the years ended 31 December 2012,
2011 and 2010 is set out in the table below:
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Product
Design Name Plate Capacity (MTPA)
2010 Actual
Production (MT)
2011 Actual
Production (MT)
2012 Actual
Production (MT)
Chlorine production
265,000
341,000
345,000
328,000
VCM production
220,000
355,000
353,000
332,000
Sales EDC production
185,000
178,000
185,000
177,000
Caustic Soda production
285,000
367,000
371,000
353,000
Chlorine / EDC plant
Overall capacity
utilisation (1)
95.5%
96.2%
90.7%
VCM Plant
Overall capacity
utilisation (2)
91.4%
90.7%
85.3%
Chlorine/ EDC Plant
On stream factor (3)
97.0%
97.0%
94.9%
VCM Plant
On stream factor
94.9%
94.8%
94.3%
(3)
(1)
Overall capacity utilization Chlorine/EDC plant versus 128% of its initial design name plate capacity
(2)
Overall capacity utilization Chlorine/EDC plant versus 160% of its initial design name plate capacity
(3)
On stream factor based on 8760hrs per year
Products
Caustic Soda
The largest single end use market for Caustic Soda is pulp and paper. Organic uses for Caustic Soda cover a wide range
of end uses. Other end uses are inorganics, water treatment, soaps and detergents and textiles. Caustic Soda is also
a primary raw material for the production of alumina whose production is heavily concentrated among a few countries
and companies, which makes it significant in commercial aspects. Australia, a major producer of alumina, is the world’s
largest importer of Caustic Soda. The other markets are more diverse with more consumers and cover a larger geographic area. Caustic soda is easily transportable and is one of the major traded commodities in world markets.
EDC and VCM
Over 98% of all VCM and EDC that is produced globally is consumed in the manufacture of PVC. Currently, PVC
accounts for the second largest global demand for thermoplastics. It is a versatile plastic with a wide range of enduses. These range from long-term durable applications for the construction industry to medical applications involving
blood bags and prosthetic devices. As a result, global demand for PVC is primarily driven by the construction industry,
which is by far the largest consuming segment of PVC. Over 80% of global demand for PVC is in long term durable
applications for infrastructure development, such as pipe for water and sewer distribution to wire and cable, home
siding, windows, doors and flooring.
HCl
Hydrochloric acid ("HCl") is used in oilfield chemicals, household cleaning products, the production of gelatine and
other food additives and descaling. HCl is recycled in a specific unit process in order to generate EDC for the VCM
plant. HCl solution is produced from the by-product recovery unit; this HCl solution can then be commercialised and
sold on to customers.
Feedstock Supply
Ethylene
Currently, 140,000MT of ethylene is supplied on an annual basis by QAPCO to QVC under an Ethylene Supply Agreement
and, historically, QAPCO has been providing QVC with higher volumes every year. From a technical perspective, the QVC
plant is integrated with and benefits from the QAPCO plant. However, notwithstanding the Ethylene Supply Agreement,
in 2013 QVC experienced additional demand for ethylene feedstock, caused in part by reductions in supply from QAPCO
due to the start-up of QAPCO’s new polyethylene plant. Qatar Petroleum sought to address this by arranging for QVC
79
to receive additional ethylene from RLOC. In April 2013, QVC entered into the Additional Ethylene Supply Agreement
with Q-Chem II and Qatofin, which provided for the supply of up to 50,000 metric tons of additional ethylene to QVC
from RLOC. The Additional Ethylene Supply Agreement expires on 31 December 2013 and it is not proposed that it be
renewed. QVC is currently in the process of negotiating alternative arrangements for the supply to QVC of ethylene
feedstock – principally from suppliers situated within the GCC region – and is highly confident that, should it experience
additional requirements for ethylene feedstock in 2014 and beyond, it will be able to procure such ethylene feedstock on
reasonable terms (including as to cost). However, there can be no guarantee in this respect, and a risk inevitably exists
that QVC may not be able to source the ethylene feedstock it requires on commercially acceptable terms (or at all), which
may cause QVC feedstock supply issues. See "Supply of Ethylene to QVC" for further details. Any further ethylene needs
of QVC are purchased from other producers or from the spot market utilizing the QAPCO jetty and storage facilities for
imported ethylene. An ethylene pipeline connects QAPCO and RLOC.
Gas
QVC has its own power unit, which is fuelled by fuel gas supplied by Qatar Petroleum. QVC and Qatar Petroleum have
entered into a gas supply agreement under which Qatar Petroleum will supply gas to QVC, subject to QVC’s requirements. QVC has access to back-up power from the Kahramaa grid.
Salt
Annual consumption of salt by QVC is approximately 620,000 MTPA. Salt is delivered by sea in bulk ships from source
to a storage facility in the QVC plant at Mesaieed that has a design storage capacity of 50,000 MT. Currently, QVC’s
salt requirements are primarily imported from India and alternatively from Australia. Sources of supply are plentiful and
QVC’s strategy has been to enter into short-term and medium term contracts in order to minimise cost.
Process Description and Technical Summary
The following is a simplified flow diagram of the QVC plant:
Ethylene
QAPCO
Fuel gas
QP
Salt
Imported
Water
Kahramaa
VCM
Plant
355KTPA
Power
Plant
(130 MW)
EDC
Plant
(475 KTPA)
Electricity
Chlorine
Plant
340KTPA
Chlorine
340 KTPA
EDC
VCM
355 KTPA
395 KTPA
EDC
180KTPA
Solution
50% Caustic
740KTPA
(i) Caustic Soda
Production of chlorine and Caustic Soda requires high purity sodium chloride (commonly called salt) as a feedstock.
However, common salt is an ionic crystal that is approximately 60 weight percent chlorine and 40 weight percent sodium.
The two elements are separated by the electrolysis of brine to form chlorine gas and sodium hydroxide, (commonly called
Caustic Soda). Hydrogen, which is used as fuel at QVC, is also produced. Caustic soda can either be sold as a solid or in a
highly concentrated liquid. The QVC plant produces a 50 percent solution of Caustic Soda, which is a standard commercial
grade. Salt for this operation is imported as a solid. The most recent technological advance, bipolar membrane technology,
achieves higher efficiency in production and the QVC plant uses this efficient bipolar membrane technology.
(ii) EDC
The production of EDC is a catalytic reaction of chlorine with ethylene. A more complex oxychlorination step is used
to consume HCI and transform it into EDC suitable for the VCM unit.
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(iii) VCM
The production of vinyl chloride monomer (VCM) from ethylene and chlorine is a relatively simple two-step process.
First a catalytic reaction of chlorine with ethylene occurs to produce ethylene dichloride (EDC). EDC is then thermally
decomposed in a cracker to VCM. This process also co-produces anhydrous HCI. A third, more complex oxychlorination step is used to consume the HCI and balance the reaction. The process produces small amounts of unwanted
by-products such as higher boiling chlorinated compounds and vent streams containing chlorine, hydrochloric acid
and light gases which are routed to a by-product recovery unit. In addition, the oxychlorination reaction produces
water, which must be treated to remove chlorinated hydrocarbon and soluble organics. Thus, the VCM complex
includes incineration and water treating facilities to handle these by-products in an environmentally safe manner.
The three processes for the production of Caustic Soda, EDC and VCM are closely interconnected and can be illustrated and summarised in the flow diagram below:
Salt
Electricity
Chlorine
Caustic
Chlorine
EDC
Direct
(chlorination)
Ethylene
BDC
VCM Unit
BDC
Ethylene
Caustic soda
VCM
HCI
EDC
Oxychlorination
Oxygen
Utilities
Initially QVC received its required utilities through a Utilities Supply Agreement with QAPCO, but over time QVC has
installed its own utilities to meet additional demand and improve operating reliability. Currently, QAPCO provides
canteen, healthcare and fire services to QVC through a plant services agreement. QVC currently has its own sources
of utilities including steam, demineralised and fresh water access and a nitrogen production facility to increase its
independency and reduce its dependency from QAPCO as part of QVC’s strategy.
Buildings and Facilities
The QVC complex is highly integrated with QAPCO’s complex thereby assisting QVC in minimising its capital expenditure
and creating cost savings. The principal facilities consist of the EDC, VCM and Chlorine units as well as a power unit.
QVC’s complex also consists of facilities including a berth and dock (shared with QAPCO) and storage tanks for products and
feedstock, a dissolution unit and sea water treatment facilities. The majority of buildings and facilities are shared with QAPCO.
Common Facilities
Qatar Petroleum provides QVC with access to and the right to use Berth number 19 adjacent to QAPCO’s battery limits.
Berth number 19 can accommodate ships up to 11.5 metres in draft and 230 metres in length. Berth number 19 is used
by QVC for its export of Caustic Soda, EDC and VCM and its import of ethylene, when supplied from outside of Qatar,
and salt. QVC shares access to Berth number 19 with QAPCO (who uses it for the export of sulphur and ethylene).
QVC and QAPCO share a number of utilities including canteen, healthcare and fire-fighting systems which are set out
in the Utilities Supply Agreement and the Plant Services Agreement. QAPCO and QVC also share storage facilities. See
"Shared Services".
Plant Operations and Maintenance
Operator
QVC has its own team of highly trained and skilled personnel to operate the plant. However, under the Plant Services
Agreement, QAPCO personnel operates certain of QVC’s facilities, such as the VCM and EDC units, Caustic Soda and
ethylene storage loading/unloading facilities and the additional sea water pumps.
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Shared Services
Qatar Petroleum provides QVC with access to and the right to use Berth number 19 adjacent to QAPCO’s battery limits.
QVC entered into a land lease agreement with Qatar Petroleum pursuant to which Qatar Petroleum has leased the
plant site to QVC. The project site is the private property of the State of Qatar. Qatar Petroleum has been granted a
concession from the State of Qatar with respect to certain land which includes the project site. Pursuant to such concession, Qatar Petroleum is entitled to lease the project site to QVC.
QVC and Qatar Petroleum have also entered into a gas supply agreement, under which, subject to QVC’s requirements, Qatar Petroleum delivers to QVC up to 45,000 MMBTU of fuel gas per day.
Under the Plant Services Agreement, QAPCO personnel operates certain of QVC’s facilities, Caustic Soda and ethylene
storage loading/unloading facilities and the additional sea water pumps. The other facilities, such as the chlorine, EDC/
VCM, and power units, the brine dissolution facility, and the industrial water cooling are operated by QVC personnel
directly. Under the Utilities Supply Agreement, QAPCO provides QVC with certain utilities.
Plant Availability and Maintenance
Every six years, QAPCO’s ethylene plant has a general scheduled turnaround. The most recent QAPCO major shutdown was carried out in 2007 with the next one scheduled for 2014. Pursuant to the Ethylene Supply Agreement
between QAPCO and QVC, QVC co-ordinates its planned shutdowns with QAPCO’s shutdowns in order to minimise
disruptions and optimise production. As part of ordinary operational risk, the QVC plant experiences production trips
from time-to-time that halt production. In order to mitigate and manage the risk of any prolonged outages to the QVC
plant, QVC has in place robust system controls and undertakes regular scheduled shutdowns for the purposes of
ongoing maintenance.
Product Storage and Logistics
QVC’s storage facilities are located within QAPCO battery limits and are operated by QAPCO under the Plant Services
Agreement. QVC has storage capacity of approximately 2-4 weeks of full production output. QVC has the following
storage capacities:
•
80,000 MT for Caustic Soda, (50% solution);
•
15,000 MT for EDC; and
•
20,000 MT for VCM.
The storage capacity per product alternates and varies from time-to-time depending on the level of production and
distribution of QVC’s products to its customers. QVC has no overseas storage capacity.
QVC arranges approximately 120 ships for the import and export of liquid bulk, gas carrier and dry bulk shipments per
annum. QVC exports Caustic Soda, EDC and VCM in maritime vessels. In relation to VCM, QVC is required to time-charter vessels because of the specialised nature of the VCM product which requires specialised vessels to transport. Salt
is also imported in maritime vessels. A recent trend in QVC’s business is the risk of its shipment of products from piracy
in open waters. As a consequence some shipments now require armed-guards which has a direct impact on transport
costs and therefore profit margins.
Marketing
QVC fully repaid all of its project financing debt in October 2012 and pre-existing marketing, agency and offtake
agreements between QVC and its shareholders at the time were thereupon terminated insofar as they related to
project financing arrangements. In practical terms, the Company’s management believed that the termination of such
marketing, agency and offtake agreements would not have a material impact over QVC’s marketing function as QVC
had been primarily responsible for its own marketing since inception and had not relied materially on its shareholders
under the marketing, agency and offtake agreements.
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In November 2012, the Muntajat Decree was enacted as law in Qatar. Under the Muntajat Decree, a newly-established entity – Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C. (known
as Muntajat) – has been mandated by the State to be exclusively responsible for the sale, purchase and marketing of
certain Regulated Products (as defined under the Muntajat Decree). With effect from April 2013, Muntajat has already
assumed all sales and marketing responsibilities in relation to QVC’s vinyl and caustic soda products as of April 2013,
and accordingly QVC’s internal sales and marketing function has been transferred to Muntajat. Under the Muntajat
Decree, QVC is required to pay a fee to Muntajat in relation to the marketing and offtake activities undertaken by Muntajat on its behalf.
Competition
QVC faces different competition in terms of geographical location and type of product. In relation to Caustic Soda,
QVC’s main competitor is considered to be SABIC (Saudi Arabia Basic Industries Corporation). In relation to EDC,
QVC’s main competitors are considered to be SABIC, Dow, Occidental Petroleum, Formosa Plastics, Mitsubishi and
Mitsui. In relation to VCM, QVC’s main competitors are Tosoh, Hanwah and Formosa Plastics.
Due to the proximity to its markets and efficient use of maritime logistics and competitive transport costs, QVC enjoys a
freight advantage against its major US competitors in VCM, EDC and Caustic Soda in relation to the target markets identified
in the Asia / Pacific region. QVC is also a comparatively low-cost producer of all of its products and therefore is able to benefit
from comparatively higher margins.
Health, Safety and Environment
QVC is committed to maintaining high occupational health and safety standards in its existing operations which is
comparable to more established and proven similar petrochemical industries. In 2013, QVC received the prestigious
RC14001 environmental, health and safety certification, which is part of the Responsible Care initiative launched by
the American Chemistry Council.
Environment
The major impact on the environment of an EDC/VCM producing plant, including a gas-fired power plant such as QVC,
is linked to the following continuous emissions:
•
CHC, Nitrogen Oxides (NOx) and Hydrogen Chloride (HCl) to the atmosphere;
•
CHC and general organic carbon (TOC) to the sea; and
•
CHC in solid waste.
In addition to the above continuous emissions, there is also a potential for leakages of other chemicals being processed or
from the plant inventory in case of accidents. The most serious leakage would be of chlorine (Cl2) gas, however the risk for
QVC is low compared with several other plants as QVC does not produce/store liquid Cl2. In order to avoid any significant
impact on the specific environment at MIC, QVC’s design is based on the Best Available Technique (BAT/BATNEC) principle.
Emission standards and process solutions/arrangements are applied by QVC throughout its plant as described in the
ECVM Charter (European Council Of Vinyl Manufacturers), the World Bank Guidelines for Petrochemical plants, pollution and abatement handbook and the Regional Organisation for the Protection of the Marine Environment (ROPME).
To minimise the continuous emissions and the potential for severe gas leaks, QVC has taken the following measures:
•
incineration of heavy and light ends and vapour return from tanks and ships;
•
chemical and biological treatment of the process waste water;
•
a gas-fired power plant and steam boilers equipped with low NOx burners; and
•
no production/storage of liquid Cl2.
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QVC applies high standards of emissions monitoring and particular measures have been taken to detect any leakages
of gas through the conduct and implementation of a plant gas detection study. Since the marine environment is sensitive to emissions of warm cooling water, a continuous temperature monitoring system at QVC’s cooling outlets into
the GCC region has been included for reporting purposes.
The requirements from the Ministry of Environment in Qatar are based on the above-mentioned standards and the
most recent Environmental Impact Assessment (EIA).
Environmental Permits
On inception, an environmental permit was required to begin construction of the QVC project. A comprehensive
Environmental Impact Analysis (EIA) was conducted and the Ministry of Municipal Affairs & Agriculture subsequently
issued an environmental permit. An operating permit was then granted to QVC on the condition that adequate environmental monitoring was put in place and that applicable environmental standards continue to be met. Monitoring
for more traditional pollutants such as sulphur and nitrous oxides, carbon monoxide, ozone and particulates was also
introduced. QVC has obtained all required licenses and regulatory permits needed to operate the QVC plant. In particular, QVC is required to renew on an annual basis its environmental consent to operate, and its current consent is
valid until May 2014.
MIC is managed and operated by Qatar Petroleum. The MIC management authority acts as a liaison between companies located in the MIC. In particular, the Environment & Waste Management Department of MIC handles the issuance
of environmental permits to companies within MIC.
Safety
The QVC plant uses and manufactures hazardous substances such as chlorine, ethylene, EDC, VCM, hydrogen, natural
gas and high voltage electrical power. A business objective of QVC is to focus on safety issues and accordingly high
design and operating standards have been adopted by QVC.
The QVC plant was designed with an automatic shutdown system and has fire and gas detectors and alarms installed
where applicable. VCM is stored in a refrigerated atmospheric pressure storage tank for safety reasons. QVC’s plant
design specifications meet National Fire Code and British Standards.
QVC’s recruitment and training policy is formulated to attract and retain personnel meeting the required high standards for safety. Human and other resources planning is focused on maintaining a safe working environment. All operating personnel have been trained and tested under controlled conditions at other plants before they are allowed as
operators of the QVC plant. Supervisory personnel are intended to have experience from the operation of similar types
of industries comprising comparable risk elements. During the years ended 31 December 2012, 2011 and 2010, there
were no recordable injuries reported at any QVC facility.
Standard Operating Instructions are implemented by QVC, integrated with QAPCO and correspond to the normal
operations of Qatar Petroleum and QAPCO.
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Insurance
QVC has established an insurance program to manage the risk of loss or damage to QVC’s plant and to minimise liabilities which QVC may suffer if it causes loss or damage to third parties.
Type of Coverage
Insured Events
Property Damage
"All Risks" of physical loss or damage to the property insured including machinery
breakdown.
Excludes cover for terrorism.
Business Interruption
Loss resulting from the operation of an insured peril under the property damage
policy, that leads to a disruption to anticipated gross profit.
Excludes cover for terrorism.
Third Party Liability
Legal liability of the insured to third parties for injury or damage arising out of or in
connection with the ownership and operations of QVC.
Marine Cargo
Physical loss or damage to imports and exports whilst in transit by sea and air.
Management
Board of Directors
The Board of Directors of QVC is comprised of the following:
Name
Title
Organisation
Dr. Mohammed bin Saleh Al-Sada
Chairman
MPHC
(Chairman and Managing Director)
Mr. Hamad R. Al-Mohannadi
Vice Chairman
MPHC
Mr. Eid Mubarak Al-Muhannadi
Director
MPHC
Dr. Mohamed Y. Al-Mulla
Director
QAPCO
Mr. Hamad R. Al-Nuaimi
Director
QVC CEO
Following the recent transfer by Arkema of its shares in QVC to Qatar Petroleum, Arkema's repesentative on the Board
of Directors of QVC has resigned. It is proposed that Qatar Petroleum will, in due course, appoint a replacement Director in his place.
Management
QVC’s senior management team is comprised of the following:
Mr. Hamad Rashed Al Nuaimi, Chief Executive Officer
Mr. Al-Nuaimi is the chief executive officer ("CEO") of QVC. Mr. Al Nuaimi has been the CEO since 2002. Mr. Al-Nuaimi
began his career at Qatar Petroleum in 1980 as a site engineer. He holds a bachelor of science degree in chemical
engineering from University of Missouri in the United States. He is also a member of the Board of Directors of QVC,
Qatar Fertiliser Company and the Gulf Petrochemicals & Chemicals Association.
Mr. Hamad Ahmad Al Hijji, Chief Financial Officer
Mr. Al-Hijji is the chief financial officer ("CFO") of QVC. Mr. Al-Hijji joined QVC in 2003 as a senior accountant. He
became the Deputy Finance Manager of QVC in 2009 and was appointed as CFO in 2011. He holds a bachelor degree
in business administration in finance management from the Arab Academy of Science and Technology in Egypt. Prior
to working for QVC, he worked for HSBC Bank as a personal banking advisor.
85
Mr. Francois Delmas, Chief Operations Officer
Mr. Delmas is the chief operations officer ("COO") of QVC. Mr. Delmas joined QVC in 2000 as process engineer and held
the position of chlorine plant commissioning deputy manager. He became Chlorine plant superintendent in 2003.
Mr. Delmas was appointed as Production Manager in 2007 and as COO in 2011. Mr. Delmas holds an Engineering Degree
from the INPG (Institute National Polytechnique de Grenoble) in France. Prior to joining QVC, he worked in Arkema
(Atochem) for 4 years at its research centre and for 6 years at the process section of a Chlor-alkali & Vinyl plant.
Mr. Rashid M. W. Al Marri, Chief Administration Officer
Mr. Al Marri is the chief administration officer (“CAO”) of QVC. Mr. Al Marri joined QVC on 1 October 2013 as an administration officer. He began his career within Qatar Petroleum in 1982 and has performed a number of administration roles
within QP and QAPCO. Between 2010 and 2011, Mr. Al-Marri worked as a senior administration manager for the Children’s
channel at Al Jazeera Television. He holds a bachelor of administration and economics degree from Holy Names University in Oakland, California, USA.
Mr. Per Arne Auestad, Chief Business Support Officer
Mr. Auestad joined QVC in 1999 as finance manager. Mr. Auestad was appointed in 2011 as the chief business support
officer. Prior to joining QVC, Mr. Auestad worked in the petrochemical industry for 25 years at Norsk Hydro in Norway
as senior accountant, finance manager, controller and as director of business development. He holds a master of
general business degree from BI Business School, Norway.
Mr. Abdulla Mohammed Al-Marri, Chief Supply Chain Officer
Mr. Al-Marri was appointed as QVC’s Chief Supply Chain Officer on 1 May 2013. He began his career at QAPCO in 1990
as a plant engineer. He holds a bachelor of science degree in chemical engineering from Qatar University. Mr. Al-Marri
is a member of the supply chain committee of the Gulf Petrochemical & Chemical Association.
Mr. Tariq Al-Khater, Chief Technical Officer
Mr. Tariq is the chief technical officer ("CTO") of QVC. Mr. Al-Khater joined QVC in 1999 as an electrical engineer. He
became the head of the electrical section in maintenance in 2003 and was appointed as maintenance manager in
2010. In 2011 Mr. Al-Khater’s titled was changed to CTO. He holds a bachelor of science degree in electrical engineering from Arizona State University in the United States.
Mr. Muraleetharan Govindan, Chief Responsible Care Officer
Mr. Govindan is the Chief Responsible Care Officer of QVC. Mr. Govindan joined QVC in 2007 as health, environment,
safety and quality manager. He holds a bachelor degree in chemical engineering from the University of Sydney in Australia. Prior to working for QVC, he worked for DNV as a consultant and auditor in health & safety and environmental
management systems and risk management.
Employees
As at 12 December 2013, QVC had 210 employees. QVC is committed to Qatarisation and has in place a program
whereby it supports Qatari national students joining QVC from the College of the North Atlantic – Qatar, a technical
college situated in Doha and operated by the College of the North Atlantic in Newfoundland, Canada.
Senior management have historically been seconded from each of Qatar Petroleum and QAPCO pursuant to the
Shareholders Secondment Agreement and Technical Service Agreements. These agreements have expired as a result
of QVC fully repaying its project financing, however QVC’s management expects arrangements with such senior management to continue on terms to be agreed for a period of at least one year. Moreover, it is envisaged that Arkema will
continue to play a role in supporting QVC whereby three Arkema personnel currently employed within QVC's operational team are anticipated to be retained until 2015.
86
Litigation
From time to time, QVC may be involved in or exposed to litigation or proceedings that arise in the ordinary course of
its business. QVC is not, and has not during the past 12 months been, involved in any governmental, legal or arbitration
proceedings (including any proceedings which may be pending or threatened of which QVC is aware) which, may
have, or have in the past had, a material effect on QVC’s business, financial position or results of operations:
Notwithstanding that it is not deemed to be material, the Directors of MPHC make the following disclosure in the interests of transparency for the benefit of potential investors:
M.T. Hellespont Crusader
QVC is subject to an adverse claim for approximately US$621,000 with respect to the M.T. Hellespont Crusader, a
chemical tanker vessel registered in the Marshall Islands. The vessel was chartered by QVC from Navig8 Chemicals
Pool, Inc., pursuant to a voyage charterparty dated 28 April 2011.
The owners and managers of the vessel are M.T. Hellespont Crusader GmbH and Co Kg, HCI Hellespont Chemikalientanker GmbH & Co. KG and Seatramp Tankers, Inc. The vessel was operated by Navig8 Chemicals Pool, Inc.
On 21 May 2011, pursuant to the voyage charterparty, QVC loaded a cargo of EDC at MIC, Qatar for discharge in Kobe,
Japan and Yeosu, South Korea. In relation to the parcel of EDC destined for Kobe, a bill of lading was issued, incorporating the terms of the voyage charterparty and naming QVC as shipper. In relation to the parcel destined for Yeosu,
a similar bill of lading was issued, but the shipper was named as Mitsui & Co. The Yeosu parcel was discharged on 21
June 2011 and the Kobe parcel discharged on 23 June 2011. Before and after discharge of the cargo, the ship’s master
issued letters of protest, claiming that the EDC had been kept in the ship’s cargo tanks for longer than the 30 days permitted/recommended by the tank coating manufacturers. The ship’s owners then alleged that the vessel’s tank coatings were damaged as a result of high water content in the shipment of EDC and held QVC and Mitsui & Co responsible
as shippers under the bills of lading. The owners’ claim is for US$621,000 approximately, made up of US$418,000
being the value of time lost/off-hire, plus US$203,000 being the cost of the tank coating repair.
Legal counsel to the ship owners appointed a London arbitrator in respect of the claim pursuant to the arbitration
agreement in the QVC bill of lading (which incorporated by reference the arbitration clause from the voyage charterparty) in respect of the claim in October 2011. The relevant arbitration provision requires the appointment of a second
arbitrator on behalf of QVC in order to constitute the tribunal, alternatively in default of an appointment by QVC, the
Owners’ arbitrator will act as sole arbitrator. It is understood that the ship owners have also commenced arbitration
against Mitsui & Co. by the appointment of an arbitrator under the relevant bill of lading and it is believed that they
have commenced arbitration against Navig8 liable under the time charterparty. Legal counsel to Mitsui & Co. have
formally held QVC liable to indemnify them in the event that Mitsui & Co. incurs a liability to owners in respect of the
claim. No proceedings have been initiated by Mitsui & Co., however.
Legal counsel to QVC has, on QVC’s behalf (a) denied liability for the claim on the part of QVC; and (b) explained that,
in light of the numerous arbitration references commenced by the owners, it considers that it would be appropriate to
appoint an arbitrator on behalf of QVC when the question of consolidation or concurrency of all the references could
be considered and the tribunals constituted accordingly. QVC’s legal counsel requested a general extension of time
for the appointment of the second arbitrator, terminable by legal counsel to the Owners on 14 days’ notice. There has
been no response to this proposal.
No further steps have been taken by legal counsel to the owners in connection with the arbitration reference against
QVC and nothing has been heard from them or from the single appointed arbitrator since October 2011. The tribunal
remains incomplete therefore and no Claim submissions have been served.
As at 30 November 2013 there has been no material developments in relation to this litigation.
87
THE ECONOMY OF QATAR
Qatar is one of the most prosperous countries in the world, with a nominal GDP per capita of QAR 396,000 (US$108,758)
in 2012 based on Qatar’s 2012 mid year population figure of 1,767,955. Over the last several years, Qatar has been one of
the fastest growing economies in the world. Qatar’s carefully planned exploitation of its hydrocarbon reserves resulted
in a nominal GDP CAGR of 27.5% from 2004 to 2011. Qatar’s economy achieved a new record in 2012 with a total nominal
GDP of QAR 631,609 million (US$173,519 million) representing a growth of 36.3% in 2011 compared to 2010. The increase
of Qatar’s total nominal GDP in 2012 has been attributed to the expansion in the production levels of gas-related products, LNG and condensates, coupled with high hydrocarbon prices. The oil and gas sector has contributed 51.7% and
57.7% of Qatar’s total nominal GDP in 2010 and 2011 respectively. Qatar has focused on diversifying its economy in recent
years in an effort to reduce its historical dependence on oil and gas revenues. The construction and real estate sectors
have recently made substantial contributions to Qatar’s economic growth and significant investments have been made
to increase economic returns from, in particular, petrochemicals, financial services, infrastructure development and
tourism. As a result, nominal GDP for the non oil and gas sector grew at a CAGR of 25.7% between 2004 and 2011, reflecting a slightly lower annual growth rate than the oil and gas sector for the same period. Nominal GDP for the non oil and
gas sector reached QAR 265,151 million (U.S.$73,292 million), or 42.3% of Qatar’s total nominal GDP, in 2012.
QP, which is a public corporation established pursuant to Qatari Decree Law No. 10 of 1974, is responsible for all phases of
the oil and gas industry in Qatar. Oil was discovered in Qatar in 1939 and crude oil production began in 1949. Since then,
Qatar has steadily increased its levels of crude oil production, both directly and by entering into exploration and development production sharing agreements with leading international oil exploration and production companies, including
Maersk, Total and Occidental Petroleum. The U.S. Energy Information Administration estimated Qatar to have been the
16th largest global oil producer in the world in 2009, and the 19th largest global oil producer in the world in 2010, due to
oil production increases by other countries.
In the early 1990s, Qatar developed a long term strategy to accelerate the commercialisation of its substantial natural
gas reserves as a means to diversify and ultimately modernise Qatar’s economy. In furtherance of this strategy, Qatar has
made large scale investments across the entire value chain of LNG trains, tankers, and storage and receiving facilities.
Qatar is now the leading LNG producing country in the world. As of 31 December 2010, Qatar reached its planned LNG
production capacity of 77.5 MTA, which reflects an increase of more than 150% since 2008 due to the completion of its
remaining planned LNG trains. Via its flagship Qatargas and RasGas LNG projects, Qatar has developed its LNG business
through strategic partnerships with a number of the world’s leading oil and gas companies, including Exxon Mobil Corporation, Shell, Total and ConocoPhillips. By investing across the entire LNG value chain, Qatar now enjoys meaningful cost
advantages in the gas sector due to significant economies of scale and a low cost structure. Because most of the natural
gas in the North Field is "wet," meaning it is associated with other hydrocarbons such as condensates, Qatar’s LNG projects also produce significant quantities of condensate and natural gas liquids which contribute to the diversification of
the State’s revenue sources and create downstream opportunities. Qatar also has a good central geographic location for
global shipping to all major gas consuming regions of the world and, based on contractual commitments, Qatari LNG is
sold globally to customers in 15 countries in North America (Mexico and the United States), North-West Europe (the United
Kingdom, the Netherlands and Belgium), Western Europe (Italy, France and Spain), South Asia (UAE, Kuwait and India) and
North-East Asia (China, South Korea, Japan and Taiwan). Most of the LNG produced by Qatar’s upstream ventures is sold
under long term take or pay agreements that provide certainty of volume offtake.
