MEFIC IPO FUND Managed by MIDDLE EAST FINANCIAL ...
MEFIC IPO FUND Managed by MIDDLE EAST FINANCIAL INVESTMENT COMPANY FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016 TOGETHER WITH THE INDEPENDENT AUDITORS’ REPORT
MEFIC IPO FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT For the year ended 31 December 2016
INDEX
PAGE
Independent auditors’ report
2
Balance sheet
3
Statement of income
4
Statement of cash flows
5
Statement of changes in net assets attributable to Unitholders
6
Notes to the financial statements
7 – 11
MEFIC IPO FUND Managed by Middle East Financial Investment Company BALANCE SHEET As at 31 December 2016 (Saudi Riyals) Notes
2016
2015
ASSETS Cash and cash equivalents Investments held for trading Dividend receivable
7 8
Total assets
25,458,635 53,578,706 45,000
15,098,049 71,290,885 -
79,082,341
86,388,934
119,396 34,113
129,166 36,904
153,509
166,070
78,928,832
86,222,864
581,958
732,601
135.63
117.69
LIABILITIES Management fee payable Other expenses payable Total liabilities Net assets attributable to the Unitholders Units in issue (numbers) Net assets value attributable to each Unitholders
9 9
The accompanying notes 1 to 13 form an integral part of these financial statements. -3-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF INCOME For the year ended 31 December 2016 (Saudi Riyals)
Notes
2016
2015
INCOME Realised gain on disposal of investments held for trading Unrealised gain / (loss) on investments held for trading Dividend income Other income Total income / (loss)
6,070,759 7,021,832 1,985,710 8,002 15,086,303
11,876,728 (19,305,299) 4,116,003 745 (3,311,823)
(1,545,844) (441,788) (1,987,632)
(3,824,305) (1,092,799) (4,917,104)
13,098,671
(8,228,927)
EXPENSES Management fee Other expenses
NET INCOME / (LOSS) FOR THE YEAR
6, 9 6, 9
The accompanying notes 1 to 13 form an integral part of these financial statements. -4-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF CASH FLOWS For the year ended 31 December 2016 (Saudi Riyals)
Note
2015
2016
CASH FLOWS FROM OPERATING ACTIVITIES Net income / (loss) for the year Adjustments for: Realised gain on disposal of investments held for trading Unrealised (gain)/ loss on investments held for trading
13,098,671
(8,228,927)
(6,070,759) (7,021,832) 6,080
(11,876,728) 19,305,299 (800,356)
257,769,453 (226,964,683) (45,000) (9,770) (2,791) 30,753,289
391,821,148 (331,758,402) 70,449 (172,949) (46,843) 59,113,047
75,490,600 (95,883,303)
345,090,995 (427,576,141)
(20,392,703)
(82,485,146)
10,360,586 15,098,049
(23,372,099) 38,470,148
25,458,635
15,098,049
Changes in operating assets and liabilities: Proceeds from sale of investments held for trading Purchase of investments held for trading Dividends receivable Management fee payable Other expenses payable Net cash from operating activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from subscription of units Payments against redemption of units Net cash used in financing activities Net increase / (decrease) in cash and cash equivalent Cash and cash equivalent at 1 January Cash and cash equivalent at 31 December
7
The accompanying notes 1 to 13 form an integral part of these financial statements. -5-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the year ended 31 December 2016 (Saudi Riyals)
2016 Net assets at 1 January Net income for the year Changes from unit transactions Proceeds from issuance of units Payments against redemption of units Net change from units transactions Net assets at 31 December
2015
86,222,864 13,098,671
176,936,937 (8,228,927)
75,490,600 (95,883,303) (20,392,703)
345,090,995 (427,576,141) (82,485,146)
78,928,832
86,222,864
UNITS TRANSACTIONS 2016 Units at 1 January Units issued during the year Units redeemed during the year Units at 31 December
Units 732,601 668,611 (819,254)
2015 1,444,536 2,458,801 (3,170,736)
581,958
732,601
The accompanying notes 1 to 13 form an integral part of these financial statements. -6-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) 1.
