Batelco International Finance No. 1 Limited Bahrain ...

Batelco International Finance No. 1 Limited(an exempt company incorporated in the Cayman Islands with limited liability)

U.S.$650,000,000 4.250 per cent. Guaranteed Notes due 2020unconditionally and irrevocably guaranteed by

Bahrain Telecommunications Company B.S.C.(incorporated as a joint stock company under the laws of the Kingdom of Bahrain)

Issue price: 99.450 per cent.

The U.S.$650,000,000 4.250 per cent. Guaranteed Notes due 2020 (the Notes) are issued by Batelco

International Finance No. 1 Limited (the Issuer) and are unconditionally and irrevocably guaranteed

by Bahrain Telecommunications Company B.S.C. (the Guarantor or Batelco and, together with its

subsidiaries and associates, the Batelco Group).

The Issuer may, at its option, redeem all, but not some only, of the Notes at any time at the

outstanding principal amount plus accrued interest, in the event of certain tax changes and in certain

limited circumstances upon the occurrence of a Change of Control Event (as defined herein) or the

purchase and cancellation of Notes by or on behalf of the Issuer or the Guarantor, each as described

under ‘‘Conditions of the Notes – Redemption and Purchase’’. The Notes mature on 1 May 2020.

This Prospectus has been approved by the Central Bank of Ireland (the Central Bank) as competent

authority under Directive 2003/71/EC, as amended (which includes the amendments made by Directive

2010/73/EU to the extent that such amendments have been implemented in a relevant Member State)

(the Prospectus Directive). The Central Bank only approves this Prospectus as meeting the

requirements imposed under Irish and European Union (EU) law pursuant to the Prospectus

Directive. Application has been made to the Irish Stock Exchange for the Notes to be admitted to

the official list (the Official List) and to trading on its regulated market (the Main Securities Market).The Main Securities Market is a regulated market for the purposes of the Markets in Financial

Instruments Directive (Directive 2004/39/EC). References in this Prospectus to the Notes being listed

(and all related references) shall mean that the Notes have been admitted to listing on the Official

List and have been admitted to trading on the Main Securities Market.

The Notes are, on issue, expected to be rated ‘BBB-’ by Standard & Poor’s Credit Market Services

Europe Limited, a division of The McGraw-Hill Companies Inc. (Standard & Poor’s), and ‘BBB-’ byFitch Ratings Ltd. (Fitch). Each of Standard & Poor’s and Fitch is established in the European

Union and is registered under Regulation (EC) No. 1060/2009 (as amended) (the CRA Regulation). As

such each of Standard & Poor’s and Fitch is included in the list of credit rating agencies published

by the European Securities and Markets Authority on its website (at http://www.esma.europa.eu/page/

List-registered-and-certified-CRAs) in accordance with the CRA Regulation. A rating is not a

recommendation to buy, sell or hold securities and may be subject to revision, suspension or

withdrawal at any time by the assigning rating organisation.

An investment in Notes involves certain risks. Prospective investors should have regard to the factors

described under the heading ‘‘Risk Factors’’ on pages 4 to 28 (inclusive).

The Notes will be represented by a global certificate in registered form (the Global Certificate), which

will be registered in the name of a nominee of a common depositary for Euroclear Bank S.A./N.V.

(Euroclear) and Clearstream Banking, societe anonyme (Clearstream, Luxembourg). It is expected thatdelivery of the Global Certificate will be made on 2 May 2013 or such later date as may be agreed

(the Closing Date) by the Issuer, the Guarantor and the Joint Lead Managers (as defined under

‘‘Subscription and Sale’’). The Global Certificate will be exchangeable for registered certificates in

definitive form only upon the occurrence of limited circumstances set out in the Global Certificate.

Joint Lead ManagersBNP PARIBAS Citigroup

The date of this Prospectus is 1 May 2013.

Proof4:30.4.13

This Prospectus comprises a prospectus for the purposes of Article 5.4 of the Prospectus Directive.

The Issuer and the Guarantor accept responsibility for the information contained in this Prospectus.

To the best of the knowledge of the Issuer and the Guarantor (each having taken all reasonable care

to ensure that such is the case), the information contained in this Prospectus is in accordance withthe facts and does not omit anything likely to affect the import of such information.

Certain information under the heading ‘‘Overview of the Kingdom of Bahrain’’ (which may include

estimates and approximations) was derived from official data published by Bahraini governmental

agencies and certain information under the heading ‘‘Description of the M&I Transaction’’ was derived

from publicly available sources, including information published by Cable & Wireless

Communications Plc. Market share data is, except where otherwise specified, based on Batelco’s own

information and information publicly provided by competitors and/or regulatory authorities in the

relevant jurisdiction. In addition, certain information under the heading ‘‘Clearing and Settlement

Arrangements’’ was derived from information provided by the clearing systems referred to therein.

Each of the Issuer and the Guarantor confirms that such information has been accurately reproduced

and that, so far as it is aware, and is able to ascertain from information published by the relevant

sources, no facts have been omitted which would render the reproduced information inaccurate or

misleading.

Neither the Joint Lead Managers nor the Trustee have independently verified the information

contained herein. Accordingly, no representation, warranty or undertaking, express or implied, is

made and no responsibility or liability is accepted by the Joint Lead Managers or the Trustee as tothe accuracy or completeness of the information contained or incorporated in this Prospectus or any

other information provided by the Issuer or the Guarantor in connection with the offering of the

Notes. No Joint Lead Manager nor the Trustee accepts any liability in relation to the information

contained in this Prospectus or any other information provided by the Issuer or the Guarantor in

connection with the offering of the Notes or their distribution.

No person is or has been authorised by the Issuer, the Guarantor, the Joint Lead Managers or the

Trustee to give any information or to make any representation not contained in or not consistent

with this Prospectus or any other information supplied in connection with the offering of the Notesand, if given or made, such information or representation must not be relied upon as having been

authorised by the Issuer, the Guarantor or any of the Joint Lead Managers or the Trustee.

Neither this Prospectus nor any other information supplied in connection with the offering of the

Notes (a) is intended to provide the basis of any credit or other evaluation or (b) should be

considered as a recommendation by the Issuer, the Guarantor or any of the Joint Lead Managers or

the Trustee that any recipient of this Prospectus or any other information supplied in connection with

the offering of the Notes should purchase the Notes. Each investor contemplating purchasing any

Notes should make its own independent investigation of the financial condition and affairs, and itsown appraisal of the creditworthiness, of the Issuer and/or the Guarantor. Neither this Prospectus nor

any other information supplied in connection with the offering of the Notes constitutes an offer or

invitation by or on behalf of the Issuer, the Guarantor or any of the Joint Lead Managers or the

Trustee to any person to subscribe for or to purchase any Notes.

Neither the delivery of this Prospectus nor the offering, sale or delivery of the Notes shall in any

circumstances imply that the information contained herein concerning the Issuer and/or the Guarantor

is correct at any time subsequent to the date hereof or that any other information supplied in

connection with the offering of the Notes is correct as of any time subsequent to the date indicatedin the document containing the same. The Joint Lead Managers and the Trustee expressly do not

undertake to review the financial condition or affairs of the Issuer or the Guarantor during the life of

the Notes or to advise any investor in the Notes of any information coming to their attention.

This Prospectus does not constitute an offer to sell or the solicitation of an offer to buy the Notes in

any jurisdiction to any person to whom it is unlawful to make the offer or solicitation in such

jurisdiction. The distribution of this Prospectus and the offer or sale of Notes may be restricted by

law in certain jurisdictions. The Issuer, the Guarantor, the Joint Lead Managers and the Trustee do

not represent that this Prospectus may be lawfully distributed, or that the Notes may be lawfullyoffered, in compliance with any applicable registration or other requirements in any such jurisdiction,

or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any

such distribution or offering. In particular, no action has been taken by the Issuer, the Guarantor,

the Joint Lead Managers or the Trustee which is intended to permit a public offering of the Notes or

the distribution of this Prospectus in any jurisdiction where action for that purpose is required.

ii

c108207pu010Proof4:30.4.13_09:57B/LRevision:0OperatorYouG

Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Prospectus nor

any advertisement or other offering material may be distributed or published in any jurisdiction,

except under circumstances that will result in compliance with any applicable laws and regulations.

Persons into whose possession this Prospectus or any Notes may come must inform themselves about,and observe, any such restrictions on the distribution of this Prospectus and the offering and sale of

the Notes. In particular, there are restrictions on the distribution of this Prospectus and the offer or

sale of Notes in the United States, the United Kingdom, the Cayman Islands, the Kingdom of

Bahrain (Bahrain), the State of Qatar (Qatar), the Kingdom of Saudi Arabia (Saudi Arabia), the

Dubai International Financial Centre (the DIFC), the United Arab Emirates (excluding the DIFC)

(the UAE), Hong Kong and Singapore. See ‘‘Subscription and Sale’’.

The Notes may not be a suitable investment for all investors. Each potential investor in the Notesmust determine the suitability of that investment in light of its own circumstances. In particular, each

potential investor may wish to consider, either on its own or with the help of its financial and other

professional advisers, whether it:

(a) has sufficient knowledge and experience to make a meaningful evaluation of the Notes, the

merits and risks of investing in the Notes and the information contained in this Prospectus or

any applicable supplement;

(b) has access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its

particular financial situation, an investment in the Notes and the impact the Notes will have on

its overall investment portfolio;

(c) has sufficient financial resources and liquidity to bear all of the risks of an investment in the

Notes, including where the currency for principal or interest payments is different from the

potential investor’s currency;

(d) understands thoroughly the terms of the Notes and is familiar with the behaviour of financial

markets; and

(e) is able to evaluate possible scenarios for economic, interest rate and other factors that may

affect its investment and its ability to bear the applicable risks.

Legal investment considerations may restrict certain investments. The investment activities of certain

investors are subject to legal investment laws and regulations, or review or regulation by certainauthorities. Each potential investor should consult its legal advisers to determine whether and to what

extent (1) Notes are legal investments for it, (2) Notes can be used as collateral for various types of

borrowing and (3) other restrictions apply to its purchase or pledge of any Notes. Financial

institutions should consult their legal advisers or the appropriate regulators to determine the

appropriate treatment of Notes under any applicable risk-based capital or similar rules.

The Notes (as defined under ‘‘Conditions of the Notes’’) have not been and will not be registered

under the United States Securities Act of 1933, as amended, (the Securities Act) and are subject toU.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered, sold or

delivered within the United States or to U.S. persons. For a further description of certain restrictions

on the offering and sale of the Notes and on distribution of this document, see ‘‘Subscription and

Sale’’.

IN CONNECTION WITH THE ISSUE OF THE NOTES, CITIGROUP GLOBAL MARKETS

LIMITED AS STABILISING MANAGER (THE STABILISING MANAGER) (OR PERSON(S)

ACTING ON BEHALF OF THE STABILISING MANAGER) MAY OVER-ALLOT NOTES OREFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE

NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL.

HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR

PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE

STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE

DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF

THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST

END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THENOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF THE NOTES. ANY

STABILISATION ACTION OR OVER-ALLOTMENT MUST BE CONDUCTED BY THE

STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING

MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES.

iii


NOTICE TO CAYMAN ISLAND RESIDENTS

No invitation may be made to any member of the public of the Cayman Islands to subscribe for the

Notes and this Prospectus shall not be construed as an invitation to any member of the public of the

Cayman Islands to subscribe for the Notes.

NOTICE TO RESIDENTS OF BAHRAIN

EACH POTENTIAL INVESTOR INTENDING TO SUBSCRIBE FOR ANY NOTES (EACH, A

POTENTIAL INVESTOR) MAY BE REQUIRED TO PROVIDE SATISFACTORY EVIDENCE

OF IDENTITY AND, IF SO REQUIRED, THE SOURCE OF FUNDS TO PURCHASE THE

NOTES WITHIN A REASONABLE TIME PERIOD DETERMINED BY THE ISSUER, THE

GUARANTOR AND THE JOINT LEAD MANAGERS. PENDING THE PROVISION OF SUCHEVIDENCE, AN APPLICATION TO SUBSCRIBE FOR ANY NOTES WILL BE POSTPONED.

IF A POTENTIAL INVESTOR FAILS TO PROVIDE SATISFACTORY EVIDENCE WITHIN

THE TIME SPECIFIED, OR IF A POTENTIAL INVESTOR PROVIDES EVIDENCE BUT

NONE OF THE ISSUER, THE GUARANTOR OR THE JOINT LEAD MANAGERS ARE

SATISFIED THEREWITH, ITS APPLICATION TO SUBSCRIBE FOR ANY NOTES MAY BE

REJECTED IN WHICH EVENT ANY MONEY RECEIVED BY WAY OF APPLICATION WILL

BE RETURNED TO THE POTENTIAL INVESTOR (WITHOUT ANY ADDITIONAL AMOUNT

ADDED THERETO AND AT THE RISK AND EXPENSE OF SUCH POTENTIAL INVESTOR).IN RESPECT OF ANY BAHRAINI POTENTIAL INVESTORS, THE ISSUER AND THE

GUARANTOR WILL COMPLY WITH BAHRAIN’S LEGISLATIVE DECREE NO. (4) OF 2001

WITH RESPECT TO PROHIBITION AND COMBATING OF MONEY LAUNDERING AND

VARIOUS MINISTERIAL ORDERS ISSUED THEREUNDER INCLUDING, BUT NOT LIMITED

TO, MINISTERIAL ORDER NO. (7) OF 2001 WITH RESPECT TO INSTITUTIONS’

OBLIGATIONS CONCERNING THE PROHIBITION AND COMBATING OF MONEY

LAUNDERING AND ANTI-MONEY LAUNDERING AND COMBATING OF FINANCIAL

CRIME MODULE CONTAINED IN THE CBB RULEBOOK, VOLUME 6.

A COPY OF THIS PROSPECTUS HAS BEEN SUBMITTED AND FILED WITH THE

CENTRAL BANK OF BAHRAIN. FILING OF THIS PROSPECTUS WITH THE CENTRAL

BANK OF BAHRAIN DOES NOT IMPLY THAT ANY BAHRAINI LEGAL OR REGULATORY

REQUIREMENTS HAVE BEEN COMPLIED WITH. THE CENTRAL BANK OF BAHRAIN HAS

NOT IN ANY WAY CONSIDERED THE MERITS OF THE SECURITIES TO BE OFFERED

FOR INVESTMENT WHETHER IN OR OUTSIDE OF THE KINGDOM OF BAHRAIN.

NEITHER THE CENTRAL BANK OF BAHRAIN NOR THE LICENSED EXCHANGE ASSUMES

RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF THE STATEMENTS

AND INFORMATION CONTAINED IN THIS PROSPECTUS AND EACH EXPRESSLYDISCLAIMS ANY LIABILITY WHATSOEVER FOR ANY LOSS HOWSOEVER ARISING

FROM RELIANCE UPON THE WHOLE OR ANY PART OF THE CONTENTS OF THIS

PROSPECTUS.

THE ISSUER AND THE GUARANTOR ACCEPT RESPONSIBILITY FOR THE

INFORMATION CONTAINED IN THIS PROSPECTUS. TO THE BEST OF THE KNOWLEDGE

OF THE ISSUER AND THE GUARANTOR (EACH HAVING TAKEN ALL REASONABLE

CARE TO ENSURE THAT SUCH IS THE CASE) THE INFORMATION CONTAINED IN THIS

PROSPECTUS IS IN ACCORDANCE WITH THE FACTS AND DOES NOT OMIT ANYTHINGLIKELY TO AFFECT THE IMPORT OF SUCH INFORMATION.

NOTICE TO RESIDENTS OF SAUDI ARABIA

This Prospectus may not be distributed in Saudi Arabia except to such persons as are permitted

under the Offers of Securities Regulations issued by the Capital Market Authority of the Kingdom of

Saudi Arabia (the Capital Market Authority). The Capital Market Authority does not make anyrepresentations as to the accuracy or completeness of this Prospectus, and expressly disclaims any

liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this

Prospectus. Prospective purchasers of the Notes should conduct their own due diligence on the

accuracy of the information relating to the Notes. If a prospective purchaser does not understand the

contents of this Prospectus, he or she should consult an authorised financial adviser.

iv


PRESENTATION OF FINANCIAL AND OTHER INFORMATION

PRESENTATION OF FINANCIAL INFORMATION

Batelco prepared its audited consolidated financial statements as at and for the years ended

31 December 2012 and 2011 in accordance with International Financial Reporting Standards as issuedby the International Accounting Standards Board (IFRS).

Batelco regrouped expenses relating to frequency registration fees and certain other expenses asbetween the years ended 31 December 2011 and 2012, with such expenses being grouped as other

operating expenses in the audited consolidated financial statements of Batelco as at and for the year

ended 31 December 2011 and being regrouped as network operating expenses in the audited

consolidated financial statements of Batelco as at and for the year ended 31 December 2012. In

connection therewith, BD2.4 million of other operating expenses included in the audited consolidated

financial statements of Batelco as at and for the year ended 31 December 2011 were regrouped as

network operating expenses in the audited consolidated financial statements of Batelco as at and for

the year ended 31 December 2012. The financial information included in ‘‘Selected Financial

Information’’ and ‘‘Financial Review’’ as at and for the year ended 31 December 2011 is based on the

numbers presented in the audited consolidated financial statements of Batelco as at and for the year

ended 31 December 2012.

In this Prospectus, all references to BD, Bahraini dinars and dinars are to the lawful currency for the

time being of Bahrain, and all references to dollars, US dollars, $ and U.S.$ are to the lawful

currency for the time being of the United States of America. Translations of amounts from dinars to

US dollars in this Prospectus are solely for the convenience of the reader. The dinar has been pegged

to the US dollar at a fixed exchange rate of 0.376 dinars per US dollar and, accordingly, unless

otherwise indicated, translations of amounts from dinars to US dollars have been made at thisexchange rate for all periods presented in this Prospectus.

Certain financial information included in this Prospectus has been rounded and, as a result, the totalsof the information presented may vary slightly from the actual arithmetic totals of such information.

Certain defined terms relating to technical, operational and other types of information are used in this

Prospectus. Please refer to the section of this Prospectus entitled ‘‘Glossary of Certain Defined Terms’’

for a description of these defined terms.

The contents of any website referred to in this Prospectus do not form part of this Prospectus.

Non-IFRS Financial Measures

In this Prospectus, certain financial measures are presented that are not recognised by IFRS. These

include EBITDA, which Batelco defines as net income before interest, taxes, depreciation and

amortisation, finance and other income and share of profit/(loss) of associates (net). For a

reconciliation of EBITDA to profit for the year, see ‘‘Selected Financial Information’’.

EBITDA is not defined by or presented in accordance with IFRS, is not a measure of performanceand should not be considered as an alternative to:

* profit after tax from continuing operations (as determined in accordance with IFRS), or as ameasure of operating performance;

* cash flows from operating, investing or financing activities (as determined in accordance with

IFRS), or as a measure of the Group’s ability to meet its cash needs; or

* any other measures of performance under IFRS.

EBITDA has limitations as an analytical tool, and an investor should not consider this measure in

isolation from, or as a substitute for, analysis of the Group’s results of operations. Some limitations

of EBITDA as a measure are that:

* it does not reflect the Group’s cash expenditures or future requirements for capital expenditure

or contractual commitments;

* it does not reflect changes in, or cash requirements for, the Group’s working capital needs;

* it does not reflect the significant interest expense, or the cash requirements necessary to service

interest or principal repayments, in respect of any borrowings;

* although depreciation and amortisation are non-cash charges, the assets being depreciated and

amortised will often have to be replaced in the future, and EBITDA measures do not reflect any

cash requirements for such replacements; and

v


* other companies in the telecommunications industry may calculate EBITDA differently from

how the Group does, limiting its usefulness as a comparative measure.

EBITDA may not be indicative of the Group’s historical operating results, nor is it meant to be a

projection or forecast of future results.

Batelco believes that EBITDA provides useful information to investors because the measure is used

by management in analysing the Group’s core performance excluding the impact of certain non-

operating factors, as it removes the results of certain decisions that are outside the control of

management and can differ significantly from company to company depending on long term strategic

decisions regarding capital structure, the stage of growth development, capital expenditure

requirements and the jurisdictions in which certain Group companies operate and make capitalinvestments. In addition, Batelco believes that EBITDA is a measure commonly used by investors,

analysts and other interested parties in the Group’s industry. EBITDA is not subject to audit or

review by any independent auditors.

PRESENTATION OF INDUSTRY, MARKET AND CUSTOMER DATA

The customer data included in this Prospectus, including penetration rates, average revenue per user

rates (ARPU), churn rates and market shares, are derived from management estimates of such

customer data for Batelco and, where relevant, its operating subsidiaries. Batelco’s use or

computation of ARPU may not be comparable with the use or computation of similarly titled

measures reported by other companies in the telecommunications industry, including its competitors.How Batelco calculates its number of customers, churn and ARPU in relation to its Bahrain

businesses is described in more detail below. In certain cases, there may be differences between

Batelco’s methodology described below and that of its operating businesses for their internal reporting

or regulatory obligations.

The subscriber, market share, churn rates and ARPU data included in this Prospectus are not part of

the Group’s financial statements or financial accounting records and have not been audited or

otherwise reviewed by outside auditors, consultants or independent experts.

Customers

Mobile customers who pay in advance of services provided are counted as prepaid customers and

mobile customers who pay periodically following the provision of services are counted as postpaid

customers.

The Group calculates active mobile subscribers (customers) on a monthly basis in each of its

operating businesses by deducting the total number of subscribers that ceased their subscription for

the relevant service in the relevant month from the total number of new subscribers for that service

in that month and adding or subtracting the resulting figure, as applicable, from the total number ofsubscribers for the service as of the previous month end. A mobile customer is counted from the date

of the activation of such mobile customer’s subscriber identity module card (SIM card). A mobile

subscriber is considered to have ceased its subscription if (1) the subscriber itself terminates the

subscription, (2) in the case of postpaid subscriptions, if the operator terminates the subscription for

non-payment or (3) in the case of prepaid subscriptions, if the prepaid subscriber has not made any

outgoing activity (voice, text or multimedia) or received any incoming calls within a 90-day period.

Fixed-line and internet customers are calculated by the number of active lines at the end of the

period. In general, a customer is no longer counted as a fixed-line customer if (1) the customer has

voluntarily terminated the contract or (2) the customer has not made a payment on an outstanding

balance within approximately 60 days.

Where subscriber numbers are presented in this Prospectus, the figures refer to the total number of

subscribers and not to the proportionate number of subscribers, unless otherwise specifically stated.

The term proportionate number of subscribers denotes the total number of subscribers in each of the

Group’s mobile operations calculated by multiplying the total number of subscribers by Batelco’seconomic interest in the respective operator.

Churn

The rate at which mobile customers are disconnected from a network or are removed from an

operating company’s customer count due to inactivity is referred to as the company’s churn rate. The

Group calculates churn by dividing the number of voluntary and involuntary deactivations in a given

period by the average number of customers for the same period. See ‘‘– Customers and Subscribers’’.

vi


ARPU

ARPU is the measure of total service revenues for a given period, divided by the number of months

in that period and divided again by that period’s average total customers (calculated by dividing theaggregate number of customers at the beginning and end of the relevant period by two). Batelco’s

calculation of mobile ARPU includes outgoing voice revenue, subscription fees, data usage and

outbound roaming revenue. Interconnect revenues, inbound roaming revenues and device revenues are

not included when computing mobile ARPU. The Group calculates mobile ARPU for both prepaid

and postpaid customers. Blended mobile ARPU is calculated by multiplying each of prepaid mobile

ARPU and postpaid mobile ARPU by the number of prepaid and postpaid mobile subscribers for

the period, respectively, adding the resulting figures together and then dividing by the total number of

mobile subscribers for the period. Fixed-line ARPU includes outgoing voice revenue, value addedservice subscriptions and line rental charges. Both ARPU measures are calculated monthly and

include residential as well as business customers.

Market Share

The market share data of the Group and the Group’s competitors as calculated by management and

included in this Prospectus may differ from the market share data obtained from the

telecommunications authorities in Bahrain and other jurisdictions in which the Group operates, whichis reported to those authorities by the Group and the Group’s competitors. In certain markets, the

regulatory authority provides no uniform definition or criteria for measuring either prepaid or

postpaid subscribers within the market, and therefore the market share data provided to the

regulatory authority by Batelco and its operating businesses’ competitors may not be measured by the

same definitions and criteria which management applies in measuring the market share and subscriber

data of the Group and the Group’s competitors (especially if the competitor is using a different or

more relaxed churn rule).

Batelco cannot assure investors of the comparability of the Group’s competitors’ criteria for

measuring market share data to the methods used by management, as a third party using different

methods to assemble, analyse or calculate market data may not obtain or generate the same results.

No Representation or Warranty

Market data and certain industry data, forecasts and statements regarding the position of Batelco and

its subsidiaries, associates and joint ventures in the telecommunications industry in its various markets

included in this Prospectus are based on the internal estimates of Batelco and its subsidiaries,

associates and joint ventures and, in some cases, on industry data collected by the relevant national

regulator or industry bodies. While Batelco believes the statements contained in this Prospectus,

including customer and market share information, to be reliable and to provide fair and adequateestimates of the size of its markets and fairly reflect the Group’s competitive position within those

markets, these statements have not been independently verified, and Batelco does not make any

representation or warranty as to the accuracy or completeness of such information set forth in this

Prospectus. In addition, Batelco has made statements in this Prospectus regarding the

telecommunications industry, the markets in which its operating businesses operate, the position of

those operating businesses in the industry and the market shares of various industry participants

based on the Group’s experience and its own investigation of market conditions (in particular, based

on its internal data collected from its operating businesses’ networks, monitoring traffic and customeractivations). Batelco cannot assure investors that any of its assumptions are accurate or correctly

reflect the operating businesses’ position in the industry, and none of the Group’s internal surveys or

information has been verified by any independent sources. The customer, churn, ARPU and market

share data contained in this Prospectus are not part of the Group’s financial statements or financial

accounting records and have not been audited or otherwise reviewed by external auditors, consultants

or independent experts.

vii


TABLE OF CONTENTS

Page

Overview of the Offering.............................................................................................................. 1

Risk Factors ................................................................................................................................. 4

Conditions of the Notes ............................................................................................................... 29

Summary of Provisions relating to the Notes while represented by the Global Certificate ........ 44

Selected Financial Information .................................................................................................... 46

Financial Review.......................................................................................................................... 50

Business Description of the Issuer ............................................................................................... 59

Business Description of the Group .............................................................................................. 60

Description of the M&I Transaction ........................................................................................... 85

Management................................................................................................................................. 90

Glossary of Certain Defined Terms ............................................................................................. 97

Overview of the Kingdom of Bahrain ......................................................................................... 102

Use of Proceeds............................................................................................................................ 113

Taxation ....................................................................................................................................... 114

Clearing and Settlement Arrangements........................................................................................ 115

Subscription and Sale................................................................................................................... 117

General Information .................................................................................................................... 120

Financial Information .................................................................................................................. F-1

viii


OVERVIEW OF THE OFFERING

The following overview of the offering does not purport to be complete and is taken from, and is

qualified in its entirety by, the remainder of this Prospectus. Any decision to invest in the Notes should

be based on a consideration of this Prospectus as a whole.

Words and expressions defined in ‘‘Conditions of the Notes’’ shall have the same meanings in this

overview.

Issuer: Batelco International Finance No. 1 Limited.

Guarantor: Bahrain Telecommunications Company B.S.C.

Description of the Notes: U.S.$650,000,000 4.250 per cent. Guaranteed Notes due 2020.

Trustee: Citibank, N.A., London Branch.

Joint Lead Managers: BNP Paribas and Citigroup Global Markets Limited.

Principal Paying Agent: Citibank, N.A., London Branch.

Registrar, Paying Agent and

Transfer Agent:

Citigroup Global Markets Deutschland AG.

Interest: The Notes bear interest from and including 2 May 2013 at the rate

of 4.250 per cent. per annum, payable semi-annually in arrear on

1 November and 1 May in each year. The first Interest Payment

Date will be 1 November 2013. The amount of interest in respect ofthe short first interest period from and including 2 May 2013 to but

excluding 1 November 2013 will be U.S.$21.13 per U.S.$1,000 in

principal amount of the Notes and in respect of each semi-annual

period thereafter will be U.S.$21.25 per U.S.$1,000 in principal

amount of the Notes.

Optional Redemption by the Issuer

for Tax Reasons:

The Issuer may redeem all, but not some only, of the Notes at any

time at the outstanding principal amount plus accrued interest, inthe event of certain tax changes as described under in Condition

8.2.

Optional Redemption by

Noteholders following a Change of

Control Event:

The terms of the Notes contain a provision for optional redemption

by the Noteholders upon a Change of Control Event. A Change of

Control Event occurs if at any time the Government ceases to own,

directly or indirectly, at least 50 per cent. of the issued share capital

of the Guarantor, as described in Condition 8.3.

For the purposes of Condition 8.3, Government means (i) the

Government of Bahrain, (ii) any company or other entity owned

directly or indirectly by the Government of Bahrain and (iii) any

department, agency, authority or other official body (whether

statutory or otherwise) of the Government of Bahrain. If any such

company or entity referred to in (ii) above is not wholly owned bythe Government of Bahrain, then the relevant amount of the issued

share capital of the Guarantor deemed to be owned by the

Government for the purposes of this provision shall be reduced

accordingly.


following a Change of Control

Event:

The terms of the Notes contain a provision for optional

redemption, in whole but not in part, by the Issuer following the

redemption of any Notes upon the occurrence of a Change ofControl Event (as further described in Condition 8.3) provided that

no more than 15 per cent. of the principal amount of the Notes are

outstanding immediately following the redemption of Notes after

such Change of Control Event has occurred, as described in

Condition 8.4.

1



following the purchase and

cancellation of the Notes by or on

behalf of the Issuer or theGuarantor:

The terms of the Notes contain a provision for optional

redemption, in whole but not in part, by the Issuer upon the

purchase and cancellation of any Notes (on one or more occasions

and whether or not any Notes have previously been redeemedpursuant to Condition 8.3) by or on behalf of the Issuer or the

Guarantor (as further described in Conditions 8.6 and 8.7)

provided that no more than 15 per cent. of the principal amount

of the Notes are outstanding immediately following the

cancellation of the Notes so purchased, as described in

Condition 8.5.

Events of Default: Events of Default under the Notes include non-payment of

principal for seven days, non-payment of interest for 14 days,

breach of other obligations under the Notes or the Trust Deed(which breach is not remedied within 30 days) and certain events

related to the insolvency or winding up of the Issuer, the Guarantor

or any Principal Subsidiary. The Events of Default also include a

cross-acceleration provision in respect of the Issuer, the Guarantor

or any Principal Subsidiary.

Negative Pledge: See Condition 5.

Guarantee: The Notes will be unconditionally and irrevocably guaranteed by

the Guarantor. The obligations of the Guarantor under the

Guarantee constitute direct, unconditional and (subject to the

provisions of Condition 5) unsecured obligations of the Guarantorand (subject as provided above) rank and will rank pari passu with

all other outstanding unsecured and unsubordinated obligations of

the Guarantor, present and future, but, in the event of insolvency,

only to the extent permitted by applicable laws relating to creditors’

rights.

Status of the Notes: The Notes constitute direct, unconditional and (subject to the

provisions of Condition 5) unsecured obligations of the Issuer and

(subject as provided above) rank and will rank pari passu, without

any preference among themselves, with all other outstanding

unsecured and unsubordinated obligations of the Issuer, presentand future, but, in the event of insolvency, only to the extent

permitted by applicable laws relating to creditors’ rights.

Taxation: All payments in respect of the Notes by or on behalf of the Issuer or

the Guarantor shall be made without withholding or deduction for,

or on account of, any present or future taxes, duties, assessments or

governmental charges of whatever nature imposed or levied by or

on behalf of the Cayman Islands or Bahrain (Taxes), unless the

withholding or deduction of the Taxes is required by law. In that

event, the Issuer or, as the case may be, the Guarantor will pay suchadditional amounts as may be necessary in order that the net

amounts received by the Noteholders after the withholding or

deduction shall equal the respective amounts which would have

been receivable in respect of the Notes in the absence of the

withholding or deduction, except as mentioned in Condition 9.1.

Form and Denomination: The Notes will be issued in registered form in minimum

denominations of U.S.$200,000 and integral multiples of

U.S.$1,000 in excess thereof. The Notes will be represented by

the Global Certificate, which will be registered in the name of anominee of a common depositary for Euroclear and Clearstream,

Luxembourg. It is expected that delivery of the Global Certificate

will be made on 2 May 2013 or such later date as may be agreed

(the Closing Date) by the Issuer, the Guarantor and the Joint Lead

Managers. The Global Certificate will be exchangeable for

2


registered certificates in definitive form only upon the occurrence of

limited circumstances set out in the Global Certificate.

Meetings of Noteholders: The Conditions of the Notes and the Trust Deed contain provisions

for calling meetings of Noteholders to consider matters affecting

their interests generally. These provisions permit defined majorities

to bind all Noteholders, including Noteholders who did not attendand vote at the relevant meeting and Noteholders who voted in a

manner contrary to the majority.

Modification, Waiver and

Substitution:

The Trustee may, without the consent of Noteholders, agree to (i)

any modification of (subject to certain exceptions), or to the waiver

or authorisation of any breach or proposed breach of, any of the

provisions of the Notes or (ii) determine that any Event of Default

or potential Event of Default shall not be treated as such or (iii) the

substitution of the Issuer or a successor company of the Issuer as

principal debtor under the Notes in place of the Issuer, in each case,

in the circumstances and subject to the conditions described inCondition 15 and Condition 17 of the Notes.

Listing and Admission to Trading: Application has been made to the Irish Stock Exchange for theNotes to be admitted to listing on the Official List and to trading on

the Main Securities Market.

Governing Law: The Notes and any non-contractual obligations arising out of or inconnection with the Notes shall be governed by, and construed in

accordance with, English law.

Waiver of Immunity: To the extent that the Issuer or the Guarantor, respectively, may

claim for itself or its assets or revenues immunity from jurisdiction,

enforcement, prejudgment proceedings, injunctions and all other

legal proceedings and relief and to the extent that such immunity

(whether or not claimed) may be attributed to it or its assets or

revenues, each of the Issuer and the Guarantor will agree in the

Notes and the Trust Deed, respectively, not to claim and will

irrevocably and unconditionally waive such immunity in relation toany Proceedings or Disputes. Further, each of the Issuer and the

Guarantor will irrevocably and unconditionally consent to the

giving of any relief or the issue of any legal proceedings, including,

without limitation, jurisdiction, enforcement, prejudgment

proceedings and injunctions in connection with any Proceedings

or Disputes.

Credit Ratings: The Notes are expected to be assigned on issue a rating ‘BBB-’ by

Standard & Poor’s and ‘BBB-’ by Fitch. A credit rating is not a

recommendation to buy, sell or hold securities and may be subject

to suspension, reduction or withdrawal at any time by the assigningrating agency.

Selling Restrictions: The Notes have not been and will not be registered under the

Securities Act and, subject to certain exceptions, may not be offeredor sold within the United States or to, or for the account of, U.S.

persons except in certain transactions exempt from the registration

requirements of the Securities Act. The Notes may be sold in other

jurisdictions (including the United Kingdom, the Cayman Islands,

Bahrain, Qatar, Saudi Arabia, the DIFC, the UAE (excluding the

DIFC), Hong Kong and Singapore) only in compliance with

applicable laws and regulations. See ‘‘Subscription and Sale’’.

Use of Proceeds: The net proceeds of the issue of the Notes will be applied by the

Guarantor to repay all amounts drawn under the short term bridge

facility described in ‘‘Financial Review – Recent Developments’’, andthereafter for its general corporate purposes.

3


RISK FACTORS

Any investment in the Notes is subject to a number of risks and uncertainties. Before making any

investment decision, prospective Noteholders should consider carefully the risks and uncertainties

associated with the Issuer, Batelco and the Group’s business and any investment in the Notes, together

with all of the information that is included in this Prospectus, and should form their own view before

making an investment decision with respect to the Notes.

Each of the Issuer and Batelco believes that the non-exhaustive list of factors described below represents

the material risks inherent in investing in Notes, but the inability of the Issuer or, as the case may be,

Batelco, to pay any interest, principal or other amounts on or in connection with the Notes may occur

for other reasons which may not be considered significant by the Issuer or Batelco based on information

currently available to them or which they may not currently be able to anticipate. Neither the Issuer nor

Batelco represents that the statements below regarding the risks of investing in the Notes are exhaustive.

All of the factors listed below are contingencies which may or may not occur and neither the Issuer nor

Batelco is in a position to express a view on the likelihood of any such contingency occurring. Should

one or more of the following events or circumstances occur at the same time or separately, the Issuer,

Batelco and the Group’s business, financial condition, results of operations or prospects could be

materially adversely affected. If that were to happen, the trading price of the Notes could decline and

investors could lose part or all of their investment.

Risks relating to the Issuer

The Issuer has no material assets and no operating history and will depend on receipt of payments from Batelcoto make payments to Noteholders

The Issuer is a newly established exempted company with limited liability incorporated under the laws

of the Cayman Islands and has no operating history. The Issuer’s principal purpose is to provide

funding, through the international capital markets, to Batelco. Therefore, the Issuer’s ability to fulfil

its obligations under the Notes is entirely dependent on Batelco’s performance. The Issuer is subject

to all the risks to which Batelco is subject, to the extent that such risks could limit Batelco’s ability

to satisfy in full and on a timely basis its obligations under the Guarantee.

Risks relating to the Group and the Group’s business

The Group’s revenues, profits and cash flows are concentrated in Bahrain

The Group relies, to a significant extent, on the revenue, profits and cash flows generated by itsoperations in Bahrain to make principal and interest payments on its indebtedness (including the

Notes), pay operating expenses, fund its international expansion and capital expenditures and meet its

other obligations that may arise from time to time. For the years ended 31 December 2012 and 2011,

the Bahrain telecommunications operations of Batelco accounted for 59 per cent. and 62 per cent. of

the Group’s consolidated revenue, respectively, and 70 per cent. and 81 per cent. of the Group’s

consolidated profit, respectively. Although completion of the M&I Acquisition on 3 April 2013 is

expected to result in a reduction in the Bahraini operations’ relative contribution to Batelco’s

consolidated revenue and consolidated profit, and any other international acquisitions and investments(including completion of the remainder of the M&I Transaction, being the Seychelles Acquisition and

the Monaco Option) may, if completed successfully, result in further reductions, the Group’s Bahraini

operations will continue to be a significant contributor to its revenue and profitability in the future.

Consequently, any persistent weakness or a further economic downturn in Bahrain or the occurrence

of any event which has a material adverse effect on the Group’s Bahrain operations could materially

and adversely affect Batelco’s overall performance.

The Group may face increased competition from new entrants or established telecommunications operators inthe markets in which it operates

The Group faces intensifying competition both from new entrants to the telecommunications markets

in which it operates and from existing competitors. The Group’s competitors, or potential

competitors, may have greater financial, capital, marketing or other resources, which may allow themto provide services more effectively and at a lower cost than Batelco or its subsidiaries or associates.

These competitors, or potential competitors, from other territories or market segments who choose to

enter the markets in which the Group operates, may adopt more aggressive pricing policies, offer

better services and features, develop and deploy more rapidly any new or improved technologies,

services and products, expand and enhance their networks and coverage more rapidly, undertake

4


more extensive advertising and marketing campaigns or successfully replicate the Group’s business

models. In addition, the telecommunications sector in the markets in which the Group operates may

experience consolidation, which could result in, among other things, competitors with greater scale

operating aggressively in these markets. Competitors may also acquire rights to newer and morecompetitive technologies not available to the Group or Batelco or its subsidiaries or associates may

become subject to stricter regulation by relevant industry regulators and/or competition from other

companies that are not subject to regulation as a result of the convergence of communication

technologies.

Despite taking steps to prepare for additional competition and the likely growth in market

penetration and, therefore, the total size of the market available in the Group’s key territories, the

Group has lost market share in certain of its markets and there is a risk that it may continue to do

so and also that its pricing, revenue and/or margins may continue to come under pressure.

Increased competition may lead to increased churn, a reduction in the rate at which the Group is

able to add new customers or to a decline in customer numbers and a decrease in Batelco’s or its

subsidiaries’ or associates’ respective market shares as customers purchase telecommunications

services, or other competing services, from other providers and/or increasingly switch between

providers based on pricing and the products and services that are offered. The rapid development of

new technologies, services and products has eliminated the traditional distinctions between and among

local, long distance, wireless, cable and internet communications services and brought new

competitors to the markets in which the Group operates, including other telephone companies, cablecompanies, fixed and mobile wireless service providers, satellite providers, content and service

providers, aggregators, search engines, handset makers, electric utilities and providers of free VOIP

services. In addition, new entrants are competing with telecommunications operators to offer

integrated communications packages, notably by developing new applications compatible with fixed or

mobile handsets, such as smartphone applications. Increased competition, particularly from Internet

service providers, which are able to offer voice, messaging and content services directly to the

Group’s customers, VOIP services and cable operators, which are able to offer fixed voice and

broadband services, could pose a risk to the Group’s fixed and mobile voice calling and broadbandrevenue. As a result, the competitive focus in certain of the Group’s markets continues to shift from

customer acquisition to customer retention. The direct relationship with customers is the source of

value for the telecommunications operators and to lose all or part of it to new entrants could affect

Batelco’s revenue, margins, financial position and outlook.

To compete effectively with its competitors, Batelco and its subsidiaries and associates need to

successfully market their products and services and to anticipate and respond to various competitive

factors affecting the relevant markets, such as the introduction of new products and services by its

competitors, pricing strategies adopted by its competitors, customer loyalty trends, demographic

trends and changes in consumer preferences, regulatory constraints or changes in applicable laws and

general economic, political and social conditions. Failure of the Group’s businesses to compete

effectively, and to develop new products to compensate for the competitive pressures in its existing

markets, could have a material adverse effect on Batelco’s revenues, profitability and prospects.

Technological changes in communication and information technology may render the Group’s products,services and supporting infrastructure obsolete or uncompetitive. If the Group does not continue to providetelecommunications or related services that are useful and attractive to customers, it may not remaincompetitive, and its business, financial condition, results of operations and prospects may be adversely affected

The telecommunications industry is characterised by technological changes on a continuous basis,

including an increasing pace of change in existing mobile systems, and industry standards and

ongoing improvements in the capacity and quality of technology. The Group’s commercial success

depends on providing telecommunications services that provide its customers with attractive productsand services at a competitive cost.

Despite the strength of the Group’s existing networks and its investment in product development and

supporting infrastructure, it is not possible to predict the effect of future technological changes on the

industry and on the Group’s individual businesses, and the related impact on licensing and similarrequirements. For example, as technology evolves, Batelco may need to obtain new and/or additional

regulatory licences, or make significant investments to upgrade its existing networks to be compatible

with new technologies or new standards. Batelco may become hampered by fixed assets that have

become obsolete due to new technologies or shifts in customer demand compared to new entrants to

the market. As new technologies develop, Batelco’s equipment may need to be replaced or upgraded,

5


or its networks may need to be rebuilt in whole or in part in order to sustain Batelco’s competitive

position as a market leader. Continuing technological advances, ongoing improvements in the capacity

and quality of digital technology and short development cycles also contribute to the need for

continual upgrading and development of Batelco’s equipment, technology and operations. To respondsuccessfully to technological advances, Batelco may require substantial capital expenditures and access

to related or enabling technologies in order to integrate the new technology with its existing

technology. In addition, should items of mechanical and electrical plant remain in use beyond their

anticipated service life, these assets may present a risk to Batelco’s ability to provide reliable service

that its customers have come to expect. However, the process of upgrading and updating Batelco’s

networks may not deliver expected improvements or cause disruptions to existing services.

As telecommunications technology continues to develop, the Group’s competitors may be able to

offer telecommunications products and services that are, or that are perceived to be, substantially

similar or better than those offered by Batelco or its subsidiaries or affiliates. If the Group is notsuccessful in anticipating and responding to technological change, industry change and resulting

consumer preferences or if it is unable to upgrade or modify its networks and equipment in a timely

and cost-effective manner, Batelco’s business, financial condition, results of operations and prospects

could be materially adversely affected.

A failure in the continuing operations of the Group’s networks, gateways to its networks or the networks ofother operators could adversely affect Batelco’s business, financial condition, results of operations andprospects

Batelco and its subsidiaries and associates depend to a significant degree on the uninterrupted

operation of their respective networks to provide their services. Customers may experience blocked or

dropped calls because of network capacity constraints. Batelco cannot assure investors that the

Group’s networks can be improved or maintained at current levels.

The Group also relies to a certain extent on interconnection to the networks of other

telecommunications operators to carry calls from its customers to the customers of fixed-line

operators and other mobile operators, both within a given country and internationally. While Batelcohas interconnection and international roaming agreements in place with many other

telecommunications operators, it has no direct control over the quality of these networks and the

interconnections and international roaming services they provide. Any difficulties or delays in

interconnecting with other networks and services, or the failure of any operator to provide reliable

interconnections or roaming services to Batelco on a consistent basis, could cause customer

dissatisfaction and result in a loss of subscribers or a decrease in traffic, which could adversely affect

Batelco’s business, financial condition, results of operations and prospects.

In addition, the Group’s network, including its information systems, information technology and

infrastructure and the networks of other operators with whom its customers interconnect, arevulnerable to damage or interruptions in operation from a variety of sources including natural

disasters, power loss, equipment failure, malicious acts, network software flaws, transmission cable

disruption or similar events. Any interruption of the Group’s operations or the provision of any

service, whether from operational disruption, natural disaster or otherwise, could damage Batelco’s

ability to attract and retain customers, cause significant customer dissatisfaction and have a material

adverse effect on its business, financial condition, results of operations and prospects.

The Group is exposed to certain risks in respect of the development, expansion and maintenance of itstelecommunications networks

The Group’s ability to increase its subscriber base depends in part upon the success of the expansion

and management of its telecommunications networks and upon its ability to obtain sufficient

financing to facilitate these plans. The build-out of the Group’s networks is subject to risks and

uncertainties which could delay the introduction of services in some areas and increase the cost of

network construction. Network expansion and infrastructure projects, including those in the Group’sdevelopment pipeline, typically require substantial capital expenditure throughout the planning and

construction phases and significant delays may occur before the relevant member of the Group can

obtain the necessary permits and approvals and the new sites become operational. During the

planning and expansion process, the relevant member Group is subject to a number of construction,

financing, operating, regulatory and other risks beyond its control, including, but not limited to:

* shortages or unavailability of materials, equipment and skilled and unskilled labour;

6


* an inability on Batelco’s or the relevant subsidiary’s or associate’s part to obtain necessary

financing on terms favourable to it, if at all;

* increases in capital and/or operating costs, including as a result of foreign exchange rate

movements;

* changes in demand for services;

* labour disputes and disputes with contractors and sub-contractors;

* inadequate engineering, project management, capacity or infrastructure, including as a result of

failure by third parties to fulfil their obligations relating to the provision of utilities andtransportation links that are necessary or desirable for the successful operation of a project;

* electricity and power interruptions due to electricity load shedding and/or blackouts, and energy

shortages;

* regulatory regimes impacting the business;

* failure to complete projects according to specifications;

* failure to meet licence obligations;

* adverse weather conditions and natural disasters;

* environmental regulations, including the need to perform feasibility studies and conduct remedial

activities;

* political, social and economic conditions;

* fraud;

* accidents;

* malicious acts;

* terrorist action;

* changes in laws, rules, regulations, governmental priorities and regulatory regimes; and

* an inability to obtain and maintain project development permission or requisite governmental

licences, permits or approvals.

The occurrence of one or more of these events may have a material adverse effect on the relevant

member of the Group’s ability to complete its current or future network expansion projects on

schedule or within budget, if at all, and may prevent Batelco, or its subsidiaries or associates, from

achieving the projected revenues, internal rates of return or capacity associated with such projects.

There can be no assurance that the Group will be able to generate revenues or profits from itsexpansion projects that meet its planned targets and objectives, or that such revenues will be sufficient

to cover the associated construction and development costs, either of which could have a material

adverse effect on Batelco’s business, financial condition, results of operations and prospects.

The Group may not accurately forecast demand for its products and/or services, and as a result, may haveexcess resources or suffer from resource shortages

The level of resources required in the Group’s business is sensitive to changes in the actual demand

for its services compared with forecasts of such demand. Accurate forecasting of demand in volatile

and dynamic telecommunications sectors such as those in which the Group operates can be verydifficult, particularly in times of rapidly changing economic conditions and uncertain consumer

demand. However, competition for customers drives telecommunications companies like Batelco to

invest in capacity and new technologies. Batelco commits substantial capital expenditure each year to

the development of its networks and technologies. If actual conditions in the markets in which the

Group operates are less favourable than those projected, the Group will have excess resources because

actual customer demand will fall short of projected customer demand. This also exposes the Group to

the risk that it may be unable to recoup the investments made (whether in connection with

acquisitions or with capital expenditures) and to asset impairment charges. In times of growingdemand, either generally or for particular services, Batelco or its subsidiaries or associates may have

insufficient resources and, as a result, may not be able to meet customer demand in a timely manner.

Failure to meet customer needs may adversely affect customer relationships, weaken the relevant

Group member’s competitive position and reduce revenue and could have a material adverse effect on


7


Batelco has rapidly expanded internationally in recent years

Since 1999, Batelco has significantly expanded its international operations (in terms of geography and

scope) through both its subsidiary and associate entities by purchasing interests in existing businesses,entering into joint venture arrangements, acquiring new licences and building its own network

infrastructure. For example, on 3 April 2013 Batelco completed the acquisition from Sable Holding

Limited (the Seller), a wholly-owned subsidiary of CWC, of the majority of CWC’s Monaco and

Islands business unit. See ‘‘– Risks relating to the M&I Transactions’’ and ‘‘Description of the M&I

Transaction’’.

Batelco’s ability to manage its increased scope of operations and to achieve future growth and

profitability depends upon a number of factors, including its ability:

* to effectively integrate newly acquired business operations into its current operations;

* to effectively increase the scope of its management, operational and financial systems andcontrols to handle the increased complexity, expanded breadth and geographic area of its

operations;

* to recruit, train and retain qualified staff to manage and operate its growing business;

* to accurately evaluate the contractual, financial, regulatory, environmental and other obligations

and liabilities associated with its international acquisitions and investments, including the

appropriate implementation of financial oversight and internal controls and the timely

preparation of financial statements that are in conformity with Batelco’s accounting policies,

based on IFRS;

* to accurately judge market dynamics, demographics, growth potential and competitive

environment;

* to effectively determine, evaluate and manage the risks and uncertainties in entering new

markets and acquiring new businesses through its due diligence and other processes, particularly

given the heightened risks in emerging markets;

* to implement its short and long term strategic goals in relation to new acquisitions and joint

ventures; and

* to maintain and obtain necessary permits, licences, spectrum allocation and approvals from

governmental and regulatory authorities and agencies.

Any difficulties in addressing these issues or integrating one or more of its existing or future

international operations could have a material adverse effect on Batelco’s business, financial condition,

results of operations and prospects.

The Group’s continued growth in profitability depends in part on its ability to continue to grow internationallythrough organic expansion and/or further acquisitions

For the year ending 31 December 2012, the Group’s international operations contributed 41 per cent.

of consolidated revenues and 30 per cent. of consolidated profit. If profits from Batelco’s operations

in Bahrain continue to decrease, the Group’s continued growth in profitability will depend on its

ability to continue to grow its international operations through organic expansion and/or further

acquisitions.

The Group’s organic growth depends on the number of customers, its ability to increase revenues,

limit churn and update existing networks and services and successfully launch new value addedservices to compensate for declines in existing market share and intensifying competition in relation to

old products.

The success of Batelco’s acquisition and investment strategy depends on the ability of management to

identify and compete for suitable acquisition and investment targets, to assess the value, strengths,

weaknesses, contingent or other liabilities and potential profitability of such acquisitions and

investments, to negotiate acceptable purchase terms and, in some cases, the selection of appropriate

international and local partners, and the continued contributions by certain of its key management

and technical personnel. Batelco’s acquisition and investment strategy also depends on its ability toobtain the appropriate regulatory and governmental approvals, licences, spectrum allocation and

registrations and may be limited by regulatory constraints in the countries in which it operates due to

antitrust laws, asset control laws or political conflicts. Regulatory authorities may impose conditions

on the completion of an acquisition or require changes to its terms that materially affect the terms of

the transaction or Batelco’s ability to capture some of the opportunities presented by the transaction.

8


Any such conditions, or any associated regulatory delays, could limit the benefits of the transaction.

See ‘‘– Current and future antitrust and competition laws in the countries in which the Group operates

may limit its growth and subject it to antitrust and other investigations or legal proceedings’’. In

addition, the success of Batelco’s acquisitions and investments will depend on, and may be limited by,Batelco’s ability to finance acquisitions and investments, which may be limited by restrictions

contained in its debt instruments and its other existing and future financing arrangements.

Acquiring businesses involves a number of risks and financial, accounting, tax, regulatory, managerial

and operational challenges, which could adversely affect Batelco’s business, financial condition, results

of operations and prospects. Once targets are acquired, the success of Batelco’s acquisitions andinvestments is dependent on the ability of Batelco’s management and employees to integrate the

acquired businesses and/or implement an effective management structure given the terms of the

investment (particularly in cases where Batelco has only a minority interest), realise the benefits of

expected planned synergies (such as branding, marketing and equipment sourcing) and successfully

execute operations in new jurisdictions (such as rolling out a new network, managing vendors,

establishing billing systems and addressing security concerns). In addition, the businesses that Batelco

acquires may underperform relative to the price paid or the resources committed by Batelco, Batelco

may not achieve anticipated cost savings or Batelco may otherwise be adversely affected byacquisition-related charges. The integration of the businesses into the Group’s existing operations may

not proceed as efficiently as Batelco expects due to cultural differences or for other reasons. Through

its acquisitions, Batelco may also assume unknown or undisclosed business, operational, tax,

regulatory and other liabilities, fail to properly assess known contingent liabilities or assume

businesses with internal control deficiencies. While Batelco seeks to mitigate these risks through,

among other things, due diligence processes and indemnification provisions, Batelco cannot be certain

that the due diligence processes it conducts are adequate or that the indemnification provisions and

other risk mitigation measures it puts in place will be sufficient. These risks can be particularlysignificant in emerging markets, where it is difficult to assess the regulatory environment given limited

history and precedent and other economic and political factors. See ‘‘Investing in securities involving

emerging markets generally involves a higher degree of risk’’ and ‘‘– The Group operates in a region

that has been subject to on-going political and security concerns’’.

There can be no assurance that Batelco will be able to identify and effect future acquisitions orinvestments on appropriate terms and at an acceptable cost or that it will successfully execute its

acquisition, investment or rollout plans. Batelco cannot give any assurance that its recent rate of

growth will be maintained in the future or that demand for the Group’s services will continue to

grow at rates sufficient to achieve a satisfactory return on any acquisitions or investments that it

makes. Some acquisitions Batelco announces may not be completed if Batelco does not receive the

required regulatory approvals, is unable to obtain third party financing or if other closing conditions

are not satisfied, which might deprive Batelco of attractive opportunities or otherwise have an adverse

impact on Batelco due to Batelco’s inability to offset the diversion of management time, internal costsand advisory fees related to an aborted acquisition. Batelco’s inability to expand the Group’s existing

business internationally, or to find and complete suitable acquisitions or investments, could have a

material adverse effect on its business, financial condition, results of operations and prospects.

Current and future antitrust and competition laws in the countries in which the Group operates may limit itsgrowth and subject it to antitrust and other investigations or legal proceedings

The antitrust and competition laws and related regulatory policies in many of the countries in which

the Group operates generally favour increased competition in the telecommunications industry and

may prohibit Batelco from making further acquisitions or continuing to engage in particular practices

to the extent that it holds a significant market share in such countries. In addition, violations of such

laws and policies could expose Batelco to administrative proceedings, civil lawsuits or criminalprosecution, including fines and imprisonment, and to the payment of punitive damages.

Regulators are particularly focused on ensuring compliance by operators with applicable laws and

regulations, with establishing rules and a regulatory framework for interconnection between fixed and

mobile networks, including mobile termination (i.e., the ability of a telecommunications provider to

terminate a call on another operator’s network (i.e., calling between networks)) and the relatedpricing mechanisms for them (i.e., mobile termination rates). In fixed-line networks, although the

incumbent provider has generally been obliged by the regulator to offer access to its network for the

purposes of interconnection or call termination at prices which have usually been set by the regulator

to equal cost, such pricing could also be set well below cost. Decisions by any of the Group’s

relevant regulators which impose new regulatory measures on Batelco or any of its subsidiaries or

9


affiliates that constrain or hamper their ability to compete in the relevant markets, or which require

Batelco or any of its subsidiaries or affiliates to provide mobile termination and interconnection

services well below current rates, which is more likely to be required in countries in which Batelco or

its subsidiary or affiliate is viewed or designated by the local regulator as having significant marketpower, could prevent Batelco from realising a significant amount of revenue and have a material

adverse effect on Batelco’s business, financial condition, results of operations and prospects. See ‘‘ –

Because the Group operates in heavily regulated business environments, the implementation of existing

laws by regulators and government authorities as well as changes in laws, regulations or government

policy affecting its business activities could adversely affect Batelco’s business, financial condition, results

of operations and prospects’’.

In addition, antitrust and competition laws are subject to change and existing or future laws may be

implemented or enforced in a manner that is materially detrimental to Batelco. Batelco cannot predict

the effect that current or any future lawsuits, appeals or investigations by regulatory bodies or by any

third party in any of the countries in which it operates will have on its business, financial condition,

results of operations or prospects. Although to date no member of the Group has been subject to any

material antitrust or competition related lawsuits, there can be no assurance that these lawsuits will

not occur and as a result cause Batelco material losses and expenses. In addition, any fines, or otherpenalties on Batelco or any of its subsidiaries or affiliates imposed by an antitrust or competition

authority as a result of any such investigation, or any prohibition on Batelco or any of its

subsidiaries or affiliates (i) engaging in certain types of business or (ii) offering for sale certain types

of products or services in one or more of the regions in which it operates, could have a material

adverse effect on Batelco’s business, financial condition, results of operations and prospects.

Batelco’s investment plans are based on models that are themselves based on management’s predictions ofmarket conditions in the markets in which the Group seeks to operate. There can be no assurance that suchmodels will correctly anticipate actual investment results

Batelco’s investment plans, including in its acquisitions, are influenced by its modelling of anticipated

investment returns. Batelco uses the results of its modelling to identify and execute potential

investment strategies. These models rely on certain assumptions of market fundamentals, such as

pricing and competition in the relevant markets, in determining a given investment’s timing, cost and

expected profitability for Batelco. If actual market conditions deviate from the assumptions underlying

these models, Batelco could be required to modify, scale-back or delay its acquisition and expansion

plans and capital expenditure programs. Changing market fundamentals in other regions could

likewise affect Batelco’s ability to adhere to its acquisition and capital expenditure programs in waysthat could have a material adverse effect on Batelco’s business, financial condition, results of

operations and prospects.