In recent years, Qatar has focused on developing and exploiting its natural gas resources beyond the LNG industry by
implementing a downstream strategy driven by opportunities to generate additional revenue from its existing oil and gas
production. QP has developed pipeline gas projects both for regional export markets and for domestic petrochemicals
and industrial consumption. In addition, QP is the majority shareholder in a number of industrial companies located primarily at RLIC and MIC, which use natural gas as feedstock and/or fuel to produce various value added products, such
as petrochemicals, fertiliser, steel, iron and metal coating, both for domestic consumption and for export. Qatar has also
invested in exploiting various GTL technologies and has two joint venture projects currently in operation to generate GTL
products like distillates.
QP is managed by a board of directors appointed by H.H. the Emir of Qatar. The Minister of Energy and Industry of the
State of Qatar – H.E. Dr. Mohammed bin Saleh Al-Sada – serves as the Chairman and Managing Director of QP. Other
members of QP’s board of directors include representatives of QP’s major subsidiaries and affiliates.
QP has a long-term foreign currency issuer rating of AA from Standard & Poor’s and Aa2 from Moody’s, with a stable
outlook from both rating agencies.
88
QP’s strategy is to continue to contribute to the diversification of Qatar’s economy and the State’s assets by leveraging
QP’s experience along with the State’s vast hydrocarbon wealth to generate long term returns on investment in the
international oil and gas industry. QP aims to diversify risk geographically as well as capture further value in the oil and
gas value chain.
Crude Oil Operations
Oil was discovered in Qatar in 1939 and crude oil production began in 1949. Since then, Qatar has steadily increased
its levels of crude oil production, both directly and by entering into production sharing agreements with leading international oil exploration and production companies, including Maersk, Total and Occidental Petroleum. With average
crude oil production of approximately 830,000 Bpd in 2009, Qatar was estimated by the U.S. Energy Information
Administration at that time to be the world’s 16th largest global oil producer.
As a member of OPEC, Qatar’s crude oil production is determined by quota restrictions. OPEC does not publish its
quota restrictions for each of its member countries. Oil producers in Qatar have the capacity to exceed the OPEC
quota and, in the past, actual production has been reduced to avoid exceeding OPEC quotas.
QP is involved in the exploration, development, and production of crude oil in Qatar both through its own operations
and in conjunction with the State and major international oil and gas companies pursuant to production sharing agreements. QP produces crude oil for its own account from the onshore Dukhan oil field, and the offshore Bul Hanine and
Maydan Mahzam oil fields, which commenced production in 1949, 1965 and 1969, respectively. Since the early 1990s,
QP, as agent of the State, has entered into a number of production sharing agreements with various international oil
and gas companies for the purpose of hydrocarbon exploration and the exploitation of these blocks.
89
THE PETROCHEMICALS INDUSTRY
Introduction
Petrochemicals are chemical products that are derived from petroleum and form the basis for a large global industry
which recorded revenues in excess of US$3 trillion in 2012. Petrochemicals have become an essential ingredient in
the global economy with uses in a broad range of manufacturing and consumer sectors such as packaging, automotive, construction and electronics. With large, populous countries such as China, India, Indonesia, Brazil and Russia
witnessing record growth in GDP and consumption and the knock-on effect on industrial countries to satisfy a growing
demand for capital and consumer goods, the demand for petrochemicals has grown at a rapid pace in recent years,
surpassing many analyst expectations. Some chemical compounds made from petroleum are also obtained from
other fossil fuels, such as coal or natural gas, or renewable sources such as corn or sugar cane.
Petrochemicals can be divided into two classes: olefins (including ethylene and propylene) and aromatics (including benzene, toluene, and xylene isomers). Oil refineries produce olefins and aromatics from petroleum fractions.
Chemical plants produce olefins from natural gas liquids like ethane and propane. Olefins and aromatics are the building-blocks for a wide range of materials such as solvents, detergents, and adhesives. Olefins are the basis for materials
used in plastics, resins, fibres, elastomers, lubricants, and gels. Olefins include ethylene, propylene, and butadiene.
Ethylene and propylene are important sources of industrial chemicals and plastics products. Butadiene is used in
making synthetic rubber. Ethylene is used to produce polyethylene, ethylene glycol, styrene and PVC and propylene is
used to produce polypropylene and acrylic acid.
Demand growth is primarily driven by emerging markets with a large, growing population base compared to the
mature US and European markets.
Given the high capital intensity of the industry, new developments require strong funding bases and are thus dominated by governments and large multinational players. In order to achieve economies of scale, particularly in procurement, logistics and distribution, the industry has recently witnessed a high level of consolidation.
Ethylene is used to produce polyethylene, ethylene glycol, styrene and PVC and propylene is used to produce polypropylene and acrylic acid. The petrochemical industry utilizes feedstock that is largely derived from petroleum products,
hence the significant price linkage to crude oil pricing. As a consequence, producers with access to low cost gas
feedstock hold a competitive advantage versus higher cost Naphta-based producers in Europe and Asia.
Petrochemicals and crude oil prices correlation
The following graph illustrates the correlation between petrochemical prices and underlying crude oil prices, by plotting the price of Brent crude against the price of polyethylene CFR Asia (i.e. delivered to Asian markets), both rebased
to 100 in the starting year. The realized correlation over the entire historic period is 0.85.
500
400
300
200
100
0
1999
2000
2001
2002
2003
2004
2005
Brent Crude
2006
2007
2008
2009
2010
2011
2012
Polyethelen CFR Asia
(Source: Bloomberg)
This section contains extracts from publicly available sources as well as from Business Monitor International (BMI)’s
report "Qatar Petrochemicals Report – Q1 2013". BMI is a private and wholly independent information provider headquartered in London, United Kingdom with foreign offices in Singapore and New York, USA. BMI covers a total of 22
industries with services including daily alerts, monthly regional reports, and quarterly country sector reports. BMI has
independently provided the report from which the hereinafter section is partially derived. BMI and its officers, management and employees do not own, directly or indirectly, any shares in the Company or in its underlying companies.
90
Global oil products price outlook
Since June 2012, crude prices have enjoyed a multi-month rally, before retracing and entering a period of volatile,
sideways trading. Despite considerable political risks to the upside, downward pressure due to weak global demand
could push crude prices lower in 2013E. The primary drivers of this scenario are a sustained Eurozone debt crisis and
a slow recovery in the US.
BMI’s refined products forecasts (prices in US Dollars)
2010
2011
2012
2013
2014E
2015E
2016 E
Brent
80.26
111.05
110.00
102.00
99.00
98.00
96.00
WTI
79.51
95.05
95.00
92.00
91.00
91.00
92.00
Dubai
78.10
106.15
107.25
99.25
96.50
95.50
93.50
Source: Bloomberg, BMI
Global petrochemicals overview
The Petrochemical industry is cyclical by nature and exhibits high sensitivity to economic cycles as well as supply –
demand dynamics and resulting utilization levels. The industry has historically passed through 6-8 year cycles, largely
due to the planning of large capacities during growth cycles, outpacing demand growth.
Global feedstock overview
Ethylene is a major basic building block in the petrochemicals industry and its demand is often reflective of the overall
petrochemicals market. In 2010 global ethylene capacity was 147 MMT against total ethylene demand of 120. This
capacity is expected to increase to 165 MMT in 2015 with demand reaching 151 MMT for the year.
Today, 50% of the ethylene produced in the world is through Naphtha cracking while one-third is produced through
the Ethane route. Over 60% of global Ethylene production is used for manufacturing Polyethylene, 13% for EO, 11% for
production of EDC, and the residual Ethylene goes in producing a wide array of other petrochemicals.
The cost of Ethylene production varies widely across regions depending on feedstock costs, conversion costs, technology, the location of the Cracker, etc. Ethane based crackers in Middle East and North America incur amongst the
lowest production costs, while Naphtha based crackers in Asia and West Europe lie on the higher end of cost curve.
Proportion of global ethylene capacity (2012)
Americas
(excluding US)
7.8%
China
14.0%
United States
17.3%
Asia
(excluding China)
21.4%
Middle East
and Africa
21.3%
Europ e
18.3%
Source: BMI
Based on current plans, BMI expects global ethylene capacity to increase by 62.15m tpa over 2012E-17E, representing
growth of 40%. Around a quarter of the increase will occur in China with a further 12% in the US, 10% in India, 9% in
Iran, 7% in Russia and the remaining 36% including Southeast Asia (7%) and the GCC (10%). However, there is signifi-
91
cant risk of postponement and cancellation in India and Iran while new capacity in the US will depend on the ability to
leverage estimated shale gas reserves.
Feedstock selection and availability play a major role in regional ethylene prices. BMI expects that Naphtha will continue to track crude oil prices, but the price differential with ethane is narrowing as natural gas prices increase and new
ethane availability becomes scarcer. The cracking of heavier naphtha feedstock also allows for greater petrochemicals
product diversity, thereby advantaging Asian producers over the long-term.
Ethylene Capacity Additions (2012 – 2017, million tons per annum)
18
16
14
12
10
8
6
4
2
0
2012
2013
China
2014
US
India
2015
Russia
2016
Iran
2017
Other
Source: BMI
The exploitation of North American shale gas deposits suggests a potential surge in ethylene capacity. There are ambitious plans for a combined 7.4 million tons per annum ("tpa") of ethylene expansion in the US based on feed from shale
by 2017E, an increase of around 30% over the next five years. Most of the capacity is due to come onstream at the
same time as a surge in Asia, creating a potential supply glut. Already there are at least 15 world-scale ethylene projects
planned in China with most expected to start up in 2015E – 2016E and plans to double Indian capacity, accompanied
by significant additions in Malaysia (1.5 million tpa), Indonesia (1.4 million tpa) and Vietnam (1.4 million tpa). Additionally, in 2016E the GCC countries will witness a jump in capacity and will together contribute around 6.5 million tpa of
ethylene capacity, split roughly equally between naphtha and ethane feed streams. While the pattern of trade may be
changed by the surge in ethylene production and downstream products, the cycle will remain the same.
On the upside, the US’ advantages across the product chain, including its ability to produce advanced, high-tech
products, will make it an even more formidable competitor, particularly in European and East Asian markets. Over the
longer-term the strength of the industry in the US is likely to force some European production facilities out of business.
Global intermediate products market
PE capacity is expected to increase from around 150 million tpa in 2012 to over 170 million tpa in 2017E, growing at an
average rate of around 3.5% per annum, less than global demand growth of 4.5%. Supply is expected to be increasingly served by growth in north-east Asia, which will see PE capacity grow from just under 22 million tpa in 2012 to 31
million tpa in 2017E. Western Europe is expected to be the only region to see a decline in PE capacity, from 15m tpa to
13.5 million tpa over the same period, as more competitive Middle Eastern producers move in on the market.
PP should follow a similar course. Over the past five years, North American PP demand has fallen as PP consuming
manufacturing sectors have contracted, while the European market has stagnated. In contrast, India has witnessed
annual PP consumption growth averaging over 10%, the north-east Asian market has grown 6% per annum and Latin
America by 5%. These trends are set to continue over the medium-term with developed and emerging markets to travel
on very different growth trajectories. In 2012, PP was in surplus with capacity estimated at 65m tonnes, compared to
56m tonnes of demand. With demand growth set to outstrip supply, the PP sector is expected to be in balance by 2017E.
There are concerns that PET capacity has grown at a faster rate than demand – with operating rates in 2012 at unsustainable levels. This could prompt some rationalisation in the PTA-PET chain, particularly in mature markets where less
efficient, ageing plants dominate. Moreover, with half of demand growth coming from Asia over the next five years, BMI
expects a shift in capacity from developed to underdeveloped markets, with the packaging segment driving growth.
92
Global end products market
The multiple benefits offered by polymers compared to traditional materials like metals, paper and wood, are high
value addition and versatility of their applications across sectors. Even after several decades since its birth, the industry
continues to grow ahead of GDP growth. Between 1980 & 2010, global polymer demand i.e. demand for commodity
plastics has grown almost 5 fold from 36 MMT in 1980 to 169 MMT in 2010.
Global polymer demand increased from 123 MMT in 2000 to 169 MMT in 2010 while global polymer capacity went
up from 142 MMT to ~213 MMT in the same period. During the 2005-2010 period global polymer capacity & demand
increased at a CAGR of 4.6% and 2.8% respectively. Among the polymers, demand for LLDPE & PP registered the
fastest growth with a CAGR of over 3% during 2005-10 followed by HDPE with a CAGR of 2.9%.
Global demand for plastics was estimated at over 210 million tonnes in 2012 with consumption growth slowing as
developed markets fell into recession. However, consumption growth in emerging markets should be the growth driver
over the medium-term, absorbing output growth from increases in capacity. While developed markets will recover, the
biggest growth rates will be registered in the Middle East, Africa and South Asia where per capita plastic consumption
is extremely low by global standards.
Middle East petrochemicals industry
Half of all the new ethylene projects currently under development globally are located in the GCC countries. The Gulf
Petrochemicals and Chemicals Association (GPCA) has forecast that the region will account for 40% of total global
petrochemicals production within 10 years, but has also warned that this would bring fresh challenges for the region’s
producers in terms of the need to secure more feedstock.
Over the five years to 2017E, the Middle East could add up to 5.75 million tonnes per annum (tpa) of ethylene capacity.
Saudi Arabia accounts for around 63% of total investment in the region, while Qatar comes second, with a 14% share.
Feedstock supply
Middle East feedstock streams are highly focused on ethane, which comprises 69% of the region’s feed slate, with
a further 17% coming from propane while naphtha contributes just 11%. This compares naphtha domination in other
regions, such as the CIS countries (40%), Latin America (55%), Asia (70%) and the EU (80%).
Iran and Qatar rely on domestic gas fields, which contain three quarters of the region’s gas reserves. Elsewhere, gas
production is associated with oil deposits, making it less flexible in terms of controlling the rate of extraction. Associated gas is also used for reinjection to sustain oil output. However, the demand for natural gas has grown exponentially
throughout the Middle East due to low pricing.
Reliance on ethane limits product diversification due to the fact there are significantly fewer by-products compared
to naphtha. In polymers, this will invariably lead to an overwhelming reliance on polyethylene (PE) grades. Research
and development will need to focus on greater utilisation of PE as an alternative to polypropylene (PP) in engineering
plastics applications.
Downstream diversification
The focus over the long-term will be on establishing downstream plastics conversion parks, which will generate jobs
and add value to the polymer industry. The GCC’s plastics conversion market is valued at around US$10bn a year and
is more profitable in the Gulf region than in mature markets. The GCC is now preparing diversification programmes in
order to add value to output, with SABIC’s subsidiary Saudi Kayan having become the region’s first major company to
diversify into specialties. The company will provide feedstock to an array of downstream plants, particularly performance chemicals facilities.
For the Middle East and Africa region as a whole, chemicals output is expected to rise by 5.5% y-o-y over the forecast
period. By 2016E, output of chemicals and petrochemicals in the GCC region is expected to rise by 6% – 7% per annum
to reach around 135m tonnes, according to the GPCA. The Middle East’s share of petrochemicals production is expected
to rise to 22% in 2016E, up from 20% in 2011, largely as a result of investment in the GCC region.
93
Qatar petrochemicals industry
Overall, the Qatari petrochemicals market is strong and stable, benefiting from possession of the world’s third largest
natural gas reserves (behind Russia and Iran), and the largest non-associated gas field, together with well-integrated
upstream/downstream production facilities. Large, cheap natural gas resources mean Qatar does not have to rely
on expensive imports for its feedstock, unlike some petrochemicals-producing countries. Qatar ranks second in the
Middle East in terms of ethylene capacity with a 14% share.
The main intermediate chemicals produced from ethylene include ethylene oxide (EO) and ethylene glycol (EG), EDC
and VCM, ethylbenzene (EB) and styrene, vinyl acetate monomer (VAM), alpha olefins and industrial ethanol. These are
used as the basis for the manufacture of major polymers: polyethylene (PE), polyvinyl chloride (PVC), polystyrene (PS)
and polyethylene terephthalate (PET), which have a wide range of industrial and consumer applications.
QP’s downstream strategy is driven by opportunities to add value to existing oil and gas production and the requirements of the local market. QP is a shareholder in a number of industrial companies which utilise natural gas as feedstock
and/or fuel to produce various value added products for both domestic consumption and export. The principal industrial projects are located at the industrial complex at MIC, which hosts iron and steel plants, a petrochemicals complex,
a chemical fertiliser plant, an oil refinery, NGL plants, a metal coatings plant and other industrial developments. Several
of these companies are owned through a QP subsidiary, Industries Qatar, which was listed in April 2003.
The development of the petrochemicals industry has been conducted through a number of JVs between QP, its subsidiary Industries Qatar and international partners. This strategy has given it access to foreign technology and international markets.
In addition to Q-Chem I, Q-Chem II and QVC, the key petrochemicals players in Qatar include:
QAPCO
QAPCO produces ethylene and low-density polyethylene (LDPE) from feedstock supplied by QP. A substantial part of
ethylene is consumed for the production of LDPE of various grades, which are globally exported under the ‘Lotrene’
brand name. The remaining ethylene is mainly supplied to QVC.
QAPCO was established in 1974 as a JV with Total Petrochemicals of France and commenced production in 1981. It is
currently owned by Industries Qatar (IQ) (80%) and Total Petrochemicals (20%).
QAPCO’s manufacturing facilities consist of a 720KTA Ethylene Plant, two 400KTA and one 250KTA LDPE plants, a
70KTA Sulphur plant, a 55KTA Hydrogenated Propane/Butane Mix unit, a 45KTA Hydrogenated Pygasoline unit, in
addition to self sufficient utilities plants and other offsite & auxiliary facilities. The Plants are situated at MIC on Qatar’s
east coast with jetty facilities.
QAPCO has major investments in several JV’s in Qatar including QVC, RLOC, Qatofin and QPPC.
Qatofin
Qatofin is a joint venture between QAPCO (63%), QP (1%) and Total Petrochemicals France (36%) to produce Linear Low
Density Polyethylene (LLDPE) (original capacity 450,000 tpa, expanded to 550,000 tpa in 2012 and further expandable to 600,000 tpa). The company is located at MIC, adjacent to the existing QAPCO plant and commenced production in May 2010.
Ras Laffan Olefins Company (RLOC)
RLOC is a joint venture comprising Q Chem II (53.31%), Qatofin (45.69%) and QP (1%) which began operations in the
first half of 2010. It is a 1.3 million tonnes per year cracker situated at RLIC.
Qatar Fuel Additives Company (QAFAC)
QAFAC is jointly owned by QP subsidiary Industries Qatar (50%), OPIC Middle East Corporation (20%), LCY Middle East
Corporation (15%) and International Octane (15%).
94
Key Qatar petrochemicals markets
China remains one of Qatar’s largest markets, alongside India and Japan. China consumes 22% of the world’s ethylene, yet only produces approximately 11%, meaning it will remain a major importer. However, there could be trouble
ahead as China is currently experiencing a slowdown. This is having a negative impact on a number of the sectors
that traditionally drive its petrochemicals import demand. In particular, these include the real estate and construction
industries, both of which have suffered due to a massive slow down, evidenced by the vast ghost towns popping up
across China. Nevertheless, the prolonged weakness in China’s own domestic petrochemicals market – due to government price controls – continues to create opportunities for countries such as Qatar. Equally, India looks to Qatar
to supply a large portion of its imported petrochemicals. Moreover, Japan and Qatar recently re-affirmed their strong
trade relationship.
As previously noted, India might well provide Qatar with an alternative export destination. India is on course to become
the third largest consumer market for high-tech plastics – behind the US and China – owing to growth in the automotive industry, which is set to expand by more than 6% per annum. Over the short term, domestic demand in India will
be fuelled by rising private consumption and fixed investment, as well as the need to rebuild inventories. Given it has
a fledgling petrochemicals industry at present, there could be an opening for Qatari imports which would help Qatar
plug the gap left by the incipient decline of Chinese import demand. Moreover, Qatar’s strong ties with Japan make it
the one of the main beneficiaries of the reconstruction efforts necessitated by the Fukushima disaster. Qatar’s cheap
and easily available feedstock reserves allow it to undercut smaller petrochemicals facilities in Japan. This is also true
of smaller industries in Western Europe and North America. The recent economic instabilities have led to a rash of
rationalisations, making Qatar and other countries that offer cheaper products the firm favourites.
95
96
97
98
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma statement of financial position and the unaudited pro forma statement of comprehensive
income presented below have been prepared on the basis set out in the notes to the unaudited Pro Forma Financial
Information and in accordance with the requirements of Annexure 1, Article 19.4(b) of the Offering and Listing Rulebook
of Securities issued by the QFMA.
Unaudited Pro Forma Statement of Financial Position of MPHC
Notes
31 December 2012
31 December 2012
QAR Millions
US$ Millions
12,553
3,448
12,553
3,448
10
3
12,563
3,451
12,563
3,451
12,563
3,451
-
-
12,563
3,451
ASSETS
Non-current assets
Investment in joint ventures
2
Current assets
Bank balance
2
TOTAL ASSETS
EQUITY
Share capital
2
TOTAL EQUITY
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
Note:
Figures in US Dollars have been converted using an exchange rate of 1 US Dollar = QAR 3.64
Unaudited Pro Forma Statement of Comprehensive Income of MPHC
Note
Share of results of joint venture, net of tax
2.6
PROFIT FOR THE YEAR
Other comprehensive income
TOTAL COMPREHENSIVE INCOME FOR THE YEAR
2012
2012
QAR Millions
US$ Millions
1,604
441
1,604
441
-
-
1,604
441
Note:
Figures in US Dollars have been converted using an exchange rate of 1 US Dollar = QAR 3.64
99
1
CORPORATE INFORMATION
Mesaieed Petrochemical Holding Company Q.S.C is a Qatari Shareholding Company incorporated under Article 68 of
the Qatar Commercial Companies Law (Law No. 5 of 2002) of the State of Qatar. The commercial registration number
of the Company is 60843.
2
BASIS OF PREPARATION
The unaudited pro forma statement of financial position of Mesaieed Petrochemical Holding Company Q.S.C. ("MPHC")
as at 31 December 2012 set out below has been prepared to illustrate the effect of the contribution of investments in
joint ventures to MPHC by Qatar Petroleum for issue of shares in MPHC in consideration for the investments in joint
ventures, on the statement of financial position of MPHC as if the contribution of investment in joint ventures and
related share issue had taken place on 31 December 2012. The pro forma statement of the financial position and pro
forma statement of comprehensive income ("pro forma financial information") are based on the unaudited financial
information of MPHC, as MPHC has not prepared any financial statements since incorporation on 29 May 2013.
Adjustment:
Incorporation
of MPHC
Adjustment:
Net proceeds from the
contribution of investment
in jointventures and issue
of shares
Pro forma Statement
of financial position
as at 31 December 2012
QAR Millions
QAR Millions
QAR Millions
Note 2.2
Note 2.1
-
12,553
12,553
Bank balance
10
-
10
TOTAL ASSETS
10
12,553
12,563
10
12,553
12,563
10
12,553
12,563
-
-
-
10
12,553
12,563
Notes
ASSETS
Non-current assets
Investment in joint ventures
2.1
Current assets
EQUITY
Share capital
2.1
TOTAL EQUITY/NET ASSETS
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
The unaudited pro forma statement of financial position and the unaudited pro forma statement of comprehensive
income have been prepared for illustrative purposes only, and because of its nature addresses a hypothetical situation and, therefore, does not reflect MPHC’s actual financial position. The unaudited pro forma statement of financial
position and the unaudited pro forma statement of comprehensive income have been prepared on the basis set out
in the notes below and in accordance with the requirements of Annexure 1, Article 19 of Offering and Listing Rulebook
of Securities issued by QFMA.
The pro forma financial information of the Company has been prepared to illustrate the significant effects of the transfer of investment in joint ventures from Qatar Petroleum to MPHC on the historical statement of financial position of
the Company as at 31 December 2012, had the acquisition been effected on such date. The pro forma statement of
the financial position is neither representative of the actual financial position that could have been observed had the
acquisition been undertaken as of such date nor take into account the effects of expected synergies as a result of the
acquisition. The pro forma financial information gives no indication of the future financial position of the Company.
100
All pro forma adjustments made in the preparation of the pro forma financial information are in accordance with the
basis of preparation described below. The future statement of financial position or financial results of the Company
after the actual completion of the acquisition and the proposed initial public offering and considering all the necessary adjustments in accordance with International Financial Reporting Standards (IFRS) and the requirements of Qatari
Companies Law, may significantly differ from the pro forma financial information of the Company.
2.1
Contribution of investments in joint ventures with a fair value QAR 12,553 million by Qatar Petroleum and the
issue of ordinary Shares amounting to 1,255,317,500 at a nominal value of QAR 10 to Qatar Petroleum:
Investment in joint venture
Shareholding %
Qatar Chemical Company Limited ("Q-Chem I")
49
Qatar Chemical Company Limited (II) ("Q-Chem II")
49
Qatar Vinyl Company Limited (QVC) Q.S.C. ("QVC")
55.2
2.2 There have been no other transactions in MPHC except for the incorporation of MPHC with an initial share
capital of QAR 10,000,000 and MPHC issued 1,000,000 ordinary Shares in consideration thereof, and the
acquisition by MPHC from Qatar Petroleum of shares in Q-Chem I, Q-Chem II and QVC pursuant to the Share
Swap Agreement dated 4 August 2013. In consideration of the transfer by Qatar Petroleum of such shares to
MPHC, MPHC issued and allotted to Qatar Petroleum an additional 1,255,317,500 newly-issued ordinary Shares
in MPHC. The share capital of MPHC was increased in connection with the Share Swap, with Qatar Petroleum
now holding 100% of the issued share capital of MPHC, being 1,256,317,499 ordinary Shares and one Special
Share, as compared to 999,999 ordinary Shares and one Special Share prior to the Share Swap.
2.3
The accounting policies used in the preparation of the pro forma financial information is consistent with the
accounting policies adopted by MPHC.
2.4This pro forma financial information does not constitute the financial statements of the Company.
2.5
The table below shows the share of net assets attributable to MPHC as at 31 December 2012. The net assets as at
31 December 2012 were extracted from the audited financial statements of the respective investee companies
which are denominated in US Dollars. Figures in US Dollars have been converted using an exchange rate of 1 US
Dollar = QAR 3.64:
Q-Chem I
Q-Chem II
QVC
Total
QAR
Millions
QAR
Millions
QAR
Millions
QAR
Millions
3,123
2,990
2,200
49%
49%
55.2%
1,530
1,465
1,214
Net assets as at 31 December 2012
MPHC shareholding (%)
Share of net assets as at 31 December 2012
2.6
4,209
The table below shows the share of net profits attributable to MPHC for the year ended 31 December 2012 had
the investment in joint ventures (JV’s) taken place on 1 January 2012. The net profit for the year ended 31 December 2012 was extracted from the audited financial statements of the respective investee companies which are
denominated in US Dollars. Figures in US Dollars have been converted using an exchange rate of 1 US Dollar =
QAR 3.64:
Q-Chem I
Q-Chem II
QVC
Total
QAR
Millions
QAR
Millions
QAR
Millions
QAR
Millions
Total profit reported by JV’s
996
1,817
409
MPHC shareholding (%)
49%
49%
55.2%
Share of results for 2012
488
890
226
101
1,604
MANAGEMENT DISCUSSION AND ANALYSIS
The following discussion and analysis of the operating and financial results of each Portfolio Company is based on, and
should be read in conjunction with the Q-Chem I Consolidated Financial Statements, the Q-Chem II Consolidated Financial Statements, the QVC Financial Statements and the Pro Forma Financial Information. Prospective investors should
read the following discussion together with the whole of this Prospectus, including the section entitled "Risk Factors" and
the Financial Statements, and should not rely solely on the information set out in this section. See "Pro Forma Financial
Information". The following discussion includes certain forward-looking statements that, although based on assumptions
that the Company’s management considers to be reasonable, are subject to risks and uncertainties that could cause
actual events or conditions to differ materially from those expressed or implied in this Prospectus. Among the important
factors that could cause the Company’s or the respective Portfolio Company’s actual results, performance or achievements to differ materially from those expressed in such forward-looking statements are those factors that are discussed
in "Forward-Looking Statements" and "Risk Factors" in this Prospectus. All statements other than statements of historical
fact, such as statements regarding the future financial position and risks and uncertainties related to the Company’s or
each Portfolio Company’s business, plans and objectives for future operations, are forward-looking statements.
A.
Q-Chem I
Overview
Q-Chem I was formed on 6 October 1998 pursuant to Emiri Decree No. 20 of 1998, as part of a joint venture agreed on 16
November 1997 between Qatar Petroleum and CP-Chem for the development, construction, ownership and operation of
a world-scale petrochemical project in Qatar. Q-Chem I commenced commercial operations on 1 April 2004. The project
facility is located at MIC in the south east of Qatar. Q-Chem I is owned 49% by the Company and 49% by CPCIQH, with
Qatar Petroleum initially retaining a 2% direct shareholding.
Q-Chem I produces its own ethylene supply through its ethylene plant which feeds a two-train polyethylene plant
and a 1-Hexene plant, both operated by Q-Chem I. The end products produced by Q-Chem I are HDPE, 1-Hexene and
by-products.
Q-Chem I is managed on the basis of certain financial and non-financial key performance indicators, including, but not
limited to, revenue and EBITDA. The following table presents these key figures for each of the years ended 31 December 2012, 2011 and 2010:
For the year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
Revenue
847,277
767,743
752,675
EBITDA 1
423,533
456,221
418,928
50.0%
59.4%
55.7%
EBITDA margin
1
"EBITDA" refers to EBITDA (earnings before deductions for interest, taxes, depreciation and amortisation).
Factors Affecting Comparability of Periods Under Review
Save as set out in this sub-section or elsewhere in "Management Discussion and Analysis", the Financial Statements
referred to in this Prospectus are generally directly comparable against each other on a like-for-like basis between the relevant periods under review. The consolidated financial statements of Q-Chem I as of and for the years ended 31 December
2010, 31 December 2011 and 31 December 2012 have been prepared under International Financial Reporting Standards
and have been audited in accordance with International Standards on Auditing by Ernst & Young, Qatar, independent
auditors, as stated in their reports appearing herein.