THE FUND AND ITS ACTIVITIES MEFIC IPO Fund (the “Fund”) is an open-ended investment fund established and managed through an agreement between Middle East Financial Investment Company (the “Fund Manager”) and the Fund Investors (the “Unitholders”). The objective of the Fund is to achieve absolute return through capital growth over medium to long term by investing mainly in the shares of listed companies during the first five years of listing and during their Initial Public Offering (IPO) in the Kingdom of Saudi Arabia. In dealing with the Unitholders, the Fund Manager considers the Fund as an independent accounting unit. Accordingly, the Fund Manager prepares separate financial statements for the Fund. The Fund commenced its operations on 16 Rajab 1435 H (corresponding to 15 May 2014 G). The approval from Capital Market Authority (“CMA”) for the establishment of the Fund was granted in its letter number 2014/4486/5 dated 16 Rajab, 1435 H (corresponding to 15 May 2014 G)
2.
REGULATORY AUTHORITY The Fund is governed by the Investment Fund Regulations (“the Regulations”) issued by CMA as amended upto 16 Sha’ban 1437 H (corresponding to 23 May 2016 G).
3.
SUBSCRIPTION / REDEMPTION (DEALING DAY & VALUATION DAY) Subscription / redemption requests will be accepted on all days on which the Tadawul is open. The value of the Fund’s portfolio is determined twice a week on Monday and Thursday (each being a “Valuation Day”). The net asset value of the Fund for the purpose of purchase or sale of units is determined by dividing the net value of assets (fair value of the Fund’s assets minus fund’s liabilities) by the total number of outstanding fund units on the relevant valuation day.
4.
BASIS OF PREPARATION
a)
Statement of compliance These financial statements have been prepared in accordance with generally accepted accounting standards in the Kingdom of Saudi Arabia issued by the Saudi Organization of Certified Public Accountants (SOCPA), and in accordance with the requirements of the Investment Funds Regulations as published by CMA in Saudi Arabia and the Fund’s terms and conditions.
b)
Basis of measurement These financial statements have been prepared under the historical cost convention, except for the investments held for trading which are carried at fair value, using the accrual basis of accounting and the going concern concept.
c)
Functional and presentation currency These financial statements have been presented in Saudi Riyals (SR), which is the functional currency of the Fund. All financial information has been rounded to the nearest SR.
d)
Use of estimates and judgment The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and future years affected. -7-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) 5.
SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been adopted by the Fund and applied consistently throughout all years presented in these financial statements.
a)
Cash and cash equivalents Cash and cash equivalents comprise of cash in hand, cash at banks and other short-term highly liquid investments with original maturities of three months or less, which are available to the Fund without any restriction.
b)
Investments held for trading Investments are classified as “held for trading” if they are purchased for the purpose of resale in short term. Investments held for trading are initially recorded at cost which includes the purchase price plus all expenses incurred for the purpose of acquiring the securities. Subsequent to initial recognition, investments held for trading are measured at fair value and resulting gains or losses are recognized in the statement of income but excluding dividend income which are separately shown in the statement of income. Realized gains or losses at disposal and unrealized gains or losses are determined on average cost basis.
c)
Trade date accounting All regular-way purchases and sales of financial assets are recognized and derecognized on the trade date, i.e. the date that the Fund commits to purchase or sell the assets. Regular-way purchases or sales of financial assets require delivery of those assets within the timeframe generally established by regulation or convention in the market place. All other financial assets and liabilities (including assets and liabilities designated at fair value through income statement) are initially recognized on trade date at which the Fund becomes a party to the contractual provisions of the instrument.
d)
Management fee and other expenses Fund management fee and other expenses are charged to the income statement at rates agreed with the Fund Manager.
e)
Zakat / income tax Zakat / Income tax is the obligation of the Unitholders and is not provided for in these financial statements.
f)
Dividend income Dividend income is recognized when the right to receive the dividend is established.
g)
Subscription and redemption of units Units subscribed and redeemed are recorded at the net asset value per unit on the valuation day for which the subscription request and redemption applications are received.
h)
Net assets value The net assets value per unit disclosed in the balance sheet is calculated by dividing the net assets of the Fund by the number of units in issue at year end. -8-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) SIGNIFICANT ACCOUNTING POLICIES (continued) i)
Financial instruments Financial assets and liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. Any gain or loss on de-recognition of financial assets and financial liabilities are taken directly to the statement of income.