Batelco’s ability to exercise control over its subsidiaries, associates and joint ventures is, in some cases,dependent upon the consent and cooperation of other participants who are not under its control. Disagreementsor terms in the agreements governing Batelco’s subsidiaries, associates and joint ventures could adverselyaffect its business, financial condition, results of operations and prospects

Batelco currently operates in countries outside Bahrain through subsidiaries, associates and joint

ventures and Batelco is party to or may enter into joint venture arrangements and minorityinvestments for new projects and acquisitions. Batelco’s level of ownership of each of its subsidiaries,

associates and joint ventures varies from market to market, and it does not always have a majority

interest. Although the terms of its investments vary, the successful operation of any joint ventures

and minority investments entered into will be dependent on maintaining good relationships with the

relevant joint venture partners and other investors, who may have interests different to Batelco’s. If

Batelco is unable to maintain good relationships or resolve conflicts with the other joint venture

parties and investors, Batelco’s business, financial condition, results of operations and prospects may

be materially and adversely affected.

Batelco’s ability to withdraw funds, including dividends, from its participation in, and to exercise

management control over associates and joint ventures depends, in some cases, on the consent of its

other partners in these entities. Further, failure to resolve any disputes with its partners in certain of

Batelco’s operating subsidiaries, associates and joint ventures could restrict payments made by these

operating entities to Batelco and have a material adverse effect on Batelco’s business, financial

condition, results of operations and prospects.

Batelco enters into management agreements with its subsidiaries, associates and joint ventures, and

collects annual fees for the services it provides under those agreements. In addition, agreements

10


governing these management arrangements contain, in some cases, change of control and similar

provisions which if triggered could give other participants in these investments the ability to purchase

Batelco’s interests or enact other penalties.

Any failure of Batelco to achieve or maintain positive working relationships with its business partners

could have a material adverse affect on its business, financial condition, results of operations andprospects.

Batelco’s ability to dispose of investments in certain subsidiaries and joint ventures may be constrained

Batelco’s investments in certain subsidiaries and joint ventures are subject to pre-emption rights that

give Batelco’s investment partners a first option to acquire any shares in any such company thatbecomes available either on a resale or new issue, and also to any changes in applicable laws that

impact such pre-emption rights.

Should Batelco wish to dispose of its shares in any such company, such pre-emption rights may

restrict a commercial tendering process for these shares and, therefore, reduce the maximum value

realisable upon a disposal. In addition, the agreements governing the rights and obligations of the

other shareholders may require the shares to be sold at a pre-determined price or at a price

determined pursuant to a specified formula. Such price could be materially lower than the price that

could be obtained through a third-party tendering process. Moreover, Batelco’s ability to dispose of

interests in certain subsidiaries and joint ventures may be constrained by regulatory or political

factors in a particular jurisdiction and Batelco may make decisions with regard to any such disposalbased on political and commercial considerations rather than by reference to its legal or contractual

rights. Further, change of control of a subsidiary or a joint venture may require regulatory approval.

Any inability to dispose of an interest in a subsidiary or joint venture at a time, at a price or to a

third party of Batelco’s choosing could have a material adverse effect on Batelco’s business, financial


The Group may not be able to adequately protect its intellectual property, which could harm the value of itsbrand and branded products

The Group depends on its brands and branded products and believes that these brands, particularly

the Batelco brand, are important to its business. The success of the Group’s business depends on its

ability to increase brand awareness and further develop its branded products and services in its

markets. Batelco has registered certain trademarks and may have other trademark registrations

pending from time to time. Batelco has sought to ensure the registration all of the trademarks thatthe Group currently uses in the markets in which they are used, though in many cases Batelco cannot

be certain that these trademarks have not been registered by another party in the past. Batelco may

not be able to adequately protect its trademarks and its use of these trademarks may result in

liability for trademark infringement, trademark dilution or unfair competition.

The Government of Bahrain exerts significant control over Batelco and its interests may conflict with those ofNoteholders and/or of Batelco itself

The Government of Bahrain (the Government) is Batelco’s most significant shareholder, with effective

control over 78 per cent. of Batelco’s share capital as of the date of this Prospectus.

The interests of the Bahrain Government as Batelco’s most significant shareholder and investors in

the Notes may conflict, and there can be no assurance that the resolution of any matter that may

involve the interests of the Bahrain Government will be resolved in what investors would consider to

be their best interests or the best interests of Batelco. See ‘‘Management – The Board of Directors’’.

Batelco’s financial obligations are not guaranteed by the Bahrain Government

Although the Bahrain Government effectively controls a significant percentage of its shares, Batelco is

an independent commercial enterprise and, in the absence of an explicit guarantee from the Bahrain

Government in respect of any of its borrowings, none of its financial obligations (including its

obligations in respect of the Notes) or those of its subsidiaries, affiliates or joint ventures are

guaranteed by the Bahrain Government. Accordingly, Batelco’s financial obligations, including itsobligations under the Notes, are not and should not be regarded as obligations of the Bahrain

Government. Batelco’s ability to meet its financial obligations under the Notes is solely dependent on

Batelco’s ability to fund such amounts from its profits and cash flows, or from other, non-Bahrain

Government, sources of financing. Therefore, any decline in Batelco’s operations, its profits or cash

flows, or any difficulty in securing external funding, may have a material adverse effect on Batelco’s

11


ability to satisfy its payment obligations to Noteholders irrespective of the Bahrain Government’s

ownership and control.

Batelco is involved in disputes, litigation and/or ongoing discussions with regulators, shareholders in itssubsidiaries, affiliates and joint ventures, competitors and other parties, the ultimate outcome of which isuncertain

Batelco is subject to numerous risks relating to legal and regulatory proceedings to which it or its

subsidiaries, associates and joint ventures are currently a party or which could develop in the future.

For a description of current material litigation and disputes, see ‘‘Business Description of the Group –

Litigation’’.

Batelco’s involvement in litigation and regulatory proceedings may adversely affect its reputation and

its financial and credit risk. Furthermore, litigation and regulatory proceedings are unpredictable and

legal or regulatory proceedings in which Batelco is or becomes involved (or settlements thereof) may

have a material adverse effect on its business, financial condition, results of operations and prospects.

The Group may not be successful in renewing the necessary regulatory licences, concessions or other operatingagreements needed to operate its businesses and such licences may be subject to termination, revocation ormaterial alteration

Batelco believes that it and its subsidiaries and associates have all the necessary regulatory licences,

concessions and operating agreements that they needs to operate their present businesses. These

licences take a variety of forms and their terms, rights and obligations vary significantly. Some of

these licences will fall for renewal in the next few years or are of a limited term, and the licensee may

not be successful in obtaining renewed licences to operate. While Batelco and its subsidiaries and

associates actively engage with the applicable governments and other regulatory bodies in advance of

the expiry of their respective licences, concessions and operating agreements, there can be noassurance that when such licences, concessions and operating agreements expire, it will be possible to

renew them on similar or commercially viable terms, or at all. Some of these licences may also

include clauses that allow the grantor to terminate or revoke or alter them in the event of a default,

other failure by the licensee to comply with applicable conditions of the license or to promote public

interest or for any other reason. Further, a number of the Group’s operating licences include change

of control clauses, which may be triggered by the sale of a business to which those clauses relate, or

certain types of corporate restructuring. Some of these changes of control clauses may restrict the

Group’s strategic options. Failure to hold or to continue to hold or obtain the necessary licences,concessions and other operating agreements required to operate the Group’s businesses could have a

material adverse effect on its business, financial condition, results of operations and prospects.

The Group may not be successful in acquiring future spectrum or other licences that it needs to offer newmobile data or other services in the markets in which it operates or seeks to operate

The Group currently offers mobile data services through GSM and UMTS licences in a number of

markets. While these licences enable the Group to offer mobile data services today, as new

regulations are introduced, as technology develops and as customer needs change, it may be necessary

to acquire new spectrum licences in the future to provide the Group with additional capacity and/or

offer new technologies or services. While Batelco and its subsidiaries and associates actively engagewith the applicable regulators and governments to ensure that their respective spectrum needs are

met, there can be no guarantee that future spectrum licences will be made available in certain or all

territories or that they will be made available on commercially viable terms. Failure to acquire

necessary new spectrum licences or other required licences for new services or products, or to do so

on commercially viable terms, could have a material adverse effect on Batelco’s business, financial


The insolvency or deterioration in the financial position of the Group’s business counterparties may have amaterial adverse effect on Batelco

In the ordinary course of business, the Group has contractual relationships with various financialinstitutions to manage its currency and interest rate risks, to process payments, to borrow money and

to use other banking services. The inter-relationship among financial institutions has increased

significantly as a result of trading, clearing, counterparty and other relationships. Were any of the

Group’s financial institution counterparties to suffer liquidity or other constraints on lending, Batelco

could be materially adversely affected.

12


Similarly, trading counterparties and customers may default on their obligations to the Group due to

bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or

other reasons, which could also have a material adverse effect on Batelco’s business, financial


A downgrade in Batelco’s credit ratings could adversely affect Batelco’s ability to access the debt capitalmarkets and may increase its borrowing costs

Batelco’s credit ratings, which are intended to measure its ability to meet its debt obligations as they

mature, are an important factor in determining Batelco’s cost of borrowings. The interest rates of

Batelco’s borrowings are partly dependent on its credit ratings. As of the date of this Prospectus,

Batelco’s long-term corporate ratings were assessed ‘BBB-’ (stable) by Fitch and ‘BBB-’ (stable) by

Standard & Poor’s. There can be no assurance that any of Batelco’s ratings will remain the same in

the future.

A downgrade of Batelco’s credit ratings (or announcement of a change of outlook) may increase its

cost of borrowing and may also limit its or its subsidiaries’ or associates’ ability to raise capital.

Moreover, actual or anticipated changes in Batelco’s credit ratings or the credit ratings of the Notes

generally may affect the market value of the Notes. In addition, ratings assigned to the Notes maynot reflect the potential impact of all risks related to the transaction, the market or any additional

factors discussed in this Prospectus and other factors may affect the value of the Notes. A securities

rating is not a recommendation to buy, sell or hold securities. Ratings may be subject to revision or

withdrawal at any time by the assigning rating organisation and each rating should be evaluated

independently of any other rating.

Batelco may be adversely affected by changes to tax legislation or its interpretation or increases in effectivetax rates in the jurisdictions in which Batelco operates

Batelco operates in many countries, some of which have complex tax regimes. Due to the nature of

Batelco’s operations its tax affairs are complex. Batelco’s subsidiaries are subject to routine tax audits

by the respective local tax authorities. On-going and future tax audits may result in additional taxand interest payments which would negatively affect Batelco’s financial condition and results of

operations. Changes in fiscal regulations or the interpretation of tax laws by the courts or the tax

authorities in jurisdictions in which Batelco operates may also have negative consequences.

Batelco’s effective tax rate in any given financial year reflects a variety of factors that may not be

present in the succeeding financial year or years. Batelco’s effective tax rate may be affected by

changes in tax laws or interpretations of tax laws in any given jurisdiction, including those tax laws

relating to the utilisation of capital allowances, net operating losses and tax credit carry forwards,

changes in geographical split of income and expense, and changes in management’s assessment of

matters, such as the ability to realise deferred tax assets. As a result, Batelco’s effective tax rate may

increase in future periods, which could have a material adverse effect on Batelco’s financial results.

Specifically, Batelco’s net income, cash flow and earnings may decrease.

In addition, some of the territories in which Batelco operates offer low or favourable taxation

environments, attracting large companies, several of which are also Batelco’s customers. Changes to

those tax regimes could result in customers moving their operations, resulting in the loss of those

customers, which could have a material adverse effect on Batelco’s business, financial condition,results of operations and prospects.

The Group’s network and/or information technology (IT) systems may be subject to interruptions or otherfailures

The Group’s networks are a critical asset in providing The Group’s customers with efficient and

extensive telecommunications services. The Group relies on its IT systems for operation and

management of its business, including its networks, the provision of services to its customers,

customer billing and the provision of information regarding most aspects of its financial and

operational performance. Like other telecommunications operators, the Group’s network and/or IT

systems are vulnerable to interruption and damage from security breaches, software malfunction,terrorist action, power outages, human error or other factors outside Batelco’s control. The Group’s

network and/or IT systems are also vulnerable to interruption as a result of equipment failures,

particularly for ageing equipment. Moreover, new technologies or different ways of using existing

technologies may place undue stress on the capacity of existing networks. For example, smartphone

and broadband usages such as TV viewing, may result in saturation of existing networks.

13


The Group’s networks and operations are also subject to interruption by natural disasters, including,

but not limited to, hurricanes, fire, floods and earthquakes, malicious acts and other events beyond

Batelco’s control. As the Group operates in certain jurisdictions in which existing infrastructure and

telecommunications equipment (such as cables) may not be able to withstand a major natural disasterand/or in which emergency response time may be significant, prolonged recovery time could be

required to resume operations.

The Group has in place business continuity and disaster recovery plans, including contingency

equipment and suppliers, network monitoring and resilience plans. However, there can be no certainty

that such plans and systems will be effective in the event that they need to be activated. The failure

or interruption of all or part of the Group’s network and/or IT systems would restrict the Group’s

ability to continue to operate at its current performance levels and may result in both the loss of

customers and potential exposure to claims from customers based on loss of service, as well as

reputational harm, penalties and costly repairs. Should Batelco experience problems with the

integration of its network and IT systems as a consequence of the merger of certain inter-groupbusinesses and/or the acquisition of new companies within its group, and/or the integrity of its data

and the adequacy of some or all of the associated systems and processes, it could have an impact on

Batelco’s transformation initiatives and its ability to provide services and conduct its operations. Any

insurance maintained to protect against certain of these risks may not be adequate to cover suffered

losses, including lost sales or increased expenses.

The consequences of any of the foregoing could have a material adverse effect on Batelco’s business,

financial condition, results of operations and prospects. Any insurance maintained to protect against

certain of these risks may not be adequate to cover losses suffered, including lost sales or increased

expenses.

If the Group fails to attract and retain qualified and experienced employees, its business may be harmed

If the Group is unable to attract and retain experienced, capable and reliable personnel, especiallysenior and middle management with appropriate professional qualifications, across the businesses and

jurisdictions in which it operates, or if the Group fails to recruit skilled professional and technical

staff at a pace consistent with its growth, its business, financial condition, results of operations and

prospects may be materially adversely affected. Experienced and capable personnel in the

telecommunications industry remain in high demand and there is continuous competition for their

talents. The Group may not be able to successfully recruit, train or retain the necessary qualified

personnel in the future. The loss of some members of Batelco’s senior management team or any

significant number of its mid-level managers and skilled professionals, or their counterparts withinBatelco’s subsidiaries and associates, may result in a loss of organisational focus, poor execution of

operations and corporate strategy or an inability to identify and execute potential strategic initiatives

such as expansion of capacity or acquisitions and investments. These adverse consequences could,

individually or in the aggregate, have a material adverse effect on Batelco’s business, financial


U.S. persons investing in Notes may have indirect contact with countries sanctioned by the Office of ForeignAssets Control of the U.S. Department of Treasury as a result of Batelco’s activities in and business withcountries on the sanctions list

The Office of Foreign Assets Control of the U.S. Department of Treasury (OFAC) administersregulations that restrict the ability of U.S. persons to invest in, or otherwise engage in business with,

certain countries and specially designated nationals (together Sanction Targets). As neither Batelco nor

any member of the Group is itself a Sanction Target, OFAC regulations do not prohibit U.S. persons

from investing in, or otherwise engaging in business with the Group. However, Batelco operates

roaming and interconnect services with Sanction Targets in Iran, Syria, Sudan and Cuba. To the

extent that Batelco or any of its subsidiaries or joint ventures invests in, or otherwise engages in

business with, Sanction Targets, U.S. persons investing in Batelco may incur the risk of indirect

contact with Sanction Targets and to the extent that Batelco or any of its subsidiaries or jointventures substantially increases its investments in or business with Sanction Targets, U.S. persons

investing in Notes issued by Batelco may increase their risk of indirect contact with Sanction Targets

and possible violations of OFAC sanctions.

14


Industrial action or adverse labour relations could disrupt the Group’s business operations and have an adverseeffect on operating results

The Group’s operations may in the future be subject to industrial action including strikes and lockouts. The Group’s operations may also in the future be subject to collective bargaining, union or

similar labour agreements In addition, the Group’s employees also benefit from local laws regarding

employee rights and benefits. If Batelco is unable to negotiate acceptable labour agreements or

maintain satisfactory employee relations, the results could include work stoppages, strikes or other

industrial action or labour difficulties (including higher labour costs) at its facilities, which

individually or in the aggregate could have a material adverse effect on Batelco’s business, financial


Batelco is exposed to currency exchange and fluctuation risk

Batelco’s business is conducted in a number of jurisdictions and in a number of foreign currencies,

some of which have been and may continue to be volatile or subject to devaluation, resulting from,

among other things, inflationary pressure. Fluctuations in exchange rates between Batelco’s reporting

currency, the Bahraini Dinar, and these other currencies could result in the Bahraini Dinar equivalentof Batelco’s foreign operating costs being higher and/or the Bahraini Dinar equivalent of Batelco’s

foreign revenue being lower than would be the case if exchange rates were stable. It is also possible

that currencies in which Batelco’s businesses operate which are currently pegged to the US dollar

(which includes the Bahraini Dinar) might be reset or floated, leading to volatility and/or devaluation.

Major devaluation or depreciation of any currencies in which Batelco conducts its business may also

result in disruption of the international foreign exchange markets and may limit Batelco’s ability to

transfer or to convert such currencies into Bahraini Dinars, US dollars and other currencies for the

purpose of making timely payments of interest and principal on Batelco’s indebtedness. Further,fluctuations in exchange rates could also significantly impact the comparability of Batelco’s operating

results between financial periods. Batelco manages and will continue to manage its exposure to

movements in exchange rates through hedging and other activities. However, if Batelco is unsuccessful

in adequately managing such exposure, it could have a material adverse effect on Batelco’s business,

financial condition, results of operations and prospects. In addition, following completion of the M&I

Transaction Batelco may have increased exposure to these risks on account of the additional foreign

currencies in which certain of the M&I Target Companies conduct their business.

Batelco’s business may be adversely affected if the Bahraini Dinar/U.S. dollar peg were to be removed oradjusted

Batelco maintains its accounts, and reports its results, in Bahraini Dinar. Currently, the Bahraini

Dinar remains pegged to the U.S. dollar. However, there can be no assurance that the Bahraini

Dinar will not be de-pegged in the future or that the existing peg will not be adjusted in a mannerthat negatively impacts the valuation of Batelco’s international investments. Any such de-pegging or

adjustment could have a material adverse effect on Batelco’s business, financial condition, results of


Fluctuations in interest rates could increase debt service costs to Batelco and its subsidiaries, associates andjoint ventures

Interest rates are highly sensitive to many factors beyond Batelco’s control, including the interest rate,

exchange rate and other monetary policies of governments and central banks in the jurisdictions in

which Batelco operates. The floating rate portion of Batelco’s loans and borrowings is subject to

interest rate risk resulting from fluctuations in the relevant reference rates underlying such debt.

Consequently, because Batelco’s debt is subject to floating interest rates, any increase in such

reference rates will result in an increase in Batelco’s interest rate expense and may have a material

adverse effect on Batelco’s business, financial condition, results of operations and prospects. Any

future unhedged interest rate risk may result in an increase in Batelco’s interest expense and mayhave a material adverse effect on Batelco’s business, financial condition, results of operations and

prospects.

Risks relating to Batelco’s third party indebtedness

As at 31 December 2012, Batelco had U.S.$49.1 million in outstanding indebtedness and had an

additional U.S.$749 million under its financing agreements available for drawdown. Batelco incurred

financing costs of U.S.$1.7 million in the year ended 31 December 2012.

15


Batelco’s third party indebtedness is subject to floating interest rates. Although Batelco may convert

its floating rate indebtedness into fixed rates using interest rate swaps when it believes it appropriate

and prudent to do so, it does not convert all of its floating rate indebtedness into fixed rates and

cannot be certain what the interest rates on its remaining floating rate indebtedness will be in thefuture. A breach of the terms of any indebtedness, including financial covenants, could cause

Batelco’s lenders to require Batelco to repay the financing immediately. Additionally, if Batelco’s

operating cash flows are not sufficient to meet its operating expenses and its own debt service

obligations or those of its subsidiaries, Batelco may be forced to do one or more of the following:

* delay or reduce capital expenditure;

* sell certain of its assets;

* forego business opportunities, including acquisitions and joint ventures; or

* repay its debt early due to the acceleration of such debt by the respective lenders.

In addition, the debt covenants in Batelco’s financing agreements could limit Batelco’s flexibility in

planning for, and reacting to, competitive pressures and changes in its business, industry and generaleconomic conditions and limit its ability to make strategic acquisitions and to take advantage of

business opportunities.

Batelco’s indebtedness includes indebtedness that will become payable in the short term including

trade payable balances and short term borrowings. There can be no assurance that Batelco’s business

will generate sufficient cash flows from operations or that future borrowings will be available in an

amount sufficient to enable Batelco to repay or service its indebtedness or to fund its liquidity needs.

If Batelco is unable to meet its debt service obligations, it may attempt to restructure or refinance

existing debt or seek additional funding. However, Batelco may not be able to do so on satisfactory

terms, if at all. Failure to do so could have a material adverse effect on its business, financial


Risks relating to the M&I Transaction

Batelco must obtain governmental and regulatory consents to complete the remainder of the M&I Transaction(being the Seychelles Acquisition and the Monaco Option), which, if delayed, not granted, or granted withonerous conditions, may jeopardise or delay such elements of the M&I Transaction, result in additionalexpenditures of money and resources and/or reduce the anticipated benefits of the M&I Transaction

Completion of the remainder of the M&I Transaction (being the Seychelles Acquisition and the

Monaco Option) is conditional on, amongst other things, the fulfilment of certain conditions

precedent including the receipt of governmental and regulatory clearances from authorities withjurisdiction over the operations of the Seychelles Companies and the CMC Companies. The

authorities from which Batelco is seeking these clearances have discretion in administering the

governing regulations. As a condition to their clearance of the remainder of the M&I Transaction,

authorities may impose requirements, limitations or costs or require divestitures or place restrictions

on the conduct of the business of the Enlarged Group. These requirements, limitations, costs,

divestitures or restrictions could jeopardise or delay the consummation of the remainder of the M&I

Transaction or may reduce the anticipated benefits of the acquisition of the M&I Target Companies

to the Enlarged Group. Further, no assurance can be given that the required clearances will beobtained or that the required conditions to the remainder of the M&I Transaction will be satisfied,

and, if all of the clearances are obtained and the conditions to the consummation of the remainder of

the M&I Transaction are satisfied, no assurance can be given as to the terms, conditions and timing

of the clearances. If Batelco agrees to any material requirements, limitations, costs, divestitures or

restrictions in order to obtain any clearances required to consummate the remainder of the M&I

Transaction, these requirements, limitations, additional costs or restrictions could adversely affect the

ability of Batelco and the M&I Target Companies to integrate their operations or reduce the

anticipated benefits of the proposed acquisition of the M&I Target Companies to the EnlargedGroup. This could result in a delay in completion of, or a decision not to complete, the remainder of

the M&I Transaction or have a material adverse effect on the business, financial condition, results of

operations and prospects of the Enlarged Group following completion.

The success of the M&I Transaction will be dependent upon Batelco’s ability to integrate the M&I TargetCompanies and to retain and attract key employees and management

The success of the M&I Transaction and the actual earnings of the Enlarged Group will be

dependent upon Batelco’s ability to integrate the M&I Target Companies without disruption to

16


Batelco’s and the M&I Target Companies’ existing businesses. In particular, the success of the M&I

Transaction will be dependent upon Batelco’s ability to integrate the operating systems and practices

currently applied by the M&I Target Companies in the conduct of their businesses in to its own

systems and practices. Such systems and practices of the M&I Target Companies could potentiallydiffer substantially from those of Batelco or the Enlarged Group, particularly as a result of the

different geographical locations of the respective businesses and the different legal and regulatory

frameworks that apply as a result.

The integration of the M&I Target Companies may involve particular challenges and will require

management attention that would otherwise be devoted to running the business. Batelco can offer no

assurance that the Enlarged Group will realise the potential benefits of the M&I Transaction to the

extent and within the timeframe contemplated. If Batelco is unable to integrate successfully the M&I

Target Companies, this could have a negative impact on the revenue, profit and financial condition of

the Enlarged Group.

In addition, the recruitment and retention of highly skilled management and employees will be

important to the successful integration of the M&I Target Companies. The number of suitable

employees at higher levels may be limited, especially in certain geographic locations, and key

employees may be difficult to replace. There can be no certainty that Batelco’s succession planning,retention policies and incentive plans will be successful in attracting and retaining the right calibre of

key employees and management. The failure to retain and attract key employees and management

could have a material adverse effect on the Enlarged Group’s business, financial condition, results of

operation and prospects.

The M&I Target Companies may not perform in line with expectations

If the financial results and cash flows generated by the M&I Target Companies are not in line with

Batelco’s expectations, a write-down may be required against the carrying value of Batelco’s

investment in the M&I Target Companies. Such a write-down may affect the Enlarged Group’s

business and may also reduce Batelco’s ability to generate distributable reserves to the extent of the

write-down and consequently affect Batelco’s ability to pay dividends. The failure of the M&I Target

Companies to perform in line with Batelco’s expectations could also have a material adverse effect onthe Enlarged Group’s business, financial condition, results of operation and prospects.

The M&I Target Companies are subject to similar operating risks to those applicable to Batelco

Given the similarities of their respective businesses the M&I Target Companies are subject to all or

most of the risk factors applicable to Batelco’s group as set out above.

Risks relating to the Telecommunications Industry

Concerns about perceived or actual health risks related to mobile communications devices and facilities couldhave an adverse effect on Batelco’s business

The Group provides mobile services across many of the markets in which it operates and Batelco also

provides national and international network capacity to mobile services operators. Research and

studies into the health risks posed by mobile telephone handsets and transmission facilities are

continuing. For example, in May 2011, the International Agency for Research on Cancer, which is

part of the World Health Organization, classified the radiation emitted by mobile telephone handsets

as ‘‘possibly carcinogenic’’. The World Health Organization is expected to release its Environmental

Health Criteria on Radio Frequency Fields, containing new recommendations on radio frequency

emissions in 2013.

Batelco reviews scientific and medical research and studies, media, legal, regulatory and other

developments, as well as the public perception of risk arising from the use of mobile telephonehandsets and the location of transmission facilities.

New research and/or increased speculation regarding health risks associated with mobile telephone

handsets and transmission facilities or any subsequent substantiation of such risks could have anadverse impact on the Group’s customer numbers or customers’ usage of mobile devices or could

expose the Group to litigation, regulatory intervention and/or new legislation, as it would for other

industry participants. Perceived risk of the transmission facilities also may hinder the deployment of

the infrastructure necessary to ensure quality of service, all of which could have a material adverse

effect on Batelco’s business, financial condition, results of operations and prospects.

17


Because the Group operates in heavily regulated business environments, the implementation of existing laws byregulators and government authorities as well as changes in laws, regulations or governmental policy affectingits business activities could adversely affect Batelco’s business, financial condition, results of operations andprospects

The Group has ventures in a large number of jurisdictions and therefore must comply with an

extensive range of laws and regulations pertaining to the licensing, construction and operation of

telecommunications networks and services, as implemented by relevant agencies or other regulatory

bodies. In particular, in Bahrain, the Telecommunications Regulatory Authority (TRA) has significant

power and latitude to regulate all aspects of Batelco’s business, from pricing and competition to

network infrastructure.

In many of the countries in which the Group operates, local regulators have significant latitude in the

administration and interpretation of telecommunications licences and laws, rules and regulations. In

connection with the trend toward liberalisation of telecommunications services in most of the marketsin which the Group operates, regulators have sought, and may continue to seek, to regulate the

market in such a way that the Group is required to permit its competitors to use its networks instead

of building their own and/or to increase competition generally. For example, local loop unbundling,

asymmetric termination rates, roaming regulation, price regulation, interconnection arrangements and

provision of open access to mobile virtual network operators may be used to regulate the markets in

which the Group operates. In addition, the actions taken by regulators in the administration and

interpretation of licences and laws, rules and regulations may be influenced by local political and

economic pressures. The Group is required to comply with certain regulatory measures appearing onregulators’ annual work plans from time to time or otherwise. Also typically, telecommunications

licences, including Batelco’s licences, contain extensive obligations with which the licencee is required

to comply. These obligations may include network build-out requirements, restrictions on rates,

capital investment requirements, minimum quality standards, service and coverage conditions.

These licences also typically include provisions for the termination of the licences in specific

circumstances, such as, for example, the non-compliance with licence conditions or for general public

interest reasons. Licenses could possibly be revoked or amended for other reasons, such as changes in

regulation, laws, government policy and/or the economic or political environment. Decisions by

regulators regarding the grant, amendment or renewal of licences, to members of the Group or to

third parties, or regarding laws, rules, and regulations, could materially and adversely affect theGroup’s operations in these geographic areas. Batelco cannot provide any assurance that governments

or regulatory bodies in the countries in which it operates will not issue telecommunications licences to

new operators whose services will compete with those services provided by Batelco.

In addition, other changes in the regulatory environment concerning the use of mobile phones may

lead to a reduction in the usage of mobile phones or otherwise adversely affect the Group. Decisions

by regulators and new legislation, including in relation to retail, wholesale and interconnect price

regulation, could adversely affect the pricing of, or adversely affect the revenue from, the services the

Group offers. Decisions by regulators may include limiting the relevant operator’s pricing flexibility,

raising its costs, reducing its retail or wholesale revenues or conferring greater pricing flexibility on

competitors.

Future changes to regulation or changes in political administrations or a significant deterioration inthe Group’s relationship with relevant regulators in the jurisdictions in which it operates, as well as

failure to acquire and retain the necessary consents and approvals or in any other way to comply

with regulatory requirements, or excessive costs of complying with new or more onerous regulations

and restrictions could have a material adverse effect on Batelco’s business, financial condition, results

of operations and prospects.

Developments in the telecommunications sector may result in substantial write-downs of the carrying value ofcertain assets

Batelco regularly reviews the value of each of its assets and cash generating units to assess whethertheir carrying values can be supported by future cash flows expected to be derived from such assets

and cash generating units, including in some case synergies included in their acquisition costs.

Changes in the regulatory, business, economic or political environment may result in the necessity of

recognising impairment charges on Batelco’s goodwill, intangible assets, or fixed assets.

Although the recognition of impairments of tangible, intangible and financial assets results in a non-

cash charge on the income statement, such charge could materially adversely affect Batelco’s results of

operations and, consequently, its ability to achieve growth targets.

18


Telecommunications businesses require substantial capital investment and Batelco may not have sufficientcapital to make, or may be restricted by covenants in its financing agreements from making, future capitalexpenditure and other investments as Batelco deems necessary or desirable

The Group operates in capital-intensive industries that require substantial amounts of capital and

other long-term expenditures, including those relating to the development and acquisition of new

networks and the expansion or improvement of existing networks. In the past, Batelco has financed

these expenditures through a variety of means, including internally generated cash flows, external

borrowings and capital contributions. In the future, Batelco expects to utilise a combination of these

sources to manage its statement of financial position and meet its financing requirements. There can

be no assurance that such sources of capital will be available to Batelco on acceptable terms, if at all.

Batelco’s ability to arrange external financing, and the cost of such financing, depends on numerous

factors, including Batelco’s future financial condition, general economic and capital markets

conditions, interest rates, credit availability from banks or other lenders, investor confidence in

Batelco, applicable provisions of tax and securities laws and political and economic conditions in any

relevant jurisdiction. There can be no assurance that Batelco will be able to arrange any such external

financing on commercially reasonable terms, if at all.

In addition, covenants contained in Batelco’s current or future financing agreements may restrict

Batelco from undertaking capital expenditure in amounts and at times that it deems necessary or

desirable. If Batelco is unable to generate or obtain funds sufficient to make, or is otherwise restricted

from making, necessary or desirable capital expenditure and other investments, it may be unable to

grow its business, which may have a material adverse effect on its business, financial condition, results

of operations and prospects.

Continued cooperation between the Group and its equipment and service providers is important to maintain theGroup’s telecommunications operations

Once a manufacturer of telecommunications equipment has designed and installed its equipment

within a system, the operator of the system will often be reliant on such manufacturer for continued

service and supply. The Group’s ability to maintain and grow its subscriber base depends in part on

its ability to source adequate supplies of network equipment and on its ability to source adequate

supplies of mobile handsets, software and content on a timely basis. Currently, the Group relies on a

number of suppliers for a majority of its telecommunications network infrastructure, handset and

other equipment supplies. Continued cooperation with these equipment and service providers isessential for the Group to maintain its operations.

The Group does not have direct operational or financial control over its key suppliers and has limited

influence with respect to the manner in which its key suppliers conduct their businesses. Batelco’s

subsidiaries’ and associates’ reliance on these suppliers subjects them and Batelco to risks resulting

from any delays in the delivery of services. Batelco cannot assure investors that its suppliers will

continue to provide equipment and services to its subsidiaries and associates at attractive prices or

that Batelco will be able to obtain such equipment and services in the future from these or otherproviders on the scale and within the time frames required, if at all. The inability or unwillingness of

key suppliers to provide Batelco’s operations with adequate equipment and supplies on a timely basis

and at attractive prices could materially and adversely impact these operations’ ability to retain and

attract subscribers or offer attractive product offerings, either of which could materially and

negatively impact Batelco’s business, financial condition, results of operations and prospects.

In addition, to the extent that Batelco or any of its subsidiaries or associates has minimum ordercommitments, it would be adversely affected in the event that it were unable to resell committed

products or otherwise declined to accept committed products, and in the case of one supply

agreement, such effect could be material. In the event that third parties fail to deliver contracted

activities and services and the Group’s service to its customers is interrupted, this could have a

material adverse effect on Batelco’s business, financial condition, results of operations and prospects.

Batelco, or its subsidiaries or associates, also may not be able to recover monies paid to such third

parties for their services or obtain contractual damages to which it may be entitled (if any) in such an

event.

Third parties may gain access to Batelco’s network and/or sensitive data unlawfully

The Group is dependent on third-party suppliers for equipment, network infrastructure, components

and services. For example, third-party suppliers carry sensitive data across networks globally on

behalf of a number of Batelco’s customers. Despite security management across Batelco’s networks,

19


there is a risk that third parties may gain access unlawfully to the networks and/or highly sensitive

data. Should steps that Batelco takes to prevent occurrences of this unlawful conduct be unsuccessful,

Batelco could become subject to regulatory actions, or its customers could seek to claim

compensation for breach of Batelco’s contractual obligations or, in severe cases, terminate theircontracts with Batelco. Each of these matters could have a material adverse effect on Batelco’s

business, financial condition, results of operations and prospects.

The Group relies on third-party standards and protocols

The Group is reliant on third-party standards and protocols in delivering communication services.

The operation of the Group’s business depends on the efficient and uninterrupted operation of

communication networks. Batelco’s mobile networks are predominantly based on GSM standards

managed by the GSM Association and 3GPP standards managed by The 3rd Generation Partnership

Project, and its IP networks are based on standards from the Internet Engineering Task Force. These

standards could be compromised due to various factors, including but not limited to, power loss,

telecommunications failures, attacks, data corruption, security breaches, software malfunction, naturaldisasters or other acts not in Batelco’s control. If any of these standards were to be compromised, or

in the case of GSM, the encryption code breached, customers could lose faith in the integrity of the

affected mobile networks. Any compromise in third party standards and protocols or customers

moving to providers with alternative delivery methods could have a material adverse effect on

Batelco’s business, financial condition, results of operations and prospects of the affected

telecommunications companies, including Batelco.

The Group is exposed to the risks of internal fraud or illegal activities by third parties

As a telecommunications operator, the Group faces the risk of damage, theft, malicious acts to

property and/or persons or loss due to third parties or its employees, contractors or related parties

utilising its communications networks for illegal activities. For example, hackers could use Batelco’s

broadband services to hack into websites and Internet accounts, or broadband users could downloadmusic content illegally. Although as an internet service provider Batelco has limited liability for

making the content available to the public, Batelco may still be required by applicable laws to block

access to content protected by copyright or similar laws and may be held liable for failure to do so.

Information security countermeasures for smartphones, cloud services and other new information

communication technology are becoming an increasing concern, particularly with respect to

unauthorised access and virus infections. Batelco may be held liable for the loss, release or

inappropriate modification of data of its customers or the wider general public that are stored on

Batelco’s servers or carried by its networks. Any such fraudulent or illegal activities could have amaterial adverse effect on Batelco’s business, financial condition, results of operations and prospects.

Risks relating to the region in which the Group operates

Investing in securities involving emerging markets generally involves a higher degree of risk

Investing in securities involving emerging markets such as Bahrain and the other markets in which the

Group operates generally involves a higher degree of risk than investments in securities of issuers

from more developed countries. These higher risks include, but are not limited to, higher volatility,

limited liquidity and changes in the legal, economic and political environment.

Specific emerging markets country risks that may have a material adverse effect on Batelco’s business,

financial condition, results of operations and prospects include, amongst other things:

* political instability, riots, insurrection or other forms of civil disturbance or violence;

* war, terrorism, invasion, rebellion, malicious acts or revolution;

* government interventions, including expropriation or nationalisation of assets, increased

protectionism and the introduction of tariffs or subsidies;

* changing fiscal, regulatory and tax regimes;

* arbitrary or inconsistent government action, including capricious application of tax laws and

selective tax audits;

* difficulties and delays in obtaining requisite governmental licences, permits or approvals;

* cancellation, nullification or unenforceability of contractual rights; and

* underdeveloped industrial and economic infrastructure.

20


Changes in investment policies or shifts in the prevailing political or economic climate in any of the

countries in which the Group operates or seeks to operate, could result in the introduction of

increased government regulations with respect to, among other things:

* price controls;

* export and import controls;

* income and other taxes;

* environmental legislation;

* customs and immigration;

* foreign ownership restrictions;

* foreign exchange, currency and capital controls; and

* labour and welfare benefit policies.

In any event, there can be no assurance that the market for securities bearing emerging market risk,

such as the Notes, will not be affected negatively by events elsewhere, especially in emerging markets.

Generally, investment in emerging markets is only suitable for sophisticated investors who fullyappreciate the significance of the risk involved.

The Group operates in a region that has been subject to on-going political and security concerns

Bahrain

Since 14 February 2011, protests and demonstrations have been held in Bahrain, protesting against

the Bahrain Government and the constitutional reforms which were implemented in 2002. For further

information, see ‘‘Overview of the Kingdom of Bahrain’’.

Although there has continued to be sporadic unrest in 2012, the level of unrest has continued to

decline. However, there can be no assurance there will not be further protests and domestic unrest in

the future. Political instability in Bahrain and in the region may have a material adverse effect on

Bahrain’s economy and may adversely affect Batelco’s business, financial condition and prospectus

and the trading price of the Notes.

MENA region

The MENA, the Asian Subcontinent and Asia Pacific regions have all experienced varying degrees of

political instability over the past fifty years. Future armed conflicts or political instability in those

regions or other regions in which Batelco operates could impact Batelco’s business and financialcondition. The wider MENA region in particular 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, Kuwait, Lebanon, Yemen and Syria have witnessed

serious unrest, in some instances leading to civil war, foreign military intervention and a change of

government.

As at the date of this Prospectus, civil war is ongoing in Syria, giving rise to a risk of contagion,

given historic social and political connections between Syria and its neighbours. The Syrian

government has recently been subjected to heightened international diplomatic pressure in relation to

its conduct during the civil war. The situation in Syria is fluid and the potential exists for it to

deteriorate.

There is also a heightened risk of foreign military action against Iran. 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 whichthe 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. Furthermore, following

the overthrow of the former Iraqi regime in 2003, Iraq was, and continues to be, subject to serious

political and security concerns.

Regional risks could also affect investor sentiment in the MENA region as a whole and potentially

have a material and adverse effect on Batelco’s business, financial condition, results of operations and

prospects.

As the political, economic and social environments in the region in which the Group operates remains

subject to continuing development, investments in such countries are characterised by a significant

21


degree of uncertainty. Any unexpected changes in the political, social, economic or other conditions in

countries within the Middle East region could have a material adverse effect on the investments that

Batelco has made or may make in the future, which in turn could have a material adverse effect on


The Group may be adversely affected by local, national and global economic conditions

The Group operates in a number of different countries and territories with developing economies,

many of which do not have firmly established legal and regulatory systems and some of which fromtime to time have experienced economic, social or political instability. The governments in these

countries and territories differ widely with respect to political structure, constitution, economic

philosophy, stability and level of regulation.

Some such countries are also in the process of transitioning to a market economy and, as a result,

are experiencing changes in their economies and their government policies that can affect Batelco’s

investments in these countries. Governments in these jurisdictions and countries, as well as in more

developed jurisdictions and countries, may be influenced by political or commercial considerations

outside of Batelco’s control, and may act arbitrarily, selectively or unlawfully, including in a manner

that benefits Batelco’s competitors. In addition, the Group may from time to time enter into business

relationships with persons subject to European, United States or other international sanctions. By

doing so, Batelco could experience adverse publicity, which may in turn result in reputational harm incertain jurisdictions.

The Group’s business is affected by general economic conditions and other related factors in each of

the countries in which it operates, and given the broad interdependence among economies across theworld, economic conditions in each of the countries in which it operates in turn are likely to be

impacted by the broader trends currently affecting the major global economies.

The current uncertainty about economic recovery and the pace of growth may negatively affect thelevel of demand from existing and prospective customers. Additional factors that could influence

customer demand include access to credit, unemployment rates, affordability concerns, consumer

confidence and general macroeconomic factors. These factors drive levels of disposable income, which

in turn affect many of the Group’s revenue streams. Business customers may delay purchasing

decisions, delay full implementation of service offerings or reduce their use of services. Residential

customers may similarly elect to use fewer higher margin services, switch from fixed to mobile services

resulting in the so-called traffic substitution effect, or choose to obtain products and services under

lower-cost programs offered by the Group’s competitors in the various markets in which it operates.In addition, adverse economic conditions may lead to a rise in the number of the Group’s customers

who are not able to pay for its services.

Adverse economic conditions can also have an adverse impact on tourism, which in turn can

adversely impact the Group’s business in two ways. Lower levels of visitors may have a direct impact

on the Group in the form of lower in-bound roaming revenues. In certain tourist destinations, levels

of gross domestic products and levels of foreign investment linked to tourism are closely tied to levels

of tourist arrivals and length of stay. These factors will in turn drive disposable income, with the

corresponding impact on use of the Group’s products and services.

Should current economic conditions continue to deteriorate, there may be volatility in exchange rates,

increases in interest rates or inflation and a further adverse effect on Batelco’s revenue and profits.

Recessionary pressures or country-specific issues could, among other things, affect products and

services, the level of tourism experienced by some countries and the level of local consumer and

business expenditure on telecommunications. In addition, some of the Group’s operations are indeveloping economies, which historically have experienced more volatility in their general economic

conditions.

The impact of poor economic conditions at a local or national level in the countries in which theGroup operates or globally could have a material adverse effect on Batelco’s business, financial


Many of the Group’s operations depend on governmental approval and regulatory decisions.Government regulation or administrative policies may change unexpectedly and negatively affect

Batelco’s interests. For example, there has been a general trend for governments to seek greater access

to telecommunications records and to communications themselves for law enforcement purposes and a

trend in certain countries experiencing civil unrest to restrict access to telecommunications on national

security grounds. For various reasons, governments may seek to increase the regulation of the use of

22


the Internet, particularly with respect to user privacy, content, pricing, distribution, and characteristics

and quality of products and services. Governments may also seek to regulate content of

communications in all of the Group’s revenue streams, which could reduce the attractiveness of its

services. Batelco may make decisions influenced by political and commercial considerations ratherthan fully exploiting its contractual or legal rights or all options available to it. Accordingly, the

Group’s operations may be constrained by the relevant political environment and may be adversely

affected by such constraints, as well as by changes to the political structure or government in any of

the markets in which the Group operates.

In certain countries in which the Group operates, governments may expropriate or nationalise assets

or increase their participation in the economy generally and in telecommunications operations in

particular. In addition, certain countries in which the Group operates or in which it may operate inthe future, face significant challenges relating to the lack, or poor condition, of physical

infrastructure, including transportation, electricity generation and transmission. Such countries may

also be subject to a higher risk of inflationary pressures, which could increase Batelco’s operating

costs and decrease consumer demand and spending power. Each of these factors could, individually

or in aggregate, have a material adverse effect on Batelco’s business, financial condition, results of


Batelco may be exposed to restrictions on the access to foreign currencies and the repatriation of funds

As Batelco generates cash in a number of overseas markets and in a number of currencies, if any

jurisdiction in which the Group now operates, or in the future will operate, imposes restrictions onaccess to foreign currencies or the repatriation of funds, such restrictions could have a material

adverse effect on Batelco’s financial condition and liquidity. Batelco’s ability to repatriate convertible

currencies from any jurisdiction may be limited by the availability of convertible currency in such

jurisdictions. In addition, the repatriation of funds may be limited by general laws of the jurisdictions

in which the Group operates, such as, for example, the restrictions on the declaration of dividends by

a company that does not have sufficient distributable reserves.

The Group operates in locations where there are high security risks, which could result in harm to its employeesand contractors or substantial cost being incurred

Some of Batelco’s subsidiaries and associates operate in high-risk locations, where the country or

location is suffering from political, social or economic instability, or civil unrest. In those locations

where a member of the Group has employees, assets or operations, those subsidiaries may incur

substantial costs to maintain the safety of their personnel and to protect their assets. Despite these

precautions, the safety of the Group’s personnel in these locations may continue to be at risk. In

addition, network maintenance and expansion projects in these areas could be delayed or cancelled

due to the need for heightened security for employees and contractors operating in these areas.

Statistical information

Certain statistical information contained in this Prospectus has been produced by the Ministry of

Finance, the CBB, the Central Informatics Organisation and certain other named sources. Such

statistical information may differ from statistics produced by similar sources in Western Europe and

the United States for a variety of reasons, including the use of different definitions and different cut-

off times. None of the Issuer, Batelco or the Joint Lead Managers have separately investigated the

accuracy of such statistical information and no assurance can be given that any such information,

where it differs from that provided by other sources, is more accurate or reliable.

Where specified, certain statistical information has been estimated based on information currently

available and should not be relied upon as definitive or final. Such information may be subject to

future adjustment. In addition, in certain cases, the information is not available for recent periods

and, accordingly, has not been updated. The information for past periods should not be viewed as

indicative of current circumstances or periods not presented.

Risks related to the Notes generally

Set out below is a brief description of certain risks relating to the Notes generally:

Claims of secured creditors will have priority, with respect to their security, over the claims of unsecuredcreditors, such as Noteholders

Claims of the Guarantor’s secured creditors (if any) will have priority, with respect to the assets

securing their debt, over the claims of Noteholders. In the event that the Guarantor has secured debt

23


which becomes due or the relevant creditor thereunder institutes proceedings over the assets that

secure the relevant debt, the Guarantor’s assets remaining after repayment of that secured debt, might

not be sufficient to repay all amounts owing in respect of the Notes.

Redemption at the option of the Issuer prior to maturity for taxation reasons, following a Change of ControlEvent and/or following a purchase and cancellation of the Notes by the Issuer or the Guarantor

If, as a result of certain tax changes, the Issuer or the Guarantor would be obliged to increase the

amounts payable in respect of the Notes, in each case, due to any withholding or deduction for, or

on account of, any present or future taxes, duties, assessments or governmental charges of whatevernature imposed or levied by or on behalf of the Cayman Islands or, as the case may be, Bahrain, or

any political subdivision or any authority thereof or therein having power to tax, the Issuer shall be

entitled to redeem all outstanding Notes at their principal amount together with interest accrued up

to the date of redemption, as further described in Condition 8.2.

In addition, the Conditions contain a provision for optional redemption, in whole but not in part, by

the Issuer following the redemption of any Notes upon the occurrence of a Change of Control Event

(as further described in Condition 8.3), provided that no more than 15 per cent. of the principal

amount of the Notes are outstanding immediately following the redemption of Notes after such

Change of Control Event has occurred.

Furthermore, the Conditions contain a provision for optional redemption, in whole but not in part,

by the Issuer upon the purchase and cancellation of any Notes (on one or more occasions and

whether or not any Notes have previously been redeemed pursuant to Condition 8.3) by or on behalf

of the Issuer or the Guarantor (as further described in Conditions 8.6 and 8.7), provided that no

more than 15 per cent. of the principal amount of the Notes are outstanding immediately following

the cancellation of the Notes so purchased.

Depending on prevailing market conditions at the time, an investor receiving the proceeds of an early

redemption of the Notes in any of the circumstances described above may not be able to reinvest

those proceeds in a comparable security at an effective interest rate as high as that carried by the

Notes.

Modification, waivers and substitution

The Conditions of the Notes contain provisions for calling meetings of Noteholders to consider

matters affecting their interests generally. These provisions permit defined majorities to bind all

Noteholders including Noteholders who did not attend and vote at the relevant meeting and

Noteholders who voted in a manner contrary to the majority.

The Conditions of the Notes also provide that the Trustee may, without the consent of Noteholders,

agree to (i) any modification of (subject to certain exceptions), or to the waiver or authorisation of

any breach or proposed breach of, any of the provisions of Notes or the Trust Deed or (ii) determine

without the consent of the Noteholders that any Event of Default or potential Event of Default shall

not be treated as such or (iii) the substitution of the Issuer or any successor company of the Issuer asprincipal debtor under the Notes, in the circumstances described in Condition 15 and Condition 17.

Withholding under the EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income (the EU Savings

Directive), Member States of the European Economic Area (each a Member State) are required to

provide to the tax authorities of another Member State details of payments of interest (or similarincome) paid by a person within its jurisdiction to an individual resident in that other Member State

or to certain limited types of entities established in that other Member State. However, for a

transitional period, Luxembourg and Austria are instead required (unless during that period they elect

otherwise) to operate a withholding system in relation to such payments (the ending of such

transitional period being dependent upon the conclusion of certain other agreements relating to

information exchange with certain other countries). A number of non-EU countries and territories

(including Switzerland) have adopted similar measures (a withholding system in the case of

Switzerland).

The European Commission has proposed certain amendments to the EU Savings Directive, which

may, if implemented, amend or broaden the scope of the requirements described above.

If a payment were to be made or collected through a Member State which has opted for a

withholding system and an amount of, or in respect of, tax were to be withheld from that payment,

neither the Issuer, the Guarantor nor any Paying Agent (as defined in the Conditions of the Notes)

24


nor any other person would be obliged to pay additional amounts with respect to any Note as a

result of the imposition of such withholding tax. The Issuer is required to maintain a Paying Agent in

a Member State that is not obliged to withhold or deduct tax pursuant to the EU Savings Directive.

U.S. Foreign Account Tax Compliance Withholding

Pursuant to the foreign account tax compliance provisions of the Hiring Incentives to Restore

Employment Act of 2010 (FATCA), the Issuer and other non-U.S. financial institutions through

which payments on the Notes are made may be required to withhold U.S. tax at a rate of 30 per

cent. on all, or a portion of, payments made after 31 December 2016 in respect of (i) any Notes

issued or materially modified on or after the later of (a) 1 January 2014, and (b) the date that is six

months after the date on which the final regulations applicable to ‘‘foreign passthru payments’’ arefiled in the Federal Register and (ii) any Notes which are treated as equity for U.S. federal tax

purposes, whenever issued. Under existing guidance, this withholding tax may be triggered on

payments on the Notes if (i) the Issuer is a foreign financial institution (FFI) (as defined in FATCA)

which enters into and complies with an agreement with the U.S. Internal Revenue Service (IRS) to

provide certain information on its account holders (making the Issuer a Participating FFI), (ii) the

Issuer is required to withhold on ‘‘foreign passthru payments’’, and (iii)(a) an investor does not

provide information sufficient for the relevant Participating FFI to determine whether the investor is

subject to withholding under FATCA or (b) any FFI to or through which payment on such Notes ismade is not a Participating FFI or otherwise exempt from FATCA withholding.

The application of FATCA to interest, principal or other amounts paid with respect to the Notes is

not clear. The Cayman Islands Government has committed that the Cayman Islands will enter into aModel 1 intergovernmental agreement (an IGA) with the U.S. The terms of such IGA are yet to be

agreed, but are expected to be broadly similar to those agreed with the UK and Ireland, taking into

account the nature of the Cayman Islands’ financial services. When such IGA is entered into, the

Issuer will not be required to enter an agreement with the IRS, but would instead be required to

register with the IRS to obtain a Global Intermediary Identification Number and then comply with

Cayman Islands legislation that would be implemented to give effect to such IGA. The terms of such

legislation are at this stage still uncertain but, when implemented are expected to require the Issuer to

report to the Cayman Islands Tax Information Authority who will exchange such information withthe IRS under the terms of the IGA. It is also anticipated that, under the terms of the IGA,

withholding will not be imposed on payments made to the Issuer, or on payments made by the Issuer

to an account holder, unless the IRS has specifically listed the Issuer as a non-participating financial

institution, or the Issuer has otherwise assumed responsibility for withholding under U.S. tax law.

If an amount in respect of U.S. withholding tax were to be deducted or withheld from interest,

principal or other payments on the Notes as a result of FATCA, none of the Issuer, the Guarantor,

any paying agent or any other person would, pursuant to the Conditions, be required to pay

additional amounts as a result of the deduction or withholding. As a result, investors may receive less

interest or principal than expected.

FATCA IS PARTICULARLY COMPLEX AND ITS APPLICATION TO THE ISSUER, THE

NOTES AND THE HOLDERS IS UNCERTAIN AT THIS TIME. EACH HOLDER OF NOTES

SHOULD CONSULT ITS OWN TAX ADVISER TO OBTAIN A MORE DETAILED

EXPLANATION OF FATCA AND TO LEARN HOW FATCA MIGHT AFFECT EACH HOLDER

IN ITS PARTICULAR CIRCUMSTANCE.

Change of law

The Conditions of the Notes are based on English law in effect as at the date of this Prospectus. No

assurance can be given as to the impact of any possible judicial decision or change to English law or

administrative practice after the date of this Prospectus, nor can any assurance be given as to whether

any such change could adversely affect the ability of the Issuer to make payments under the Notes

and/or the Guarantor to make payments under the Guarantee.

Change of tax law

Statements in this Prospectus concerning the taxation of investors are of a general nature and are

based upon current law and practice in the jurisdictions stated. Such law and practice is, in principle,

subject to change, possibly with retrospective effect, and this could adversely affect investors.

25


In addition, any change in legislation or in practice in a relevant jurisdiction could adversely impact

(i) the ability of the Issuer and/or the Guarantor to make payments of principal and/or interest on

the Notes and (ii) the market value of the Notes.

Risks related to the market generally

Set out below is a description of the material market risks, including liquidity risk, exchange rate risk,

interest rate risk and credit risk:

An active secondary market in respect of the Notes may never be established or may be illiquid and this wouldadversely affect the value at which an investor could sell its Notes

The Notes may have no established trading market when issued, and one may never develop. If a

market does develop, it may not be very liquid. Therefore, investors may not be able to sell theirNotes easily or at prices that will provide them with a yield comparable to similar investments that

have a developed secondary market.

If an investor holds Notes which are not denominated in the investor’s home currency, it will be exposed tomovements in exchange rates adversely affecting the value of its holding. In addition, the imposition ofexchange controls in relation to the Notes could result in an investor not receiving payments on those Notes

The Issuer will pay principal and interest on the Notes and the Guarantor will make any payments

under the Guarantee in United States dollars. This presents certain risks relating to currency

conversions if an investor’s financial activities are denominated principally in a currency or currency

unit (the Investor’s Currency) other than United States dollars. These include the risk that exchange

rates may significantly change (including changes due to devaluation of the United States dollar or

revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the

Investor’s Currency may impose or modify exchange controls. An appreciation in the value of theInvestor’s Currency relative to the United States dollar would decrease (1) the Investor’s Currency

equivalent yield on the Notes, (2) the Investor’s Currency-equivalent value of the principal payable on

the Notes and (3) the Investor’s Currency-equivalent market value of the Notes.

Government and monetary authorities may impose (as some have done in the past) exchange controls

that could adversely affect an applicable exchange rate or the ability of the Issuer or the Guarantor

to make payments in respect of the Notes or the Guarantee. As a result, investors may receive less

interest or principal than expected, or no interest or principal.

Price volatility

The market price of the Notes may be volatile, which could cause the value of a purchaser’s

investment to decline. Securities markets worldwide experience significant price and volume

fluctuations. This market volatility, and corresponding fluctuations in the prices of the Notes, maynot be correlated in a predictable way to the performance or operating results of the Guarantor.

Events and factors that may cause the prices of the Notes to fluctuate or decrease significantly from

the issue price include variations in market interest rates; general business, political, social and

economic developments, particularly in the Middle East; and variations in actual or anticipated

operating results of the Guarantor.

Credit ratings may not reflect all risks

Standard & Poor’s and Fitch will, on issue, assign credit ratings to the Notes. The ratings may not

reflect the potential impact of all risks related to structure, market, additional factors discussed above,

and other factors that may affect the value of the Notes. A credit rating is not a recommendation to

buy, sell or hold securities and may be revised, suspended or withdrawn by the rating agency at any

time.

Enforcement risk

The terms and conditions of the Notes are governed by English law. Any dispute in relation to the

terms and conditions of the Notes may be referred to arbitration in London, England under the

London Court of International Arbitration Rules. Bahrain has ratified the 1958 New York

Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the party seeking

to enforce the arbitration award must supply:

(a) the duly authenticated original or a duly certified copy of the award; and

(b) the original or a duly certified copy of the arbitration agreement.

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However, the enforcement of the arbitration award may be refused at the request of the party against

whom it is invoked, if that party furnishes to the competent authority, where the recognition and

enforcement is sought, proof that:

(a) the party to the agreement was, under the law applicable to it, under some incapacity, or the

said agreement is not valid under the law to which the parties have submitted or failing any

indication thereon under the laws of Bahrain; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of

the arbitrator or of the arbitration proceedings or was otherwise unable to present his case; or

(c) the award deals with a dispute not contemplated by or not falling within the terms of the

submission to arbitration or it contains decisions on matters beyond the scope of the submissionto arbitration. Provided that the decision on matters submitted to arbitration can be separated

from those not so submitted, only that part of the award which contains decisions on matters

not submitted to arbitration may be set aside; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with

the agreement of the parties, or failing such agreement, was not in accordance with the laws of

the country where the arbitration took place; or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a

competent authority of the country in which, or under the laws of which that award was made.

Recognition and enforcement of an arbitral award may also be refused if the competent authority in

Bahrain finds that:

(a) the subject matter of the dispute is not capable of settlement by arbitration under the laws of

that country; or

(b) the recognition or enforcement of the award would be contrary to the public policy of that

country.

In addition, no document will be admitted in evidence in the Bahrain courts unless they are

submitted in Arabic or accompanied by a duly authenticated Arabic translation approved by the

Official Translator of the Courts of Bahrain, which will be the official text.

Under the terms and conditions of the Notes, any dispute may also be referred to the courts of

England (who shall have exclusive jurisdiction to settle any dispute arising from such documents) if

the parties to the dispute so require.

Notwithstanding that a judgment may be obtained in an English court, there is no assurance that the

Guarantor has or would at the relevant time have assets in the United Kingdom against which such a

judgment could be enforced.

