Qatar Investment Fund plc October 2011
Contents Macroeconomic Overview Snapshot Page 3 GDP Growth & Capital Expenditure Page 4 Infrastructure Spending Page 5 Qatar and the Other GCC Countries Page 6 National Development Strategy 2011-2016 Page 7 Qatar Exchange (QE) Increasing Market Depth Page 9 Current Sectoral Breakdown Page 10 Market Performance Page 11 Qatar Investment Fund plc (QIF) Investment Case Page 13 Investment Team Qatar Insurance Company Page 14 Investment Performance Page 15 Sectoral Exposure Page 16 Banking Sector Government Support Page 17 Top Holdings Page 18-19 Conclusion Page 20 www.qatarinvestmentfund.com Page 2
Macroeconomic Overview: Snapshot Qatar owns the world s third largest natural gas reserves after Russia and Iran. By next year, as gas production continues to ramp up, Qatar will be in oil equivalents the world s fourth-largest hydrocarbon producer after Saudi Arabia, Russia, and the US. Production of raw liquid hydrocarbons, crude oil, condensates and natural gas liquid totaled 1.57m bpd in 2010 and is forecast to grow to 1.90m bpd in 2012. Expanding energy revenues continue to underpin stellar GDP growth rates (the IMF expects Qatar to be the world s fastest growing economy in 2011). This year, Qatari GDP per capita is expected to be the highest in the world. The Qatari Government invests a large proportion of energy revenues in improving the country s infrastructure, and diversifying and expanding its economic base. Foreign and domestic private capital is encouraged through privatizations, outsourcing of public services and the development of industrial zones. Qatar is planning US$225bn of investment in 2011-16. www.qatarinvestmentfund.com Page 3
Macroeconomic Overview: GDP Growth & Capital Expenditure Strong GDP growth supported by the non hydrocarbon sector ($ Million) 2007 2008 2009 2010* 2011** Oil & Gas Sector 45,781 59,080 45,419 70,776 96,623 % Change 28.0% 29.1% -23.1% 55.8% 36.5% Non-Oil & Gas Sector Source: IMF* Preliminary,** Forecast Source: QIC, Qatar Central Bank 34,970 51,632 52,894 56,079 63,850 % Change 41.4% 47.6% 2.4% 6.0% 13.9% Total GDP 80,751 110,712 98,313 126,856 160,473 GDP per capita ($) 65,854 76,435 59,990 74,621 90,765 Capital expenditure program to continue Qatar State Budget ($m) 2010/11 2011/12 % Change Revenue 35,027 44,643 27% Expenditures 32,390 38,434 19% Salaries & rents 6,291 6,923 10% Current 12,500 13,626 9% Capital 1,648 1,978 20% Public projects 11,951 15,934 33% Balance 2,665 6,181 132% Qatar s nominal Gross Domestic Product (GDP) growth averaged 25.5% over the past five years (2006-2010) and is expected to reach $160bn in 2011. The Non-Oil and Gas sector is predicted to account for 40% of GDP in 2011. Qatar unveiled its budget for the 2011/2012 fiscal year that forecasts 22.5 billion QR ($6.2 billion) in surplus revenues. Total government capital expenditure, as a proportion of total revenues, has increased from 28% in 2005/06 to a budgeted 40% in 2010/11. The public projects include the New Doha Port, the metro system and the completion of New Doha International Airport. The combination of budget surpluses, increases in export volumes, and the various price floors and ceilings in the long-term gas contracts, should ensure that Government expenditure in the domestic economy will be largely unaffected by all but the most dramatic and sustained fall in oil spot prices. www.qatarinvestmentfund.com Page 4