102
Key Factors Affecting Q-Chem I’s Results of Operations
Plant availability and maintenance
The Q-Chem I plant is designed to operate 24 hours per day save for any scheduled and unscheduled downtime, with
planned plant production based on expected availability levels (after allowance for downtime of 760 hours) of 8,000
hours per year. The Q-Chem I plant is scheduled to undertake plant turnarounds every four years when major maintenance work is to be conducted on all process units. The year ended 31 December 2012 is a turnaround year and the
current maintenance plan assumes that the next turnaround will occur in the year ending 31 December 2016 with a
four-year cycle for subsequent turnarounds. The expected turnaround time is approximately 30 to 40 days. In June
2011, a slowdown – although not a total shutdown – was experienced at the Q-Chem I plant due to the replacement
of a furnace coil. This slowdown lasted for 12 days. As a direct consequence, ethylene was sold directly to Q-Chem II
at the prevailing spot price on an arm’s length basis which is reflected in the audited financial statements for the year
ended 31 December 2011. While it is an advantage for Q-Chem I and Q-Chem II to have the ability and relative ease
to interchange ethylene feedstock, any turnaround period (whether scheduled or unscheduled) will impact Q-Chem
I’s production levels and impact Q-Chem I’s results of operations. There is no guarantee that Q-Chem II will purchase
from Q-Chem I any unused ethylene by Q-Chem I.
Freight cost
Q-Chem I depends on the international maritime freight network to deliver its products to where its customers are
located around the world. The main markets for Q-Chem I’s products are in Europe and Asia. In previous economic
cycles such as the general global economic growth experienced towards the end of 2007, the price for contracting
freight containers and vessels were relatively high due to the high demand around the world for such services. More
recently due to the recent economic slow-down in North America and Europe the cost for contracting freight containers and vessels have been relatively lower. Any increase in the cost of contracting freight containers and vessels
for transporting Q-Chem I’s products could have an adverse impact over Q-Chem I’s margins and therefore results of
operations.
Crude oil price
The price of crude oil is cyclical and depends on, among other things, the relative economic growth of economies
around the world and is affected by a wide number of variables. Furthermore, the increase in crude oil costs may also
have an adverse impact over the cost of freight and distribution which may contribute to a reduction in Q-Chem I’s
margins. These factors therefore will impact Q-Chem I’s results of operations.
Foreign exchange
Q-Chem I does not generally hedge its foreign currency exposure. The Euro has depreciated against the US Dollar
in recent years due to the general slowdown of economies in Europe such as Portugal, Ireland, Spain and Greece.
However, Q-Chem I’s internal financial reporting is in US Dollars and the majority of Q-Chem I’s business transactions
remain in US Dollars. Q-Chem I does not currently have active plans to hedge its foreign exchange exposure.
103
Results of Operations
The following table sets out Q-Chem I’s consolidated statement of comprehensive income for the years indicated:
For the year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
847,277
767,743
752,675
(428,342)
(317,732)
(330,575)
418,935
450,011
422,100
Revenue
Cost of sales
Gross Profit
Other operating income
Selling and distribution costs
General administration expenses
Other operating expense
4,776
4,667
808
(32,195)
(28,767)
(29,493)
(7,437)
(7,433)
(7,918)
(771)
(8,142)
(2,370)
(4,980)
(362)
(6,330)
Operating Profit
378,328
409,974
376,797
Finance income
328
32
90
-
(385)
(1,099)
Foreign currency exchange differences
Finance costs
Profit before tax
Taxation
378,656
409,621
375,788
(104,958)
(113,198)
(104,879)
273,698
296,423
270,909
-
-
-
273,698
296,423
270,909
Profit for the year
Other comprehensive income
Total comprehensive income for the year
The following discussion provides an analysis of the material factors affecting Q-Chem I’s results of operations for the
years ended 31 December 2012, 2011 and 2010.
Years ended 31 December 2012 and 2011
Revenue
Revenue is the total turnover generated by Q-Chem I from the sales of PE and 1-Hexene and by-products. Revenue
results from the sales price which Q-Chem I charges to its customers which is in turn primarily determined by the
global prices of its products. Prices are based on the FOB Doha price or "Netback" price (net of freight, insurance and
logistics supply chain costs).
For the year ended 31 December 2012, total revenue increased by US$79.5 million, or 10.4% from US$767.7 million
for the year ended 31 December 2011 to US$847.3 million. This increase was primarily due to increased sales quantity
driven by Ethylene purchases from Q-Chem II.
Cost of sales
Cost of sales is the total cost incurred by Q-Chem I in order to manufacture its PE and 1-Hexene products. Cost of sales
principally includes the cost of raw materials (ethylene), employee costs and maintenance and production costs. Ethylene costs, the rates and volumes of which are contractually agreed, account for the majority of the total cost of sales.
For the year ended 31 December, 2012, total costs of sales increased by US$110.6 million, or 34.8% from US$317.7
million for the year ended 31 December 2011 to US$428.3 million. For the year ended 31 December 2012, the increase
was primarily due to the purchase of Ethylene from Q-Chem II at market price and planned turnaround cost.
Other operating income
Other operating income relates to operating lease rental charges received from Q-Chem II on common facilities
between Q-Chem I and Q-Chem II. In the year ended 31 December 2012, other operating income increased by US$0.1
million or 2.3% from US$4.7 million for the year ended 31 December 2011 to US$4.8 million. In the opinion of Q-Chem I
management, this change is not material.
104
Selling and distribution costs
Selling and distribution costs are the costs incurred by Q-Chem I in order to sell and transport its PE and 1-Hexene
products to its customers. Q-Chem I selling and distribution costs mainly consist of agency agreements whereby
QAPCO and Phillips Petroleum International Corporation ("PPIC") act as sales agents for Q-Chem I’s products in return
for a marketing fee that is set out contractually and remains constant.
For the year ended 31 December 2012, selling and distribution costs increased by US$3.4 million, or 11.9% from
US$28.8 million for the year ended 31 December 2011 to US$32.2 million.
This increase was primarily due to an increase in marketing commission driven by higher sales volumes, although it
should be noted that the marketing commissions as a percentage of sales remained constant throughout the year.
General and Administrative expenses
General and administrative expenses principally relate to all administration and overhead expenses not directly associated with plant operations. For the year ended 31 December 2012, total general and administrative expenses were
remained largely stable as compared to the year ended 31 December 2011 (US$7.4 million in 2012 as compared to
US$7.4 million in 2011).
Other operating expense
Other operating expenses principally relate to all other categories of expenses not otherwise categorised such as asset
write-offs and rebates on sales. For the year ended 31 December 2012, other operating expenses decreased by US$7.4
million, or 90.5%, from US$8.1 million in 2011 to US$0.8 million. This primarily reflects the write-off of furnace tubes in 2011.
Foreign currency exchange differences
A significant proportion of Q-Chem I’s sales (26.5% for the year ending 31 December 2012) are denominated in Euros.
Q-Chem I generally does not hedge its foreign currency exposure and therefore is exposed to foreign exchange losses
in the event of a deterioration in the value of the Euro.
For the year ended 31 December 2012, there was an increase in the loss on foreign currency exchange from US$0.4
million for the year ended 31 December 2011 to US$5.0 million. This was primarily due to fluctuations in the USD / EUR
exchange rate.
Finance income
Finance income is income derived by Q-Chem I primarily from interest on bank balances.
For the year ended 31 December 2012 finance income increased from a negligible amount for the year ended 31
December 2011 to US$0.3 million. In the opinion of Q-Chem I management, this change is not material.
Finance costs
Finance costs are incurred in respect of interest payments in relation to Q-Chem I bank borrowings.
For the year ended 31 December 2012 finance costs decreased to US$0 from US$0.4 million for the year ended 31 December 2011 as a result of Q-Chem I repaying in full all of its project financing loans in December 2011.
Taxation
Income tax liabilities are accrued monthly and are paid in April the following year to when they are accrued.
For the year ended 31 December 2012 income tax expense decreased by US$8.2 million, or 7.3% from US$113.2 million
for the year ended 31 December 2011 to US$105.0 million. This was primarily due to a reduction in net income before tax
due to planned turnaround.
105
Years ended 31 December 2011 and 2010
Revenue
For the year ended 31 December 2011, total revenue increased by US$15.1 million, or 2.0%, from US$752.7 million
for the year ended 31 December 2010, to US$767.7 million. This increase was primarily due to an increase in revenue
resulting from the sale of ethylene to Q-Chem II (as a result of a prolonged shutdown of the Q-Chem I plant in June
2011 enabling unused ethylene feedstock to be diverted to Q-Chem II) and an increase in sales of co-products which
offset declines in both PE and 1-Hexene revenue driven by lower volumes produced due to a shutdown of the Q-Chem
I plant in February 2011. Favourable price movements in the global markets of Q-Chem I’s products contributed to the
increase in Q-Chem I’s revenues driven primarily by increased global demand for PE and 1-Hexene.
Cost of sales
For the year ended 31 December 2011, total costs of sales decreased by US$12.8 million, or 3.9% from US$330.6
million for the year ended 31 December 2010 to US$317.7 million. This decrease was primarily due to a decrease in
variable production costs, which in turn, resulted from a decrease in the volume of ethylene purchased by Q-Chem
II (which was purchased at spot prices) as well as a change in calculation methodology under the feedstock supply
agreement. Labour and overhead costs have also reduced due to a greater proportion of costs being charged out to
Q-Chem II as a consequence of the ramp-up of Q-Chem II and RLOC’s operating activities during the year ended 31
December 2011.
Other operating income
For the year ended 31 December 2011, other operating income increased by US$3.9 million from US$0.8 million for the year
ended 31 December 2010 to US$4.7 million. This increase was primarily due to rental charges received from Q-Chem II for
the use of common facilities that were transferred to Q-Chem II in November 2010.
Selling and distribution costs
For the year ended 31 December 2011, selling and distribution costs decreased by US$0.7 million, or 2.5% from US$29.5
million for the year ended 31 December 2010 to US$28.8 million.
This marginal decrease was primarily due to a small decrease in marketing commission to QAPCO and to PPIC although
it should be noted that the marketing commission as a percentage of sales remained constant and consistent with the
contractual agreements throughout the year. If the relevant marketing, offtake and distribution agreements are not
extended they are set to expire in the first quarter of the year ended 31 December 2012.
General and Administrative expenses
For the year ended 31 December 2011, total general and administrative expenses decreased by US$0.5 million, or 6.1%
from US$7.9 million for the year ended 31 December 2010 to US$7.4 million. This was primarily due to a decrease in
administrative and overhead expenses which are not directly associated with plant operations.
Other operating expense
For the year ended 31 December 2011 other operating expenses increased by US$5.8 million, from US$2.4 million for
the year ended 31 December 2010 to US$8.1 million. This was primarily due to a write-off of property, plant and equipment balances totalling US$5.0 million which were capitalised in the year ended 31 December 2010 in addition to a
write-off of spare parts totalling US$1.0 million.
Foreign currency exchange differences
Foreign exchange losses mainly relate to losses arising from Euro denominated sales. For the year ended 31 December
2011 there was a decrease in the loss on foreign currency exchange by US$6.0 million, or 94.3% from US$6.3 million
for the year ended 31 December 2010 to US$0.4 million. Q-Chem I suffered from a significant foreign exchange loss
during the year ended 31 December 2010 due to the depreciation of the Euro against the US Dollar. During the year
ended 31 December 2011, a further depreciation of the Euro against the US Dollar led to a comparatively smaller loss
on foreign exchange for Q-Chem I.
106
Finance income
For the year ended 31 December 2011 finance income decreased by US$0.1 million from the year ended 31 December
2010 to a negligible amount. This movement is not considered material by Q-Chem I’s management.
Finance costs
For the year ended 31 December 2011 finance costs decreased by US$0.7 million, or 65.0% from US$1.1 million for the
year ended 31 December 2010 to US$0.4 million. This was due to a reduction in interest cost in-line with the repayment of debt (completed in December 2011) and reduction in LIBOR throughout the year.
Taxation
For the year ended 31 December 2011 income tax expense increased by US$8.3 million, or 7.9% from US$104.9 million
for the year ended 31 December 2010 to US$113.2 million. This was due to an increase in Q-Chem I’s income subject
to tax from US$309.8 million in the financial year ended 31 December 2010 to US$345.9 million in the financial year
ended 31 December 2011. The income tax rate remained the same during the respective periods.
Liquidity and Capital Resources
Overview
Q-Chem I has historically financed its capital requirements from its operating activities, support from its shareholders
and through debt facilities provided by its bank lenders.
Cash Flow
The following table summarises Q-Chem I’s cash flow for the periods indicated:
For the year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
Net cash from operating activities
273,155
423,683
351,446
Net cash used in investing activities
(9,296)
(13,393)
(8,164)
(298,500)
(274,300)
(198,100)
174
(93,580)
(94,642)
Payment of Dividend
Other cash from (used in) financing activities
Net (decrease) increase in cash and cash equivalents
(34,467)
42,410
50,540
Cash and cash equivalents at end of 31 December
273,557
308,024
265,614
Net cash provided by operating activities. In 2012, net cash provided by operating activities decreased by US$150.5
million, or 35.5%, from US$423.7 million in 2011 to US$273.2 million. This decrease was primarily attributable to
planned turnaround activity and other working capital changes.
In 2011, net cash provided by operating activities increased by US$72.2 million, or 20.6%, from US$351.4 million in
2010 to US$423.7 million in 2011. This increase was primarily attributable to an increase in earnings and improvements
in working capital.
Working capital. As at 31 December 2012, Q-Chem I’s working capital (current assets less current liabilities) amounted
to US$388.4 million, an increase of 8.7% when compared with the US$357.4 million of working capital as at 31 December 2011, which in turn amounted to an increase of 29.0% when compared with the US$277.0 million of working capital
as at 31 December 2010.
Net cash used in investing activities. In 2012, net cash used in investing activities decreased by US$4.1 million, or
30.6%, from US$13.4 million in 2011 to US$9.3 million. This decrease was primarily attributable to more limited additions to property, plant and equipment as compared to 2011. In 2011, net cash used in investing activities increased by
US$5.2 million, or 64.0%, from US$8.2 million in 2010 to US$13.4 million in 2011. This increase was primarily due to an
increase in capital expenditure driven by maintenance expenditure on Q-Chem I’s plant.
107
Capital Expenditure. Capital expenditure refers to funds used by Q-Chem I and relates solely to maintenance expenditure, as there has not been any expansionary expenditure since the plant’s inception. In the year ended 31 December
2012, capital expenditure amounted to US$10.6 million, compared to US$13.3 million in the year ended 31 December
2011, representing an decrease of 20.3%, and which in turn represented an increase of 52.8% when compared with
capital expenditure in the year ended 31 December 2010 which amounted to US$8.7 million. The following table illustrates the development of Q-Chem I’s capital expenditure:
Year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
10,627
13,288
8,698
Actual capital expenditure
Payment of Dividend. In 2012, payment of dividend increased by US$24.2 million, or 8.8%, from US$274.3 million in
2011 to US$298.5 million in 2012. This increase was primarily attributable to release of the reserve accounts due to
completion of debt repayment. In 2011, payment of dividend increased by US$76.2 million, or 38.5%, from US$198.1
million in 2010 to US$274.3 million in 2011. This increase was primarily attributable to the increase in profits of Q-Chem
I and the repayment of all of Q-Chem I’s project finance loans which resulted in the lifting of covenant restrictions.
Other cash used in financing activities. In 2012, other cash used in financing activities decreased by US$93.8 million,
from US$93.6 million in 2011 to US$0.2 million in 2012. This decrease was primarily attributable to the absence of
debt repayment in 2012, following completion of debt repayment in 2011. In 2011, cash used in financing activities
decreased by US$1.1 million, or 1.1%, from US$94.6 million in 2010 to US$93.6 million in 2011. This movement is not
considered to be material by the Company’s management.
Net (decrease) increase in cash and cash equivalents. For the year ended 31 December 2012, the net decrease in cash
and cash equivalents amounted to US$34.5 million, compared with the US$42.4 million of net increase in cash and
cash equivalents available as at 31 December 2011, which in turn amounted to a decrease of 16.0% when compared
with the US$50.5 million of net increase of cash and cash equivalents available as at 31 December 2010.
Qualitative and Quantitative Disclosure of Financial Risk and Financial Risk Management
Q-Chem I’s activities expose it to a variety of financial risks, principally market risk (comprised of fair value interest rate
risk, cash flow interest rate risk and foreign currency risk), credit risk and liquidity risk. The Board of Q-Chem I reviews
and agrees policies for managing each of these risks which are summarised below.
Interest Rate Risk
Q-Chem I is exposed to interest rate risk on its floating interest bearing assets and liabilities comprise of bank deposits,
amounts due from a related party, amounts due to a related party and interest bearing loans and borrowings, as follows:
2012
US$’000
2011
US$’000
2010
US$’000
(156,251)
(165,534)
(264,492)
Floating interest rate instruments:
Financial liabilities
Q-Chem I’s exposure to the risk of changes in market interest rates relates primarily to Q-Chem I’s financial assets and
liabilities with floating interest rates. The following table demonstrates the sensitivity if the interest rates had been 100
basis points higher or lower during the years ended 31 December 2012, 31 December 2011 and 31 December 2010. The
effect of decreases in interest rates is expected to be equal and opposite to the effect of the increases shown:
Changes in
basis points
Effect on profit or loss
US$’000
+100 bp
1,563
+100 bp
1,655
+100 bp
2,645
2012
Floating interest rate instruments
2011
Floating interest rate instruments
2010
Floating interest rate instruments
108
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in foreign currency exchange rates. The majority of Q-Chem I’s financial assets and liabilities are denominated in US Dollars and Qatari Riyals. In the opinion of the Company’s management, Q-Chem I’s exposure to currency
risk is minimal as the US Dollar is pegged to the Qatari Riyal, and balances in Qatari Riyals are not considered to represent a significant currency risk to Q-Chem I.
In 2012, trade receivables include an amount of US$43.0 million (2011: US$31.4 million, 2010: US$59.8 million), trade
payables include an amount of US$0.7 million (2011: US$0.4 million, 2010: US$0.6 million) and bank balances include
an amount of US$3.5 million (2011: US$7.3 million, 2010: US$0.4 million) due in Euros.
Q-Chem I generally does not hedge its foreign currency exposure. The table below indicates Q-Chem I's foreign currency exposure as at 31 December 2012, 31 December 2011 and 31 December 2010 as a result of its monetary assets
and liabilities. The analysis calculates the effect of a reasonably possible movement of the US$ currency rate against
the Euro, with all other variables held constant, on the consolidated statement of comprehensive income (due to the
fair value of currency sensitive monetary assets and liabilities). The effect of decreases in foreign currency exchange
rates is expected to be equal and opposite to the effect of the increases shown.
Increase in Euro rate
to the US$
Effect on profit
US$’000
2012
+5%
2,290
2011
+5%
1,915
2010
+5%
2,940
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other
party to incur a financial loss. Q-Chem I’s exposure to credit risk is as indicated by the carrying amount of its financial
assets which consist principally of trade and other receivable, amounts due from related parties and bank balances.
Trade and other receivables and amounts due from related parties are shown net of provision for doubtful receivables
and bank balances are with reputed banks.
As at 31 December 2012, the Company’s management believe that there were no significant concentrations of credit
risk as its five largest customers account for 20.0% of outstanding accounts receivable (2011: 23% and 2010: 21%).
Each customer is evaluated for creditworthiness before the services are offered and Q-Chem I deals with known and
creditworthy related parties and maintains accounts with reputed banks. The carrying amount of a financial asset
represents the maximum exposure. The maximum exposure to credit risk at the reporting date was as set out below.
Trade and other receivables
Amounts due from related parties
Bank balances
2012
US$’000
2011
US$’000
2010
US$’000
168,359
137,860
120,640
112,661
117,212
155,616
273,554
308,019
265,607
554,574
563,091
541,863
Liquidity Risk
Liquidity risk is the risk that Q-Chem I will not be able to meet financial obligations as they fall due. Q-Chem I’s
approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to Q-Chem I’s reputation.
Q-Chem I monitors its risk to a shortage of funds using a recurring liquidity planning tool and by ensuring bank facilities are available. This liquidity planning tool considers the maturity of financial assets (e.g. trade receivables) and
projected cash flows from operations.
109
The table below summarises the maturities of the Q-Chem I's financial liabilities as at 31 December 2012, 31 December
2011 and 31 December 2010 based on contractual undiscounted payments as follows:
31 December 2012
In thousands of US$
Trade and other payables
Amounts due to related parties
31 December 2011
In thousands of US$
6 months
or less
6 – 12
months
1–2
years
More than
2 years
Total
20,896
-
-
-
20,896
64,607
5,031
10,017
147,238
226,893
85,503
5,031
10,017
147,238
247,789
6 months
or less
6 – 12
months
1–2
years
More than
2 years
Total
Accounts payable
19,865
-
-
-
19,865
Amounts due to related parties
77,709
5,055
10,064
155,363
248,191
97,574
5,055
10,064
155,363
268,056
6 months
or less
6 – 12
months
1–2
years
More than
2 years
Total
Interest bearing loans and borrowings
47,158
47,024
-
-
94,182
Accounts payable
10,842
-
-
-
10,842
Amounts due to related parties
47,189
5,219
10,383
163,624
226,415
105,189
52,243
10,383
163,624
331,439
31 December 2010
In thousands of US$
Critical Accounting Policies
Q-Chem I’s reported financial condition and results of operations are sensitive to accounting methods, assumptions and
estimates that are the basis for its consolidated financial statements. Q-Chem I’s critical accounting policies, the judgments it makes in the creation and application of these policies, and the sensitivities of reported results to changes in
accounting policies, assumptions and estimates are factors to be considered along with Q-Chem I’s financial statements.
B.
Q-Chem II
Overview
Q-Chem II was formed on 27 July 2005 as a joint venture between Qatar Petroleum and CP-Chem for the development, construction, ownership and operation of a world-scale petrochemical project in Qatar. Q-Chem II commenced
commercial operations on 3 December 2010. The project facilities are located on two sites, at RLIC in the north east
of Qatar, and MIC in the south-east of Qatar. The Ras Laffan site is the location of the Cracker which was developed in
a joint venture with Qatofin. The ethylene from the Cracker is then used by Q-Chem II as feedstock for its HDPE unit
and normal alpha olefins unit, (together the "Derivatives Facilities") based at MIC. Q-Chem II is owned 49% by the
Company and 49% by CPCIQH, with Qatar Petroleum initially retaining a 2% direct shareholding.
Q-Chem II acts as the operator of the Cracker and Qatar Petroleum operates the Pipeline through which ethylene is
transported to the Derivatives Facilities which were built on a site adjacent to the Q-Chem I facility thus enjoying operational synergies with Q-Chem I. Such synergies are achieved by Q-Chem I acting as operator of Q-Chem II thereby
reducing operating costs and by the sharing of certain common facilities in order to minimise capital costs. In addition
to the cost savings relative to a stand-alone operation, integration of the management and operations with Q-Chem
I provides Q-Chem II with the benefit of the operating and management expertise of the management and staff currently operating Q-Chem I.
110
Q-Chem II is managed on the basis of certain financial and non-financial key performance indicators, including, but
not limited to, revenue and EBITDA. The following table presents these key figures for each of the years ended 31
December 2012, 2011 and 2010:
For the year ended 31 December
Revenue
EBITDA
1
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
1,036,039
834,030
134,828
635,387
486,125
30,459
61.3%
58.3%
22.6%
EBITDA margin
1
"EBITDA" refers to EBITDA (earnings before deductions for interest, taxes, depreciation and amortisation).
Factors Affecting Comparability of Periods Under Review
Save as set out in this sub-section or elsewhere in "Management Discussion and Analysis", the Financial Statements
relating to Q-Chem II referred to in this Prospectus are generally comparable against each other. However, it should be
noted that certain reclassifications of individual line items in the consolidated Financial Statements for the year ended
31 December 2012 as compared to the consolidated Financial Statements for the year ended 31 December 2011 affect
the direct comparability of these Financial Statements against each other. These reclassifications are manifested most
materially in the comparative commentary for the year ended 31 December 2011 (as it appears for comparison purposes
in the 2012 Financial Statements) as compared to the actual 2011 figures as appear in the 2011 Financial Statements.
Key Factors Affecting Q-Chem II’s Results of Operations
Ramp-up of operations
Q-Chem II experienced its first year of operation in the year ended 31 December 2010. During the year ended 31 December 2010, ethylene from RLOC was diverted to Q-Chem I due to delays commissioning the Q-Chem II plant. Outages
were experienced in Q-Chem II’s plant in February 2011, July 2011 and December 2011 which affected production. The
Company’s management believes that such disruptions are part of the initialization phase of the project. During the year
ended 31 December 2012, the Q-Chem II plant operated at levels exceeding its design capacity at times. Q-Chem II’s
management expects that the Q-Chem plant will be operating at similar capacity levels during the course of the year
ending 31 December 2013. Failure to do so would have an effect on Q-Chem II’s results of operations.
Commodity Prices
Q-Chem II’s results of operations will be directly impacted by the market price that QP and CPCIQH, as agents for
Q-Chem II, can achieve on the global market. Global demand for commodities have seen an increase in recent years
but has shown signs of slowing down due to a lack of economic activity and growth in key markets such as North
America and Europe. Q-Chem II benefits from being a low-cost producer of its products and its results of operations
is less affected when compared to its competitors.
Foreign exchange
Q-Chem II generally does not hedge its currency exposure. The Euro has, in recent years, depreciated against the US
Dollar. Q-Chem II does not currently have active plans to hedge their foreign exchange exposure.
111
Results of Operations
The following table sets out Q-Chem II’s consolidated statement of comprehensive income for the years indicated:
For the year ended 31 December
Revenue
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
1,036,039
834,030
134,828
(424,220)
(371,074)
(114,641)
611,819
462,956
20,187
Cost of sales
Gross Profit
Other operating income
101
101
17
(42,522)
(38,661)
(3,525)
General administration expenses
(7,132)
(8,030)
(8,359)
Other operating expenses
(1,896)
(2,337)
(3,853)
Selling and distribution costs
(8,189)
(2,761)
152
Operating Profit
552,181
411,268
4,619
Tax payment on behalf of Q-Chem II by
Qatar Petroleum
149,438
79,681
_
5,185
_
_
56
2
_
Foreign currency exchange differences
Other non-operating income
Finance income
Finance costs
(18,092)
(15,733)
(4,403)
Profit before tax
688,768
475,218
216
Current and deferred taxes
Profit for the year
Other comprehensive income
Total comprehensive income for the year
(189,487)
(120,618)
3,679
499,281
354,600
3,895
_
_
_
499,281
354,600
3,895
The following discussion provides an analysis of the material factors affecting Q-Chem II’s results of operations for the
years ended 31 December 2012, 2011 and 2010.
Years ended 31 December 2012 and 2011
Revenue
Revenue is the total turnover generated by Q-Chem II primarily from the sales of polyethylene (PE) and normal alpha
olefins (NAO) and, to a lesser extent, co-products such as pygas. Revenue results from the sales price which Q-Chem
II charges to its customers which is in turn primarily determined by the global prices of its products.
For the year ended 31 December 2012, total revenue increased by US$202.0 million, or 24.2%, from US$834.0 million
for the year ended 31 December 2011, to US$1,036.0 million. This increase was primarily due to higher product and
Ethylene sales.
Cost of sales
Cost of sales is the total cost incurred by Q-Chem II in order to produce its PE and NAO products. Cost of sales principally include the cost of raw materials (primarily ethylene), employee costs and maintenance and production costs.
The cost of ethylene and the ethylene processing costs account for the majority of the total cost of sales.
For the year ended 31 December 2012, total costs of sales increased by US$53.1 million, or 14.3%, from US$371.1 million
for the year ended 31 December 2011, to US$424.2 million. This increase was primarily due to an increase in the variable
production and selling costs due to the first year of operation of Q-Chem II and a ramp-up of Q-Chem II’s production and
operations. Q-Chem II sources the majority of its ethylene from RLOC under a processing agreement whereas RLOC processes the ethane supplied by Qatar Petroleum through the Feedstock Supply Agreement and distributes it to Q-Chem II
and Qatofin. The price of ethane is based on a contractually agreed arrangements under the Feedstock Supply Agreement.
112
Selling and distribution costs
Selling and distribution costs are the costs incurred by Q-Chem II in order to sell and transport its PE and NAO products to its customers. Q-Chem II selling and distribution costs mainly consist of Agency Agreements whereby CPCIQH
and Qatar Petroleum act as sales agents for Q-Chem II’s product in return for a marketing fee as a percentage of sales
which remained constant and consistent with the contractual agreements throughout the period.
For the year ended 31 December 2012, selling and distribution costs increased by US$3.9 million, or 10.0%, from US$38.7
million for the year ended 31 December 2011, to US$42.5 million.
This increase was primarily due to a re-allocation of costs from other cost categories on formation of Q-Chem II DC
although it should be noted that the marketing commission as a percentage of sales remained constant in accordance
with contracted levels.
General and Administrative expenses
General and administrative expenses principally relate to staff costs and outside services which includes all services
provided by external agencies, such as temporary manpower and equipment hire. For the year ended 31 December
2012, total general and administrative expenses decreased by US$0.9 million, or 11.2%, from US$8.0 million for the
year ended 31 December 2011 to US$7.1 million. This was primarily due to reduced legal costs in 2012.
Other operating expense
Other operating expense principally relate to all other categories of expenses not otherwise categorised such as
apportioned head office administrative costs. For the year ended 31 December 2012, the total operating expense
decreased by US$0.4 million, or 18.9%, from US$2.3 million for the year ended 31 December 2011 to US$1.9 million.
This was primarily due to reduced rebate on product sales.
Foreign currency exchange difference
(Loss)/ gain on foreign currency exchange is principally related to the fluctuations in currencies in the market in which
Q-Chem II sells its PE and NAO products to. Predominantly the key factor is the relative rate of the Euro against the
US Dollar. For the year ended 31 December 2012, the total loss on foreign currency exchange increased by US$5.4
million, or 196.6% from US$2.8 million for the year ended 31 December 2011 to US$8.2 million. This was primarily due
to fluctuations in the USD / EUR exchange rate.
Tax payment on behalf of Q-Chem II by Qatar Petroleum
Tax payment on behalf of Q-Chem II by Qatar Petroleum relates to the income tax under Qatari Tax Law No. 21 of 2009,
as modified by the joint venture agreement fiscal incentive provisions, that Q-Chem II is subject to which Qatar Petroleum has agreed, under the joint venture agreement, to pay for the first 10 years from the commercial operation date
(COD). For the year ended 31 December 2012, the tax payment on behalf of Q-Chem II by Qatar Petroleum increased
by US$69.8 million, or 87.5% from US$79.7 million for the year ended 31 December 2011 to US$149.4 million. This was
primarily due to an increase in operating profit from the year ended 31 December 2011 due to the ramp-up of Q-Chem
II’s commercial operations.
Finance income
Finance income comprises interest income, which is recognized as it accrues in the consolidated Statement of
Comprehensive Income and interest received on short-term fixed deposits. For the year ended 31 December 2012,
the finance income increased by US$0.1 million, from a negligible amount for the year ended 31 December 2011 to
US$0.1 million. It is considered not to be a material movement by Q-Chem II management.
Finance costs
Finance costs are those costs related primarily to interest costs associated with the commercial bank loans undertaken by Q-Chem II with US Exim on the one hand and a syndicate of lenders on the other hand. For the year ended 31
December 2012, the finance costs increased by US$2.4 million, or 15.0% from US$15.7 million for the year ended 31
December 2011 to US$18.1 million. This was primarily due to an increase in LIBOR and spread of the syndicated loan.