As there has been no reciprocity between England and Bahrain, the courts of Bahrain are unlikely to

enforce an English judgment without requesting that a fresh case is filed in the Bahrain courts which

may lead to the possibility that the Bahrain courts may re-examine the merits of the claim although

the Bahrain Courts may also accept the English court judgment as evidence of a debt. The choice by

the parties of English law as the governing law of the transaction will be recognised by the courts ofBahrain provided that the provisions thereof are (a) proved, as a matter of evidence, by the party

relying on it, and (b) not contrary to Bahraini public order and morality.

Judicial precedents in Bahrain generally do not have binding effect on subsequent decisions except as

a directive for decisions of the Constitutional Court (the Constitutional Court). Although decisions

rendered by the Court of Cassation (Court of Cassation) do not have binding effect on lower courts,

the present practice is for the lower courts to adhere to the precedents and principles laid down by

the Court of Cassation. There is no formal system of reporting court decisions in Bahrain except for

those decisions of the Court of Cassation and the Constitutional Court.

There is limited reciprocity between Bahrain and other countries in relation to the recognition and

enforcement of judgments. Bahrain’s courts may enforce a foreign court judgment without re-

examining the merits of the claim, provided that:

(a) such court enforces judgments and orders rendered in Bahrain;

(b) the courts of Bahrain did not have jurisdiction in the matter in respect of which the order or

judgment has been made and it was made by a foreign court of competent jurisdiction under

the jurisdiction rules or laws applied by such court;

(c) the parties had been served with due notice to attend and had been properly represented;

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(d) the judgment was final in accordance with the law of the court making it; and

(e) the judgment did not conflict with any previous decision of the Bahrain courts and did not

involve any conflict with public order or morality in Bahrain.

Generally where provisions relating to interest payments are provided for in an agreement, the courts

in Bahrain may give effect to such a provision so long as the agreement between the parties which

provides for payment of interest is a commercial agreement relating to commercial activities.

Waiver of immunity

Each of the Issuer and the Guarantor, to the extent permitted by law, have waived their respective

rights in relation to sovereign immunity (including, without limitation, Article 251 of the Law of Civiland Commercial Procedure (Decree Law No. 12/1971 of the laws of Bahrain). However there can be

no assurance as to whether such waivers of immunity from execution or attachment or other legal

process by it under the Notes and the Trust Deed are valid and binding under the laws of Bahrain.

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CONDITIONS OF THE NOTES

The following is the text of the Conditions of the Notes which (subject to modification) will be endorsed

on the Certificates issued in respect of the Notes:

The U.S.$650,000,000 4.250 per cent. Guaranteed Notes due 2020 (the Notes, which expression shall

in these Conditions, unless the context otherwise requires, include any further notes issued pursuant

to Condition 18 and forming a single series with the Notes) of Batelco International Finance No. 1

Limited (the Issuer) are constituted by a Trust Deed dated 2 May 2013 (the Trust Deed) made

between the Issuer, Bahrain Telecommunications Company B.S.C. (the Guarantor) as guarantor and

Citibank, N.A., London Branch (the Trustee, which expression shall include its successor(s)) as trustee

for the Noteholders (as defined below).

The statements in these Conditions include summaries of, and are subject to, the detailed provisions

of and definitions in the Trust Deed. Copies of the Trust Deed and the Agency Agreement dated

2 May 2013 (the Agency Agreement) made between the Issuer, the Guarantor, the Trustee, Citigroup

Global Markets Deutschland AG in its capacity as registrar (the Registrar) and in its capacity as

transfer agent (the Transfer Agent) and the other agents named therein (the Agents) are available for

inspection during normal business hours by the Noteholders at the registered office for the time being

of the Trustee, being at the date of issue of the Notes at Citigroup Centre, Canada Square, Canary

Wharf, London E14 5LB and at the specified office of each of the Agents. The Noteholders areentitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the

Trust Deed and the Agency Agreement applicable to them.

The owners shown in the records of Euroclear Bank S.A./N.V. (Euroclear) and Clearstream Banking,

societe anonyme (Clearstream, Luxembourg) of book-entry interests in the Notes are entitled to the

benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the

Agency Agreement applicable to them.

1. FORM, DENOMINATION AND TITLE

1.1 Form and Denomination

The Notes are issued in registered form in minimum amounts of U.S.$200,000 and integral

multiples of U.S.$1,000 in excess thereof (referred to as the principal amount of a Note). A note

certificate (each, a Certificate) will be issued to each Noteholder in respect of its registered

holding of Notes. Each Certificate will be numbered serially with an identifying number whichwill be recorded on the relevant Certificate and in the register of Noteholders which the Issuer

will procure to be kept by the Registrar.

1.2 Title

Title to the Notes passes only by registration in the register of Noteholders. The holder of any

Note will (except as otherwise required by law) be treated as its absolute owner for all purposes

(whether or not it is overdue and regardless of any notice of ownership, trust or any interest or

any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will

be liable for so treating the holder. In these Conditions, Noteholder and (in relation to a Note)

holder means the person in whose name a Note is registered in the register of Noteholders.

2. TRANSFERS OF NOTES AND ISSUE OF CERTIFICATES

2.1 Transfers

A Note may be transferred by depositing the Certificate issued in respect of that Note, with the

form of transfer on the back duly completed and signed, at the specified office of the Registrar

or any of the Agents.

2.2 Delivery of new Certificates

Each new Certificate to be issued upon transfer of Notes will, within five business days of

receipt by the Registrar or the relevant Agent of the duly completed form of transfer endorsedon the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the

Note to the address specified in the form of transfer. For the purposes of this Condition,

business day shall mean a day on which banks are open for business in the city in which the

specified office of the Agent with whom a Certificate is deposited in connection with a transfer

is located.

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Where some but not all of the Notes in respect of which a Certificate is issued are to be

transferred, a new Certificate in respect of the Notes not so transferred will, within five business

days of receipt by the Registrar or the relevant Agent of the original Certificate (or such longer

period as may be required to comply with any applicable fiscal or other regulations), be mailedby uninsured mail at the risk of the holder of the Notes not so transferred to the address of

such holder appearing on the register of Noteholders or as specified in the form of transfer.

2.3 Formalities free of charge

Registration of transfer of Notes will be effected without charge by or on behalf of the Issuer

or any Agent but upon payment (or the giving of such indemnity as the Issuer or any Agent

may reasonably require) in respect of any tax or other governmental charges which may be

imposed in relation to such transfer.

2.4 Closed Periods

No Noteholder may require the transfer of a Note to be registered during the period of 15

calendar days ending on the due date for any payment of principal or interest on that Note.

2.5 Regulations

All transfers of Notes and entries on the register of Noteholders will be made subject to the

detailed regulations concerning transfer of Notes scheduled to the Trust Deed. The regulations

may be changed by the Issuer with the prior written approval of the Registrar and the Trustee.

A copy of the current regulations will be mailed (free of charge) by the Registrar to anyNoteholder who requests one.

3. STATUS OF THE NOTES

The Notes are direct, unconditional and (subject to the provisions of Condition 5) unsecured

obligations of the Issuer and (subject as provided above) rank and will rank pari passu, without

any preference among themselves, with all other outstanding unsecured and unsubordinated

obligations of the Issuer, present and future, but, in the event of insolvency, only to the extent

permitted by applicable laws relating to creditors’ rights.

4. GUARANTEE

4.1 Guarantee

The payment of principal and interest in respect of the Notes and all other moneys payable by

the Issuer under or pursuant to the Trust Deed has been unconditionally and irrevocably

guaranteed by the Guarantor (the Guarantee) in the Trust Deed.

4.2 Status of the Guarantee

The obligations of the Guarantor under the Guarantee constitute direct, unconditional and

(subject to the provisions of Condition 5) unsecured obligations of the Guarantor and (subject

as provided above) rank and will rank pari passu with all other outstanding unsecured andunsubordinated obligations of the Guarantor, present and future, but, in the event of insolvency,

only to the extent permitted by applicable laws relating to creditors’ rights.

5. NEGATIVE PLEDGE

So long as any of the Notes remains outstanding (as defined in the Trust Deed), neither the

Issuer nor the Guarantor will, and the Guarantor will procure that none of its Principal

Subsidiaries (as defined below) will, create or permit to subsist any mortgage, charge, lien,

pledge or other security interest (including, without limitation, anything analogous to any of theforegoing under the laws of any jurisdiction) (each, a Security Interest), other than a Permitted

Security Interest (as defined below), upon, or with respect to, the whole or any part of its

present or future business, undertaking, assets or revenues (including any uncalled capital) to

secure any Relevant Indebtedness (as defined below), unless at the same time or prior thereto

the Issuer or the Guarantor, as the case may be, takes any and all action necessary to ensure

that:

(a) all amounts payable by it under the Notes and the Trust Deed are secured by the Security

Interest equally and rateably with the Relevant Indebtedness; or

30


(b) such other Security Interest or other arrangement (whether or not it includes the giving of

a Security Interest) is provided either (A) as the Trustee shall in its absolute discretion

deem not materially less beneficial to the interests of the Noteholders or (B) as is approved

by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders.

For the purposes of these Conditions:

Permitted Security Interest means:

(i) any Security Interest existing on 1 May 2013;

(ii) any Security Interest created or outstanding with the approval of an Extraordinary

Resolution of the Noteholders;

(iii) any Security Interest securing Relevant Indebtedness of a person existing at the time that

such person is merged into, or consolidated with, the Issuer, the Guarantor or any

Principal Subsidiary, provided that such Security Interest was not created in contemplationof such merger or consolidation and does not extend to any other assets or property of the

Issuer, the Guarantor or such Principal Subsidiary;

(iv) any Security Interest existing on any property or assets prior to the acquisition thereof by

the Issuer, the Guarantor or any Principal Subsidiary and not created in contemplation of

such acquisition and which does not extend to other assets or property (other than

proceeds of such acquired assets or property), provided that the maximum amount ofRelevant Indebtedness thereafter secured by such Security Interest does not exceed the

higher of the purchase price of such property or the Relevant Indebtedness incurred solely

for the purpose of financing the acquisition of such property;

(v) any Security Interest granted in connection with a Securitisation; or

(vi) any renewal of or substitution for any Security Interest permitted by any of subparagraphs(i) to (v) (inclusive) of this definition, provided that with respect to any such Security

Interest the principal amount secured has not increased and the Security Interest has not

been extended to any additional assets (other than the proceeds of such assets);

Principal Subsidiary means, in relation to the Guarantor, any Subsidiary (i) whose total assets

represent not less than 10 per cent. of the consolidated total assets of the Guarantor and its

Subsidiaries taken as a whole, (ii) whose revenues are not less than 10 per cent. of theconsolidated revenues of the Guarantor and its Subsidiaries taken as a whole, in each case in

respect of the immediately preceding sub-paragraphs (i) and (ii), as calculated by reference to

the most recent audited consolidated financial statements of the Guarantor or (iii) to which is

transferred all or substantially all of the business, undertaking or assets of a Subsidiary that

immediately prior to such transfer is a Principal Subsidiary, whereupon the transferor Subsidiary

shall cease to be a Principal Subsidiary and provided that the transferee Subsidiary shall cease

to be a Principal Subsidiary under this subparagraph (iii) (but without prejudice to the

provisions of subparagraphs (i) or (ii) above) upon publication of the next audited consolidatedfinancial statements of the Guarantor.

A report by the Chief Executive Officer and the Chief Financial Officer (or any person who at

any time carries out the equivalent functions of such person (regardless of such person’s title))

of the Guarantor addressed to the Trustee that in their opinion a Subsidiary is or was or is not

or was not at any particular time or throughout a specified period a Principal Subsidiary may

be relied upon by the Trustee without further enquiry or evidence and, if relied upon by the

Trustee, shall, in the absence of manifest error, be conclusive and binding on all parties;

Relevant Indebtedness means any present or future indebtedness which is in the form of, or

represented or evidenced by, bonds, notes, debentures, debenture stock, loan stock, Sukuk

Obligations in respect of certificates or other securities, in each case which for the time being

are, or are intended to be or are capable of being, quoted, listed, dealt in or traded on any

stock exchange, over-the-counter or other securities market;

Securitisation means any securitisation of existing or future assets and/or revenues, provided that

(i) any Security Interest given by the Issuer, the Guarantor or any Principal Subsidiary in

connection therewith is limited solely to the assets and/or revenues which are the subject of the

securitisation; (ii) the documentation in respect of such securitisation provides that recourse is

31


limited to the assets and/or revenues so securitised as the principal source of repayment for the

money advanced; and (iii) there is no other recourse to the Issuer, the Guarantor or any

Principal Subsidiary in respect of the money so advanced;

Subsidiary in relation to the Guarantor means, at any particular time, any person (the first

person):

(a) which is then directly or indirectly controlled by the Guarantor; or

(b) more than 50 per cent. of whose issued equity share capital (or equivalent) is then

beneficially owned by the Guarantor; or

(c) whose financial statements at any time are required by law or in accordance with generally

accepted accounting principles to be fully consolidated with those of the Guarantor;

For the first person to be controlled by the Guarantor means that the Guarantor (whether

directly or indirectly and whether by the ownership of share capital, the possession of voting

power, contract, trust or otherwise) has the power to appoint and/or remove all or the majorityof the members of the board of directors or other governing body of that first person or

otherwise controls, or has the power to control, the affairs and policies of the first person; and

Sukuk Obligation means any undertaking or other obligation to pay money given in connection

with the issue of certificates whether or not in return for consideration of any kind.

6. INTEREST

6.1 Interest Rate and Interest Payment Dates

The Notes bear interest from and including 2 May 2013 at the rate of 4.250 per cent. per

annum, payable semi-annually in arrear on 1 May and 1 November in each year (each an

Interest Payment Date). The first Interest Payment Date will be 1 November 2013. The amount

of interest in respect of the period from and including 2 May 2013 to but excluding 1 November

2013 will be U.S.$21.13 per U.S.$1,000 in principal amount of the Notes and in respect of eachsemi-annual period thereafter will be U.S.$21.25 per U.S.$1,000 in principal amount of the

Notes.

6.2 Interest Accrual

Each Note will cease to bear interest from and including its due date for redemption unless,

upon due presentation, payment of the principal in respect of the Note is improperly withheldor refused or unless default is otherwise made in respect of payment. In such event, interest will

continue to accrue as provided in the Trust Deed.

6.3 Calculation of Broken Interest

When interest is required to be calculated in respect of a period of less than a full half-year, it

shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and,

in the case of an incomplete month, the number of days elapsed on the basis of a month of 30days.

7. PAYMENTS

7.1 Payments in respect of Notes

Payment of principal and interest will be made by transfer to the registered account of theNoteholder or by United States dollars cheque drawn on a bank that processes payments in

United States dollars mailed to the registered address of the Noteholder if it does not have a

registered account. Payments of principal and payments of interest due otherwise than on an

Interest Payment Date will only be made against surrender of the relevant Certificate at the

specified office of any of the Agents. Interest on Notes due on an Interest Payment Date will be

paid to the holder shown on the register of Noteholders at the close of business on the date

(the record date) being the fifteenth day before the due date for the payment of interest.

For the purposes of this Condition, a Noteholder’s registered account means the United States

dollar account maintained by or on behalf of it with a bank that processes payments in United

States dollars, details of which appear on the register of Noteholders at the close of business, in

the case of principal and interest due otherwise than on an Interest Payment Date, on the

32


second Business Day (as defined below) before the due date for payment and, in the case of

interest due on an Interest Payment Date, on the relevant record date, and a Noteholder’s

registered address means its address appearing on the register of Noteholders at that time.

7.2 Payments subject to Applicable Laws

Payments in respect of principal and interest on Notes are subject in all cases to any fiscal or

other laws, regulations and directives applicable in the place of payment or other laws to which

the Issuer or the Guarantor agree to be subject and neither the Issuer nor the Guarantor will be

liable for any taxes or duties of whatever nature imposed or levied by such laws, regulations,

directives or agreements, but without prejudice to the provisions of Condition 9.

7.3 No commissions

No commissions or expenses shall be charged to the Noteholders in respect of any payments

made in accordance with this Condition.

7.4 Payment on Business Days

Where payment is to be made by transfer to a registered account, payment instructions (for

value the due date or, if that is not a Business Day, for value the first following day which is aBusiness Day) will be initiated and, where payment is to be made by cheque, the cheque will be

mailed, on the Business Day preceding the due date for payment or, in the case of a payment

of principal or a payment of interest due otherwise than on an Interest Payment Date, if later,

on the Business Day on which the relevant Certificate is surrendered at the specified office of an

Agent.

Noteholders will not be entitled to any interest or other payment for any delay after the due

date in receiving the amount due if the due date is not a Business Day, if the Noteholder is late

in surrendering its Certificate (if required to do so) or if a cheque mailed in accordance with

this Condition arrives after the due date for payment.

For the purposes of these Conditions, Business Day means a day (other than a Saturday or

Sunday) on which commercial banks are open for business in London, New York and, in thecase of presentation of a Certificate, in the place in which the Certificate is presented.

7.5 Partial Payments

If the amount of principal or interest which is due on the Notes is not paid in full, the

Registrar will annotate the register of Noteholders with a record of the amount of principal or

interest in fact paid.

7.6 Agents

The names of the initial Agents and their initial specified offices are set out at the end of these

Conditions. The Issuer and the Guarantor reserve the right, subject to the prior written

approval of the Trustee, at any time to vary or terminate the appointment of any Agent and to

appoint additional or other Agents provided that:

(a) there will at all times be a Principal Paying Agent, a Registrar and a Transfer Agent;

(b) so long as the Notes are listed on any stock exchange or admitted to trading by any other

relevant authority, there will at all times be an Agent (which may be the Principal Paying

Agent) with a specified office in such place as may be required by the rules and regulations

of the relevant stock exchange or other relevant authority; and

(c) the Issuer undertakes that it will ensure that it maintains a Paying Agent in a Member

State of the European Union that is not obliged to withhold or deduct tax pursuant to

European Council Directive 2003/48/EC or any other Directive implementing the

conclusions of the ECOFIN Council meeting of 26-27 November 2000 on the taxation of

savings income or any law implementing or complying with, or introduced in order to

conform to, such Directive.

Notice of any termination or appointment and of any changes in specified offices given to the

Noteholders promptly by the Issuer in accordance with Condition 14.

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8. REDEMPTION AND PURCHASE

8.1 Redemption at Maturity

Unless previously redeemed or purchased and cancelled as provided below, the Issuer willredeem the Notes at their principal amount on 1 May 2020.

8.2 Redemption for Taxation Reasons

If:

(a) as a result of any change in, or amendment to, the laws or regulations of a Tax

Jurisdiction (as defined in Condition 9), or any change in the application or official

interpretation of the laws or regulations of a Tax Jurisdiction, which change or amendment

becomes effective after 1 May 2013, on the next Interest Payment Date either (i) the Issuer

would be required to pay additional amounts as provided or referred to in Condition 9,

(ii) the Guarantor would be required to pay additional amounts under clause 6 of the on-

loan agreement dated the Closing Date between the Issuer and the Guarantor, or (iii) ifthe Guarantee were called, the Guarantor would be required to pay additional amounts as

provided or referred to in Condition 9; and

(b) the requirement cannot be avoided by the Issuer or, as the case may be, the Guarantortaking reasonable measures available to it,

the Issuer may at any time, at its option, having given not less than 30 nor more than 60 days’

notice to the Noteholders in accordance with Condition 14 (which notice shall be irrevocable),redeem all the Notes, but not some only, at any time at their principal amount together with

interest accrued to but excluding the date of redemption, provided that no such notice of

redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer or,

as the case may be, the Guarantor would be obliged to pay such additional amounts, were a

payment in respect of the Notes then due. Prior to the publication of any notice of redemption

pursuant to this paragraph, the Issuer shall deliver to the Trustee (i) a certificate signed by two

authorised signatories of the Issuer or, as the case may be, the Guarantor stating that the

requirement referred to in (a) above will apply on the next Interest Payment Date and settingforth a statement of facts showing that the conditions precedent to the right of the Issuer so to

redeem have occurred and (ii) an opinion of independent legal advisers of recognised standing to

the effect that the Issuer or, as the case may be, the Guarantor has or will become obliged to

pay such additional amounts as a result of the change or amendment. The Trustee shall be

entitled to accept (without further investigation) any such certificate and opinion as sufficient

evidence of the satisfaction of the conditions precedent set out above, in which event it shall be

conclusive and binding on the Noteholders.

8.3 Redemption at the option of the Noteholders following a Change of Control Event

If, at any time, while any Note remains outstanding, there occurs a Change of Control Event,

the holder of such Note will have the option (a Change of Control Put Option) to require the

Issuer to redeem that Note.

Promptly upon the Issuer or the Guarantor becoming aware that a Change of Control Event

has occurred, the Issuer will give notice (a Change of Control Notice) to the Noteholders in

accordance with Condition 14 to that effect.

To exercise the Change of Control Put Option, the holder of the Notes must deliver at the

specified office of any Agent at any time during normal business hours of such Agent falling

within the period of 30 calendar days after the receipt of the Change of Control Notice (the

Change of Control Put Period), a duly signed and completed notice of exercise in the form (for

the time being current and which may, if the Certificate for such Notes is held in a clearing

system, be any form acceptable to the clearing system delivered in any manner acceptable to theclearing system) obtainable from any specified office of any Agent (a Put Notice) and in which

the holder must specify a bank account (or, if payment is required to be made by cheque, an

address) to which payment is to be made under this paragraph accompanied by the Certificate

for such Notes or evidence satisfactory to the Agent concerned that the Certificate for such

Notes will, following the delivery of the Put Notice, be held to its order or under its control.

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The Issuer will, upon the expiry of the Change of Control Put Period, redeem in whole (but not

in part) the Notes that are the subject of the Put Notice on or before the date (the Put Date)

falling seven Business Days after the expiry of the Change of Control Put Period at their

principal amount together with interest accrued to but excluding the Put Date.

For the purpose of this Condition 8.3:

A Change of Control Event will occur if at any time the Government ceases to own, directly or

indirectly, at least 50 per cent. of the issued share capital of the Guarantor; and

Government means (i) the Government of Bahrain, (ii) any company or other entity owned

directly or indirectly by the Government of Bahrain and (iii) any department, agency, authority

or other official body (whether statutory or otherwise) of the Government of Bahrain. If anysuch company or entity referred to in (ii) above is not wholly owned by the Government of

Bahrain, then the relevant amount of the issued share capital of the Guarantor deemed to be

owned by the Government for the purposes of this provision shall be reduced accordingly.

8.4 Redemption at the option of the Issuer following a Change of Control Event

Upon the occurrence of a Change of Control Event and provided that no more than 15 per

cent. of the principal amount of the Notes are outstanding immediately following the

redemption of any Notes pursuant to Condition 8.3, the Issuer may, at its option, having givennot less than 30 nor more than 60 days’ notice to the Noteholders in accordance with Condition

14 (which notice shall be irrevocable and shall be given within 30 days after the Put Date),

redeem the remaining Notes, in whole but not in part, at their principal amount together with

interest accrued to but excluding the date of such redemption.

8.5 Redemption at the option of the Issuer following a purchase and cancellation of Notes by the Issuer or the

Guarantor

Upon the occurrence of a purchase and cancellation of Notes by or on behalf of the Issuer orthe Guarantor pursuant to Conditions 8.6 and 8.7 (on one or more occasions and whether or

not any Notes have previously been redeemed pursuant to Condition 8.3) and provided that no

more than 15 per cent. of the principal amount of the Notes are outstanding immediately

following the date upon which the Notes so purchased have been cancelled in accordance with

Condition 8.7, the Issuer may, at its option, having given not less than 30 nor more than 60

days’ notice to the Noteholders in accordance with Condition 14 (which notice shall be

irrevocable and shall be given within 30 days after the date of such cancellation), redeem the

remaining Notes, in whole but not in part, at their principal amount together with interestaccrued to but excluding the date of such redemption.

8.6 Purchases

The Issuer, the Guarantor or any of the Guarantor’s other Subsidiaries may at any time

purchase Notes in any manner and at any price. Such Notes may be held, reissued, resold or, at

the option of the Issuer or the Guarantor, surrendered for cancellation as set out in Condition

8.7.

8.7 Cancellations

All Notes which are redeemed by or on behalf of the Issuer or the Guarantor will forthwith be

cancelled. Any Notes purchased pursuant to Condition 8.6 above may, at the option of the

Issuer or the Guarantor, be surrendered (by surrendering the Certificate representing such Notes)

to the Registrar for cancellation, and if so surrendered shall forthwith be cancelled. All Notes so

cancelled and any Notes which are purchased pursuant to Condition 8.6 above and surrendered

for cancellation may not be reissued or resold.

8.8 Notices Final

Upon the expiry of any notice as is referred to in Conditions 8.2 to 8.5 (inclusive) above the

Issuer shall be bound to redeem the Notes to which the notice refers in accordance with the

terms of such Conditions 8.2 to 8.5 (inclusive), as applicable.

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9. TAXATION

9.1 Payment without Withholding

All payments in respect of the Notes by or on behalf of the Issuer or the Guarantor shall bemade without withholding or deduction for, or on account of, any present or future taxes,

duties, assessments or governmental charges of whatever nature (Taxes) imposed or levied by or

on behalf of any of the Tax Jurisdictions, unless the withholding or deduction of the Taxes is

required by law. In that event, the Issuer or, as the case may be, the Guarantor will pay such

additional amounts as may be necessary in order that the net amounts received by the

Noteholders after the withholding or deduction shall equal the respective amounts which would

have been receivable in respect of the Notes in the absence of the withholding or deduction;

except that no additional amounts shall be payable in relation to any payment in respect of anyNote:

(a) presented for payment in a Tax Jurisdiction; or

(b) presented for payment by or on behalf of a holder who is liable for the Taxes in respect of

the Note by reason of his having some connection with a Tax Jurisdiction other than the

mere holding of the Note; or

(c) presented for payment more than 30 days after the Relevant Date (as defined below)

except to the extent that the holder thereof would have been entitled to additional

amounts on presenting the same for payment on such thirtieth day assuming that day tohave been a Business Day; or

(d) where such withholding or deduction is imposed on a payment to an individual and is

required to be made pursuant to European Council Directive 2003/48/EC or any other

Directive implementing the conclusions of the ECOFIN Council meeting of 26-

27 November 2000 on the taxation of savings income or any law implementing or

complying with, or introduced in order to conform to, such Directive; or

(e) presented for payment by or on behalf of a holder who would have been able to avoidsuch withholding or deduction by presenting the relevant Note to another Paying Agent in

a Member State of the European Union.

9.2 Interpretation

In these Conditions:

(a) Relevant Date means the date on which the payment first becomes due but, if the full

amount of the money payable has not been received by an Agent or the Trustee on or

before the due date, it means the date on which, the full amount of the money having

been so received, notice to that effect has been duly given to the Noteholders by the Issuerin accordance with Condition 14; and

(b) Tax Jurisdiction means the Cayman Islands or any political subdivision or any authority

thereof or therein having power to tax (in the case of payments by the Issuer) or the

Kingdom of Bahrain or any political subdivision or any authority thereof or therein

having power to tax (in the case of payments by the Guarantor).

9.3 Additional Amounts

Any reference in these Conditions to any amounts in respect of the Notes shall be deemed alsoto refer to any additional amounts which may be payable under this Condition or under any

undertakings given in addition to, or in substitution for, this Condition pursuant to the Trust

Deed.

10. PRESCRIPTION

Claims in respect of principal and interest will become prescribed unless made within 10 years

(in the case of principal) and five years (in the case of interest) from the Relevant Date, as

defined in Condition 9.

11. EVENTS OF DEFAULT

The Trustee at its discretion may, and if so requested in writing by the holders of at least 25

per cent. in principal amount of the Notes then outstanding or if so directed by an

Extraordinary Resolution of the Noteholders shall (subject in each case to being indemnified

36


and/or secured and/or prefunded to its satisfaction), (but, in the case of the happening of any of

the events described in subparagraphs (b), (c), (e) (other than the winding up or dissolution of

the Issuer or the Guarantor) to (i) (inclusive) and (l) below, only if the Trustee shall have

certified in writing to the Issuer and the Guarantor that such event is, in its opinion, materiallyprejudicial to the interests of the Noteholders) give notice to the Issuer and the Guarantor that

the Notes are, and they shall accordingly forthwith become, immediately due and repayable at

their principal amount, together with accrued interest as provided in the Trust Deed, if any of

the following events occurs and is continuing (each an Event of Default):

(a) if default is made in the payment of any principal or interest due in respect of the Notes

or any of them and the default continues for a period of 7 days or more in the case of

principal or 14 days or more in the case of interest; or

(b) if the Issuer or the Guarantor fails to perform or observe any of its other obligationsunder the Conditions or the Trust Deed and (except in any case where the Trustee

considers the failure to be incapable of remedy when no continuation or notice as is

hereinafter mentioned will be required) the failure continues for the period of 30 days (or

such longer period as the Trustee may permit) following the service by the Trustee on the

Issuer or the Guarantor, as the case may be, of written notice requiring the same to be

remedied; or

(c) if (i) any Financial Indebtedness of the Issuer, the Guarantor or any Principal Subsidiary

is not paid when due or (as the case may be) within any originally applicable grace period,(ii) any such Financial Indebtedness becomes due and payable prior to its stated maturity

by reason of default (however described), or (iii) any Security Interest given by the Issuer,

the Guarantor or any Principal Subsidiary for any Financial Indebtedness becomes

enforceable and any step is taken to enforce the Security Interest (including the taking of

possession or the appointment of a receiver, manager or other similar person, but

excluding the issue of any notification to the Issuer, the Guarantor or the relevant

Principal Subsidiary, as the case may be, that such Security Interest has become

enforceable), provided that no event described in this sub-paragraph (c) shall constitute anEvent of Default unless the aggregate amount of all such Financial Indebtedness, either

alone or when aggregated with all other Financial Indebtedness in respect of which such

an event shall have occurred and be continuing, shall be more than U.S.$25,000,000 (or its

equivalent in any other currency or currencies); or

(d) if one or more judgments or orders for the payment of any sum in excess of

U.S.$25,000,000 is rendered against the Issuer, the Guarantor or any Subsidiary and

continues unsatisfied, unstayed and unappealed (or, if appealed, the appeal is unsuccessful

and thereafter the judgment continues unsatisfied and unstayed for a period of 30 days) fora period of 45 days after the date thereof; or

(e) if any order is made by any competent court or resolution passed for the winding up or

dissolution of the Issuer, the Guarantor or any Principal Subsidiary, save for the purposes

of reorganisation on terms approved in writing by the Trustee or by an Extraordinary

Resolution of the Noteholders; or

(f) if the Issuer, the Guarantor or any Principal Subsidiary ceases or threatens to cease to

carry on the whole or a substantial part of its business, save for the purposes of

reorganisation on terms approved in writing by the Trustee or by an ExtraordinaryResolution of the Noteholders, or the Issuer, the Guarantor or any Principal Subsidiary

stops or threatens to stop payment of, or is unable to, or admits inability to, pay, its debts

(or any class of its debts) as they fall due, or is deemed unable to pay its debts pursuant

to or for the purposes of any applicable law, or is adjudicated or found bankrupt or

insolvent; or

(g) if (i) court or other formal proceedings are initiated against the Issuer, the Guarantor or

any Principal Subsidiary under any applicable liquidation, insolvency, composition,

reorganisation or other similar laws, or an application is made (or documents filed with acourt) for the appointment of an administrative or other receiver, manager, administrator

or other similar official, or an administrative or other receiver, manager, administrator or

other similar official is appointed, in relation to the Issuer, the Guarantor or any Principal

Subsidiary or, as the case may be, in relation to the whole or a substantial part of the

undertaking or assets of any of them, or an encumbrancer takes possession of the whole

37


or a substantial part of the undertaking or assets of any of them, or a distress, execution,

attachment, sequestration or other process is levied, enforced upon, sued out or put in

force against the whole or a substantial part of the undertaking or assets of any of them

and (ii) in any case (other than the appointment of an administrator) is not dischargedwithin 30 days; or

(h) if the Issuer, the Guarantor or any Principal Subsidiary initiates or consents to judicial

proceedings relating to itself under any applicable liquidation, insolvency, composition,

reorganisation or other similar laws (including the obtaining of a moratorium) or makes a

conveyance or assignment for the benefit of, or enters into any composition or other

arrangement with, its creditors generally (or any class of its creditors) or any meeting is

convened to consider a proposal for an arrangement or composition with its creditors

generally (or any class of its creditors), save for the purposes of reorganisation on terms

approved in writing by the Trustee or by an Extraordinary Resolution of the Noteholders;or

(i) if any event occurs under the laws of the Cayman Islands or the Kingdom of Bahrain or

any other jurisdiction in which the Issuer, the Guarantor or a Principal Subsidiary is

incorporated from time to time which has or may have, in the Trustee’s opinion, an

analogous effect to any of the events referred to in paragraphs (e) to (h) above; or

(j) if at any time it is or becomes unlawful for the Issuer or the Guarantor to perform or

comply with any or all of its obligations under or in respect of the Notes, the Trust Deed,

the Guarantee or any of the obligations of the Issuer or of the Guarantor thereunder are

not or cease to be legal, valid, binding or enforceable; or

(k) if the Guarantee ceases to be, or is claimed by the Guarantor not to be, in full force and

effect; or

(l) if the Issuer ceases to be a subsidiary wholly-owned and controlled, directly or indirectly,

by the Guarantor.

For the purposes of this Condition:

Financial Indebtedness means any indebtedness for or in respect of:

(a) moneys borrowed;

(b) any amount raised pursuant to any issue of bonds, notes, debentures, loan stock or any

similar instrument;

(c) any amount raised under any other transaction having the commercial effect of either a

borrowing or a drawing against a credit facility;

(d) any amount raised under a transaction described in subparagraphs (a) to (c) (inclusive)

above carried out in compliance with Shari’a principles; and

(e) the amount of any liability in respect of any guarantee or indemnity for any of the items

referred to in subparagraphs (a) to (d) (inclusive) above.

12. ENFORCEMENT

12.1 The Trustee may at any time, at its discretion and without notice, take such proceedings or anyother action against the Issuer and/or the Guarantor as it may think fit to enforce the

provisions of the Trust Deed and the Notes, but it shall not be bound to take any such

proceedings or any other action in relation to the Trust Deed or the Notes unless (a) it shall

have been so directed by an Extraordinary Resolution of the Noteholders or so requested in

writing by the holders of at least 25 per cent. in principal amount of the Notes then

outstanding, and (b) it shall have been indemnified and/or secured and/or prefunded to its

satisfaction.

12.2 The Trustee may refrain from taking any action in any jurisdiction if the taking of such action

in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, becontrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking

such action if it would otherwise render it liable to any person in that jurisdiction or if, in its

opinion based upon such legal advice, it would not have the power to take the relevant action

in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by

any court or other competent authority in that jurisdiction that it does not have such power.

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12.3 No Noteholder shall be entitled to (i) take any steps or action against the Issuer or the

Guarantor or (ii) take any other proceedings (including lodging an appeal in any proceedings) in

respect of or concerning the Issuer or the Guarantor, in each case unless the Trustee, having

become bound so to proceed, fails so to do within a reasonable period and the failure shall becontinuing.

13. REPLACEMENT OF CERTIFICATES

If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the

specified office of the Registrar upon payment by the claimant of the expenses incurred in

connection with the replacement and on such terms as to evidence and indemnity as the Issuermay reasonably require. Mutilated or defaced Certificates must be surrendered before

replacements will be issued.

14. NOTICES

14.1 Notices to the Noteholders

All notices to the Noteholders will be valid if mailed to them at their respective addresses in the

register of Noteholders maintained by the Registrar. The Issuer shall also ensure that notices are

duly given or published in a manner which complies with the rules and regulations of any stock

exchange or other relevant authority on which the Notes are for the time being listed. Any

notice shall be deemed to have been given on the second day after being so mailed or on the

date of publication or, if so published more than once or on different dates, on the date of the

first publication.

14.2 Notices from the Noteholders

Notices to be given by any Noteholder shall be in writing and given by lodging the same,

together with the relative Certificate, with the Registrar or, if the Notes are held in a clearing

system, may be given through the clearing system in accordance with its standard rules and

procedures.

15. MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER AND AUTHORISATION

15.1 Meetings of Noteholders

The Trust Deed contains provisions for convening meetings of the Noteholders to consider any

matter affecting their interests, including the modification or abrogation by Extraordinary

Resolution of any of these Conditions or any of the provisions of the Trust Deed. The quorum

at any meeting for passing an Extraordinary Resolution will be one or more persons presentholding or representing more than 50 per cent. in principal amount of the Notes for the time

being outstanding, or at any adjourned such meeting one or more persons present whatever the

principal amount of the Notes held or represented by him or them, except that at any meeting

the business of which includes the modification or abrogation of certain of the provisions of

these Conditions and certain provisions of the Trust Deed (including reducing or cancelling

amounts payable in respect of the Notes or altering the currency of payment of the Notes,

amending the definition of Extraordinary Resolution or sanctioning any scheme or proposal for

the exchange or sale of the Notes for or the conversion of the Notes into or the cancellation ofthe Notes in consideration of shares, stock, notes, bonds, debentures, debenture stock and/or

other obligations and/or other securities), the necessary quorum for passing an Extraordinary

Resolution will be one or more persons present holding or representing not less than two-thirds,

or at any adjourned meeting not less than one-third, of the principal amount of the Notes for

the time being outstanding.

The Trust Deed provides that (i) an Extraordinary Resolution passed at a meeting duly

convened and held by a majority consisting of not less than three-fourths of the votes cast on

such Extraordinary Resolution or (ii) a resolution in writing signed by or on behalf of the

holders of not less than three-fourths in principal amount of the Notes for the time being

outstanding or (iii) consent given by way of electronic consents through the relevant clearingsystem(s) (in a form satisfactory to the Trustee) by or on behalf of the holders of not less than

three-fourths in principal amount of the Notes for the time being outstanding shall, in each

case, be effective as an Extraordinary Resolution of the Noteholders. An Extraordinary

Resolution passed at any meeting of the Noteholders or in writing or by way of electronic

consents as aforesaid shall be binding on all the Noteholders, whether or not (in the case of (i)

39


above) they are present at the meeting and whether or not or how they vote on such

Extraordinary Resolution, or (in the case of (ii) above) they sign such resolution or (in the case

of (iii) above) they have given such consent.

15.2 Modification, Waiver, Authorisation and Determination

The Trustee may agree, without the consent of the Noteholders (i) to any modification (other

than a Reserved Matter (as defined in the Trust Deed)) of, or to the waiver or authorisation of

any breach or proposed breach of, any of these Conditions or any of the provisions of theTrust Deed or the Agency Agreement, or determine, without any such consent as aforesaid, that

any Event of Default or Potential Event of Default (as defined in the Trust Deed) shall not be

treated as such (provided that, in any such case, it is not, in the opinion of the Trustee,

materially prejudicial to the interests of the Noteholders) or (ii) to any modification which, in its

opinion, is of a formal, minor or technical nature or to correct a manifest error.

15.3 Trustee to have Regard to Interests of Noteholders as a Class

In connection with the exercise by it of any of its trusts, powers, authorities and discretions

(including, without limitation, any modification, waiver, authorisation, determination or

substitution), the Trustee shall have regard to the general interests of the Noteholders as a class

but shall not have regard to any interests arising from circumstances particular to individual

Noteholders (whatever their number) and, in particular but without limitation, shall not have

regard to the consequences of any such exercise for individual Noteholders (whatever theirnumber) resulting from their being for any purpose domiciled or resident in, or otherwise

connected with, or subject to the jurisdiction of, any particular territory or any political sub-

division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder be

entitled to claim, from the Issuer, the Guarantor, the Trustee or any other person any

indemnification or payment in respect of any tax consequence of any such exercise upon

individual Noteholders except to the extent already provided for in Condition 9 and/or any

undertaking given in addition to, or in substitution for, Condition 9 pursuant to the Trust

Deed.

15.4 Notification to the Noteholders

Any modification, abrogation, waiver, authorisation, determination or substitution shall be

binding on the Noteholders and, unless the Trustee agrees otherwise, any modification or

substitution shall be notified by the Issuer to the Noteholders as soon as practicable thereafterin accordance with Condition 14.

16. INDEMNIFICATION OF THE TRUSTEE AND ITS CONTRACTING WITH THE ISSUER

AND THE GUARANTOR

16.1 Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from

responsibility, including provisions relieving it from taking action unless indemnified and/or

secured and/or prefunded to its satisfaction.

16.2 Trustee Contracting with the Issuer and the Guarantor

The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (i)

to enter into business transactions with the Issuer and/or the Guarantor and/or any of the

Guarantor’s other Subsidiaries and to act as trustee for the holders of any other securities issued

or guaranteed by, or relating to, the Issuer and/or the Guarantor and/or any of the Guarantor’sother Subsidiaries, (ii) to exercise and enforce its rights, comply with its obligations and perform

its duties under or in relation to any such transactions or, as the case may be, any such

trusteeship without regard to the interests of, or consequences for, the Noteholders, and (iii) to

retain and not be liable to account for any profit made or any other amount or benefit received

thereby or in connection therewith.

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17. SUBSTITUTION

The Trustee may, without the consent of the Noteholders, agree with the Issuer and the

Guarantor to the substitution in place of the Issuer (or of any previous substitute under thisCondition) as the principal debtor under the Notes and the Trust Deed of the Guarantor or any

of its other Subsidiaries, subject to:

(a) except in the case of the substitution of the Guarantor, the Notes being unconditionally

and irrevocably guaranteed by the Guarantor;

(b) the Trustee being satisfied that the interests of the Noteholders will not be materiallyprejudiced by the substitution; and

(c) certain other conditions set out in the Trust Deed being complied with.

18. FURTHER ISSUES

The Issuer is at liberty from time to time without the consent of the Noteholders to create andissue further notes or bonds (whether in bearer or registered form) either (a) ranking pari passu

in all respects (or in all respects save for the first payment of interest thereon) and so that the

same shall be consolidated and form a single series with the outstanding notes or bonds of any

series (including the Notes) constituted by the Trust Deed or any supplemental deed or (b) upon

such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may

determine at the time of the issue. Any further notes or bonds which are to form a single series

with the outstanding notes or bonds of any series (including the Notes) constituted by the Trust

Deed or any supplemental deed shall, and any other further notes or bonds may (with theconsent of the Trustee), be constituted by a deed supplemental to the Trust Deed.

19. RIGHTS OF THIRD PARTIES

No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999

to enforce any term of this Note, but this does not affect any right or remedy of any person

which exists or is available apart from that Act.

20. GOVERNING LAW AND SUBMISSION TO JURISDICTION

20.1 Governing Law

The Trust Deed (including the Guarantee) and the Notes (including the remaining provisions of

this Condition 20) and any non-contractual obligations arising out of or in connection with the

Trust Deed (including the Guarantee) and the Notes shall be governed by, and construed in

accordance with, English law.

20.2 Arbitration

Subject to Condition 20.3, any dispute, claim, difference or controversy arising out of, related

to, or having any connection with the Trust Deed (including the Guarantee) and the Notes

(including any dispute regarding the existence, validity, interpretation, performance, breach or

termination of the Trust Deed (including the Guarantee) and the Notes or the consequences of

the nullity of any of them and any dispute relating to any non-contractual obligations arising

out of or in connection with them) (a Dispute) shall be referred to and finally resolved by

arbitration in accordance with the Arbitration Rules of the London Court of InternationalArbitration (LCIA) (the Rules), which Rules (as amended from time to time) are incorporated

by reference into this Condition 20.2. For these purposes:

(a) the seat of arbitration shall be London;

(b) there shall be three arbitrators each of whom shall be disinterested in the arbitration, shallhave no connection with any party hereto and shall be an attorney experienced in

international securities transactions; and

(c) the language of the arbitration shall be English.

20.3 Option to litigate

Notwithstanding Condition 20.2 above the Trustee or (only where permitted to take action inaccordance with the terms of the Trust Deed) any Noteholder may, in the alternative, and at its

sole discretion, by notice in writing to the Issuer:

(a) within 28 days of service of a Request for Arbitration (as defined in the Rules); or

41


(b) in the event no arbitration is commenced,

require that a Dispute be heard by a court of law. If such notice is given, the Dispute to which

such notice refers shall be determined in accordance with Condition 20.5 and, subject asprovided below, any arbitration commenced under Condition 20.2 in respect of that Dispute will

be terminated. With the exception of the Trustee (whose costs will be borne by the Issuer,

failing which the Guarantor) each of the parties to the terminated arbitration will bear its own

costs in relation thereto.

20.4 Termination of Arbitral proceedings

If any notice to terminate is given after service of any Request for Arbitration in respect of anyDispute, the Issuer must also promptly give notice to the LCIA Court and to any Tribunal

(each as defined in the Rules) already appointed in relation to the Dispute that such Dispute

will be settled by the courts. Upon receipt of such notice by the LCIA Court, the arbitration

and any appointment of any arbitrator in relation to such Dispute will immediately terminate.

Any such arbitrator will be deemed to be functus officio. The termination is without prejudice

to:

(a) the validity of any act done or order made by the arbitrator or by the court in support of

that arbitration before his appointment is terminated;

(b) his entitlement to be paid his proper fees and disbursements; and

(c) the date when any claim or defence was raised for the purpose of applying any limitation

bar or any similar rule or provision.

20.5 Provisions relating to Judicial Proceedings

In the event that a notice pursuant to Condition 20.3 is issued, the following provisions shallapply:

(a) subject to Condition 20.5(c) below, the courts of England shall have exclusive jurisdiction

to settle any Dispute and each of the Issuer and the Guarantor irrevocably submits to the

exclusive jurisdiction of such courts;

(b) each of the Issuer and the Guarantor agrees that the courts of England are the most

appropriate and convenient courts to settle any Dispute and, accordingly, that it will notargue to the contrary; and

(c) this Condition 20.5 is for the benefit of the Trustee and the Noteholders only. As a result,

and notwithstanding Condition 20.5(a) above, the Trustee and (only where permitted to

take action in accordance with the terms of the Trust Deed) the Noteholders may take

proceedings relating to a Dispute (Proceedings) in any other courts with jurisdiction. To

the extent allowed by law, the Trustee and (only where permitted to take action in

accordance with the terms of the Trust Deed) the Noteholders may take concurrent

Proceedings in any number of jurisdictions.

20.6 Waiver of Immunity

To the extent that the Issuer or the Guarantor, respectively, may claim for itself or its assets or

revenues immunity from jurisdiction, enforcement, prejudgment proceedings, injunctions and all

other legal proceedings and relief and to the extent that such immunity (whether or not claimed)

may be attributed to it or its assets or revenues, each of the Issuer and (pursuant to the Trust

Deed) the Guarantor agrees not to claim and irrevocably and unconditionally waives suchimmunity in relation to any Proceedings or Disputes. Further, each of the Issuer and (pursuant

to the Trust Deed) the Guarantor irrevocably and unconditionally consents to the giving of any

relief or the issue of any legal proceedings, including, without limitation, jurisdiction,

enforcement, prejudgment proceedings and injunctions in connection with any Proceedings or

Disputes.

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20.7 Appointment of Process Agent

Each of the Issuer and (pursuant to the Trust Deed) the Guarantor irrevocably and

unconditionally appoints Hackwood Secretaries Limited, at its registered office for the timebeing, as its agent for service of process in England in respect of any Proceedings and

undertakes that in the event of such agent ceasing so to act it will appoint another person as its

agent for that purpose.

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SUMMARY OF PROVISIONS RELATING TO THE NOTESWHILE REPRESENTED BY THE GLOBAL CERTIFICATE

The Global Certificate contains the following provisions which apply to the Notes in respect of which

they are issued whilst they are represented by the Global Certificate, some of which modify the effect of

the Conditions. Terms defined in the Conditions have the same meaning in paragraphs 1 to 6 below.

1. Accountholders

For so long as all of the Notes are represented by the Global Certificate and such Global

Certificate is held on behalf of a clearing system, each person (other than another clearing

system) who is for the time being shown in the records of Euroclear or Clearstream,

Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of

such Notes (each an Accountholder) (in which regard any certificate or other document issued by

Euroclear or Clearstream, Luxembourg (as the case may be) as to the aggregate principal

amount of such Notes standing to the account of any person shall, in the absence of manifest

error, be conclusive and binding for all purposes) shall be treated as the holder of suchaggregate principal amount of such Notes (and the expression Noteholders and references to

holding of Notes and to holder of Notes shall be construed accordingly) for all purposes other

than with respect to payments on such Notes, the right to which shall be vested, as against the

Issuer, the Guarantor and the Trustee, solely in the nominee for the relevant clearing system

(the Relevant Nominee) in accordance with and subject to the terms of the Global Certificate.

Each Accountholder must look solely to Euroclear or Clearstream, Luxembourg, as the case

may be, for its share of each payment made to the Relevant Nominee.

2. Cancellation

Cancellation of any Note following its redemption or purchase by the Issuer, the Guarantor orany of the Guarantor’s other Subsidiaries will be effected by reduction in the aggregate principal

amount of the Notes in the register of Noteholders and by the annotation of the appropriate

schedule to the Global Certificate.

3. Payments

Payments of principal and interest in respect of Notes represented by the Global Certificate will

be made upon presentation or, if no further payment falls to be made in respect of the Notes,

against presentation and surrender of the Global Certificate to or to the order of the Registrar

or such other Agent as shall have been notified to the holder of the Global Certificate for such

purpose.

Distributions of amounts with respect to book-entry interests in the Notes held through

Euroclear or Clearstream, Luxembourg will be credited, to the extent received by the Registrar,to the cash accounts of Euroclear or Clearstream, Luxembourg participants in accordance with

the relevant system’s rules and procedures.

Payments of principal or interest in respect of the Notes will be paid to the holder shown on

the register at the close of business on the business day (being for this purpose a day on which

Euroclear or Clearstream, Luxembourg are open for business) before the relevant payment date.

A record of each payment made will be endorsed on the appropriate schedule to the Global

Certificate by or on behalf of the Registrar and shall be prima facie evidence that payment has

been made.

4. Notices

So long as all the Notes are represented by the Global Certificate and such Global Certificate is

held on behalf of a clearing system, notices to Noteholders may be given by delivery of the

relevant notice to that clearing system for communication by it to entitled Accountholders insubstitution for notification as required by the Conditions (other than notifications to be issued

in accordance with the rules and regulations of any stock exchange or other relevant authority

on which the Notes are for the time being listed). Any such notice shall be deemed to have been

given to the Noteholders on the day on which such notice is delivered to Euroclear and/or

Clearstream, Luxembourg (as the case may be) as aforesaid.

44


Whilst any of the Notes held by a Noteholder are represented by the Global Certificate, notices

to be given by such Noteholder may be given by such Noteholder (where applicable) through

Euroclear and/or Clearstream, Luxembourg and otherwise in such manner as the Trustee and

Euroclear and Clearstream, Luxembourg may approve for this purpose.

5. Registration of Title

Registration of title to Notes in a name other than that of the Relevant Nominee will not be

permitted unless Euroclear or Clearstream, Luxembourg, as appropriate, notifies the Issuer and

the Guarantor that it is unwilling or unable to continue as a clearing system in connection with

the Global Certificate, and a successor clearing system approved by the Trustee is not appointed

by the Issuer and the Guarantor within 90 days after receiving such notice from Euroclear orClearstream, Luxembourg. In these circumstances title to a Note may be transferred into the

names of holders notified by the Relevant Nominee in accordance with the Conditions, except

that Certificates in respect of Notes so transferred may not be available until 21 days after the

request for transfer is duly made.

The Registrar will not register title to the Notes in a name other than that of the Relevant

Nominee for a period of 15 calendar days preceding the due date for any payment of principal,

or interest in respect of the Notes.

6. Transfers

Transfers of book-entry interests in the Notes will be effected through the records of Euroclearand Clearstream, Luxembourg and their respective participants in accordance with the rules and

procedures of Euroclear and Clearstream, Luxembourg and their respective direct and indirect

participants, as more fully described under ‘‘Clearing and Settlement Arrangements’’.

7. Exchange for Definitive Certificates

Interests in the Global Certificate will be exchanged for Notes in definitive form upon the

occurrence of an Exchange Event.

For these purposes, Exchange Event means that (a) the Trustee has given notice in accordance

with Condition 14 that an Event of Default has occurred and is continuing or (b) the Issuer hasbeen notified that both Euroclear and Clearstream, Luxembourg have been closed for business

for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or

have announced an intention permanently to cease business or have in fact done so and no

successor or alternative clearing system satisfactory to the Trustee is available. Upon the

occurrence of an Exchange Event, the Issuer will issue Definitive Certificates in exchange for the

whole of the Global Certificate within 30 days of the occurrence of the relevant Exchange Event

upon presentation of the Global Certificate by the person in whose name it is registered in the

Register on any day (other than a Saturday or Sunday) on which banks are open for businessin the city in which the Registrar has its specified office.

45


SELECTED FINANCIAL INFORMATION

The information in this section should be read in conjunction with: (i) Batelco’s audited consolidated

financial statements as at and for the years ended 31 December 2012 and 2011 (including the respective

audit reports thereon and the accompanying notes thereto), each of which appears elsewhere in this

Prospectus, has been prepared in accordance with IFRS, and the requirements of the Bahrain

Commercial Company Law and Central Bank of Bahrain’s Disclosure Standards; and (ii) the ‘‘Business

Description of the Group’’ and ‘‘Financial Review’’ sections of this Prospectus. Prospective investors

should read this entire Prospectus and not solely rely on the information set out below.

Consolidated statement of comprehensive income for the year ended 31 December

2012 2011 2010

(BD’000)

REVENUE 304,710 326,972 340,252

EXPENSES

Network operating expenses (116,766) (115,817) (109,362)

Staff costs (59,451) (50,930) (49,785)

Depreciation and amortisation (36,373) (37,985) (39,704)

Other operating expenses (26,710) (34,203) (34,942)

Total expenses (239,300) (238,935) (233,793)

Results from operating activities 65,410 88,037 106,459

Finance and other income 2,563 3,257 1,293

Finance expenses (647) (262) (346)

Share of profit/(loss) of associates (net) 1,599 (3,124) (13,199)

Profit before taxation 68,925 87,908 94,207

Income tax expense (3,582) (4,053) (3,574)

Profit for the year 65,343 83,855 90,633

Other comprehensive income

Foreign currency translation differences (570) (503) 1,406

Investment fair value changes 994 (11,607) (1,247)

Other comprehensive income for the year 424 (12,110) 159

Total comprehensive income for the year 65,767 71,745 90,792

Profit for the year attributable to:

Equity holders of the company 60,340 80,014 86,773

Non-controlling interest 5,003 3,841 3,860

65,343 83,855 90,633

Total comprehensive income for the year attributable to:

Equity holders of the company 60,908 67,818 86,734

Non-controlling interest 4,859 3,927 4,058

65,767 71,745 90,792

Basic earnings per share (Fils) 41.9 55.6 60.3

EBITDA1 101,783 126,022 146,163

Note:

(1) EBITDA is a non-IFRS financial measure that is used by management as an additional measure of performance. EBITDA is notdefined by or presented in accordance with IFRS, is not a measure of performance and should not be considered as an alternativeto other IFRS measures.

46


Batelco defines EBITDA as net income before interest, taxes, depreciation and amortisation, finance and other income and share ofprofit/(loss) of associates (net). For further discussion of non-IFRS measures, see ‘‘Presentation of Financial and Other Information –Non-IFRS Financial Measures’’. See below for a reconciliation of EBITDA to profit for the year.

2012 2011 2010

(BD’000)Profit for the year 65,343 83,855 90,633Plus: tax 3,582 4,053 3,574Less/Plus: share of profit/(loss) of associates (net) (1,599) 3,124 13,199Plus: finance expenses 647 262 346Less: finance and other income (2,563) (3,257) (1,293)Plus: Depreciation & Amortisation 36,373 37,985 39,704EBITDA 101,783 126,022 146,163

47


Consolidated statement of financial position as at 31 December

2012 2011 2010

(BD’000)

ASSETSNon-current assets

Property and equipment 185,865 185,019 191,474

Goodwill 124,377 124,682 125,129

Intangible asset 50,880 24,308 28,404

Investment in associates 77,417 78,580 130,124

Deferred tax asset 2,298 2,018 1,271

Available-for-sale investments 31,640 16,703 28,403

Total non-current assets 472,477 431,310 504,805

Current assets

Investment classified as held-for-sale — 46,473 —

Inventories 2,630 1,869 2,015

Available-for-sale investments 3,770 — —

Trade and other receivables 115,569 71,762 64,834

Cash and bank balances 94,922 107,893 86,817

Total current assets 216,891 227,997 153,666

Total assets 689,368 659,307 658,471

EQUITY AND LIABILITIES

EquityShare capital 144,000 144,000 144,000

Statutory reserve 76,847 76,719 76,428

General reserve 39,444 30,000 15,000

Foreign currency translation reserve 361 787 1,376

Investment fair value reserve (2,403) (3,397) 8,210

Retained earnings 256,099 257,731 259,977

Total equity attributable to equity holders of the company 514,348 505,840 504,991Non-controlling interest 5,833 12,851 11,824

Total equity 520,181 518,691 516,815

Non-current liabilities

Trade and other payables 2,029 2,555 3,063

Loans and borrowings 14,388 — —

Deferred tax liability 3,634 4,193 4,732

Total non-current liabilities 20,051 6,748 7,795

Current liabilities

Trade and other payables 145,051 133,868 133,861

Loans and borrowings 4,085 — —

Total current liabilities 149,136 133,868 133,861

Total liabilities 169,187 140,616 141,656

Total equity and liabilities 689,368 659,307 658,471

48


Consolidated statement of cash flows for the year ended 31 December

2012 2011 2010

(BD’000)

OPERATING ACTIVITIESCash receipts from customers 280,334 300,118 316,625

Net cash paid to suppliers (122,807) (128,765) (129,879)

Cash paid to and on behalf of employees (53,031) (48,362) (48,855)

Net cash from operating activities 104,496 122,991 137,891

INVESTING ACTIVITIES

Acquisition of property, equipment and intangibles (63,783) (31,554) (28,846)

Payments in respect of rights share issue (17,713) — —Receipts from/(payments to) investee company 2,781 (2,781) —

Receipts from associate 2,762 1,930 6,094

Net proceeds from sale and maturity of investments — 4,238 4,943

Interest and investment income received 2,245 1,069 1,604

Net cash used in investing activities (73,708) (27,098) (16,205)

FINANCING ACTIVITIES

Dividend paid (59,874) (69,117) (73,270)Interest paid (657) — (50)

Borrowings (net) 18,482 — (36,569)

Payments to charities (1,667) (2,117) (1,591)

Net cash used in financing activities (43,716) (71,234) (111,480)

(Decrease)/increase in cash and cash equivalents (12,928) 24,659 10,206

Cash and cash equivalents at 1 January 105,095 80,436 70,230

Cash and cash equivalents at 31 December 92,167 105,095 80,436

49


FINANCIAL REVIEW

The following discussion of Batelco’s financial condition and results of operations should be read in

conjunction with: (i) Batelco’s audited consolidated financial statements as at and for the years ended

31 December 2012 and 2011 (including the respective audit reports thereon and the accompanying notes

thereto), each of which appears elsewhere in this Prospectus and has been prepared in accordance with

IFRS, and the requirements of the Bahrain Commercial Company Law and Central Bank of Bahrain’s

Disclosure Standards; and (ii) the ‘‘Business Description of the Group’’ and ‘‘Selected Financial

Information’’ sections of this Prospectus. Prospective investors should read this entire Prospectus and not

rely solely on the information set out below.