6.
MANAGEMENT FEE AND OTHER CHARGES Subscription fee The Fund Manager charges each investor a subscription fee of a percentage not exceeding 1.5% of the subscribed amount to cover administration costs and is netted off against proceeds from issuance of units. Under the terms and conditions of the Fund, the Fund is liable to pay the following expenses to the Fund Manager: Management fee Management fee is charged at the rate of 1.75% per annum of net assets value of the Fund at each valuation day, payable monthly. Other expenses Other expenses are charged at the rate of 0.5% of the net asset value of the fund at each valuation day, payable monthly.
7.
CASH AND CASH EQUIVALENTS As at 31 December 2016, the cash and cash equivalent include an amount of SR 24.97 million (2015: SR 13.94 million) which is held with the Fund Manager as custodian. The Fund Manager is authorized to utilize these funds for the purpose of trading in securities on behalf of the Fund. The remaining balance is held in the current account in a local bank.
8.
INVESTMENTS HELD FOR TRADING Notes Equity investments Investment in units of mutual fund
8.1
8.1 8.2
2016
2015
53,578,706 -
63,287,517 8,003,368
53,578,706
71,290,885
The sector-wise composition of investments held for trading is summarized as follows:
Retail Agriculture & Food Industries Transport Hotel & Tourism Real Estate Insurance Petrochemical Industries Building and construction Industrial investment Cement
Fair value as at 31 December 2015 2016 19,199,173 21,583,742 12,108,370 3,765,474 9,168,588 6,556,102 8,685,760 5,686,942 6,604,470 1,901,592 4,650,568 3,733,941 2,804,088 7,925,090 451,000 1,974,823 66,500 53,578,706
63,287,517 -9-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) INVESTMENTS HELD FOR TRADING (continued) As at 31 December 2016, cost of the above-mentioned investments held for trading amounted to SR 47.3 (2015: SR 82.6 million). The above investments are in equity shares quoted in Saudi Stock Market. 8.2 Investment in units of mutual fund comprises following: Fair value as at 31 December 2016 2015 MEFIC Saudi Riyal Murabaha Fund 9.
8,003,368
-
TRANSACTIONS AND BALANCES WITH RELATED PARTIES Related parties of the Fund include the Fund Manager and other funds managed by the Fund Manager. In the ordinary course of its activities, the Fund transacts business with related parties. All transactions with related parties are carried out based on mutually agreed prices under formal agreement. Related party transactions for the year are described as under: Related party Nature of transaction Middle East Financial Investment Company (the “Fund Manager”) MEFIC Saudi Riyal Murabaha Fund (A Fund managed by Fund Manager)
Management fee Other expenses Purchase of investment Sale proceeds of investment
2016
2015
1,545,844 441,670 7,500,000
3,824,305 1,092,799 8,000,000
15,537,366
-
The above transactions during the year resulted in the following balances due to related party at the balance sheet date: Related party Middle East Financial Investment Company (“the Fund Manager”) MEFIC Saudi Riyal Murabaha Fund (A Fund managed by Fund Manager)
Nature of balance Management fee payable Other expenses payable Investment (fair value)
2016
2015
119,396 34,113
129,166 36,904
-
8,003,368
The Fund’s unitholders’ accounts as at 31 December 2016 include Nil units (2015: 7,178.62 units) held by MEFIC Local Equity Fund, a fund managed by the Fund Manager, with a total value amounting to Nil (2015: SR 0.84 million). 10. FINANCIAL RISK MANAGEMENT Credit risk Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and cause other party to incur a financial loss. The Fund is exposed to credit risk on its bank balance and dividend receivables. However, the bank balance is maintained with a reputed local bank in the Kingdom of Saudi Arabia and the receivable is against dividend from reputable companies listed in the Kingdom of Saudi Arabia. Therefore, the Fund Manager believes that the Fund does not have any significant credit risk.