113
Deferred taxes
Deferred taxes are Q-Chem II’s tax liabilities that are currently deferred, mainly due to the fiscal incentive provisions
under the joint venture agreement in which Qatar Petroleum agrees to pay Q-Chem II’s tax liability for a period of 10 years
from COD. In the year ended 31 December 2012, the deferred taxes decreased by US$0.9 million, or 2.2% from US$40.9
million in the year ended 31 December 2011 to US$40.0 million. This was primarily due to a change in tax-based depreciation amount. The deferred taxes arises from the temporary difference in tax-based and IFRS-based financial information,
which is primarily driven by the accelerated depreciation used for tax purposes. During 2011, the difference between
IFRS depreciation and tax depreciation was US$116.8 million, whereas in 2012 the difference was US$114.4 million. The
difference is due to the higher IFRS depreciation in 2012 resulting from the addition of certain fixed assets.
Years ended 31 December 2011 and 2010
Revenue
For the year ended 31 December 2011, total revenues increased by US$699.2 million, from US$134.8 million for the
year ended 31 December 2010 to US$834.0 million. This increase was primarily due to a ramp-up of Q-Chem II’s operations and production to full capacity in the production of PE products which Q-Chem II began selling in December
2010. Sale of NAO products commenced in February 2011 and Q-Chem II ramped up its sales of NAO products during
the year ended 31 December 2011. Revenue for the year ended 31 December 2010 were mainly generated from the
sale of ethylene to Q-Chem I as RLOC commenced operations in May 2010 while Q-Chem II commenced operations
in November 2010. The year ended 31 December 2011 represented Q-Chem II’s first full year of operations.
Cost of sales
For the year ended 31 December 2011, total costs of sales increased by US$256.4 million, from US$114.6 million for
the year ended 31 December 2010 to US$371.1 million. This increase was primarily due to an increase in variable
production and selling costs due to Q-Chem II’s operations ramping up which includes an increase in the amount of
feedstock consumed. The cost of Q-Chem II’s raw materials such as ethylene, fuel gas and ethane remained stable due
to contractual arrangements in place. Additionally, reductions in manufacturing costs per MT also affected the cost of
sales in the year ended 31 December 2011 as Q-Chem II benefited from economies of scale and improved efficiency
of plant operations.
Selling and distribution costs
For the year ended 31 December 2011, selling and distribution costs increased by US$35.1 million, from US$3.5 million
for the year ended 31 December 2010 to US$38.7 million.
This increase was primarily due to a ramp-up of Q-Chem II’s operations and Q-Chem II’s first full year of operations in
the year ended 31 December 2011 which resulted in an increase in sales and consequently an increase in marketing
commission under Agency Agreements with CPCIQH and Qatar Petroleum by a total of US$34.7 million (although it
should be noted that the marketing commission as a percentage of sales remained constant throughout the period in
accordance with contractual arrangements). The increase in sales as well as the increase in distribution and logistical
costs by US$46 million also contributed to the increase in selling and distribution costs.
General and Administration expenses
For the year ended 31 December 2011, total general and administration expenses decreased by US$0.3 million, or
3.9% from US$8.4 million for the year ended 31 December 2010 to US$8.0 million as management reclassified certain
categories of expenses to various categories following the commencement of commercial operations. The Company’s
management does not consider this change to be material.
Other operating expense
For the year ended 31 December 2011, the total operating expense decreased by US$1.5 million, or 39.4% from US$3.9
million for the year ended 31 December 2010 to US$2.3 million. Management of Q-Chem II does not consider this
movement to be material.
114
Foreign currency exchange differences
For the year ended 31 December 2011, the total loss on foreign currency exchange increased by US$2.9 million, from
positive US$0.2 million for the year ended 31 December 2010 to negative US$2.8 million. This was primarily due to an
increase in Euro denominated sales comprising approximately 27.0% of total sales of Q-Chem II for the year ended 31
December 2011 and the loss on foreign currency exchange due primarily to the appreciation of the US Dollar against
the Euro during that period.
Tax payment on behalf of Q-Chem II by Qatar Petroleum
For the year ended 31 December 2011, the tax payment on behalf of Q-Chem II by Qatar Petroleum increased by
US$79.7 million from US$0 for the year ended 31 December 2010 to US$79.7 million. This was due to the start of commercial operations by Q-Chem II triggering Qatar Petroleum’s obligation to pay Q-Chem II’s tax liability for a period of
10 years from COD and the commencement of a ramp-up in Q-Chem II’s production which increase operating profits.
Finance income
For the year ended 31 December 2011, finance income increased by a negligible amount from US$0 for the year ended
31 December 2010. Management of the Company does not consider this movement to be material.
Finance costs
For the year ended 31 December 2011, the finance costs increased by US$11.3 million, from US$4.4 million for the year
ended 31 December 2010 to US$15.7 million. This was primarily due to previous interest costs being capitalised as part
of borrowing costs under the debt financing in place until the COD where subsequent interest costs were expensed.
The year ended 31 December 2011 was Q-Chem II’s first full year of operation.
Taxation
For the year ended 31 December 2011, current and deferred taxes decreased by US$124.3 million, from a positive of
US$3.7 million in the year ended 31 December 2010 to a negative of US$120.6 million. This was due to the start of commercial operations by Q-Chem II triggering Qatar Petroleum’s obligation to pay Q-Chem II’s tax liability for a period of
10 years from COD and thereby increasing the tax liability. Q-Chem II will be subject to Qatari corporation tax following
the expiration of Qatar Petroleum’s liability to pay Q-Chem II’s tax liability 10 years from COD on 31 December 2021.
Liquidity and Capital Resources
Overview
Q-Chem II has historically financed its capital requirements from its operating activities, support from its shareholders
and through debt facilities provided by its bank lenders.
Cash Flow
The following table summarises Q-Chem II’s cash flow for the periods indicated:
Year ended 31 December
Net cash from (used in) operating activities
Net cash used in investing activities
Net cash (used in) from financing activities
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents at 31 December
115
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
622,491
269,741
(8,081)
(8,019)
(12,589)
(250,162)
(624,463)
69,400
270,000
(9,991)
326,552
11,757
331,501
341,492
14,940
Net cash provided by operating activities. In 2012, net cash provided by operating activities increased by US$352.8
million, or 130.8%, from US$269.7 million in 2011 to US$622.5 million. This increase was primarily attributable to
increased product and Ethylene sales and changes in working capital.
For 2010, Q-Chem II had cash used in operating activities amounting to US$8.1 million, which increased by US$277.8
million to a cash from operating activities amounting to US$269.7 million in 2011. This increase was primarily attributable to a ramp-up in the operations of Q-Chem II and the increase in the production and sale of PE and NAO.
Working capital. As at 31 December 2012, Q-Chem II’s working capital (current assets less current liabilities) amounted
to US$143.0 million, compared with the negative balance of US$37.7 million of working capital as at 31 December
2011, which in turn amounted to a decrease of 58.1% when compared with the negative balance of US$23.9 million of
working capital as at 31 December 2010.
Net cash used in investing activities. For the year ended 31 December 2012, net cash used in investing activities
decreased by US$4.6 million, or 36.3%, from US$12.6 million in 2011 to US$8.0 million. This decrease was primarily attributable to reduced additions to property, plant and equipment. In 2011, net cash used in investing activities
decreased by US$237.6 million, or 95.0%, from US$250.2 million in 2010 to US$12.6 million in 2011. This decrease is
due to the completion of Q-Chem II and commencement of its operations, whereas, previously construction costs
were capitalised within PPE until operations commenced.
Capital expenditure. Capital expenditure refers to funds used by Q-Chem II to acquire or upgrade physical assets,
including property, plant and equipment. For the year ended 31 December 2012, capital expenditure amounted to
US$7.1 million, compared to US$11.6 million for the year ended 31 December 2011, representing a decrease of US$4.5
million, and which in turn represented a decrease of 95.4% when compared with capital expenditure for the year
ended 31 December 2010, which amounted to US$253.6 million. The following table illustrates the development of
Q-Chem II’s capital expenditure:
Year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
7,075
11,591
253,642
Actual Capital Expenditure
Cash (used in) from financing activities. In the year ended 31 December 2012, cash (used in) from financing activities
decreased by US$693.9 million, from US$69.4 million in 2011 to US$(624.5) million in 2012. This decrease was primarily
attributable to repayment of interest and non-interest bearing loans and borrowings. For the year ended 31 December
2011, cash from (used in) financing activities decreased by US$200.6 million, or 74.3%, from US$270.0 million in 2010
to US$69.4 million in 2011. This decrease was mainly due to a decline in the cash inflows from new debt facilities. Furthermore, Q-Chem II started repaying the debt principal in 2011 which had a negative impact on cash from financing
activities. No dividend was paid in the years ended 31 December 2012, 2011 or 2010 as Q-Chem II opted to repay its
shareholders’ loans prior to commencing payment of any dividend. The final shareholder loan repayment was approved
in April 2013 and was repaid in full on 13 May 2013, in the amount of US$24.6 million, with US$12.5 million (51.0%) being
paid to QP and the remaining US$12.1 million (49.0%) being paid to CP-Chem. This payment represents the final installment of the total US$536.6 million in shareholder loans made to Q-Chem II by its shareholders. With the shareholder
loans fully repaid, cash available for shareholder distributions is expected to be distributed in the form of dividends.
Net (decrease) increase in cash and cash equivalent. For the year ended 31 December 2012, the net decrease in cash
and cash equivalents amounted to US$10.0 million, a decrease of 103.1% when compared with the US$326.6 million
of net increase in cash and cash equivalents available as at 31 December 2011.
116
Qualitative and Quantitative Disclosure of Financial Risk and Financial Risk Management
References to Q-Chem II below in this section shall include RLOC:
Interest Rate Risk
Q-Chem II’s financial assets and liabilities that are exposed to its floating interest bearing assets and liabilities comprising of bank deposits, interest bearing loan, borrowings and finance lease payables, as follows:
2012
US$’000
2011
US$’000
2010
US$’000
(1,434,893)
(1,638,258)
(1,581,234)
Floating Interest rate instruments:
Financial liabilities
Q-Chem II’s exposure to the risk of changes in market interest rates relates primarily to Q-Chem II’s financial assets
and liabilities with floating interest rates. The following table demonstrates the sensitivity if the interest rates had been
100 basis points higher or lower during the years ended 31 December 2012, 31 December 2011 and 31 December 2010.
The effect of decreases in interest rates is expected to be equal and opposite to the effect of the increases shown:
Changes in basis points
Effect on profit or loss
US$’000
+100 bp
14,349
+100 bp
16,383
+100 bp
15,812
2012
Floating interest rate instruments
2011
Floating interest rate instruments
2010
Floating interest rate instruments
Foreign Currency Risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in foreign currency exchange rates. The majority of Q-Chem II’s financial assets and liabilities are denominated in US Dollars and Qatar Riyals. In the opinion of the Company’s management, Q-Chem II’s exposure to currency
risk is minimal as the Qatari Riyal is pegged to the US Dollar. Balances in Qatari Riyals are not considered to represent
a significant currency risk to Q-Chem II.
Trade receivables include an amount of US$40.2 million (2011: US$38.5 million, 2010: US$3.3 million), trade payables
include an amount of US$1.4 million (2011: US$0.4 million, 2010: US$0.3 million) and bank balances include an amount
of US$5.1 million (2011: US$3.1 million , 2010: US$0.4 million) held in Euros. The following table demonstrates Q-Chem
II’s currency exposure as at 31 December 2012, 31 December 2011 and 31 December 2010 with such table showing the
effect of a reasonable possibility of a movement of the US Dollar rate against the Euro with all other variables held constant. The effect of decreases in foreign currency exchange rates is expected to be equal and opposite to the effect
of the increases shown:
Increase in Euro rate to
the US$
Effect on profit
US$’000
2012
+5%
2 ,1 9 5
2011
+5%
2,060
2010
+5%
170
Q-Chem II generally does not hedge its currency exposure.
Credit Risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other
party to incur a financial loss. Q-Chem II’s exposure to credit risk is as indicated by the carrying amount of its financial
assets which consist principally of trade and other receivable, amounts due from related parties and bank balances.
Trade and other receivables and amounts due from related parties are shown net of provision for doubtful receivables
and bank balances are with reputed banks.
117
At the end of the reporting period, the Company’s management believe that there were no significant concentrations of credit risk to customers. Each customer is evaluated for creditworthiness before the services are offered and
Q-Chem II deals with known and creditworthy related parties and maintains accounts with reputed banks.
Amounts due from related parties represent balances with the joint venture shareholders and their affiliates for the
services provided to them. The Company’s management believes that the credit risk on these related party balances
are minimal given these related parties’ strong financial position and further, these balances are not significantly past
due. Bank balances represent the balance with reputed banks. The carrying amount of financial assets represents the
maximum credit exposure. The maximum credit exposure to Q-Chem II as at 31 December 2012, 31 December 2011
and 31 December 2010 were as follows:
2012
US$’000
2011
US$’000
2010
US$’000
Trade receivable
145,121
143,976
21,068
Amounts due from related parties
178,812
202,568
178,258
Bank balances
331,501
341,492
14,940
8,421
5,124
4,252
663,855
693,160
218,518
Other receivables
Liquidity Risk
Liquidity risk is the risk that Q-Chem II will not be able to meet financial obligations as they fall due. Q-Chem II’s
approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet
its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to Q-Chem II’s reputation.
Q-Chem II monitors its risk and reduces its liquidity risk using shareholders’ funds and by ensuring that bank facilities
are available.
Q-Chem II’s activities exposes it to a variety of risks including risks relating to the availability and maintenance of the
Cracker, operating performance risk, feedstock supply risk, margin and price volatility risk, sales volume risk, interest
rate risk, foreign currency risk and credit risk. The Board of Q-Chem II reviews and agrees policies for managing each
of these risks which are summarised below.
The tables below summarise the maturities of Q-Chem II’s financial liabilities as at 31 December 2012, 31 December
2011 and 31 December 2010 based on contractual undiscounted payments as follows:
As at 31 December 2012
In thousands of US$
6 months
or less
6 to 12
months
1 to 2
years
More than
2 years
Total
111,500
-
-
-
111,500
Interest bearing loans and borrowings
Trade and other payables
Amounts due to related parties
107,050
17,622
72,128
308,300
192,635
3,090
195,725
203,755
6,152
209,907
939,599
87,905
1,027,504
1,443,039
17,622
169,275
1,741,436
31 December 2011
In thousands of US$
6 months
or less
6 – 12
months
1–2
years
More than
2 years
Total
Non-interest bearing shareholders’
loans and borrowings
180,787
205,897
151,616
-
538,300
Interest bearing loans and borrowings
Trade and other payables
150,205
15,731
70,170
-
285,713
-
1,243,756
-
1,749,844
15,731
56,512
403,235
3,104
279,171
6,180
443,509
94,057
1,337,813
159,853
2,463,728
Non-interest bearing shareholders’ loans
and borrowings
Amounts due to related parties
118
31 December 2010
In thousands of US$
Non-interest bearing shareholders’
loans and borrowings
Interest bearing loans and borrowings
Account payables
Amounts due to related parties
6 months
or less
6 – 12
months
1–2
years
More than
2 years
Total
-
-
187,150
340,350
527,500
13,574
15,147
33,912
53,142
-
147,466
-
1,573,560
-
1,787,742
15,147
33,912
62,633
53,142
334,616
1,913,910
2,364,301
Capital Management
Q-Chem II’s policy is to maintain a strong capital base so as to maintain shareholders and creditor confidence and
sustain future development of the business. Q-Chem II monitors capital using a gearing ratio, which is debt divided by
capital plus debt. In calculating the gearing ratio, Q-Chem II includes within debt, interest bearing loans and borrowings
less cash and cash equivalents. Capital includes shareholders’ share capital, equity contribution, contributed capital
and retained earnings.
Critical Accounting Policies
Q-Chem II’s reported financial condition and results of operations are sensitive to accounting methods, assumptions
and estimates that are the basis for its financial statements. Q-Chem II’s critical accounting policies, the judgments it
makes in the creation and application of these policies, and the sensitivities of reported results to changes in accounting policies, assumptions and estimates are factors to be considered along with Q-Chem II’s financial statements.
C.QVC
Overview
QVC was formed in 1997 and commenced operations in 2001. It owns and operates petrochemical units producing
ethylene dichloride, vinyl chloride monomer and caustic soda based at MIC. QVC was established pursuant to a joint
venture agreement between Qatar Petroleum, QAPCO, Arkema and Norsk Hydro (each of Arkema and Norsk Hydro
having since transferred its equity interest in QVC to Qatar Petroleum). QVC benefits from a high degree of integration
with QAPCO. QVC and QAPCO share utility, electrical, instrumentation, piping and fire-fighting systems, as well as the
day-to-day operation and maintenance of the QVC plant.
Qatar Petroleum provides QVC with port access at Mesaieed enabling QVC to export its Caustic Soda, EDC for export,
and VCM production and import salt feedstock. The ethylene import requirements of QVC additional to the ethylene
supplied directly by QAPCO are supplied by ship to QAPCO’s ethylene storage.
The QVC plant comprises four major units - a chlorine unit which produces Caustic Soda, an EDC unit, a VCM unit, and
a power unit. The primary feedstock for the QVC plant is ethylene, the majority of which is supplied by the adjoining
QAPCO plant with the remaining requirement being imported. Qatar Petroleum supplies the fuel gas necessary for
the QVC plant’s energy needs. The other major feedstock, salt, is imported, principally from India. The plant is stateof-the-art, using the latest cost-effective and proven technologies (such as bipolar membrane for its chlorine unit).
QVC is managed on the basis of certain financial and non-financial key performance indicators, including, but not
limited to, revenues and EBITDA. The following table presents these key figures for each of the years ended 31 December 2012, 2011 and 2010:
As at and for the year ended 31 December
Revenues
EBITDA 1
EBITDA margin
1
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
470,783
510,942
448,786
171,061
206,914
180,764
36.3%
40.5%
40.3%
"EBITDA" refers to EBITDA (earnings before deductions for interest, taxes, depreciation and amortisation).
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Factors Affecting Comparability of Periods Under Review
Save as set out in this sub-section or elsewhere in "Management Discussion and Analysis", the Financial Statements
referred to in this Prospectus are generally directly comparable against each other on a like-for-like basis between the
relevant periods under review. The financial statements of QVC as of and for the years ended 31 December 2010, 31
December 2011 and 31 December 2012 have been prepared under International Financial Reporting Standards and
have been audited in accordance with International Standards on Auditing (i) in the case of 2012, by KPMG; and (ii) in
the case of 2011 and 2010, by PricewaterhouseCoopers Qatar ("PwC"), in each case as independent auditors.
Key Factors Affecting QVC’s Results of Operations
Cyclical demand for petrochemical products
Historically, the markets for QVC’s products have experienced alternating periods of tight supply, resulting in subsequent
price and margin increases, followed by periods of global capacity addition, resulting in oversupply and declining prices
and profit margins. One of the main reasons for petrochemical industry cycles is attributed to worldwide project developers
building new production capacities in an uncoordinated manner. Surplus capacity demand catches up and absorbs such
surpluses resulting in a cycle upswing. Such cyclical demand in petrochemicals products will have a direct impact over the
demand for QVC’s products and QVC’s results of operations. During the financial years ended 31 December 2012, 2011 and
2010, QVC experienced exceptionally good financial performance as a result of a number of factors contributing to strong
global demand for ethylene and its derivatives during such period, particularly from China and other emerging economies.
In addition, QVC enjoyed a highly reliable and steady supply of ethylene during such period. QVC’s financial performance
during the financial years ended 31 December 2012, 2011 and 2010 was significantly better than in previous years. There can
be no guarantee or assurance that such exceptional levels of performance will continue during 2013 or beyond. Demand
from China has slowed as the Chinese economy has been affected by difficult global economic conditions. QVC is principally supplied with ethylene by QAPCO pursuant to the Ethylene Supply Agreement. However, notwithstanding the Ethylene Supply Agreement, in 2013 QVC experienced additional demand for ethylene feedstock, caused in part by reductions
in supply from QAPCO due to the start-up of QAPCO’s new polyethylene plant. Qatar Petroleum sought to address this by
arranging for QVC to receive additional ethylene from RLOC. In April 2013, QVC entered into the Additional Ethylene Supply
Agreement with Q-Chem II and Qatofin which provided for the supply of up to 50,000 metric tons of additional ethylene
to QVC from RLOC. The Additional Ethylene Supply Agreement expires on 31 December 2013 and it is not proposed that
it be renewed. QVC is currently in the process of negotiating alternative arrangements for the supply to QVC of ethylene
feedstock – principally from suppliers situated within the GCC region – and is highly confident that, should it experience
additional requirements for ethylene feedstock in 2014 and beyond, it will be able to procure such ethylene feedstock on
reasonable terms (including as to cost). However, there can be no guarantee in this respect, and a risk inevitably exists that
QVC may not be able to source the ethylene feedstock it requires on commercially acceptable terms (or at all), which may
cause QVC feedstock supply issues.
Competition
The price forecasts adopted by management of QVC for feedstock and end-products are QVC’s management’s best
estimate based on publicly published global prices for its products (such as CMAI). It may be volatile due to eventdriven factors that are not directly connected to the petrochemicals industry such as surges due to supply or outage
problems; changes in purchasing patterns; and competitors who operate on similar low cash costs of production may
manufacture similar products more efficiently and maintain greater operating and financial flexibility than QVC. As
a result, such competitors may be better positioned to withstand changes in conditions within the petrochemicals
industry, prices of raw material power and energy costs and general economic conditions. This would have a direct
impact over pricing which in turn will affect the demand for QVC’s products, affecting QVC’s results of operations.
Freight cost
QVC depends on the international maritime freight network to deliver its products to where its customers are located
around the world. The main markets for QVC’s products are in Europe and Asia. In previous economic cycles such as
the economic growth around the world at the end of 2007, the prices for contracting freight containers and vessels
were relatively high due to the high demand around the world for such services. More recently due to the recent economic slow-down in North America and Europe the costs for contracting freight containers and vessels have been
relatively lower. Any increase in the cost of contracting freight containers and vessels for transporting QVC’s products
could have an adverse impact on QVC’s margins and therefore results of operations.
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Crude oil price
The price at which QVC can sell its products to its customers are global prices that are indirectly linked to the price
of crude oil. The price of crude oil is cyclical and depends on, among other things, the relative economic growth of
economies around the world and is affected by a wide number of variables. Furthermore, the increase in crude oil
costs may also have an adverse impact over the cost of freight and distribution which may contribute to a reduction in
QVC’s margins. These factors therefore will also impact QVC’s results of operations.
Results of Operations
The following table sets out QVC’s statement of comprehensive income for the years indicated:
Year ended 31 December
Revenue
Cost of sales
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
470,783
510,942
448,786
(296,693)
(294,854)
(262,013)
Gross Profit
174,090
216,088
186,773
General and administrative expenses
(19,230)
(21,589)
(20,786)
Selling and distribution costs
(14,169)
(18,462)
(16,651)
Operating Profit
140,691
176,037
149,334
Finance income
2,285
1,933
2,890
(2,154)
(2,855)
(3,874)
Profit before taxation
140,822
175,115
148,350
Taxation
(28,453)
(4,967)
(4,959)
-
-
-
112,369
170,148
143,391
Finance costs
Other comprehensive income
Total comprehensive income for the year
The following discussion provides an analysis of the material factors affecting QVC’s results of operations for the years
ended 31 December 2012, 2011 and 2010.
Years ended 31 December 2012 and 2011
Revenue
Revenue is the total turnover generated by QVC from the sales of VCM, EDC and Caustic Soda to both contracted and
non-contracted customers. Revenue results from the sales price which QVC charges to its customers after deducting
freight charges wherever applicable, which is in turn primarily determined by the global prices of its products.
In the year ended 31 December 2012, total revenues decreased by US$40.1 million, or 7.9% from US$510.9 million in the
year ended 31 December 2011 to US$470.8 million. This decrease was primarily due to the decrease in the global pricing
for QVC’s products.
Cost of sales
Cost of sales is the total cost incurred by QVC in order to produce its VCM, EDC and Caustic Soda products. Cost of sales
principally include allocated depreciation, the cost of ethylene and salt, employee costs and maintenance and production costs. Ethylene costs account for the majority of the total cost of sales.
In the year ended 31 December 2012, total costs of sales increased by US$1.8 million, or 0.6% from US$294.9 million in
the year ended 31 December 2011 to US$296.7 million. This increase was primarily due to an increase in the price of ethylene, which is the main component of QVC’s cost of sales. QVC sources the majority of its ethylene from QAPCO under
the Ethylene Supply Agreement and the price mechanism is based on Gulf of Mexico, North-West Europe and South-East
Asia markets. The cost per unit of salt increased between 31 December 2011 and 31 December 2012 and QVC’s other
utilities costs including fuel gas, steam, power and nitrogen remained stable.
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General and Administrative expenses
General and administrative expenses principally relate to staff costs and outside services which includes all services
provided by external agencies, such as temporary manpower and crane hire. In the year ended 31 December 2012,
total general and administrative expenses decreased by US$2.4 million, or 11.1% from US$21.6 million in the year ended
31 December 2011 to US$19.2 million. This was primarily due to better allocation of common cost between cost of
sales and general and administrative expenses.
Selling and distribution costs
Selling and distribution costs have historically been costs incurred by QVC in order to sell and transport its VCM, EDC
and Caustic Soda products to its customers.
In the year ended 31 December 2012, selling and distribution costs decreased by US$4.3 million, or 23.3% from
US$18.5 million in the year ended 31 December 2011 to US$14.2 million. This decrease was primarily due to the cessation of payment of marketing fees consequent upon loan settlement.
Finance income
Finance income principally relates to interest on cash balances. In the year ended 31 December 2012, finance income
increased by US$0.4 million, or 18.2% from US$1.9 million in the year ended 31 December 2011 to US$2.3 million. This
was primarily due to an increase in surplus cash, which was placed on deposit with local banks.
Finance costs
Finance costs are in respect of interest payments in relation to QVC’s bank borrowings. QVC’s bank borrowings were
repaid in October 2012. Finance costs will thus be US$0 in future periods subject to any additional borrowings.
Taxation
QVC is subject to Qatari corporate income tax rate of 35% following the expiration on 20 February 2012 of the tenyear tax exemption period originally granted to QVC. QVC recognises a deferred tax liability based on the temporary
difference between the tax depreciation and the book depreciation.
In the year ended 31 December 2012, the income and deferred tax charged to comprehensive income amounted to
US$28.5 million.
Years ended 31 December 2011 and 2010
Revenue
In the year ended 31 December 2011, total revenues increased by US$62.2 million, or 13.8% from US$488.8 million in
the year ended 31 December 2010 to US$510.9 million. This increase was primarily due to an increase in the price per
unit sold by QVC to its customers, which was primarily due to favourable price movements in the global markets of
QVC’s products, particularly VCM and Caustic Soda. Growth was also impacted by the increase in volume sold both in
VCM and EDC products following improvements in economies in Asia.
Cost of sales
In the year ended 31 December 2011, total costs of sales increased by US$32.8 million, or 12.5% from US$262.0 million
in the year ended 31 December 2010 to US$294.9 million. This increase was primarily due to an increase in the price of
ethylene, which is the main component of QVC’s cost of sales. QVC sources the majority of its ethylene from QAPCO
under the Ethylene Supply Agreement and the price mechanism is based on Gulf of Mexico, North-West Europe and
South-East Asia markets. It is important to note that while cost per unit increased the sale price per unit increased at a
higher proportional rate. As a result, QVC’s margins were improved. The cost per unit of salt remained stable between
31 December 2010 and 31 December 2011, however, the total cost of salt increased as volume purchased increased.
QVC’s other utilities costs including fuel gas, steam, power and nitrogen were relatively stable over the period.
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General and Administrative expenses
In the year ended 31 December 2011, total general and administrative expenses increased by US$0.8 million, or 3.9%,
from US$20.8 million in the year ended 31 December 2010 to US$21.6 million. This was primarily due to an increase in
staff costs allocated to general and administrative expenses of US$1.0 million or 8.7% from US$11.6 million in the year
ended 31 December 2010 to US$12.7 million. This was mainly due to a pay increase awarded to Qatari national employees
introduced by the State of Qatar. This increase was also driven by increasing cost of temporary manpower and crane hire.
Selling and distribution costs
In the year ended 31 December 2011, selling and distribution costs increased by US$1.8 million, or 10.9% from US$16.7
million in the year ended 31 December 2010 to US$18.5 million.
This increase was primarily due to an increase in marketing commission to QAPCO of US$1.1 million and to Arkema of
US$0.8 million as a result of a higher price for QVC’s products although it should be noted that the marketing commission as a percentage of sales remained constant throughout the year.
Finance income
Finance income principally relates to interest on cash balances. In the year ended 31 December 2011, finance income
decreased by US$1.0 million, or 33.1% from US$2.9 million in the year ended 31 December 2010 to US$1.9 million
mainly due to a reduction in the LIBOR rate and a reduction in cash balances. The Company’s management considers
this movement not to be of a material nature.
Finance costs
Finance costs are in respect of interest payments in relation to QVC’s bank borrowings. QVC’s bank borrowings were
repaid in October 2012. Finance costs will thus be US$0 in future periods subject to any additional borrowings.
In the year ended 31 December 2011, total finance costs decreased by US$1.0 million, or 26.3% from US$3.9 million in
the year ended 31 December 2010 to US$2.9 million. This was primarily due to repayments of the principal amounts
owed to banks of US$61.5 million during 2010, resulting in lien interest payable on the outstanding principal. In addition, US$79.9 million was repaid during 2011, which also contributed to the lower level of interest paid in 2011.
Taxation
Prior to 20 February 2012, QVC was exempt from Qatari corporate income tax pursuant to a ten-year tax exemption
period originally granted to QVC. However, QVC recognised a deferred tax liability based on the temporary difference
between the tax depreciation and the book depreciation.
In the year ended 31 December 2011, the income and deferred tax charged to comprehensive income increased by a
negligible amount.
Liquidity and Capital Resources
Overview
QVC has historically financed its capital requirements from its operating activities and through debt facilities provided
by its bank lenders.
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Cash Flow
The following table summarises QVC’s cash flow for the periods indicated:
Year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
Net cash from operating activities
206,683
210,888
153,869
Net cash used in investing activities
(58,491)
(17,127)
(4,780)
Payment of Dividend
(85,000)
(90,000)
(70,000)
Other cash used in financing activities
(93,650)
(82,133)
(64,726)
Net increase (decrease) in cash and cash equivalents
(30,458)
21,628
14,363
173,158
203,616
181,988
Cash at end of period
Net cash provided from operating activities. In 2012, net cash provided from operating activities decreased by US$4.2
million, or 2.0%, from US$210.9 million in 2011 to US$206.7 million. This decrease was primarily attributable to a reduction in product prices.