This ‘‘Financial Review’’ section contains forward-looking statements that involve risks and uncertainties.

Batelco’s actual results could differ materially from those anticipated in these forward-looking statements

as a result of various factors, including those discussed below and elsewhere within this Prospectus, in

particular in the ‘‘Risk Factors’’ section of this Prospectus.

Critical Accounting Estimates and Judgments

The preparation of Batelco’s consolidated financial statements requires the use of certain judgments,

estimates and assumptions that are not readily apparent from other sources that affect the reported

amounts of assets and liabilities, including the disclosure of contingent liabilities, and the reported

amounts of income and expenses during the reported period. Batelco’s critical accounting estimates

and judgments are those that are most important to its financial condition and results of operations

and those that require the most difficult, subjective or complex judgments by Batelco. Batelco re-

evaluates its estimates and assumptions on an on-going basis. Batelco bases its estimates and

assumptions on historical experience and various other factors that are believed to be reasonableunder the circumstances. Because of the uncertainty of factors surrounding the estimates or judgments

used in the preparation of Batelco’s consolidated financial statements, actual results may vary from

these estimates.

For a summary of all of Batelco’s significant accounting policies applied in the preparation of its

consolidated financial statements as at and for the year ended 31 December 2012 please see Note 3

‘‘Significant accounting policies’’ of Batelco’s audited consolidated financial statements as at and for

the year ended 31 December 2012.

For a summary of all of Batelco’s significant accounting policies applied in the preparation of its

consolidated financial statements as at and for the year ended 31 December 2011 please see Note 3

‘‘Significant accounting policies’’ of Batelco’s audited consolidated financial statements as at and for

the year ended 31 December 2011.

50


Results of Operations

Year ended 31 December 2012 as compared to year ended 31 December 2011

The following table sets forth selected information extracted from Batelco’s consolidated statement of

comprehensive income for the year ended 31 December 2012 and related Note 19 ‘‘Revenue’’ which

provides the breakdown of revenue by product.

2012 2011

(BD’000)

REVENUE

Mobile telecommunications services 128,662 150,855

Data communication circuits 54,036 55,271

Internet 36,410 38,124

Wholesale 35,729 37,352

Fixed line telecommunications services 22,542 27,974

Others 27,331 17,396

Total revenue 304,710 326,972

EXPENSES

Network operating expenses (116,766) (115,817)

Staff costs (59,451) (50,930)

Depreciation and amortisation (36,373) (37,985)

Other operating expenses (26,710) (34,203)

Total expenses (239,300) (238,935)

Results from operating activities 65,410 88,037

Finance and other income 2,563 3,257

Finance expenses (647) (262)

Share of profit/(loss) of associates (net) 1,599 (3,124)

Profit before taxation 68,925 87,908

Income tax expense (3,582) (4,053)

Profit for the year 65,343 83,855


Equity holders of the Company 60,340 80,014

Non-controlling interest 5,003 3,841

65,343 83,855

Revenue

Total revenues decreased by BD22.3 million, or 6.8 per cent., to BD304.7 million for the year ended

31 December 2012 as compared to BD327.0 million for the year ended 31 December 2011. Thisdecrease was principally attributable to declining revenues in Bahrain, which fell by 11.9 per cent.

from BD202.9 million for the year ended 31 December 2011 to BD178.8 million for the year ended

31 December 2012, as a result of intense competition in the mobile telecommunications market, lower

tariffs and a reduction in roaming and fixed line telecommunication revenues. This decrease was

however partially offset by an increase in revenues in Jordan from BD88.9 million for the year ended

31 December 2011 to BD92.7 million for the year ended 31 December 2012, equivalent to an increase

of 4.3 per cent., attributable mainly to 3G data revenues following the launch of 3G services in

Jordan in June 2012 and increased device sales.

Mobile revenues decreased by BD22.2 million, or 14.7 per cent., from BD150.9 million for the year

ended 31 December 2011 to BD128.7 million for the year ended 31 December 2012, as a result of

declining revenues in Bahrain. Mobile remained the largest generator of revenue by product despite

this decline, representing 42.2 per cent. of total revenues as compared to 46.1 per cent. of total

revenues for the year ended 31 December 2011.

51


Data communication revenues decreased by BD1.3 million, or 2.4 per cent., from BD55.3 million for

the year ended 31 December 2011 to BD54.0 million for the year ended 31 December 2012, mainly as

a result of declining revenues in Kuwait impacted by disconnections and price revisions.

Internet revenues decreased by BD1.7 million, or 4.5 per cent., from BD38.1 million for the year

ended 31 December 2011 to BD36.4 million for the year ended 31 December 2012, due to declining

broadband revenues in Bahrain.

Wholesale revenues decreased by BD1.7 million, or 4.5 per cent., from BD 37.4 million for the year

ended 31 December 2011 to BD35.7 million for the year ended 31 December 2012, due to lower

wholesale voice revenues in Bahrain.

Fixed line revenues also decreased by BD5.5 million, or 19.6 per cent., from BD 28.0 million for theyear ended 31 December 2011 to BD 22.5 million for the year ended 31 December 2012, as a result

of declining fixed line subscribers in Bahrain.

However, the declines in revenue described above were partially offset by an increase in other

revenues which increased by 56.9 per cent. from BD17.4 million for the year ended 31 December

2011 to BD27.3 million for the year ended 31 December 2012, representing 9.0 per cent. of total

revenues for the year ended 31 December 2012 as compared to 5.3 per cent. of total revenues for the

year ended 31 December 2011. This increase is primarily a result of higher handset and other

equipment sales both in Jordan following the launch of 3G services during 2012 and in Bahrain aspart of Batelco’s focus on acquisition and retention of high value customers.

In the year ended 31 December 2012 the Group derived 58.7 per cent. of its total revenues from

Bahrain, 30.4 per cent. from Jordan and 10.9 per cent. from other countries (being Kuwait and

Egypt). This compares to the year ended 31 December 2011, where revenues were split 62.0 per cent.

from Bahrain, 27.2 per cent. from Jordan and 10.8 per cent. from other countries.

For further information regarding Batelco’s segment reporting, see Note 27 ‘‘Segment Information’’ of

Batelco’s audited consolidated financial statements as at and for the year ended 31 December 2012.

Total expenses

Total expenses increased by BD0.4 million, or 0.2 per cent., from BD238.9 million for the year ended

31 December 2011 to BD239.3 million for the year ended 31 December 2012. This increase was

largely due to an increase in total staff costs from BD50.9 million for the year ended 31 December

2011 to BD59.5 million for the year ended 31 December 2012, equivalent to 16.9 per cent., as a result

of a staff restructuring cost provision which was recorded in the year ended 31 December 2012.

However, the increase in staff costs was almost entirely offset by a 21.9 per cent. decline in other

operating expenses, which fell from BD34.2 million for the year ended 31 December 2011 toBD26.7 million for the year ended 31 December 2012 following the favourable settlement of certain

regulatory orders which enabled a one-off reversal of certain regulatory provisions.

Total expenses increased from 73.1 per cent. of total revenues for the year ended 31 December 2011

to 78.5 per cent. of total revenues for the year ended 31 December 2012, primarily as a result of the

corresponding decline in total revenues between the periods as described above.

Finance and other income

Finance and other income decreased by BD0.7 million, or 21.2 per cent., from BD3.3 million for theyear ended 31 December 2011 to BD2.6 million for the year ended 31 December 2012. This decline

was almost entirely attributable to a decline in other income (comprising service incomes from other

companies). Other income decreased by BD0.8 million, or 36.4 per cent., to BD1.4 million for the

year ended 31 December 2012 compared to BD2.2 million for the year ended 31 December 2011.

Finance expenses

Batelco’s finance expenses more than doubled from BD0.3 million for the year ended 31 December

2011 to BD0.6 million for the year ended 31 December 2012. This was due to increased borrowing

costs during 2012 associated with the financing of Batelco’s participation in the rights issue carriedout by Etihad Atheeb and Umniah’s borrowing for general purposes.

Share of profit/(loss) of associates (net)

Share of profit/(loss) of associates (net) for the year ended 31 December 2012 amounted to

BD1.6 million, as compared to a loss of BD3.1 million for the year ended 31 December 2011. This

52


was mainly due to the discontinuation of the recording of share of losses in respect of STel with

effect from Q2 2011, following the classification of this investment as held-for-sale.

Profit for the year attributable to equity holders

As a result of the factors described above, attributable profit for the year decreased by

BD19.7 million, or 24.6 per cent., to BD60.3 million for the year ended 31 December 2012 compared

to BD80.0 million for the year ended 31 December 2011.


The following table sets forth selected information extracted from Batelco’s consolidated statement of

comprehensive income for the year ended 31 December 2011 and related Note 19 ‘‘Revenue’’ which

provides the breakdown of revenue by product, although network operating expenses and other

operating expenses for the year ended 31 December 2011 are instead as presented for comparative

purposes in Batelco’s consolidated statement of comprehensive income for the year ended 31 December

2012. See ‘‘Presentation of Financial and Other Information’’.

2011 2010

(BD’000)

REVENUE

Mobile telecommunications services 150,855 161,809

Data communications circuits 55,271 52,971

Internet 38,124 37,873

Wholesale 37,352 39,831

Fixed line telecommunications services 27,974 34,037

Others 17,396 13,731

Total revenue 326,972 340,252

EXPENSES

Network operating expenses (115,817) (109,362)

Staff costs (50,930) (49,785)

Depreciation and amortisation (37,985) (39,704)

Other operating expenses (34,203) (34,942)

Total expenses (238,935) (233,793)

Results from operating activities 88,037 106,459Finance and other income 3,257 1,293

Finance expenses (262) (346)

Share of profit/(loss) of associates (net) (3,124) (13,199)

Profit before taxation 87,908 94,207

Income tax expense (4,053) (3,574)

Profit for the year 83,855 90,633


Equity holders of the Company 80,014 86,773

Non-controlling interest 3,841 3,860

83,855 90,633

Revenue

Total revenues decreased by BD13.3 million, or 3.9 per cent., to BD327.0 million for the year ended31 December 2011 as compared to BD340.3 million for the year ended 31 December 2010. This

decrease was largely due to a 6.7 per cent. decrease in revenue from mobile telecommunications

services, from BD161.8 million for the year ended 31 December 2010 to BD150.9 million for the year

ended 31 December 2011, following the entry of the third mobile operator in Bahrain in February

2010. Revenue from fixed line telecommunications services also declined, by BD6.0 million or 17.6 per

53


cent., from BD34.0 million for the year ended 31 December 2010 to BD28.0 million for the year

ended 31 December 2011, as a result of declining subscriber base and usage.

In the year ended 31 December 2011 the Group derived 62.0 per cent. of its total revenues from

Bahrain, 27.2 per cent. from Jordan and 10.8 per cent. from other countries (being Kuwait and

Egypt). This compares to the year ended 31 December 2010, where revenues were split 65.4 per cent.

from Bahrain, 25.7 per cent. from Jordan and 8.9 per cent. from other countries. The entry of thethird mobile operator in Bahrain referred to above, together with a decline in fixed

telecommunications services revenues, led to a marked decline in revenues in Bahrain during the

period under review, by BD19.8 million, or 8.9 per cent., from BD222.7 million for the year ended

31 December 2010 to BD202.9 million for the year ended 31 December 2011.

For further information regarding Batelco’s segment reporting, see Note 27 ‘‘Segment Information’’ of

Batelco’s audited consolidated financial statements as at and for the year ended 31 December 2011.

Total expenses

Total expenses increased by BD5.1 million, or 2.2 per cent., to BD238.9 million for the year ended

31 December 2011, equivalent to 73.1 per cent. of total revenue, as compared to BD233.8 million for

the year ended 31 December 2010, equivalent to 68.7 per cent. of total revenue. This increase was

largely due to a BD6.4 million, or 5.9 per cent., increase in network operating expenses fromBD109.4 million in the year ended 31 December 2010 to BD115.8 million in the year ended

31 December 2011, mainly as a result of increased telecom rental expenses in Kuwait to support

growth in Datacom revenues and higher handset and devices cost of sales in line with growth in

handsets and devices revenues in Bahrain.


Finance and other income more than doubled, from BD1.3 million for the year ended 31 December

2010 to BD3.3 million for the year ended 31 December 2011. This increase was almost entirely

attributable to an increase in other income comprising service incomes from other companies.

Finance expenses

Batelco’s finance expenses decreased by BD0.09 million, or 25.7 per cent., from BD0.35 million for

the year ended 31 December 2010 as compared to BD0.26 million for the year ended 31 December

2011. The decrease was mainly attributable to the full repayment of indebtedness in Bahrain in the

second quarter of 2010.

Share of profit/(loss) of associates (net)

Share of profit/(loss) of associates (net) decreased by BD10.1 million, or 76.5 per cent., from

BD13.2 million for the year ended 31 December 2010 as compared to BD3.1 million for the year

ended 31 December 2011. The decrease was mainly attributable to a lower share of losses from STel

following this investment’s classification as held-for-sale during 2011.

Profit for the year attributable to equity holders

As a result of the factors described above, attributable profit for the year decreased by BD6.8 million,

or 7.8 per cent., to BD80.0 million for the year ended 31 December 2011 as compared to

BD86.8 million for the year ended 31 December 2010.

Liquidity and capital resources

The Group’s principal source of funding for each of the periods under review has been cash flow

from operations.

54


Cash Flows


The following table sets out information from Batelco’s cash flow statement for the year ended

31 December 2012:

2012 2011

(BD’000)

Net cash from operating activities 104,496 122,991

Net cash used in investing activities (73,708) (27,098)Net cash used in financing activities (43,716) (71,234)

(Decrease)/increase in cash and cash equivalents (12,928) 24,659

Cash and cash equivalents at 1 January 105,095 80,436

Cash and cash equivalents at 31 December 92,167 105,095

Net cash from operating activities

Net cash generated from operating activities is a function of cash receipts from customers, net cashpaid to suppliers and cash paid to and on behalf of employees. Net cash generated from operating

activities decreased by BD18.5 million, or 15.0 per cent., to BD104.5 million for the year ended

31 December 2012 as compared to BD123.0 million for the year ended 31 December 2011. This

decrease was largely due to changes in cash receipts from customers, which decreased by

BD19.8 million, or 6.6 per cent., from BD300.1 million for the year ended 31 December 2011 as

compared to BD280.3 million for the year ended 31 December 2012. Cash paid to and on behalf of

employees increased from BD48.4 million for the year ended 31 December 2011 to BD53.0 million for

the year ended 31 December 2012, equivalent to 9.5 per cent., primarily due to higher redundancycosts. These factors were however partially offset by a decrease in net cash paid to suppliers, from

BD128.8 million for the year ended 31 December 2011 to BD122.8 million for the year ended

31 December 2012. This decrease was mainly attributable to lower payments to telecom operators

during the year.

Net cash used in investing activities

Net cash used in investing activities increased by BD46.6 million, or 172.0 per cent., to BD73.7 millionfor the year ended 31 December 2012 as compared to BD27.1 million for the year ended 31 December

2011. This increase is attributable primarily to two factors, the first being an increase in acquisition of

property, equipment and intangibles from BD31.6 million for the year ended 31 December 2011 to

BD63.8 million for the year ended 31 December 2012, reflecting the acquisition of a 3G license

together with equipment/and other capital expenditure in Jordan. The second principal factor was the

one-off payment of BD17.7 million made during the year ended 31 December 2012 in respect of the

Etihad Atheeb rights issue.

Net cash used in financing activities

Cash used in financing activities includes dividend payments, interest payments, borrowings drawn

down or repaid and payments to charities. Net cash used in financing activities decreased by

BD27.5 million, or 38.6 per cent., to BD43.7 million for the year ended 31 December 2012 as

compared to BD71.2 million for the year ended 31 December 2011. During the year ended

31 December 2012, Batelco’s net proceeds of borrowings were BD18.5 million, as compared to nil

during the previous year. See ‘‘– Indebtedness’’ below for more details.

In the year ended 31 December 2012, the Group paid dividends of BD59.9 million and paid

BD1.7 million to charities.

Cash and cash equivalents at end of year

Cash and cash equivalents decreased by BD12.9 million, or 12.3 per cent., to BD 92.2 million as at

31 December 2012 compared to BD 105.1 million as at 31 December 2011. This decrease was

primarily due to lower net cash from operating activities and higher capital expenditure payments for

the reasons discussed above.

55



The following table sets out information from Batelco’s cash flow statement for the year ended

31 December 2011:

2011 2010

(BD’000)

Net cash from operating activities 122,991 137,891

Net cash used in investing activities (27,098) (16,205)

Net cash used in financing activities (71,234) (111,480)

Increase in cash and cash equivalents 24,659 10,206

Cash and cash equivalents at 1 January 80,436 70,230

Cash and cash equivalents at 31 December 105,095 80,436


Net cash generated from operating activities decreased by BD14.9 million, or 10.8 per cent., to

BD123.0 million for the year ended 31 December 2011 as compared to BD137.9 million for the year

ended 31 December 2010. This overall decrease was primarily driven by lower cash receipts from

customers, which decreased from BD316.6 million for the year ended 31 December 2010 to

BD300.1 million for the year ended 31 December 2011, equivalent to 5.2 per cent., driven mainly by

lower collections from customers in Bahrain.


Net cash used in investing activities increased by BD10.9 million, or 67.3 per cent., to BD27.1 million

for the year ended 31 December 2011 as compared to BD16.2 million for the year ended 31 December

2010. This was partly attributable to an increase in acquisition of property and equipment of

BD2.8 million, or 9.7 per cent., from BD28.8 million for the year ended 31 December 2010 to

BD31.6 million for the year ended 31 December 2011, reflecting increased payments for networkcapital expenditures.

In addition, receipts from associates decreased by BD4.2 million, or 68.9 per cent., from BD6.1 millionfor the year ended 31 December 2010 to BD1.9 million for the year ended 31 December 2011, on

account of lower dividends from Sabafon. In addition, a one-off advance of BD2.8 million was made

to Etihad Atheeb, which was subsequently repaid during the year ended 31 December 2012.


Net cash used in financing activities decreased by BD40.3 million, or 36.1 per cent., to BD71.2 million

for the year ended 31 December 2011 as compared to BD111.5 million for the year ended31 December 2010. The decrease was primarily due to the repayment of bank borrowings in an

amount of BD36.6 million in the year ended 31 December 2010, as a result of which the Group did

not have any outstanding bank borrowings for the year ended 31 December 2011.

In the year ended 31 December 2011, the Group paid dividends of BD69.1 million and paid

BD2.1 million to charities.

Cash and cash equivalents at end of year

Reflecting the factors discussed above, cash and cash equivalents increased by BD24.7 million, or 30.7per cent., to BD105.1 million as at 31 December 2011 compared to BD80.4 million as at 31 December

2010.

Capital expenditure

Batelco’s capital expenditure for the year ended 31 December 2012 was BD68.0 million compared toBD30.7 million for the year ended 31 December 2011, an increase of BD37.3 million, or 121.5 per

cent. The higher capital expenditure in the year ended 31 December 2012 reflects investments in a 3G

license in Jordan (in an amount of BD26.7 million) (corresponding to 50 million Jordanian dinars), as

well as network roll-out and the acquisition of real property in Jordan to be used as Umniah’s

headquarters building.

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Batelco’s capital expenditure for the year ended 31 December 2011 represented a decrease of

BD2.3 million, or 7.0 per cent., as compared to the year ended 31 December 2010 where capital

expenditure was BD33.0 million.

Indebtedness

As at 31 December 2012, Batelco’s total indebtedness was BD18.5 million, of which BD4.1 million, or

22.2 per cent., was designated as current and BD14.4 million, or 77.8 per cent., was designated as

non-current.

In order to finance its participation in the rights issue by Etihad Atheeb during the year ended

31 December 2012, Batelco obtained a long term loan of BD17.7 million from Banque Saudi Fransi.

The loan bears an interest at a rate of SAIBOR plus a margin of 1.75 per cent. per annum and has atenor of eight years. Batelco had repaid BD1.1 million of the original loan amount as at 31 December

2012.

On 23 May 2012, Umniah obtained a short-term loan in the amount of BD9.8 million from Arab

Banking Corporation. The purpose of this loan is to finance the general business of Umniah. The

loan tenor is for a 12 month period with Umniah having the option of extending for another 12

month term. The loan bears interest at a rate of LIBOR plus a margin of 1.6 per cent. per annum

for the first year and LIBOR plus a margin of 1.75 per cent. per annum for the second year. Umniah

had repaid BD7.9 million of the original loan amount as at 31 December 2012.

Batelco entered into a U.S.$650 million bridge loan facility on 13 February 2013 and in March and

April 2013 Umniah drew down additional amounts under short-term and overdraft facilities to

finance its general business (see ‘‘– Recent Developments’’ for further details).

Batelco had no outstanding indebtedness as at 31 December 2011 or 31 December 2010.

Transactions with related parties

For information on transactions with related parties, see Note 26 ‘‘Transactions with related parties’’

of Batelco’s audited consolidated financial statements as at and for the year ended 31 December 2012

and Note 26 ‘‘Transactions with related parties’’ of Batelco’s audited consolidated financial statements

as at and for the year ended 31 December 2011.

Commitments and contingencies

For information on Batelco’s commitments and contingencies, see Note 24 ‘‘Commitments and

contingencies’’ of Batelco’s audited consolidated financial statements as at and for the year ended

31 December 2012 and Note 24 ‘‘Commitments and contingencies’’ of Batelco’s audited consolidated

financial statements as at and for the year ended 31 December 2011.

Off balance sheet transactions

As at the date of this Prospectus, Batelco has not entered into any off balance sheet transactions that

have or are reasonably expected to have a material current or future effect on its financial condition,

revenue, expenses, results of operations, liquidity, capital expenditures or capital resources.

Quantitative and qualitative disclosure about risks

Batelco is exposed to risks arising from its normal business activities, which represent the potential

losses arising from adverse changes in rates and prices. These risks principally involve credit risk,

liquidity risk and market risk, which could adversely affect the value of Batelco’s financial assets andliabilities or its future cash flows and earnings.

The Board is responsible for developing and monitoring Batelco’s risk management policies. Note 4

‘‘Financial instruments and risk management’’ of Batelco’s audited consolidated financial statements asat and for the year ended 31 December 2012, and Note 4 ‘‘Financial instruments and risk

management’’ of Batelco’s audited consolidated financial statements as at and for the year ended

31 December 2011, each contain detailed disclosure about the capital and financial risk management

activities, including statistical disclosure in relation to credit risk management, market risk

management (which includes interest rate risk management) and liquidity risk management.

Recent developments

On 3 December 2012, Batelco announced that its wholly owned subsidiary BIG Holding, and Batelco

as guarantor, had entered into an agreement with Sable Holding and Cable and Wireless Limited,

57


each wholly owned subsidiaries of CWC, to acquire the majority of CWC’s Monaco & Islands (M&I)

business unit. Completion of the M&I Acquisition took place on 3 April 2013. See ‘‘Description of the

M&I Transaction’’ for further information.

On 13 February 2013, Batelco entered into a U.S.$650 million short term bridge loan facility to be

provided by BNP Paribas Fortis SA/NV and Citibank NA, London Branch. As at the date of this

Prospectus, U.S.$525 million has been drawn down under this facility.

The consideration for the M&I Acquisition has been funded by Batelco using a combination of

available cash reserves and drawing down funds under this short term bridge loan facility. Batelcointends to apply the proceeds from the issue of the Notes in repayment of amounts drawn down

under the short term bridge loan facility.

On 25 February 2013, Batelco’s shareholders approved a bonus share issue pursuant to which all

shareholders were issued one new ordinary share for every 10 ordinary shares held. This resulted in

the issue of 144 million new ordinary shares of 100 fils each, and a corresponding increase in the

total number of shares in issue from 1,440 million to 1,584 million. The bonus issue formed part of

the annual distributions to shareholders for the year ended 31 December 2012, in addition to a cash

dividend of BD36.0 million.

In March 2013, Umniah redrew the full amount of the BD9.8 million facility provided by Arab

Banking Corporation for its working capital purposes and also obtained a new overdraft facility of

BD4.5 million from the Housing Bank for Trade & Finance, of which BD0.5 million has been drawn

down as at the date of this Prospectus. The purpose of the new overdraft facility is to finance the

general business of Umniah. The overdraft tenor is for a 12 month period subject to annual renewals,and the interest on the facility is equal to the Housing Bank for Trade & Finance’s ‘‘Prime Lending

Rate’’ less 1.4 per cent., which currently equates to a rate of 7.5 per cent. per annum.

Batelco announced on 14 March 2013 that it was in discussions with Reliance Group with respect to

Reliance Globalcom, Reliance Group’s global communications services business unit. However,

Batelco is no longer in any discussions with Reliance Group in respect of a direct or indirect

investment in Reliance Globalcom.

On 24 April 2013, Batelco entered into a U.S.$25 million short term loan facility with MashreqBank

PSC for general corporate purposes. The short term loan tenor is for a one year term with interest

charged at a rate of one month LIBOR plus 1.5 per cent.

58


BUSINESS DESCRIPTION OF THE ISSUER

The Issuer

Batelco International Finance No. 1 Limited (the Issuer), an exempted company incorporated in the

Cayman Islands with limited liability, was incorporated on 11 March 2013 under the Companies Law(2012 Revision) of the Cayman Islands with company registration number 276138. The registered

office of the Issuer is at P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands,

telephone number +1 345 949 8066.

The authorised share capital of the Issuer is U.S.$50,000 divided into 50,000 ordinary shares of

U.S.$1.00 each, 1 ordinary share of which has been issued. The issued share is fully-paid and is held

by Batelco.

The Business of the Issuer

The Issuer has no prior operating history or prior business and will not have any substantial

liabilities other than in connection with the Notes.

The Issuer has, and will have, no assets other than the sum of U.S.$1.00 representing the issued and

paid-up share capital, such fees (as agreed) payable to it in connection with the issue of the Notesand its interest in the loan agreement between the Issuer and Batelco pursuant to which it has loaned

the proceeds from the Notes to Batelco.

Restrictions on the Offer of the Notes

No invitation whether directly or indirectly may be made to the public in the Cayman Islands to

subscribe for the Notes unless the Issuer is listed on the Cayman Islands Stock Exchange.

Directors of the Issuer

The directors of the Issuer are as follows:

Name Principal Occupation

Sh. Mohamed Bin Isa Al Khalifa Officer/Employee of Batelco

Marco Regnier Officer/Employee of Batelco

The business address of the directors of the Issuer is Batelco Building, Hamala, P.O. Box 14,

Manama, Kingdom of Bahrain.

There are no conflicts of interest between the duties of the directors of the Issuer to the Issuer and

their private interests or other duties.

Registered Office

The Issuer has entered into a registered office agreement with Maples Corporate Services Limited for

the provision of registered office facilities in the Cayman Islands to the Issuer. In consideration of the

foregoing, the Administrator will receive various fees payable by the Issuer at rates agreed upon from

time to time, plus expenses.

The Issuer’s registered office in the Cayman Islands is P.O. Box 309, Ugland House, Grand Cayman,

KY1-1104, Cayman Islands and its telephone number is +1 345 949 8066.

59

BUSINESS DESCRIPTION OF THE GROUP

Overview

The Group’s operations are anchored in the Kingdom of Bahrain (Bahrain), where Batelco is the

leading provider of national and international telecommunications and Information andCommunication Technology (ICT) services, including internet, mobile and broadband access products,

data centre hosting and solutions for office and home environments. The Group also operates in

Jordan, Kuwait, Saudi Arabia, Yemen and Egypt through various subsidiary and joint venture

companies and, with effect from completion of the M&I Acquisition on 3 April 2013, the Group’s

operations also now extend across the Channel Islands, Monaco, Maldives, Afghanistan, the South

Atlantic and Diego Garcia. In addition, following completion of the Seychelles Acquisition, the

Group will also have operations in the Seychelles (see ‘‘Description of the M&I Transaction’’ for

further details).

Batelco is a public shareholding company listed on the Bahrain Stock Exchange, with commercial

registration number 11700. Its registered office is P.O. Box 14, Manama, Bahrain and its telephone

number is +973 17 881 881.

Batelco’s major shareholders with effective control over 78 per cent. of Batelco’s share capital are

three Government of Bahrain (the Government) related entities: Bahrain Mumtalakat HoldingCompany BSC (c) (Mumtalakat) (37 per cent.), the Social Insurance Organisation (21 per cent.) and

Amber Holdings Limited (20 per cent.). The remaining 22 per cent. of Batelco’s share capital is held

by a free float of public shareholders comprising Bahraini and non-Bahraini individuals and

companies.

As a provider of key communications infrastructure in Bahrain and as a source of dividends for the

Ministry of Finance, Batelco is a flagship national company for Bahrain and an important strategic

investment of the Government. Six of the 10 members of the Board of Directors are appointed by,

and represent, the three key shareholders who are Government related entities.

Batelco had consolidated gross revenues of BD304.7 million for the year ended 31 December 2012, as

compared to BD327.0 million for the year ended 31 December 2011. Its profit (attributable to the

equity holders) for the year ended 31 December 2012 was BD60.3 million, as compared to BD80.0

million for the year ended 31 December 2011. Furthermore, Batelco had total assets ofBD689.4 million as at 31 December 2012, as compared to BD659.3 million as at 31 December 2011.

Batelco’s market capitalisation was BD620.9 million (approximately U.S.$1,651 million) as at

31 March 2013.

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The following table lists the Group’s key subsidiaries and affiliates involved in its telecommunications

operations as at 31 December 2012, the Group’s effective economic ownership interests in such

entities and certain key data regarding each entity’s operations and market position in each segment.

For more information on the Enlarged Group following completion of the M&I Acquisition, see‘‘Description of the M&I Transaction’’.

Bahrain Jordan Kuwait Yemen

Saudi

Arabia(1)

Entity.................................... Batelco Umniah Qualitynet SabaFon EtihadAtheeb

Telecom

Ownership............................. 100% 96.0% 44.0% 26.94% 15.0%

Type...................................... Integrated Mobile,

Broadband

& Data

Broadband

& Data

Mobile Fixed voice,

data Wireless

& Broadband

Total subscribers (2012)(2)

Mobile(3) (million) ................ 0.70 2.38 n/a 4.11 n/a

Market Ranking.................... 1 3 n/a 3 n/a

Broadband(4) (million) .......... 0.15 0.16 0.04 n/a 0.10

Market Ranking.................... 2 3 1 n/a n/a

Fixed Line (million) ............. 0.16 n/a n/a n/a n/a

Market Ranking.................... 1 n/a n/a n/a n/a

Total subscribers (2011)(2)

Mobile (million) ................... 0.74 2.31 n/a 3.09 n/a

Market Ranking.................... 1 3 n/a 3 n/a

Broadband (million) ............. 0.12 0.03 0.04 n/a 0.11

Market Ranking.................... 2 3 1 n/a n/a

Fixed Line (million) ............. 0.17 n/a n/a n/a n/a

Market Ranking.................... 1 n/a n/a n/a n/a

Notes:

(1) Etihad Atheeb Telecom is treated as an investment in the Group’s consolidated financial statements.

(2) Subscriber numbers are as at 31 December 2012 and 31 December 2011, respectively, and are the total attributable to the relevantentity and not the Group’s proportionate share thereof.

(3) Mobile subscribers include voice, data and dongles.

(4) Broadband subscribers include fixed and mobile broadband.

Source: Batelco

History and Development

Batelco was established pursuant to Amiri Decree No. 18 issued on 11 August 1981 and registered as

a Bahraini public joint stock company under company registration number 11700 on 14 February

1982. Upon its incorporation, 40 per cent. of Batelco’s share capital was held by Cable and Wirelesswho, together with its predecessors, had previously been operating telegram and telephony services in

Bahrain since 1931. Cable and Wireless sold half of its interest in Batelco to the Government in 1989,

and the remaining half in 2006.

Over recent years, Batelco has grown organically and through a series of acquisitions in mobile, fixed

and broadband services:

* In 1999, Batelco acquired 44 per cent. of Qualitynet, which was established in 1998 in response

to a public offering as part of the privatisation of Kuwait’s internet and data communicationsservices.

* In 2001, Batelco acquired First Telecommunications Group P.S.C. and National Equipment and

Technical Services W.L.L. and formed Batelco Jordan by merging the two acquired companies.

* In 2003, Batelco Egypt was established as a wholly owned subsidiary of Batelco.

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* In 2006, Batelco acquired 96 per cent. of the Umniah Mobile Company (Umniah), the third

licensed GSM operator in Jordan.

* In 2007, Batelco purchased a 20 per cent. stake in Yemen’s mobile operator, SabaFon, and in

2008 purchased an additional 7 per cent. stake.

* In 2008, as part of a consortium with Atheeb Trading Company, Al Nahla Enterprise and

Traco Company, Batelco won Saudi Arabia’s second fixed-line licence and formed EtihadAtheeb Telecom (Etihad Atheeb).

* In 2008, Umniah acquired 100 per cent. of Batelco Jordan.

* In 2009, Batelco acquired a 42.7 per cent. stake in S-Tel, an India-based mobile operator. In

February 2012, the Group announced that it had agreed to sell the whole of its interest in S-Tel

following the revocation of certain mobile licences in India, although completion of this disposal

has not yet taken place. See ‘‘– Litigation – India – STEL’’ for further details.

* In December 2012, the Group entered into an agreement with Sable Holding, a wholly-ownedsubsidiary of CWC, to acquire the majority of CWC’s Monaco and Islands business unit.

Completion of the M&I Acquisition took place on 3 April 2013, with completion of the

remainder of the M&I Transaction (being the Seychelles Acquisition and the Monaco Option)

subject to certain conditions, including obtaining necessary regulatory consents. See ‘‘Description

of the M&I Transaction’’ for further details.

As a result of the above acquisitions, supplemented by organic growth in its domestic and new

markets, Batelco has developed into a fully integrated telecommunications company providing mobile,

fixed-line and broadband services, delivering its products, services and communications expertise to

over 12 million customers across its operations in MENA, Monaco, the Indian Ocean, Channel

Islands and the South Atlantic following the completion of the M&I Transaction.

Strengths

The Group believes that the following constitute its key competitive strengths:

Proven financial performance

Despite challenging global financial market and economic conditions as well as intense competition in

a number of the Group’s domestic and key markets, the Group has maintained a robust financial

position with strong cash flow generation and historically low levels of debt. Net cash from operatingactivities for the year ended 31 December 2012 was BD104.5 million, as compared to BD123.0 million

for the year ended 31 December 2011. The Group’s cash and cash equivalents as at 31 December

2012 stood at BD92.2 million, notwithstanding significant non-recurring capital expenditure during the

year of BD38.3 million associated with the acquisition of a 3G licence and equipment in Jordan.

Furthermore, Batelco’s consolidated loans and borrowings were only BD18.5 million as at

31 December 2012, being debt relating to the financing of the 2012 rights issue by Etihad Atheeb and

Umniah’s working capital requirements. Although Batelco’s debt will increase from its level as at

31 December 2012 as a result of the U.S.$650 million short-term bridge loan, of whichU.S.$525 million has been drawn down by the Group as at the date of this Prospectus in connection

with the M&I Acquisition, the bridge loan will be refinanced in full using the proceeds of the Notes

and the Group’s leverage ratio remains low compared to industry peers, notwithstanding the increase

in debt since 31 December 2012. Furthermore, completion of the M&I Transaction is expected to

result in higher free cash flow (FCF) through increased synergies. See ‘‘Description of the M&I

Transaction’’ for further details. Finally, the Group has been profitable for each financial year since

Batelco’s incorporation.

Leading market presence in key markets

Batelco is the former incumbent operator in Bahrain and, despite liberalisation, it retains clear market

leadership in mobile services with a market share as at 31 December 2012 of approximately 41 per

cent. (source: Batelco). Batelco is also the market leader in fixed line services in Bahrain as well as

being the second largest broadband operator in the country. Batelco believes that its leading market

position, particularly in Bahrain, provides a stable foundation for the Group’s cash flow generation

needed to support its growth and international expansion into less mature or less saturated markets.

In addition, the M&I Target Group comprises a number of strong, incumbent, full-service operations

which are the leading operators in their respective jurisdictions such as Guernsey, the Maldives, the

62


Seychelles and Monaco, together with monopolies in the South Atlantic and Diego Garcia. See

‘‘Description of the M&I Transaction’’ for further details.

Experienced management team with significant expertise in operating and growing internationaltelecommunications businesses

Batelco possesses a highly capable and experienced management team with a proven track record in

both operating international telecommunications businesses and in implementing a successful

acquisition strategy to promote growth and diversification of the Group’s business. The Group’sexecutive management team has extensive experience in diverse telecommunications operations and,

throughout their careers, members of the executive management team have been involved in

acquiring, establishing and operating fixed, wireless and ICT businesses in Saudi Arabia, Kuwait,

Jordan, Yemen, North and South America, Singapore, Australia, New Zealand and other Asia Pacific

countries. The executive management team has hands-on experience in marketing and delivering mass

market and enterprise voice, data and video solutions and applications and in deploying different

technologies such as GSM, 3G, Wimax, Long Term Evolution (LTE) and managing complex access

and transmission products and services, including global IP/VPN services and e-commerce platforms.The executive management team has also negotiated a number of strategic sourcing and distribution

partnerships with technology vendors, device manufacturers and digital content companies.

Strong brand recognition across multiple geographies

Batelco’s brand positioning in relation to its customers is essential to enable it to attract and retain adiverse mix of customers. Its brand strategy is to promote strong individual brands in the countries in

which it operates rather than a single global brand, while maintaining common visions and values

across the regions. Following a comprehensive re-branding initiative in 2009, the Batelco brand has

become one of the most recognised brands in Bahrain and across the Middle East. Batelco is within

the top 10 rankings in the world for effective market communication and brand (2011 Effie

Worldwide: www.effieindex.com) and has won 11 awards in the areas of communication and brand

recognition. Batelco’s primary objective across its branding and marketing policies is to convey its

brand to customers in a way that accurately reflects the Group’s vision and values, in particular itsemphasis on integrity, creativity, teamwork and the quality of customer experience, whilst at the same

time promoting growth and profitability. This objective is supported by a number of initiatives

including sponsorship and involvement in international and regional sporting and cultural events, such

as Formula 1 Grand Prix, Bahrain International Air Show, Bahrain Endurance race, Chevrolet

Supercars Middle East season, Karting and sponsorship of the Young Musicians of the Gulf

competition.

The Group has also maintained and built upon its strong individual brands in the variousinternational geographies in which it operates, as follows:

* Although Umniah was the third mobile operator to enter the Jordanian market, it has

successfully gained strong brand recognition in the short period since commencement of

operations. Based on a Brand Health survey by Mindset in January 2012, Umniah is perceived

as the best value for money, youth oriented and with high brand recognition;

* Qualitynet has been voted as a ‘‘Super Brand’’ within the State of Kuwait for the past fourconsecutive years (source: Super Brands Middle East); and

* Etihad Atheeb was ranked in the top 50 brands in Saudi Arabia by the Arabian Business

Economic Magazine in 2010, a significant achievement for the company within only 18 months

of the commencement of commercial operations as the first 4G cloud telecom entity in the

region.

In addition, following completion of the M&I Acquisition, a number of further leading international

brands (such as Sure (Guernsey, Jersey and Isle of Man) and Dhiraagu (Maldives)) have beenincorporated into the Group, with the Group also holding a minority interest in Monaco Telecom

(Monaco). See ‘‘Description of the M&I Transaction’’ for further details.

Diversified sources of revenues

In the last decade, Batelco has grown from a national operator to an international

telecommunications company with leading positions in various Middle Eastern markets, and has as a

result reduced its exposure to the domestic market in Bahrain. In 2012, revenues from the Group’s

overseas operations were 41 per cent. of total revenues, compared to only 17 per cent. in 2006. The

growth in the overseas markets has helped to partially offset the effects of intense competition in

63


Bahrain. Following completion of the M&I Acquisition on 3 April 2013 Bahrain’s relative

contribution to the Group’s total revenues is expected to decrease further, with such effect expected

to be reinforced as a result of the completion of the remainder of the M&I Transaction.

Furthermore, Batelco has in recent years taken steps to expand its product and services capability,with Batelco’s mobile and fixed line voice services being supplemented by increasing revenues from

broadband services and, more recently, initiatives to further expand its position in Datacom services,

both in Bahrain and internationally.

Relationship with the Government

Management believes that Batelco is considered by the Government to be a flagship company for thecountry and a key strategic investment, particularly in light of the importance placed on ICT in

Bahrain’s long-term economic plan, known as ‘‘Economic Vision 2030’’. See ‘‘Overview of the

Kingdom of Bahrain’’ for further details. The strong support of the Government has been a significant

contributing factor in the successful implementation of the Group’s growth and international

expansion strategy. Furthermore, dividends paid by Batelco to Mumtalakat have to date comprised

an important part of Mumtalakat’s annual income, and Batelco’s operations make a significant

contribution to the overall GDP of the country. See ‘‘Relationship with the Government’’ for further

details.

Group strategy

Batelco is determined to remain the market leader in Bahrain and to develop into a leadinginternational communications organisation delivering advanced telecommunications services and

content to consumer, enterprise and government clients in chosen markets. The Group intends to

achieve these aims by continuing to invest in Bahrain and overseas to grow in scale and to diversify

and strengthen its product and services portfolio, whilst at the same time focusing on cost efficiency

and customer service across its operations. The key components of the Group’s business strategy

(referred to as the ‘‘Bridge’’ strategy) can be summarised as follows:

Remain the market leading brand in Bahrain

The Bahrain market has experienced significant penetration for wireless and fixed services during

recent years. Wireless penetration is over 150 per cent. (source: TRA) and every residential dwelling

has a fixed ADSL line while enterprise customers are served predominantly via fibre access networks

and 3.75G wireless networks. Wimax technologies are also available in Bahrain. The recent launch of

4G/LTE services by Batelco (on 27 February 2013) reconfirms Batelco’s commitment to Bahrain and

its desire to maintain its leadership position in the Bahrain market.

Batelco’s strategy in Bahrain has been to retain its market leadership by focusing on the needs of the

more demanding high value residential customers and enterprise clients in the post-paid market, who

expect high levels of network uptime and reliability but generate higher levels of revenue per customer

than the prepaid market. Batelco’s efforts have resulted in it increasing its total post-paid number of

subscribers, despite intense competition in the last two years and the introduction of mobile number

portability. To deliver an unmatched service portfolio, Batelco intends to remain as a fully integrated,

infrastructure based telecommunications service provider, delivering full service and complex solutions

to enterprise customers and fixed and wireless broadband services to the mass market.

In order to retain its market leadership position in Bahrain, Batelco has adopted the following

strategy (known as ‘‘GEAR’’):

* Grow Mobility and Broadband;

* Excel in Customer Experience;

* Accelerate Adjacent Business; and

* Realign cost structure.

As a further component of its strategy, Batelco places the ‘‘Customer at the Centre’’, and in this

respect has implemented various initiatives aimed at retaining its existing subscriber base and growingthe same by launching innovative loyalty programmes and actively managing its customers’ Service

Level Agreements (SLAs).

Batelco has concentrated on improving its internal process to deliver consistently sound customer

experience based on connecting and repairing services within specific timeframes, ensuring accuracy in

billing and provisioning and having an unmatched portfolio of services ranging from basic telephony

64


and public payphones to international Multiprotocol Label Switching (MPLS) based Internet Protocol

/Virtual Private Network (IP/VPN) solutions and data centre services.

Ongoing service development and continued innovation in marketing and customer care has helped

position Batelco as a strong market leader in the most valuable segments of the market.

Market leadership in chosen market segments

Batelco’s international based operations are focused on specific market segments and clients. In

Jordan, for example, its operations are targeted towards two market segments, namely mass market

for wireless mobile voice service and wireless internet and corporate customer segment for Local Area

Network/Wide Area Network (LAN/WAN) solutions and international data services.

The entities through which Batelco holds its interests in its international operations select the

segments in which they choose to compete and aim to grow their revenues and market share faster

than the market in these segments and attain the leading competitive position in that segment. They

do so via ongoing targeted promotions of bundles (i.e. service plus device), offering new services, joint

promotions with content partners, churn management programmes, rolling out infrastructure in

underpenetrated geographical segments, and providing excellent and differentiated customer care to

various segments.

Invest in advanced customer access networks in all markets to deliver a portfolio of products and applications

Investments in various network infrastructure and access technologies such as LTE and Gigabit-

capable Passive Optical Networks (GPON) are intended to deliver both innovation and differentiation

in the various markets in which Batelco operates. Batelco expects that quality of service, based onadequate coverage and backhaul transmission, will continue to differentiate telecommunications

providers. In order to increase market share in key markets and retain existing high value customers,

Batelco’s operating companies intend to expand their fixed access networks predominantly via fibre

and Very-high-bit-rate Digital Subscriber Line (VDSL) and wireless networks via 3.75G and LTE

technologies.

Improve operational efficiencies

Batelco has initiated plans aimed at transforming its operations in Bahrain and becoming one of the

most efficient, full service providers in the region. In Bahrain and other markets, benchmarking,

process improvement, outsourcing, optimisation of direct and indirect dealer and sales force channels

and investments in IT systems and people are among the key initiatives currently being pursued by

the Group, with the aim of continually improving operational readiness and delivery of service in a

consistent manner. Infrastructure sharing with other licensed operators for facilities and backhaul, aswell as third party provision of managed services for certain network and IT activities, are being

implemented so as to assist the transformation of the Group’s operations into a leaner and more

efficient business. As a result of these initiatives, annual savings of up to BD 20 million are expected

in Batelco’s Bahrain operations from 2014 onwards.

Increase the scale and scope of the Group’s business through selective acquisitions in order to stimulate growth,achieve synergies and sustain the Group’s cash flow position

Whilst Batelco has grown from a national operator to an international telecommunications company

with leading positions in various Middle Eastern markets over the last decade, management believes

that the next step is to expand the scale and scope of the Group’s operations to create a sustainable

and profitable basis for its business whilst maintaining its financial position. The Group’s ability to

achieve synergies in areas such as procurement, wholesale voice, IP transit and roaming will besignificantly enhanced if and to the extent it increases the scale and scope of its operations, as its

customer base of 7.8 million as at 31 December 2012 does not allow for significant synergies in such

areas due to the Group’s relatively small scale and more limited group procurement requirements.

The Group therefore intends to increase the scale and scope of its business through selective

acquisitions of established companies and the creation of group centres of excellence in procurementand wholesale to achieve economies of scale and sustain the Group’s ability to generate cash flow for

dividends. Batelco has a track record of integrating acquisitions for the benefit of shareholders and

generating cost savings for the benefit of customers. The Group is pursuing the M&I Transaction in

furtherance of this strategy (see below for details). It may also consider selected disposals of non-core

assets to allow the Group to focus on its core business.

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In connection with the strategy described above, Batelco has in the past discussed, and expects to

continue to discuss, opportunities for further acquisitions and/or disposals of assets with third parties

in the telecommunications market and adjacent businesses. Furthermore, Batelco has received recent

expressions of interest in respect of certain of the assets currently owned by it. These expressions ofinterest remain at a preliminary stage and, in the opinion of Batelco’s management, are unlikely to

lead to the sale of any assets in the immediate future, nor to the sale of any assets which

management views as material or part of its core business. However there can be no assurance

regarding the timing or commercial terms of such transactions (if any), which will be considered by

management in the light of the circumstances at the relevant time.

In particular, Batelco announced on 14 March 2013 that it was in discussions with Reliance Group

with respect to Reliance Globalcom, Reliance Group’s global communications services business unit.

However, Batelco is no longer in any discussions with Reliance Group in respect of a direct or

indirect investment in Reliance Globalcom.

Pursue successful integration of the M&I Target Companies once acquired

Completion of the M&I Transaction is an important step towards the Group achieving its goal ofincreasing the scale of its business and achieving economies of scale. Following completion of the

M&I Acquisition on 3 April 2013 and assuming completion of the Seychelles Acquisition, as

described in ‘‘Description of the M&I Transaction’’, the Enlarged Group will have increased scale,

with more than 12 million customers and a significantly greater geographic diversification, having a

presence in 17 countries formed around strategic clusters in the Middle East, Monaco, the Indian

Ocean, Channel Islands and the South Atlantic. The proportion of the Group’s revenues generated

outside Bahrain is, as a result, expected to increase significantly. Management believes that this

reduction in Batelco’s dependency on the Bahrain domestic market, together with its increasedexposure to the mature and stable markets in which the M&I Target Companies operate, will help to

support cash flow generation and provide a platform for further acquisitions to promote growth. In

addition, the Enlarged Group will have a broader product and services capability, with Batelco’s

existing mobile, fixed line voice and broadband services being complemented by solutions-to-operator,

data centre and enterprise data centre offerings.

Batelco expects to derive significant merger benefits from the M&I Transaction, which are anticipated

to arise mainly from savings in capital expenditure based on bulk purchasing arrangements in the

Enlarged Group following completion of the M&I Transaction. The one-off expenses involved in

obtaining overall synergies in connection with the M&I Transaction are anticipated to have been fully

incurred by December 2014.

See ‘‘Description of the M&I Transaction’’ for further details.

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Group Structure

The structure of the Group as at the date of this Prospectus is set out below.

..

.

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Bahrain

Products and Services

Overview

Batelco is the leading communications services provider in Bahrain, serving both the corporate and

consumer markets and delivering fixed, wireless and wholesale telecommunication services. Batelcooffers end-to-end telecommunications solutions for its residential, business and government customers

in Bahrain on next generation network, all IP fixed and 3.5G wireless networks, MPLS based

regional data solutions and GSM mobile and broadband services.

Batelco’s Bahrain operations reported gross revenues (from external customers) of BD178.8 million

for the year ended 31 December 2012, as compared to BD202.9 million for the year ended

31 December 2011, representing 58.7 per cent. and 62.0 per cent. of total consolidated gross revenues

for the year, respectively. Profit for the year ended 31 December 2012 attributable to the Bahrain

segment was BD45.8 million, as compared to BD67.8 million for the year ended 31 December 2011,

representing 70.0 per cent. and 80.9 per cent. of total consolidated profit for the year, respectively.

Mobile

Batelco’s mobile revenues in Bahrain are derived principally from service package rentals, voice

services (including local, national, international and roaming), sale of devices and mobile Value

Added Services (VAS) (being content rather than voice-based services such as mobile broadband,

Blackberry services, Short Message Service (SMS), General Packet Radio Service (GPRS), Premium

SMS and other data-related services that are provided over the mobile network).

Batelco offers a wide range of packages for both its post-paid and prepaid customers, depending on

their needs. The portfolio of packages follows the global approach of setting slightly higher tariffs for

prepaid customers, to offset the monthly rental paid by post-paid customers. Packages are inclusive ofvoice minutes, SMS and data thresholds. Batelco’s main mobile plans are as follows:

* Bundled packages, which are targeted to smartphone users from both the consumer andenterprise segments and include a handset together with VAS services;

* Flexible packages, which allow customers to shape their packages according to theirrequirements; and

* Data only packages, which compliment customers’ bundled packages by offering a range of data

packages for their devices. Batelco offers a combination of usage based, pay as you go, time

based and unlimited (with a ‘‘fair usage policy’’) data packages.

Batelco also provides prepaid packages, ranging from starter packs to customised packages according

to the customer segment.

Fixed-Line

Batelco’s fixed line services encompass the provision of national and international calling services

using international direct dial, carrier pre-selection or prepaid calling cards. Batelco offers a range ofVAS services such as telemeeting, voice mail and Caller Line Identification (CLI) in addition to

bundled packages of inclusive on-net minutes for a fixed monthly fee.

Batelco’s fixed-line revenues in Bahrain have decreased over the period 2006 to 2012, and areexpected to decrease further before stabilising. This trend is due to declining tariffs and lower fixed-

line usage as a result of the shift to mobility and Voice over Internet Protocol (VoIP) competition.

Batelco’s strategy is to deploy fibre to the most strategic areas across Bahrain, being those areaswhere high speed connectivity is most in demand and hence where greater revenues can be generated.

Deployment will be based on Batelco’s ability to maintain its targeted return on investment (RoI) and

to achieve favourable payback periods. The strategy of partial fibre deployment is validated by global

research that indicates that 100 per cent. fibre deployment leads to lower RoI than partial, more

targeted deployment.

Batelco has an extensive copper network across Bahrain and in areas where fibre is not currently

planned for deployment, fixed line customers are being serviced using the existing copper network.

Internet/Broadband

Batelco was the first operator to introduce internet services in Bahrain (in November 1995) and in

January 2009 Batelco became the first operator in the world to launch a Nationwide Broadband

NGN Network (source: 2nd Annual SAMENA Awards 2009). Batelco provides internet/broadband

services through Asymmetric Digital Subscriber Line (ADSL), leased lines and 2G and 3G and the

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recently launched 4G/LTE services. Batelco is well-positioned in both the fixed and mobile broadband

markets through its leading technology platforms and is in the process of revising its broadband

pricing structure in order to pre-empt competition. Although revenues and margins are expected to

remain under pressure, subscriber numbers are expected to grow, mainly from underserved markets,with the upgrade of the mobile network to LTE.

Batelco expects to increase home broadband penetration rates by using GPON technology (which is

an enhanced standard for data transmission over fibre networks) and its Fibre-to-the-Home (FTTH)network to provide higher broadband speeds and high definition video. GPON technology also

enables Batelco to offer a wider range of adjacent services such as IPTV through which digital

television services can be delivered through the same network infrastructure as that used for internet

access. In addition to increasing penetration rates, Batelco also expects new services such as IPTV to

increase revenue generated per subscriber and reduce churn in its fixed-line and internet subscriber

base.

Data Service

Batelco’s Datacom services include local and global Datacom services and are based on a state-of-the-

art Next Generation MPLS network. Batelco was the first operator in the Middle East to adopt thisNext Generation Network, whose sophisticated capabilities enable Batelco to provide high-speed,

reliable and secure connectivity. Batelco’s international Datacom services are delivered through fully

owned POPs and partners. The services include Global MPLS, International Private Leased Circuit

(IPLC) and satellite services.

Other Non-Core Services

Other non-core services include customised business solutions and hosted services (described below)

backed by the latest available technology.

Batelco is the largest provider of Internet Protocol Telephony (IPT) solutions for businesses in

Bahrain serving more than 4,500 installations (source: Batelco) and offering:

* Infrastructure: LAN, WAN, WLAN and data centre services;

* Security: Protection of the network infrastructure with a security layer; and

* Innovative solutions: unified communications, telepresence, collaboration, contact centre,

mobility, digital media systems, smart buildings and physical security.

The majority of Batelco’s IPT solutions are IP enabled to support the convergence of voice and data

across the LAN and WAN and also Batelco’s well established NGN platform.

Batelco’s network infrastructure supports a variety of client applications and its service offerings span

the entire end-to-end lifecycle including consulting, planning, designing, deployment, sustaining,

management and assessment.

Hosted services offered by Batelco include:

* Cloud service deployed for Infrastructure Management as a Service (ImaaS);

* @ltijara portfolio of services for online payment gateway solutions and SME online tools; and

* Multi country data centre hosting with Batelco’s joint venture partners over the regional data

network for enterprise customers.

Customers and Subscribers

An overview of Batelco Bahrain’s subscribers for mobile, fixed line and broadband services is

presented below:

2010 2011 2012

Subscribers(‘000s)

Growth %(YoY)


Growth %(YoY)


Growth %(YoY)

Mobile Post-paid 147 7% 155 5% 170 10%

Mobile Prepaid 624 -9% 584 -6% 532 -9%

Fixed 185 -7% 171 -8% 162 -5%

Internet/Broadband* 89 5% 117 32% 150 28%

* Note: Internet/ Broadband includes fixed and mobile broadband subscribers

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A high level annual churn analysis for Batelco’s customers in Bahrain is presented below:

Churn per cent. (annual) 2010 2011 2012

Mobile Post-paid 2.18% 2.30% 2.30%

Mobile Prepaid 3.33% 2.78% 2.54%Fixed Line 1.39% 1.28% 1.16%

Fixed Broadband 3.02% 3.18% 2.58%

With the introduction of mobile and fixed number portability, Batelco has undertaken a number of

initiatives to reduce cancellations across its product lines. The success of these initiatives can be seenin the reduced number of cancellations in 2012 as compared to 2011, especially in fixed broadband.

With the monthly churn rate for mobile post-paid remaining at 2.3 per cent. in 2011 and 2012,

proposals are being implemented in 2013 to reduce this percentage further, in particular with the

implementation of predictive churn tools and system enhancements.

Mobile

As at 31 December 2012, Batelco had a total of approximately 702,000 mobile subscribers, as

compared to approximately 739,000 subscribers as at 31 December 2011. Its post-paid customer base

grew over this period from approximately 155,000 to approximately 170,000 customers. Batelco’s mix

of mobile subscribers in Bahrain has remained stable, with prepaid subscribers amounting toapproximately 76 per cent. and post-paid subscribers approximately 24 per cent. Batelco expects this

balance to shift slightly in favour of post-paid subscribers over the next five years.

Fixed-Line

As at 31 December 2012, Batelco had a total of approximately 162,000 fixed-line subscribers, as

compared to approximately 171,000 subscribers as at 31 December 2011, and has seen a declining

fixed-line subscriber base over time due to cannibalisation of fixed services by mobile services.

Broadband

As at 31 December 2012, Batelco had a total of approximately 150,000 fixed-line and mobile

broadband subscribers, as compared to approximately 117,000 subscribers as at 31 December 2011.

Average Revenue Per User (ARPU)

A summary of the ARPU for Batelco’s fixed line and mobile subscribers in Bahrain is presented

below:

ARPU 2010 2011 2012

(BDs) (BDs) (BDs)

Mobile Prepaid 4.362 3.695 2.111

Mobile Post-paid 27.268 25.221 21.414

Fixed Line 8.020 6.899 6.484

Fixed Broadband 20.286 20.720 22.110

The aggressive competition in the Bahraini mobile market has led to intense price pressure and

erosion. Despite the decline in Batelco’s mobile ARPU, the post-paid ARPU remains relatively

strong, confirming Batelco’s position and supporting its strategy of focusing on retaining its high-

value post-paid customers. Fixed line ARPUs remain relatively stable and fixed broadband ARPUs

have increased, following a drive by Batelco to upgrade its existing customers to higher, more

profitable broadband packages. In 2012, through Batelco’s extensive marketing campaigns, it has

successfully upgraded more than 8,000 subscribers to higher priced packages, resulting in an increasein revenues.

Marketing and Distribution

Marketing

As part of its five year ‘‘Customer at the Centre’’ strategy (2013 – 2017), Batelco focuses on customer

centricity, of which segmentation is an important focus area for its product development and targeted

marketing. Batelco adopts a micro-segmentation approach focusing on multi-dimensional elements

such as income and demographics to subdivide the market into smaller manageable segments and

groups. Tools such as data mining and the Enterprise Data Warehouse (EDWH) systems are

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employed to extract information on relevant behavioural traits, which can then be used in setting

segment specific strategies.