- 10 -
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) FINANCIAL RISK MANAGEMENT (Continued) Equity price risk Equity price risk is the risk that the fair value of equity investments will decrease as a result of changes in the levels of equity indices and the value of individual stocks. The Fund is exposed to equity price risk arising from its investments in equity shares and mutual funds. The Fund Manager endeavors to minimize the risk through diversification across various sectors of the Saudi stock market. Further, the Fund Manager has established risk guidelines to manage its equity price risk. Liquidity risk Liquidity risk is the risk that the Fund may encounter difficulty in generating funds to meet commitments associated with financial liabilities which comprise of fund management fee and other expenses payable. The Fund Manager monitors the liquidity requirements on a regular basis and ensures that sufficient funds are available to meet any commitments as they arise. Currency risk Currency risk is the risk that the value of a financial instrument may fluctuate due to change in the foreign exchange rates. The financial instruments of the Fund i.e. cash and payables are denominated in Saudi Arabian Riyals. Accordingly, the Fund is not exposed to any currency risk. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments comprise of financial assets and financial liabilities. The Fund’s financial assets consist of investments held for trading and cash at bank; its financial liabilities are management fee payable and other expenses payable. Investments held for trading are carried at fair value. The fair value of other financial instruments is not materially different from their carrying values. 12. LAST VALUATION DATE The last valuation date of the period was 31 December 2016 (2015: 31 December 2015). 13. APPROVAL OF ANNUAL FINANCIAL STATEMENTS These annual financial statements were approved by the Fund Board on 7 Jumada II’ 1438 H corresponding to 6 March 2017 G.
- 11 -
MEFIC IPO FUND MANAGED BY MIDDLE EAST FINANCIAL INVESTMENT COMPANY FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT For the year ended 31 December 2016
INDEX
PAGE
Independent auditors’ report
2
Balance sheet
3
Statement of income
4
Statement of cash flows
5
Statement of changes in net assets attributable to Unitholders
6
Notes to the financial statements
7 – 11
MEFIC IPO FUND Managed by Middle East Financial Investment Company BALANCE SHEET As at 31 December 2016 (Saudi Riyals) Notes
2016
2015
ASSETS Cash and cash equivalents Investments held for trading Dividend receivable
7 8
Total assets
25,458,635 53,578,706 45,000
15,098,049 71,290,885 -
79,082,341
86,388,934
119,396 34,113
129,166 36,904
153,509
166,070
78,928,832
86,222,864
581,958
732,601
135.63
117.69
LIABILITIES Management fee payable Other expenses payable Total liabilities Net assets attributable to the Unitholders Units in issue (numbers) Net assets value attributable to each Unitholders
9 9
The accompanying notes 1 to 13 form an integral part of these financial statements. -3-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF INCOME For the year ended 31 December 2016 (Saudi Riyals)
Notes
2016
2015
INCOME Realised gain on disposal of investments held for trading Unrealised gain / (loss) on investments held for trading Dividend income Other income Total income / (loss)
6,070,759 7,021,832 1,985,710 8,002 15,086,303
11,876,728 (19,305,299) 4,116,003 745 (3,311,823)
(1,545,844) (441,788) (1,987,632)
(3,824,305) (1,092,799) (4,917,104)
13,098,671
(8,228,927)
EXPENSES Management fee Other expenses
NET INCOME / (LOSS) FOR THE YEAR
6, 9 6, 9
The accompanying notes 1 to 13 form an integral part of these financial statements. -4-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF CASH FLOWS For the year ended 31 December 2016 (Saudi Riyals)
Note
2015
2016
CASH FLOWS FROM OPERATING ACTIVITIES Net income / (loss) for the year Adjustments for: Realised gain on disposal of investments held for trading Unrealised (gain)/ loss on investments held for trading
13,098,671
(8,228,927)
(6,070,759) (7,021,832) 6,080
(11,876,728) 19,305,299 (800,356)
257,769,453 (226,964,683) (45,000) (9,770) (2,791) 30,753,289
391,821,148 (331,758,402) 70,449 (172,949) (46,843) 59,113,047
75,490,600 (95,883,303)
345,090,995 (427,576,141)
(20,392,703)
(82,485,146)
10,360,586 15,098,049