Macroeconomic Overview: Infrastructure Spending Selected non-hydrocarbon mega projects Cost ($bn) Scope Completion Date Qatar National Railway System 25 300km Doha metro, light rail, freight and high speed lines, passenger stations 2025 New Doha International Airport 10 Handle 50 million passengers. Phase 1 expected in 2011 to handle 24 million. 2015 New Doha Port 7 Port with a capacity of 6 million 20 foot equivalent units 2027 Dohaland 5.5 Spread over 750,000 m2, 226 buildings to house 28,000 residents, parks, schools and hotels with around 700 rooms 2017 Qatar Bahrain causeway 4 Road and rail bridge from Qatar to Bahrain 2015 Doha Bay crossing 1 12 km crossing and associated works 2014 Source: MEED Projects The total value of projects in Qatar, both current and planned, is US$185bn. The majority of projects are related to infrastructure, construction, water and power. The largest project in progress is the development of the national rail system, which aims to relieve congestion in Doha. Phase 1 of the new US$10bn airport in Doha is scheduled for completion in 2011. Other prominent projects include a US$7bn deep water seaport and a US$1bn crossing to link the new airport with projects in the northern part of Doha. An additional US$20bn will also be spent on improving the road network. A number of housing projects are currently underway and further plans are being drawn up to accommodate Qatar s rising population, which at 1.7 million has witnessed a 128 per cent increase since 2004. The preparations for the FIFA World Cup in 2022 will entail substantial infrastructure spending over the next decade. To host the tournament officials estimate infrastructure spending to be around US$55bn, which is over and above the total expenditure earmarked above. However the analyst community expects the actual cost of hosting the World Cup to be in the region of US$65-100bn. www.qatarinvestmentfund.com Page 5
Macroeconomic Overview: Qatar and the Other GCC Countries Qatar s Real GDP growth expected to continue at a healthy pace Real GDP Growth (%) 2006 2007 2008 2009 2010 2011(F) 2012(F) Qatar 18.6 26.8 25.4 8.6 16.3 20.0 7.1 Saudi Arabia 3.2 2.0 4.2 0.6 3.7 7.5 3.0 Kuwait 5.3 4.5 5.5 (4.8) 2.0 5.3 5.1 UAE 8.7 6.1 5.1 (2.5) 3.2 3.3 3.3 Bahrain 6.7 8.4 6.3 3.1 4.1 3.1 5.1 Oman 5.5 6.8 12.8 3.6 4.2 4.4 4.1 Source: IMF The table above shows the real GDP growth rates for the 6 countries that make up the Gulf Cooperation Council (GCC). The extent of Qatar s outperformance is clear: in real GDP terms Qatar grew by 16.3% in 2010 and is forecast to grow by 20.0% in 2011 and by 7.1% in 2012, far in excess of the forecasted growth rates of the other GCC countries. We believe that Qatar offers the most attractive investment opportunities among the GCC economies, in view of the its strong growth prospects and economic fundamentals. www.qatarinvestmentfund.com Page 6
Macroeconomic Overview: National Development Strategy 2011-2016 Cumulative gross domestic investment, 2011 2016 (QR billions) 400 350 300 250 200 150 100 389 347 50 0 Private, nonhydrocarbon sector Public, central government Private, hydrocarbon sector 85 Source: National Development Strategy 2011 2016 estimate The five year National Development Strategy for 2011-2016 predicts gross domestic investment will reach QR820bn (US$225bn) with almost half of the investment earmarked for the non-hydrocarbon sector. Total investment by the government is estimated at QR347bn (US$95.3bn), private sector hydrocarbon investment is expected to reach QR85bn (US$23.4bn) with the remaining QR389bn (US$107bn) being spent by the private sector into non-hydrocarbon industries. The strategy highlights the importance of private investment outside the hydrocarbon sector in driving growth over the period. The baseline scenario assumes that non-hydrocarbon investment will mainly be driven by spending by large government linked Qatari companies, such as Barwa Real Estate, Qatar Diar, Qatar National Bank and Qatalum. www.qatarinvestmentfund.com Page 7
Qatar Exchange (QE) www.qatarinvestmentfund.com Page 8