Batelco uses a combination of above-the-line marketing (such as print, radio and outdoor media) and

below-the-line marketing and distribution (such as flyers, direct mailers and targeted messages and

emails) to promote its brand, brand values and propositions, depending on the targeted segment.

Batelco’s in-house promotional activities and campaigns, such as its monthly catalogue, segment-specific direct marketing events and roadshows, have been successful in promoting Batelco’s products

and services in Bahrain and will continue to shape the marketing strategy adopted by Batelco.

Batelco’s solutions to customers are centrally managed in a single ‘‘One-Stop-Shop’’ approach, with

its wide range of services including flexible billing and contracts, Service Level Agreements (SLAs)

and multiple currency billing. These services are constantly evaluated and enhanced in order to cater

for the changing requirements of business customers.

Batelco has implemented multi-dimensional segmentation of its enterprise market, in which

consideration is given to high-value customers, industry verticals and the buying cycles of the

customer. Batelco’s enterprise customers are managed by a team of dedicated account managers

supported by a presales team of certified professionals, which enables Batelco to identify customer

requirements and develop tailored solutions to meet such requirements.

Batelco has also implemented various loyalty programmes providing differentiated services and

rewards to its customers.

Distribution

Batelco sells its products and services through both direct and indirect sales channels. Sales to

enterprise customers are made only through direct sales channels whereas sales to consumers are

made through either direct or indirect sales channels. Batelco’s direct sales channels consist of over 25

Batelco-branded retail stores across Bahrain, kiosks or booths and on-line sales support, all of which

are fully owned and managed by Batelco.

In addition, Batelco has over 3,000 card agents and over 200 prepaid resellers and electronic voucher

distributors, through which indirect sales can be made to consumers. These indirect sales channels

consist of key third party retailers and distribution channel dealers and sub-dealers (that purchase

Batelco’s products, such as SIM cards or recharge cards, in bulk and distribute them across Bahrainto small businesses such as groceries and petrol stations). Batelco’s indirect distribution channels

account for a significant majority of its total SIM and recharge card sales. Consumers subscribe for

fixed line services through direct sales channels only.

A brief overview of the distribution and sales channels of Batelco is given below:

Sales Channels

RetailOutlets

• Retail shops• Mobile shops

• Direct sales

• Franchised shops

• Inbound• Outbound

• Account Manage- ment through account managers

• On line affiliation• Batelco Eservices

• Card agents• Prepaid resellers• EVD resellers

DirectSales

&Roadshows

FranchisedOutlets

IndirectChannels

Call CentreAccountManage-

mentOn-line

Batelco’s direct and indirect sales channels include more than 3,000 outlets, ensuring that its productsare easily and efficiently available to its customers across Bahrain, consistent with Batelco’s strategy

of striving for excellence in customer experience.

Network Infrastructure

Batelco offers market leading innovative services backed with best in class infrastructure and

supported by vendors of repute and highly trained engineers on a round-the-clock basis.

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Mobile

Batelco Bahrain has one of the most modern mobile networks (source: Batelco, based on benchmarks

with local and regional mobile operators and telecom vendors) in the region with an all IP Mobileinfrastructure to support its 2G, 3G and LTE networks. Batelco’s focus is to deliver a superior

mobile broadband experience to its customers, which is achieved though nationwide HighSpeed

Packet Access (HSPA+) coverage with up to 42Mbps. Service innovation is reached though offering

QoS and shaped packages to its customers. Batelco also complements its mobile customers by

offering services such as Wi-Fi-offloading and Femtocells.

Fixed

Batelco Bahrain has the first and largest NGN soft switch in the country, that provides services to itsresidential and enterprise customers, backed by one of the most advanced national and international

MPLS networks in the region. This solution supports Bahrain’s ‘‘Economic Vision 2030’’ in many

respects such as the Bahrain Education network that provides all Bahrain Ministry of Education

schools with fast/reliable data connectivity and internet access as part of the King Hamad schools of

the future programme.

Batelco Bahrain has identified a need for data backhauling to manage the significant increase in data

usage by its customers during recent years, and therefore has implemented a wide fibre deployment

and GPON services to enable it to deliver the most up-to-date services such as IPTV to its customers.

Batelco Bahrain’s fixed network also supports its networks operations centre, which is the largest in

the country (source: Batelco, based on feedback from Governement and business customers) and offers24/7 monitoring by a highly trained team of Bahraini engineers.

Regulatory Environment

The telecoms sector in Bahrain is regulated by the Telecommunications Regulatory Authority (the

TRA), which has granted Batelco all service and frequency licences required by it to conduct its

Bahraini operations described herein. These licences were issued on 21 June 2003 for a 15-year period

and are subject to renewal at the request of the licensee (with the TRA retaining a discretionary veto

right on renewal if Batelco is found in material breach of those licences). New licences are expected

to be issued to successful bidders who have completed the post auction obligations in May 2013,although this timetable is subject to change.

Over the past two years, the TRA has continued its initiative to reform and liberalise the telecom

sector in Bahrain, with the implementation of mobile number portability in July 2011 (followed by

fixed number portability in October 2011) and the commercial launch of local loop unbundling in

May 2011. These steps largely complete both the liberalisation timetable set out under article 40 ofTelecommunications Law 2002 and the nine policy reform initiatives published by the TRA in its

2008 Strategic Review, with the exception of a proposed tariff rebalancing and low user scheme; and

the introduction of carrier selection and reform of carrier pre-selection.

The current retail price regulation regime, which was reformed in February 2010, is now in place

alongside sector specific competition controls. Retail price regulation applies to all telecommunicationslicensees who hold significant market power. The mobile sector is not subject to retail tariff

notification controls, meaning that the three mobile operators are not required to obtain prior

approval from the TRA before changing their prices and packaging for mobile products (although

there are separate requirements for all licensees to notify for approval any proposed amendments to

any standard customer contracts). Retail tariff notifications to the TRA are required for Batelco only

in retail broadband offerings, leased line products and fixed access/origination markets where Batelco

is determined to have significant market power. Annual wholesale reference offer assessments also

review a broad range of interconnection and access products, which Batelco is required to offer onfair, reasonable and non-discriminatory terms to other licensed operators because of its being

determined to be a dominant operator in certain wholesale markets. In February 2010, Zain Bahrain

was also determined to be a dominant operator for wholesale mobile termination of voice calls and

SMS/MMS on its network. A similar draft determination applying to VIVA was also issued for

consultation by the TRA on 30 August 2012.

The TRA has announced major regulatory finance initiatives which will affect Batelco’s costing for its

products and services, namely a determination to raise the regulatory accounts audit standard for

2011 accounts onwards (published in July 2011 and subsequently adjusted to apply to 2012 regulatory

accounts onwards); and the introduction of a bottom-up costing models project for the three mobile

networks (as well as a generic mobile operator model) and Batelco’s fixed core and fixed access

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networks. This project is ongoing and the validation, revision and publication stages have not yet

been reached. Bottom-up costing is used as a regulatory tool across the world to assess regulated

prices and to assist in competition investigations, as explained in the TRA’s position paper on the

development, implementation and use of bottom up costing dated 19 October 2011. The TRA issueda determination on 20 February 2012 setting the weighted average cost of capital for the regulated

business of Batelco, VIVA and Zain at 9.5 per cent. for a period of 3-5 years unless circumstances

dictate otherwise.

In addition, the Third National Telecommunication Plan (the Plan) came into force on 5 July 2012.

The TRA is legally required to act in a manner consistent with the Plan, which covers seven main

themes for the next three years:

* LTE spectrum: Batelco launched LTE services on 27 February 2013 using existing frequencies.

Additional spectrum is to be made available as a matter of priority. This confirms the

announcement made on 20 March 2012 that such spectrum would be released. The Plan

stipulates that all current assigned frequencies are to be reviewed to ensure that they are being

properly used, managed and valued. The TRA published on 28 January 2013 an invitation to

tender for an auction proposed to take place on 31 March 2013 in respect of 12 additional lotsof spectrum for post-3G services. This start date has been postponed until further notice by the

TRA, pending conclusion of legal proceedings in Bahrain brought by a licensed operator (Mena

Telecom) against the TRA, relating to the number of participants permitted to pre-qualify for

the auction. The auction may be open to additional participants, subject to completion of a pre-

qualification stage where the TRA retains absolute discretion as to who can bid in the auction.

Successful bidders are expected to be issued with a new mobile services licence and an additional

spectrum licence for an initial period of 15 years. In addition to payment of the first instalment

for spectrum, successful bidders also be required to provide a BD3 million performance bond,which is linked to licence coverage obligations and publication of a coverage map.

* International capacity: The TRA is to assess the market, implement measures to remedy any

competition issues and ‘‘remove any structural or administrative obstacles in the supply chain’’.

Further to that policy theme, on 20 February 2013 the TRA issued a determination for

wholesale international services that Batelco would no longer be dominant in wholesale markets

for the supply of international capacity and the conveyance and termination of outboundinternational calls, provided Batelco continued to provide, under its reference offer, regulated

domestic leased lines, duct rental and facilities for access to the Falcon cable system.

* Internet eco system: Domestic internet traffic is to be exchanged locally between ISPs. There is a

proposed new condition in the new revised mobile services licence, which will require successful

licensees to use reasonable endeavours to directly or indirectly peer with internet service

providers and other mobile licensees within nine months of issue of the new licence (expected tobe by the end of 2013). There are no further domestic peering proposals applying to other

licensees.

* Progress to effective competition: More action is to be taken to address ‘‘structural imbalances’’,

even though progress has been made in some areas. Through a series of market reviews, the

TRA is revising part of the current set of significant market power and dominance

determinations which impose in advance detailed price, non-price and behavioural controls uponBatelco, with a view towards relying more upon more general controls on anti-competitive

conduct which prohibit acts or omissions which have the effect of materially preventing,

restricting or distorting competition.

* Sector definition and governance: A new co-ordinated governance framework for telecoms,

broadcasting and IT is to be introduced. There are currently however no published proposals

concerning the establishment of a co-ordinated governance framework.

* Digital security: Taking into account the threat to national infrastructure, measures to improve

online security and carry out a security review for disaster recovery planning is expected to take

place. However there are no current consultation proposals in this respect.

* Ultra-fast broadband: The Plan seeks recognition of uncertainty over the financial viability of theroll out of ultra-fast broadband. Copper line pricing has to be rationalised or rebalanced at the

same time. The current intention is for there to be one fixed National Broadband Network

(NBN) based on fibre providing wholesale services on a non-discriminatory basis. Government

funding is only to be provided to the minimum extent and if proven necessary. If such network

is Government funded, then only the NBN can offer wholesale layer one and layer two services,

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and must be ‘‘wholly separate’’ and have no other activities. Connections will have to be

provided by the NBN to the majority of households in Bahrain at 100 Mbits/s and the majority

of businesses at 1 Gbits/s. Affordable and appropriate services are to be provided on reasonable

request but universal service obligations are not yet to be revised. There is also the possibility ofan industry levy if the Government has to subsidise the NBN. If implemented and depending

upon Batelco’s participation in such a project, this proposal may result in the reorganisation or

separation of all or part of Batelco’s assets and activities which relate to provision of NBN

ultra-fast broadband services. To date, there has been no further action towards implementation

aside from a summary newspaper report published on 4 February 2013 concerning a possible

proposal for a BD26 million Government-funded project for internet access to be implemented

over four years in three phases, subject to further Government committee scrutiny and approval.

The TRA has stated that in its view the optimal scope, nature and timing of the NBN remainthe responsibility of the Government.

In the light of the Plan, the TRA is expected to publish a revised three year project plan covering a

series of working projects, but this has not yet been released for comment. Whilst some of thesemeasures have started to be implemented, such as the proposed post 3G spectrum auction,

implementation of the other action items set out in the Plan remains in the early stages.

Following the issue of an enforcement order on 24 November 2009, Batelco was fined BD5.2 millionby the TRA for not allowing other licensed operators direct access to Flag’s international landing

station at Batelco’s Salmaniya complex. Flag is a licensed international facilities operator that offers

international capacity on the Falcon submarine cable system. Arbitration proceedings in respect of

this fine were commenced in December 2009 and concluded with the issue of the arbitration award

on 30 October 2012, whereby it was held that the fine was excessive and, accordingly, such fine has

been reduced to BD750,000 and the excess fine amount repaid to Batelco. Aside from possible further

applications for costs or other relief, there are no further grounds for appeal in relation to this

arbitration award.

Competitive Environment

Telecoms markets in general are characterised by their oligopolistic nature, due to the limited number

of licences typically awarded and the need for economies of scale for network operators. Typically

speaking, a telecoms market will sustain two to three market leaders in the wireless sector and slightly

more in the broadband sector.

Mobile

Batelco is the former incumbent monopoly operator in Bahrain. In 2003, the Government decided toliberalise the country’s telecoms market by granting an additional licence to Zain, which launched

operations in December 2003, thereby becoming the country’s second wireless operator. Saudi

Telecom Company, operating under the brand name ‘‘Viva’’, became the country’s third wireless

operator in 2009, since which time the Bahraini mobile market has been characterised by aggressive

competition. The mobile market is mature and close to saturation, with mobile penetration standing

at 158 per cent. as at 30 June 2012. As at 30 June 2012, there were approximately 1.91 million

mobile subscribers in Bahrain. The mobile market in Bahrain remains predominantly prepaid (80 per

cent.) mainly on account of the large customer segment represented by blue collar workers who preferto have convenient prepaid services. (source: TRA Market Indicators Report – December 2012). The

estimated mobile market share split based on number of subscribers as at 30 June 2012 was as

follows: Batelco 38 per cent; Zain and Viva 62 per cent. (as at 30 June 2011 Batelco’s share was

44 per cent.; Zain and Viva 56 per cent.) (source: Batelco). The licences awarded to the two WiMax

operators in Bahrain, Zain and Mena Telecom, since February 2012, allow mobility in respect of

those assigned WiMax radio frequencies. There is also a licensee in the extended GSM band, Bahrain

Broadband. The proposed post 3G spectrum licence award may result in additional frequencies being

assigned to these (or other additional) participants, depending upon the outcome of a legal challengein relation to a TRA decision to limit the prequalification process to the three existing licensed

mobile operators.

Mobile ARPUs in Bahrain have been decreasing steadily during recent years because of increasedcompetition from Zain and Viva. However, Batelco has performed better in the post-paid market,

which is principally attributable to its concentration on high value customers. Although Batelco’s

ARPUs in the pre-paid market have been more significantly affected by competition than in the post-

paid market, management expects that Batelco’s ARPUs in the pre-paid market should improve as a

result of the introduction of new offers and the expansion of value-added services such as the launch

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of data-specific prepaid packages, targeted content, social applications and new technologies such as

LTE/4G.

Fixed Line

Bahrain has one of the highest fixed-line penetration rates in the Middle East region, being 21 per

cent. as at 30 June 2012 with approximately 254,000 fixed lines in Bahrain (source: TRA Market

Indicators Report – December 2012). Batelco shares the fixed-line market with nine other activeoperators, the majority of which are very small in scale. Batelco’s fixed line subscriber base was

162,000 as at 31 December 2012. Fixed telephony domestic traffic decreased by 27 per cent. between

2010 and 2011 due to the increasing use of mobile services (source: TRA Market Indicators Report –

December 2012). Batelco’s market share of the fixed-line market based on number of subscribers as at

30 June 2012 was 65 per cent. (72 per cent. as at 30 June 2011), with the remaining 35 per cent. (28

per cent. as at 30 June 2011) being shared by the other nine active operators, namely Zain,

Menatelecom, 2Connect, Etisalcom, Kalaam Telecom, Lightspeed, Nuetel Communication, Rapid

Telecoms and Rawabi Telecoms (source: TRA Market Indicators Report – December 2012).

Internet

Broadband services have increased significantly in recent years in Bahrain, with competitive operatorsand price reductions leading to a rapid increase in subscribers. There are 15 internet operators

(excluding Batelco), active and non-active, fixed and mobile, in the market. Although subscriber

numbers have increased by approximately 31 per cent. in the market, mainly due to the increase in

mobile broadband adoption, revenues have dropped by 1 per cent. due to reduction in price and

price erosion. (source: TRA Market Indicators Report, Q2 2012). As at 30 June 2012, the Bahrain

market had approximately 413,000 broadband subscribers with a penetration of 34 per cent.

compared to 38,628 subscribers and a penetration rate of 4 per cent. in 2006 (source: TRA Market

Indicators Report – December 2012). Batelco has recently reduced tariffs and improved speeds in itsbroadband services, following which its fixed and mobile broadband subscriber numbers have grown

rapidly from approximately 89,000 as at 31 December 2010 to approximately 150,000 as at

31 December 2012. The fixed broadband market share split based on number of subscribers as at

31 December 2012 was as follows: Batelco 28 per cent. (38 per cent. as at 30 June 2011); competitors

Mena Telecom, Zain and others 72 per cent. (69 per cent. as at 30 June 2011) (source: TRA Market

Indicators Report – December 2012).

Jordan

Overview

The Hashemite Kingdom of Jordan (Jordan) is located in the Middle East and borders Saudi Arabia,

Iraq, Syria and Palestine. Jordan has a population and gross domestic product (GDP) of 6.40 million

and U.S.$31.35 billion respectively as at 31 December 2012 (source: IMF, World Economic Outlook

Database).

Batelco holds a 96 per cent. interest in Umniah. Umniah is a provider of integrated

telecommunications services in Jordan, including mobile, internet and business solutions, with

approximately 2.38 million mobile subscribers. Subscribers to broadband (fixed and mobile) totalled

159,000 on 31 December 2012. Umniah was granted the third GSM licence in Jordan in June 2004

and launched its services in May 2005. In 2008, as part of a corporate re-organisation, Umniah

acquired 100 per cent. of the shares of Batelco Jordan. Batelco Jordan is Umniah’s business solution

provider arm.

Batelco’s Jordanian operations reported gross revenues of BD92.7 million for the year ended

31 December 2012, as compared to BD88.9 million for the year ended 31 December 2011,

representing 30.4 per cent. and 27.2 per cent. of total consolidated gross revenues for the year,

respectively. Profit for the year ended 31 December 2012 attributable to Batelco’s Jordanian

operations was BD9.8 million, as compared to BD13.6 million for the year ended 31 December 2011,

representing 15.0 per cent. and 16.2 per cent. of total consolidated profit for the year, respectively.

Profit for the year ended 31 December 2012 declined mainly due to the impact of higher electricity

costs (as a result of tariff revisions) and increased depreciation and amortisation and financing costs

for the 3G capital expenditure programme. Umniah has met all of the specific roll-out obligations

contained in its 3G licence. Any further capital expenditure in relation to its 3G services will be

driven by business needs.

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Historically, Umniah has focused primarily on the youth and mass market (prepaid) segment in the

Jordanian market, but in recent years has also been active in the post-paid segment and has targeted

specific niche markets including the Army and expatriate community. In June 2012, Umniah

successfully launched its 3G services and has increased its subscriber numbers as a result.

Batelco believes that Umniah’s key competitive strengths include its being the brand of choice for the

growing youth segment and its being perceived as offering the best value for money, supported by its

tailor-made products including voice and data bundles and an exclusive agreement with Skype.

Furthermore, Umniah is perceived as a lean, efficient and reliable operation that is in sync with the

market it is targeting. The launch of its 3G network has established Umniah as a strong contender in

Jordan’s broadband market, while enhancing the market perception of the quality of its network.

The key components of Umniah’s business strategy are to capitalise on its leadership in the consumersegment, mainly the prepaid market, while acquiring high value customers by elevating the brand

perception through association with other strong elite brands. This strategy is complemented by

Umniah through the expansion of its mobile internet offering, targeting higher margins and increasing

customer stickiness through comprehensive loyalty and retention programmes. Part of Umniah’s

strategy is also to provide bundles with additional voice and data capacity and to increase penetration

and sustain strong presence in target penetrated areas of the broadband mobile market such as

universities and youth zones (being areas with a high concentration of youth population, such as

those surrounding university campuses, cafes and shopping malls).

Customers and Subscribers

An overview of Umniah’s subscribers for mobile and broadband services is presented below:

2010 2011 2012

Subscribers

(‘000s)

Growth %

(YoY)

Subscribers

(‘000s)

Growth %

(YoY)

Subscribers

(‘000s)

Growth %

(YoY)

Mobile Prepaid(1) 2,102 31% 2,266 8% 2,308 2%

Mobile Post-paid(1) 37 84% 39 6% 74 90%

Internet/ Broadband(2) 19 5% 26 36% 159 521%

Notes:

(1) Mobile subscribers include voice, data and dongle.

(2) Internet/Broadband subscribers include fixed and mobile.

As at 31 December 2012, Umniah had approximately 2.38 million mobile subscribers, as compared to

approximately 2.31 million subscribers as at 31 December 2011. Umniah’s pre-paid customer base

witnessed an expansion of its base over the period following the launch of the 3G network in June

2012. Umniah’s mix of mobile subscribers has remained stable, with marked progression in the mobilepost-paid segment during 2012. Umniah expects this balance to shift slightly in favour of post-paid

subscribers over the next five years.

As at 31 December 2012, Umniah had approximately 159,000 broadband subscribers, as compared to

approximately 26,000 subscribers as at 31 December 2011, largely as a result of the launch of 3G in

June 2012.

ARPU

The following table includes Umniah’s ARPU for the mobile pre-paid and mobile post-paid segments

for the years ended 31 December 2010, 2011 and 2012.

2010 2011 2012

ARPU

(JD)

Growth %

(YoY)

ARPU

(JD)

Growth %

(YoY)

ARPU

(JD)

Growth %

(YoY)

Mobile Prepaid 5.5 -9% 4.4 -20% 4.2 -5%

Mobile Post-paid 9.4 -39% 8.5 -9% 7.8 -8%

Mobile prepaid ARPU has declined over the years ended 31 December 2010 and 2011 as a result of

increased competition triggered by slower market expansion, but has remained essentially stable since

the end of that period. With respect to mobile post-paid ARPU, the decline reflects the increased

competition in this segment of the market.

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Churn

The following table includes Umniah’s annual churn rate for the mobile pre-paid and mobile post-

paid segments for the years ended 31 December 2010, 2011 and 2012.

2010 2011 2012

Churn

(%)

Churn

(%)

Churn

(%)

Mobile Prepaid 5.1 4.3 4.8

Mobile Post-paid 5.0 4.7 2.4

Umniah has undertaken a number of initiatives to reduce churn across its product lines. While

prepaid mobile churn remained at the same range of 4 to 5 per cent. on a monthly basis, post-paid

churn has decreased significantly from 4.7 per cent. to 2.4 per cent. monthly as a result of Umniah’s

focus on acquiring high value post-paid customers with longer life duration. In addition, Umniah is

considering other initiatives that will increase customer stickiness through comprehensive loyalty and

retention programmes.

Mobile

Umniah had approximately 2.38 million mobile subscribers as at 31 December 2012, corresponding to

a market share of over 30 per cent. (source: Ipsos). Umniah has strong positions in the pre-paid

market, with pre-paid customers representing 97 per cent. of the company’s subscribers as at

31 December 2012. Umniah continues to expand its presence and improve its position in the higher

value post-paid market, and expects to grow its contribution to the overall business of the Group in

the coming years.

Broadband and data

Umniah was the first company in Jordan to offer WiMAX, which was launched in 2007 under itsUmax brand to provide technologies that enable users to access the internet without the need for a

landline. Alongside these services, Umniah also offers a range of business solutions that include

managed data services, premium internet, MPLS, global MPLS and international private leased

circuit.

Umniah reached a landmark development in 2012 with the acquisition of a licence to provide 3G

services, in respect of which the company invested more than JD72 million. Since launch, Umniah’s

3G subscriber base has grown to more than 120,000 dongle subscribers and approximately 350,000

data users over mobile, establishing itself as the leading 3G services provider in Jordan.

Umniah has also contributed to accelerating internet penetration in the Jordanian mobile market

from 30 per cent. to more than 55 per cent. over the past two years (source: TRC (as defined

below)).

Regulatory and competitive environment

The Jordanian telecommunications sector is generally viewed as the most liberalised in the Middle

East region, with the incumbent operator Jordan Telecom Group being privatised and France

Telecom owning a 51 per cent share. The sector is regulated by the Telecommunications Regulatory

Commission (the TRC).

Jordan’s first mobile cellular licence was granted to Fastlink (subsequently purchased by Zain in 2003)

in 1994, and MobileCom (now branded as Orange Jordan) acquired the second licence in 1997.

Umniah was granted the third licence in June 2004, which covers the provision of 2G services for a

term of 15 years to May 2019.

Following the expiry of JTG (Orange)’s exclusive 3G licence in February 2011, the TRC awarded a

second licence to Zain, which launched 3G services in March 2011. In June 2012, Umniah became the

third operator to launch 3G services under a licence that runs for a period of 15 years to June 2027.

In relation to its licence, Umniah is subject to revenue sharing applied to a pre-defined ‘‘net revenue’’base, as defined in its telecom operators’ license, at a rate of 10 per cent.

In addition to the periodic contact which Umniah has with the TRC in relation to a variety of

current matters, certain other regulatory issues are of particular current interest to Umniah and which

may impact on the future development of its business. These include the delayed implementation of

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the Mobile Number Portability (MNP) project, the much-needed expansion of the Umax frequencies,

and the implementation of technology-neutral principles.

Finally, the Ministry of Information and Communications Technology has indicated an intention to

modify the Telecom Law. It is not possible at this time to predict the impact, if any, that such

modification may have on Umniah and its operations.

With respect to corporate income taxes, there are persistent rumours that the telecommunications

sector, as one of the key sectors of the economy, could be subjected to an increased tax burden as a

result of rate increases, and/or tighter regulations and interpretations. Changes, if any, could startaffecting Umniah during the second half of 2013.

Umniah has received legal notification from the Jordanian government tax department of potentialclaims and other notices amounting to JD7.2 million, in addition to the related payments fines, in

connection with Batelco Bahrain’s acquisition of Umniah. Umniah’s management and its legal

advisors are of the view that there are no legitimate legal grounds for such potential claims and

notices and Umniah intends to take all necessary steps to defend its position on these matters.

In addition, the Jordanian government (either directly or through Ministries or Municipalities)

continues to explore other opportunities to expand its revenues and tax base. In this regard, and

based on most recent information, it is understood that both the potential issuance of a fourth

mobile operator licence and possible municipalities inflation-adjustment of rights-of-way and tower

fees remain under consideration. Umniah has already been affected by actions by the Jordanian

government to achieve a balanced budget – its cost base rose in 2012 partly as a result of theelimination of government subsidies on electricity during the year, totalling in excess of JD6 million

on an annualised basis.

Other Countries

Overview

In addition to its core operations in Bahrain and Jordan described above, the Group also has

subsidiaries or affiliates in a number of other countries. The Group’s interests in Kuwait, Yemen,

Saudi Arabia and Egypt are described below.

Batelco’s operations in countries other than Bahrain and Jordan reported gross revenues of

BD33.2 million for the year ended 31 December 2012, as compared to BD35.2 million for the year

ended 31 December 2011, representing 10.9 per cent and 10.8 per cent. of total consolidated gross

revenues for the year respectively. Profit for the year ended 31 December 2012 attributable to

Batelco’s operations in countries other than Bahrain and Jordan was BD9.8 million, as compared to

BD2.4 million for the year ended 31 December 2011, representing 14.9 per cent. and 2.9 per cent. oftotal consolidated profit for the year, respectively.

Kuwait

The State of Kuwait (Kuwait) is located in the Middle East and borders Saudi Arabia and Iraq.

Kuwait has a population and GDP of 3.79 million and U.S.$174.63 billion respectively as atDecember 2012 (source: IMF, World Economic Outlook Database).

Qualitynet – broadband and data

Batelco has held a 44 per cent. controlling interest in Kuwait’s Qualitynet since 1999, marking the

Group’s first operations outside of Bahrain. Batelco’s partners in Qualitynet include Ali Alghanim

and Sons Group and National Bank of Kuwait with shareholdings of 46 per cent. and 10 per cent.,

respectively. Despite holding a 44 per cent. interest, Batelco has management and operational control

of Qualitynet and the company is therefore treated as a consolidated subsidiary in the Group’s

financial statements.

Qualitynet is the market leader in fixed data communications and broadband services in Kuwait

(source: Qualitynet). Despite aggressive competition, Qualitynet continues to maintain its leading

market share with 37 per cent. of the total number of fixed broadband customers as at 31 December

2012. Qualitynet’s market share for data communications is estimated to be 45 per cent. at a locallevel and 55 per cent. for international data services. Qualitynet was the first telecoms operator in

Kuwait to open up terrestrial broadband services with Iraq in March 2010, and during the past three

years has also launched global managed services in partnership with global players to serve corporate

and multi-national companies as well as structured caballing, cloud and IT security services for

meeting the growing demand from corporate clients and shopping malls in Kuwait. In addition,

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Qualitynet continues to be the leader in providing call centre services to its customers with differential

service levels. Qualitynet does not provide mobile services.

Qualitynet’s MPLS backbone based network covers the whole of Kuwait. The backbone network isbased on Fibre Optic medium that provides a high level of resilience and full network redundancy.

Access to the backbone network is primarily through High Speed Giga Ethernet, which provides

Virtual Leased Line (VLL), Virtual Private LAN Service (VPLS) and Virtual Private Routed Network

(VPRN) technologies, along with legacy services such as Frame Relay, ADSL and ISDN technologies.

Management believes that Qualitynet’s speeds (bandwidths) and platform technologies combine to

give Qualitynet a competitive edge in terms of quality and class of service.


There is no formal, independent regulation of the telecommunications industry in Kuwait. However,

in the absence of an independent body, the Ministry of Communications of Kuwait (the MOC) acts

as the country’s de facto telecoms regulator. The MOC is also the monopoly operator of thecountry’s fixed line services, controlling the international gateway and fixed-line infrastructure and

determining all international call charges. Given this government monopoly, Kuwait has the highest

international calling tariffs in the Middle East.

Kuwait was one of the first Gulf countries to enjoy internet connectivity, with the Gulfnet

International / Kuwait Electronic Messaging Service initially operating as the monopoly public data

network service under the MOC’s authority following the country’s liberalisation in 1991. The ISP

sector in Kuwait is now semi-competitive; Qualitynet is licensed to provide internet, fixed-linebroadband and data communications services, and there are three other licensed ISPs, namely

Gulfnet, Zajil Telecom and Fast Telecommunications Company. MADA, a WiMAX operator,

emerged in 2011. Mobile broadband is provided by Kuwait’s three mobile operators, Zain, Wataniya

(a subsidiary of Qatar Telecom) and Viva (an affiliate of Saudi Telecom Company).

In September 2012, the MOC ordered the four major ISPs to reduce their fixed broadband prices by

at least 40 per cent. and imposed a price cap on annual subscriptions. These changes mean that

broadband connections in Kuwait are now considerably cheaper than in many other markets in theMiddle East, especially considering that the majority of ISPs do not have a fair usage policy.

However the impact of the price cuts on subscription numbers cannot yet be ascertained, as the

existing fixed-line infrastructure may have insufficient bandwidth to satisfy consumer demand. Overall,

only about 15 per cent. of fixed broadband connections in Kuwait use fibre, with the remainder being

based on copper lines. Average connection speeds in Kuwait are 1.82 mbps, and the country’s

government has not made public any plans regarding significant investment in next generation

technologies such as FTTH. As such, the prospects for increasing broadband penetration may be

limited.

Yemen

The Republic of Yemen (Yemen) is located in the Middle East and borders Saudi Arabia and Oman.

Yemen has a population and GDP of 25.88 million and U.S.$36.37 billion respectively as of 2012

(source: IMF, World Economic Outlook Database).

Sabafon Mobile Company – mobile

Batelco has a 26.94 per cent. interest in Sabafon, which started its commercial operations in 2001.Sabafon is the largest GSM operator in Yemen offering coverage over 68 per cent. (source: Sabafon)

of the country’s population. Sabafon returned to growth in 2012 following the stabilisation of the

country’s political situation and the rationalisation of the customer base, which was completed in the

first quarter of 2012 and served to exclude non-active SIM cards. Sabafon ended 2012 with a

subscriber base of more than 4.1 million users, which represents a 33 per cent. increase as compared

to its subscriber base as at 31 December 2011 and a market share of 29.6 per cent. as at 31 December

2012. In 2012, Sabafon launched international roaming services with 48 operators worldwide and has

signed roaming agreements with 46 operators. Sabafon does not provide fixed-line or internet/broadband services.

Sabafon’s subscriber base is predominantly prepaid with 97 per cent. of subscribers being prepaid

users as at 31 December 2012. Traffic on Sabafon’s network increased by 30 per cent. in 2012

compared to the previous year due to stabilisation of the country’s political situation.

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Regulation in Yemen is carried out by the Ministry of Telecommunications and Information

Technology (the MTIT), formerly known as the Ministry of Communications. The MTIT directlysupervises all Yemeni operators in the field of telecommunications, information and postal services

and is responsible for drawing up strategic policies to develop the telecommunications and

information sector and organise its structural management. The MTIT also controls all broadcast

media through the Yemen TV and Radio Corporation. All fixed-line and internet services are

provided by state-owned PTC and its subsidiaries.

Sabafon was awarded its 2G licence in July 2000 for a term of 15 years.

The Yemeni mobile market is characterised by low charges for pre-paid and post-paid mobile servicesand lower penetration rates as compared to the rest of the region, reflecting the challenging

macroeconomic environment in the country, with declining GDP and approximately a third of the

population subsisting below the poverty line. The mobile market share based on number of

subscribers as at 31 December 2012 was as follows: MTN Yemen (33.2 per cent.); Yemen Mobile

(30.9 per cent.); Sabafon (29.6 per cent.) and Y-Yemen (6.3 per cent.) (source: Sabafon).

Saudi Arabia

The Kingdom of Saudi Arabia (Saudi Arabia) is located in the Middle East and borders Jordan, Iraq,

Kuwait, United Arab Emirates, Oman and Yemen. Saudi Arabia has a population and GDP of28.79 million and U.S.$657.05 billion respectively as of 2012 (source: IMF, World Economic Outlook

Database).

Etihad Atheeb – voice, internet, data

Batelco has a 15 per cent. interest in Etihad Atheeb, which began the rollout of its

telecommunication services across Saudi Arabia in 2009. Under the brand name ‘‘Go’’, Etihad Atheeb

provides voice services and broadband internet services in 12 cities in Saudi Arabia and serves morethan 100,000 customers.

Etihad Atheeb has a broad portfolio of products and services for both business and retail customers,

which includes VOIP communications solutions, data services, wireless broadband internet, fixed line

telephony, hosting cloud solutions and enterprise solutions leveraging its state-of-the-art 4G network.

In 2012, Etihad Atheeb took steps to implement its new business strategy, focusing on the high

margin business segment. Although Etihad Atheeb experienced a year on year decline of 11 per cent.

in voice and data services customers between the years ended 31 December 2011 and 31 December

2012, the company was successful in adding approximately 200 new business customers during 2012,which ensured that overall customer numbers for the year ended 31 December 2012 remained in line

with those of the previous year. This was achieved by forming a focused business unit targeting Saudi

enterprise customers with a strategy that targets both geographic and customer segments selling

dedicated internet, voice services, VPN and global data services (including IPLC, MPLS and VSAT

services). The new shift in strategy to focus on business customers is intended to enable Etihad

Atheeb to grow its overall revenues, with higher value business subscribers expected to represent a

greater percentage of its customer base in the coming years.

Etihad Atheeb created a new business division in July 2011 to address the Saudi enterprise market.

This division operates from three offices in Saudi Arabia, with services being offered in the 12 largest

national markets. Growth in this division between the years ended 31 December 2011 and

31 December 2012 has been greater than 200 per cent. with similar growth levels expected in 2013.The services offered under this division are fixed voice, direct internet, MPLS, GMPLS, hosting,

telehousing and Wimax.

In March 2012, Etihad Atheeb completed a SR1,175 million rights issue to increase its capital from

SR400 million to SR1,575 million and is currently undergoing an operational and businessrestructuring aimed at transforming the company into a business-2-business (B2B) provider. Batelco

subscribed for its proportionate share of the additional capital issued pursuant to the rights issue, at

a total cost of SR176.25 million (approximately U.S.$ 47 million).

Etihad Atheeb is listed on the Saudi Stock Exchange (Tadawul).


Telecommunications in Saudi Arabia is regulated by the Communications and Information

Technology Commission (formerly known as the Saudi Communications Commission) (the CITC),

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established in 2001. Etihad Atheeb received its licence from the CITC on 5 April 2009. It also

acquired 2 x 28 MHz of spectrum in the 3.5GHz frequency band across 13 regional divisions of

Saudi Arabia, valued at SR520 million, in addition to a license for advanced fixed telephone lines

amounting up to SR5 million. Under the scope of its license, which is valid for a period of 25 yearsto 2034, Etihad Atheeb is allowed to establish and operate a facilities-based public fixed

telecommunications network including international gateways and to provide fixed line communication

services at the local, national and international levels. Such services include fixed line voice

communication services (Nomadic, VOIP), fixed broadband data communication services and other

relevant services such as audio, text and VAS. The terms of the licence require compliance with

specific rollout and coverage obligations, including coverage in seven provinces of Saudi Arabia

within five years of the issuance of the licence, a requirement that Etihad Atheeb has already

achieved.

Fixed line competition was introduced in Saudi Arabia in April 2007 when licences were issued to

three new fixed-line operators, namely Etihad Atheeb (license received on 5 April 2009), a consortiumled by US carrier Verizon (operating under the name Optical Communications) and a group led by

PCCW of Hong Kong (operating under the name Al-Mutakamilah).

Both fixed-line and internet/broadband markets in Saudi Arabia are becoming more competitive, with

three new licences granted in late 2008. In addition Mobily, the Etihad-Etisalat consortium, acquired

Bayanat Al Oula, one of the two alternative data providers, in 2008 giving it a two-thirds share of

the country’s fibre optic backbone network build by STC, Mobily and ITC. The launch of popular

broadband mobile services and the use of WiMAX also increased the uptake of broadband mobile

data in Saudi Arabia. Internet penetration remains low however, as cable broadband does not exist

and ADSL has been hampered by distance limitations.

Egypt

Egypt is located in North Africa and borders Libya, Sudan and the Gaza Strip. Egypt has apopulation and GDP of 82.01 million and U.S.$255 billion respectively as of 2012 (source: IMF,

World Economic Outlook Database).

Batelco Egypt – datacoms

Batelco Egypt is wholly owned by Batelco. It was established in 2003 with an initial focus on

providing worldwide telecommunications services to corporate and multinational customers and

acquired a Data services Class B licence authorising Batelco Egypt to offer local and international

data transfer services (as well as VoIP) in October 2003. Today, Batelco Egypt is focused onproviding end-to-end data solutions to multinational companies through the Group’s worldwide

network. Batelco Egypt’s services are based on global IP-VPN through Batelco’s own infrastructure in

the MENA region and Europe, and extend across North and South America, Asia, Australia and

Africa through alliances with international partners.

Batelco Egypt does not have any employees and conducts limited business in Egypt as at the date of

this Prospectus.

M&I Target Companies

The M&I Target Companies constitute substantially all of CWC’s Monaco & Islands business unit

and incorporate a number of island nations, including Guernsey, Jersey, the Isle of Man, theMaldives and the Seychelles, as well as Monaco, Afghanistan and various overseas territories of the

United Kingdom such as the Falkland Islands and St Helena. Following completion of the M&I

Acquisition on 3 April 2103 and assuming completion of the remainder of the M&I Transaction

(being the Seychelles Acquisition and the Monaco Option) takes place, these businesses will form part

of the Enlarged Group, which is in turn expected to increase significantly the proportion of the

Group’s revenues generated outside Bahrain. See ‘‘Description of the M&I Transaction’’ for further

details.

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Employees

As at 31 December 2012, Batelco and its consolidated subsidiaries had 2,074 employees. The

following table sets out the number of full-time employees of Batelco and each of its consolidatedsubsidiaries as at 31 December 2010, 2011 and 2012.

As at 31 December

2010 2011 2012

Number of employees

Batelco (Bahrain) 1,354 1,160 1,162

Umniah 517 522 533

Qualitynet 391 393 379

Batelco Egypt 1 — —

Total 2,263 2,075 2,074

The Group does not maintain employee pension plans. All retirement and other social benefits

including the pension scheme for the Group’s local employees are covered by the relevant social

insurance scheme, which is a defined contribution scheme, in place in the countries in which they are

employed.

The Group’s expatriate employees on limited-term contracts are entitled to leaving indemnities

payable under the respective labour laws of the countries in which they are employed, and such

indemnities are recorded in Batelco’s consolidated financial statements based on length of service and

final remuneration.

In addition to the above, the Group’s employees are also provided with health scheme benefits in

accordance with the respective policies of the individual Group companies.

Batelco has three trade unions established in accordance with the laws of Bahrain and non-

management category staff are eligible to be members of such trade unions. Trade unions aregoverned by their charter which describes the constitution of the board of trustees, committees and

general assembly. The unions are responsible for providing guidance to member employees for

resolution of disputes between Batelco and the employee in accordance with the laws of Bahrain.

Batelco Bahrain is an equal opportunity employer and provides opportunity to the young Bahrainipopulation for training through its graduate recruitment programme and in partnership with

Tamkeen, a Government initiative that provides opportunities to its Bahraini employees for

professional qualification. As a part of its initiative to provide employment opportunity to the skilled

Bahraini population, Batelco has achieved 90.54 per cent. Bahrainisation in its domestic operations.

Batelco also provides training to its employees at all levels based on identified requirements and

progression plans.

Batelco spent approximately BD560,000 in 2012 in training 1,100 employees, representing

approximately 80 per cent. of its employees and averaging 40 training hours per employee. Similarly,

in Jordan, Umniah spent approximately BD133,000 in training for 93 per cent. of its workforce.

Batelco Bahrain is currently in the process of optimising its work force as part of its cost savings

initiatives.

See ‘‘Description of the M&I Transaction – Selected Financial Information’’ for details regarding the

number of employees of the M&I Target Companies.

Insurance

The Group’s operations are subject to a variety of operational and geographic risks, including

accidents, natural disasters, war, terrorism, fire, weather-related perils, geo-political risk and other

events beyond the Group’s control. Accordingly, in order to protect against the financial impact

arising from unexpected events when the amount of the potential loss would be significant enough to

prevent normal business operations, the Group maintains a variety of insurance policies with strong

and reputable insurance companies at both the Group-wide and country-specific levels.

In 2013 damage was caused by unidentified persons to four of Batelco’s sites. There was no major

disruption to services and Batelco submitted a claim of U.S.$1.3 million to its insurers. A loss

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adjuster was appointed and concluded that the claim is payable. Batelco is currently renewing its

property policy and buying increased coverage.

Batelco has not experienced any historical difficulty in renewing its insurance policies and

management believes that the Group’s current levels of insurance are sufficient in light of the risks

faced by the Group and consistent with industry standards based upon the regions and markets in

which the Group operates.

Intellectual Property

Generally speaking each of the Group’s operations manages and protect its trademarks and copyright

materials for its name, logos and services in its own individual market. The operations in Bahrain are

carried out under the registered ‘‘Batelco’’ brand and the Jordan operations are carried out under theregistered ‘‘Umniah’’ brand.

Completion of the M&I Acquisition has brought, and completion of the remainder of the M&I

Transaction will bring, into the Group’s ownership certain additional trademarks and copyrights.

Alongside this, Batelco and CWC have also agreed transitional arrangements to enable the M&ITarget Companies to continue to use certain intellectual property rights that will remain under the

ownership of CWC for a defined period following the relevant completion date. See ‘‘Description of

the M&I Transaction – Summary of the M&I Transaction Agreement – Related IP and IT Agreements’’

for further details.

Property and Equipment

The principal property and equipment of the Group consists of its cable and switching stations

located throughout the jurisdictions in which it operates, including its international exchanges, its

satellite earth stations, its mobile switching centres, base stations, transmission equipment, cables and

other technical, administrative and commercial property and equipment.

The net book value of the Group’s property and equipment as at 31 December 2012 was

BD185.9 million, compared to BD185.0 million as at 31 December 2011. See Note 5 to the 2012

Financial Statements for further details.

Environmental Matters

The Group is subject to a wide range of environmental laws and regulations. The general trend in the

majority of the countries in which the Group operates is to impose increasingly stringent

environmental obligations in relation to, among other things, radiation emissions, zoning, the

protection of employees’ health and safety, notice, and history and artistic preservation. The Group

could therefore be exposed to environmental costs and liabilities, including arising out of its pastactivities. The Group is also required to obtain various environmental permits, licences and/or

authorisations from, and to provide certain prior notifications to, the appropriate authorities in its

jurisdictions of operation. In Bahrain, Batelco is required to comply with the International

Commission on Non-Ionising Radiation Protection (ICNIRP) standards for Radio Frequency

emissions, which is periodically verified and tested by the TRA. In Jordan, Umniah is required to

comply with the Environment Protection Law number 52 for the year 2006 as well as various

regulations and instructions issued by the Jordanian government. In addition, the TRC in Jordan has

issued a regulation regarding the implementation of a standard on acceptable antenna measurements.The Group aims to comply in all material respects with applicable environmental and health control

laws, as well as all related permit requirements.

The Board believes that the principal environmental risks arising from the Group’s operations relate

to the potential for electromagnetic pollution and damage to cultural and environmental assets. TheGroup deploys various network infrastructure strategies in order to achieve radiation emission ranges

lower than the maximum levels permitted by applicable regulation.

Litigation

The Group is from time to time subject to various legal actions arising in the ordinary course of its

business. There are however currently no on-going legal actions that the Board believes will,

individually or in aggregate, have a material adverse effect on the Group’s financial condition or

results of operations save for the following.

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India – STEL

Batelco acquired a 42.7 per cent. interest in STEL, an India-based mobile operator, in 2009, through

BMIC Limited (BMIC), a wholly owned subsidiary of Batelco incorporated in Mauritius, forU.S.$174.5 million. In November 2011, BMIC entered into a binding agreement (the Settlement

Agreement) to sell its investment in STEL to the other promoters of STEL (the Counterparty) by

31 October 2012. The Counterparty did not settle its obligation by the stipulated date. The Group

commenced litigation against the Counterparty in the UK High Court of Justice, Commercial Court

for the recovery of BD69.7 million (U.S.$184.8 million, representing the equity cost of Batelco’s

original investment plus the accrued cost of payment delays and calculated at an exchange rate of

0.377 dinars per US dollar) due and owing by them to BMIC under the Settlement Agreement. The

Group expects a favourable settlement based on the strong evidence supporting BMIC’s case.

As a result of the revocation of a number of 2G licenses in India in 2012, STEL has ceased

operations and the carrying value of Batelco’s investment in STEL has been fully impaired, with theresulting loss in the Group’s financial statements being offset by the contractual claim against the

counterparty referred to in the previous paragraph (which has been recognised as a receivable). The

Group has no liabilities or commitment in terms of STEL’s financial obligations.

Relationship with the Government

The Government currently controls 78 per cent. of Batelco’s shares and six of the 10 members of the

Board are appointed by, and represent, Batelco’s three key shareholders which are Government-

related entities. Management believes that Batelco is considered by the Government to be a flagshipcompany for the country and a key strategic investment, particularly in light of the importance placed

on ICT in Bahrain’s long-term economic plan, known as ‘‘Economic Vision 2030’’. The strong

support of its key shareholders has been a significant contributing factor in the successful

implementation of the Group’s growth and international expansion strategy.

Batelco also represents a key component in Bahrain’s long term strategic plan to diversify the

economy and reduce its dependency on oil. It is one of the leading employers in Bahrain, provides

network infrastructure essential for the maintenance of the telecommunications network in the

country and is a source of dividends for the Ministry of Finance.

Whilst six out of the ten Board members are Government appointed directors, the Government does

not directly influence the dividend policy of the Group. The Group’s dividend payout in any financial

year is determined by the Board and is influenced by the level of its distributable profits for the

relevant year as well as management’s expectations regarding the Group’s future liquidityrequirements and expansion plans.

Whilst management believes that Batelco’s relationship with the Government has contributed to the

development of the Group, and the Group is strategically important to the Government as describedin the preceding paragraphs, the Notes are not guaranteed by the Government and there can be no

assurance that the Government would provide support to Batelco should any such support be

required in the future. See ‘‘Risk Factors – Batelco’s financial obligations are not guaranteed by the

Bahrain Government’’.

Corporate Social Responsibility

Beyond its focus on business and financial performance, Batelco is also committed to its role as aresponsible corporate citizen and regards corporate social responsibility (CSR) as an important aspect

of its position in Bahrain and the other jurisdictions in which the Group operates. In 2012, Batelco

paid out more than BD1.6 million to enhance the lives of residents of Bahrain through a number of

health, education, sports and cultural initiatives. Batelco also continued to support technology and

entrepreneurs in Bahrain through the holding of the second annual ‘‘Start-up Weekend’’, which

presented the opportunity for aspiring entrepreneurs to launch new businesses. It also hosted

CommTech during 2012, a first of its kind seminar and forum for SMEs that attracted over 600

business owners and technical experts, and which was held in order to foster business development inthe Kingdom of Bahrain. In recognition of these and other community support activities, the Arab

Organisation presented Batelco with the Gold Award for Excellence in CSR for Social Responsibility

and Tatweej Academy for Excellence at their third annual awards ceremony.

A number of the Group’s international operations, particularly Umniah, have also implemented

similar initiatives.

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DESCRIPTION OF THE M&I TRANSACTION

Information included in this section in respect of the M&I Target Companies has been derived from

publicly available information, including information published by CWC. Batelco confirms that such third

party information has been accurately reproduced and, so far as it is aware and has been able to

ascertain from that published information, no facts have been omitted which would render the reproduced

information inaccurate or misleading. There is no assurance that the Seychelles Acquisition or the

Monaco Option will be completed on the terms set out in this section or at all, or (if completed) that

the expected benefits to the Group will materialise. See ‘‘Risk Factors – Risks relating to the M&I

Transaction’’ for further information.

Introduction and Overview

On 3 December 2012, Batelco announced that its wholly-owned subsidiary Batelco International

Group Holding Limited (the Purchaser) and Batelco as guarantor (in such capacity, the Purchaser

Guarantor) had entered into an agreement with Sable Holding (the Seller) and Cable and Wireless

Limited (the Seller Guarantor), each wholly-owned subsidiaries of CWC, to acquire substantially all ofCWC’s Monaco & Islands (M&I) business unit. The Monaco & Islands operation incorporates a

number of island nations, including Guernsey, Jersey, Isle of Man, the Seychelles and the Maldives,

as well as Monaco and Afghanistan and various United Kingdom overseas territories such as the

Falkland Islands, Diego Garcia and St Helena.

Pursuant to such agreement, the Purchaser agreed, subject to certain conditions such as the receipt of

relevant regulatory approvals, to acquire the entire issued share capital of CWC Islands Limited (now

BTC Islands Limited) and CWC Holdco Limited (now BTC South Atlantic Limited), and 25 per

cent. of the entire issued share capital (the CMC Minority Shares) of CMC, the company which holds

CWC’s 55 per cent. interest in Monaco Telecom (together, the M&I Acquisition). The 55 per cent.interest in Monaco Telecom includes a 49 per cent. direct stake plus 6 per cent. held by Compagnie

Monegasque de Bank.

Completion of the M&I Acquisition took place on 3 April 2013, as a result of which the Purchaser

acquired CWC’s businesses in the Maldives, Channel Islands and Isle of Man, South Atlantic and

Diego Garcia for consideration (on a debt and cash free basis) of U.S.$570 million, subject to

customary adjustments relating to the amounts of debt, cash and working capital as at the M&I

Completion Date. U.S.$470 million of such initial consideration was allocated to the shares in the

capital of CWC Islands Limited and CWC Holdco Limited, and the remaining U.S.$100 million was

allocated to the CMC Minority Shares.

As part of the M&I Acquisition the Purchaser has also agreed to acquire the Seychelles Companiesfor consideration (on a debt and cash free basis) of U.S.$.110 million, subject to customary

adjustments relating to the amounts of debt, cash and working capital as at the relevant completion

date. However, in accordance with the terms of the M&I Transaction Agreement, completion of the

transfer of CWIG Limited (the holding company of the Seychelles Companies) (the Seychelles

Acquisition) has been delayed pending the receipt of relevant regulatory approvals.

In addition to the M&I Acquisition, the Purchaser and the Seller have entered into put and call

option arrangements (the Monaco Option) which will, if the relevant conditions are satisfied and the

option is exercised prior to 3 April 2014, result in the Purchaser acquiring the remaining 75 per cent.of the share capital of CMC (the CMC Majority Shares) for additional consideration (on a debt and

cash free basis) of U.S.$345 million, subject to customary adjustments relating to the amounts of

debt, cash and working capital in the CMC Companies at the completion date of the Monaco Option

(the M&I Acquisition, the Seychelles Acquisition and the Monaco Option being together the M&I

Transaction). The Purchaser and the Seller have also entered into put and call option arrangements in

respect of the CMC Minority Shares which will become exercisable if the Monaco Option is not

exercised and will, in such event and if exercised, require the transfer of the CMC Minority Shares

from the Purchaser to the Seller for an amount of U.S.$100 million.

The total consideration payable by the Purchaser for the M&I Transaction, assuming completion ofthe M&I Acquisition, the Seychelles Acquisition and the Monaco Option, is therefore

U.S.$1,025 million (on a debt free cash free basis and subject to customary adjustments relating to

the amounts of debt, cash and working capital in the relevant companies at the relevant completion

dates).

In addition, if the Principality of Monaco exercises the MT Put Option (as defined below) prior to

Monaco Option Completion, the Purchaser will be required to acquire the relevant MT Minority

85


Shares (as defined below) on Monaco Option Completion for consideration equal to the fair market

value of such MT Minority Shares. Further details regarding both the Monaco Option and the MT

Put Option are set out in ‘‘Monaco Option Arrangements’’ below.

Rationale and Funding

The M&I Transaction is a key component of Batelco’s strategy of expanding the scale and scope of

the Group’s operations whilst maintaining its financial position. Following completion of the M&I

Acquisition on 3 April 2013 and assuming completion of the Seychelles Acquisition, the Enlarged

Group will have increased scale, with approximately U.S.$1.3 billion in consolidated revenues on an

annual basis and 12 million customers and a significantly greater geographic diversification, having a

presence in 17 countries formed around strategic clusters in the Middle East, Monaco, the Indian

Ocean, Channel Islands and the South Atlantic. The proportion of the Group’s revenues generatedoutside Bahrain is, as a result, expected to increase significantly. Management believes that this

reduction in Batelco’s dependency on the Bahrain domestic market, together with its increased

exposure to the mature and stable markets in which the M&I Target Companies operate, will help to

support cash flow generation for the payment of dividends and provide a platform for further

acquisitions to promote growth. In addition, the Enlarged Group will have a broader product and

services capability, with Batelco’s existing mobile, fixed line voice and broadband services being

complemented by solutions-to-operator, data centre and enterprise data centre offerings.

Batelco has a track record of integrating acquisitions for the benefit of shareholders and generating

cost savings for the benefit of customers. Batelco expects to derive significant merger benefits from the

M&I Transaction, which are anticipated to arise mainly from savings in capital expenditure based on

bulk purchasing arrangements in the Enlarged Group following completion of the M&I Transaction.

The one-off expenses involved in obtaining overall synergies in connection with the M&I Transactionare anticipated to have been fully incurred by December 2014.

The consideration for the M&I Acquisition is being funded by Batelco using a combination of

available cash reserves and drawing down funds under a short term bridge loan facility provided by

international banks. The proceeds of the issue of the Notes will be used by Batelco to repay the loan

facility in full. See ‘‘Use of Proceeds’’.

Information on the M&I Target Companies

The M&I Target Companies operate through five primary divisions:

CIIM

CIIM, operating through the ‘Sure’ brand, offers telephony services to the Channel Islands and the

Isle of Man. It is the full service incumbent operator in Guernsey with market-leading positions in

fixed-voice, mobile and broadband services. It is also an alternative carrier in Jersey and the Isle of

Man. Following completion of the M&I Acquisition, CIIM is now operated through wholly-owned

subsidiaries of Batelco.

Dhiraagu

Dhiraagu is the incumbent telecom operator in the Maldives. Dhiraagu is the market leader inmobile, broadband and fixed voice services in the country. Following completion of the M&I

Acquisition, Batelco now owns a 52 per cent. stake in Dhiraagu and operates the company in

partnership with the Maldives Government. In December 2011, the Maldives Government, which at

the time held all of the remaining 48 per cent. interest, completed an initial public offering of 5.9 per

cent. of the share capital of Dhiraagu and a related offering of 0.3 per cent. of the share capital of

Dhiraagu to the employees of Dhiraagu.

Cable and Wireless Seychelles

Cable & Wireless (Seychelles) Limited is the full-service incumbent operator in Seychelles with

market-leading positions in fixed-voice, mobile and broadband services. It is currently a wholly-ownedsubsidiary of CWC and, subject to receipt of the relevant regulatory approvals, will be transferred to

Batelco upon completion of the Seychelles Acquisition.

SADG

Following completion of the M&I Acquisition, Batelco now offers communications services to Diego

Garcia and three British foreign territories in the South Atlantic: St Helena, Ascension Island and the

Falklands. It is the exclusive operator in three out of these four markets and provides services to

86


residents in Diego Garcia and the Falklands. Operations in these territories are held through wholly-

owned subsidiaries of Batelco.

Monaco Telecom

Monaco Telecom is the incumbent operator in Monaco. Following completion of the M&IAcquisition, Batelco holds 25 per cent. of CMC, with the remaining 75 per cent. being held by CWC.

CMC in turn holds 49 per cent. of the issued share capital of Monaco Telecom and has voting and

economic rights in respect of an additional 6 per cent. through a contractual arrangement with

Compagnie Monegasque de Banque. The Principality of Monaco holds the remaining 45 per cent. of

Monaco Telecom’s share capital. Monaco Telecom is the market leader and the only full service

telecommunications operator in Monaco. In addition, Monaco Telecom owns 36.75 per cent. of

Roshan, a mobile telecommunications operator in Afghanistan. Monaco Telecom also has a service-

to-operator division, which supplies the international country code and international carrier services toKosovo and has a service contract with On Air, a company that provides passenger telephony

solutions onboard aircraft.

Selected Financial Information

CWC reported revenue of the M&I Initial Companies for the 12 months ended 31 March 2012 of

U.S.$319 million, EBITDA of U.S.$130 million and profit before tax of U.S.$73 million1. During the

year to 31 March 2012, the M&I Initial Companies had an average of 1,229 employees. At

30 September 2012, the M&I Initial Companies had net assets of U.S.$172 million and gross assets ofU.S.$695 million. This information has been extracted without material adjustment from CWC’s

circular to its shareholders dated 19 December 2012.

The revenue of the CMC Companies for the 12 months ended 31 March 2012 was U.S.$248 million,

EBITDA was U.S.$78 million and profit before tax was U.S.$47 million2. During the year to

31 March 2012, the CMC Companies had an average of 412 employees. At 30 September 2012, the

CMC Companies had net assets of U.S.$203 million and gross assets of U.S.$538 million. This

information has been extracted without material adjustment from the CWC’s circular to its

shareholders dated 19 December 2012.

Summary of the M&I Transaction Agreement

The following is a summary of the principal terms of the M&I Transaction Agreement which remain

to be performed following completion of the M&I Acquisition.