(23,372,099) 38,470,148
25,458,635
15,098,049
Changes in operating assets and liabilities: Proceeds from sale of investments held for trading Purchase of investments held for trading Dividends receivable Management fee payable Other expenses payable Net cash from operating activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from subscription of units Payments against redemption of units Net cash used in financing activities Net increase / (decrease) in cash and cash equivalent Cash and cash equivalent at 1 January Cash and cash equivalent at 31 December
7
The accompanying notes 1 to 13 form an integral part of these financial statements. -5-
MEFIC IPO FUND Managed by Middle East Financial Investment Company STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO UNITHOLDERS For the year ended 31 December 2016 (Saudi Riyals)
2016 Net assets at 1 January Net income for the year Changes from unit transactions Proceeds from issuance of units Payments against redemption of units Net change from units transactions Net assets at 31 December
2015
86,222,864 13,098,671
176,936,937 (8,228,927)
75,490,600 (95,883,303) (20,392,703)
345,090,995 (427,576,141) (82,485,146)
78,928,832
86,222,864
UNITS TRANSACTIONS 2016 Units at 1 January Units issued during the year Units redeemed during the year Units at 31 December
Units 732,601 668,611 (819,254)
2015 1,444,536 2,458,801 (3,170,736)
581,958
732,601
The accompanying notes 1 to 13 form an integral part of these financial statements. -6-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) 1.
THE FUND AND ITS ACTIVITIES MEFIC IPO Fund (the “Fund”) is an open-ended investment fund established and managed through an agreement between Middle East Financial Investment Company (the “Fund Manager”) and the Fund Investors (the “Unitholders”). The objective of the Fund is to achieve absolute return through capital growth over medium to long term by investing mainly in the shares of listed companies during the first five years of listing and during their Initial Public Offering (IPO) in the Kingdom of Saudi Arabia. In dealing with the Unitholders, the Fund Manager considers the Fund as an independent accounting unit. Accordingly, the Fund Manager prepares separate financial statements for the Fund. The Fund commenced its operations on 16 Rajab 1435 H (corresponding to 15 May 2014 G). The approval from Capital Market Authority (“CMA”) for the establishment of the Fund was granted in its letter number 2014/4486/5 dated 16 Rajab, 1435 H (corresponding to 15 May 2014 G)
2.
REGULATORY AUTHORITY The Fund is governed by the Investment Fund Regulations (“the Regulations”) issued by CMA as amended upto 16 Sha’ban 1437 H (corresponding to 23 May 2016 G).
3.
SUBSCRIPTION / REDEMPTION (DEALING DAY & VALUATION DAY) Subscription / redemption requests will be accepted on all days on which the Tadawul is open. The value of the Fund’s portfolio is determined twice a week on Monday and Thursday (each being a “Valuation Day”). The net asset value of the Fund for the purpose of purchase or sale of units is determined by dividing the net value of assets (fair value of the Fund’s assets minus fund’s liabilities) by the total number of outstanding fund units on the relevant valuation day.
4.
BASIS OF PREPARATION
a)
Statement of compliance These financial statements have been prepared in accordance with generally accepted accounting standards in the Kingdom of Saudi Arabia issued by the Saudi Organization of Certified Public Accountants (SOCPA), and in accordance with the requirements of the Investment Funds Regulations as published by CMA in Saudi Arabia and the Fund’s terms and conditions.
b)
Basis of measurement These financial statements have been prepared under the historical cost convention, except for the investments held for trading which are carried at fair value, using the accrual basis of accounting and the going concern concept.
c)
Functional and presentation currency These financial statements have been presented in Saudi Riyals (SR), which is the functional currency of the Fund. All financial information has been rounded to the nearest SR.
d)
Use of estimates and judgment The preparation of these financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expense. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and future years affected. -7-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) 5.
SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been adopted by the Fund and applied consistently throughout all years presented in these financial statements.
a)
Cash and cash equivalents Cash and cash equivalents comprise of cash in hand, cash at banks and other short-term highly liquid investments with original maturities of three months or less, which are available to the Fund without any restriction.
b)
Investments held for trading Investments are classified as “held for trading” if they are purchased for the purpose of resale in short term. Investments held for trading are initially recorded at cost which includes the purchase price plus all expenses incurred for the purpose of acquiring the securities. Subsequent to initial recognition, investments held for trading are measured at fair value and resulting gains or losses are recognized in the statement of income but excluding dividend income which are separately shown in the statement of income. Realized gains or losses at disposal and unrealized gains or losses are determined on average cost basis.
c)
Trade date accounting All regular-way purchases and sales of financial assets are recognized and derecognized on the trade date, i.e. the date that the Fund commits to purchase or sell the assets. Regular-way purchases or sales of financial assets require delivery of those assets within the timeframe generally established by regulation or convention in the market place. All other financial assets and liabilities (including assets and liabilities designated at fair value through income statement) are initially recognized on trade date at which the Fund becomes a party to the contractual provisions of the instrument.
d)
Management fee and other expenses Fund management fee and other expenses are charged to the income statement at rates agreed with the Fund Manager.
e)
Zakat / income tax Zakat / Income tax is the obligation of the Unitholders and is not provided for in these financial statements.
f)
Dividend income Dividend income is recognized when the right to receive the dividend is established.
g)
Subscription and redemption of units Units subscribed and redeemed are recorded at the net asset value per unit on the valuation day for which the subscription request and redemption applications are received.
h)
Net assets value The net assets value per unit disclosed in the balance sheet is calculated by dividing the net assets of the Fund by the number of units in issue at year end. -8-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) SIGNIFICANT ACCOUNTING POLICIES (continued) i)
Financial instruments Financial assets and liabilities are recognised at the time when the Fund becomes a party to the contractual provisions of the instrument. Any gain or loss on de-recognition of financial assets and financial liabilities are taken directly to the statement of income.
6.
MANAGEMENT FEE AND OTHER CHARGES Subscription fee The Fund Manager charges each investor a subscription fee of a percentage not exceeding 1.5% of the subscribed amount to cover administration costs and is netted off against proceeds from issuance of units. Under the terms and conditions of the Fund, the Fund is liable to pay the following expenses to the Fund Manager: Management fee Management fee is charged at the rate of 1.75% per annum of net assets value of the Fund at each valuation day, payable monthly. Other expenses Other expenses are charged at the rate of 0.5% of the net asset value of the fund at each valuation day, payable monthly.
7.
CASH AND CASH EQUIVALENTS As at 31 December 2016, the cash and cash equivalent include an amount of SR 24.97 million (2015: SR 13.94 million) which is held with the Fund Manager as custodian. The Fund Manager is authorized to utilize these funds for the purpose of trading in securities on behalf of the Fund. The remaining balance is held in the current account in a local bank.
8.
INVESTMENTS HELD FOR TRADING Notes Equity investments Investment in units of mutual fund
8.1
8.1 8.2
2016
2015
53,578,706 -
63,287,517 8,003,368
53,578,706
71,290,885
The sector-wise composition of investments held for trading is summarized as follows:
Retail Agriculture & Food Industries Transport Hotel & Tourism Real Estate Insurance Petrochemical Industries Building and construction Industrial investment Cement
Fair value as at 31 December 2015 2016 19,199,173 21,583,742 12,108,370 3,765,474 9,168,588 6,556,102 8,685,760 5,686,942 6,604,470 1,901,592 4,650,568 3,733,941 2,804,088 7,925,090 451,000 1,974,823 66,500 53,578,706
63,287,517 -9-
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) INVESTMENTS HELD FOR TRADING (continued) As at 31 December 2016, cost of the above-mentioned investments held for trading amounted to SR 47.3 (2015: SR 82.6 million). The above investments are in equity shares quoted in Saudi Stock Market. 8.2 Investment in units of mutual fund comprises following: Fair value as at 31 December 2016 2015 MEFIC Saudi Riyal Murabaha Fund 9.