In 2011, net cash provided from operating activities increased by US$57.0 million, or 37.1%, from US$153.9 million
in 2010 to US$210.9 million in 2011. This increase was primarily attributable to an increase in sales primarily driven
by product prices which partially impacted QVC’s profitability and net income. Furthermore, a decrease in working
capital partially impacted the net cash generation of QVC.
Working capital. As at 31 December 2012, QVC’s working capital (current assets less current liabilities) amounted to
US$254.3 million, a decrease of 6.2% when compared with the US$271.2 million of working capital as at 31 December
2011, which in turn amounted to an increase of 12.5% when compared with the US$241.0 million as at 31 December 2010.
Management of QVC do not consider this to be a material movement.
Cash used in investing activities. In 2012, cash used in investing activities increased by US$41.4 million, from US$17.1
million in 2011 to US$58.5 million. This increase was primarily attributable to certain short-term investments placed on
term deposits with banks. In 2011, cash used in investing activities increased by US$12.3 million, from US$4.8 million
in 2010 to US$17.1 million in 2011. This increase was primarily driven by an increase in expansionary capital expenditure
relating to the carrying out of further studies into the feasibility of constructing an additional QVC chlorine unit, infrastructure and loading facilities for HCl. It should be noted that the production of HCl began in May 2012. On the other
hand, maintenance costs remained stable over periods ended 31 December 2011 and 2010.
Capital expenditure. Capital expenditure refers to funds used by QVC to acquire or upgrade physical assets, including
plant, property, buildings and equipment. In 2012, capital expenditure amounted to US$17.0 million, compared to
US$19.0 million in 2011, representing a decrease of 10.9%, and which in turn represented an increase of 146.7% when
compared with capital expenditure in 2010, which amounted to US$7.7 million. The following table illustrates the
development of QVC’s capital expenditure:
Year ended 31 December
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
16,957
19,040
7,719
Actual capital expenditure
Payment of Dividend. In 2012, QVC paid a dividend of US$85.0 million. In 2011, QVC paid a dividend of US$90.0
million, which represented an increase of US$20.0 million, or 28.6%, from US$70.0 million in 2010. This increase was
primarily attributable to higher net profit in the year ended 31 December 2011.
Other cash used in financing activities. In 2012, other cash used in financing activities increased by US$11.5 million,
or 14.0%, from US$82.1 million in 2011 to US$93.7 million in 2012. This increase was primarily attributable to the foreclosure of outstanding loan amounts. In 2011, other cash used in financing activities increased by US$17.4 million, or
26.9%, from US$64.7 million in 2010 to US$82.1 million in 2011. This increase was primarily attributable to a repayment
of US$61.5 million of debt principal and debt interest in 2010.
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Cash and cash equivalents. As at 31 December 2012, cash and cash equivalents amounted to US$173.2 million,
a decrease of 15.0% when compared with the US$203.6 million of cash and cash equivalents available as at 31 December
2011, which in turn amounted to an increase of 11.9% when compared with the US$182.0 million of cash and cash equivalents available as at 31 December 2010 due to an increase in the price of QVC’s products in the market over the period.
Qualitative and Quantitative Disclosure of Financial Risk and Financial Risk Management
QVC’s activities expose it to a variety of financial risks, principally market risk (comprised of fair value interest rate
risk, cash flow interest rate risk and foreign currency risk), credit risk and liquidity risk. The Board of QVC reviews and
agrees policies for managing each of these risks which are summarised below.
Cash Flow Interest Rate Risk
QVC’s interest rate risk arises from long-term borrowings. Borrowings expose QVC to cash flow interest rate risk as
they bear interest at LIBOR plus a margin of 1.3%. QVC’s management monitors the interest rate risk by performing
sensitivity analysis using +/- 1% which represents management’s assessment of a reasonably possible change in interest rates. The following table shows the balance of borrowing at year end and its interest rate sensitivity (impact on
profits) if the interest rates had been 1% higher/lower with all other variables held constant:
2012
US$ ‘000
2011
US$ ‘000
2010
US$ ‘000
Borrowings
-
90,367
169,601
Impact on profit (1% +/-)
-
904
1,696
No change in 2012 due to no borrowing.
Foreign Currency Risk
Foreign currency risk is the risk that the value of trade receivables and trade payables will fluctuate due to changes
in foreign exchange rates. QVC generally does not hedge its currency exposure. As at 31 December 2012, QVC had
currency risk on the balances payable in US Dollars in the amount of US$1.6 million. QVC believes the risk arising from
foreign exchange movements to be minimal as the functional currency of QVC is the US Dollar and significant commercial transactions are in US Dollars.
Credit Risk
Credit risk arises from cash and cash equivalents, deposits with bank and financial institutions as well as credit exposures to customers, including outstanding receivables and committed transactions. For banks and financial institutions, only local and international banks with good credit ratings are accepted. For customers, QVC continuously monitors the exposure and the aggregate value of transactions concluded and their spread amongst approved customers.
Credit exposure is controlled by individual limits that are reviewed and approved by QVC’s management.
QVC sells its products to large petrochemical companies all over the globe. Its five largest customers accounted for
84% of outstanding trade receivables at 31 December 2012 (2011: 75% and 2010: 79%).
Liquidity Risk
Liquidity risk is the risk that QVC will not be able to meet financial obligations as they fall due. QVC limits its liquidity
risk by ensuring the existence of sufficient funds through maintaining two months reserve for operational costs and
six months reserve for debt service costs as required by its borrowing arrangements. QVC invests surplus funds with
banks, choosing instruments with appropriate maturities.
The following table analyses QVC’s financial liabilities into relevant maturity groupings based on the remaining period
at the statement of financial position date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows:
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Less than 1
year
Between 1
and 2 years
Between 2
and 5 years
Over 5
years
At 31 December 2012
Borrowings
-
-
-
-
Trade and other payables
33,989
-
-
-
Due to related parties
42,786
-
-
-
Total
76,775
-
-
-
35,906
54,461
-
-
At 31 December 2011
Borrowings
Trade and other payables
14,987
-
-
-
Due to related parties
22,926
-
-
-
Total
73,819
54,461
-
-
47,850
35,906
85,845
-
At 31 December 2010
Borrowings
Trade and other payables
14,726
-
-
-
Due to related parties
25,708
-
-
-
Total
88,284
35,906
85,845
-
Capital risk management
QVC’s objectives when managing capital are to safeguard QVC’s ability to continue as a going-concern in order to
provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to
reduce the cost of capital. In order to maintain or adjust the capital structure, QVC may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. QVC had no debt
(US$0) as at 31 December 2012 as a result of repayment of borrowings amounting to US$79.9 million during the year
ended 31 December 2011 and US$61.4 million during the year ended 31 December 2010. The net cash positions as at
31 December 2012, 2011 and 2010 are as follows:
2012
2011
2010
-
90,367
169,601
Less: Cash and bank balances after restricted
bank balances
(216,977)
(203,616)
(181,988)
Net (cash) / debt
(216,977)
(113,249)
(12,387)
Borrowings
Critical Accounting Policies
QVC’s reported financial condition and results of operations are sensitive to accounting methods, assumptions and
estimates that are the basis for its financial statements. QVC’s critical accounting policies, the judgments it makes
in the creation and application of these policies, and the sensitivities of reported results to changes in accounting
policies, assumptions and estimates are factors to be considered along with QVC’s financial statements.
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DIVIDEND POLICY
The Company is a newly-incorporated entity and, since its incorporation on 29 May 2013, it has not yet paid any
dividends or made any other distributions to its sole shareholder, Qatar Petroleum. In accordance with the
Constitutional Documents of the Company, the Board may declare to pay dividends as it deems fit subject to the provisions
of the Companies Law. The Company maintains a dividend policy and intends to pay dividends based on the Company’s
performance in each financial year with a view to maximise shareholder value commensurate with the Company’s
earnings, financial condition, conditions of the markets, general economic climate and all other relevant factors that
may impact or have an effect on the Company’s investments and Business. All dividends of the Company shall be
distributed in Qatari Riyals subject to the Company having sufficient distributable reserves and to the decision of
the Shareholders in Shareholders’ meetings. No dividend shall exceed the amount recommended by the Board and
the Board shall not be obliged to recommend an amount of dividend in any year. Shares acquired by Investors in the
Offering will be eligible for dividends in line with the policies and recommendations of the Board and General
Assembly approval.
Please see the section "Incentive Shares" in the section of this Prospectus titled "The Offering" and the section "Terms
and Conditions relating to the Incentive Shares" in the section of this Prospectus titled "Description of the Shares" for
further details relating to the rights and restrictions applicable in relation to the Incentive Shares.
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MANAGEMENT AND CORPORATE GOVERNANCE
The following chart sets out the Company’s management structure and internal business divisions as at the date of
this Prospectus:
Board of Directors
Dr. Mohammed bin Saleh Al-Sada
Chairman of the Board of Directors
Mr. Abdulrahman Ahmad Al-Shaibi
Vice Chairman and Director
Mr. Mohammed Nasser Mubarak Al-Hajri
Director
The section below entitled "Board of Directors" contains brief descriptions of the qualifications and experience of the
individuals who currently serve on the Board of Directors of the Company and whom it is proposed will continue to do
so subsequent to the Offering. References below to "members of the Board" or to an individual being a Director of the
Company are a reference to that person being nominated to serve as a Director and Member of the Board subsequent
to the Offering.
General Assembly
The General Assembly (consisting of all of the shareholders of the Company (up to now, only Qatar Petroleum)) is
the ultimate governing body of the Company and in accordance with the Articles must be held at least once a year.
Additional meetings of the General Assembly may be called by the chairman, the Company’s auditors, the Ministry
of Economy and Commerce (in accordance with Article 124 of the Companies Law), or at the request of shareholders
holding in aggregate not less than 10% of the Company’s entire issued share capital.
The authority of the General Assembly includes those matters as further described under "Description of the Shares".
Board of Directors
The Board is responsible for overseeing the Company’s general day-to-day management and establishing the Company’s strategy, excluding matters that are the exclusive responsibility of the Company’s shareholder(s) acting through
the General Assembly. The responsibilities of the Board are set out in a formal Board Charter, which covers the areas
of accountability, transparency, fairness, sustainability and confidentiality. It should be noted that, in the case of
the Company, certain functions that would ordinarily be overseen directly by the Board are in fact provided to the
Company by Qatar Petroleum or its affiliates, and the Company and Qatar Petroleum have entered into a Services
Agreement - effective as of 1 October 2013 - which formalises the basis upon which such functions are performed by
Qatar Petroleum on request for the benefit of MPHC. Following the Offering, members of the Board will be nominated
by Qatar Petroleum and submitted for election (or re-election) by the General Assembly Meeting for a renewable
period of three years or such shorter term (being not less than one year) as the Board may determine. The role of Qatar
Petroleum in nominating and being able to approve the election of Directors is appropriate in view of the Company’s
status as an Article 68 Company. The Articles require that meetings of the Board must take place at least four times
per year. A provisional date for the next meeting will be agreed upon at the end of each regular meeting. Additional
meetings may be called by its chairman or at the request of another member of the Board. The Chairman of the Board
of Directors is H.E. Dr. Mohammed bin Saleh Al-Sada, Minister of Energy & Industry of the State of Qatar. The Company
does not have a formal Chief Executive Officer role, but Dr. Al-Sada effectively acts as the Company’s Chief Executive
Officer in addition to his role as Chairman. While the QFMA Code (as defined below) contains provisions regarding
the combination of the Chairman and CEO roles, the Company believes its Board structure and corporate governance
policies serve to prevent unfettered powers to take material decisions resting with any one person. As an Article 68
Company, the Company is permitted to follow its own constitution that has been tailored for the needs and circumstances of the Company, as a hitherto wholly-owned subsidiary of Qatar Petroleum which relies on Qatar Petroleum
for significant administrative functions. Accordingly, the Board does not include the requisite number of Directors who
are "independent" for the purposes of the QFMA Code.
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The current Members of the Board of the Company are as follows:
Name
Year of
Appointment Position
Dr. Mohammed bin Saleh Al-Sada
2013
Chairman of the Board of Directors
Mr. Abdulrahman Ahmad Al-Shaibi
2013
Vice Chairman and Director
Mr. Mohammed Nasser Mubarak Al-Hajri
2013
Director
The business address of each of the members of the Board is the registered office of the Company at P.O. Box 3212,
Doha, State of Qatar. Each member of the Board is a Qatari national.
Dr. Mohammed bin Saleh Al-Sada, Chairman of the Board of Directors
Dr. Mohammed bin Saleh Al-Sada has been a Director of the Company since its incorporation on 29 May 2013, and
serves as Chairman of the Board. His Excellency is also a cabinet minister of the State of Qatar, currently serving as
Minister of Energy & Industry since April 2007. Dr. Al-Sada has previously served as Minister of State for Energy &
Industry Affairs. He is Technical Director of Qatar Petroleum and also holds a number of other senior positions in the
oil and gas sector in Qatar, including serving as Chairman of the Boards of Directors of Q-Chem I, Q-Chem II, QVC,
RasGas Company Ltd. and Qatar Liquefied Gas Company (QatarGas). Dr. Al-Sada sits on the Qatar Permanent Constitution Preparation Committee, the Supreme Education Council and the National Committee for Human Rights. He
also chairs the Joint Advisory Board of Texas A&M University at Qatar. Dr. Al-Sada holds a Ph.D from the University of
Manchester Institute of Science and Technology (UMIST) in the United Kingdom, as well as a BSc in Marine Science
and Geology from Qatar University.
Dr. Al-Sada is the Chairman of the Board of Directors of the following companies listed on the Qatar Exchange: Industries Qatar Q.S.C., Gulf International Services Q.S.C. (GIS) and Qatar Gas Transport Company Ltd (Nakilat).
Mr. Abdulrahman Ahmad Al-Shaibi, Vice Chairman and Director
Mr. Abdulrahman Ahmad Al-Shaibi has been a Director of the Company since 2013 and serves as Vice Chairman of the
Board. He is Director of Finance for the Qatar Petroleum Group, and a member of various Executive Committees within
Qatar Petroleum and was a key contributor to the ambitious expansion plans of Qatar Petroleum in the LNG sector, petrochemicals and non-energy sector projects such as aluminium and steel. Mr. Al-Shaibi is also actively involved in assisting
QPI (the international arm of) Qatar Petroleum, in its investment efforts while acting as a Board Member. Mr. Al-Shaibi is a
member of the State’s Finance Policy Committee, which is responsible for guiding the financial policies of the State and
all State related entities. He is also a Board member of various other companies including QatarGas. Mr. Al-Shaibi holds
a B.Sc. degree in Finance and Business Administration from the University of Arizona in the United States. Mr. Al-Shaibi does not hold any other directorships of companies listed on the Qatar Exchange.
Mr. Mohammed Nasser Mubarak Al-Hajri, Director
Mr. Mohammed Nasser Mubarak Al-Hajri has been a Director of the Company since 2013. He has been the Director of
Downstream Ventures Directorate for Qatar Petroleum since 2012. In his current position as Director of Downstream
Ventures Directorate of Qatar Petroleum, he provides strategic and business leadership in developing, safeguarding
and monitoring the Downstream (Refining, Petrochemicals and Chemicals) industry for Qatar Petroleum. Mr. Al-Hajri
is also a Board Member of Ras Girtas Power Company, QATOFIN and Qatar Intermediate Industries (Al Waseeta) and
holds the Chairmanship and/or membership of Executive Committee for several QP joint venture projects ranging
from petrochemicals, GTL to Qatar’s intermediate industries. He is also the Chairman of the Executive Board of Gas
Exporting Countries Forum (GECF).
Mr. Al-Hajri holds a Master’s degree in Gas Engineering from the University of Salford in the United Kingdom and a
Bachelors’ degree in Chemical Engineering from Qatar University.
Conflicts of Interest
Save in respect of their roles on the Boards of certain companies affiliated to Qatar Petroleum or the Portfolio Companies, other roles in relation to companies in the oil and gas sectors in which the State of Qatar is an ultimate shareholder,
and other roles indicated above, there are no potential conflicts of interest between any duties owed by members of
the Company’s Board to the Company and their private interests and/or other duties.
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Litigation Statement about Members of the Board
As at the date of this Prospectus, none of the members of the Board has in the previous five years:
•
had any convictions in relation to fraudulent offences;
•
has been a member of the administrative, management or supervisory bodies of any company, or been a partner
in any partnership, at the time of or preceding any bankruptcy, receivership or liquidation; or
•
been subject to official public incrimination or sanction by a statutory or regulatory authority (including a professional body) nor has ever been disqualified by a court from acting as a member of the administrative, management
or supervisory bodies of a company or from acting in the management or conduct of the affairs of a company.
Corporate Governance
As at the date of this Prospectus the Company complies, and following Admission the Company proposes to comply,
with all of the corporate governance requirements of the QFMA as stipulated in the QFMA’s Corporate Governance
Code (the "QFMA Code"), save as disclosed in this Prospectus or in periodic corporate governance statements issued
by the Company. The QFMA Code is a "comply-or-explain" regime, pursuant to which a company to which the QFMA
Code applies is permitted to deviate from the requirements of the QFMA Code provided and to the extent it discloses
the fact of, and its reasoning for, such non-compliance.
The Company has implemented has in place a corporate governance, risk management and financial reporting framework
that is focused on delivering an accurate, detailed and timely view of the business across all of the regions in which it operates and business divisions. The framework is comprised of a robust framework of governance policies and controls with:
•
clear standards for protecting and safeguarding assets;
•
detailed and enforced compliance procedures;
•
clearly defined disbursement authorisation matrix;
•
measures to ensure accountability and timely disclosures;
•
code of conduct and conflict of interests policies; and
•
clearly defined duties, responsibilities and authorities of the members of the Board of Directors.
Management and Board Review
The Company generally follows Qatar Petroleum’s management review process, which engages senior corporate
leadership and divisional leadership in order to accurately assess business trends and operational performance on a
timely basis, as well as to enhance visibility with regard to future financial performance.
Board Audit Committee
The Board proposes to establish a Board committee – to be known as the Board Audit Committee or "BAC" – with
formally delegated duties and responsibilities and its own terms of reference. The BAC will be tasked with performing
its duties on behalf of the Board and reporting to the Board with its recommendations for final decision by the Board,
and will operate on the basis of written Terms of Reference. From time to time, other separate committees may be set
up by the Board to consider specific issues when the need arises.
The BAC will be responsible for, among other things:
•
assisting the Board in relation to financial reporting, external and internal audit and controls;
•
studying the interim and annual financial statements before submission to the Board and giving opinions and
recommendations to the Board in respect of the same;
•
submitting recommendations to the Board in respect of the appointment and removal of external auditors and
determining their fees;
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•
submitting recommendations to the Board in respect of any non-audit work that may be undertaken by external
auditors; and
•
reviewing on behalf of the Board the effectiveness of the Company’s internal audit activities, internal controls
and risk management systems.
The duties and activities of the BAC during the year shall be disclosed in the Company’s annual report and accounts
as required by applicable laws and regulations. The Terms of Reference of the BAC will be reviewed annually by the
Board. The ultimate responsibility for reviewing and approving the interim and annual financial statements is intended
to always remain with the Board. The BAC will also be responsible for ensuring that any auditor appointed by the
Company in the future is independent of the Company and or Qatar Petroleum. The BAC exists in lieu of the Nomination Committee, Audit Committee and Remuneration Committee specified in the QFMA Code. The Board believes that
this structure is appropriate in view of the Company’s status as an Article 68 Company and its relationship with Qatar
Petroleum. The BAC submits Audit Reports to the Board in co-ordination with QP and in line with QP standards and on
a timeline to be agreed as directed by the Board. The Board believes that this is appropriate in view of the Company’s
status as an Article 68 Company and its relationship with Qatar Petroleum.
Board Remuneration
The Company’s executive remuneration policy in relation to the Board of Directors and executive management is
directed by the Board and approved by the shareholders in General Assembly. The Board believes that this approach
is appropriate in view of the Company’s status as an Article 68 Company and its relationship with Qatar Petroleum.
All remuneration of the Company’s Directors and executives is payable by the Company directly and not by the Portfolio Companies. The Company does not currently operate any bonus or incentive scheme for the Board or any other
members of the Company’s executive or staff. Once any future bonus or incentive scheme has been formulated, the
approval of such bonus or incentive scheme will be determined.
The aggregate remuneration paid to the directors of Q-Chem I, Q-Chem II and QVC (as well as RLOC) during the
year ended 31 December 2012 amounted to QAR 2.5 million. Such remuneration was paid by the respective Portfolio
Companies and not by Qatar Petroleum directly. The effective indirect liability to Qatar Petroleum as shareholder was
therefore limited to the extent of its shareholding in each of the respective Portfolio Companies. No remuneration was
paid to the Directors of MPHC during the year ended 31 December 2012 as the Company had not been incorporated.
Financial Reporting Framework & Risk Management
The Company’s annual financial statements are prepared in accordance with IFRS and it is proposed that they be
audited in line with the requirements of the QFMA Code.
External Audit
The Group will arrange for its financial statements to be audited on an annual basis by external auditors who are independent of the Company and of Qatar Petroleum.
Shareholders’ Annual General Meeting
Shareholders will be kept informed of all major developments within the Company through the provision of an annual financial
report and the promotion of the participation of non-institutional Shareholders in the Company’s annual general meeting.
Corporate Governance Report
The Company proposes to issue a Corporate Governance Report in each financial year in line with the recommendations
of the QFMA Code.
Interests of Board Members
No member of the Board of Directors is personally directly interested in any shares of the Company.
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EXISTING SHAREHOLDER
The Company benefits significantly from the strong relationship with Qatar Petroleum. The shareholding structure of
the Company pre-Offering is shown graphically below:
QP
100%
Mesaieed Petrochemical
Holding Company Q.S.C.
49%
2%
Q-Chem I
49%
2%
55.2%
Q-Chem II
12.9%
QVC
The table below sets out certain information regarding the shareholding structure of the Company as at the date after
the completion of the Offering:
QP
New Investors
25.725%
74.275%
Mesaieed Petrochemical
Holding Company Q.S.C.
49%
Q-Chem I
2%
49%
2%
Q-Chem II
55.2%
12.9%
QVC
Qatar Petroleum, being the sole shareholder of the Company prior to the Offering will be the only shareholder selling
shares in the Offering.
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RELATED PARTY TRANSACTIONS
Related parties include associated and sister companies (i.e. entities under common control with the Company or any
of the Portfolio Companies) major shareholders, directors, senior management and entities of which they are principal
owners or directors. In assessing whether or not a particular relationship is a related party relationship, and a transaction a related party transaction, regard must be had for the substance of the relationship, not merely its legal form.
In the ordinary course of its business, the Portfolio Companies enter into certain transactions with related parties.
Pricing policies and other key terms of material related party transactions are reviewed and approved by the Board and
the Board and senior executive management endeavour to ensure that related party transactions are conducted on an
arm’s length commercial basis in the best interests of the particular Portfolio Company.
The Company’s related party transactions for each Portfolio Company include, to the extent not described in the
"Material Contracts" section of the "General Information" section of this prospectus, the following:
Q-Chem I
Feedstock Supply Agreement
This agreement was entered into on 25 August 1999 between (i) Qatar Petroleum; and (ii) Q-Chem I. The agreement
sets out the terms on which Qatar Petroleum agrees to supply ethane gas to Q-Chem I for use at the Q-Chem I plant
and includes provisions that deal with the delivery of the gas, the contract price formulae, billing and payment as well
as force majeure events that would allow Qatar Petroleum to cease supply.
Fuel Gas Supply Agreement
This agreement was entered into on 25 August 1999 between (i) Qatar Petroleum; and (ii) Q-Chem I. The agreement
sets out the terms on which Qatar Petroleum agrees to supply certain other gas products (including methane and
propane) to Q-Chem I for use at the Q-Chem I plant and includes provisions that deal with the delivery of the gas,
the contract price formulae, billing and payment as well as force majeure events that would allow Qatar Petroleum to
cease supply.
Butene Terminal and Storage Sharing Agreement
This agreement (as amended) was entered into on 16 November 2005 between (i) Q-Chem I; (ii) Q-Chem II; and (iii)
Qatofin. The agreement sets out the terms and conditions whereby Qatofin is granted the right to use certain storage
tanks subject to conditions contained in the agreement for a fee.
Land Lease
A lease was entered into on 25 August 1999 between (i) Qatar Petroleum; and (ii) Q-Chem I whereby an area of land
owned by Qatar Petroleum was leased to Q-Chem I for the purposes of constructing the Q-Chem I plant at MIC.
The lease includes a description of the demised premises, certain licenses granted by Qatar Petroleum in favour of
Q-Chem I with respect to the use of the land as well as favourable rental amount. The lease is valid until the date of
termination of the Q-Chem I JVA.
Berth and Port Agreements
The Berth and Port Users Agreements was entered into on 25 August 1999 between (i) Qatar Petroleum and (ii) Q-Chem
I which establishes the respective rights and obligations of Q-Chem I and Qatar Petroleum relating to Q-Chem I’s use
of the port facilities at MIC. The agreement is valid until the date of termination of the Q-Chem I JVA.
Q-Chem II Derivative Units Operating Agreement
This agreement was entered into on 16 November 2005 between (i) Q-Chem I; and (ii) Q-Chem II. The agreement sets
out the terms and conditions by which Q-Chem I is appointed the operator of and will operate the Q-Chem II plant on
behalf of Q-Chem II for a fee. The agreement is valid until the 25th anniversary of the Commercial Operation Date and
so long thereafter until terminated by Q-Chem II on at least six months’ prior written notice.
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Q-Chem II Common Facilities Agreement
This agreement was entered into on 16 November 2005 between (i) Q-Chem I; and (ii) Q-Chem II. The agreement sets
out the terms and conditions by which Q-Chem I granted Q-Chem II the right to share the use of certain common
facilities owned by Q-Chem I. The agreement includes obligations on Q-Chem II to construct new common facilities
and make certain improvements to the existing Q-Chem I site at MIC. The agreement sets out the access rights with
regards to the common facilities as well as each parties’ obligations for repairs and restoration. Fees are payable by
both Q-Chem I and Q-Chem II to each other in consideration, among other things, for the construction and improvements of new common facilities and the use of certain facilities. The calculation for such fee amounts are set out in
the agreement.
The common facilities include a laboratory, maintenance building, administration building, central control room, fire
station and emergency vehicles, dock and operations shelter building, container loading cranes, liquid loading area,
cafeteria, medical and security facility and a main guardhouse building among other things.
Support Services Agreements
Two agreements were entered into on 25 August 1999 between (i) Qatar Petroleum; and (ii) Q-Chem I, and between
(i) Phillips Petroleum Company; and (ii) Q-Chem I, both of which are substantially the same. These agreements set out
the terms and conditions by which each of the shareholders in Q-Chem I (Qatar Petroleum and CPCIQH) agrees to
provide certain support services to Q-Chem I for a fee. These services include the provision of operational personnel
for the Q-Chem I plant.
A Support Services Agreement relating to Q-Chem I Asian Sales was entered into on 1 May 2003 (as amended) between
(i) Q-Chem I; (ii) Chevron Phillips Chemicals Asia Pte Ltd; (iii) Chevron Phillips Chemicals (Shanghai) Corporation; and
(iv) Chevron Phillips Chemical International Inc. (Hong Kong branch) setting out the terms and conditions by which
certain services are provided to Q-Chem I to assist Q-Chem I with sales in Asia in exchange for a fee to be paid to the
CP-Chem’s affiliates.
Q-Chem II
Project Management Agreement
An Agreement was entered into on 24 October 2005 between (i) Q-Chem II; and (ii) RLOC. Pursuant to this agreement,
the shareholders in RLOC acknowledge that certain services are required from them in order for Q-Chem II to manage
RLOC. The shareholders agree, among other things, to assist with the application for any regulatory approvals, provide
personnel, support services, technical services and information as required by Q-Chem II to facilitate the timely and
efficient construction of the Cracker complex, and agree to pay project management costs. The agreement is valid
until terminated in accordance with its terms.
Processing Agreement
An agreement was entered into on 24 October 2005 between (i) Qatar Petroleum; (ii) Q-Chem II; (iii) Qatofin; and (iv)
RLOC. The agreement sets out the terms and conditions under which ethane gas supplied by each of Q-Chem II and
Qatofin to RLOC will be converted by RLOC to ethylene and co-products. The agreement confirms that the capacity
for the pipeline is Q-Chem II (53.85%) and Qatofin (46.15%). Pursuant to this agreement, RLOC will also sell co-products on behalf of Q-Chem II or Qatofin, if so requested. The agreement is valid until the expiry of the term of RLOC.
Cracker Operating Agreement
An agreement is entered into on 24 October 2005 between (i) Q-Chem II; (ii) RLOC; (iii) Qatofin; and (iv) Qatar Petroleum. The agreement sets out the terms and conditions to which Q-Chem II is appointed as the operator of the Cracker
complex on behalf of RLOC. The agreement sets out the management team and their duties as well as provisions relating to the allocation of risk among Q-Chem II and Qatofin. The agreement is valid until the expiry of the term of RLOC.
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Ethylene Pipeline Operating Agreement
An agreement is entered into on 24 October 2005 between (i) RLOC; (ii) Q-Chem II; and (iii) Qatofin. The agreement
sets out the terms and conditions to which the pipeline transporting products from the Cracker complex is managed
and operated by Qatar Petroleum on behalf of RLOC, Q-Chem II and Qatofin. The agreement sets out a license given
by Qatar Petroleum to each of Qatofin and Q-Chem II for the construction and right of way for a branch pipeline
feeding into the main pipeline. The allocated capacities are set at Q-Chem II (53.85%) and Qatofin (46.15%). The agreement details the delivery process of ethylene via the pipeline to each of Q-Chem II and Qatofin, the obligations of
Qatar Petroleum in operating the pipeline, risk allocation as well as the fixed operating fee for the pipeline payable by
Q-Chem II and Qatofin to Qatar Petroleum. The agreement is valid until the expiry of the term of RLOC.
Cracker Administrative Services Agreement
An agreement was entered into on 16 November 2005 between (i) Q-Chem I; and (ii) Q-Chem II. The agreement sets
out the terms and conditions in which Q-Chem I will provide certain administrative services to Q-Chem II in relation to
Q-Chem II’s operation of the Cracker complex. These services include personnel, equipment, tools, technology and
other resources necessary to the provide management services, finance, accounting, budgeting, treasury, human
resources, health and environmental services, public and government relations, marketing and logistics, procurement
and information technology services for a fee. The agreement is valid until the termination of the Cracker Operating
Agreement.
Q-Chem II Derivative Units Operating Agreement
An agreement was entered into on 16 November 2005 between (i) Q-Chem I; and (ii) Q-Chem II. The agreement sets
out the terms and conditions in which Q-Chem I is appointed the operator of the Q-Chem II plant on behalf of Q-Chem
II for a fee. The agreement provides details of Q-Chem I’s duties under this agreement. The agreement is valid until
the 25th anniversary of the Commercial Operations Date and so long thereafter until terminated by Q-Chem II with at
least six months’ prior written notice.