Delayed closing – Seychelles

Pursuant to the terms of the M&I Transaction Agreement it was agreed that if, at the M&I

Completion Date, any necessary regulatory approvals for the transfer of certain M&I Initial

Companies were not satisfied, then the shares in the relevant company or companies (each an M&I

Delayed Company) would not be transferred to the Purchaser at completion of the M&I Acquisition,

and instead completion in respect of the shares in the relevant M&I Delayed Company (includingpayment of the relevant purchase price for such M&I Delayed Company) would be delayed until such

time as the relevant regulatory approval shall have been satisfied.

As at 3 April 2013, the relevant regulatory conditions in respect of the Seychelles Companies had not

been satisfied and therefore the transfer of CWIG Limited (the holding company of the Seychelles

Companies) to the Purchaser did not take place as part of completion of the M&I Acquisition.

Accordingly, an amount of U.S.$110 million, being that portion of the consideration relating to the

shares in CWIG Limited (as the holding company of the Seychelles Companies), was deducted from

the total amount of consideration paid by the Purchaser at completion of the M&I Acquisition, and

will instead be paid (subject to customary adjustments relating to the amounts of debt, cash and

working capital as at the relevant date of completion) upon completion of the Seychelles Acquisition.

If any of the relevant regulatory approvals required in connection with the transfer of the Seychelles

Companies are not satisfied prior to 2 September 2013 and the parties do not agree to extend such

date, the Seychelles Acquisition shall not occur.

1 EBITDA and profit before tax figures for the M&I Initial Companies are presented after deducting management charges.

2 EBITDA and profit before tax figures for the CMC Companies are presented after deducting management charges.

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Summary of the Monaco Option Arrangements

(i) Monaco Option

The Seller and the Purchaser have entered into certain put and call option arrangements in

respect of the CMC Majority Shares which, if either option becomes exercisable and is exercised

prior to 3 April 2014, would result in the transfer of the CMC Majority Shares from the Seller

to the Purchaser in return for the payment of U.S.$345 million (subject to customary

adjustments relating to the amounts of debt, cash and working capital in the CMC Companies

at the date of completion of the CMC Acquisition) (the Monaco Option Consideration).

The Monaco Option is conditional, inter alia, upon the Principality of Monaco approving the

proposed change of control of Monaco Telecom pursuant to the M&I Transaction (the CMC

Condition) and no material adverse change relating to the CMC Companies having taken place

between 3 April 2013 and the date of completion of the CMC Acquisition.

Subject to satisfaction of the CMC Condition, the Purchaser has the option to require the Seller

to sell the CMC Majority Shares to the Purchaser for the Monaco Option Consideration,

exercisable at any time during the period from and including 3 April 2013 up to (but notincluding) 3 April 2014 (the Monaco Option Period).

Subject to: (i) satisfaction of the CMC Condition; and (ii) there having been no material adversechange relating to the CMC Companies as described above, the Seller has the option to require

the Purchaser to buy the CMC Majority Shares from the Seller for the Monaco Option

Consideration, exercisable at any time during the Monaco Option Period.

(ii) Option arrangements in respect of the CMC Minority Shares

The Seller and the Purchaser have also entered into option arrangements in respect of the CMC

Minority Shares which, if either option becomes exercisable and is exercised within the

applicable option period, would result in the re-transfer of the CMC Minority Shares from the

Purchaser to the Seller for an amount of U.S.$100 million.

The options will only become exercisable if the Monaco Option is not exercised by the end of

the Monaco Option Period. In such case: (i) the Purchaser has the option to require the Seller

to purchase the CMC Minority Shares back from the Purchaser for U.S.$100 million,exercisable at any time during the period from and including 3 October 2014 up to (but not

including) 3 November 2014; and (ii) the Seller has the option to require the Purchaser to

transfer the CMC Minority Shares back to the Seller for U.S.$100 million, exercisable at any

time during the period from and including 3 April 2014 up to (but not including) 3 November

2014.

(iii) Arrangements in respect of the MT Minority Shares

The 45 per cent. interest in Monaco Telecom that is not held by CMC (the MT Minority

Shares) is held by the Principality of Monaco, which has the right, at any time prior to April

2019, to require CMC to acquire some or all of the MT Minority Shares for fair market value(the MT Put Option). If the Principality of Monaco exercises the MT Put Option prior to the

date on which the Purchaser acquires the CMC Majority Shares (as the case may be), the

relevant MT Minority Shares shall be acquired by the Seller (or another member of the CWC

group) and then transferred to the Purchaser on such date. The consideration payable by the

Purchaser for the relevant MT Minority Shares in such case will be equal to the price paid by

the Seller to the Principality of Monaco (the MT Put Option Price), provided that the MT Put

Option Price is determined by independent experts in accordance with the procedure set out in

the shareholder arrangements relating to Monaco Telecom or the Purchaser otherwise gives itsprior written approval to such MT Put Option Price.

Non-compete obligations

The Seller has agreed in the M&I Transaction Agreement to comply with a number of non-compete

undertakings in respect of the business of the M&I Target Companies in certain specified territories

for a defined period before and after the M&I Completion Date (or, with respect to the Seychelles

Companies, the date of completion of the Seychelles Acquisition).

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Miscellaneous

The Seller has undertaken to provide, or to procure that a member of CWC’s retained group

provides, certain management services to the M&I Initial Companies for a period of 12 months afterthe M&I Completion Date.

The Seller has also entered into a tax covenant under which it undertakes to indemnify the Purchaseragainst certain tax liabilities of the M&I Target Companies which are referable to events occurring or

profits arising prior to completion of the M&I Acquisition (or, with respect to the Seychelles

Companies, completion of the Seychelles Acquisition) or which are referable to members of the

Seller’s group other than the M&I Target Companies.

Related IP and IT Agreements

CWC Communications Limited (the M&I Trade Mark Licensor), a wholly-owned subsidiary of CWC,

Cable & Wireless South Atlantic Limited, Cable & Wireless (Diego Garcia) Limited, Cable &

Wireless Guernsey Limited, Cable & Wireless Isle of Man Limited and Cable & Wireless Jersey

Limited (each a M&I Trade Mark Licensee) have entered into a brand and trade mark licenceagreement under which the M&I Trade Mark Licensor grants to each M&I Trade Mark Licensee an

exclusive licence to use (i) certain trade marks in their respective territory on/or in relation to the

telecommunications services and goods offered by each M&I Trade Mark Licensee, and (ii) the name

of ‘‘Cable & Wireless’’ as part of the M&I Trade Mark Licensee’s corporate name or trading name

in their respective territory and as part of domain names registered in their respective territory for a

term of 12 months from the M&I Completion Date with respect to each M&I Trade Mark Licensee.

Cable & Wireless International HQ Limited (the M&I CIS Licensor), a wholly-owned subsidiary of

CWC, Cable & Wireless Guernsey Limited, Cable & Wireless Isle of Man Limited, Cable & Wireless

Jersey Limited and Dhiraagu (each, and collectively, a M&I CIS Licensee) have entered into a licence

and maintenance services agreement under which the M&I CIS Licensor grants to the M&I CISLicensee a non-exclusive, royalty-free licence to use (i) the CIS software in object code form and (ii)

certain documentation and technical specifications in connection with the business of the M&I CIS

Licensee. The M&I CIS Licensor will also provide the M&I CIS Licensee with certain support

services and, at the request of the M&I CIS Licensee, application development and/or consultancy

services. The licence is for an initial term of two years from the M&I Completion Date (with a one

year extension at the M&I CIS Licensee’s option and the possibility of a further two year extension

subject to the agreement of the parties).

Cable & Wireless (Seychelles) Limited will enter into equivalent trade mark and software licences with

M&I Trade Mark Licensor and the M&I CIS Licensor upon completion of the Seychelles

Acquisition.

89


MANAGEMENT

The Board of Directors

The Group is managed by the Board of Directors (the Board) which has the final responsibility for

the overall conduct of Batelco’s business. The Board is accountable to Batelco’s shareholders for the

proper conduct of the business and also for ensuring the effectiveness of and reporting on the

Group’s corporate governance framework. The Board of Batelco currently comprises ten Directors. In

addition to the Chairman, there is one executive Director and eight non-executive Directors, four of

whom are independent. The Chairman, executive director and four of the non-executive Directors are

representatives of the Government of Bahrain.

In accordance with the charter of the Board, the Directors are required to meet at least four times in

a given financial year. In 2012 the Board met twelve times.

The business address of each of the Directors is Batelco Hamala Campus, P.O. Box 14, Manama,Kingdom of Bahrain.

Batelco’s Directors are appointed by Batelco’s shareholders from among candidates proposed by theBoard on the recommendation of the Nomination and Remuneration Committee. Directorships are

terminated upon the expiry of a three year term, at which time the relevant Director becomes subject

to re-election. Termination of directorship can also take effect if any Director is in breach of

applicable laws and/or the requirements of Batelco’s Articles of Association. Eight of Batelco’s

current Directors were appointed and elected at the 2011 Batelco shareholders’ Annual General

Meeting for a three year term that will expire at the 2014 Batelco shareholders’ Annual General

Meeting. Mr. Abdulrahman Fakhro and Brigadier Khalid Al Mannaei were appointed after the

resignation of Shaikh Mohamed bin Isa Al Khalifa on his appointment as Group Chief Executiveand Dr. Yousif Dashkouni on his appointment as Batelco Group General Manager Business

Transformation. The directorships of both Mr. Fakhro and Brigadier Al Mannaei will expire in

February 2014 along with those of the remaining Board members.

As at the date of this Prospectus, the members of the Board are as follows:

Name Position

Representative

of the

Government of

Bahrain

Date of initial

appointment

Committee

memberships

Shaikh Hamad Bin Abdulla Al

Khalifa ...................................... Chairman Yes September 2006

Nomination &

Remuneration,

Donations

Murad Ali Murad..................... Vice Chairman No March 1990

Audit,

Nomination &

Remuneration,

Abdul Razak Abdulla AlQassim....................................... Member No February 2008

Executive,

Donations,

Nomination &Remuneration

Dr. Zakaria Ahmed Hejres....... Member Yes January 2004 Executive

Nedhal Saleh Al-Aujan............. Member Yes January 2004 Executive

Adel Hussain Al Maskati ......... Member No February 2005 Audit

Waleed Ahmed Al Khaja ......... Member Yes April 2007 Executive

Ali Yousif Engineer .................. Member No February 2008

Nomination &

Remuneration,

Audit

Mr. Abdulrahman Yusif

Fakhro ...................................... Member Yes April 2012

Nomination &

Remuneration

Brig. Khalid Mohammed Al

Mannaei .................................... Member Yes August 2012 None

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Brief biographies of each of the Directors are set out below.

Shaikh Hamad Bin Abdulla Al Khalifa (Chairman)

Shaikh Hamad bin Abdulla Al Khalifa is the Chairman of Batelco and has been serving on the

Board since September 2006. He obtained a Bachelors degree in Aeronautic Science from the

University of King Faisal in 1976 and an MBA in the same field in the United States in 1985. Shaikh

Hamad was a founder of the Bahraini Royal Air Force before he retired in 2003. He was a member

of the board of directors of the Bahrain Telecommunications Regulatory Authority until hisappointment as the Chairman of Batelco.

Murad Ali Murad (Vice Chairman)

Mr. Murad Ali Murad has been serving on the Board since March 1990. He holds a degree from the

Chartered Institute of Management Accountants (CIMA), United Kingdom and has been a memberof CIMA since 1993. Mr. Murad has over 40 years of experience in the fields of banking and finance.

He has been the Chairman of the Bank of Bahrain & Kuwait since 2002, and previously held the

position of Chief Executive Officer of the Bank of Bahrain & Kuwait from 1987 to 2002. Mr. Murad

also holds a number of memberships in community service societies such as Chairman of Human

Resources Development Fund in the Banking Sector since 2004 and member of the Council of

Vocational Training in Banking Sector – Bahrain Institute of Banking and Finance since 1987. Mr.

Murad has a special interest in the fields of banking, finance, economics and technology. Mr. Murad

is currently the Chairman of the Bank of Bahrain & Kuwait.

Abdul Razak Abdulla Al Qassim (Director)

Mr. Abdul Razak Abdulla Al Qassim has been serving on the Board since February 2008. He holds

a Masters degree in Management Sciences and a Sloan Fellowship from the Massachusetts Instituteof Technology, United States. Mr. Al Qassim joined the National Bank of Bahrain in 1977 after nine

years with Chase Manhattan Bank and Standard Chartered Bank. He has held the positions of

Chairman at Benefit Company, Chairman of the Board of Trustees at Ahlia University, Deputy

Chairman at Eskan Bank, Deputy Chairman and Chairman of the Executive Committee at Oasis

Capital Bank B.S.C., Deputy Chairman and Chairman of the Executive Committee at the Arab

Academy for Education and Research, Board member and Chairman of the Executive Committee at

Batelco, Board member at Umniah and member of the board of the Crown Prince International

Scholarship Programme. Mr. Al Qassim is currently Chief Executive Officer and Managing Directorof the National Bank of Bahrain.

Dr. Zakaria Ahmed Hejres (Director)

Dr. Zakaria Ahmed Hejres has been serving on the Board since January 2004. He holds a Ph.D. in

Economic Development from the University of Durham, United Kingdom. Dr. Hejres also obtained aMasters Degree in Economic Development from the University of Strathclyde, United Kingdom in

1985. His postgraduate Diploma was in Economic and Social Planning from the University of Wales,

Swansea, United Kingdom with a Bachelors Degree in Sociology from the University of Alexandria,

Egypt. Dr. Hejres’ past experience includes being Director of Economic Planning and Assistant

Undersecretary for Economic Affairs in the Ministry of Finance and National Economy. He also held

the position of Deputy Chief Executive in the Economic Development Board from October 2003 to

October 2009. Dr. Hejres is currently the owner of FYI-C Consultancy.

Nedhal Saleh Al-Aujan (Director)

Mr. Nedhal Saleh Al-Aujan has been serving on the Board since January 2004. He is a career banker

with 29 years’ experience, and has held senior positions in various domestic and international banks.

Mr. Al-Aujan joined Bahrain Development Bank in 2000 and became the Chief Executive Officer of

the Bank in 2007. He served as a Chairman of Gulf Diabetes Centre and Arabian Taxi Company aswell as a member of the Board of Directors at Venture Capital Bank, Retail Arabia (Geant) and

Gulf Membrane & Coating Industries WLL. Mr. Al-Aujan is currently Chief Executive Officer of

Bahrain Development Bank.

Adel Hussain Al Maskati (Director)

Mr. Adel Hussain Al Maskati has been serving on the Board since February 2005. He obtained a

Masters degree in engineering in 1977. Mr. Al Maskati worked in the oil industry from 1978 to 1993.

He joined Maskati Commercial Services (which manages manufacturing plants, trades in industrial

products and manages investment portfolios) in 1993. Mr. Al Maskati served on the board of

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directors and various board committees at Bahrain Petroleum Co, Bahrain Tourism Co BSC, United

Packaging Industries Co BSC, Abu Dhabi Paper Mill Co, Bahrain Chamber of Commerce and

Industry, the Labour Market Regulatory Authority, Bahrain Economic Development Board, Gulf Air

and National Health Regulatory Authority. Mr. Al Maskati is currently the Managing Director ofMaskati Commercial Services BSC.

Waleed Ahmed Al Khajah (Director)

Mr. Waleed Ahmed Al Khajah has been serving on the Board since April 2007. He obtained a

Bachelors degree in Business Administration from North Texas State University in 1985. Mr. Al

Khajah joined the Social Insurance Organisation in 2005 after 19 years with the Ministry of Finance.He has served on the Board of Directors and various board committees at Bahrain Tourism Co BSC,

Seef Properties and AMAK & Sons. Mr. Al Khajah is currently Executive Director at the Social

Insurance Organisation.

Ali Yousif Engineer (Director)

Mr. Ali Yousif Engineer has been serving on the Board since February 2008. He obtained a

Bachelors degree in Business Administration from the United Kingdom in 1967. Mr. Engineer hasbeen serving as Chairman of the boards of a number of family owned business and establishments.

He is also a board member at TRAFCO and Vice Chairman of Arabian Taxi Company. Mr.

Engineer currently serves as Chairman of several family owned businesses.

Abdulrahman Yusif Fakhro (Director)

Mr. Abdulrahman Yusif Fakhro has been serving on the Board since April 2012. He studied

Commerce at the University of Cairo and has more than 47 years’ experience in the business,investment and insurance sectors. Mr. Fakhro has served on the boards of various companies

including Bahrain Kuwait Insurance Company, BMMI, National Motors, Bahrain Flour Mills and

Seef Properties. He is also a member of the Board of directors at the Social Insurance Organisation,

Innovest and American Mission Hospital. Mr. Fakhro currently serves as Chairman of Bahrain

Commercial Facilities Company (BSC) and the Yusif bin Yusif Fakhro group of companies.

Brigadier Khalid Mohammed Al Mannaei (Director)

Brigadier Khalid Mohammed Al Mannaei has been serving on the Board since August 2012. He

holds a Masters degree in Business Administration and a National Diploma in MIS from Sheffield

Hallam University, United Kingdom. Brigadier Al Mannaei joined the Military Pension Fund in

February 2011 after 30 years of service with the Bahrain Defence Force. He is one of the founders of

the GCC Expanded Pension Coverage Committee, a board member at the Social Insurance

Organization, a board member of Naseej Company and member of the board of directors of Asool

(Assets Management Company). Brigadier Al Mannaei is currently General Manager of the Military

Pension Fund.

Committees of the Board of Directors

In order to assist the Board in discharging its duties effectively and efficiently, the Board has

established the following committees:

Executive Committee

The Executive Committee’s primary duties and responsibilities are to:

* Review Batelco’s operational performance, at least once every financial quarter, and direct

management to develop and implement various initiatives to achieve the Group’s annual

operating plan.

* Obtain reports at least once every financial quarter regarding the operating performance of

Batelco’s joint ventures and associated companies and review such performance against key

financial targets and objectives.

* Review Batelco’s investment portfolio at least once every financial quarter.

* Approve or recommend to the Board all requests for the ‘write-off’ of any of the Group’s

investments.

* Approve or recommend to the Board any budgeted and unbudgeted capital expenditure.

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* Monitor the implementation of an effective corporate governance framework, with particular

reference to the Corporate Governance Code of Bahrain and the requirements of the CBB’s

Rulebook Volume 6.

* Assist the Board in the effective discharge of its responsibilities for business, financial,

operational, and reputational risk management and for the management of Batelco’s compliance

obligations.

Audit Committee

Batelco’s internal audit function reports to the Audit Committee. The Audit Committee’s primary

duties and responsibilities are to:

* Ensure the integrity of Batelco’s financial statements and financial reporting process and

Batelco’s systems of internal accounting and financial controls.

* Oversee the annual independent audit of Batelco’s financial statements, the engagement of

external auditors and the evaluation of the external auditors’ qualifications, remuneration,

independence and performance.

* Appoint the Head of Internal Audit and the regular review of the activities and performance of

the internal audit function.

* Ensure compliance by Batelco with legal and regulatory requirements, including Batelco’s

disclosure of its controls and procedures.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee’s primary duties and responsibilities are to:

* Identify persons qualified to become members of the Board and executive management of

Batelco.

* Make recommendations to the Board regarding candidates for Board membership.

* Review Batelco’s remuneration policies for the Board and executive management, and submit

the same for approval to shareholders.

* Determine the remuneration of Board members based on their attendance and performance.

* Administer the performance evaluation process for the Board and Board Committees and

executive management.

Donations Committee

The Donations Committee’s primary duties and responsibilities are to:

* Examine donation requests made to Batelco from time to time.

* Determine whether to approve any such donation requests.

* Assess the quantum of the approved donation requests.

* Oversee the administration of the funding allocated by the Board for such donations.

Executive management

The Board is supported by Batelco’s senior management team, the members of which are each highlyexperienced individuals in their respective fields of expertise. The business address of each of the

senior management team is Batelco Hamala Campus, P.O. Box 14, Manama, Kingdom of Bahrain.

Brief biographies of each of the members of senior management, and their titles, are set out below.

Shaikh Mohamed Bin Isa Al Khalifa (Group Chief Executive Officer)

Shaikh Mohamed bin Isa Al Khalifa was appointed Group Chief Executive Officer in October 2011.

Sh. Mohamed has had significant telecommunications industry involvement and experience via his

appointment as Deputy Chairman of the Batelco Board of Directors since 2004, and has been directly

involved in the evolution of Batelco from a public utility in Bahrain to its current position as aregional operator across the Middle East. He was appointed as the Chairman of SAMENA

Telecommunications Council on 1 November 2011, and continues to occupy this role. In addition, Sh.

Mohamed currently serves as Chairman of Oasis Capital Bank and is a director of Investcorp Bank.

His prior experience also includes leading financial and investment roles and representation on the

boards of a number of public and private companies. Prior to his appointment at Batelco, he held

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the position of CEO of the Bahrain Social Insurance Organization which was formed by the merger

of the General Organization for Social Insurance and the Pension Fund Commission in 2008.

Between 2005 and 2008, Sh. Mohamed held the role of Director General of the General Organization

for Social Insurance in Bahrain. He has also previously been appointed to several company boards indifferent capacities such as Chairman at the Securities and Investments Company, Vice Chairman at

Batelco, Vice Chairman Bank of Bahrain & Kuwait, Vice Chairman Bahrain International Golf

Course Company and Director at Bahrain Commercial Facilities Company. Sh. Mohamed holds a

degree in Business Administration from the University of Texas, Austin, United States of America.

Peter Kaliaropoulos (Group Chief Executive Officer Strategic Assignments)

Mr Kaliaropoulos was appointed as Group CEO, Strategic Assignments in October 2011. His

previous roles with Batelco included Group CEO and CEO Batelco Bahrain. Mr Kaliaropoulos joined

Batelco in June 2005 and has over 31 years of experience in the international information and

communications technologies sector. Prior to joining Batelco, he held various senior executive roles

including Managing Director at SingTel Optus Business (Australia), Chief Operating Officer/SeniorVice President at StarHub (Singapore), Chief Executive Officer at Clear (New Zealand), Director

Sales and Service at BT Asia Pacific (Singapore & Australia), Director at BT Syncordia Asia Pacific,

Vice President Sales & Marketing at Telstra (USA) and Managing Director Mobile Sales &

Distribution at Telstra (Australia). He has also served as a board director on a number of start-up

and established telecommunications and information and communications technologies companies in

the USA, Asia Pacific and other countries. Mr Kaliaropoulos intends to resign from his current

position as Group Chief Executive Officer Strategic Assignments at the end of May 2013 following

completion of the M&I Acquisition, but may continue to make his experience available to the Groupby taking up a consultancy role for various business operational matters and acquisition

opportunities. He is a graduate of the University of NSW, Australia with a Bachelor of Electrical

Engineering degree and holds an MBA from Macquarie University, Sydney.

Marco Regnier (Group Chief Financial Officer)

Marco Regnier joined the Group in May 2012 after 15 years in the telecommunications sector. As a

Chief Financial Officer, or Finance Director, he was part of the leadership teams of multiple

greenfield operators in high growth and emerging markets, also leading business transformation,

financial restructuring, process re-engineering and cost leadership programmes in more mature

incumbent telecommunications operators, in Latin America, Europe and the MENA region. Prior to

his telecommunications career, he was manager at Ernst & Young and financial analyst at ImperialOil, a subsidiary of Exxon Mobil in Canada. Mr. Regnier is a Chartered Accountant. He graduated

in accounting sciences and holds an MBA from ESG, Montreal.

Rashid Abdulla (Chief Executive Batelco Bahrain)

Rashid Abdulla has been Chief Executive for Batelco Bahrain since January 2011, having held the

position of Managing Director of Qualitynet, Batelco’s sister operation in Kuwait, since 2000. Mr.

Abdulla has worked in the telecommunications business for 30 years, beginning his career as a

student in 1979 with Batelco’s former shareholder, Cable & Wireless, and training at their

Telecommunications College in the UK. He later attended Thames Polytechnic, UK, where he

graduated with a BSC (Hons) in Electrical & Electronics Engineering. Mr. Abdulla has gained

experience in various aspects of Batelco’s operations, holding management and general managementroles from 1986 onwards. Among the roles he has held are General Manager Major Accounts and

General Manager of New Business Development. He was instrumental in the delivery of a number of

major achievements over the past 26 years including the launch of internet services in 1995, which

remains one of Batelco’s most significant accomplishments.

Ihab Hinnawi (Chief Executive Umniah Mobile Company)

Ihab Hinnawi joined Umniah as the Chief Executive Officer in 2009. Prior to assuming his position

at Umniah, Ihab joined Batelco Bahrain in 2009 as General Manager of the Enterprise Division,

directing the sales, service and marketing operations of Batelco’s solutions portfolio having previously

held the position of Chief Executive Officer at Batelco Jordan since 2007. Before joining Batelco, he

helped establish Umniah in 2004 as a key member of its initial management team, and continued towork at Umniah until 2007 as its Operations Director. Mr. Hinnawi has held several senior positions

throughout his career, the most notable of which was his role as General Manager at Nuqul Group.

Mr. Hinnawi holds a BA in Business Administration and is the Vice Chairman of the Injaz Board of

Directors and a member of Injaz Board of Trustees in Jordan.

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Waleed Al-Qallaf (Chief Executive Qualitynet)

Waleed Al-Qallaf was appointed Chief Executive Officer of Qualitynet in February 2011. He

completed his education in 1989 with a Bachelors degree in Computer Engineering from theUniversity of the Pacific, USA. Waleed started his professional career with the Ministry of Planning

as a telecommunications network engineer. He joined Qualitynet in 1999 as an engineer, progressing

through the organisation to Corporate Sales Manager, General Manager of Sales & Marketing,

General Manager of Network Services and now Chief Executive Officer.

Shaikh Ahmed Bin Khalifa Al Khalifa (Group General Manager Human Resources & Development)

Shaikh Ahmed joined Batelco as Senior Manager for Employee Relations in 1997. Shaikh Ahmed has

an engineering background, having previously worked as an aircraft engineer and moving into

recruitment from 1999. Shaikh Ahmed was appointed as acting General Manager of Human

Resources in 2003. He became General Manager of Human Resources in 2004 and in January 2008

extended his role to include responsibility for employee relations across the Batelco Group. Sh.

Ahmed’s qualifications include the Executive Development Programme, Darden School of Business,

University of Virginia, United States of America, Masters of business administration information and

business systems technology, University of Glamorgan, Wales, United Kingdom and Aviationengineering certificate from KLM Aviation College, the Netherlands.

Bernadette Baynie (Group General Counsel)

Bernadette Baynie is a senior executive with Batelco Group and has been its chief lawyer since 2008.

She has the leading responsibility for all legal and regulatory matters across Batelco’s operating

companies. Her extensive experience ranges from roles in leading Australian law firms to senior in-house counsel for companies in the banking and telecommunications industries. Ms Baynie has a

comprehensive in-house corporate counsel expertise, in a wide range of areas of law that impact upon

the end-to-end operations of large companies, including cross-border mergers and acquisitions,

corporate finance transactions, telecommunications infrastructure arrangements, complex commercial

transactions, regulatory compliance, corporate governance, international dispute resolution and risk

management. She was appointed the Vice Chairman of the Policy Board of SAMENA

Telecommunications Counsel in 2012 and has acted in that role for the past twelve months. She

graduated with a Bachelor of Laws from Sydney University, Australia.

Hamid Husain (Group Chief Information Officer)

Hamid Husain joined the Batelco Group in February 2011 as Group Chief Information Officer. His

extensive experience in the telecommunications sector includes serving as Chief Information Officer for

the Hutchinson Group in Indonesia, supporting their largest mobile operations. Prior to working for

the Hutchinson Group, Mr. Husain worked for Zain group in Nigeria and for du, the United ArabEmirates’ integrated telecommunications operator, as their Chief Information Officer and Vice

President of Information Technology. He also spent over 17 years with Airtouch/Vodafone based in

the US, Europe and the Middle East with the latter 10 years spent in senior management roles. Mr.

Husain holds a Bachelor of Science degree and an MBA with concentration in management

information systems from the University of Houston.

Corporate Governance

Batelco is committed to high standards of corporate governance which are critical to its business

integrity and to maintaining investors’ trust in Batelco.

The Board approved Corporate Governance Guidelines for Batelco in November 2011, which outline

the key corporate governance principles stipulated by the CBB (including those set out in the CBB’s

High Level Controls Module Rulebook 6) and the Corporate Governance Code issued by the Bahrain

Ministry of Industry and Commerce. The policies and practices set out in the Corporate GovernanceGuidelines are intended to provide a framework for the efficient corporate governance of Batelco. The

Board has resolved that it shall investigate any non-compliance or deviations from these corporate

governance guidelines. The Executive Committee of the Board will review the Corporate Governance

Guidelines at least every two years, or as and when required, in order to comply with the Corporate

Governance Code or any other relevant legislation in Bahrain.

In recognition of its corporate governance standards and transparency, Batelco won the ‘‘Best

Corporate Governance in Bahrain’’ award by World Finance Magazine in 2011.

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Compensation of Directors and Senior Management

The remuneration for the services rendered in the capacity of Director of Batelco is based on the

amount approved in last Annual General Meeting recommended by the Board. Any subsequentrevisions to the remuneration will be based on the approval obtained from the shareholders in the

next Annual General Meeting. The remuneration for Directors is principally based on attendance at

Board meetings, and is reduced on a pro rata basis depending on actual attendance at Board

meetings in the previous calendar year. In addition, Batelco reimburses the Directors for all direct

and indirect expenses, accommodation and travelling expenses, reasonably incurred during the term of

their appointment.

The Nomination and Remuneration Committee is responsible for devising the remuneration policy for

Batelco’s executive management, with an objective to achieve a balance between offering market

competitive remuneration to retain talent, and optimising current and future shareholder returns.

The compensation paid to the Board as a group for the year ended 31 December 2012 was BD

510,000. The compensation paid to key management personnel for the year ended 31 December 2012

was BD 2.7 million.

Conflicts of interest

At all times, the Directors have a duty to avoid circumstances which may result in interests that

conflict with those of Batelco, unless that conflict is duly approved by the Board. This includes

potential conflicts that may arise when a Director takes up a position with another company or when

Batelco enters into transactions or agreements in respect of which a Director has a material interest.

Each external appointment of the Directors is considered by the Board individually, taking into

account the expected time commitment and any relationships.

There are no conflicts of interest between the duties of the Directors and executive management

named above to the Group and their private interests or other duties.

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GLOSSARY OF CERTAIN DEFINED TERMS

The following definitions apply throughout this Prospectus, unless the context requires otherwise:

2G A multiple access scheme for digital radio, to send voice, data and

signalling information (such as a dialled telephone number)

between mobile telephones and cell sites. 2G permits several

radios to share the same frequencies and network capacity and does

not directly limit the number of active radios. Since larger numbers

of phones can be served by smaller numbers of cell-sites, 2G-basedstandards have a significant economic advantage over older

standards.

3G A cellular system that utilises a single frequency band for all traffic,differentiating the individual transmissions by assigning them

unique codes before transmission. 3G operates in the 2100 MHz

band. 3G enables the continued support of voice, text and MMS

services in addition to richer mobile multimedia services such as

music, TV, video, entertainment content and internet access.

4G 4G refers to the fourth generation of cellular wireless standards. It

is a successor to 3G and 2G standards. 4G systems provide a

comprehensive and secure all-IP based service where facilities such

as IP telephony, ultra broadband internet access and streamed

multimedia can be provided to users.

ARPU or Average Revenue Per

User

The measure of total service revenues for a given period, divided by

the number of months in that period and divided again by that

period’s average total customers (calculated by dividing the

aggregate number of customers at the beginning and end of therelevant period by two).

The Group’s calculation of mobile ARPU includes outgoing voice

revenue, subscription fees, data usage and roaming revenue from

outbound customers. Interconnect revenue is not included inmobile ARPU. Fixed-line ARPU includes rentals, outgoing

international and national voice revenues as well as VAS

revenues. Fixed broadband ARPU includes rentals and data

usage charges relating to ADSL customers ARPU measures

include residential as well as business customers.

Bahrain The Kingdom of Bahrain.

Batelco Bahrain Telecommunications Company B.S.C.

Batelco Egypt Batelco Egypt Communications S.A.E.

BMIC BMIC Limited.

Board The board comprising the Directors.

CBB The Central Bank of Bahrain.

CDMA or Code Division Multiple

Access

Also known as spread spectrum, CDMA cellular systems utilize a

single frequency band for all traffic, differentiating the individual

transmissions by assigning them unique codes before transmission.There are a number of variants of CDMA (for example, W-

CDMA, B-CDMA and TDSCDMA).

CIIM Channel Islands and Isle of Man.

CMC Compagnie Monegasque de Communication S.A.M.

CMC Acquisition The sale and purchase of the CMC Majority Shares following

exercise of the Monaco Option in accordance with the terms of the

M&I Transaction Agreement.

CMC Companies CMC, Monaco Telecom, Monaco Telecom International S.A.M,

Monaco Telecom Holdings (Cyprus) Limited, Telecom

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Development Company Afghanistan B.V., and Telecom

Development Company Afghanistan Limited.

CMC Majority Shares Shares representing 75 per cent. of the issued share capital of CMC.

CMC Minority Shares Shares representing 25 per cent. of the issued share capital of CMC.

Counterparty Has the meaning given in ‘‘Business Description of the Group’’.

CWC Cable & Wireless Communications Plc.

Directors The directors of Batelco.

Dhiraagu Dhivehi Raajjeyge Gulhun plc.

EBITDA Earnings before interest, tax, depreciation and amortisation, net

other operating and non-operating income/(expense) and

exceptional items.

EDWH Enterprise Data Warehouse.

Enlarged Group The Group following completion of the M&I Acquisition and the

Seychelles Acquisition.

Etihad Atheeb Etihad Atheeb Telecommunication Company (a Saudi Joint StockCompany).

EVD Electronic Voucher Distribution is the means of distributing

prepaid vouchers electronically using a central server and a

portable point-of-sale transaction terminal at the retail outlet.

fixed number portability The ability of a fixed-line telephone customer to transfer from one

operator to another and retain their original number.

FCF Free Cash Flow.

FTTH or Fibre To The Home A broadband network that uses fibre optic cable to replace all or

part of the usual metal loop be extending the fibre optic cable

network to the subscriber’s living or working space.

GHz or Gigahertz A unit of frequency of one billion Hertz.

Government The Government of Bahrain.

GPRS or General Packet Radio

Service

A packet based telecommunications service designed to send and

receive data at rates from 56 Kbps to 114 Kbps that allows

continuous connection to the internet for mobile phone and

computer users. GPRS is a specification for data transfer over

GSM networks.

GPON Gigabit-capable Passive Optical Network is a point-to-multipoint

fibre to the premises network architecture in which unpowered

optical splitters are used to enable a single optical fibre to serve

multiple premises, typically 16-128. A passive optical network is a

form of fibre-optic access network.

Group Batelco and its consolidated subsidiaries and its associated

companies.

GSM or Global System for Mobile

Communications

A comprehensive digital network for the operation of all aspects of

a cellular telephone system.

HSPA+ High Speed Packet Access (HSPA) is an amalgamation of two

mobile telephony protocols; High Speed Downlink Packet Access

(HSDPA) and High Speed Uplink Packet Access (HSUPA), that

extends and improves the performance of existing 3rd generation

mobile telecommunication networks utilizing the Wideband Code

Division Multiple Access (WCDMA) protocols.

ICT Information and Communication Technology.

IFRS International Financial Reporting Standards.

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international direct dial Calls made directly from one mobile or fixed-line customer located

in a particular country to another mobile or fixed-line number

located in a different country.

IP or Internet Protocol A standard procedure whereby internet-user data is divided into

packets to be sent onto the correct network pathway. In addition,

IP gives each packet an assigned number so that the message

completion can be verified. Before packets are delivered to their

destination, the protocol carries out unifying procedures so thatthey are delivered in their original form.

IPLC An International Private Leased Circuit functions as a point-to-

point private line. IPLCs are usually time-division multiplexing

(TDM) circuits that utilise the same circuit amongst many

customers.

IPT Internet Protocol Telephony.

KSA The Kingdom of Saudi Arabia.

LAN A Local Area Network is a computer network that interconnects

computers in a limited area using network media. The defining

characteristics of LANs include their usually higher data-transfer

rates, smaller geographic area, and lack of a need for leasedtelecommunication lines.

LTE or Long Term Evolution The trademarked project name of a high performance air interface

for cellular mobile telephony designed to increase the capacity and

speed of mobile telephone networks.

M&I Acquisition Has the meaning given in ‘‘Description of the M&I Transaction’’

M&I CIS Licensees Cable & Wireless Guernsey Limited, Cable & Wireless Isle of ManLimited, Cable & Wireless Jersey Limited and Dhiraagu.

M&I CIS Licensor Cable & Wireless International HQ Limited.

M&I Completion Date 3 April 2013.

M&I Delayed Company Has the meaning given in ‘‘Description of the M&I Transaction’’.

M&I Initial Companies Each of the M&I Target Companies excluding each of the CMC

Companies.

M&I Target Companies Each of CWC Islands Limited (now BTC Islands Limited), CWCHoldco Limited (now BTC South Atlantic Limited), CMC,

Monaco Telecom, Monaco Telecom International S.A.M,

Monaco Telecom Holdings (Cyprus) Limited, Cable & Wireless

(Diego Garcia) Limited, Cable & Wireless South Atlantic Limited,

Cable & Wireless Jersey Limited, Cable and Wireless Guernsey

Limited, Cable & Wireless Isle of Man Limited, Dhivehi Raajjeyge

Gulhun Plc, CWIG Limited, Cable & Wireless (Seychelles)

Limited, Atlas (Seychelles) Limited, Le Chantier PropertyLimited, Telecom Development Company Afghanistan B.V.,

Telecom Development Company Afghanistan Limited and

Seychelles Cable Systems Limited.

M&I Target Group Each of the M&I Target Companies.

M&I Trade Mark Licensees Cable & Wireless South Atlantic Limited, Cable & Wireless (Diego

Garcia) Limited, Cable & Wireless Guernsey Limited, Cable &

Wireless Isle of Man Limited and Cable & Wireless Jersey Limited.

M&I Trade Mark Licensor CWC Communications Limited.

M&I Transaction The M&I Acquisition, the Seychelles Acquisition and the Monaco

Option.

M&I Transaction Agreement The share purchase agreement described in ‘‘Description of the M&I

Transaction’’.

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Mbps The data transfer rate equalling 1,000,000 bits (or one megabit) per

second.

MENA Middle East and North Africa.

MHz or Megahertz A unit of frequency equalling one million Hertz.

MMS or Multimedia Messaging

Service

A text messaging service offering various kinds of multimedia

content including images, audio and video clips.

Mobile Number Portability The ability of a mobile telephone customer to transfer from one

operator to another and retain their original number.

Monaco Option The put and call option arrangement between the Seller and the

Purchaser in respect of the CMC Majority Shares, as described in

‘‘Description of the M&I Transaction’’.

Monaco Option Completion Completion of the acquisition of the CMC Majority Shares

pursuant to the exercise of the Monaco Option.

Monaco Option Consideration Has the meaning given in ‘‘Description of the M&I Transaction’’.

Monaco Option Period Has the meaning given in ‘‘Description of the M&I Transaction’’.

Monaco Telecom Monaco Telecom S.A.M.

MPLS or Multiprotocol Label

Switching

A mechanism in high-performance telecommunications networks

that directs data from one network node to the next based on short

path labels rather than long network addresses, avoiding complex

lookups in a routing table.

MT Minority Shares Has the meaning given in ‘‘Description of the M&I Transaction’’.

MT Put Option Has the meaning given in ‘‘Description of the M&I Transaction’’.

MT Put Option Price Has the meaning given in ‘‘Description of the M&I Transaction’’.

Mumtalakat Bahrain Mumtalakat Holding Company B.S.C.(c).

NBN National Broadband Network.

NGN Next-Generation Network is a packet-based network for the

provision of services including Telecommunication Services, along

with the ability to make use of multiple broadband, quality of

Service-enabled transport technologies and in which service-related

functions are independent from underlying transport-related

technologies.

POP Point of Presence.

Purchaser or BIG Holding Batelco International Group Holding Limited, a wholly owned

subsidiary of Batelco.

Purchaser Guarantor Batelco.

QoS The Quality of Service refers to several related aspects of telephonyand computer networks that allow for the transport of traffic with

special requirements.

SADG Cable and Wireless South Atlantic and Diego Garcia.

Seller or Sable Holding Sable Holding Limited.

Seller Guarantor Cable & Wireless Limited.

Seychelles Acquisition Has the meaning given in ‘‘Description of the M&I Transaction’’.

Seychelles Companies Cable & Wireless (Seychelles) Limited and its subsidiaries.

SLA A Service-Level Agreement is a part of a service contract where a

service is formally defined.

SMS Stands for ‘‘short messaging service’’, electronic messages on awireless network.

STEL STEL Private Limited.

TRA Telecommunications Regulatory Authority, Bahrain.

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Umniah Umniah Mobile Company PSC.

UMTS or Universal Mobile

Telecommunications System

A third generation mobile cellular system for networks based on the

GSM standard.

WiMAX Refers to Worldwide Interoperability for Microwave Access, a

telecommunications technology that provides fixed and fully

mobile internet access.

VAS or Value-Added Services A service which provides a higher level of functionality than the

basic transmission services offered by a telecommunications

network for the transfer of information among its terminals, as

well as enhanced media content offerings.

VDSL Very-high-bit-rate Digital Subscriber Line is a Digital Subscriber

Line (DSL) technology providing data transmission faster than

Asymmetric Digital Subscriber Line (ADSL) over a single flatuntwisted or twisted pair of copper wires (up to 52 Mbit/s

downstream and 16 Mbit/s upstream), and on coaxial cable (up

to 85 Mbit/s down- and upstream), using the frequency band from

25 kHz to 12 MHz.

VLL Virtual Leased Line is a method of providing Ethernet-based point

to point communication over IP/MPLS networks.

VOIP or Voice Over Internet

Protocol

A telephone service via internet, or via TCP/IP protocol, which can

be accessed using a computer, a sound card, an adequate software

and a modem.

VPLS Virtual Private LAN Service is a type of VPN that connects

multiple sites into a single bridged domain over an IP or MPLS

network.

VPRN Virtual Private Routed Network is a Layer 3 VPN providing a

secure/private WAN for a customer.

VPN or Virtual Private Network A network that is layered on top of an underlying network. The

private nature of a VPN means that the data travelling over the

VPN is not generally visible to, or is encapsulated from, the

underlying network traffic.

VSAT A Very Small Aperture Terminal is a two-way satellite ground

station or a stabilised maritime VSAT antenna with a dish antenna

that is smaller than three metres. VSATs access satellites in

geosynchronous orbit to relay data from small remote earthstations (terminals) to other terminals (in mesh topology) or master

earth station ‘‘hubs’’ (in star topology).

WAN A Wide Area Network is a network that covers a broad area (i.e.,

any telecommunications network that links across metropolitan,

regional, or national boundaries) using private or public network

transports.

WLAN Wireless Local Area Network.

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OVERVIEW OF THE KINGDOM OF BAHRAIN

Introduction

Bahrain is an archipelago of 36 islands with a total land surface area of 760 square kilometres

situated in the Arabian Gulf. The islands are about 24 kilometres from the east coast of theKingdom of Saudi Arabia (Saudi Arabia) and 28 kilometres from the State of Qatar (Qatar). The

largest island, Bahrain Island, comprises nearly 91.3 per cent. of the total land area of Bahrain and is

linked to mainland Saudi Arabia by a 25 kilometre causeway. The capital of Bahrain, Manama, is on

Bahrain Island. Bahrain’s other significant islands include the southern archipelago near the coast of

Qatar called Hawar, Muharraq Island (Muharraq) (which is Bahrain’s second largest city and where

Bahrain’s international airport and the country’s main port, Khalifa Bin Salman Port at Hidd, are

located) and Sitra Island (Sitra) (a mainly industrial island). Muharraq and Sitra are connected to

Bahrain Island by causeways.

Bahrain has a long economic and political history; its financial sector is one of its largest GDP-

contributing sectors, there are established wholesale banking, insurance and re-insurance and fundmanagement industries (including industries ancillary to these, such as audit firms) and an established

legal and regulatory framework regulated by the Central Bank of Bahrain (CBB) (which acts as both

Bahrain’s sole banking regulator and central bank).

In July 2012, Standard & Poor’s reaffirmed its long-term local and foreign currency sovereign credit

rating on Bahrain at ‘BBB’ with a negative outlook. The short term rating was raised from ‘A-3’ to

‘A-2’ following a change in Standard & Poor’s criteria. In January 2013, Standard & Poor’s revised

Bahrain’s negative outlook to stable and affirmed the credit rating at ‘BBB/A-2’.

In August 2011, Fitch affirmed Bahrain’s long-term and short-term local and foreign currency credit

ratings at ‘BBB+/BBB/F3’ and revised the sovereign credit rating to stable.

History

On 15 August 1971, Bahrain declared its independence. The late Shaikh Isa assumed the position of

Emir as Head of State and his brother, Shaikh Khalifa, became Prime Minister. In 1972, a

constituent assembly was formed and in May 1973 a constitution was published. In December 1973, a

44-person national assembly (the National Assembly) was established, comprising 30 elected members.

The then National Assembly was dissolved in August 1975 following disagreement between the

National Assembly and the Government. In the early 1990s, political tensions increased despite

limited reforms by the Government (including the establishment of a consultative council (the ShuraCouncil) in 1992). In 1981, Bahrain, together with Saudi Arabia, the United Arab Emirates (the

UAE), Qatar, the State of Kuwait (Kuwait) and the Sultanate of Oman (Oman) established the GCC.

When Shaikh Isa died in March 1999, his son Shaikh Hamad bin Isa Al-Khalifa came to power. The

new Emir embarked on a programme of political reform and released all jailed political activists. He

also introduced a new national charter, the National Action Charter (the Charter) that sought to

establish a new national assembly that was to be part appointed and part elected. It also paved the

way for Bahrain to become a constitutional monarchy and for Shaikh Hamad bin Isa Al-Khalifa to

be proclaimed King of Bahrain (the King). The Charter was approved in a national referendum in

February 2001.

Constitution and Government

Under the new constitution (the Constitution) adopted in February 2002 pursuant to the Charter,

Bahrain is a hereditary constitutional monarchy with a democratic system of government. The system

of government rests on a separation of the legislative, executive and judicial authorities. The

legislative authority is vested in the King and the National Assembly in accordance with the

Constitution. Executive authority is vested in the King together with the Cabinet (as defined below)

and the ministers themselves, and judicial rulings are issued in the King’s name in accordance withthe provisions of the Constitution. The Constitution also declares the state religion to be Islam with

Islamic Shariah as a principal source for legislation.

Under the Constitution, the King is entitled to appoint the Prime Minister (as defined below) and

other ministers. The King is the supreme commander of the Bahrain Defence Force and chairs the

Supreme Judiciary Council (which oversees the judiciary). The King has power to conclude treaties,

and any amendments to the Constitution require the approval of the King.

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The Constitution provides for the National Assembly to comprise two chambers: the Shura Council

and the council of representatives (the ‘‘Council of Representatives’’). Each council has 40 members.

The members of the Council of Representatives are elected in national elections, whereas the members

of the Shura Council are appointed by the King. Members of the Council of Representatives andShura Council each sit for four-year terms.

Legislation is initiated in the Council of Representatives and draft laws are considered by the Shura

Council, which has the power to comment on and suggest alterations to proposed legislation. New

laws may only be passed when approved by both the Council of Representatives and the Shura

Council and ratified by the King.

The Council of Representatives represents a wide range of political opinion in Bahrain and plays a

significant role in the development of the democratic process. The first election for the Council of

Representatives was held in 2002, albeit with only moderate participation by some political groups. A

second election process was held in 2006 and a third in 2010, with both elections experiencing fulland active participation from all major political groups. The next election process is expected in 2014.

The Cabinet (the Cabinet) is appointed by the King. The Cabinet is headed by the Prime Minister

(the Prime Minister), who, as at the date of this Prospectus, is His Royal Highness Prince Khalifa bin

Salman Al-Khalifa. The Prime Minister is responsible for much of the day-to-day running of Bahrain.

In accordance with the Constitution, the King’s eldest son, His Royal Highness Prince Salman bin

Hamad Al-Khalifa, is the Crown Prince (the Crown Prince) and Commander-in-Chief of the Bahrain

Defence Force.

On 14 February 2011, protests and demonstrations began in Bahrain, protesting against the

Government, which continued throughout February and March (the February – March 2011 Protests).

The date was chosen to coincide with the anniversary of Bahrain’s constitutional reforms of 2002.

On 16 March 2011, the King issued Royal Decree No. 18 of 2011 announcing a state of nationalsafety for three months, which was scheduled to end on 15 June 2011. On 1 June 2011, and ahead of

the scheduled date, the King declared an end to the period of national safety with the goal of

encouraging national dialogue and reconciliation.

The National Consensus Dialogue (the Dialogue) took place in July 2011, and included participants

from across Bahrain’s political, social and religious spectrum, including representatives of a range of

different expatriate and religious groups. The Dialogue produced a number of recommendations for

constitutional and legislative reform.

Legislative reforms to the political system recommended by the Dialogue included increasing

Parliament’s legislative powers and Parliamentary scrutiny over the Government and enabling thePrime Minister to select his Government, subject to the approval of the elected Council of

Representatives. The Dialogue also called for measures to ensure non-sectarianism in all civil and

political organisations and oversight of funding of political societies. Economic reforms recommended

by the Dialogue included: faster implementation of the Economic Vision 2030, the creation of

independent authorities to assess the quality of Government services and implementation of

management policies and financial transparency (governance) in ministries and institutions in line with

international standards, and establishment of mechanisms to manage the expenditure of Government

institutions. Societal reforms recommended by the Dialogue included implementation of youthprogrammes, a national strategy for non-governmental organisations (including corporate social

responsibility programmes) and better implementation of legislation on security and peace. Additional

reforms recommended by the Dialogue included formation of the Supreme Judiciary Council by

appointment rather than election, judicial training on human rights issues, laws protecting the

freedom of expression and assembly and initiatives to improve foreign workers’ rights, including

establishing a minimum wage.

The Cabinet (the collective decision-making body of the Government comprising all Government

ministers) formed a ministerial sub-committee to oversee the implementation programme for the

recommendations of the Dialogue. On 3 October 2011, the ministerial sub-committee presented itsreport to the Prime Minister. The proposed constitutional changes were then sent to the National

Assembly and were approved on 30 April 2012. The King ratified these constitutional changes on

3 May 2012.

The amendments provide for:

* Increased powers of the Council of Representatives: in particular by granting it enhanced

democratic scrutiny over the Government.

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* Parliamentary approval of new governments: the constitution has been amended so that a new

Government will need to secure the approval of the democratically elected Council of

Representatives.

* Elected Council of Representatives to preside over the National Assembly: responsibility for

presiding over the National Assembly has been transferred from the Chairman of the Shura

Council to the Chairman of the Council of Representatives.

* Greater legislative and monitoring powers for the elected Council of Representatives: Ministers will

be required to be answerable to elected representatives.

* Measures to create more efficient law-making procedures: These measures will help address and

overcome delays in ratification, and gaps in implementation, of legislation.

As a further response to the February – March 2011 Protests, the Bahrain Independent Commission

of Inquiry (the BICI) was established on 29 June 2011 pursuant to Royal Order No 28 of 2011. The

BICI was developed in consultation with the Office of the UN High Commissioner for Human

Rights.

The BICI was mandated to determine whether the events of the February – March 2011 Protests

(and thereafter) involved violations of international human rights law and norms and to make the

recommendations in respect thereof.

Professor Mahmoud Cherif Bassiouni, an expert in international criminal and human rights law,

heads the BICI. The BICI was granted access to government officials, records and facilities, as well asthe right to conduct confidential interviews with any complainant or witness. The BICI’s report,

published on 23 November 2011, contained a detailed narrative regarding the events that had taken

place and presented a series of recommendations involving comprehensive, structural reform and a

process for national reconciliation. The Government pledged to implement the BICI recommendations

in their entirety.

To this end a National Commission (the National Commission) was set up, chaired by the Chairman

of the Shura Council and including independent representatives from across Bahraini society, to

monitor and oversee the Government’s progress in implementing the other BICI recommendations.

On 20 March 2012, the National Commission presented its report on the implementation of the BICI

recommendations. The report found that the Government had made substantial progress towardsimplementing the BICI recommendations, with certain issues already addressed and clear procedures

in place to complete those recommendations that remain outstanding. Since March 2012, the

Government has continued to follow these procedures. A second round of the Dialogue began on

10 February 2013.

See ‘‘Risk factors – Risks relating to the region in which the Group operates – The Group operates in a

region that has been subject to on-going political and security concerns’’.

Legal System

The judiciary is enshrined under the Constitution as an independent and separate branch of the

Government. The Constitution is upheld by a Constitutional Court, independent of both the executiveand legislative branches. The Minister of Justice oversees the administration of the court system, but

does not exercise a judicial function.

The Supreme Judicial Council, established under the Law of the Judiciary Authority (No. 42 of

2002), comprises senior judges and is responsible for overseeing the business of the courts, supervising

judges’ affairs, vetting judicial appointments submitted by the Minister of Justice, providing opinionson legislation affecting the judiciary, appraising the performance of judges and conducting

investigations into complaints concerning judges.

Bahrain has a dual court system, consisting of civil courts and Shariah courts. The Shariah courts

deal only with personal law matters relating to Muslims such as marriage, divorce and inheritance.

These courts do not have jurisdiction over commercial matters. The civil court system consists of theCourts of First Instance (which deal with all civil, commercial and criminal matters), the Court of

Appeal (which hears all appeals and is the highest appellate authority in Bahrain on matters of facts),

the Court of Cassation (which is the final appellate authority and decides on matters of law) and the

Constitutional Court (which decides on the constitutionality of laws and regulations enacted by the

legislature).

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A new independent alternative dispute resolution centre for commercial disputes was announced in

January 2010. The Bahrain Chamber of Dispute Resolution is an initiative conceived by Bahrain’s

Ministry of Justice and Islamic Affairs and the Economic Development Board in partnership with the

American Arbitration Association (the BCDR-AAA). The BCDR-AAA was established by RoyalDecree No.(30) in 2009. The BCDR-AAA was founded with the aim of providing a strong legal

entity to guarantee a safe economic environment and to maintain and attract international trade and

investment.

The BCDR-AAA has established (i) a mandatory statutory alternative dispute resolution tribunal for

any claim exceeding BD500,000 (approximately U.S.$1.3 million) which would have come within the

jurisdiction of the courts of Bahrain, and involves either an international commercial dispute or a

party licensed by the CBB and (ii) a voluntary mediation and arbitration process within a ‘‘Free

Arbitration Zone’’ to give jurisdictional and legal certainty to the recognition of arbitration awards,

along with time and cost effective resolution of disputes.

The Economy of Bahrain

Bahrain enjoys a strong and diverse economy. Although oil does play an important part in Bahrain’s

economy, it also has an important financial services industry, with Bahrain acting as a major financial

centre for the MENA region. Manufacturing, oil refining, aluminium production and tourism are also

significant contributors to its gross domestic product (GDP).

Gross Domestic Product

In 2011, oil and gas remained the largest contributor to Bahrain’s GDP (contributing 21.5 per cent.),

followed by the financial services sector (contributing 17.1 per cent.), manufacturing (contributing 14.7

per cent.), Government services (11.7 per cent.), transport and other communications (6.8 per cent.)

and real estate and business activities (5.7 per cent.) (source: CBB Economic Indicators Report, June

2012).

The following table sets out the GDP of Bahrain both as a total and on a per capita basis, and both

in current prices and constant 2010 prices, in each case for the periods indicated:

Total: 2008 2009 2010 2011

At current prices (U.S.$ millions)(1) 25,710.9 22,938.3 25,713.3 28,991.5

At constant 2010 prices (U.S.$ millions)(1) 24,032.7 24,644.4 25,713.3 26,190.9

Percentage change over previous period:At current prices 18.3 (10.8) 12.1 12.7

At constant 2010 prices 6.2 2.5 4.3 1.9

Per capita(2):

At current prices (U.S.$)(1) 23,235.9 19,465.4 20,929.8 24,260.4

At constant 2010 prices (U.S.$)(1) 21,719.3 20,913.2 20,929.9 21,916.8

Notes:

(1) Using the fixed conversion rate of BD0.376 = U.S.$1.00.

(2) Assuming a population of 1,106,516 in 2008, 1,178,415 in 2009, 1,228,543 in 2010 and 1,195,020 2011.

Source: CBB Economic Indicators Report – June 2012

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The table below sets out Bahrain’s GDP in current prices (using the expenditure approach) and in

percentage terms for the periods indicated:

Total: 2008 2009 2010 2011

(U.S.$

millions)(1) (%)

(U.S.$

millions)(1) (%)

(U.S.$

millions)(1) (%)

(U.S.$

millions)(1) (%)

Private consumption 8,866.8 34.5 9,383.9 40.9 10,589.7 41.2 10,988.6 37.9

Government consumption 2,846.1 11.1 3,206.5 14.0 3,324.3 12.9 3,655.6 12.6

Gross fixed capital

formation 8,876.1 34.5 5,794.2 25.3 6,697.0 26.0 5,154.5 17.8

Change in stocks(2) 166.9 0.6 202.8 0.9 319.1 1.2 131.5 0.5

Exports of goods & services 21,231.4 82.6 15,704.8 68.5 17,880.3 69.5 22,945.5 79.1

Imports of goods & services 16,276.3 63.3 11,354.0 49.5 13,097.1 50.9 13,884.3 47.9

Change in exports/imports 4,955.1 19.3 4,350.8 19.0 4,783.2 18.6 9,061.2 31.2

GDP 25,710.9 22,938.3 25,713.3 28,991.5

Notes:


(2) Including net errors and omissions

Source: Bahrain Central Informatics Organisation

The following table sets out the growth in percentage terms in real GDP (by expenditure approach)

based on constant 2010 prices for the periods indicated:

Total: 2008 2009 2010 2011

(%) (%) (%) (%)

Private consumption 25.2 11.0 14.2 3.6

Government consumption 8.9 13.8 3.4 8.3

Gross investment 18.6 (29.7) 14.7 (27.0)Change in stocks(1) 119.3 47.0 425.5 (44.9)

Exports of goods & services 0.7 0.3 2.6 (0.9)

Imports of goods & services 17.8 (13.2) 17.3 (14.8)

GDP 6.2 2.5 4.3 1.9

Note:

(1) Including net errors and omissions


Direct Government consumption constituted approximately 12.6 per cent. of GDP in 2011, down

from 12.9 per cent. and 14.0 per cent. of GDP in 2010 and 2009, respectively. Government

consumption also impacts private consumption as the Government is the country’s major employer

and promoter of capital projects. Government consumption has increased significantly in recent years

from approximately U.S.$2,846.1 million in 2008 to U.S.$3,655.6 million in 2011. Investment itself is

affected by the oil sector with gross fixed capital formation and stock building being affected byperiods of weak oil prices.