QE: Increasing Market Depth 500 450 400 350 300 250 200 150 100 50 0 Source: QE,QIC Market Capitalization (QR. Bln) The Qatari Government is taking a number of steps to enhance the attractiveness of the QE as an investment destination: Creating a robust regulatory environment through the development of a unified regulator and improving the legal framework of the local market. Encouraging companies to list on the QE. Recent stock market introductions (Vodafone Qatar, Al Meera Consumer Goods Co., Mazaya Qatar) bring to 42 the number of companies currently listed on the Qatar Exchange. Following the acquisition of a 20% stake in the QE, NYSE Euronext has introduced their Universal Trading Platform which will provide enhanced scalability, capacity, low latency, functionality and resiliency to the exchange. Since inception the market capitalisation has risen from QR 9.4bn in 1997 ($2.5bn) to c.qr 445bn ($122bn) at the end of June 2011. The 30 day average volumes for the index have increased over 3 fold in the last 5 years from 1.3m to 4.4m shares. www.qatarinvestmentfund.com Page 9
QE: Current Sectoral Breakdown % Weight in the QE Index Insurance 3% Industrial 13% Services 28% Banking 56% Source: QIC, Bloomberg The QE Index is the local benchmark, made up of 20 stocks; its composition reviewed semi-annually. The market capitalisation of the stocks in the index is currently c. QR 338bn ($93bn) and represents 76% of the total market. Listed companies are divided into four sectors: Banking, Insurance, Industrial and Services. The 5 largest companies (Qatar National Bank, Industries Qatar, Commercial Bank of Qatar, Qatar Islamic Bank and Rayan Bank) constitute 55.3% of the QE Index. The Banking sector represents 56% of the QE Index and has been a major contributor to its positive performance over the last 12 months. www.qatarinvestmentfund.com Page 10
QE: Market Performance Robust GDP growth over the last 5 years has translated into strong earning growth across all sectors. Attractive stock valuation levels are well-supported by an established dividend payout record by companies and a current market dividend yield of 5.4%. Positive outlook for the equity market in Qatar. The Qatar stock market looks undervalued compared to a basket of its GCC peers. In June 2011 MSCI announced the extension of the review period for the potential reclassification of the U.A.E. and Qatar MSCI indices from frontier to emerging market status until December 2011. Earnings Growth ($ M) Source: QE, QIC estimates 2006 2007 2008 2009 2010 5 Year H1-10 H1-11 CAGR Banks 1,484 2,241 2,747 2,722 3,389 23.8% 1,624 2,027 Growth (%) 28% 51% 23% -1% 25% 25% Insurance 150 210 258 228 244 7.1% 148 150 Growth (%) -14% 40% 23% -12% 7% 2% Services 2,074 1,810 2,485 2,119* 2,672 26.2% 1,452 1,361 Growth (%) 148% -13% 37% -15% 26% -6% Industry 1,154 1,606 2,349 1,692 1,916 13.6% 944 1,349 Growth (%) 14% 39% 46% -28% 13% 43% Total 4,862 5,867 7,839 6,761 8,222 20.8% 4,168 4,887 Growth (%) 52% 21% 34% -14% 22% 17% * Net profit calculation excluded one time fair value gain of QAR8.3 million reported by Ezdan Real Estate. Markets Summary PE PB Div Yld EPS Growth (%) 10E 11E 11E (x) 12E (x) 10E (x) 10E (%) 11E (%) (YoY) (YoY) UAE 8.5 7.4 0.7 2.3 2.6-5.7 15 Qatar 9.1 7.7 1.8 4.3 5.4 16.2 15 Bahrain 9.8 8.0 0.6 3.2 nm 0.4 23.3 Oman 10.4 8.8 1.7 5.3 5.4 7.5 8.8 Saudi Arabia 11.0 9.6 1.6 3.5 3.9 5.0 15.2 Kuwait 13.0 10.6 1.5 1.6 3.5 4.5 8.6 Average 10.3 8.7 1.3 3.4 4.2 4.7 14.3 Source: Deutsche Bank www.qatarinvestmentfund.com Page 11
Qatar Investment Fund plc (QIF) www.qatarinvestmentfund.com Page 12
QIF: Investment Case QIF is a LSE listed (QIF LN Equity), closed end, long only vehicle investing primarily in quoted Qatari equities, and up to 15% in regional (GCC) equities. The Company as of 8 th September 2011 has net assets of c.$242m. The Company benefits from the 40 years plus investment experience which the Doha based QIC team has acquired in Qatar and the GCC markets. It represents a unique, actively-managed way to access the Qatar equity market and has out performed the QE Index by 6.6% since achieving full investment in Q1 2008. For the financial year to June 2011, and in line with the Board s progressive dividend policy, it is proposed to pay on 4 November 2011 a dividend of 2.7 cents per ordinary share to shareholders on the register on 7 October 2011. This represents an increase of 8 per cent over the 2010 dividend of 2.5 cents per share. www.qatarinvestmentfund.com Page 13