Q-Chem II Common Facilities Agreement
An agreement was entered into on 16 November 2005 between (i) Q-Chem I; and (ii) Q-Chem II. The agreement
sets out the terms and conditions to which Q-Chem I granted Q-Chem II the right to share certain common facilities
owned by Q-Chem I. This agreement includes obligations on Q-Chem II to construct new common facilities and make
certain improvements in the existing Q-Chem I site at MIC. The agreement sets out the access rights with regards to
the common facilities, each parties’ obligations for repairs and restoration. Fees are payable by both Q-Chem I and
Q-Chem II to the other part in consideration, among other things, for the construction and improvements of new
common facilities and the use of certain facilities and the calculation for such fee amounts are set out in the agreement. The agreement is valid until the earlier of the termination of the Q-Chem II JVA or the date on which CPCIQH or
an affiliate ceases to be a party to the Q-Chem II JVA.
The common facilities include a laboratory, maintenance building, administration building, central control room, fire
station and emergency vehicles, dock and operations shelter building, container loading cranes, liquid loading area,
cafeteria, medical and security facility and a main guardhouse building among other things.
Distribution Agreement
An agreement was entered into on 7 January 2010 between (i) Q-Chem II; and (ii) Q-Chem II Distribution Company. The
agreement sets out the framework for the distribution of Q-Chem II’s products to market and also appoints Q-Chem II
Distribution Company to be Q-Chem II’s distributor for all products of Q-Chem II. The agreement notes that Q-Chem
II Distribution Company has also entered into separate agency agreements appointing CPCIS and Qatar Petroleum as
Q-Chem II Distribution Company’s agents for designated areas. This agreement also specifies the price and method
of payment for the products being, generally, market price with a discount percentage applied. The establishment of
sub-distributors are contemplated under this agreement to which there will be a sub-distribution agreement between
Q-Chem II Distribution Company and the relevant sub-distributor. The agreement is valid until the expiry of the term
of Q-Chem II JVA.
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CPCIS Distributor Agency Agreement
An agreement was entered into on 24 October 2005 between (i) Q-Chem II Distribution Company; and (ii) CPCIS
pursuant to which CPCIS acts as the exclusive agent for the sale of NAO in any country and as the exclusive agent for
the sale of polyethylene in any country located outside of the Middle East. CPCIS will not arrange any PE sales in the
Gulf Countries (i.e., Qatar, Bahrain, Kuwait, Oman, Saudi Arabia, UAE and Yemen), but with respect to other Middle
East countries CPCIS will be the non-exclusive agent for PE. A marketing fee is charged and Q-Chem II Distribution
Company shall pay this fee in respect of any sale. The agreement is valid until the earlier of the 12th anniversary of the
Commercial Operation Date and the date of the expiry of the term of Q-Chem II.
Qatar Petroleum Distributor Agency Agreement
An agreement was entered into on 24 October 2005 between (i) Q-Chem II Distribution Company; and (ii) Qatar Petroleum pursuant to which Qatar Petroleum will act as the exclusive agent for the sale of polyethylene in the Gulf Countries and non-exclusive agent for the sale of polyethylene in other Middle East countries. A marketing fee is charged
and Q-Chem II Distribution Company shall pay this fee in respect of any sale. The agreement is valid until the earlier of
the 12th anniversary of the Commercial Operation Date and the date of expiry of the term of Q-Chem II.
Feedstock Supply Agreement
Also known as the "Ethane Gas Sale and Purchase Agreement", this agreement was entered into on 24 October 2005
between (i) Q-Chem II; and (ii) Qatar Petroleum. The agreement sets out the term in which Qatar Petroleum agrees to
supply ethane gas to Q-Chem II for use at the Cracker complex and includes provisions that deal with the delivery of
the gas, the contract prices, billing and payment as well as force majeure events that would allow Qatar Petroleum to
cease supply. The agreement is valid until the expiry of the term of Q-Chem II.
Technology License Agreements
A number of technology licensing agreements were entered into, including:
(i)
Polyolefin Process Technology License Agreement entered into on 24 October 2005 between (i) CPCIQH; (ii)
Q-Chem II; and (iii) Qatar Petroleum. This agreement sets out the terms and conditions which Q-Chem II is
granted a license to use the polyolefin process and resin modification developed by CP Chem to construct and
operate the Q-Chem II plant in Qatar. No additional license fee or royalties are charged by CPCIQH as provided
for in the Q-Chem II JVA. The agreement is valid until the earlier of the termination of the Q-Chem II JVA or the
date on which CPCIQH or an affiliate ceases to be a part to the JVA.
(ii)
NAO Process Technology License Agreement entered into on 24 October 2005 between (i) CPCIQH; (ii) Q-Chem
II; and (iii) Qatar Petroleum. This agreement sets out the terms and conditions which Q-Chem II is granted a
license to use the NAO process developed by CP Chem to construct and operate the Q-Chem II plant in Qatar
to make and sell NAO products. No additional license fee or royalties are charged by CPCIQH as provided for
in the Q-Chem II JVA. The agreement is valid for a term of 25 years and so long thereafter until terminated by
Q-Chem II.
Land Lease
A lease was entered into on 24 October 2005 between (i) Qatar Petroleum; and (ii) Q-Chem II whereby an area of land
owned by Qatar Petroleum was leased to Q-Chem II for the purposes of constructing the Q-Chem II plant. The lease
includes a description of the demised premises, certain licenses granted by Qatar Petroleum in favour of Q-Chem II
with respect to the use of the land as well as the rental amount which is calculated on a per square metre basis. The
rental increases are detailed until 1 January 2033. The lease is valid until the earlier of 25 years or the expiry of the term
of Q-Chem II.
Cracker Berth and Port Users Agreements
The Berth and Port Users Letter Agreement was entered on 1 June 2011 between (i) Qatar Petroleum and (ii) RLOC
which establishes the respective rights and obligations of RLOC and Qatar Petroleum relating to the RLOC’s use of
RLIC’s port facilities.
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The Berth Services Agreement was entered into on 1 February 2008 between (i) RLOC and (ii) Qatargas Operating
Company Limited ("Qatargas"). This agreement sets out the terms and conditions which Qatargas will operate the LNG
liquid product berths in Ras Laffan for and on behalf of RLOC. The agreement details Qatargas’ obligations to RLOC
and RLOC agrees to pay Qatargas a fee for the services provided.
QVC
Shareholders’ Secondment and Technical Service Agreement
QVC and each of its shareholders entered into the Shareholder’s Secondment and Technical Service Agreement,
dated 21 September 1998 (the "Secondment and Technical Service Agreement") setting out the terms and conditions
to which the shareholders agreed to provide support to QVC in the technical, financial, administrative, marketing
and other professional fields, to supply secondees and temporary personnel to QVC and to provide consultancy
services to QVC, all upon QVC's request. These arrangements have expired as a result of QVC fully repaying its project
financing, however QVC’s management expects arrangements with such senior management to continue on terms
to be agreed for a period of at least one year. Moreover, it is envisaged that Arkema will continue to play a role in
supporting QVC whereby three Arkema personnel currently employed within QVC’s operational team are anticipated
to be retained until 2015.
Plant Services Agreement
This agreement was entered into on 21 September 1998 by (i) QVC; and (ii) QAPCO (as amended by Amendment No.
1 dated 15 May 2001) pursuant to which QAPCO has agreed to provide certain services to QVC including (i) routine
maintenance on the QVC plant; (ii) certain specified extraordinary maintenance on the QVC plant; (iii) project
engineering services; (iv) certain specified administrative services; (v) operation and maintenance of certain facilities which will be owned by QVC but located within the QAPCO battery limits; and (vi) operation and maintenance
of QAPCO’s jetty, including handling of all shipments of raw materials and products. QVC and QAPCO will agree to
annual schedules and budgets for the provision of services.
QVC External Facilities
The QVC external facilities, which will be owned by QVC but located within QAPCO’s battery limits, include (i) salt
transfer system and associated equipment; (ii) storage tanks, loading and distribution pumps and loading arms for
Caustic Soda; and (iii) EDC/VCM storage tanks, loading arms and associated equipment.
QAPCO has granted QVC a right to occupy the land underlying the QVC external facilities for the term of the Plant
Services Agreement, as well as rights of way and access necessary for QVC to cross over the QAPCO property to enter
the QVC external facilities in order for QVC to exercise its rights and perform its obligations under the Plant
Services Agreement.
Ethylene Supply Agreement
This agreement was entered into on 21 September 1998 by (i) QVC; and (ii) QAPCO pursuant to which QAPCO has
agreed to sell to QVC an average annual volume of 140,000 tonnes of ethylene to be used as feedstock for the QVC
plant. The price payable by QVC for ethylene is determined in accordance with the formula set forth in the agreement. The price formula is intended to be market-related with reference to easily accessible, recognised statistical
data for ethylene prices and will reflect: (i) the price that QAPCO could potentially obtain in the export market on an
arms-length long-term contract basis; (ii) QVC’s need to have access to ethylene at competitive market prices; and
(iii) long-term, material trends in the ethylene market. It should be noted that, on 1 January 2014, the formula by which
the price payable by QVC under the Ethylene Supply Agreement is subject to revision, which could lead to a higher or
lower price being payable by QVC.
Gas Supply Agreement
This agreement was entered into on 21 September 1998 by (i) QVC; and (ii) Qatar Petroleum setting out the terms and
conditions to which Qatar Petroleum has agreed to supply QVC with fuel gas for QVC’s turbines and furnaces. Qatar
Petroleum has agreed to deliver up to 45 million MMBTUs of fuel gas per day to QVC. Subject to availability, QVC is
entitled to request, and QGPC will be required to deliver, up to an additional 20% of each year’s total annual volume,
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provided that, if delivery of such additional volume requires a material modification to QGPC’s delivery facilities, QVC
will be required to reimburse the actual cost thereof. The price is set according to the time period in which the supply
is made and a formula.
Land Lease
A lease, dated 21 September 1998 was entered into between (i) QVC; and (ii) Qatar Petroleum pursuant to which Qatar
Petroleum has leased land at MIC to QVC. Qatar Petroleum has been granted a concession from the State of Qatar
with respect to certain land which includes the demised premises. Pursuant to such concession, Qatar Petroleum is
entitled to lease the relevant site to QVC. The annual rent payable by QVC escalates at a rate equal to the U.S. Consumer Price Index.
Utilities Supply Agreement
This agreement was entered into on 21 September 1998 by (i) QVC; and (ii) QAPCO (as amended by Amendment No. 1
thereto dated 15 May 2001) pursuant to which QAPCO and QVC have agreed to provide certain utilities to each other.
QAPCO has agreed to supply to QVC certain utilities which are necessary for the operation of the QAPCO facilities
and which are available from the QVC plant. These utilities include steam, sea water, desalinated water, demineralised
water, domestic water, fire fighting water, instrument air, plant air, electrical power, nitrogen and raw water. QVC has
agreed to supply to QAPCO certain utilities which are necessary for the operation of the QAPCO facilities and which
are available from the QVC plant. These utilities include steam, electricity, "polluted" condensate, non-polluted condensate and fuel gas. Each receiving party has agreed to pay the supplying party an agreed cost for each utility which
will be based on the actual cost to the supplying party of providing such utility.
Berth and Port Users Agreement
This agreement was entered into on 21 September 1998 by (i) QVC; and (ii) Qatar Petroleum pursuant to which Qatar
Petroleum has agreed to provide QVC with access to a port facility at Mesaieed, including a berth and sea channel,
throughout QVC’s existence in consideration of QVC’s agreement to issue shares in QVC to Qatar Petroleum.
QAPCO Site Land Use Agreement
QVC, QAPCO and Qatar Petroleum have entered into an agreement pursuant to which QAPCO and Qatar Petroleum
provide QVC rights of access to, and rights of use of, land on which the QVC external facilities are located. QAPCO
grants to QVC (i) the right to use and occupy any of QAPCO’s land on which the QVC external facilities are located and
to construct and own thereon the QVC external facilities and all related interconnections and (ii) all rights of access
and rights of way on or over QAPCO’s land that are necessary to permit QVC to construct, own, operate and maintain
thereon the QVC external facilities and all related interconnections. The agreement is valid until all project and third
party financing obtained by QVC in relation to the plant have been repaid in full.
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THE QATAR EXCHANGE
The QE was officially established (as the Doha Securities Market) in 1995 and launched in May 1997. The Doha Securities Market was renamed the Qatar Exchange in June 2009. Dr. Hussain Ali Al-Abdullah is the acting Chairman of the
QE’s Board of Directors. The QE was established with a view to the promotion of foreign and domestic investment in
Qatar and the encouragement of the diversification of the economy. As at 31 October 2013, there were over 40 companies listed on the QE. The overall market capitalisation of the QE stood at QAR 531.1 billion (US$146.5 billion), which
represents a 15.9% increase since 31 December 2012.
11 brokers have been licensed to trade on the market. In March 2002, electronic trading was introduced at the QE.
Article 2 (4) of The Investment of Foreign Capital in Economic Activities Law No. 13 of 2000 states that non-Qatari
investors may not own more than 25% of shares in Qatari shareholding companies listed on the QE, unless the articles
of association of the relevant company provide for a higher percentage (in which case, a decision must be obtained
from the Council of Ministers following a recommendation from H.E. the Minister of Economy and Commerce).
It has been suggested that a beneficial effect of lifting restrictions on the buying and trading of shares by non-Qatari
nationals may be to encourage expatriates working in Qatar to invest in the QE, thereby helping to reduce current levels
of such expatriates’ remittances abroad. The initiatives on the introduction of electronic trading, the listing of debts
securities and the opening of the QE to non-Qatari nationals are expected to be introduced in conjunction with reforms
in the law on foreign ownership of Qatari companies and the continuation of the State of Qatar’s privatisation program.
There are currently two trading platforms operated by QE: the QE Primary Market and the QE Venture Market. All 42
companies currently listed in the QE are listed on the QE Primary Market. The following table provides an evolution of
the QE from 2007 to 2012:
Year
No. of
transactions
(000s)
Volume
of shares
(millions)
Value
($bn)
Market Cap
($bn)
Listed
Companies
Index gains (yearon-year)
2007
1,811.8
3,411.3
29.9
95.5
40
34.31%
2008
2,179.9
3,893.5
48.2
76.6
43
-28.12%
2009
1,690.1
3,450.1
25.3
87.9
44
1.06%
2010
1,024.1
2,094.4
18.4
123.6
43
24.75%
2011
1,119.1
2,302.8
22.9
125.6
42
1.12%
2012
881.6
2,428.2
19.4
126.3
42
-4.79%
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DESCRIPTION OF THE SHARES
Share Capital
The Company was incorporated with Qatar Petroleum as its sole shareholder, with an initial capital of QAR 10,000,000,
divided into 999,999 ordinary Shares of QAR 10 each and one Special Share. As at the date of this Prospectus, the
Company’s issued share capital consists of QAR 12,563,175,000, divided into 1,256,317,499 ordinary Shares and one
Special Share. Each Share has a nominal value of QAR 10. All Shares are fully paid up.
The information below constitutes a summary of the Articles. Copies of the Memorandum of Association and Articles
of Association of the Company are available during the Offer Period at participating branches of the Receiving Banks
in Qatar.
Shareholders’ rights
General
In accordance with the Articles (and subject to the rights attached to the Special Share, as described below), each
Share shall give its holder (a "Shareholder") equal rights in the Company’s assets and dividends as well as rights to
vote on a one-share, one-vote basis.
Dividends
The Company may, by resolution of the General Assembly, declare dividends, but no dividend shall exceed the amount
recommended by the Board and the Board shall not be obliged to recommend an amount of dividend in any year. Any
resolution declaring a dividend so declared shall be given effect by the Board within 30 days. Furthermore, the Board
may declare and pay interim dividends if it appears to the Board that they are justified by the profits of the Company
available for distribution.
If any Share is allotted or issued on terms that it shall rank for dividends as from a particular date or not at all or on
particular terms, that Share shall rank for dividends accordingly. Any dispute among Shareholders as to whether or
not dividends shall be paid or the level of any dividend payment shall, as regards the liability of the Company to the
Shareholder in question, be determined by the Board. Any such determination shall be without prejudice to any rights
or claims any Shareholder may have against any other Shareholder, under any other agreement or document.
However, prior to recommending any dividend for distribution to Shareholders, the Board shall ensure proper reserves
are established in respect of depreciation and renovation, labour law obligations and any other voluntary or statutory
reserves considered by the Board to be necessary or appropriate. Such reserves as resolved by the Board shall be the
only reserves the Company is required to have.
Rights to attend the General Assemblies
A General Assembly shall be convened by the Board and held at least once every year (at a date and venue determined
by the Board), within six months of the end of the Financial Year (an "AGA"). The AGA shall consider the Directors’ and
auditors’ reports and the balance sheet and profit and loss account for the preceding financial year, determine the
amount of dividends to be distributed to Shareholders, determine the appointment and removal of auditors where
relevant (after Admission) and appoint auditors for the period up to the end of the next financial year and determine
their remuneration. All General Assemblies shall be held in Qatar.
Procedure for convening a General Assembly
An annual or extraordinary General Assembly shall be convened by a notice from (and shall be chaired by) the Chairman or in his absence the Vice Chairman (if any) or such other Director as may have been authorised to do so by the
Chairman. Such notice shall be distributed (by normal post) to Shareholders and shall be published in at least two
daily Qatari newspapers, one in English, not less than fifteen (15) days prior to the proposed date of such meeting. The
Articles also provide that any shareholder or shareholders together holding 15% or more of the Shares may from time
to time require by notice in writing to the Company that the General Assembly be convened by the Board.
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Quorum at General Assemblies
The quorum for an annual General Assembly and an extraordinary General Assembly shall be the Shareholders present
in person or duly represented by proxy and holding not less than 50% in nominal value of the Shares, provided always
that the Special Shareholder is duly represented in such meeting entitled to be present and vote at such meeting.
Voting rights
Except as otherwise provided in the Articles (and notwithstanding Qatar Petroleum’s rights as holder of the Special
Share) each Shareholder whose name is entered in the Company’s register of Shareholders at the close of business
seven days prior to the day of General Assemblies and who is present in person or duly represented by proxy, shall be
entitled to attend the General Assembly and shall have one vote for each Share held by such Shareholder.
Each share confers on its holder the right to attend and vote at all duly convened meetings of the General Assembly. Resolutions at a General Assembly shall, subject to the rights of the holder of the Special Share, be passed by a
simple majority of the votes of the Shareholders present or duly represented and entitled to vote at the meeting and
in respect of the matter to be voted on.
Any Shareholder that is a company may authorise any one person to act as its representative at any General Assembly
(in such form as the Board may approve), and the person so authorised shall be entitled to exercise the same power as
that Shareholder could itself exercise on behalf of the Shareholder he represents subject to the requirement (except in
relation to the holder of the Special Share) that such person may act as proxy to one or more shareholders so long as
such person shall not be appointed a proxy representing more than 5% of the Company’s entire issued share capital.
Instruments appointing a proxy must be provided to the Company no less than 48 hours prior to the commencement
of the General Assembly.
Extraordinary General Assembly
All matters referred to the Shareholders for their approval, other than those considered at the Annual General Assembly and subject to the rights of the Special Share, shall be referred to an Extraordinary General Assembly including the
following matters: (i) amendment of the Constitutional Documents; (ii) any increase, decrease, division, reduction and/
or otherwise modification to the share capital of the Company; (iii) extension to the term of the Company; or any sale,
dissolution, liquidation, winding up, reconstruction or merger of the Company.
Rights attached to the Special Share
In addition to its shareholding in the Company, Qatar Petroleum has certain rights beyond its rights as a shareholder
due to its ownership of the Special Share. The Special Share may not be cancelled or redeemed without the consent
in writing of the Special Shareholder which is Qatar Petroleum. The Special Share may be transferred only to the Government, any Government Corporation or to any Qatar Petroleum Affiliate (as defined under the Articles).
Notwithstanding any provision in the Articles to the contrary, each of the following matters (among other things) shall
be deemed to be a variation of the rights attaching to the Special Share and shall accordingly be effective only with
the consent in writing of the Special Shareholder: the amendment, variation or removal, or alteration of the effect of
any provision of the Company’s Memorandum of Association or provisions of the Articles with respect to (i) certain
definitions under the Articles; (ii) the rights of the Special Share; (iii) subscription and transfer formalities; (iv) restrictions on shareholding; (v) power of the Board; (vi) composition of the Board; (vii) terms of appointment and vacation
of office of Directors; and (viii) quorum for Board meeting; any proposal being made for the voluntary winding up or
dissolution of the Company or any subsidiary of the Company; the issue of any Shares; the cancellation, increase,
reduction, redemption, subdivision, consolidation or other change to the share capital of the Company (including the
cancellation or redemption of the Shares); any proposal to merge any of the Company’ activities with those of another
company or entity or the entry into of any agreement or arrangement to acquire or dispose of any subsidiary or business of the Company; any proposal that the Company amend, supplement, vary or terminate any of the provisions
of (i) the memorandum and articles of association of a Portfolio Company; or (ii) the respective joint venture agreement relating to each of the Portfolio Companies; and any proposal that the Company give any assurance, guarantee
(whether actual or contingent) or that the Company give any assurance, guarantee (whether actual or contingent) or
indemnity to any person in respect of any direct or indirect obligation or liability, to any person, of such company.
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The Special Share also confers rights of the Special Shareholder to appoint Members of the Board without the need
for approval at a General Assembly. In the event that Qatar Petroleum transfers the Special Share, the right to appoint
and nominate Directors (as applicable) shall pass with the Special Share.
Qatar Petroleum shall be entitled to receive notice of, and to attend and speak at, any General Assembly. The quorum for
any General Assembly must include the presence of the Special Shareholder or its appointed representative. Other than
as described in the Articles (as summarised in this Prospectus), the Special Share shall rank pari passu with each Share.
Ownership restrictions
The Articles of Association of the Company restrict any person, whether legal or natural, with the exception of Qatar Petroleum (and its affiliates) and the Selected Institutions, from owning more than a specified maximum number of Shares, as
determined by the Board from time to time (currently set at 1,000,000 Shares). In addition, non-Qatari persons are restricted
from owning, in aggregate, in excess of 15% of the portion of the Company’s shares made available for subscription.
Shareholders’ liabilities
Shareholders shall only be liable for unpaid subscription amounts (up to the nominal value of each Share held by them) and
their liability shall not be increased. Shareholders shall have no further liability for the debts and obligations of the Company.
Dividend policy
Shareholders will be entitled to receive dividends in respect of Offer Shares and Incentive Shares when awarded held
by them, subject to the Company having sufficient distributable reserves and the decision of the General Assembly.
No dividend shall exceed the amount recommended by the Board and the Board shall not be obliged to recommend
an amount of dividend in any year.
The Shares will be eligible for dividends in line with the policies and recommendations of the Board and General
Assembly approval. For further information relating to the Company's dividend policy see action "Dividend Policy" of
the Prospectus.
Reports to Shareholders
The Board shall prepare the Company’s annual report and provide a copy of such annual report to Shareholders at
least fifteen days before the AGA. Such annual report shall include the Company’ profit and loss accounts, a balance
sheet, a report of the Board (relating to the financial status and affairs of the Company) and the full text of a report of
the auditors, for the immediately preceding financial year. A copy of the annual report shall be included with the notice
of AGA sent to Shareholders, in accordance with the Articles.
Transfer of Shares
In addition to the relevant provisions contained in the Articles relating to the transfer of Shares, the issue and transfer
of Shares, loan notes, bonds, securities or other instruments shall be governed by and shall comply with the rules
governing companies listed on the QE, and any amendments thereto and/or any other regulated stock exchange on
which the Company may be listed from time to time.
Any whole number of Shares may be freely transferred, sold, mortgaged, donated and disposed of in any manner and
without restriction in accordance with the Articles. Transfers of Shares made other than in accordance with the Articles shall be void. Subscriptions for and dispositions and transfers of loan notes, bonds, securities (other than Shares)
and other instruments shall be made in accordance with their terms of issue.
All subscriptions for and transfers of Shares shall be effected by an instrument of assignment in writing adhering to the
Articles and in a form approved by the Board, duly signed by the transferor and the transferee, and accompanied by the
relevant certificate, if any (or such form of lost certificate indemnity or such other documentation or evidence of title as
is acceptable to the Board), for the Shares being transferred.
The Board may prevent the registration by the Company of a Share transfer if (a) it is made in breach of the Articles; (b)
relates to Shares not fully paid; (c) is made to more than four joint owners; and (d) purports to transfer Shares which are
mortgaged or subject to a court order preventing transfer.
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The Board may prevent the registration by the Company or person acting on its behalf of any transfer of loan notes,
bonds, securities (other than Shares) and other instruments where such registration and transfer is in breach of the
terms of issue of such loan notes, bonds, securities or other instruments.
Tag-Along Right
Should a Shareholder or a group of Shareholders reach an agreement to sell Shares in the Company equal to or
exceeding 50% of the paid up share capital of the Company, such agreement shall not be enforceable unless an
offer is extended to the remaining Shareholders to exercise, at such shareholders’ discretion, their tag-along right as
defined under the Articles as the right of the minority shareholders to participate in a sale of Shares exceeding 50% of
the paid up share capital of the Company and to sell their Shares on the same terms and conditions.
Proceedings of the directors
The Board shall consist of no less than three (3) and no more than eleven (11) Directors, all of whom shall be appointed
by the Special Shareholder without the need for approval at a General Assembly. Each Director shall be appointed
for a renewable term of three (3) years or such shorter term (being no less than one (1) year each) as the Board shall
determine.
Chairman
The Special Shareholder shall appoint the Chairman of the Board ("Chairman") and the Special Shareholder may
appoint a Vice Chairman of the Board ("Vice Chairman") from among the Directors. The Chairman and the Vice Chairman (if any) shall remain in office for a renewable period of three (3) years, or such shorter period (not less than one
(1) year) and any Director appointed to fill a vacancy on the Board created by the death, resignation or removal of a
Director who was the Chairman or Vice Chairman shall also serve in that capacity for the remainder of the departing
Chairman or Vice Chairman’s term). A person may become a Chairman or Vice Chairman of the Company even if by
doing so he shall be a Chairman or Vice Chairman in two or more companies having principal places of business in
the State of Qatar.
Managing Director
The Directors may elect by secret ballot one or more Directors to serve as Managing Director of the Company. A
person may become a Managing Director even if already a Managing Director of another company having its principal
place of business in the State of Qatar. The Managing Director shall manage, direct and operate the business of the
Company subject to such policies and directives with respect thereto as the Directors may from time to time adopt in
conformity with the Articles and any pertinent resolutions of the Board. The authority of the Managing Director shall
be fixed by the Board who shall also decide whether the Managing Director shall have the right to sign on behalf of
the Company either alone or with any other person. The Managing Director shall report regularly to the Directors so as
to keep them fully informed as to the management of the Company and the state of its affairs and shall provide them
with such information and reports as they may require. The Managing Director shall prepare for Board approval, the
management and operating structure for the Company as required by the Board.
Convening meetings of the Board
All meetings of the Board (including those for which a provisional date may have been agreed) shall be convened by a
notice from the Chairman or, in his absence, the Vice Chairman (if any), or any two Directors or such other Director as is
duly authorised by the Chairman. The Chairman shall further convene a meeting by notice upon request by any two or
more Directors. Any notice shall be given by fax, registered post or e-mail (subject to evidence of receipt satisfactory
to the Board), to every Director at his relevant address for service in the Company records, not less than seven (7) days
prior to the proposed date of such meeting, or as required by the regulations of the QFMA, if applicable, stating the
date, time and place of the meeting.
Conduct of meetings of the Board
Board meetings shall be held at least four times per calendar year and additionally, as often as necessary for the
conduct of the affairs of the Company. The Board shall hold meetings in Doha, Qatar unless all Directors (or their alternates) are present or otherwise agreed to it being held elsewhere. A Director or his alternate Director may participate
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in a meeting of the Board through the medium of conference telephone, video teleconference or similar form of communication equipment if all persons participating in the meeting are able to hear and speak to each other throughout
the meeting. A person participating in this way is deemed to be present in person at the meeting and shall be counted
in a quorum and entitled to vote.
Quorum for Board meetings
The quorum necessary for the transaction of the business of the Board shall be half of the number of Directors entitled
to vote and be present at the said meeting present or duly represented by an alternate.
Proceedings at the Board meeting
Board resolutions shall be passed by the majority of votes of Directors present and entitled to vote (each Director
having one vote).
Resolutions in writing
A resolution in writing delivered to all Directors and approved and executed by a quorate number of eligible Directors
(being half of the members of the Board) for the time being entitled to receive notice of a Board meeting, is as valid
and effective for all purposes as a resolution passed at a meeting of the Board. The resolution in writing may consist
of several documents in the same form, each executed by one or more of the Directors. The resolution in writing need
not be executed by an alternate Director if it is executed by his appointer, and a resolution executed by an alternate
Director need not be executed by his appointer.
Conflicts of interest
A Director who, to his knowledge, is in any way (directly or indirectly) beneficially interested in a contract, arrangement, transaction or proposal with the Company (or an affiliate of the Company), (otherwise than by virtue of his
appointment as a Director, his employment or his beneficial interest in shares or debentures warrants other securities
of or otherwise in or through the Company or any affiliate of the Company including Qatar Petroleum), shall declare
the nature of his interest at the meeting of the Board at which the question of entering into the contract, arrangement,
transaction or proposal is first considered. Such a Director shall declare the full extent of his said interest to the Board
at the first meeting if he knows his interest then exists or, in any other case, as soon as he is or had become interested.
Director’s vote on a conflict of interest
A Director may not vote on or be counted in the quorum in relation to a resolution of the Board or of a committee of
the Board concerning a contract, arrangement, transaction or proposal to which the Company (or any affiliate of the
Company) is or is to be a party and in which he has a beneficial interest which is, to his knowledge, a material beneficial
interest (otherwise than by virtue of his appointment as a Director, his employment or his interest in shares or debentures warrants or other securities of or otherwise in or through the Company or any affiliate of the Company including
Qatar Petroleum), save in relation to a resolution concerning certain specified matters as stipulated under the Articles.
A Director may not vote on or be counted in the quorum in relation to a resolution of the Board or committee of the
Board concerning his own appointment (including, without limitation, fixing or varying the terms of his appointment or
its termination) as the holder of an office or place of profit with the Company or any company in which the Company
is interested.
Rules applying to a conflict of interest and disclosure
If potential conflict of interest arose at a meeting as to the materiality of a Director’s beneficial interest (other than
the interest of the Chairman) or as to the entitlement of a Director (other than the Chairman) to vote or be counted in
a quorum and the question is not resolved by his voluntarily agreeing to abstain from voting or being counted in the
quorum, the question shall be referred to the Chairman and his ruling in relation to the Director concerned is final,
conclusive and binding on all concerned. If potential conflict of interest arose as to the materiality of the interest of the
Chairman or as to the entitlement of the Chairman to vote or be counted in a quorum and the question is not resolved
by his voluntarily agreeing to abstain from voting or being counted in the quorum, the question shall be decided by
resolution of Board or committee members present at the (excluding the Chairman) whose majority vote is final, conclusive and binding on all concerned. The General Assembly may by resolution suspend or relax the provisions of this
144
the relevant article regarding a conflict of interest and to any extent or ratify any contract, arrangement, transaction or
proposal not properly authorised by reason of a contravention of such article.