8,003,368
-
TRANSACTIONS AND BALANCES WITH RELATED PARTIES Related parties of the Fund include the Fund Manager and other funds managed by the Fund Manager. In the ordinary course of its activities, the Fund transacts business with related parties. All transactions with related parties are carried out based on mutually agreed prices under formal agreement. Related party transactions for the year are described as under: Related party Nature of transaction Middle East Financial Investment Company (the “Fund Manager”) MEFIC Saudi Riyal Murabaha Fund (A Fund managed by Fund Manager)
Management fee Other expenses Purchase of investment Sale proceeds of investment
2016
2015
1,545,844 441,670 7,500,000
3,824,305 1,092,799 8,000,000
15,537,366
-
The above transactions during the year resulted in the following balances due to related party at the balance sheet date: Related party Middle East Financial Investment Company (“the Fund Manager”) MEFIC Saudi Riyal Murabaha Fund (A Fund managed by Fund Manager)
Nature of balance Management fee payable Other expenses payable Investment (fair value)
2016
2015
119,396 34,113
129,166 36,904
-
8,003,368
The Fund’s unitholders’ accounts as at 31 December 2016 include Nil units (2015: 7,178.62 units) held by MEFIC Local Equity Fund, a fund managed by the Fund Manager, with a total value amounting to Nil (2015: SR 0.84 million). 10. FINANCIAL RISK MANAGEMENT Credit risk Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and cause other party to incur a financial loss. The Fund is exposed to credit risk on its bank balance and dividend receivables. However, the bank balance is maintained with a reputed local bank in the Kingdom of Saudi Arabia and the receivable is against dividend from reputable companies listed in the Kingdom of Saudi Arabia. Therefore, the Fund Manager believes that the Fund does not have any significant credit risk.
- 10 -
MEFIC IPO FUND Managed by Middle East Financial Investment Company NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2016 (Saudi Riyals) FINANCIAL RISK MANAGEMENT (Continued) Equity price risk Equity price risk is the risk that the fair value of equity investments will decrease as a result of changes in the levels of equity indices and the value of individual stocks. The Fund is exposed to equity price risk arising from its investments in equity shares and mutual funds. The Fund Manager endeavors to minimize the risk through diversification across various sectors of the Saudi stock market. Further, the Fund Manager has established risk guidelines to manage its equity price risk. Liquidity risk Liquidity risk is the risk that the Fund may encounter difficulty in generating funds to meet commitments associated with financial liabilities which comprise of fund management fee and other expenses payable. The Fund Manager monitors the liquidity requirements on a regular basis and ensures that sufficient funds are available to meet any commitments as they arise. Currency risk Currency risk is the risk that the value of a financial instrument may fluctuate due to change in the foreign exchange rates. The financial instruments of the Fund i.e. cash and payables are denominated in Saudi Arabian Riyals. Accordingly, the Fund is not exposed to any currency risk. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial instruments comprise of financial assets and financial liabilities. The Fund’s financial assets consist of investments held for trading and cash at bank; its financial liabilities are management fee payable and other expenses payable. Investments held for trading are carried at fair value. The fair value of other financial instruments is not materially different from their carrying values. 12. LAST VALUATION DATE The last valuation date of the period was 31 December 2016 (2015: 31 December 2015). 13. APPROVAL OF ANNUAL FINANCIAL STATEMENTS These annual financial statements were approved by the Fund Board on 7 Jumada II’ 1438 H corresponding to 6 March 2017 G.
- 11 -