QIF: Investment Team Qatar Insurance Company The Qatar Insurance Company (QIC), established in 1964, is one of the oldest property and casualty insurers in the region. QIC s investment department manages the investment and treasury functions for the insurer and contributes over 50% to group net profits. The department directly manages an investment (including cash) portfolio of $1.3bn out of which a total of $421m is invested in the local Qatari equity market. The key members of the investment team are: Sunil Talwar Deputy-CEO of QIC Sunil has had overall responsibility for QIC s global investment portfolio for over 20 years. Chartered Accountant with 30 years experience in the Middle East. Sandeep Nanda Executive Vice President of Investments, QIC, responsible for investment portfolio performance. Worked with leading consultants and investment houses in the Middle East, US and Europe. Chartered Accountant with almost 20 years industry with over 10 years in the region. Jubin M. Jose Research Analyst Masters in Economics with 6 years experience with a leading research firm in India www.qatarinvestmentfund.com Page 14
QIF: Investment Performance QIF trades at an discount to NAV 1.40 90% 1.20 75% 1.00 0.80 0.60 60% 45% 30% 15% 0% 0.40-15% 0.20-30% -45% 0.00-60% 30-Jul-07 18-Oct-07 10-Jan-08 3-Apr-08 26-Jun-08 2-Oct-08 25-Dec-08 19-Mar-09 11-Jun-09 3-Sep-09 26-Nov-09 18-Feb-10 13-May-10 NAV per share (USD) Premium/Discount (%) 5-Aug-10 28-Oct-10 20-Jan-11 14-Apr-11 7-Jul-11 QIF NAV Performance Summary Share Price NAV Premium/Discount QIF cumulative performance summary to 08/09/11 2011 YTD 3M 6M 9M 12M 24M Full Investment (07/02/08) QIF annual performance summary 2010 2009 2008 QIF NAV 0.0% 1.2% 4.2% -0.1% 12.6% 21.0% -9.8% QE Index -3.8% 0.3% 2.0% -4.4% 10.5% 14.4% -16.8% QIF NAV 29.9% 10.4% -36.4% QE Index 24.8% 1.1% -31.4% Source: QIC, Bloomberg Excluding dividend reinvestment Excluding dividend reinvestment www.qatarinvestmentfund.com Page 15
QIF: Sectoral Exposure Industries 13.6% Real Estate 6.5% Industry Allocation (% of Mkt Value) Services 19.6% Cash 0.5% Insurance 3.6% Banks 56.2% Country Allocation (% of Mkt Value) Cash 0.5% Oman 0.7% Qatar 98.8% The Company is 99.5% invested as of 8th Sept 2011. The top five companies constitute 62.3% of the Company s NAV. At present, the group has a portfolio of 16 companies (15 in Qatar and one in Oman). The group s largest exposure continues to be the financial services industry, with the banking sector accounting for 56.2% of the portfolio. During FY 2011, earnings in the Banks sector increased at a faster rate than the Qatari stock market average as a whole. Banks to see healthy volume growth and an improvement in asset quality underpin earnings recovery for the banks. The support of a wealthy government mitigates the risks of investing in Qatari banks. www.qatarinvestmentfund.com Page 16
QIF: Banking Sector Government Support Proactive Government through global financial crisis During the global financial crisis the Qatari government took proactive measures to protect the banking sector and local economy by removing over $7bn in real estate and equities from the banks balance sheets. Date Event USD million spent 2008-Dec Equity capital injection into banks (5%) 900.0 2009-Mar Purchase of banks domestic equities 1,668.0 2009-Jun Purchase of banks Real Estate assets 3,660.0 2009-Dec Equity capital injection into banks (5%) 900.0 Total 7,128.0 The authorities preemptive intervention in the banking sector reached c. 6.5% of GDP. In addition, the QIA announced another 10% capital injection to the banking sector in 2011. These measures initiated a process of consolidation among a number of listed and unlisted Qatari enterprises, in order to ensure their continued competitiveness. www.qatarinvestmentfund.com Page 17