Committees
Delegation to committees
The Board may delegate any of its powers, authorities and discretions (with power to sub-delegate) to a committee consisting of one or more persons (whether a member or members of the Board or not) as it thinks fit. A committee may exercise
its power to sub-delegate by sub-delegating to any person or persons (whether or not a member or members of the Board
or of the committee). The Board may retain or exclude its right to exercise the delegated powers, authorities or discretions
collaterally with the committee. The Board may at any time revoke the delegation or alter any terms and conditions or discharge the committee in whole or in part. Where a provision of the Articles refers to the exercise of a power, authority or discretion by the Board (including, without limitation, the power to pay fees, remuneration, additional remuneration, expenses
and pensions and other benefits) and that power, authority or discretion has been delegated by the Board to a committee,
the provision shall be construed as permitting the exercise of the power, authority or discretion by the committee.
Access to information
The books of account of the Company shall be kept at its head office. Subject to such confidentiality and such other restrictions as the Board may from time to time agree, the Shareholders and their respective auditors and the Directors shall have
full access to such books of accounts and to all records of the Company at all reasonable times: provided, however, that
prior to undertaking any review of the Company’s books or records, the Shareholders shall first use their best efforts to
obtain the information sought to be obtained from such review from the Company’s Auditors. The Board shall provide the
Auditors with all information reasonably required by it to compile its reports within two (2) months of the Company’s Financial year end. The Auditors shall have full access to the Company’s books and records. The Auditors shall provide a report
on the Company’s accounts within four (4) months of each Financial Year end.
The Shareholders’ shall also have the right to access, free of charge, the Company’s Shareholder register and the Memorandum of Association and Articles of Association of the Company at the Company’s head office during its regular office hours
unless otherwise determined by the Company’s internal procedures. Each Shareholder shall also be entitled to receive,
upon a written request, a copy of the Memorandum of Association and Articles of Association of the Company which shall
also be made available to third parties at the discretion of the Board subject to a reasonable fee as determined by the Board.
Terms and Conditions relating to the Incentive Shares
In line with the stated policy of the State of Qatar to encourage long-term investments and the continued development of
a personal savings culture in Qatar, QP has committed that each Individual Investor, being a Qatari national individual who
subscribes in the Offering, will receive, for each Offer Share allocated to him or her in the Offering, the conditional right
to receive an Incentive Share free of charge. Incentive Shares are ordinary Shares of the Company which rank pari passu
with the Offer Shares in all respects. However, the right to receive Incentive Shares is conditional. Incentive Shares will be
awarded on the dates falling 5 years and 10 years after the date of the Offering (the "First Award Date" and the "Second
Award Date", respectively) to Individual Investors who have retained at all times at least 50% of their Offer Shares by such
Award Date. 50% of the Incentive Shares will be awarded to qualifying Shareholders on the First Award Date (1.00 p.m.
(Doha time) on 31 December 2018), with the remaining 50% of the Incentive Shares awarded to qualifying Shareholders on
the Second Award Date (1.00 p.m. (Doha time) on 31 December 2023). For example, an Individual Investor who subscribes
for 500 Offer Shares in the Offering and retains at all times at least 50% of such Offer Shares (i.e. 250 Offer Shares) for 5
years after the Offering, will receive, free of charge, 250 Incentive Shares on the First Award Date. If such Individual Investor
retains at all times at least 50% of his or her original Offer Shares (i.e. 250 Offer Shares) for a further 5 years, he or she will
receive an additional 250 Incentive Shares on the Second Award Date.
In order to qualify to receive Incentive Shares on the relevant Award Date, it is a requirement that Individual Investors have
retained at all times at least 50% of their Offer Shares by the relevant Award Date. An Individual Investor who sells or otherwise transfers more than 50% of his original Offer Shares prior to the First Award Date will receive no Incentive Shares on the
First Award Date or the Second Award Date. An Individual Investor who has retained at least 50% of his or her Offer Shares
by the First Award Date, but subsequently sells or otherwise transfers more than 50% of their Offer Shares before the Second
Award Date, will receive Incentive Shares on the First Award Date but not on the Second Award Date.
Investors who are not Individual Investors (i.e. Selected Institutions) will not qualify for Incentive Shares. For the avoidance
of doubt, save as otherwise set out in this Prospectus, the right to receive Incentive Shares is only attached to Offer Shares
acquired by Individual Investors in the Offering and no right to receive Incentive Shares will attach to any Shares purchased
on the secondary market after the Offering. It is important to note that, in order to qualify for Incentive Shares on the relevant
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Award Date, an Individual Investor must have retained at all times at least 50% of his or her original Offer Shares at all times
since the Offering. An Individual Investor who sells or otherwise transfers more than 50% of their Offer Shares prior to the
relevant Award Date will not qualify for Incentive Shares on such Award Date, even if they have since acquired additional
Shares on the secondary market and restored their shareholding to its original level (or above) prior to the relevant Award
Date. Incentive Shares will only be awarded to shareholders who have continually held on to at least 50% of their original
Offer Shares. Where the number of Offer Shares allocated to a qualifying Shareholder is an odd number not divisible by two
without resorting to fractions, such qualifying Shareholder shall be entitled on the First Award Date and the Second Award
Date, assuming he remains a qualifying Shareholder on those dates, to a number of Incentive Shares calculated as follows: (i)
on the First Award Date, the number of Offer Shares allocated to such qualifying Shareholder in the Offering plus one additional Offer Share, divided by two; and (ii) on the Second Award Date, the number of Offer Shares allocated to such qualifying
Shareholder less one Offer Share, divided by two. For example, if an Individual Investor is allocated 501 Offer Shares in the
Offering, such Individual Investor will be entitled to 251 Incentive Shares on the First Award Date and 250 Incentive Shares on
the Second Award Date, assuming he remains a qualifying Shareholder on such dates.
Protected Amount. In order to prevent an Individual Investor from unintentionally or inadvertently forfeiting the right to receive
Incentive Shares, the Company has entered into certain arrangements with the Qatar Exchange whereby:
•
In the case of an adult Individual Investor, 50% of the Offer Shares originally subscribed by him or her in the
Offering will be automatically prevented from being transferred or sold (i.e. they will be subject to a bar on transfer
or sale) until the Second Award Date. The amount of Shares subject to such block is referred to as the "Protected
Amount". An adult Individual Investor is free to override such block by formally applying to the Qatar Exchange to
have the block on his or her Protected Amount lifted. Such an Individual Investor will be required to complete and
submit to the Qatar Exchange an "Application to Release Protected Amount Acquired at the IPO", which may be
obtained on request from the offices of the Qatar Exchange. Unless otherwise permitted by the Qatar Exchange,
this will require the Individual Investor to attend in person the offices of the Qatar Exchange in Doha. An Individual
Investor who applies to the Qatar Exchange to have the block on his or her Protected Amount lifted should note
that, in the event he or she then proceeds to sell or otherwise transfer more than 50% of the Offer Shares subscribed by him or her in the Offering, he or she will thereupon forfeit any right to receive Incentive Shares.
•
In the case of a Minor (i.e. an Individual Investor who has not yet attained the age of 18 years) or a person who
subscribes in the Offering on behalf of a Minor, the Protected Amount shall apply to (i) 50% of the Offer Shares
originally subscribed by or on behalf of such Minor in the Offering; and (ii) 100% of the Incentive Shares awarded
to or for the benefit of such Minor on the First Award Date and the Second Award Date (to the extent the Minor
remains a Minor as at such dates). In order to safeguard the value of investments in the Company made by or on
behalf of Minors, the block on a Minor’s Protected Amount may not, for as long as such Minor remains a Minor, be
voluntarily lifted.
Additional Shares. Any additional Shares issued or transferred to an Eligible Investor at the direction of QP or a Receiving Bank
in order to rectify or remedy any defect or error in the allocation process shall be treated for all purposes as Offer Shares,
including for the purpose of determining entitlement to Incentive Shares and the calculation of such Eligible Investor’s Protected Amount.
Release of Incentive Shares on death. In the event that an Individual Investor (including an Individual Investor who is a Minor)
dies prior to an Award Date, the Incentive Shares to which such Individual Investor would otherwise have become entitled on
an Award Date shall, as soon as reasonably practicable, be released by QP and transferred to the deceased Individual Investor’s estate.
Registration of Shares. Prior to being awarded to a qualifying Shareholder on the relevant Award Date, Incentive Shares shall
remain registered in the name of QP. Unless otherwise agreed between the Applicant and the Company, all Offer Shares
issued to an Applicant (or to a Minor or third party on whose behalf an Applicant is applying) will be registered in the full legal
name of such Applicant or the relevant Minor or third party (as applicable).
Shares fully paid up. All Offer Shares and Incentive Shares will be fully paid-up.
Right to Receive Dividends. Each Individual Investor shall at all times be entitled to receive any dividend which is declared and
paid in respect of the Offer Shares registered in his name at the relevant date pursuant to the Memorandom and Articles of
Association and applicable law. However, all dividends declared and paid in respect of Incentive Shares prior to the relevant
Award Date shall be paid directly to QP as the legal holder of such Incentive Shares. QP will not accrue such dividends for
the benefit of future holders of the Incentive Shares. For so long as QP is the registered holder of such Incentive Shares, any
dividends payable in respect of such Incentive Shares will be paid to QP and not to Individual Investors.
146
TAXATION
The Company is an Article 68 Qatari shareholding company (Q.S.C.). The Company’s Shares are being offered within
Qatar solely to Eligible Investors, being Qatari national individuals or certain Selected Institutions. Under current
Qatari income tax law and regulations, entities that are tax resident in Qatar which are ultimately wholly-owned by
Qatari or GCC nationals are not subject to corporate income tax in Qatar, as such corporate income tax is only levied
on companies that are not wholly-owned by Qatari or GCC nationals. Where applicable, such tax is computed on total
taxable profits allocable to shares owned directly or indirectly by (i) non-Qatari and non GCC nationals, and (ii) Qatari
and GCC nationals that are not tax resident in Qatar.
However, Qatari Law No. 20 of 2008 exempts from income tax the profits attributable to non-Qatari and non-GCC
investors in a Qatari shareholding company whose stocks are listed on the Qatar Exchange. The listed company is
instead required to contribute annually 2.5% of its net profit to the State to support its sports, cultural, social and
charitable activities. This contribution (referred to as the sports levy) is appropriated from the Retained Earnings of the
listed company thereby reducing the Retained Earnings available for dividends distribution.
Notwithstanding the corporate income tax exemption, Qatari tax resident entities that are ultimately wholly owned
by Qatari nationals and other GCC nationals are required to operate withholding tax in certain cases. Currently Qatar
does not impose withholding tax on dividend payments.
The dividends declared by these entities are likewise not taxable in the hands of the shareholders. However, any gain
realised from the sale of shares in these entities is subject to Qatar income tax unless such gain is derived by Qatari
nationals or GCC nationals who are tax resident in Qatar. Therefore, Shareholders who are either (i) corporate entities
wholly-owned by Qatari nationals and other GCC nationals; or (ii) individual Qatari nationals and other GCC nationals
will not be subject to Qatar income tax on any gain realised upon the sale or exchange of Shares provided the Qatari
nationals and GCC nationals are tax resident in Qatar.
It should be noted that each of Q-Chem I, Q-Chem II and QVC is liable to Qatari corporate income tax on its profits,
as a result of each of them having a foreign shareholder(s). The tax status of these Portfolio Companies is subject to
specific tax incentives including tax holidays for profits arising in the initial years of operation of the projects or expansion projects. The incentives benefit the profit share of the foreign shareholders. The dividends received from these
Portfolio Companies by the Company are not subject to further tax in the hands of the Company.
147
UNDERTAKINGS BY THE COMPANY
The following constitutes a translation of text included in the Arabic Prospectus:
The Company undertakes to promptly inform the QE about any information that might affect the Company’s Share price
on the QE, and to publish this information in daily newspapers in collaboration and coordination with the Qatar Ministry
of Finance and the QE, clearly and accurately. The Company further undertakes to provide the QE with all periodic information and reports issued by the Company in the future. The Company further undertakes to comply with any applicable
ongoing requirements of the QFMA.
The Company and the Board, acting jointly and severally, confirm that the information provided in this Prospectus is true
and accurate and no facts were omitted therefrom, which omission would render any statement in this undertaking or
in this Prospectus misleading.
148
LEGAL COUNSEL’S REPORT
The following is a translation of text included in the Arabic Prospectus:
We hereby confirm and certify that the offering of Offer Shares by QP and the Company is in accordance with the Companies Law and with the rules and regulations of the QFMA and the QE and the Company’s Constitutional Documents.
We further confirm that all procedures undertaken in this respect are in accordance with applicable laws and regulations.
Latham & Watkins LLP
Doha, Qatar
31 December 2013
149
TRANSFER AND SELLING RESTRICTIONS
The Offering to which this Prospectus relates is open in Qatar only, to Eligible Investors who are Qatari national individuals and
certain selected Qatari institutions. The Offering does not constitute an offer to the general public in any jurisdiction outside
of Qatar. The distribution of this Prospectus and the offer of the Offer Shares may, in certain jurisdictions, be restricted by
law or may be subject to prior regulatory approvals. This Prospectus does not constitute an offer to sell or an invitation by or
on behalf of Qatar Petroleum, the Company or the Financial Advisors to purchase any of the Offer Shares in any jurisdiction
outside of Qatar or from or within the Qatar Financial Centre.
This Prospectus may not be distributed in any jurisdiction where such distribution is, or may be deemed, unlawful. Qatar
Petroleum, the Company, the Financial Advisors and the Receiving Banks require persons into whose possession this Prospectus comes to inform themselves of and observe all such restrictions. None of Qatar Petroleum, the Company, the Financial Advisors or any of the Receiving Banks accepts any legal responsibility for any violation of any such restrictions on the
sale, offer to sell or solicitation to purchase the Offer Shares by any person, whether or not a prospective purchaser of the
Offer Shares is in any jurisdiction outside of Qatar, and whether such offer or solicitation was made orally or in writing, including by electronic mail. In particular, the following restrictions apply to the specific jurisdictions referenced below:
Qatar
This Prospectus has been approved by the Qatar Financial Markets Authority and is being made available to Eligible
Investors in the State of Qatar (outside of the Qatar Financial Centre (the "QFC")).
Qatar Financial Centre
This Prospectus does not, and is not intended to, constitute an invitation or offer of securities from or within the QFC,
and accordingly should not be construed as such. This Prospectus has not been reviewed or approved by or registered
with the Qatar Financial Centre Authority (the "QFC Authority"), the Qatar Financial Centre Regulatory Authority (the
"QFCRA") or any other competent legal body in the QFC. This Prospectus is strictly private and confidential, and may
not be reproduced or used for any other purpose, nor provided to any person other than the recipient thereof. The
Company has not been approved or licensed by or registered with any licensing authorities within the QFC.
Bahrain
The Central Bank of Bahrain and the Bahrain Stock Exchange assume no responsibility for the accuracy or completeness of the statements and information contained in this Prospectus and expressly disclaim any liability whatsoever
for any loss howsoever arising from reliance upon the whole or any part of the contents of this Prospectus. No offer to
the public will be made in the Kingdom of Bahrain.
This Prospectus may not be circulated within the Kingdom of Bahrain, nor may any interests in the Company be
offered for subscription or sold, directly or indirectly, nor may any invitation or offer to subscribe for any securities in
the Company be made to persons in the Kingdom of Bahrain. This Prospectus is not subject to the regulations of the
Central Bank of Bahrain that apply to public offerings of securities, and the extensive disclosure requirements and
other protections that these regulations contain.
Kuwait
The Shares have not been licenced for offering in Kuwait by the Ministry of Commerce and Industry in Kuwait, the
Central Bank of Kuwait or any other relevant Kuwaiti government agency. The offering of the Shares in Kuwait on the
basis of a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 31 of 1990,
as amended, and Ministerial Order No. 113 of 1992, as amended. No private or public offering of the Shares is being
made in Kuwait, and no agreement relating to the sale of the Shares will be concluded in Kuwait. No marketing or
solicitation or inducement activities are being used to offer or market the Shares in Kuwait.
Oman
No offer to the public will be made in the Sultanate of Oman. This Prospectus may not be circulated within the Sultanate of
Oman, nor may any interests in the Company be offered for subscription or sold, directly or indirectly, nor may any invitation or offer to subscribe for any securities in the Company be made to persons in the Sultanate of Oman.
150
Saudi Arabia
No offering is being made in or to persons situated in the Kingdom of Saudi Arabia and this Prospectus may not be
circulated or distributed to or within, or passed to any person situated in, the Kingdom of Saudi Arabia. In respect of
anything done in relation to the Offering or the Shares in, from or otherwise involving the Kingdom of Saudi Arabia,
all applicable provisions of the Offers of Securities Regulations as issued by the Board of the Capital Market Authority
under resolution number 2-11-2004 dated 20/08/1424H (corresponding to 04/10/2004G), must be complied with. This
Prospectus has not been approved by or filed with the Capital Market Authority or any other regulatory authority in the
Kingdom of Saudi Arabia, and no such authority assumes any liability for its contents.
United Arab Emirates
No offering is being made in or to persons situated in the United Arab Emirates and this Prospectus may not be circulated or distributed to or within, or passed to any person situated in, the United Arab Emirates, including the free zones
situated in the United Arab Emirates. This Prospectus has not been approved by or filed with the UAE Central Bank,
the Securities and Commodities Authority or any other federal or emirate-level regulatory authority in the United Arab
Emirates, or the regulatory authorities in any of the free zones established in the United Arab Emirates, and no such
authority assumes any liability for its contents. Moreover, no offering is being made in or to persons situated in the
Dubai International Financial Centre (the “DIFC”) or any other financial free zone established in the UAE pursuant to
UAE Federal Law No. 8 of 2004 (the “Financial Free Zones”). This Prospectus has not been approved by or filed with
the Dubai Financial Services Authority (the “DFSA”), the DIFC Authority or any other regulatory authority in the Financial Free Zones established in the United Arab Emirates, and no such authority assumes any liability for its contents.
European Economic Area
No offering is being made in or to persons situated in any member state of the European Economic Area (the “EEA”)
and this Prospectus may not be circulated or distributed to or within, or passed to any person situated in, any member
state of the EEA. In respect of anything done in relation to the Offering or the Shares in, from or otherwise involving the
EEA or any member state thereof, all applicable provisions of local laws and regulations in such member state must be
complied with including, in those member states where it has been implemented, the Prospectus Directive (Directive
2003/71/EC), as amended. This Prospectus has not been approved by or filed with the regulatory authorities in any
member state of the EEA, and no such authority assumes any liability for its contents.
United Kingdom
No offering is being made in or to persons situated in the United Kingdom and this Prospectus may not be circulated
or distributed to or within, or passed to any person situated in, the United Kingdom. All applicable provisions of the
Financial Services and Markets Act 2000 and the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005, each as amended, must be complied with in respect of anything done in relation to the Offering or the
Shares in, from or otherwise involving the United Kingdom. This Prospectus has not been approved by or filed with
the UK Listing Authority, the Financial Conduct Authority, the Prudential Regulatory Authority or any other regulatory
authority in the United Kingdom, and no such authority assumes any liability for its contents.
United States
The Shares have not been and will not be registered under the Securities Act. Accordingly, Shares may not be offered,
sold or delivered within or into the United States or to or for the benefit of US persons (as defined in Regulation S under
the Securities Act).
151
CLEARING AND SETTLEMENT
Prior to the Closing Date, the Company will submit an application to the QFMA and to the QE to list all of the Shares
on the QE, in accordance with the requirements of the QFMA and the QE. Trading in the Shares will be effected on
an electronic basis, through the Company’s Share registry maintained by the QE. It is anticipated that Admission will
occur during February 2014.
After the Closing Date, and following commencement of trading of the Shares on the QE, all institutions and individuals will be permitted to purchase Shares on the secondary market in accordance with the applicable laws of Qatar and
the rules of the QE. The Shares may be freely traded and transferred in accordance with the rules and regulations of
the QE and in compliance with the applicable laws of Qatar. However, investors who subscribe for Shares in the Offering should note certain restrictions applicable in relation to their Protected Amount and their entitlement to Incentive
Shares. See page 146 of this Prospectus.
Transactions in Shares will normally be effected for delivery on the same day on which the transaction is performed.
Transactions in Shares admitted to trading on the QE are generally governed by a 3-day settlement cycle and, when
applicable, delivery-versus-payment (DvP) procedures.
152
GENERAL INFORMATION
1.Listing
Prior to the Closing Date, the Company will submit an application to the QFMA and the Qatar Exchange to list all of the
Shares on the Qatar Exchange in accordance with the requirements of the QFMA and the Qatar Exchange. Trading
in the Shares will be effected on an electronic basis, through the Company’s share registry maintained by the Qatar
Exchange. The results of the Offering will be made public by the Company through a press release and notice to the
QE on or about the date of Admission. It is anticipated that Admission will occur during February 2014.
2.Authorisations
The Company has obtained all consents, approvals and authorisations in Qatar in connection with the Offering.
3.
Documents Available for Inspection
Copies of the following documents will be available for inspection free of charge, during normal business hours at the
registered office of the Company from the date of publication of this Prospectus to Admission:
•
this Prospectus;
•
the Company’s constitutional documents, being its Memorandum of Association and Articles of Association; and
•
the Pro Forma Financial Information.
The registered office of the Company is located at P.O. Box 3212, Doha, State of Qatar.
4.
Security Codes
The QE Shares trading symbol is "MPHC".
5.
Offer Price
The Shares have a nominal or par value of QAR 10 per Share. The Offer Price of QAR 10 per Offer Share was determined
by Qatar Petroleum in consultation with the Financial Advisors.
6.
Significant Change
Except as described in "Recent Developments", there has been no significant change in the financial or trading position of the Company since 31 December 2012, the end of the last financial period for which financial information has
been audited.
7.
8.
Portfolio Companies
Company
Shareholding
Q-Chem I
49%
Q-Chem II
49%
QVC
55.2%
Material Contracts
Save for the contracts relating to each of the Portfolio Companies listed in the section of the Prospectus titled "Related
Party Transactions", the following contracts (not being contracts entered into in the ordinary course of business) have
been entered into by the Company and the Portfolio Companies within the two years immediately preceding the date
of this Prospectus and are, or may be, material or have been entered into at any time by the Company and the Portfolio
Companies and contain provisions under which the company or a particular Portfolio Company has an obligation or
entitlement which is, or may be, material to the Company or the relevant Portfolio Company or the Group as a whole
at the date of this Prospectus:
153
The Company
Share Swap Agreement
The Company is a newly-incorporated entity. Upon incorporation on 29 May 2013, the Company did not own the
Portfolio Company Shares, which remained at that time directly held by Qatar Petroleum. Pursuant to the Share Swap
Agreement entered into between Qatar Petroleum and the Company dated 4 August 2013, the Company agreed
to acquire from Qatar Petroleum the Portfolio Company Shares in consideration for the issue and allotment by the
Company to Qatar Petroleum of an additional 1,255,317,500 newly-issued ordinary Shares in the Company (the Swap
Shares). The execution of the Share Swap Agreement, the acquisition of the Portfolio Company Shares and the issuance and allotment to Qatar Petroleum of the Swap Shares was approved at a meeting of the Extraordinary General
Assembly of the Company held on 8 July 2013. Separately, the transfers of the Portfolio Company Shares from Qatar
Petroleum to the Company were also approved by the Extraordinary General Assemblies of the relevant Portfolio Companies – Q-Chem I, Q-Chem II and QVC. Such transfers were registered on 9 September 2013. Accordingly, as at the
date of this Prospectus, and immediately prior to the Offering, Qatar Petroleum holds 100% of the issued share capital
of the Company (a total of 1,256,317,499 ordinary Shares and one Special Share, as compared in 999,999 ordinary
Shares and one Special Share prior to the Share Swap). In turn, the Company holds 49% of the issued share capital
of Q-Chem I (corresponding to 55,272 shares), 49% of the issued share capital of Q-Chem II (corresponding to 245
shares) and 55.2% of the issued share capital of QVC (corresponding to 1,017,413 shares), having acquired the Portfolio
Company Shares from Qatar Petroleum. QP has initially directly retained 2% of the issued share capital of Q-Chem I
and Q-Chem II. The Share Swap Agreement is expressed to be governed by the laws of Qatar, is subject to the jurisdiction of the Qatari courts and contains customary representations and warranties.
Services Agreement
Because the Company is primarily a holding company without a significant number of employees or human resources
of its own, the majority of its administrative functions are performed on its behalf by employees of Qatar Petroleum or
its affiliates. These include certain administrative, legal, HR, IT, record-keeping, marketing, public relations, secretarial, reporting, securities exchange compliance and other day-to-day back office functions on behalf of the Company.
The Company and Qatar Petroleum have entered into a Services Agreement - effective as of 1 October 2013 - which
formalises the basis upon which such functions are performed by Qatar Petroleum on request for the benefit of MPHC.
In consideration of these services, the Company has agreed to pay to Qatar Petroleum certain fees and expences.
Q-Chem I
Joint Venture Agreement
A joint venture agreement dated 16 November 1997 was entered into between Qatar Petroleum, CP-Chem and CPCIQH
(as amended from time to time, the "Q-Chem I JVA"). Qatar Petroleum’s direct shareholding percentage interest in
Q-Chem I is 2% (with the Company holding 49%) and CPCIQH’s shareholding percentage interest in Q-Chem I is 49%.
•
Term. The Q-Chem I JVA will terminate 25 years from the date of the bill of lading of the first shipment of any
of the products produced at the Q-Chem I plant. However, the Shareholders have agreed to meet no later
than five years prior to the expiration of the term to discuss a 15 year extension period and a corresponding
extension period to the Related Documents (as defined therein). Upon expiration of the term CPCIQH shall be
obligated to transfer its shareholding in Q-Chem I and Qatar Petroleum shall be obliged to pay CPCIQH the net
book value of such shares in accordance to the terms contained in the Q-Chem I JVA.
•
Management. The Q-Chem I JVA contains a number of voting requirements at both the board and shareholder
level depending on the type of decision being made. These arrangements are customary for joint venture
arrangement of this type.
•
Restriction on transfers. A number of restrictions exists regarding the transfer of Q-Chem I shares by shareholders.
•
Fiscal Incentives, Exchange Control and Governmental Approvals. Certain fiscal and tax incentives are provided for under the Q-Chem I JVA. These assurances include the following that: (i) the assets of Q-Chem I and
the shareholders will not be subject to expropriation during the term of the Q-Chem I JVA; (ii) Q-Chem I shall
pay an income tax rate of 26.25% for the first 10 years following the Commercial Operation Date and thereafter
a rate of 35%; (iii) Q-Chem I be exempted from import and export duties (other than port and facility charges);
(iv) losses may be carried forward for six years; and (v) Q-Chem I will be free during the iterm of the Q-Chem I
JVA to convert all amounts received or receivable by it into any currency and to transfer such currency to any
country not hostile to Qatar.
154
Technology License Agreements
•
Hexene Process Technology License Agreement. Agreement concerning the terms for grant of license by PIC
to Q-Chem I for a Trimerisation process related to 1-Hexene. The term of the agreement is from the date of
the Q-Chem I EPC Contract until the earlier of the termination of the Q-Chem I JVA or the date on which PIC
ceases to be a party to the JVA.
•
Polyolefin Process Technology License Agreement. Agreement concerning the terms for grant of license by
PIC to Q-Chem I for a production process related to polyolefin resins. The term of the agreement is from the
date of the Q-Chem I EPC Contract until the earlier of the termination of the Q-Chem I JVA or the date on
which PIC ceases to be a party to the JVA.
Trademark Agreement
Agreement concerning the licensing of the trademarks Marlex and Phillips 66 Shield by Q-Chem I for the sale of its
products. The Agreement is effective from 25 August 1999 until the date on which PPC and its affiliates own less than
25% of Q-Chem I.
Support Services Agreements
•
Agreement concerning the provision of manpower, management, training and technical services by QP to
Q-Chem I for the operation of its plant. The agreement is effective from 25 August 1999 until the expiry of
the Q-Chem I JVA.
•
Agreement concerning the provision of business and financial services by CP-Chem affiliates to support the
sale of Q-Chem I products in Asia. The agreement is effective from 1 May 2003 for two years and shall renew
automatically for one year periods unless terminated earlier.
•
Agreement concerning the provision of business and financial services by CPCIQH to support the sale of
Q-Chem I products in Europe, Africa and the Middle East. The agreement is effective from 1 May 2003 for two
years and shall renew automatically for one year periods unless terminated earlier.
CPCIS Distributor Agency Agreement
Agreement concerning appointment of CPCIS as Q-Chem I DC’s exclusive agent for the sale of PE in any country
outside the Middle East and for the sale of Hexene in any country; as well as the non-exclusive agent for the sale of PE
in countries in the Middle East. The agreement is effective from 1 July 2010 and initially expired in December 2011. It
has been renewed on a periodic basis since then.
QAPCO Distributor Agency Agreement
Agreement concerning appointment QAPCO as Q-Chem I DC’s non-exclusive agent for the sale of PE in the Gulf countries and the Middle East. The agreement is effective from 11 May 2010 and QAPCO's obligations under the agreement
were novated to Muntajat in July 2013. The agreement has been renewed on a period basis.
Q-Chem II
Joint Venture Agreement
A joint venture agreement was entered into dated 14 July 2005 (as amended and restated) between (i) Qatar Petroleum;
(ii) CP-Chem and CPCIQH (the "Q-Chem II JVA") governing the shareholders’ rights and obligations with respect to
Q-Chem II. Qatar Petroleum’s direct shareholding percentage interest in Q-Chem II is 2% (with the Company holding
49%) and CPCIQH’s shareholding percentage interest in Q-Chem II is 49%.
•
Term. The Q-Chem I JVA will terminate 25 years from the date of the bill of lading of the first shipment of any
of the Products produced at the Q-Chem II plant. However, the Shareholders have agreed to meet no later
than five years prior to the expiration of the term to discuss a 15 year extension period and a corresponding
extension period to the Related Documents (as defined therein). Upon expiration of the term CPCIQH shall be
155
obligated to transfer its shareholding in Q-Chem II and Qatar Petroleum shall be obliged to pay CPCIQH the
net book value of such shares in accordance to the terms contained in the Q-Chem II JVA.
•
Management. The Q-Chem II JVA contains a number of voting requirements at both the board and shareholder
level depending on the type of decision being made. These arrangements are customary for joint venture
arrangement of this type.
•
Restriction on transfers. A number of restrictions exists regarding the transfer of Q-Chem II shares by shareholders.