Mining

Oil

Bahrain has the lowest oil reserves of all of the GCC countries, with an average production of

approximately 42,510 barrels per day (bpd) as at 31 December 2011 from its onshore oilfield, the

Awali oilfield (source: CBB Economic Indicators Report, June 2012).

Bahrain has authorised two companies, PTT Exploration and Production Company Limited (part of

the PTT Thailand group of companies) and Occidental of Bahrain Ltd. (Occidental), to carry out

exploration and production of new offshore fields. Bahrain has signed a U.S.$1.2 billion deal with

Occidental to increase production at the Awali oilfield. Bahrain also exports oil from the Abu Saafa

oilfield which is located on its border with Saudi Arabia. Under a treaty signed with Saudi Arabia in1958, Bahrain is entitled to receive 50 per cent. of the output from the Abu Saafa oilfield. Bahrain’s

share in the production at Abu Saafa amounted to around 150,028 bpd in 2009, 149,974 bpd in 2010

and 147,771 bpd in 2011 (source: CBB Economic Indicators Report, June 2012). Bahrain also imports

about 230,000 bpd of crude oil from Saudi Arabia for processing at its refinery at Sitra. Bahrain’s

crude oil production for the third and fourth quarters of 2010 and the four quarters of 2011 was

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16.9, 16.9, 16.5, 16.8, 17.6 and 18.6 million barrels, respectively (source: CBB Economic Indicators

Report, June 2012).

In November 2009, Occidental, MDC Oil and Gas (Bahrain Field) LLC (Mubadala), The Oil and

Gas Holding Company B.S.C.(c) (Nogaholding) (together the Joint Venture Partners) and the National

Oil and Gas Authority of Bahrain (NOGA) announced the creation of a new state-owned joint

operating company, Tatweer Petroleum-Bahrain Field Development Company WLL (Tatweer

Petroleum).

Tatweer Petroleum is responsible for all of Bahrain’s on-shore domestic field activities including

operation of the Awali oilfield and the Khuff gas reservoir. Tatweer Petroleum’s strategic aim is to

double the production of oil from the on-shore field within five years and triple the production of oilwithin ten years. Tatweer Petroleum embarked on this strategic aim at the end of 2009 and has

increased crude oil production from 2010’s forecasted daily average of 31,900 bpd to a production

level of 45,800 bpd in December 2011, which is higher than its 2011 forecasted daily average of

43,000 bpd. In June 2012, production level was 44,500 barrels per day, as compared to 2012’s

forecasted daily average of 45,200 bpd (source: CBB Economic Indicators Report, June 2012). The

increase in production in 2011 and 2012 has been achieved by the use of tertiary production

techniques.

The Bahrain Petroleum Company B.S.C. (Bapco) manages and operates the Sitra oil refinery.

Gas

Although Bahrain’s gas reserves are relatively small, production has gradually risen over recent years.In 2011, actual gas production was 552.11 billion cubic feet of natural gas from Bahrain’s main gas

field, the Khuff reservoir. In June 2012, actual gas production increased to 253.76 billion cubic feet

for 6 months (source: CBB Economic Indicators Report, June 2012). Bapco manages and distributes

gas from the Khuff reservoir to end-user customers.

Gas from the Khuff reservoir is sold directly to Bapco’s principal domestic consumers, being

Aluminium Bahrain (Alba) followed by the power stations, Gulf Petrochemical Industries Company

B.S.C. (c) (GPIC) and the Sitra refinery. The other principal use of the gas produced is for oil field

injection.

Gas that is produced with crude oil (associated gas) is sold by Bapco to the Bahrain National Gas

Company B.S.C. (c) (BANAGAS). BANAGAS produces liquefied propane and butane for export, and

naphtha which is pipelined to the Sitra oil refinery. Residue gas from BANAGAS enters the national

gas system at a pressure lower than gas from the Khuff reservoir and is sold to local customers who

can accommodate the lower pressure.

The Government aims to increase the amount of liquefied natural gas that it imports from abroad

through the implementation of its Liquefied Natural Gas Supply Project (LNG Supply Project). The

LNG Supply Project proposes to deploy a floating storage and regasification facility and import

liquefied natural gas from a number of exporters worldwide.

Manufacturing

The principal manufacturing facilities in Bahrain are an aluminium smelter operated by Alba, the oil

refinery operated by Bapco at Sitra and the petrochemicals complex operated by GPIC. Other areas

of manufacturing include ship repair, iron palletising, light engineering facilities and textile

production.

Aluminium

The Alba aluminium smelter produces in excess of 880,000 tonnes of aluminium per annum (source:

ALBA). The Alba aluminium smelter is the world’s fourth largest producer of aluminium by

individual smelter capacity. Alba is majority state-owned, with 69.38 per cent. of its share capital held

through Bahrain Mumtalakat Holding Company (Mumtalakat) and 20.62 per cent. of its share capital

held by Saudi Basics Industries Corporation (SABIC). In November 2010, Mumtalakat conducted a

global offering of a portion of its ordinary shares in Alba. Alba’s ordinary shares are listed on the

Bahrain Bourse and global depositary receipts representing such shares are listed on the London

Stock Exchange.

Refining

Bahrain has an oil refinery at Sitra which has a capacity of 250,000 bpd and operates at levels close

to capacity. The principal products produced at the refinery in terms of volume are gas and fuel oil,

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jet fuel, naphtha and gasoline. Bapco has commissioned major new plants under a U.S.$1 billion

modernisation programme designed to reduce the sulphur content of the middle distillates to enable it

to meet current environmental standards and the requirements of its principal customers. The low

sulphur diesel complex was completed in June 2007 and a refinery gas desulphurisation plant wascommissioned in January 2009.

Petrochemicals

GPIC, which is a joint venture between the Government (which has a 33.3 per cent. share in the

company through Nogaholding), SABIC and Petrochemical Industries Inc. of Kuwait established a

petrochemicals complex in Sitra in 1985.

In 1995, a sulphur derivatives plant was commissioned by National Chemical Industries Corporation.

This plant uses feedstock from the refinery operated by Bapco.

Financial Services

Bahrain is one of the major financial centres in the MENA region. The sector’s success is due, in

part, to Bahrain’s geographical location between the east and west time zones. Bahrain is increasinglyinvolved in the rapidly expanding Islamic banking business and hosts the industry’s global oversight

body, the Accounting and Auditing Organisation for Islamic Institutions, as well as the Islamic

Rating Agency and the International Islamic Financial Market.

The CBB is the sole banking regulator in Bahrain. Established in 2006, the CBB succeeded the

Bahrain Monetary Agency, which had previously carried out central banking and regulatory functions

since 1973. The CBB performs the role of financial agent to the Government, a role which principally

entails advising the Government in relation to financial matters generally, as well as administering

Government debt. More specifically, the main functions of the CBB are to arrange and implement the

issuance of currency, to maintain monetary stability and to supervise and construct the regulatory

framework applicable to financial institutions. The CBB is not directly accountable to the Council ofRepresentatives and is independent of the Government. There are six members of the Board of

Directors of the CBB including an independent chairman, each of whom is appointed by royal decree.

The governor of the CBB serves for a five-year term (and the current governor was reappointed in

January 2010).

Bahrain also has an established insurance sector and a stock exchange, both of which are regulated

by the CBB.

Foreign Trade

Bahrain’s major import is crude oil which is piped to the Sitra refinery from Saudi Arabia. In terms

of volume oil imports have been relatively stable from 2008 to 2011, although in terms of price theyhave varied considerably. This variation in price reflects market-based movements in the price charged

by Saudi Arabia for oil.

The majority of Bahrain’s major exports are petroleum-related, consisting of petroleum products from

the refinery at Sitra, petrochemical products from the petrochemical complex operated by GPIC and

revenues derived from the sale of Bahrain’s share of the crude oil produced at the Abu Saafa oil

field. The largest non-oil export is aluminium from the Alba production plant.

Inflation

The CBB maintains the Bahraini dinar’s peg against the US Dollar, which has provided price stability

and has helped to keep inflation relatively stable. As Bahrain has no significant onshore production,its inflation (as measured by the Consumer Price Index (the CPI)) has been mainly affected by the

cost of imports. Until 2008, Bahrain recorded moderate consumer price increases in the range of 3

per cent. to 4 per cent. However, during the years 2009, 2010 and 2011, consumer prices decelerated,

particularly in 2011, where a deflation rate of 0.4 per cent. was recorded. This was mainly due to a

reduction in consumer spending.

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The table below shows the CPI and inflation for each of the five years listed below:

2008 2009 2010 2011 2012

Consumer price index (CPI)

(2006=100) 106.9 109.9 112.1 111.6 114.2Inflation (per cent.) 3.5 2.8 2.0 (0.4) 2.3


The Government has updated its consumer basket weights with the year 2006 as the new base year.

Accordingly, Bahrain has maintained strong economic growth in a relatively low inflation

environment as indicated by the CPI. This decrease in the rate of inflation in 2009 was a result of the

decrease in commodity and food price rises due to the global financial crisis. In 2010 there was a

further slowdown in consumer prices as the CPI increased by 2.2 per cent. to 112.1 recording an

inflation rate of 2.0 per cent. This decrease in the rate of inflation in 2010 was again as a result of

the decrease in commodity and food prices as well as a general fall in the price of rents. In 2011, the

CPI decreased by 0.5 per cent. to 111.6 recording a negative inflation rate of 0.4 per cent. Thisdeflation in 2011 was due to a decrease in consumer spending. The CPI rose by 2.6 per cent. in 2012

mainly due to higher prices for the tobacco and alcoholic beverages group where prices increased by

10.5 per cent., in addition to the increase in rents by 9 per cent. compared to 2011. Inflation data is

collected and calculated on a monthly basis by the Central Informatics Organisation.

Foreign Direct Investment and Privatisation

Foreign Direct Investment

The Bahrain Economic Development Board (EDB) was established by decree in March 2002 to

promote foreign direct investment in Bahrain in order to further diversify the economy. The EDB is

an independent public sector organisation constituted under its own law which is headed by the

Crown Prince and consists of 16 ministers and 13 prominent business leaders. In recent years, the

principal source of foreign direct investment has been reinvested earnings by Bahrain’s offshore

banking sector.

The EDB has identified eight key economic areas in which it intends to promote investment. These

are information technology, business services, education, tourism, healthcare, logistics, high-tech

manufacturing and financial services.

Privatisation

In 2002, the Government passed a privatisation law which, among other matters, establishedprocedures for determining privatisation policy, identified the sectors to be targeted for privatisation

and detailed the use of privatisation proceeds.

As set out in Economic Vision 2030, privatisation remains a priority for the Government and includes

a focus on deregulation in order to encourage private investment in schools, hospitals and other

public services. Over the last two decades, a considerable share of Bahrain’s growth has been driven

by the public sector.

The Government has announced that privatisation and the private sector will remain the focus for

economic growth.

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Public Finance

Revenue

Total revenues for the year to 31 December 2011 increased to U.S.$7,504.4 million compared to

U.S.$5,786.2 million for the year to 31 December 2010.

The table below sets out a breakdown of Government revenues for the periods indicated:

2008 2009 2010 2011 2012

Actual Actual Actual Actual Budgeted*

(U.S.$ million)

Oil and gas 6,067.1 3,770.8 4,925.8 6,593.3 5,859.1Taxation and fees 495.5 423.8 476.1 448.6 529.9

Government goods and services 365.3 119.0 138.4 107.3 94.8

Government investment and

properties 68.1 63.5 51.6 40.8 32.6

Grants 78.4 75.6 76.1 266.0 100

Fines, penalties and misc 44.8 88.1 117.3 47.6 92.9

Sale of capital assets 2.2 2.3 0.9 0.8 0.9

Total: 7,121.4 4,543.1 5,786.2 7,504.4 6,710.2

* As provided in the Government’s adjusted budget for fiscal years 2011/2012

Note:


Source: Ministry of Finance

The principal source of revenue for the last five years has been, and in 2012 is expected to be, the oil

and gas industry, which is highly dependent on world oil prices.

Revenue from Government investments and properties principally comprise dividends earned on the

Government’s shareholdings, as well as grants (being amounts paid annually to Bahrain by other

GCC countries). The Government’s major domestic shareholdings as at 31 December 2012 were its

100 per cent. stake in each of its holding companies, Mumtalakat and Nogaholding.

Current Expenditure

The following table shows the structure of the Government’s current expenditure for the years

indicated:

2008 2009 2010 2011 2012


(U.S.$ million)

Manpower 2,186.3 2,217.9 2,308.7 2,672.8 2,939.0

Services 304.6 345.0 347.2 452.5 371.9Consumables 470.8 208.1 211.9 249.2 238.7

Assets 51.2 56.0 55.4 80.7 57.3

Maintenance 117.9 126.1 118.1 157.0 143.6

Transfers 566.1 1,181.1 1,407.9 1,688.3 2,213.0

Grants, subsidiaries and payment 430.7 366.6 518.8 1,114.9 1,128.6

Total: 4,127.6 4,500.8 4,968.0 6,415.4 7,092.1

* As provided in the Government’s adjusted budget for fiscal years 2011/2012


Current expenditure on manpower (principally comprising wages and pension contributions) is the

most significant part of Government current expenditure.

In accordance with the Economic Vision 2030, the Government aims to reduce its dependence on oil

revenues for funding recurrent expenditure. The Government aims to achieve this by generating

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additional sources of revenue and cutting inefficient spending. Subsidies for water, electricity, gasoline

and food will be targeted to reduce costs.

Projects Expenditure

The following table shows the structure of the Government’s projects expenditure for the years

indicated:

2008 2009 2010 2011 2012


(U.S.$ million)

Infrastructure 847.0 600.9 591.2 683.2 946.2

Social services 117.5 72.9 97.8 101.1 227.6

Economic services 7.8 11.3 19.7 12.4 59.6

Administrative services 202.6 132.4 72.4 200.0 141.6

Others 176.9 219.4 1,259.9 175.6 978.7

Total: 1,351.8 1,036.9 2,041.0 1,172.3 2,353.7

* As provided in the Government’s adjusted budget for fiscal year 2012.


The principal area of projects expenditure is infrastructure, which accounted for 62.7 per cent. of

total prospects expenditure in 2008, 58.0 per cent. in 2009, 29.0 per cent. in 2010, 58.2 per cent in

2011 and is forecasted to be 40.2 per cent. in 2012.

Economic Vision 2030

In October 2008, the Government set out a comprehensive economic vision for Bahrain (the Economic

Vision 2030) to outline a path for the development of the economy, with the ultimate aim of ensuring

that every Bahraini household has at least twice as much disposable income as it had in 2008, in real

terms, by 2030. The objective of the Economic Vision 2030 is to shift Bahrain’s economy from an oil-

driven economy to a global competitive economy predominantly based on finance, tourism and

industry. The Economic Vision 2030 sets out the aspirations for Bahrain’s economy, government and

society in accordance with the guiding principles of sustainability, competitiveness and fairness. Thekey priority areas of the Economic Vision 2030 are taken into account during each budget process.

To give effect to the Economic Vision 2030, the EDB, whose chairman is the Crown Prince and

whose members include representatives of a number of ministries of the Government, worked in close

cooperation with the Government to develop the National Economic Strategy 2009-2014 (NES),

which has three guiding principles: (i) to strengthen the private sector and change the balance between

private and public sector employment; (ii) to aim for diversification and innovation in a sustainable

knowledge-based economy, independent of oil to the extent possible; and (iii) to ensure appropriateskill-building in the Bahrain labour market to match the shift in focus.

The Economic Vision 2030 is implemented through the NES, which began in 2009 and is updated

every two years (the last update was December 2010). During the last update there was a change in

perspective with regards to industry policy. The updated NES recognised the social implications of

the large growth in the number of foreign workers, falling productivity and unsustainable growth in

heavy industries. It also outlined the need for a new growth strategy and considered the challenges of

a growing Bahraini workforce, limited natural resources and fiscal sustainability. The updated NEShas also showcased a comprehensive economic equilibrium model, which included population,

workforce and GDP projections.

With the implementation of the NES, the EDB has been able to forge new relationships, strengthen

communications channels and streamline approaches to the planning and implementation of policies.

As a result the EDB has created the National Communications Centre and has established a

countrywide network of public sector communications professionals to facilitate the implementation of

the Economic Vision 2030 programme.

Bahrain has also implemented educational reforms to help ensure that the population develops the

skills necessary to implement the objectives of the Economic Vision 2030. The establishment of the

Bahrain Teachers College was authorised in March 2008 as an integral part of the national

111


educational reforms. The Bahrain Polytechnic was officially opened in November 2008. The Quality

Assurance Authority was established in 2008 with a remit to review and publicly report on the

quality of education and training institutions in Bahrain. It focuses on driving the improvement

process and raising standards of education and training in Bahrain. The Ministry of Education and10 schools from all five governorates in Bahrain have been working together to pilot a school

improvement programme since September 2008.

The Government has also established other programmes since 2008, all designed to make the Bahrain

employee more attractive in the job market. The Ministry of Labour, Tamkeen (the Bahrain labour

fund) and the Labour Market Regulatory Authority have worked alongside Government partners

including the EDB to increase productivity, support growing businesses and entrepreneurs, build core

skills for Bahraini nationals and deliver and provide a safety net and training for those who find

themselves unemployed. 50 per cent. of the fees collected by the Labour Market Regulatory Authority

are provided to Tamkeen for its activities.

112


USE OF PROCEEDS

The Issuer will provide the net proceeds, amounting to approximately U.S.$642,000,000, from the

issue of the Notes to the Guarantor under an intercompany loan arrangement. Such proceeds will be

used by the Guarantor to repay all amounts drawn under the short term bridge facility described in

‘‘Financial Review – Recent Developments’’, and thereafter for general corporate purposes.

113


TAXATION

The Cayman Islands

Under existing Cayman Islands laws, payments on the Notes will not be subject to taxation in the

Cayman Islands and no withholding will be required on the payments to any holder of the Notes,nor will gains derived from the disposal of the Notes be subject to Cayman Islands income or

corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and

no estate duty, inheritance or gift tax.

There are no income, corporation, capital gains or other taxes in effect in the Cayman Islands on the

basis of present legislation. The Issuer has applied for and expects to obtain an undertaking from the

Governor-in-Cabinet of the Cayman Islands, pursuant to the Tax Concessions Law (1999 Revision) of

the Cayman Islands, that for a period of 20 years from the grant of that undertaking no law which is

enacted in the Cayman Islands imposing any tax to be levied on profit, income, gains or appreciation

shall apply to the Issuer or its operations and, in addition, that no tax to be levied on profits,

income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be

payable on or in respect of the shares, debentures or other obligations (which would include theNotes) of the Issuer or by way of the withholding in whole or part of any relevant payment (as

defined in the Tax Concessions Law (1999 Revision)). No capital or stamp duties are levied in the

Cayman Islands on the issue or redemption of Notes. An instrument of transfer in respect of a Note

may be stampable if executed in or brought to the Cayman Islands. An annual registration fee is

payable by the Issuer to the Cayman Islands Registry of Companies which is calculated by reference

to the nominal amount of its authorised capital. At current rates, this annual registration fee is

approximately U.S.$853.66. The foregoing is based on current law and practice in the Cayman

Islands and this is subject to change therein.

Kingdom of Bahrain

As at the date of this Prospectus, there are no taxes payable with respect to income, withholding or

capital gains under existing Bahrain laws.

Corporate income tax is only levied on oil, gas and petroleum companies at a flat rate of 46 per cent.

This tax is applicable to any oil company conducting business activity of any kind in Bahrain,

including oil production, refining and exploration, regardless of the company’s place of incorporation.

There are no currency or exchange control restrictions currently in force under Bahrain law and the

free transfer of currency into and out of Bahrain is permitted, subject to any anti money laundering

regulations and international regulations in force from time to time.

EU Savings Directive

Under EC Council Directive 2003/48/EC on the taxation of savings income, Member States are

required to provide to the tax authorities of another Member State details of payments of interest (or

similar income) paid by a person within its jurisdiction to an individual resident in that other

Member State or to certain limited types of entities established in that other Member State. However,

for a transitional period, Luxembourg and Austria are instead required (unless during that period

they elect otherwise) to operate a withholding system in relation to such payments (the ending of

such transitional period being dependent upon the conclusion of certain other agreements relating toinformation exchange with certain other countries). A number of non-EU countries and territories

(including Switzerland) have adopted similar measures (a withholding system in the case of

Switzerland).

The European Commission has proposed certain amendments to the EU Savings Directive, which

may, if implemented, amend or broaden the scope of the requirements described above.

114


CLEARING AND SETTLEMENT ARRANGEMENTS

The information set out below is subject to any change in or reinterpretation of the rules, regulations

and procedures of Euroclear or Clearstream, Luxembourg (together, the Clearing Systems) currently in

effect. The information in this section concerning the Clearing Systems has been obtained from sources

that the Issuer and the Guarantor believe to be reliable, but none of the Issuer, the Guarantor nor the

Joint Lead Managers take any responsibility for the accuracy of this section. Investors wishing to use

the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the

rules, regulations and procedures of the relevant Clearing System. None of the Issuer, the Guarantor and

any other party to the Agency Agreement will have any responsibility or liability for any aspect of the

records relating to, or payments made on account of, beneficial ownership interests in the Notes held

through the facilities of any Clearing System or for maintaining, supervising or reviewing any records

relating to such beneficial ownership interests.

Clearing Systems

Euroclear and Clearstream, Luxembourg each hold securities for their customers and facilitate the

clearance and settlement of securities transactions by electronic book-entry transfer between their

respective account holders. Euroclear and Clearstream, Luxembourg provide various services including

safekeeping, administration, clearance and settlement of internationally traded securities and securities

lending and borrowing. Euroclear and Clearstream, Luxembourg also deal with domestic securitiesmarkets in several countries through established depositary and custodial relationships. Euroclear and

Clearstream, Luxembourg have established an electronic bridge between their two systems across

which their respective participants may settle trades with each other.

Euroclear and Clearstream, Luxembourg customers are worldwide financial institutions, including

underwriters, securities brokers and dealers, banks, trust companies and clearing corporations. Indirect

access to Euroclear and Clearstream, Luxembourg is available to other institutions that clear through

or maintain a custodial relationship with an account holder of either system.

Registration and Form

Book-entry interests in the Notes held through Euroclear and Clearstream, Luxembourg will be

represented by the Global Certificate registered in the name of a nominee of, and held by, a common

depositary for Euroclear and Clearstream, Luxembourg. Beneficial ownership of book-entry interests

in Notes will be held through financial institutions as direct and indirect participants in Euroclear andClearstream, Luxembourg.

The aggregate holdings of book-entry interests in the Notes in Euroclear and Clearstream,

Luxembourg will be reflected in the book-entry accounts of each such institution. Euroclear or

Clearstream, Luxembourg, as the case may be, and every other intermediate holder in the chain to

the beneficial owner of book-entry interests in the Notes will be responsible for establishing and

maintaining accounts for their participants and customers having interests in the book-entry interests

in the Notes. The Registrar will be responsible for maintaining a record of the aggregate holdings ofNotes registered in the name of a nominee for the common depository for Euroclear and

Clearstream, Luxembourg, and/ or, if individual Certificates are issued in the limited circumstances

described under ‘‘Summary of Provisions relating to the Notes while represented by the Global

Certificate – Registration of Title’’, holders of Notes represented by those individual Certificates. The

Principal Paying Agent will be responsible for ensuring that payments received by it from the Issuer

and/or the Guarantor for holders of book-entry interests in the Notes holding through Euroclear and

Clearstream, Luxembourg are credited to Euroclear or Clearstream, Luxembourg, as the case may be.

The Issuer will not impose any fees in respect of holding the Notes; however, holders of book-entryinterests in the Notes may incur fees normally payable in respect of the maintenance and operation of

accounts in Euroclear or Clearstream, Luxembourg.

Clearing and Settlement Procedures

Initial Settlement

Upon their original issue, the Notes will be in global form represented by the Global Certificate.

Interests in the Notes will be in uncertificated book-entry form. Purchasers electing to hold book-

entry interests in the Notes through Euroclear and Clearstream, Luxembourg accounts will follow the

settlement procedures applicable to conventional Eurobonds. Book-entry interests in the Notes will be

115


credited to Euroclear and Clearstream, Luxembourg participants’ securities clearance accounts on the

business day following the Closing Date against payment (value the Closing Date).

Secondary Market Trading

Secondary market trades in the Notes will be settled by transfer of title to book-entry interests in theClearing Systems. Title to such book-entry interests will pass by registration of the transfer within the

records of Euroclear or Clearstream, Luxembourg, as the case may be, in accordance with their

respective procedures. Book-entry interests in the Notes may be transferred within Euroclear and

within Clearstream, Luxembourg and between Euroclear and Clearstream, Luxembourg in accordance

with procedures established for these purposes by Euroclear and Clearstream, Luxembourg.

General

Neither of Euroclear or Clearstream, Luxembourg is under any obligation to perform or continue toperform the procedures referred to above, and such procedures may be discontinued at any time.

None of the Issuer, the Guarantor, the Trustee or any of their agents will have any responsibility forthe performance by Euroclear or Clearstream, Luxembourg or their respective participants of their

respective obligations under the rules and procedures governing their operations or the arrangements

referred to above.

116


SUBSCRIPTION AND SALE

BNP Paribas and Citigroup Global Markets Limited (together, the Joint Lead Managers), have,

pursuant to a Subscription Agreement (the Subscription Agreement) dated 1 May 2013, jointly and

severally agreed to subscribe or procure subscribers for the Notes, subject to the provisions of the

Subscription Agreement. The Issuer and/or the Guarantor will also reimburse the Joint LeadManagers in respect of certain of their expenses, and have agreed to indemnify the Joint Lead

Managers against certain liabilities incurred in connection with the issue of the Notes.

The Subscription Agreement may be terminated in certain circumstances prior to payment of the issue

price to the Issuer.

United States

The Notes have not been and will not be registered under the Securities Act and may not be offered

or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain

transactions exempt from the registration requirements of the Securities Act. Terms used in this

paragraph have the meanings given to them by Regulation S under the Securities Act.

Each Joint Lead Manager has represented and agreed that it will not offer, sell or deliver Notes (a)

as part of their distribution at any time or (b) otherwise until 40 days after the later of the

commencement of the offering and the Closing Date within the United States or to, or for the

account or benefit of, U.S. persons. Each Joint Lead Manager has further agreed that it will send toeach dealer to which it sells any Notes during the distribution compliance period a confirmation or

other notice setting forth the restrictions on offers and sales of the Notes within the United States or

to, or for the account or benefit of, U.S. persons. Terms used in this paragraph have the meanings

given to them by Regulation S under the Securities Act.

In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within

the United States by any dealer that is not participating in the offering may violate the registration

requirements of the Securities Act.

United Kingdom

Each Joint Lead Manager has represented and agreed that:

(a) it has only communicated or caused to be communicated and will only communicate or cause to

be communicated an invitation or inducement to engage in investment activity (within the

meaning of Section 21 of the Financial Services and Markets Act 2000 (the FSMA)) received by

it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) ofthe FSMA does not apply to the Issuer or the Guarantor; and

(b) it has complied and will comply with all applicable provisions of the FSMA with respect to

anything done by it in relation to any Notes in, from or otherwise involving the United

Kingdom.

Cayman Islands

Each Joint Lead Manager has represented and agreed that it has not made and will not make any

offer or invitation to the public in the Cayman Islands to subscribe for any Notes.

Bahrain

This Prospectus does not constitute an offer to: (i) the Public (as defined in Articles 142-146 of the

Commercial Companies Law (Decree Law No. 21/2001 of the Kingdom of Bahrain)) in the Kingdom

of Bahrain; or (ii) any person in the Kingdom of Bahrain who is not an accredited investor.

For this purpose, an accredited investor means:

(a) an individual holding financial assets (either singly or jointly with a spouse) of U.S.$1,000,000 or

more;

(b) a company, partnership, trust or other commercial undertaking which has financial assets

available for investment of not less than U.S.$1,000,000; or

(c) a government, supranational organisation, central bank or other national monetary authority or

a state organisation whose main activity is to invest in financial instruments (such as a state

pension fund).

117


Each Joint Lead Manager has represented and agreed that it has not offered, and will not offer,

Notes (i) to the Public in the Kingdom of Bahrain except pursuant to the provisions of Articles 80-85

of the Central Bank of Bahrain and Financial Institutions Law and (ii) except on a private placement

basis to persons in the Kingdom of Bahrain who are accredited investors.

Qatar

Each Joint Lead Manager has represented and agreed that it will not offer or sell, directly or

indirectly, any Notes in Qatar, except:

(a) in compliance with all applicable laws and regulations of Qatar; and

(b) through persons or corporate entities authorised and licensed to provide investment advice and/

or engage in brokerage activity and/or trade in respect of foreign securities in Qatar.

Saudi Arabia

Any investor in Saudi Arabia or who is a Saudi person (a Saudi Investor) who acquires Notespursuant to an offering should note that the offer of Notes is an offer to ‘‘Sophisticated Investors’’

(as defined in Article 10 of the Offer of Securities Regulations as issued by the Board of the Capital

Market Authority resolution number 2-11-2004 dated 4 October 2004 and amended by the Board of

the Capital Market Authority resolution number 1-28-2008 dated 18 August 2008 (the KSA

Regulations)) for the purposes of Article 9 of the KSA Regulations. Each Joint Lead Manager has

represented, and agreed that the offer of the Notes will only be directed at Sophisticated Investors.

The offer of Notes shall not therefore constitute a ‘‘public offer’’ pursuant to the KSA Regulations,but is subject to the restrictions on secondary market activity under Article 17 of the KSA

Regulations. Any Saudi Investor who has acquired Notes as a Sophisticated Investor may not offer

or sell those Notes to any person unless the offer or sale is made through an authorised person

appropriately licensed by the Saudi Arabian Capital Market Authority and: (a) the Notes are offered

or sold to a Sophisticated Investor; (b) the price to be paid for the Notes in any one transaction is

equal to or exceeds SR 1 million or an equivalent amount; or (c) the offer or sale is otherwise in

compliance with Article 17 of the KSA Regulations.

Dubai International Financial Centre

Each Joint Lead Manager has represented and agreed that it has not offered and will not offer the

Notes to any person in the Dubai International Financial Centre unless such offer is:

(a) an ‘‘Exempt Offer’’ in accordance with the Markets Rules of the Dubai Financial Services

Authority (the DFSA); and

(b) made only to persons who meet the Professional Client criteria set out in Rule 2.3.2 of the

DFSA Conduct of Business Module.

United Arab Emirates (excluding the Dubai International Financial Centre)

Each Joint Lead Manager has represented and agreed that the Notes have not been and will not bepublicly offered, sold or promoted or advertised by it in the United Arab Emirates other than in

compliance with any laws applicable in the United Arab Emirates governing the issue, offering and

sale of securities.

Hong Kong

Each Joint Lead Manager has represented and agreed that:

(a) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document,

any Notes other than (i) to persons whose ordinary business is to buy or sell shares or

debentures (whether as principal or agent); or (ii) to ‘‘professional investors’’ as defined in the

Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that

Ordinance; or (iii) in other circumstances which do not result in the document being a

‘‘prospectus’’ as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not

constitute an offer to the public within the meaning of that Ordinance; and

(b) it has not issued or had in its possession for the purposes of issue, and will not issue or have in

its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement,

invitation or document relating to the Notes, which is directed at, or the contents of which are

likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under

118


the securities laws of Hong Kong) other than with respect to Notes which are or are intended

to be disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ as

defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Singapore

This Prospectus has not been registered as a prospectus with the Monetary Authority of Singapore,

and the Notes will be offered pursuant to exemptions under the Securities and Futures Act, Chapter

289 of Singapore (the Securities and Futures Act). Accordingly, the Notes may not be offered or sold

or made the subject of an invitation for subscription or purchase nor may this Prospectus or any

other document or material in connection with the offer or sale or invitation for subscription or

purchase of any Notes be circulated or distributed, whether directly or indirectly, to any person inSingapore other than (a) to an institutional investor pursuant to Section 274 of the Securities and

Futures Act, (b) to a relevant person under Section 275(1) of the Securities and Futures Act or to

any person pursuant to Section 275(1A) of the Securities and Futures Act and in accordance with the

conditions specified in Section 275 of the Securities and Futures Act, or (c) otherwise pursuant to,

and in accordance with the conditions of, any other applicable provision of the Securities and Futures

Act.

Each of the following persons specified in Section 275 of the Securities and Futures Act which has

subscribed or purchased the Notes, namely a person who is:

(a) a corporation (which is not an accredited investor (as defined in Section 4A of the Securities

and Futures Act)) the sole business of which is to hold investments and the entire share capital

of which is owned by one or more individuals, each of whom is an accredited investor;

(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold

investments and each beneficiary is an individual who is an accredited investor,

should note that shares, debentures and units of shares and debentures of that corporation or the

beneficiaries’ rights and interests in that trust shall not be transferable for 6 months after that

corporation or that trust has acquired the Notes under Section 275 of the Securities and Futures Act

except:

(i) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant

person or to any person pursuant to Section 275(1) and Section 275(1A) of the Securities and

Futures Act, respectively and in accordance with the conditions specified in Section 275 of theSecurities and Futures Act;

(ii) where no consideration is or will be given for the transfer; or

(iii) where the transfer is by operation of law; or

(iv) pursuant to Section 276(7) of the Securities and Futures Act.

General

No action has been taken by the Issuer, the Guarantor or any of the Joint Lead Managers that

would, or is intended to, permit a public offer of the Notes in any country or jurisdiction where any

such action for that purpose is required. Accordingly, each Joint Lead Manager has undertaken that

it will not, directly or indirectly, offer or sell any Notes or distribute or publish any offering circular,

prospectus, form of application, advertisement or other document or information in any country or

jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in

compliance with any applicable laws and regulations and all offers and sales of Notes by it will be

made on the same terms.

119


GENERAL INFORMATION

Authorisation

The issue of the Notes was duly authorised by a resolution of the Board of Directors of the Issuer

dated 22 April 2013 and the giving of the Guarantee was duly authorised by a resolution of the

shareholders of the Guarantor dated 14 January 2013 and by a resolution of the Board of Directors

of the Guarantor dated 22 April 2013.

Approval, listing and admission to trading

Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Official

List and for the Notes to trading on the Main Securities Market. The Main Securities Market is a

regulated market for the purposes of Directive 2004/39/EC. It is expected that the listing of the Notes

on the Official List and admission of the Notes to trading on the Main Securities Market will be

granted on or around 3 May 2013. The total expenses related to the admission to trading are

estimated at c4,940.

Documents Available

As long as the Notes are outstanding, physical copies of the following documents will be available for

inspection from the registered office of Batelco and from the specified office of the Trustee and the

Paying Agent for the time being in London:

(a) the articles of association of each of the Issuer and Batelco;

(b) the audited consolidated financial statements of Batelco in respect of the financial years ended

31 December 2011 and 2012, in each case together with the audit reports prepared in connection

therewith;

(c) the Trust Deed (including the Guarantee and the forms of the Global Certificate and the Notes

in definitive form) and the Agency Agreement; and

(d) a copy of this Prospectus.

Clearing Systems

The Notes have been accepted for clearance through Euroclear and Clearstream, Luxembourg. The

Common Code and ISIN for the Notes are 092718344 and XS0927183441, respectively.

The address of Euroclear is Euroclear Bank S.A./N.V., 1 Boulevard du Roi Albert II, B-1210 Brussels

and the address of Clearstream, Luxembourg is Clearstream Banking, 42 Avenue JF Kennedy, L-1855Luxembourg.

No Significant or Material Adverse Change

There has been no significant change in the financial or trading position of the Issuer since its

incorporation, and save as described in ‘‘Description of the M&I Transaction’’ appearing on pages 84

to 88 (inclusive) of this Prospectus, there has been no significant change in the financial or trading

position of the Guarantor or the Batelco Group since 31 December 2012. There has been no material

adverse change in the financial position or prospects of the Issuer since its incorporation and there

has been no material adverse change in the financial position or prospects of the Guarantor or theBatelco Group since 31 December 2012.

Litigation

Save as described in ‘‘Business Description of the Group – Litigation’’ appearing on pages 82 and 83

of this Prospectus, none of the Issuer, the Guarantor or any other member of the Group is or has

been involved in any governmental, legal or arbitration proceedings (including any such proceedings

which are pending or threatened of which the Issuer or the Guarantor is aware) in the 12 months

preceding the date of this document which may have or have in such period had a significant effecton the financial position or profitability of the Issuer, the Guarantor or the Group.

Auditors

Since the date of its incorporation, no financial statements of the Issuer have been prepared. The

Issuer is not required by Cayman Islands law, and does not intend, to publish audited financial

statements. The auditors of the Guarantor are KPMG Fakhro (KPMG), who have audited the

120


Guarantor’s accounts, without qualification, in accordance with IFRS, for each of the financial years

ended on 31 December 2011 and 31 December 2012.

KPMG is authorised and regulated by the CBB and the Ministry of Commerce in Bahrain.

Joint Lead Managers transacting with the Guarantor

Certain of the Joint Lead Managers and their affiliates have engaged, and may in the future engage,

in investment banking and/or commercial banking transactions with, and may perform services to the

Guarantor and its affiliates in the ordinary course of business.

Yield

On the basis of the issue price of the Notes of 99.450 per cent. of their principal amount, the gross

yield of the Notes is 4.342 per cent. on an annual basis.

121


FINANCIAL INFORMATION

Audited consolidated financial statements of the Group in respect of the financial year ended

31 December 2012 with independent auditor’s audit report ................................................... F-2

Audited consolidated financial statements of the Group in respect of the financial year ended

31 December 2011 with independent auditor’s audit report ................................................... F-41

F-1


Bahrain Telecommunications Company BSC

CONSOLIDATED FINANCIAL STATEMENTS

31 DECEMBER 2012

F-2

KPMG Fakhro Audit 5th Floor Chamber of Commerce Building PO Box 710, Manama Kingdom of Bahrain

Independent auditors' report to the shareholders Bahrain Telecommunications Company BSC Manama, Kingdom of Bahrain

Report on the consolidated financial statements

CR No. 6220 Telephone +973 17 224807 Fax +973 17 227443 Internet www.kpmg.com.bh

4

22 January 2013

We have audited the accompanying consolidated financial statements of Bahrain Telecommunications Company BSC ("the Company") and its subsidiaries (together the "Group"), which comprise the consolidated statement of financial position as at 31 December 201 2, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Responsibility of the board of directors for the consolidated financial statements The board of directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement ofthe consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects; the consolidated financial position of the Group as at 31 December 2012, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on other regulatory requirements As required by the Bahrain Commercial Companies Law we report that the Company has maintained proper accounting records and the consolidated financial statements are in agreement therewith; the financial information contained in the chairman's report is consistent with the consolidated financial statements; we are not aware of any violations of the Bahrain Commercial Companies Law or the terms of the Company's memorandum and articles of association having occurred during the year that might have had a material adverse effect on the business of the Company or on its financial position; and satisfactory explanations and information have been provided to us by the management in response to all our requests.

KPMG Fakhro. a registered partnership under Bahrain law, is a member of KPMG International, a Swiss cooperative.

F-3


CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2012

ASSETS

Non-current assets

Property and equipment

Goodwill

Intangible asset

Investment in associates

Deferred tax asset

Available-for-sale investments

Total non-current assets

Current assets

Investment classified as held- for- sale

Inventories


Trade and other receivables

Cash and bank balances

Total current assets

T ota I assets


Equity

Share capital

Statutory reserve

General reserve

Foreign currency translation reserve

Investment fair value reserve

Retained earnings

Total equity attributable to equity holders of the Company

Non-controlling interest

Total equity (Page 8-9)


Trade and other payables

Loans and borrowings

Deferred tax liability

Total non-current liabilities

Current liabilities



Total current liabilities

Total liabilities

Total equity and liabilities

Note

5

6

7

8 14

9

9

9

10

11

16

17

17

12

15

14

12

15

5

80'000

2012 2011

185,865 185,019

124,377 124,682

50,880 24,308

77,417 78,580

2,298 2,018

31,640 16,703

472,477 431,310

- 46,473

2,630 1,869

3,770 -115,569 71 ,762

94,922 107,893

216,891 227,997

689,368 659,307

144,000 144,000

76,847 76,719

39,444 30,000

361 787

(2,403) (3,397)

256,099 257,731

514,348 505,840

5,833 12,851

520,181 518,691

2,029 2,555

14,388 -3,634 4,193

20,051 6,748

145,051 133,868

4,085 -149,136 133,868

169,187 140,616

689,368 659,307

The consolidated financial statements, which consist of pages 5 to 41 were approved by the Board of Directors on

22 January 2013 and signe 1 behalf by:

~·

~Ali Murad an Deputy Chairman

Sh .

The accompanying notes 1 to 28 form an integral part of these consolidated financial statements.

1 F-4


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2012

REVENUE

EXPENSES Network operating expenses

Staff costs

Depreciation and amortisation

Other operating expenses

Total expenses

Results from operating activities


Finance expenses

Share of profiU (loss) of associates (net)

Profit before taxation

Income tax expense

Profit for the year


Foreign currency translation differences

Investment fair value changes

Other comprehensive income for the year

Total comprehensive income for the year


Equity holders of the Company


Total comprehensive income for the year attributable to:



Basic earnings per share (Fils)

Note

19

20

21

22

8

23

6

BD'OOO

2012 2011

304,710 326,972

(116,766) (115,817)

(59,451) (50,930)

(36,373) (37,985)

(26,710) (34,203)

(239,300) (238 ,935)

65,410 88,037

2,563 3,257

(647) (262)

1,599 (3, 124)

68,925 87,908

{3,582) (4,053)

65,343 83,855

(570) (503)

994 (11,607)

424 (12,110)

65,767 71,745

60,340 80,014

5,003 3,841

65,343 83,855

60,908 67,818

4,859 3,927

65,767 71 ,745

41.9 55 .6

The consolidated financial stateme ~hich consist of pages 5 to 41 were approved by the Board of Directors on

Sh . Ha Chairman

its behalf by:

~r-· M":(; Ali Murad ~:~y Chairman


1 F-5


CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2012

OPERATING ACTIVITIES

Cash receipts from customers

Net cash paid to suppliers

Cash paid to and on behalf of employees



Acquisition of property, equipment and intangibles

Payments in respect of rights share issue

Receipts from/( payments to) investee company

Receipts from associate

Net proceeds from sale and maturity of investments

Interest and investment income received



Dividend paid

Interest paid

Borrowings (net)

Payments to charities


(Decrease)/ increase in cash and cash equivalents

Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December

Note 2012

280,334

(122,807)

(53,031)

104,496

(63,783)

(17,713)

2,781

2,762

-2,245

(73,708)

(59,874)

(657)

18,482

(1 ,667)

(43,716)

(12,928)

105,095

11 92,167


7

80'000

2011

300,118

(128,765)

(48,362)

122,991

(31,554)

-(2,781)

1,930

4,238

1,069

(27,098)

(69,117)

--

(2, 117)

(71,234)

24,659

80,436

105,095

F-6


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the year ended 31 December 2012

Equi y attributable to equity holders of the Company

2012

At 1 January 2012

Profit for the year




Total other comprehensive income


Final dividends declared for 2011

Donations declared for 2011 Transfer to statutory reserve (net)

Transfer to general reserve

Interim dividends declared for 2012

Dividends to non-controlling interest

At 31 December 2012

Share

capital

144,000

-

--

-

-

------

-

144,000

Statutory

reserve

76,719

-

--

-

-

--

128

---

128

76,847

Foreign

currency

General translation

reserve reserve

30,000 787

- -

- (426)

- -

- (426)

- .(426)

- -- -- -

9,444 -- -- -

9,444 -

39,444 361


Investment

fair value Retained

reserve earnings

(3,397) 257,731

- 60,340

- -994 -

994 -

994 60,340

- (28,800)

- (2,000)

- (128)

- (9,444)

- (21,600)

- -

- (61,972)

(2,403) 256,099

8

80'000

Non-

controlling

Total interest Total equity

505,840 12,851 518,691

60,340 5,003 65,343

(426) (144) (570)

994 - 994

568 (144) 424

60,908 4,859 65,767

(28,800) - (28,800)

(2,000) - (2,000)

- - -- - -

(21,600) - (21,600)

- (11 ,877) (11 ,877)

(52,400) (11 ,877) (64,277)

514,348 5,833 520,181

F-7



Equity attributable to equity holders of the Com_Q_any

2011

At 1 January 2011

Profit for the year






Final dividends declared for 201 0

Donations declared for 201 0

Transfer to statutory reserve (net)




At 31 December 2011

Share Statutory

capital reserve

144,000 76,428

- -

- -- -

- -

- -

- -- -- 291

- -- -- -

- 291

144,000 76,719

Foreign

currency

General translation

reserve reserve

15,000 1,376

- -

- (589)

- -

- (589)

- (589)

- -- -- -

15,000 -- -- -

15,000 -

30,000 787


Investment

fair value

reserve

8,210

-

-(11 ,607)

(11 ,607)

(11 ,607)

------

-

(3,397)

9

80'000

Non-

Retained controlling

earnings Total interest Total equity

259,977 504,991 11,824 516,815

80,014 80,014 3,841 83,855

- (589) 86 (503)

- (11 ,607) - (11 ,607)

- (12, 196) 86 (12,110)

80,014 67,818 3,927 71,745

(36,000) (36,000) - (36,000)

(2, 169) (2, 169) - (2, 169)

(291) - - -(15,000) - - -(28,800) (28,800) - (28,800)

- - (2,900) (2,900)

(82,260) (66,969) (2,900) (69,869)

257,731 505,840 12,851 518,691

F-8


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012

1 REPORTING ENTITY

10

Bahrain Telecommunications Company BSC (''the Company'', "the Parenf') is a public shareholding company registered under commercial registration number 11700 in the Kingdom of Bahrain in the year 1981 and is engaged in the provision of public telecommunications and associated products and services. The consolidated financial statements for the year ended 31 December 2012 comprise the financial statements of the Company, and its subsidiaries (together referred to as the "Group" and individually as "Group entities") and the Group's interest in associates. The registered office of the Company is P.O. Box 14, Manama, Kingdom of Bahrain. The subsidiaries and associate of the Group included in these consolidated financial statements are as follows:

Company Country of Shareholding incorporation (%)

Subsidiaries

Batelco Middle East Holding Co. BSC (c) Kingdom of Bahrain 100 Arabian Network Information Services WLL * Kingdom of Bahrain 100 BMIC Limited Mauritius 100 Batelco Egypt Communications (S.A.E.) Arab Republic of

Egypt 100 Batelco Middle East Jordan LLC Kingdom of Jordan 100 Batelco International Company BSC (c) Kingdom of Bahrain 100 Batelco International Group Holding Limited Bailiwick of Jersey 100 Umniah Mobile Company PSG Kingdom of Jordan 96 Batelco Jordan PSG Kingdom of Jordan 96 Urcell Telecom & Technologies Services LLC Kingdom of Jordan 96 Qualitynet General Trading and Contracting Company WLL State of Kuwait 44

Associate

Yemen Company for Mobile Telephony Y.S.C Republic of Yemen 26.94

* Liquidated on 25 March 2012

2 BASIS OF PREPARATION

a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and the requirements of the Bahrain Commercial Company Law and Central Bank of Bahrain's Disclosure Standards.

b) Basis of measurement

The consolidated financial statements have been prepared under the historical cost convention except for available-for-sale investments that are stated at their fair values.

F-9


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 2 BASIS OF PREPARATION (continued)

c) Functional and presentation currency

11

These consolidated financial statements are presented in Bahraini Dinars ("BD"), which is the Company's functional currency. All financial information presented in Bahraini Dinars has been rounded to the nearest thousand (BD' 000) except when otherwise indicated.

d) Use of estimates and judgments

The preparation of financial statements in conformity with I FRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year and critical judgements in applying accounting policies on the amounts recognised in the financial statements are described in the following notes:

• Note 3 h) & 9 -valuation of investments

• Note 3 j) - provisions

• Note 3 k) - impairment

• Note 3m) - utilization of tax losses

• Note 6 - measurement of the recoverable amounts of cash-generating units

e) Amendments and interpretations effective from 1 January 2012

The following amendments which became effective as of 1 January 2012, are relevant to the Group:

(i) Improvements to IFRSs (2011) Improvements to IFRS issued in 2011 contained numerous amendments to IFRS that the IASB considers non-urgent but necessary. 'Improvements to IFRS' comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual I FRS standards. The improvements have been made in lAS 1 - Presentation of Financial Statements, lAS 16 - Property, Plant and Equipment, lAS 32 -Financial Instruments: Presentation and lAS 34 - Interim Financial Reporting. There were no significant changes to the current accounting policies of the Group as a result of these amendments.

f) New Standards, amendments and interpretations issued but not yet adopted A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2012, and have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out below.

(i) lAS 1 - Presentation of items of other comprehensive income The amendments to lAS 1 require that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met from those

F-10



12

that would never be reclassified to profit or loss. The amendment is effective for annual periods beginning after 1 July 2012 with an option of early application.

The Group is not expecting a significant impact from the adoption of this amendment.

(ii) lAS 28 (2011) -Investment in Associates and Joint ventures lAS 28 (2011) supersedes lAS 28 (2008). lAS 28 (2011) makes the following amendments; • Associates held for sale: I FRS 5 Non-current Assets Held for Sale and Discontinued Operations

applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. For any retained portion of the investment that has not been classified as held for sale, the entity applies the equity method until disposal of the portion held for sale. After disposal, any retained interest is accounted for using the equity method if the retained interest continues to be an associate or a joint venture, and

• On cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does notre-measure the retained interest.

The standard is effective for annual periods beginning on or after 1 January 2013 and is applied retrospectively. The Group is not expecting a significant impact from the adoption of this amendment.

(iii) /FRS 7 and lAS 32 on offsetting financial assets and financial liabilities (2011) Disclosures- Offsetting Financial Assets and Financial Liabilities (amendments to IFRS 7) introduces disclosures about the impact of netting arrangements on an entity's financial position. The amendments are effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. Based on the new disclosure requirements the Group will have to provide information about what amounts have been offset in the statement of financial position and the nature and extent of rights of set off under master netting arrangements or similar arrangements.

Offsetting Financial Assets and Financial Liabilities (amendments to lAS 32) clarify the offsetting criteria lAS 32 by explaining when an entity currently has a legally enforceable right to set off and when gross settlement is equivalent to net settlement. The amendments are effective for annual periods beginning on or after 1 January 2014 and interim periods within those annual periods. Earlier application is permitted.

The Group is not expecting a significant impact from the adoption of these amendments.

(iv) /FRS 9- Financial Instruments IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. Under IFRS 9 (2009), financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. I FRS 9 (201 0) introduces additions relating to financial liabilities. The IASB currently has an active project to make limited amendments to the classification and measurement requirements of IFRS 9 and add new requirements to address the impairment of financial assets and hedge accounting.

The I FRS 9 (2009) requirements represent a significant change from the existing requirements in lAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing lAS 39 categories of held to maturity, available-for-sale and loans and receivables.

i

I f i 1

f l f l f

I I f

I ~

f

I

I I

F-11


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 2 BASIS OF PREPARA T/ON (continued)

13

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the.standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value.

I FRS 9 (201 0) introduces a new requirement in respect of financial liabilities designated under the fair value option to generally present fair value changes that are attributable to the liability's credit risk in other comprehensive income rather than in profit or loss. Apart from this change, I FRS 9 (201 0) largely carries forward without substantive amendment the guidance on classification and measurement of financial liabilities from lAS 39.

IFRS 9 is effective for annual periods beginning on or after 1 January 2015 with early adoption permitted. The IASB decided to consider making limited amendments to I FRS 9 to address practice and other issues. The Group has commenced the process of evaluating the potential effect of this standard but is awaiting finalisation of the limited amendments before the evaluation can be completed.

(v) /FRS 10- Consolidated financial statements and lAS 27- Separate Financial Statements (2011) IFRS 10 introduces a single control model to determine whether an investee should be consolidated. The Group is not expecting a significant impact from the adoption of this amendment (see Notes 3 (a)). The standard is effective for annual periods beginning on or after 1 January 2013.

(vi) /FRS 12- Disclosures of interests in other entities IFRS 12 brings together into a single standard all the disclosure requirements about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. It requires the disclosure of information about the nature, risks and financial effects of these interests.

The standard is effective for annual periods beginning on or after 1 January 2013. The Group is currently assessing the disclosure requirements for interests in subsidiaries in comparison with existing disclosures.

(vii) /FRS 13- Fair value measurement I FRS 13 provides a single source of guidance on how fair value is measured, and replaces the fair value measurement guidance that is currently dispersed throughout I FRS. Subject to limited exceptions, I FRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs. Although many of the I FRS 13 disclosure requirements regarding financial assets and financial liabilities are already required, the adoption of I FRS 13 will require the Group to provide additional disclosures. These include fair value hierarchy disclosures for non-financial assets/liabilities and disclosures on fair value measurements that are categorised in Level 3.

I FRS 13 is effective for annual periods beginning on or after 1 January 2013 with an option of early adoption. The Group is currently assessing the impact of the standard.

3 SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements by the Group's entities.

The comparative figures for the previous year has been regrouped, where necessary, in order to conform to the current year's presentation. Such regrouping does not affect the previously reported profit, comprehensive income or equity.

F-12


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 3 SIGNIFICANT ACCOUNTING POLICIES (continued)

a) Basis of consolidation

(i) Subsidiaries

14

Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain economic benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control effectively ceases.

(ii) Investment in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is presumed to exist when the Group holds between 20% to 50% of the voting power of another entity.

Associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the income and expenses and equity movements of the associates from the date that significant influence commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate.

(iii) Transactions eliminated on consolidation All material Intragroup balances and any unrealised gains or losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

b) Foreign currency

(i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency of the Group's entities at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Exchange differences arising on the settlement of monetary items and on retranslation are recognised in profit or loss.

(ii) Financial statements of foreign operations The assets and liabilities including goodwill and fair value adjustments arising on acquisition of the Group's subsidiaries and associates based outside the Kingdom of Bahrain ("foreign operations") are translated into Bahraini Dinars at the exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated into Bahraini Dinars at average exchange rates prevailing during the year. Exchange differences arising on translation of foreign operations are recognized in the other comprehensive income and presented in equity as a foreign currency translation reserve.

F-13



c) Property and equipment

(i) Recognition and measurement

15

Items of property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses.

The cost includes expenditures that are directly attributable to the acquisition cost of the asset. The cost of self constructed assets includes the following:

• the cost of materials and direct labour • any other costs directly attributable to bringing an asset to its working condition for their

intended use • when the Group has an obligation to remove the assets or restore the site, an estimate of the

costs of dismantling and removing the items and restoring the site on which they were located • capitalised borrowing cost

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

Any gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognised in profit or loss.

(ii) Subsequent costs Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Group. Ongoing repair and maintinance are expensed as incurred.

(iii) Impairment Where there has been an indication of impairment in value such that the recoverable amount of an asset falls below its net book value, provision is made for such impairment. Wherever possible, individual assets are tested for impairment. However, impairment can often be tested only for groups of assets because the cash flows upon which the calculation is based do not arise from the use of a single asset. In these cases, impairment is measured for the smallest group of assets (the cash generating unit) that produces a largely independent income stream, subject to constraints of practicality and materiality.

(iv) Depreciation Depreciation is charged to the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of a property and equipment. Assets are depreciated from the date they are available for use or, in respect of self constructed assets, from the time an asset is completed and ready for service. Freehold land, projects in progress and inventories held for capital projects are not depreciated. The estimated useful lives for the current and comparative period are as follows:

Asset class Estimated useful life (Years)

Buildings 5-45 Network assets & telecom equipment 2-25 Motor vehicles, furniture, fittings & office equipment 2- 10

F-14



16

Depreciation methods, useful lives and residual values, are reassessed and adjusted, if appropriate, at the year end.

d) Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both and that is not occupied by the Group for use in rendering of its services or for administrative purposes. Investment property is measured at cost (using the cost model), including related transaction costs and borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property, less accumulated depreciation and impairment losses, if any. Subsequent expenditure is capitalised to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably.

e) Leased assets

(i) Finance leases Leases for which substantially all the risks and rewards of ownership are assumed by the Group are classified as finance lease. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Depreciation on capitalised leased assets is charged to the income statement in line with the depreciation policy for similar assets. The corresponding leasing commitments are shown as finance lease obligations within liabilities. Minimum lease payments are apportioned between finance charge and the reduction of the outstanding liability. The finance charge is calculated using the effective interest method.

(ii) Operating leases All other leases are considered as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the lease term.

f) Goodwill

Goodwill arises on acquisition of subsidiaries and associates. Goodwill represents the excess of cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired entity. In respect of associates, goodwill is included in the carrying amount of the investment.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but tested for impairment annually at the balance sheet date.

g) Intangible assets

Intangible assets comprise license fees, trade name & associated assets,non-network software and IRUs.

(i) Recognition and measurement License fees, trade name & associated assets and non-network software acquired or incurred by the Group have finite useful lives and are measured at cost less accumulated amortization and any accumulated impairment losses. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is recognised in the profit or loss as incurred.

F-15



(ii) Amortisation

17

Amortisation is recognized in the profit or loss on a straight line basis over the estimated useful lives of the intangible assets from the date they are available for use. The estimated useful lives for the current and comparative periods are as follows:

Asset class Estimated useful life (Years)

License fees 12- 15 Trade name & associated assets,non-network software and 3- 15 IRUs

Amortisation methods, useful lives and residual values, are reassessed and adjusted, if appropriate, at the year end.

h) Financial instruments

Financial instruments comprise available-for-sale investments, trade receivables, other receivables, unbilled revenue, cash and bank balances, amounts due to telecommunications operators, trade payable, other payables and loans and borrowings. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.

The Group initially recognises financial assets and financial liabilities on the date at which they are originated. Financial assets and liabilities are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.

(i) Available-for-sale financial assets The Group's investments in equity securities and certain debt securities are classified as available-forsale ("AFS") investments. Purchase and sale of AFS investments are accounted for on the trade date and are initially recorded at cost, being the fair value of the consideration given including transaction charges associated with the investment.

Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (refer to note 3(k)), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. The fair value of AFS investments is their quoted bid price at the reporting date. AFS investments where there is no quoted market price or other appropriate methods from which to derive reliable fair values, are carried at cost less impairment.

(ii) Trade and other receivables Trade receivables do not carry any interest and are stated at their fair value of services rendered as reduced by appropriate allowances for estimated irrecoverable amounts. Individual trade receivables are written off when management deems them not to be collectible.

F-16



(iii) Cash and cash equivalents

18

Cash and cash equivalents include cash on hand and balance with banks and time deposits which are readily convertible to a known amount of cash.

(iv) Trade and other payables Trade payables are not interest bearing and are stated at their nominal value. Fair value, which is determined for disclosure purposes, approximates the nominal value at the reporting date.

(v) Loans and borrowings Group initialy recognises loans and borrowings on the date they are originated. Group derecognises loans and borrowings when its contractual obligations are discharged, cancelled or expire.

These are initialy recognised at fair value less any directly attributable transaction cost. Subsequent to initial measurement these are measured at amortised cost using the effective interest method.

(vi) Share capital The Company has one class of equity shares. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

i) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes expenditure incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

j) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the management's best estimate of the expenditure required to settle the obligation at the year end and are discounted to present value where the effect is material.

k) Impairment

(i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the profit or loss. Any cumulative loss in respect of an available-for-sale financial asset are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-

F-17



19

sale financial assets that are debt securities, the reversal is recognised in profit or loss. For availablefor-sale financial assets that are equity securities, the reversal is recognised in other comprehensive income.