QIF: Top Holdings Top Three investments Qatar National Bank (18.1% of NAV) High quality proxy stock for Qatari economic growth given its strong ties with the public sector and access to state liquidity. Government of Qatar owns 50% of QNB. Market shares are c.56% for loans, c.53% for deposits, and as high as 57% of the asset base of the Qatari Banking sector. This drives high asset quality, with NPLs at 0.7% in 2009, and offers superior visibility on balance-sheet momentum and earnings growth. In addition to an international presence in key financial centers around the world such as London, Paris and Geneva, QNB has been building a network of branches, representative offices and associates (Jordan, UAE, Iraq, and Tunisia) throughout the MENA region. QNB 2010A 2011E Revenues (in QAR m) 7,609 7,814 Net Profit (in QAR m) 5,702 5,889 EPS (QAR) 14.60 15.04 EPS Growth 36.44 16.50 DPS (QAR) 5.0 3.01 ROE (%) 23.50 22.60 Source: Deutsche Bank Qatar Banks Report Industries Qatar (13.6% of NAV) IQ is a holding company with interests in petrochemicals via 80% owned Qatar Petrochemical Co., fertilizers via 75% owned Qatar Fertilizer Co., steel via 100% owned Qatar Steel Co. and fuel additives via 50% owned Qatar Fuel Additives Co. IQ is one of the lowest cost producers in the industry with operating and net margins in excess of 50-55% compared to global peers with operating margins in the mid-teens. The company procures its natural gas at a price range of US$1.75-2.25/mmBtu compared to current global natural gas prices in the range of US$5-5.5/mmBtu. With a low and largely fixed cost structure, any uptick in basic chemical commodity prices should flow straight to the bottom line. Industries Qatar 2010E 2011E Revenues (in QAR m) 11,687 14,138 Net Profit (in QAR m) 4,402 5,622 EPS (QAR) 8.00 10.22 EPS Growth -4.50 14.10 DPS (QAR) 4.25 4.85 ROE (%) 23.20 23.50 EBITDA margin % 42.7 44.8 Source: HSBC Global Research www.qatarinvestmentfund.com Page 18
QIF: Top Holdings Top Three investments cont Masraf Al Rayan (12.2% of NAV) Founded in January 2006, the bank offers Islamic commercial and investment banking services. Masraf Al Rayan has strong ties with the government through the Qatar Investment Authority (QIA) with the majority of the banks assets and liabilities from public sector deposits and demand for credit. Given the link to the public sector, Masraf has a stronger growth outlook than the other banks in the sector; the Investment Adviser expects loan growth to be 35% in FY11 and 31% in FY12. Masraf has a strong balance sheet with low leverage (equity/ assets at 18%), high CAR (Tier 1 ratio at 19.1% in FY10) and solid asset quality (NPL ratio at 0.06% in FY10). Masraf Al Rayan 2010A 2011E Revenues (in QAR m) 1,369 2,003 Net Profit (in QAR m) 1,220 1,652 EPS (QAR) 1.63 2.20 EPS Growth 38.6 35.4 DPS (QAR) 0.66 0.80 ROE (%) 18.6 20.2 Source: Deutsche Bank Qatar Banks Report www.qatarinvestmentfund.com Page 19 Source: HSBC Global Research
QIF: Conclusion Macroeconomic outlook is positive for Qatar. Qatari economy continued strong economic growth and attractive economic fundamentals underpin investment in Qatar. Infrastructure driving growth. A continued positive economic outlook should lead to increased profitability at a corporate level and improved stock market valuations. Valuation and earnings outlook remain compelling. A continued positive economic outlook should lead to increased profitability at a corporate level and improved stock market valuations. The Company is well-positioned to benefit from all these positive trends. Despite stronger economic growth and average company earnings, stocks in Qatar continue to trade at a discount to the MENA average. There remains the potential for a re-rating. Market structure, depth, liquidity and regulatory environment are improving. www.qatarinvestmentfund.com Page 20