•
Fiscal Incentives, Exchange Control and Governmental Approvals. Certain fiscal and tax incentives are provided for under the Q-Chem II JVA. These assurances include the following that: (i) the assets of Q-Chem II
and the shareholders will not be subject to expropriation during the term of the Q-Chem II JVA; (ii) Qatar Petroleum or an affiliate of Qatar Petroleum will undertake to pay the tax liability of Q-Chem II for the first 10 years
following Commercial Operation Date; (iii) Q-Chem II may consolidate its proportionate share of net taxable
income/loss plus credits from the operations of RLOC, Q-Chem II Distribution Company and any sub-distribution company (if applicable); (iv) Q-Chem II will be exempted from import and export duties (other than port
and facility charges); (v) losses may be carried forward for six years; and (vi) Q-Chem II will be free during the
term of the Q-Chem II JVA to convert all amounts received or receivable by it into any currency and to transfer
such currency to any country not hostile to Qatar.
RLOC Shareholders’ Agreement
A shareholders’ agreement ("RLOC Shareholders’ Agreement") was entered into on 24 October 2005 between (i)
Qatar Petroleum; (ii) Q-Chem II; (iii) Qatofin and RLOC governing the shareholders’ rights and obligations with respect
to RLOC. The shareholding interest in RLOC is as follows: Q-Chem II (53.31%); Qatofin (45.69%); and Qatar Petroleum
(1%). The initial paid up share capital of RLOC is US $100,000.
•
Cracker Project. RLOC has constructed a cracker complex for the production and transportation of ethylene.
Q-Chem II operates the Cracker complex on behalf of RLOC pursuant to a Cracker Operating Agreement.
The transportation of ethylene is through a pipeline operated by Qatar Petroleum pursuant to a Pipeline
Operating Agreement. The allocated capacities for the ethylene produced by the Cracker Company shall be
Q-Chem II (53.85%) and Qatofin (46.15%).
•
Management. The Q-Chem II JVA contains a number of voting requirements at both the board and shareholder level depending on the type of decision being made. These arrangements are customary for joint
venture arrangement of this type.
•
Employees. RLOC has no employees of its own and relies on Q-Chem II to provide management services
in respect of the construction of the Cracker Complex and operational and maintenance services, and
Q-Chem I to provide administrative services.
•
Profit and Cost. RLOC operated on a non-profit basis, with any profit that it does make reserved in RLOC or
paid to its shareholders pro rata to their capacity allocation. The shareholders of RLOC are obliged to fund
their share of Cracker Project Costs in proportion to their respective capacity allocations.
Processing Agreement
Agreement concerning the terms and conditions under which ethane gas supplied by each of Q-Chem II and Qatofin
to RLOC will be received and processed to produce ethylene which will then be delivered to Q-Chem II and Qatofin.
The agreement is effective from 24 October 2005 for the term of RLOC.
Offtake and Credit Risk Agreement
An agreement was entered into on 24 October 2005 between (i) Q-Chem II; (ii) Q-Chem II Distribution Company; and
(iii) CPCIQH. The agreement sets out the terms and conditions under which CPCIQH will provide credit support (in the
form of sale of the products by Q-Chem II Distribution Company or sub-distributor for the purchase by CPCIQH with
respect to sales of any products for which the Q-Chem II Distribution Company (or applicable sub-distributor) has not
been paid in the event that sales thereof are not otherwise arranged by CPCIS or its affiliates for Q-Chem II Distribution
Company or the sub-distributors).
156
Feedstock Supply Agreement
Also known as the "Ethane Gas Sale and Purchase Agreement", this agreement was entered into on 24 October 2005
between (i) Q-Chem II; and (ii) Qatar Petroleum. The agreement sets out the term in which Qatar Petroleum agrees to
supply ethane gas to Q-Chem II for use at the Cracker complex and includes provisions that deal with the delivery of
the gas, the contract prices, billing and payment as well as force majeure events that would allow Qatar Petroleum to
cease supply. The agreement is valid until the expiry of the term of Q-Chem II.
Gas and Sale Purchase Agreement
Agreement concerning the supply of fuel gas by QP to Q-Chem II. The agreement is effective from 1 November 2009
for a term of 25 years.
Trademark Agreement
Agreement concerning the licensing of the Marlex trademark in connection with the sale of PE polymer by Q-Chem II.
The agreement is valid until the earlier of the expiry of the term of Q-Chem II or the date on which CPCIQH owns less
than 25% of Q-Chem II.
Berth and Port Users Letter Agreement
Berth and Port Users Letter Agreement (the "PUA") concerning the grant by QP to RLOC of the right to use a berth for
the export of Pygas (RLOC’s pyrolysis gasoline by-product) and the construction and installation of loading facilities at
Ras Laffan, Qatar. The PUA is effective from 1 June 2011 until the earlier of the date that RLOC enters into the and the
date that the amended port regulations are in effect.
Common Seawater Cooling Facility Services Agreement
Agreement concerning the provision of seawater intake and discharge water capacities for the operation of the Cracker
plant. The agreement is effective from 31 December 2008 until 25th anniversary of the Commercial Operation Date.
RLOC Berth Services Agreement dated 1 February 2008
Agreement concerning the operation of a liquid products berth by Qatargas for export of RLOC’s pygas.
The agreement is valid until terminated in accordance with its terms.
QVC
Ethylene Supply Agreement
QVC is principally supplied with ethylene by QAPCO pursuant to the Ethylene Supply Agreement. However, not
withstanding the Ethylene Supply Agreement, in 2013 QVC experienced additional demand for ethylene
feedstock, caused in part by reductions in supply from QAPCO due to the start-up of QAPCO’s new polyethylene
plant. Qatar Petroleum sought to address this by arranging for QVC to receive additional ethylene from RLOC. In April
2013, QVC entered into the Additional Ethylene Supply Agreement with Q-Chem II and Qatofin, which provided for
the supply of up to 50,000 metric tons of additional ethylene to QVC from RLOC. The Additional Ethylene Supply
Agreement expires on 31 December 2013 and it is not proposed that it be renewed. QVC is currently in the process of
negotiating alternative arrangements for the supply to QVC of ethylene feedstock – principally from suppliers
situated within the GCC region – and is highly confident that, should it experience additional requirements for ethylene
feedstock in 2014 and beyond, it will be able to procure such ethylene feedstock on reasonable terms (including as
to cost). However, there can be no guarantee in this respect, and a risk inevitably exists that QVC may not be able to
source the ethylene feedstock it requires on commercially acceptable terms (or at all), which may cause QVC feedstock
supply issues. See also "Risks relating to the supply of ethylene feedstock to QVC" in the section entitled "Risk Factors".
Statement on Working Capital
The Company believes that the Group currently has sufficient working capital to meet all of its payment obligations
for the next 12 months.
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Independent Auditors
At the meeting of the Company’s Founding General Assembly, held in Doha, Qatar on 8 July 2013, Qatar Petroleum (as
the sole shareholder of MPHC) approved the appointment of Ernst & Young as the first Independent Auditors to the
Company.
Consent
Ernst & Young has given and has not withdrawn its written consent to the inclusion in this Prospectus of the Pro Forma
Financial Information and to the use of its "Independent Practitioner's Assurance Report on the Compilation of Pro
Forma Financial Information".
158
GLOSSARY OF DEFINED TERMS
Additional Ethylene Supply
Agreement
The arrangements entered into in April 2013 between Q-Chem II, QVC and Qatofin for the supply
to QVC by RLOC of additional ethylene.
Admission
The admission of the Company’s Shares to trading on the main market of the QE.
AGA
The Annual General Assembly of the Company’s Shareholders, convened in accordance with the
Articles.
Agreed Percentage
The agreed percentage under the Marketing Agreements.
Application Form
An application form pursuant to which Individual Investors may apply to subscribe for Offer
Shares in the Offering.
Arabic Prospectus
The Arabic language version of this Prospectus.
Arkema
Arkema France, a société anonyme incorporated in France.
It should be noted that Arkema France has previously be known as ATO and as Atofina S.A.
Article 68 Company
A company incorporated pursuant to Article 68 of the Companies Law.
Articles
The Memorandum of Association and Articles of Association of the Company, as may be
amended from time to time.
Award Date
The First Award Date and/or the Second Award Date (as applicable).
BAC
The Board Audit Committee of the Company.
BMI
Business Monitor International Limited, a company incorporated in England and Wales with
registered number 01763490, whose registered office is at 4th Floor, Senator House, 85 Queen
Victoria Street, London EC4V 4AB, United Kingdom.
Board
The Board of Directors of the Company.
Board Member, Member of the
Board or Director
A member of the Board.
Bpd
Barrels per day.
Business
The business of the Company.
CAGR
Compound Annual Growth Rate.
Capital Market Authority
The Capital Market Authority of Saudi Arabia.
Caustic Soda
Sodium Hydroxide, one of QVC’s main products.
CFO
Chief Financial Officer.
Chairman
The Chairman of the Board.
CHC
Chlorinated Hydrocarbons.
Chevron
Chevron Corporation, a corporation incorporated in the State of Delaware, United States.
Chevron U.S.A. Inc
Chevron U.S.A. Inc., a corporation incorporated in the State of Pennsylvania, United States.
Chief Executive Officer or CEO
Chief Executive Officer.
Closing Date
The date on which the Offer Period ends.
China
The People’s Republic of China.
CIS
The Commonwealth of Independent States, whose member states are Armenia, Azerbaijan,
Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan.
CMAI
Chemical Markets Associates, Inc.
CMO
Chief Marketing Officer.
159
COD
Commercial operation date.
COO
Chief Operating Officer.
Company or MPHC
Mesaieed Petrochemical Holding Company Q.S.C., a company incorporated in the State of Qatar
as an Article 68 Qatari Shareholding Company under commercial registeration number 60843,
whose registered office is at P.O. Box 3212, Doha, State of Qatar.
Companies Law
The Commercial Companies Law (Law No. 5 of 2002) of Qatar.
ConocoPhillips
ConocoPhillips, a company incorporated in the State of Delaware, United States.
Constitutional Documents
The constitutional documents of the Company, including the Articles.
CP-Chem
Chevron Phillips Chemical Company LLC, a limited liability company incorporated in the State
of Delaware, United States.
CPCIQH
Chevron Phillips Chemical International Qatar Holdings LLC, a limited liability company
incorporated in the State of Qatar.
CPCIS
Chevron Phillips Chemical International Sales, Inc., a company incorporated in the Bahamas.
Cracker
The world scale ethylene cracker at RLIC, Qatar, with a nominal production capacity
of approximately 1,300,000 MTPA of ethylene and certain co-products.
CTO
The Chief Technical Officer of the Company.
Derivatives Facilities
Together, a 350,000 MTPA HDPE unit and a 345,000 MTPA normal alpha olefins unit of Q-Chem
II.
DFSA
The Dubai Financial Services Authority, being the financial services regulatory authority
of the DIFC.
DIFC
The Dubai International Financial Centre.
Dolphin Project
A project conceived in 1999 to produce, process, and transport natural gas from Qatar’s North
Field to the UAE and Oman.
Dow
The Dow Chemical Company, a corporation incorporated in the State of Delaware, United States.
EB
Ethylbenzene.
EBITDA
Earnings before deductions for interest, taxes, depreciation and amortisation.
ECVM Charter
The Charter of the European Council Of Vinyl Manufactures.
EDC
Ethylene Dichloride.
EDP
Electronic Data Processing.
EG
Ethylene Glycol.
EIA
Environmental Impact Assessment.
Eligible Investor
A person being either an Individual Investor or a Selected Institution, who is eligible to subscribe
for Shares in the Offering pursuant to the terms and conditions set out in this Prospectus and
to whom such Offering is being made.
EO
Ethylene Oxide.
EPC
Engineering, Procurement and Construction.
Ernst & Young
Ernst & Young (Qatar branch), of P.O. Box 164, Burj Al Gassar, 24th Floor, Majlis Al Taawon Street,
West Bay, Doha, Qatar.
Ethane Gas
Treated ethane rich gas, which contains predominately ethane, together with propane and other
hydrocarbons.
Ethylene Supply Agreement
An agreement made between QVC and QAPCO dated 21 September 1998 for the supply of
ethylene.
Euro or EUR
The lawful currency of those member states of the European Union which have adopted the
single currency in accordance with the Treaty of Rome establishing the European Economic
Community, as amended from time to time.
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European Economic Area or EEA
The European Economic Area, comprising all member states of the European Union (except
Croatia) plus Iceland, Liechtenstein and Norway.
Financial Advisor
Deutsche Bank AG Doha (QFC Branch), registered in the QFC as a branch of Deutsche Bank AG,
a company incorporated in the Federal Republic of Germany and authorised and regulated in
the QFC by the QFCRA.
Financial Advisors
The Lead Financial Advisor and the Financial Advisor.
Financial Free Zones
The financial free zones established in the United Arab Emirates pursuant to Federal Law No. 8
of 2004.
Financial Statements
Together, the Q-Chem I, Q-Chem II and QVC audited financial statements for the periods ending
31 December 2012, 2011 and 2010.
First Allocation Tranche
Has the meaning given to it on page 36 of this Prospectus.
First Award Date
1.00 p.m. (Doha time) on 31 December 2018.
FOB
Freight on board.
Formosa Plastics
Formosa Plastics Corporation, a company incorporated in Taiwan.
GCC
The Cooperation Council for the Arab States of the Gulf (also known as the Gulf Cooperation
Council), whose member states are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United
Arab Emirates.
GDP
Gross domestic product.
General Assembly
A general meeting of the Shareholders of the Company.
Government
The Government of the State of Qatar.
GPCA
Gulf Petrochemicals and Chemical Association.
Group
Together, the Company and the Portfolio Companies.
GTL
Gas-to-Liquids.
HCl
Hydrochloric acid.
HDPE
High density polyethylene with some grades of MDPE.
HDPE Unit
Q-Chem II’s 350,000 MTPA unit producing HDPE.
Henry Hub
The pricing point for natural gas futures contracts traded on the New York Mercantile Exchange
(NYMEX) and the OTC swaps traded on Intercontinental Exchange (ICE).
IASB
International Accounting Standards Board.
IFRS
International Financial Reporting Standards.
Incentive Shares
Those Shares of the Company retained by QP pending their release to Individual Investors
on an Award Date.
Independent Auditors
Ernst & Young (Qatar branch) and KPMG.
Individual Investors
Eligible Investors who are individual Qatari nationals.
Industries Qatar
Industries Qatar Q.S.C., a company incorporated in the State of Qatar and a subsidiary of QP.
ISA
International Standards on Auditing.
Kahramaa
Qatar General Electricity & Water Corporation.
KPMG
KPMG LLP Qatar, of P.O. Box 4473, C-Ring Road, Doha, Qatar.
KTA
Annual kilo tonne.
KTPA
Thousand metric tonnes per annum.
161
kw
Kilowatt.
kwh
Kilowatt hour.
Kyoto Protocol
The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC)
which sets binding obligations on industrialised countries to reduce emissions of greenhouse
gases.
LDPE
Low Density Polyethylene.
LDPE 3
A third low density polyethylene plant.
Lead Financial Advisor
QNB Capital LLC, a limited liability company incorporated under the laws of the QFC with
registered number 12 80 59 00 and a wholly-owned subsidiary of QNB. QNB Capital LLC is
authorised and regulated in the QFC by the QFCRA.
Lead Receiving Bank
Qatar National Bank S.A.Q.
LIBOR
London Interbank Offered Rate
LLDPE
Linear low-density polyethylene.
LNG
Liquefied natural gas.
LPG
Liquefied petroleum gas.
Maersk
The Maersk Group.
Managing Director
Managing Director of the Board.
Marketing Committee
The marketing committee of QVC.
Maximum Application
The maximum application by an Individual Investor of 1,000,000 Offer Shares.
MDPE
Medium density polyethylene.
MENA
The countries and territories of the Middle East and North Africa.
MIC
Mesaieed Industrial City, an industrial area designated by the State of Qatar, which is situated
approximately 40 km south of Doha on Qatar’s east coast, and which is operated and managed
by Qatar Petroleum.
Milaha
Qatar Navigation (Milaha) Q.S.C., a company incorporated in the State of Qatar.
Minimum Allocation
The minimum allocation of Tranche of Offer Shares to Individual Investors.
Minimum Amount
50 Offer Shares being the minimum number of Offer Shares permitted to be subscribed by an
Individual Investor.
Minimum Application
The minimum application by an Individual Investor of 50 Offer Shares.
Minor
An Individual Investor who has not yet attained the age of 18 years as at the relevant date in
question.
MMBTU
Million British Thermal Units.
MMT
Million metric tons.
MT
Metric-tonnes.
MTA
Million metric-tonnes annually.
MTPA
Metric tonnes per annum.
Muntajat
Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat) Q.J.S.C., a
company incorporated in the State of Qatar.
Muntajat Decree
Qatar Emiri Decree No. (11) of 2012, as may be amended, substituted or superseded from time to
time and including any regulations or rules made thereunder.
162
MW
Megawatts.
Name plate capacity
The maximum production output capacity for which an industrial plant (in the context of Q-Chem
I, Q-Chem II or QVC (as applicable)) was originally designed.
NAO, NAOs
Normal Alpha Olefins, a group of chemicals produced from ethylene and used primarily in
plasticiser alcohols, polyethylene, surfactants and synthetic lubricants and additives.
NAO Unit
The 345,000 MTPA normal alpha olefins unit of Q-Chem II.
Naphtha
A number of flammable liquid mixtures of hydrocarbons. Naphtha is a broad term covering
among the lightest and most volatile fractions of the liquid hydrocarbons in petroleum.
National Development Strategy
The Qatar National Development Strategy 2011 – 2016 issued by the Qatar General Secretariat for
Development Planning with the aim of achieving development goals set out in the Qatar National
Vision 2030.
New York Convention
The United Nations (New York) Convention on the Recognition and Enforcement of Foreign
Arbitral Awards of 1958.
NGL
Natural gas liquids.
NGL-4
QP pipeline to MIC.
Norsk Hydro
Norsk Hydro ASA.
North Field
Refers to the North Dome Field in the northern parts of Qatar, the world’s largest natural gas field.
NOx
Mono-nitrogen oxides NO and NO2.
Occupational Safety & Health
Administration
The Occupational Safety & Health Administration of the United States Department of Labor.
Offering
The initial public offer of the Offer Shares in accordance with the terms and conditions of this
Prospectus.
Offering and Listing Costs
Has the meaning given to it on page 1 of this prospectus.
Offer Period
The period of the Offering between the Opening Date and the Closing Date.
Offer Price
The price in cash for each Offer Share, being QAR 10 per Offer Share.
Offer Shares
323,187,677 Shares to be offered to investors pursuant to the Offering with one Offer Share
comprising one Offer Share and the right to receive an Incentive Share (free of charge) subject to
applicable conditions set out in this Prospectus.
Oman
The Sultanate of Oman.
OPEC
The Organisation of the Petroleum Exporting Countries, an intergovernmental organisation of
twelve oil-producing countries made up of Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
Opening Date
Has the meaning given to it on page 40 of this Prospectus.
PE
Polyethylene.
PET
Polyethylene Terephthalate.
PetroChina
PetroChina Company Ltd. , a company incorporated in the People’s Republic of China.
Phillips 66
Phillips 66, a corporation incorporated in the State of Delaware, United States.
PIC
Phillips Investment Company, a company incorporated in the State of Nevada, United States.
Pipeline
The ethylene pipeline from the Cracker to "Point S" at MIC.
Portfolio Company
Each of Q-Chem I, Q-Chem II and QVC (together, the "Portfolio Companies").
Portfolio Company Shares
Those shares in the capital of each of the Portfolio Companies which were previously directly
held by QP and were transferred to the Company pursuant to the Share Swap.
PP
Polypropylene.
163
PPIC
Phillips Petroleum International Corporation, a company incorporated in the State of Delaware,
United States.
Pro Forma Financial
Information
The pro forma consolidated financial information of the Company for the year ending 31
December 2012.
Prospectus
This document in the English language.
Prospectus Directive
Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003.
Protected Amount
Has the meaning given to it on page 33 of this Prospectus.
PS
Polystyrene.
PTA-PET
Purified terephthalic acid – polyethylene terephthalate.
PUA
Berth and Port Users Letter Agreement concerning the grant by QP to RLOC of the right to use
a berth for the export of Pygas (RLOC’s pyrolysis gasoline by-product) and the construction and
installation of loading facilities at Ras Laffan, Qatar.
PVC
Polyvinyl Chloride.
PwC
PricewaterhouseCoopers Qatar, of 41st Floor, Tornado Tower, Doha, Qatar.
QAFAC
Qatar Fuel Additives Company Limited, a company incorporated in the State of Qatar.
QAFCO 5
A fifth train that started in the fourth quarter of 2011 increasing ammonia production and urea
production.
QALCO
Qatar Lubricants Co., a company incorporated in the State of Qatar.
QAPCO
Qatar Petrochemical Company (QAPCO) Q.S.C., a company incorporated in the State of Qatar.
QAR or Qatari Riyal
The Qatari Riyal, being the lawful currency of Qatar.
Qatalum
Qatar Aluminium Limited, a company incorporated in the State of Qatar.
Qatar Acids
Qatar Acids Company, a subsidiary of Qatar Industrial Manufacturing Company.
QatarGas
Qatargas Operating Company Limited., a company incorporated in the State of Qatar.
Qatarisation Plan
a program designed to increase the number of Qatari nationals in all joint venture industries and
government departments in Qatar.
Qatar or the State
The State of Qatar.
Qatar Petroleum or QP
Qatar Petroleum, a public corporation established pursuant to Qatari Decree Law No. 10 of 1974
Concerning the Establishment of Qatar General Petroleum Corporation (as amended).
Qatar Shipping Company
Qatar Shipping Company Q.S.C., a company incorporated in the State of Qatar.
Qatar Steel
Qatar Steel Company Q.S.C. (formely known as QASCO), a company incorporated in the State of
Qatar.
Qatofin
Qatofin Company Ltd. (Q.S.C.), a company incorporated in the State of Qatar.
Q-Chem I
Qatar Chemical Company Ltd., a company incorporated in the State of Qatar with registered
number 21119, whose registered office is at Salam Tower, 1st Floor, Corniche Street 200, P.O. Box
24646, West Bay, Doha, Qatar.
Q-Chem I Common Facilities
The common facilities owned by Q-Chem I shared between Q-Chem I and Q-Chem II.
Q-Chem I Consolidated Financial
Statements
Q-Chem I’s audited financial statements as at and for the years ended 31 December 2010, 2011
and 2012, prepared in accordance with IFRS.
Q-Chem I DC
Q-Chem I Distribution Company Ltd., a company incorporated in the State of Qatar.
Q-Chem I JVA
A Joint Venture Agreement dated 16 November 1997 was entered into between Qatar Petroleum,
CP-Chem and CPCIQH.
Q-Chem II
Qatar Chemical Company II Ltd., a company incorporated in the State of Qatar with registered
number 31144, whose registered office is at Salam Tower, 1st Floor, Corniche Street 200, P.O. Box
24646, West Bay, Doha, Qatar.
164
Q-Chem II Common Facilities
The common facilities owned by Q-Chem II shared between Q-Chem I and Q-Chem II.
Q-Chem II Consolidated Financial
Statements
Q-Chem II’s audited financial statements as at and for the years ended 31 December 2010, 2011
and 2012, prepared in accordance with IFRS.
Q-Chem II DC
Q-Chem II Distribution Company Ltd., a company incorporated in the State of Qatar.
Q-Chem II JVA
A Joint Venture Agreement dated 14 July 2005 was entered into between Qatar Petroleum,
CP-Chem and CPCIQH.
QE
The Qatar Exchange.
QE Index
The Qatar Exchange index.
QE Primary Market
The Qatar Exchange primary market.
QFC
The Qatar Financial Centre.
QFC Authority
The Qatar Financial Centre Authority.
QFCRA
The Qatar Financial Centre Regulatory Authority.
QFMA
The Qatar Financial Markets Authority.
QFMA Code
The QFMA Corporate Governance Code.
QGPC
Qatar General Petroleum Corporation.
QIA
Qatar Investment Authority.
QNB
Qatar National Bank S.A.Q.
QPPC
Qatar Plastic Products Company W.L.L., a company incorporated in the State of Qatar.
QSC
A Qatari shareholding company incorporated under the Companies Law.
Qualified Investor
A qualified investor within the meaning of Article 2(1)(e) of the Prospectus Directive (Directive
2003/71/EC).
QVC
Qatar Vinyl Company Limited (QVC) Q.S.C, a company incorporated in the State of Qatar under
commercial registration number 19874, whose registered office is at P.O. Box 24440, Doha,
Qatar.
QVC Financial Statements
QVC’s audited financial statements as at and for the years ended 31 December 2010, 2011 and
2012, prepared in accordance with IFRS.
RasGas
RasGas Company Limited, a company incorporated in the State of Qatar.
Receiving Banks
Those banks, including the Lead Receiving Bank, named as the Receiving Banks on page 40 of
this Prospectus, being those banks responsible for receiving the subscription funds and issuing
refunds in case of over-subscription.
Regulated Products
The "Regulated Products" as defined under the Muntajat Decree.
Regulation S
Regulation S under the Securities Act.
Revenue
Net revenues (after freight insurance, supply chain and logistical costs).
RLIC
Ras Laffan Industrial City, an industrial area designated by the State of Qatar, which is situated
approximately 80km north of Doha and which is owned and operated by Qatar Petroleum.
RLOC
Ras Laffan Olefins Company.
RLOC Shareholders’ Agreement
A Shareholders’ Agreement entered into on 24 October 2005 between (i) Qatar Petroleum; (ii)
Q-Chem II; (iii) Qatofin and RLOC governing the shareholders’ rights and obligations with respect
to RLOC.
ROPME
Regional Organisation for the Protection of the Marine Environment.
Rule 144A
Rule 144A under the Securities Act.
165
S&P
Standard & Poor’s.
SABIC
Saudi Arabia Basic Industries Corporation, a company incorporated in the Kingdom of Saudi
Arabia.
Second Allocation Tranche
Has the meaning given to it on page 36 of this Prospectus.
Second Award Date
1.00 p.m. (Doha time) on 31 December 2023.
Secondment and Technical Service
Agreement
The Shareholder’s Secondment and Technical Service Agreement dated 21 September 1998
entered into between QVC and its shareholders.
Securities Act
US Securities Act of 1933, as amended.
Selected Institutions
Eligible Investors being certain selected Qatari institutions further described on page 36 of this
Prospectus.
Senior Management
The executive management of relevant Portfolio Company.
Services Agreement
Has the meaning given to it on page 50 of this Prospectus.
Shareholders
The holders of Shares; and "Shareholding" shall be construed accordingly.
Shares
The ordinary shares with a nominal value of QAR 10 each in the share capital of the Company,
and, including, save where the context otherwise requires, the Special Share.
Share Swap
Has the meaning given to it on page 1 of this Prospectus.
Share Swap Agreement
Has the meaning given to it on page 12 of this Prospectus.
Shell
Royal Dutch Shell plc, a public limited company incorporated in England and Wales.
South Korea
The Republic of Korea.
Special Share
The special share of the Company held by QP. For further information please refer to the
"Description of the Shares" section of this Prospectus.
State Property Law
State Property Law of Qatar (Qatari Law No. 10 of 1987).
Swap Shares
Has the meaning given to it on page 13 of this Prospectus.
Third Allocation Tranche
Has the meaning given to it on page 37 of this Prospectus.
Tpa
Tonnes per annum.
UAE
The United Arab Emirates.
United Kingdom or UK
The United Kingdom of Great Britain and Northern Ireland.
US, USA, United States or United
States of America
The United States of America, including its territories and possessions (including Puerto Rico,
the US Virgin Islands, Guam, American Samoa, Wake Island, the Northern Mariana Islands and
US Minor Outlying Islands) and any state of the United States, the District of Columbia and other
areas subject to US jurisdiction.
US$, USD or US Dollar
The US Dollar, being the lawful currency of the United States.
US Exim
The Export-Import Bank of the United States, the official export credit agency of the US Federal
Government.
Utilities Supply Agreement
A Utilities Supply Agreement dated 21 September 1998 between QVC and QAPCO, as amended
by Amendment No. 1 thereto dated 15 May 2001.
VAM
Vinyl Acetate Monomer.
VCM
Vinyl Chloride Monomer.
Vice Chairman
The Vice Chairman of the Board.
WTI
West Texas Intermediate, a light crude oil.
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The Issuer
MESAIEED PETROCHEMICAL HOLDING COMPANY Q.S.C.
P.O. Box 3212
Doha, Qatar
Lead Financial Advisor
QNB CAPITAL LLC
P.O. Box 1000
Doha, Qatar
Financial Advisor
DEUTSCHE BANK AG DOHA (QFC BRANCH)
Qatar Financial Centre
Floor 5
P.O. Box 14928
Doha, Qatar
Lead Receiving Bank
QATAR NATIONAL BANK S.A.Q
P.O. Box 1000
Doha, Qatar
AL AHLI BANK Q.S.C.
BARWA BANK Q.S.C.
Receiving Banks
AL KHALIJI COMMERCIAL BANK
Q.S.C.
DOHA BANK Q.S.C.
COMMERCIAL BANK OF QATAR
Q.S.C.
MASHREQBANK P.S.C.
INTERNATIONAL BANK OF QATAR QATAR INTERNATIONAL ISLAMIC
(Q.S.C.)
BANK Q.S.C.
MASRAF AL RAYAN Q.S.C.
QATAR ISLAMIC BANK Q.S.C.
ARAB BANK PLC
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Legal Counsel to the Company
LATHAM & WATKINS LLP
Qatar Financial Centre Branch
Alfardan Office Tower Level 17, West Bay
P.O. Box 23845
Doha, Qatar
Independent Auditors to each of the Company, Q-Chem I and Q-Chem II
ERNST & YOUNG (QATAR BRANCH)
P.O. Box 164
Burj Al Gassar, 24th Floor
Majlis Al Taawon Street
West Bay
Doha, Qatar
Independent Auditors to QVC
KPMG
P.O. Box 4473
C-Ring Road
Doha, Qatar
The Lead Receiving Bank and each of the Receiving Banks listed above is a bank incorporated in Qatar, with the exception of Arab Bank plc, which is incorporated
in Jordan; and Mashreqbank P.S.C., which is incorporated in the United Arab Emirates. The Lead Receiving Bank and each of the Receiving Banks listed above is
licensed by the Qatar Central Bank to conduct business in Qatar. QNB Capital LLC is a limited liability company incorporated in the QFC and authorised and regulated
by the QFCRA. Deutsche Bank AG Doha (QFC Branch) is registered in the QFC as a branch of Deutsche Bank AG, a company incorporated in the Federal Republic of
Germany, and is authorised and regulated in the QFC by the QFCRA. Latham & Watkins LLP is registered in the QFC as a branch of Latham & Watkins LLP, a limited liability partnership established under the laws of the State of Delaware, United States of America, and is licensed in the QFC by the QFC Authority. Ernst & Young (Qatar
Branch) is registered as an Approved Auditor in the QFC and KPMG is registered as an Approved Auditor under Ministry of Business and Trade in the State of Qatar.
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170