Disclaimer By attending the meeting where this presentation is made, or by reading the presentation slides, you agree to be bound by the following limitations: QIF: Investment Status THIS DOCUMENT IS CONFIDENTIAL AND IS BEING SUPPLIED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED, FURTHER DISTRIBUTED, DIRECTLY OR INDIRECTLY, TO ANY OTHER PERSON OR PUBLISHED, IN WHOLE OR IN PART, FOR ANY PURPOSE. This document does not form part of any offer of securities, or constitute a solicitation of any offer to purchase or subscribe for securities. Its content may not be suitable for U.S. persons. The distribution of this document in certain jurisdictions may be restricted by law and persons into whose possession this comes should inform themselves about, and observe, any such restrictions. The contents of this document have not been verified. Accordingly, no representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information and opinions contained in this document and no reliance should be placed on such information or opinions. None of the Company, Epicure Managers Qatar Ltd, the Qatar Insurance Company or any of their respective members, directors, officers or employees nor any other person accepts liability whatsoever for any loss, howsoever arising, from any use of such information or opinions. The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be suitable for your specific circumstances; accordingly, you should consult your own tax, legal, investment, or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such suitability. Any investment returns, past, historical, or otherwise, are not indicative of future performance. Forecasted information is based on a number of bases of assumptions none of which may materialise. There can be no guarantee that the Company will attain its investment objective. This document is only addressed to and directed at persons in member states of the EEA, who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive. In addition, in the United Kingdom, this document is only being distributed to and is only directed at (1) qualified investors who are investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"), or high net worth entities falling within Article 49(2)(a)-(d) of the Order or (2) persons to whom it may otherwise lawfully be communicated (all such persons together being referred to as "relevant persons"). The securities are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, (1) in the United Kingdom, relevant persons and (2) in any member state of the EEA other than the United Kingdom, qualified investors. This document and its contents should not be acted upon or relied upon (1) in the United Kingdom, by persons who are not relevant persons or (2) in any member state of the EEA other than the United Kingdom, by persons who are not qualified investors. By accepting this document and not immediately returning it, by your action you warrant, represent, acknowledge and agree that: (i) you are either (a) an investment professional to which the said Article 19 applies or (b) a high net worth company or other person to which the said Article 49 applies; (ii) that you have read, agree to and will comply with the contents of this notice; and (iii) you will conduct your own analyses or other verification of the data set out in this document and will bear the responsibility for all or any costs incurred in doing so. The information presented in this document is subject to change without notice.
Millennium House, QIF: Investment Status 46 Athol Street, Douglas, IsleofMan, IM1 1JB www.qatarinvestmentfund.com