(ii) Non-financial assets The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unif'). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

I) Employee benefits

(i) Local employees Pension rights and other social benefits for the Group's employees are covered by the applicable social insurance scheme of the countries in which they are employed are considered as a defined contribution scheme. The employees and employers contribute monthly to the scheme on a fixed-percentage-ofsalaries basis.

(ii) Expatriate employees Expatriate employees on limited-term contracts are entitled to leaving indemnities payable under the respective labour laws of the countries in which they are employed, based on length of service and final remuneration. Provision for this unfunded commitment has been made by calculating the notional liability had all employees left at the reporting date.

(iii) Employee savings scheme The Company has a voluntary employees saving scheme. The employees and employers contribute monthly on a fixed-percentage-of-salaries-basis to the scheme.

F-18



m) Tax

20

Tax expense comprises current and deferred tax. Income tax expense is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or other comprehensive income.

(i) Current tax Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

(ii) Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be realised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

n) Revenue

Revenue represents the value of fixed or determinable consideration that has been received or is receivable and includes revenue from revenue sharing arrangements entered into with national and international telecommunication operators in respect of traffic exchanged.

Revenue for services rendered is stated at amounts invoiced to customers. Fees for installation and activation are recognised as revenue upon activation. All installation and activation costs are expensed as incurred. Monthly service revenue received from the customer is recognised in the period in which the service is delivered. Airtime revenue is recognised on the usage basis. Revenue from data services is recognised when the Group has performed the related service and, depending on the nature of the service, is recognized either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service. Revenue from handset and other equipment sales is recognised when the product is delivered to the customer.

Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the customer contract, all deferred revenue for unused airtime is recognised in the profit or loss.

o) Earnings per share

The Group presents basic earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

F-19



p) Segment reporting

21

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed by the Group's Board of Directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 27).

q) Asset held-for-sale

(i) Classification The Group classifies non-current assets as held-for-sale if its carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable in accordance with IFRS 5 "Non-current Assets Held-for-Sale and Discontinued Operations".

(ii) Measurement Non-current assets classified as held-for-sale are measured at the lower of its carrying amount and fair value less costs to sell.

If the criteria for classification as held-for-sale are no longer met, the entity shall cease to classify the asset as held-for-sale and shall measure the asset at the lower of its carrying amount before the asset was classified as held-for-sale, adjusted for any depreciation, amortization or revaluations that would have been recognised had the asset not been classified as held-for-sale and its recoverable amount at the date of the subsequent decision not to sell.

4 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk • Liquidity risk • Market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

The Audit Committee of the Board of Directors of the Company oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Group's Internal Audit Department. Internal Audit undertakes both regular and

F-20


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 4 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

22

ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

The Group has also established a centralised Group treasury function which works under the overall supervision of the Board of Directors of the Company and provides support to the Group for funding, foreign exchange, interest rate management and counterparty risk management. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed annually by the Company's Board of Directors. The Group's accounting function provides regular reports of the treasury activity to the Board of Directors. The Group's internal auditors review the internal control environment regularly. There has been no significant change during the financial year, or since the end of the year, to the types of financial risks faced by the Group or the Group's approach to the management of those risks.

a) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally and materially from the Group's trade receivables, other receivables, unbilled revenue, debt investment securities and cash at bank.

(i) Trade receivables The Group's trade receivables are spread among customer's segmentation and geographical areas. The Group has an established credit policy under which each new customer is analysed individually for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. Credit limits are established for each customer, which represents the maximum open amount without requiring approval. Strict credit control is maintained for both credit period and credit limits, both of which are monitored continuously by management. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group only on a prepayment basis. Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated. The majority of the Group's trade receivables are due for payment within 90 days and largely comprise amounts receivable from consumers and business customers. The Group obtain collaterals for providing services to some residential customers.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Management believes there is no further credit risk provision required in excess of the normal impairment on receivables (refer to note 1 0).

(ii) Investments and cash and bank balances The Group manages credit risk on its investments and cash and bank balances by ensuring that these are made only after credit evaluation of the issuer. Term deposits are placed with commercial banks after credit evaluation of those banks. The Group limits its exposure to credit risk by only investing in liquid securities which offers risk free returns and only with counterparties that have a sound credit rating.

F-21



(iii) Exposure to credit risk

23

80'000

The carrying amount of financial assets (excluding equity investments) represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

2012 2011

Trade receivables 51,809 49,987 Unbilled revenue 2,044 1,435 Other receivables 57,093 12,497 Available-for-sale investments 4,337 4,337 Cash at bank 94,835 107,774

210,118 176,030

(iv) Customers' accounts The maximum exposure to credit risk at 31 December 2012 classified by operating segment sharing common economic characteristics with respect to credit risk is as follows:

2012 2011 Operating segment

Bahrain 30,651 26,330 Jordan 1,973 1,557 Other countries 5,882 8,613

38,506 36,500

(v) Amounts due from telecommunications operators The maximum exposure to credit risk for amounts due from telecommunications operators at 31 December 2012 by type of customer was:

2012 2011 Customer segment

International operators 2,438 3,606 Local operators 10,865 9,881

13,303 13,487

b) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity 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 the Group's reputation. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. A major portion of the Group's funds are invested in cash and cash equivalents which are readily available to meet expected operational expenses, including the servicing of financial obligations.

F-22



24

BD'OOO

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:

Non-derivative financial liabilities at 31 December 2012

Trade payable Other payables Amount due to telecommunications operators



Trade payable Other payables Amount due to telecommunications operators

c) Market risk

Carrying amount

27,918 2,336

12,852 18,473

61,579

Carrying amount

23,270 2,074

14,167

39,511

Contractual cash flows

27,918 2,336

12,852 20,231

63,337

Contractual cash flows

23,270 2,074

14,167

39,511

Within one 1-2 More than year Years two years

25,889 1,353 676 2,336 . .

12,852 . . 4,513 2,585 13,133

45,590 3,938 13,809

Within one 1 . 2 More than year years two years

20,715 582 1,973 2,074 . .

14,167 . .

36,956 582 1,973

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Group Treasury Function.

(i) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Bahraini Dinar and Jordanian Dinar, (which are pegged to the US Dollar) and Kuwaiti Dinar. The Group's exposure to currency risk is limited as the majority of its investments, due to and from international operators are denominated in US Dollar or denominated in currencies which are pegged to US Dollar. Consequently, the currency risk of the Group is limited.

The Group seeks to manage currency risk by continually monitoring exchange rates and by maintaining an adequate level of foreign currencies to cover its expected commitment to international telecommunication operators. These amounts are placed significantly in short-term fixed deposit accounts. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

The Group's investment in its subsidiaries is not hedged as those currency positions are considered to be long-term in nature. In respect of other monetary assets and liabilities denominated in foreign currencies, considering the nature of its financial instruments, the Group currently is not engaged in hedging of foreign currency risk.

F-23



(ii) Interest rate risk

25

BD'OOO

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Under the Group's interest rate management policy, interest rates on monetary assets and liabilities denominated in Bahraini Dinars, Jordanian Dinars, and Kuwaiti Dinars are maintained on a floating rate basis. The average interest rate yield from bank deposits and available-for-sale investments during 2012 was 0.94% (2011: 0.8 %).

At the reporting date, the interest rate profile of the Group's interest-bearing financial instruments was:

Fixed rate instruments Financial liabilities

Variable rate instruments Financial assets Financial liabilities

Fair value sensitivity analysis for fixed rate instruments

D 81,377 18,473

D 1

The Group does not account for any fixed rate financial assets and liabilities at fair value through the profit or loss. Therefore a change in interest rates at the reporting date would not affect the profit or loss. Increase or decrease in equity resulting from variation in interest rates will be insignificant.

Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by BD 629 (2011: BD 880). This analysis assumes that all other variables, in particular foreign currency rates, remain constant.

(iii) Other market price risk The primary goal of the Group's investment strategy is to ensure risk free returns and invest surplus fund available with the Group in risk free securities. Market price risk arises from available-for-sale investment held by the Group. The Group Treasury Function monitors its investment portfolio based on market expectations and credit worthiness of the underlying investees. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Company's Board of Directors.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measures:

• Level1: Quoted market price (unadjusted) in an active market for an identical instrument.

• Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes

F-24



26

BD'OOO

instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The table below analyses financial instruments measured at fair value at the end of 31 December 2012, by the level in the fair value hierarchy into which the fair value measurement is categorized:

2012 2011


Investment securities fair valued at level 1 30,391 11,684

(iv) Other price risk Other investments include AFS investments. These investments carried at cost are exposed to risk of changes in market values. Refer to note 3 h) for accounting policies on valuation of AFS investments and note 3 k) for significant estimates and judgements in relation to impairment assessment of AFS investments. The Group manages exposure to other price risks by actively monitoring the performance of the investments. The performance assessment is performed on an annual basis and is reported to the Board of Directors.

d) Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Group. The Board seeks to maintain a balance between the higher returns and growth that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Board of Directors monitors the return on capital, which the Group defines as total equity and the level of dividends to shareholders. The Group's objectives for managing capital are:

• to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

• to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. There were no significant changes in the Group's approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

F-25



e) Classification of financial instruments

27

BD'OOO

Classification of financial assets and liabilities, together with the carrying amounts as disclosed in the statement of financial position, are as follows:

31 December 2012

Available-for-sale investments Trade receivables Other receivables Unbilled revenue Cash and bank balances

Trade payable Other payables Amounts due to telecommunications operators


31 December 2011

Available-for-sale investments Trade receivables Other receivables Unbilled revenue Cash and bank balances

Trade payable Other payables Amounts due to telecommunications operators


Loans and receivables

-51,809 57,093 2,044

94,922

205,868

--

--

-


-49,987 12,497

1,435 107,893

171,812

--

--

-

Available-for-sale

35,410 ----

35,410

--

--

-

Available-for-sale

16,703 ----

16,703

--

--

-

Others at Total carrying amortised cost amount

- 35,410 - 51,809 - 57,093 - 2,044 - 94,922

- 241,278

27,918 27,918 2,336 2,336

12,852 12,852 18,473 18,473

61,579 61,579


- 16,703 - 49,987 - 12,497 - 1,435 - 107,893

- 188,515

23,270 23,270 2,074 2,074

14,167 14,167 - -

39,511 39,511

With the exception of available-for-sale investments carried at cost less impairment allowances, the fair values of the Group's assets and liabilities closely approximate the carrying value.

F-26



5 PROPERTY AND EQUIPMENT

Network assets

Cost At 1 January Additions Projects completed Disposals

At 31 December

Depreciation At 1 January Charge for the year Disposals

At 31 December Net book value

At 31 December 2012

At 31 December 2011

Land and buildings

71,126 2,606

80 (4,196)

69,616

46,642 845

-

47,487

22,129

24,484

& telecom equipment

398,565 16,099 22,816

{36,362}

401,118

269,168 27,206

(36,465)

259,909

141,209

129,397

Motor vehicles, furniture,

fittings & office equipment

35,335 1,030 1,247

(1 ,297)

36,315

29,132 2,663

(1 ,307)

30,488

5,827

6,203

28

BD'OOO

Assets under Total Total construction 2012 2011

24,935 529,961 522,636 11,514 31,249 26,634

(19,749} 4,394 3,574 - (41 ,855) (22,8831

16,700 523,749 529,961

- 344,942 331,162 - 30,714 33,462 - (37,772) (19,682}

- 337,884 344,942

16,700 185,865 185,019

24,935 185,019

Land and buildings include certain property at Hamala, Kingdom of Bahrain with a carrying value of BD 56 (2011: BD 56} held as investment property for earning rentals or capital appreciation. The fair value of the property as at 31 December 2012 was BD 10,060 (2011: BD 1 0,060}. The fair value of the property was determined by a registered independent appraiser having an appropriate recognised professional qualification and experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties as the Company's property.

For a list of properties owned and rented by the Company, please refer to note 28.

F-27



6 GOODWILL

Cost At 1 January Exchange rate adjustments

At 31 December

a) Analysis of Goodwill

2012

124,682 (305)

124,377

29

80'000

2011

125,129 (447)

124,682

Goodwill acquired in business combination is allocated to "Jordan" for the purposes of segment reporting.

b) Impairment of Goodwill

(i) The Group tests for impairment of goodwill annually, or more frequently if there are any indications that impairment may have arisen. The recoverable amount of a Cash Generating Unit is determined based on the higher of fair values less costs to sell and value-in-use calculations. Fair values less costs to sell are estimated by using the capitalised earnings approach and comparing the same with those of other telecom companies within the region.

(ii) The key assumptions for the value-in-use calculations are those relating to discount rates, the long term growth rates, penetration and market share assumptions, average revenues per user, earnings before interest, taxation, depreciation and amortization ("EBITDA") and capital expenditure to sales ratio. These calculations use cash flow projections based on financial budgets approved by management, covering the period of the validity of the telecom license. Cash flows are extrapolated using the estimated growth rates. The weighted average growth rates are consistent with forecasts. No impairment losses were recognised in 2012 (2011: BD Nil).

(iii) The above estimates were tested by the Group for sensitivity in the following areas:

• An increase I decrease in the discount rate and the long term growth rates used • A change in market share • A decrease in future planned revenues and EBITDA margins • An increase in capex to sales ratio forecasts

The results of the sensitivity testing revealed that the value in use calculations is sensitive to the above changes, although these did not result in a materially significant change in the carrying value of the goodwill and related assets.

F-28



7 INTANGIBLE ASSETS

Cost At 1 January Additions during the year Disposals during the year

At 31 December

Amortisation At 1 January Charge for the year Disposals during the year

At 31 December

Net book value at 31 December

8 INVESTMENT IN ASSOCIATES

At 1 January Receipts from associates Share of profit /(loss) (net) Share of currency translation (loss)/gain Investment classified as held for sale investment (Note 9)

At 31 December

2012

67,969 32,368

(249)

100,088

43,661 5,659 (112)

49,208

50,880

2012

78,580 (2,762) 1,599

77,417

The summarized aggregate financial information of the associates is as follows:

Assets Liabilities Revenues Profit/ (loss)

*Unaudited and as of 30 November 2012.

2012*

150,747 126,349 82,610

7,499

30

BD'OOO

2011

68,305 464

(800)

67,969

39,901 4,523

(763)

43,661

24,308

2011

130,124 (1 ,930) (3,124)

(17) (46,473)

78,580

2011

132,814 115,915 70,663 (9, 123)

F-29



9 AVAILABLE-FOR-SALE INVESTMENTS

a) Current

Debt securities

b) Non-current

Debt securities Equity securities Less impairment allowance

2012

3,770

2,546 79,593

(50,499)

31,640

35,410

31

BD'OOO

2011

-

6,316 14,413 (4,026)

16,703

16,703

During the previous year, the Group reclassified its investment in STEL Private Limited ("STEL") as held-for-sale following the Board of Directors earlier decision to actively pursue the sale of the investment. BMIC Limited ("BMIC") had a binding agreement to sell its investment in STEL by quarter ending 31 December 2012 to the other promoters of STEL ("counterparty"). However, the counterparty did not settle its obligation by the stipulated date. The Group commenced litigation against the counter party in the UK High Court of Justice, Commercial Court for the recovery of BD 69.7 ($184.8) million due and owing by them to BMIC, under a Settlement Agreement between the parties. This substantially impacted the conclusion of the sale transaction and the settlement was delayed beyond the control of the Group. The Group expects a favourable settlement based upon the strong evidence supporting BMIC's case.

Accordingly, as the share sale was not concluded within 12 months, the investment in STEL was reclassified as held for use during the year. Given the revocation of 2G licenses in 2012 and closing of operations, the carrying value of investment is considered fully impaired and the loss has been offset by a contractual claim against the counterparty which has been recognized as a receivable.

Available-for-sale equity securities also include BD 30,391 (2011: BD 11 ,684) representing market value of an equity investment in Etihad Atheeb Telecommunications Company (''the investee"). There is a five year lock in period starting from April 2009.

F-30



10 TRADE AND OTHER RECEIVABLES

Trade receivables Less impairment allowance

Unbilled revenue Prepaid expenses and other receivables

2012

67,533 (15,724)

51,809 2,044

61,716

115,569

32

BD'OOO

2011

66,294 (16,307)

49,987 1,435

20,340

71,762

The maximum exposure to credit risk for trade receivables at the reporting date by type of counterparty was as follows:

Customers' accounts Telecommunications operators

2012

38,506 13,303

51,809

2011

36,500 13,487

49,987

Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due. The aging of past due trade receivables at the reporting date was as follows:

Not yet due Overdue:

Up to 90 days 91-180 days More than 180 days

Gross trade receivables Impairment provision

Net trade receivables

The movement in the allowance for impairment was as follows:

At 1 January Impairment loss recognized during the year Written off during the year

At 31 December

2012

20,671

16,007 7,693

23,162

67,533 (15,724)

51,809

2012

16,307 2,227

(2,810)

15,724

2011

20,733

18,298 6,688

20,575

66,294 (16,307)

49,987

2011

16,174 3,413

(3,280)

16,307

F-31



11 CASH AND BANK BALANCES

Cash in hand Cash at bank


2012

87 94,835

94,922

33

80'000

2011

119 107,774

107,893

Cash and bank balances include BD 2,755 (2011: BD 2,798) on account of unclaimed dividends and short-term deposits with maturities exceeding three months. These have been excluded for the purposes of statement of cash flows.

12 TRADE AND OTHER PAYABLES

Trade payable Amounts due to telecommunications operators Provisions, accrued expenses and other payables (note 13) Customer deposits and billings in advance Current tax liability

Trade and other payables are classified as follows:

Current liabilities Non-current liabilities

13 PROVISIONS

2012

27,918 12,852 79,640 23,254

3,416

147,080

2012

145,051 2,029

147,080

2011

23,270 14,167 71,638 22,535

4,813

136,423

2011

133,868 2,555

136,423

Included within provisions and accrued expenses are amounts provided for employee redundancy programme benefits, restructuring and donations. The movement in provisions is as follows:

At 1 January Amounts provided during the year Amounts paid during the year

At 31 December

Provision for employee redundancy/ restructurina proaram

2012 2011

420 2,100 15,075 3,407 (7, 169) (5,087)

8,326 420

Provision for donations

2012 2011

2,405 2,353 2,000 2,169

(1 ,667) (2, 117)

2,738 2,405

F-32

Bahrain Telecommunications Company BSC 34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 BD'OOO 13 PROVISIONS (continued)

Restructuring

During the year, the Company committed to a plan to restructure the Bahrain operations due to changes in economic environment. The plan was approved by the Board of Directors of the Company and the implementation was started in 2012. Accordingly, the Company recognised a provision of BD 12.1 million (BD 4.4 million for 2012 and BD 7. 7 million for 2013) for expected restructuring costs relating to employees. The Company paid BD 3.8 million relating to 2012 provision during the year.

14 DEFERRED INCOME TAX ASSET AND LIABILITY

The deferred tax asset and liability is attributable to the following items relating to Jordan:

2012 2012 2011 2011 Asset Liability Asset Liability

Intangible assets - 3,634 - 4,193 Aggregate temporary differences mainly on expenses

15 LOANS AND BORROWINGS

a) Current

Banque Saudi Franci Arab Banking Corporation (B.S.C.)

b) Non-current

Banque Saudi Franci

2,298 -

2,298 3,634

2,018 -

2,018 4,193

2012 2011

2,213 -1,872 -

4,085 -

14,388 -

14,388 -

18,473 -

In order to finance the Company's subscription of rights share issue of the investee company, the Company obtained a long term loan of BD 17.7 million during the year. The loan bears an interest at a rate of SAIBOR + 1.75% margin per annum. The tenor of loan is 8 years. The Company has settled BD 1.1 million of the original loan amount as at 31 December 2012.

On 23 May 2012, Umniah Mobile Company PSC ("Umniah") obtained a short-term loan in the amount of BD 9.8 million from Arab Banking Corporation (B.S.C.). The purpose of this loan is to finance the general business purposes of Umniah. The loan tenor is for a 12 month period with the option of extending for another 12 month term. The loan bears interest at a rate of LIBOR + 1.6 % margin per annum for the first year and LIBOR + 1.75 % margin per annum for the second year. Umniah has settled BD 7.9 million of the original loan amount as of 31 December 2012.

F-33



16 SHARE CAPITAL

a) Authorised: 2,000 (2011: 2,000) million shares of 100 fils each

b) Issued and fully paid: 1,440 (2011: 1 ,440) million shares of 1 00 fils each

2012

200,000

144,000

35

BD'OOO

2011

200,000

144,000

- The Company has only one class of equity shares and the holders of these shares have equal voting rights.

- Names and nationalities of the major shareholders and the number of equity shares held in which they have an interest of 5 % or more of outstanding shares are as follows:

Name

Bahrain Mumtalakat Holding Company BSC (c) Amber Holdings Limited Social Insurance Organisation

- Distribution schedule of equity shares:

Categories

Less than 1 % 1 % up to less than 5 % 5% up to less than 10% 10% up to less than 20% 20 % up to less than 50 %

17 STATUTORY AND GENERAL RESERVE

a) Statutory reserve

Nationality_

Bahrain Cayman Islands

Bahrain

Number of shares

(thousands)

232,912 94,990

--

1,112,098

1,440,000

Number of shares %of share

(thousands) holding

528,000 37 288,000 20 296,098 21

%of total Number of outstanding

shareholders shares

11,057 16 3 6 - -- -3 78

11,063 100

The Bahrain Commercial Companies Law 2001 requires all companies incorporated in Bahrain to transfer 10 % of net profit for the year to a statutory reserve, until such reserve reaches a minimum of 50 % of the paid-up capital. The reserve is not available for distribution, except in the circumstances stipulated in the Bahrain Commercial Companies Law 2001. Transfer to statutory reserve, effected by the subsidiaries in accordance with the applicable law of the country of incorporation, is retained in the subsidiary concerned, and is not available for distribution except in circumstances stipulated by the law in the respective country of incorporation.

F-34


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 17 STATUTORY AND GENERAL RESERVE (continued)

b) General reserve

36

BD'OOO

The general reserve is distributable only upon a resolution of the shareholders at the Annual General Meeting. Transfer of BD 9.4 million (2011: BD 15.0 million) was made during the year 2012. The shareholders of the Company in their meeting held on 22 February 2012 approved transfer to general reserve of BD 8.0 million and the shareholders of Umniah in their meeting held on 15 February 2012 approved transfer to general reserve of BD 1.5 million of which Group's share was BD 1.4 million.

18 DIVIDENDS

The dividends paid in 2012 and 2011 were BD 50.4 million (35 Fils per share) and BD 64.8 million (45 Fils per share) respectively. The dividends paid in 2012 include an amount of BD 28.8 million relating to the final dividend for the year ended 31 December 2011 and interim dividend of BD 21.6 million in the year 2012. A final dividend in respect of the year ended 31 December 2012 of 10 Fils per share, amounting to BD 14.4 million was proposed by the Board of Directors and is to be put forward for approval at the Annual General Meeting on 25 February 2013. These financial statements do not reflect this final dividend payable.

19 REVENUE 2012 2011

Mobile telecommunications services 128,662 150,855 Data communication circuits 54,036 55,271 Internet 36,410 38,124 Wholesale 35,729 37,352 Fixed line telecommunication services 22,542 27,974 Others 27,331 17,396

304,710 326,972

20 NETWORK OPERATING EXPENSES 2012 2011

Outpayments to telecommunications operators 37,250 43,462 Operating lease rentals 30,816 34,708 Cost of sales of equipment and services 26,769 18,968 Licence fee 7,586 7,975 Repair and maintenance 14,345 10,704

116,766 115,817

F-35



21 OTHER OPERATING EXPENSES

Marketing, advertising and publicity Impairment allowances Other expenses

22 FINANCE AND OTHER INCOME

Rental income Interest income Others

23 EARNINGS PER SHARE ("EPS")

Profit for the year attributable to equity holders of the Company Weighted average number of shares outstanding

during the year (in thousands)


2012

14,576 2,227 9,907

26,710

2012

274 849

1,440

2,563

2012

60,340

1,440,000

41.9

37

BD'OOO

2011

13,311 3,413

17,479

34,203

2011

294 750

2,213

3,257

2011

80,014

1,440,000

55.6

Diluted earnings per share has not been presented as the Group has no commitments that would dilute earnings per share.

24 COMMITMENTS AND CONTINGENCIES

a) Guarantees

(i) The Company has furnished a guarantee for BD 7.3 (2011: BD 27.1) million to a bank for extending credit facilities to an investee company in Kingdom of Saudi Arabia.

(ii) The Company has furnished guarantees amounting to BD 1.6 (2011: BD 1.6) million to suppliers on behalf of an investee company in Kingdom of Saudi Arabia relating to the equipment supply contracts.

(iii) As at 31 December 2012, the Group's banks have issued guarantees, amounting to BD 4.1 (2011: BD 7.8) million and letters of credit amounting to BD 0.1 (2011: BD 0.3) million.

(iv) The Company has furnished a comfort letter for BD 1.9 (2011: BD 1.9) million to Telecommunications Regulatory Commission, Jordan for providing a financial guarantee for the subsidiary companies operating in Jordan.

F-36


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2012 24 COMMITMENTS AND CONTINGENCIES (continued)

b) Operating leases

38

BD'OOO

The Group enters in to cancellable and non-cancellable operating lease agreements in the normal course of business, which are principally in respect of property and equipment. Non-cancellable operating lease commitments are as follows:

Future minimum lease payments Within one year After one year but not more than five years

c) Staff housing loans

2012

291 407

698

2011

941 432

1,373

The Company provides loans to its Bahraini employees for the acquisition of residential properties. The loans are funded through a local commercial bank and secured by a guarantee issued by the Company. The policy of providing staff housing loan guarantees was discontinued in 2007.The Company bears 75% (2011: 75 %) of the loan interest. At 31 December 2012, the Company has an outstanding guarantee of BD 2.0 (2011: BD 2.4) million towards housing loans to staff.

d) Foreign currency facilities

The Company currently has foreign currency facilities from commercial banks totalling approximately BD 9.4 (2011: BD 9.4) million. At 31 December 2012, the Group has utilised BD Nil (2011: BD Nil) of the foreign currency facilities.

e) Commitments

The Group has capital commitments at 31 December 2012 amounting to BD 3.2 (2011: BD 17.0) million.

f) Contingent liabilities

The Group is involved in certain matters relating to notifications from regulatory authorities and government tax departments of claims and other notices amounting to BD 5.5 (2011: BD 5.5) million. The Group is of the view that there are no legitimate legal grounds for such claims and notices, and all necessary legal steps to respond to and defend its position are being taken.

25 EMPLOYEE BENEFITS

The Group's contributions in respect of local employees against their pension rights and other social benefits amounted to BD 3.8 (2011: BD 3.5) million. The provision for leaving indemnity in respect of expatriate employees amounted to BD 2.8 (2011: BD 2.5) million and is included under provisions and accrued expenses.

F-37



26 TRANSACTIONS WITH RELATED PARTIES

39

BD'OOO

(i) The Company qualifies as a government related entity under the definitions provided in the Revised lAS 24. The Company provides telecommunication services to various Government and semi government organisation and companies in the Kingdom of Bahrain. The Company also avails various services from Government and semi government organisation and companies in the Kingdom of Bahrain. Such transactions are in the normal course of business and are not considered to be material.

(ii) Transactions with key management personnel: Key management personnel of the Group comprise of the Board of Directors and key members of management having authority and responsibility for planning, directing and controlling the activities of the Group.

The key management personnel compensation is as follows:

Short-term employee benefits Post-employment benefits

Total key management personnel compensation

Post employment benefits due

Directors remuneration (including sitting fees)

(iii) Transactions with associates are disclosed under note 8.

2012

2,658 64

2,722

2012

187

510

(iv) Directors' interests in the shares of the Company at the end of the year were as follows:

2012

Total number of shares held by Directors 4,005,308

As a percentage of the total number of shares issued 0.28%

2011

2,540 64

2,604

2011

182

601

2011

3,878,361

0.27%

F-38



27 SEGMENT INFORMATION

Operating segments

40

BD'OOO

The Group's operations are segregated between Bahrain, Jordan and Other countries. Other countries include Kuwait, Yemen, Egypt and India. Segment information disclosed for the year ended 31 December 2012 is as follows:

Segment revenue & profit

Revenue (external customers) Inter segment revenues Finance and other income Depreciation and amortisation Interest expense Share of profit/(loss) of

associates (net) Profit/( loss)

Segment assets & liabilities

Non-current assets Current assets

Total assets


Total liabilities

Bahrain

178,846 6,671 5,086

20,102 370

-

45,764

Bahrain

150,929 149,907

300,836

96,142 17,901

114,043

Year ended 31 December 2012 Inter-

Other segment Jordan countries ~limination Total

92,706 33,158 - 304,710 21,263 1,271 (29,205) -

113 195 (2,831) 2,563 14,318 1,953 - 36,373

277 - - 647

- 1,599 - 1,599

9,816 9,763 - 65,343

As at 31 December 2012 Inter-

Other segment Jordan countries !elimination Total

232,152 89,396 - 472,477 16,535 71,243 (20,794) 216,891

248,687 160,639 (20,794) 689,368

40,272 31,164 (18,442) 149,136 5,663 - (3,513) 20,051

45,935 31,164 (21,955) 169,187


Other segment Bahrain Jordan countries elimination Total

202,877 88,866 35,229 - 326,972 9,510 18,319 1,259 (29,088) -5,810 146 13 (2,712) 3,257

23,546 12,466 1,973 - 37,985 - 262 - - 262

- - (3,124) - (3,124) 67,833 13,587 2,435 - 83,855



138,672 199,231 93,407 - 431,310 154,517 12,405 73,003 (11 ,928) 227,997

293,189 211,636 166,410 (11 ,928) 659,307

82,695 35,736 24,177 (8,740) 133,868 3,513 6,748 - (3,513) 6,748

86,208 42,484 24,177 (12,253) 140,616

F-39



28 LIST OF PROPERTIES OWNED AND RENTED BY THE COMPANY

Description Usage

Hamala Headquarter Offices Diplomat Building Offices & Telecoms Telephone House Offices & Telecoms Telegraph House Offices & Telecoms Batelco Commercial Centre Offices & Exchanges Earth Station Satellite Station Hamala Transmitters Transmission Station Abul Land Car Park Car Park Eid Mosque Car Park Car Park Salmaniya Car Park (Telephone

Car Park House) Sales Site (in BCC) Customer Service Centre & Offices 19 Sales Site Customer Service Centre 67 different sites used for GSM

GSM & fixed telephone network base stations and exchanges 242 different sites used for locating Remote Line Units (RLUs) Plus MNE GSM & fixed telephone network Sites.

41

Owned/Rented

Owned Owned Owned Owned Owned Owned Owned Owned Rented

Rented

Owned Rented

Owned

Rented

F-40


CONSOLIDATED FINANCIAL STATEMENTS

31 DECEMBER 2011

F-41

KPMG Fakhro Audit 5th Floor Chamber of Commerce Building PO Box 710, Manama Kingdom of Bahrain

Independent auditors' report to the shareholders Bahrain Telecommunications Company BSC Manama, Kingdom of Bahrain

Report on the consolidated financial statements

CR No. 6220 Telephone +973 17 224807 Fax +973 17 227443 Internet www.kpmg.com.bh

4

23 January 2012

We have audited the accompanying consolidated financial statements of Bahrain Telecommunications Company BSC (c) ("the Company") and its subsidiaries (together the "Group"), which comprise the consolidated statement of financial position as at 31 December 2011, and the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Responsibility of the board of directors for the consolidated financial statements The board of directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the board of directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we .consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2011, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Report on other regulatory requirements As required by the Bahrain Commercial Companies Law we report that the Company has maintained proper accounting records and the consolidated financial statements are in agreement therewith; the financial information contained in the chairman's report is consistent with the consolidated financial statements; we are not aware of any violations of the Bahrain Commercial Companies Law or the terms of the Company's memorandum and articles of association having occurred during the year that might have had a material adverse effect on the business of the Company or on its financial position; and satisfactory explanations and information have been provided to us by the management in response to all our requests.

KPMG Fakhro, a registered partnership under Bahrain law, is a member of KPMG International. a Swiss cooperative.

F-42


CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2011

ASSETS

Non-current assets

Property and equipment

Goodwill

Intangible assets

Investment in associates

Deferred tax assets


Total non-current assets

Current assets

Investment in associate classified as held for sale

Inventories

Trade and other receivables


Total current assets

Total assets


Equity

Share capital

Statutory reserve

General reserve

Foreign currency translation reserve

Investments fair value reserve

Retained earnings

Total equity attributable to equity holders of the Company


Total equity (Page 8)



Deferred tax liability

Total non-current liabilities

Current liabilities


Total current liabilities

Total liabilities

Total equity and liabilities

Note

5 6 7 8

15

10

9

11

12

16

17

17

13

13

13

5

80'000

2011 2010

185,019 191,474

124,682 125,1 29

24,308 28,404

78,580 130,124

2,018 1,271

16,703 28,403

431,310 504,805

46,473 -1,869 2,015

71,762 64,834

107,893 86,817

227,997 153,666

659,307 658,471

144,000 144,000

76,719 76,428

30,000 15,000

787 1,376

(3,397) 8,210

257,731 259,977

505,840 504,991

12,851 11,824

518,691 516,815

2,555 3,063

4,193 4,732

6,748 7,795

133,868 133,861

133,868 133,861

140,616 141,656

659,307 658,471


23 January 2012 and signed on its behalf by:

~binAb;&,alifa Chairman

:z'~ 7ep~;; Chairman


F-43


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December 2011

REVENUE

EXPENSES Network operating expenses

Staff costs

Depreciation and amortisation

Other operating expenses

Total expenses

Results from operating activities


Finance expenses

Share of loss of associates (net)

Profit before taxation

Income tax expense

Profit for the year


Foreign currency translation differences for foreign operations

Investments fair value changes

Other comprehensive income for the year





Total comprehensive income attributable to:




Note

19

20

21

22

8

23

6

80'000

2011 2010

326,972 340,252

(113,462) (109,362)

(50,930) (49,785)

(37 ,985) (39 ,704)

(36,558) (34,942)

(238,935) (233,793)

88,037 106,459

3,257 1,293

(262) (346)

(3,124) (13,199)

87,908 94,207

(4,053) (3,574)

83,855 90,633

(503) 1,406

(11 ,607) (1 ,247)

(12,110) 159

71,745 90,792

80,014 86,773

3,841 3,860

83,855 90,633

67 ,818 86,734

3,927 4,058

71,745 90,792

55.6 60.3


23 January 2012 and signed on its behalf by:

~;::;> ~{ Sh. Hamad bin Abdu~Khalifa ~

d All Murad

Chairman ty Chairman


F-44


CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2011

OPERATING ACTIVITIES

Cash receipts from customers

Net cash paid to suppliers

Cash paid to and on behalf of employees

Cash flows from operating activities


Acquisition of property and equipment

Advance to investee company

Receipts from associate

Net proceeds from sale and maturity of investments

Interest and investment income received

Cash flows from investing activities


Dividend paid

Interest paid

Borrowing repaid

Payments to charities

Cash flows from financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at 1 January

Cash and cash equivalents at 31 December 12

2011

300,118 (128,765)

(48,362}

122,991

(31 ,554)

(2,781)

1,930 4,238

1,069

{27,098)

(69, 117)

--

(2, 117}

{71,234)

24,659

80,436

105,095


7

80'000

2010

316,625

(129,879) (48,855}

137,891

(28,846)

-6,094

4,943

1,604

(16,205}

(73,270)

(50) (36,569)

(1 ,591}

(111 ,480}

10,206

70,230

80,436

F-45



Equity attributable to equity holders of the Company

2011

At 1 January 2011

Profit for the year



Net changes in fair value of investments



Final dividends declared for 201 0

Donations declared for 2010

Transfer to statutory reserve




At 31 December 2011

Share

capital

144,000

-

--

-

-

------

-

144,000

Statutory

reserve

76,428

-

--

-

-

--

291

---

291

76,719

Foreign

currency General translation

reserve reserve

15,000 1,376

- -

- (589)

- -

- (589)

- (589)

- -

- -- -

15,000 -- -- -

15,000 -

30,000 787


Investment fair value Retained

reserve earnings

8,210 259,977

- 80,014

- -(11 ,607) -

(11 ,607) -

(11,607) 80,014

- (36,000)

- (2,169)

- (291)

- (15,000)

- (28,800)

- -

- (82,260)

(3,397) 257,731

8

80'000

I

Non-controlling

Total interest Total equity

504,991 11,824 516,815

80,014 3,841 83,855

(589) 86 (503)

(11,607) - (11 ,607)

(12,196) 86 (12,110)

67,818 3,927 71,745

(36,000) - (36,000)

(2,169) - (2, 169)

- - -- - -

(28,800) - (28,800)

- (2,900) (2,900}

(66,969) (2,900) (69,869)

505,840 12,851 518,691

F-46



Equity attributable to equity holders of the Company

2010

At 1 January 2010

Profit for the year



Net changes in fair value of investments



Final dividends declared for 2009

Donations declared for 2009

Directors' remuneration declared for 2009

Transfer to statutory reserve



At 31 December 2010

Share

capital

144,000

-

--

-

-

------

-

144,000

Foreign

currency

Statutory General translation

reserve reserve reserve

75,364 15,000 168

- - -

- - 1,208

- - -

- - 1,208

- - 1,208

- - -

- - -- - -

1,064 - -

- - -- - -

1,064 - -

76,428 15,000 1,376


Investment

fair value

reserve

9,457

-

-(1 ,247)

(1 ,247)

(1 ,247)

------

-

8,210

9

80'000

I

Non-

Retained controlling

earnings Total interest Total equity

249,334 493,323 10,731 504,054

86,773 86,773 3,860 90,633

- 1,208 198 1,406

- {1,247) - (1 ,247)

- (39) 198 159

86,773 86,734 4,058 90,792

(43,200) (43,200) - (43,200)

(2,626) (2,626) - (2,626)

(440) (440) - (440)

(1 ,064) - - -(28,800) (28,800) - (28,800)

- - (2,965) {2,965)

(76, 130) {75,066) (2,965) (78,031)

259,977 504,991 11,824 516,815

F-47



1 BACKGROUND AND ACTIVITIES

10

Bahrain Telecommunications Company BSC ("the Company", "the Parent") is a public shareholding company registered under commercial registration number 11700 in the Kingdom of Bahrain in the year 1981 and is engaged in the provision of public telecommunications and associated products and services. The consolidated financial statements for the year ended 31 December 2011 comprise the financial statements of the Company, and its subsidiaries (together referred to as the "Group" and individually as "Group entities") and the Group's interest in associates. The registered office of the Company is P.O. Box 14, in Manama, Kingdom of Bahrain. The subsidiaries and associates of the Group included in these consolidated financial statements are as follows:

Company Country of Shareholding incorporation (%)

Subsidiaries Batelco Middle East Company SPC Kingdom of Bahrain 100 Arabian Network Information Services WLL Kingdom of Bahrain 100 BMIC Limited Mauritius 100 Batelco Egypt Communications (S.A.E.) Arab Republic of

Egypt 100 Batelco Middle East Jordan LLC Kingdom of Jordan 100 Umniah Mobile Company PSC Kingdom of Jordan 96 Batelco Jordan PSC (held by Umniah Mobile Company PSC) Kingdom of Jordan 96

Urcell Telecom & Technologies Services LLC Kingdom of Jordan 96 Qualitynet General Trading and Contracting Company WLL * State of Kuwait 44

Associates Yemen Company for Mobile Telephony Y.S.C Republic of Yemen 26.94 STEL Private Limited India 42.70

* Subsidiary due to management control

2 BASIS OF PREPARATION

a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), and the requirements of the Bahrain Commercial Company Law 2001 and Central Bank of Bahrain's Disclosure Standards. The significant accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements by the Group's entities other than the changes as stated below.

(i) New Standards, amendments and interpretations that are effective on or after 1 January 2011 The following standards, amendments and interpretations, which became effective in 2011, are relevant to the Group:

• /AS 24 - Related party disclosures The revised standard was issued in November 2009. The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities.

The adoption of the revised standard did not have any significant impact on the related party disclosure of the Group.

I i t

I

I l

I l I ~

I

I I

I I l

I !

F-48



• Improvements to /FRS

11

Improvements to IFRS issued in 2010 contained numerous amendments to IFRS that the IASB considers non-urgent but necessary. 'Improvements to IFRS' comprise amendments that result in accounting changes to presentation, recognition or measurement purposes, as well as terminology or editorial amendments related to a variety of individual I FRS standards. There were no significant changes to the current accounting policies of the Group as a result of these amendments.

(ii) New Standards, amendments and interpretations issued but not yet effective The following standards and interpretations have been issued and are expected to be relevant to the Group in future periods, with effective dates on or after 1 January 2012.

• lAS 28 (2011)- Investment in Associates and Joint ventures lAS 28 (2011) supersedes lAS 28 (2008). lAS 28 (2011) has been amended to include:

I FRS 5 applies to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and

on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the entity does not remeasure the retained interest.

The standard is effective for annual periods beginning on or after 1 January 2013 and is applied retrospectively. Early adoption is permitted provided that the entire suite of consolidation standards is adopted at the same time.

The application of this amendment has no significant impact on the financial statements of the Group.

• /FRS 9 - Financial Instruments Standard issued November 2009 IFRS 9 (2009) 'Financial Instruments' is the first standard issued as part of a wider project to replace lAS 39 'Financial instruments: recognition and measurement'. IFRS 9 (2009) retains and simplifies the mixed measurement model and establishes two primary measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. The guidance in lAS 39 on impairment and hedge accounting continues to apply. The 2009 standard did not address financial liabilities.

Standard issued October 2010 I FRS 9 (201 0) adds the requirements related to the classification and measurement of financial liabilities, and de-recognition of financial assets and liabilities to the version issued in November 2009. It also includes those paragraphs of lAS 39 dealing with how to measure fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 "reassessment of Embedded Derivatives".

The Group is assessing the implications of the standard and the impact on the Group.

j

I I i I

I I r I I t

I

I l

I I t

I l ~

I i t

I

F-49



12

While adoption of I FRS 9 is mandatory from 1 January 2013, earlier adoption is permitted. Prior periods need not be restated if an entity adopts the standard for reporting periods beginning before 1 January 2012. In its November 2011 meeting, the IASB tentatively decided to defer the mandatory effective date to 1 January 2015.

• /FRS 10- Consolidated financial statements and lAS 27 Separate Financial Statements (2011) I FRS 10 introduces a new approach to determining which investees should be consolidated and provides a single model to be applied in the control analysis for all investees. An investor controls an investee when; it is exposed or has rights to variable returns from its involvement with that investee; it has the ability to affect those returns through its power over that investee; and there is a link between power and returns. Control is reassessed as facts and circumstances change.

IFRS 10 supersedes lAS 27 (2008) and SIC-12 Consolidation - Special Purpose Entities. The Group is assessing the implications of the standard and the impact on the Group. The standard is effective for annual periods beginning on or after 1 January 2013. Early adoption is permitted provided that the entire suite of consolidation standards is adopted at the same time. IFRS 10 is applied retrospectively when there is a change in the control conclusion between lAS 27/SIC-12 and I FRS 10. lAS 27 (2011) supersedes lAS 27 (2008). lAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications.

• /FRS 12 - Disclosures of interests in other entities IFRS 12 contains the disclosure requirements for entities that have interests in subsidiaries, joint arrangements (i.e. joint operations or joint ventures), associates and/or unconsolidated structured entities, aiming to provide information to enable users to evaluate the nature of, and risks associated with, an entity's interests in other entities; and the effects of those interests on the entity's financial position, financial performance and cash flows.

The Group is assessing the implications of the standard and the impact on the Group. The standard is effective for annual periods beginning on or after 1 January 2013. Early adoption is permitted provided that the entire suite is adopted at the same time. Entities are encouraged to provide information required by I FRS 12 before the effective date, but this early disclosure would not compel the entity to apply either I FRS 12 in its entirety or the other new consolidation standards.

• /FRS 13 - Fair value measurement IFRS 13 replaces the fair value measurement guidance contained in individual IFRSs with a single source of fair value measurement guidance. It defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair value measurements. It explains how to measure fair value when it is required or permitted by other IFRSs. It does not introduce new requirements to measure assets or liabilities at fair value, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards.

The standard is effective for annual periods beginning on or after 1 January 2013 with an option of early adoption.

• Early adoption of standards The Group did not early adopt new or amended standards in 2011.

F-50



b) Basis of measurement

13

The consolidated financial statements have been prepared under the historical cost convention except for available for sale investments that are stated at their fair values and investment in associate classified as held for sale that is stated at lower of its carrying value and fair value less cost to sell.

c) Use of estimates and judgments

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Information about significant areas of assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year and critical judgements in applying accounting policies on the amounts recognised in the financial statements are described in the following notes:

• Note 3 i) & 10 - valuation of investments

• Note 3 n) - provisions

• Note 3 o) - impairment

• Note 3 q) - utilization of tax losses

• Note 6 -measurement of the recoverable amounts of cash-generating units

3 SIGNIFICANT ACCOUNTING POLICIES

a) Basis of consolidation

(i) Subsidiaries Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain economic benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control effectively ceases.

(ii) Investment in associates An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is presumed to exist when the Group holds between 20% to 50% of the voting power of another entity.

Associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment includes goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group's share of the income and expenses and equity movements of the associates from the date that significant influence commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the associate.

l f l I I i

I f [ I t

f I

I I

f

t

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14

All material Intragroup balances and any unrealised gains or losses or income and expenses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements.

b) Foreign currency

(i) Functional and presentation currency Items included in the consolidated financial statements of the Group are measured using the currency of the locations in which the Company, its subsidiaries and associate operate ("the functional currency"). These consolidated financial statements are presented in Bahraini Dinars ("BD"), the Group's presentation currency and all values are rounded to the nearest thousand (BD' 000) except where otherwise indicated.

(ii) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency of the Group's entities at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Exchange differences arising on the settlement of monetary items and on retranslation are recognised in profit or loss.

(iii) Financial statements of foreign operations The assets and liabilities including goodwill and fair value adjustments arising on acquisition of the Group's subsidiaries and associates based outside the Kingdom of Bahrain ("foreign operations") are translated into Bahraini Dinars at the exchange rates prevailing at the reporting date. The income and expenses of foreign operations are translated into Bahraini Dinars at average exchange rates prevailing during the year. Exchange differences arising on translation of foreign operations are recognized in the other comprehensive income and presented in equity as a foreign currency translation reserve.

c) Property and equipment

(i) Recognition and initial measurement Items of property and equipment are stated at cost less accumulated depreciation and impairment losses, if any. The cost includes expenditures that are directly attributable to the acquisition cost of the asset. The cost of self constructed assets includes the cost of materials, direct labour and any costs that are directly attributable to bringing an asset to its working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Where parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.

Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognised in profit or loss.

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(ii) Subsequent measurement

15

Any subsequent cost incurred for replacing a component of an item of property and equipment is capitalized if it is possible that the future economic benefits embodied in the component of the item of property and equipment will flow to the Group. All other expenditures are recognised in the profit or loss as expenses are incurred.

Where there has been an indication of impairment in value such that the recoverable amount of an asset falls below its net book value, provision is made for such impairment. Wherever possible, individual assets are tested for impairment. However, impairment can often be tested only for groups of assets because the cash flows upon which the calculation is based do not arise from the use of a single asset. In these cases, impairment is measured for the smallest group of assets (the cash generating unit) that produces a largely independent income stream, subject to constraints of practicality and materiality.

(iii) Depreciation Depreciation is charged to the profit or loss on a straight-line basis over the estimated useful lives of each part of an item of a property and equipment. Assets are depreciated from the date of acquisition, or in respect of self constructed assets, from the time an asset is completed and ready for service. Freehold land, projects in progress and inventories held for capital projects are not depreciated. The estimated useful lives for the current and comparative period are as follows:

Asset class Estimated useful life in years

Buildings 5-25 Network assets & telecom equipment 2 to 25 Motor vehicles, furniture, fittings & office equipment 2 to 10

Depreciation methods, useful lives and residual values, are reassessed and adjusted, if appropriate, at the year end.

d) Investment property

Investment property is property held either to earn rental income or for capital appreciation or for both and that is not occupied by the Group for use in rendering of its services or for administrative purposes. Investment property is measured at cost (using the cost model), including related transaction costs and borrowing costs incurred for the purpose of acquiring, constructing or producing a qualifying investment property, less accumulated depreciation and impairment losses, if any. Subsequent expenditure is capitalised to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Group and the cost of the item can be measured reliably.

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e) Leased assets

(i) Finance leases

16

Leases for which substantially all the risks and rewards of ownership are assumed by the Group are classified as finance lease. Upon initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Depreciation on capitalised leased assets is charged to the income statement in line with the depreciation policy for similar assets. The corresponding leasing commitments are shown as finance lease obligations within liabilities. Minimum lease payments are apportioned between finance charge and the reduction of the outstanding liability. The finance charge is calculated using the effective interest method.

(ii) Operating leases All other leases are considered as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the lease term.

f) Goodwill

Goodwill arises on acquisition of subsidiaries and associates. Goodwill represents the excess of cost of the acquisition over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired entity. In respect of associates, goodwill is included in the carrying amount of the investment.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is not amortised but tested for impairment annually at the balance sheet date.

g) Intangible assets

Intangible assets comprise license fees, trade name & associated assets, and non-network software.

(i) Recognition and measurement License fees, trade name & associated assets and non-network software acquired or incurred by the Group have finite useful lives and are measured at cost less accumulated amortization and accumulated impairment losses, if any. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill is recognised in the profit or loss as incurred.

(ii) Amortisation Amortisation is recognized in the profit or loss on a straight line basis over the estimated useful lives of the intangible assets from the date they are available for use. The estimated useful lives for the current and comparative periods are as follows:

Asset class Estimated useful life in years

License fees 7 to 13 Trade name & associated assets and non-network software 3 to 13

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17

Amortisation methods, useful lives and residual values, are reassessed and adjusted, if appropriate, at the year end.

h) Financial instruments

(i) Financial instruments Financial instruments comprise available-for-sale investments, trade receivables, unbilled revenue, cash and bank balances, amounts due to telecommunications operators and trade payable. Financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs.

The Group initially recognises financial assets and financial liabilities on the date at which they are originated. Financial assets and liabilities are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.

(ii) Share capital The Company has one class of equity shares. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

i) Available-for-sale financial assets

The Group's investments in equity securities and certain debt securities are classified as available-forsale ("AFS") investments. Purchase and sale of AFS investments are accounted for on the trade date and are initially recorded at cost, being the fair value of the consideration given including transaction charges associated with the investment. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses (refer to note 3(o)), are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit or loss. The fair value of AFS investments is their quoted bid price at the reporting date. AFS investments where there is no quoted market price or other appropriate methods from which to derive reliable fair values, are carried at cost less impairment.

j) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes expenditure incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less selling expenses.

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k) Trade and other receivables

18

Trade receivables do not carry any interest and are stated at their fair value of services rendered as reduced by appropriate allowances for estimated irrecoverable amounts. Individual trade receivables are written off when management deems them not to be collectible.

I) Cash and cash equivalents

Cash and cash equivalents include cash on hand and balance with banks and time deposits which are readily convertible to a known amount of cash.

m) Trade and other payables

Trade payables are not interest bearing and are stated at their nominal value. Fair value, which is determined for disclosure purposes, approximates the nominal value at the reporting date.

n) Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group will be required to settle that obligation. Provisions are measured at the management's best estimate of the expenditure required to settle the obligation at the year end and are discounted to present value where the effect is material.

o) Impairment

(i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognised in the profit or loss. Any cumulative loss in respect of an available-for-sale financial asset are recognised by transferring the cumulative loss that has been recognised in other comprehensive income, and presented in the fair value reserve in equity, to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-forsale financial assets that are debt securities, the reversal is recognised in profit or loss. For availablefor-sale financial assets that are equity securities, the reversal is recognised in other comprehensive income.

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(ii) Non-financial assets

19

The carrying amounts of the Group's non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash-generating unit"). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

p) Employee benefits

(i) Local employees Pension rights and other social benefits for the Group's employees are covered by the applicable social insurance scheme of the countries in which they are employed are considered as a defined contribution scheme. The employees and employers contribute monthly to the scheme on a fixed-percentage-ofsalaries basis.

(ii) Expatriate employees Expatriate employees on limited-term contracts are entitled to leaving indemnities payable under the respective labour laws of the countries in which they are employed, based on length of service and final remuneration. Provision for this unfunded commitment has been made by calculating the notional liability had all employees left at the reporting date.

(iii) Employee savings scheme The Company has a voluntary employees saving scheme. The employees and employers contribute monthly on a fixed-percentage-of-salaries-basis to the scheme.

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q) Income tax

20

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be realised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

r) Revenue

Revenue represents the value of fixed or determinable consideration that has been received or is receivable and includes revenue from revenue sharing arrangements entered into with national and international telecommunication operators in respect of traffic exchanged.

Revenue for services rendered is stated at amounts invoiced to customers. Fees for installation and activation are recognised as revenue upon activation. All installation and activation costs are expensed as incurred. Monthly service revenue received from the customer is recognised in the period in which the service is delivered. Airtime revenue is recognised on the usage basis. Revenue from data services is recognised when the Group has performed the related service and, depending on the nature of the service, is recognized either at the gross amount billed to the customer or the amount receivable by the Group as commission for facilitating the service. Revenue from handset and other equipment sales is recognised when the product is delivered to the customer.

Deferred revenue related to unused airtime is recognised when utilised by the customer. Upon termination of the customer contract, all deferred revenue for unused airtime is recognised in the profit or loss.

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s) Earnings per share

21

The Group presents basic earnings per share ("EPS") data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period.

t) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are reviewed by the Group's Board of Directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available (see note 27).

u) Asset held-for-sale

(i) Classification The Group classifies non-current assets as held-for-sale if its carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable in accordance with IFRS 5 "Non-current Assets Held-for-Sale and Discontinued Operations".

(ii) Measurement Non-current assets classified as held-for-sale are measured at the lower of its carrying amount and fair value less costs to sell.

If the criteria for classification as held-for-sale are no longer met, the entity shall cease to classify the asset as held-for-sale and shall measure the asset at the lower of its carrying amount before the asset was classified as held-for-sale, adjusted for any depreciation, amortization, revaluations or share of profits or losses that would have been recognised had the asset not been classified as held-for-sale and its recoverable amount at the date of the subsequent decision not to sell.

4 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk • Liquidity risk • Market risk

This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Group's risk management framework. The Group's risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

I I I

I I

I I

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22

The Audit Committee of the Board of Directors of the Company oversees how management monitors compliance with the Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Audit Committee is assisted in its oversight role by Group's Internal Audit Department. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

The Group has also established a centralised Group treasury function which works under the overall supervision of the Board of Directors of the Company and provides support to the Group for funding, foreign exchange, interest rate management and counterparty risk management. Treasury operations are conducted within a framework of policies and guidelines authorised and reviewed annually by the Company's Board of Directors. The Group's accounting function provides regular reports of the treasury activity to the Board of Directors. The Group's internal auditors review the internal control environment regularly. There has been no significant change during the financial year, or since the end of the year, to the types of financial risks faced by the Group or the Group's approach to the management of those risks.

a) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally and materially from the Group's trade receivables, unbilled revenue, investment securities and cash and bank balances.

(i) Trade receivables The Group's trade receivables are spread among customer's segmentation and geographical areas. The Group has an established credit policy under which each new customer is analysed individually for creditworthiness before the Group's standard payment and delivery terms and conditions are offered. Credit limits are established for each customer, which represents the maximum open amount without requiring approval. Strict credit control is maintained for both credit period and credit limits, both of which are monitored continuously by management. Customers that fail to meet the Group's benchmark creditworthiness may transact with the Group only on a prepayment basis. Concentrations of credit risk with respect to trade receivables are limited due to the Group's customer base being large and unrelated. The majority of the Group's trade receivables are due for payment within 90 days and largely comprise amounts receivable from consumers and business customers. The Group obtain collaterals for providing services to some residential customers.

The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for groups of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Management believes there is no further credit risk provision required in excess of the normal impairment on receivables (refer to note 11 ).

(ii) Investments and cash and bank balances The Group manages credit risk on its investments and cash and bank balances by ensuring that these are made only after credit evaluation of the issuer. Term deposits are placed with commercial banks after credit evaluation of those banks. The Group limits its exposure to credit risk by only investing in liquid securities which offers risk free returns and only with counterparties that have a sound credit rating.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 BD'OOO 4 FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

(iii) Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:

Trade receivables Unbilled revenue Available-for-sale investments Cash and bank balances

2011

49,987 1,435 4,337

107,893

163,652

2010

45,946 3,198 4,430

86,817

140,391

(iv) Customers' accounts

(v)

b)

The maximum exposure to credit risk at 31 December 2011 classified by operating segment sharing common economic characteristics with respect to credit risk is as follows:

2011 2010 Operating segment

Bahrain 26,330 25,513 Jordan 1,557 1,496 Other countries 8,613 10,671

36,500 37,680

Amounts due from telecommunications operators The maximum exposure to credit risk for amounts due from telecommunications operators at 31 December 2011 by type of customer was:

2011 2010 Customer segment

International operators 3,606 3,349 Local operators 9,881 4,917

13,487 8,266

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity 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 the Group's reputation. Liquidity risk may result from an inability to sell a financial asset quickly at close to its fair value. A major portion of the Group's funds are invested in cash and cash equivalents which are readily available to meet expected operational expenses, including the servicing of financial obligations. The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:

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Trade payable Amount due to telecommunications operators


Trade payable Amount due to telecommunications operators

c) Market risk

Carrying amount

25,971

14,167

40,138

Carrying amount

26,397

14,853

41,250

Contractual Within one cash flows year

25,971 23,416

14,167 14,167

40,138 37,583

Contractual Within one cash flows year

26,398 23,335

14,853 14,853

41,251 38,188

24

BD'OOO

1-2 years 2-5 years

582 1,973

- -

582 1,973

1-2 years 2-5 years

772 2,291

- -

772 2,291

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. The Group incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Group Treasury Function.

(i) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of Group entities, primarily the Bahraini Dinar and Jordanian Dinar, (which are pegged to the US Dollar) and Kuwaiti Dinar. The Group's exposure to currency risk is limited as the majority of its investments, due to and from international operators are denominated in US Dollar or denominated in currencies which are pegged to US Dollar. Consequently, the currency risk of the Group is limited.

The Group seeks to manage currency risk by continually monitoring exchange rates and by maintaining an adequate level of foreign currencies to cover its expected commitment to international telecommunication operators. These amounts are placed significantly in short-term fixed deposit accounts. In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

The Group's investment in its subsidiaries is not hedged as those currency positions are considered to be long-term in nature. In respect of other monetary assets and liabilities denominated in foreign currencies, considering the nature of its financial instruments, the Group currently is not engaged in hedging of foreign currency risk.

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(ii) Interest rate risk

25

BD'OOO

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. Under the Group's interest rate management policy, interest rates on monetary assets and liabilities denominated in Bahraini Dinars, Jordanian Dinars, and Kuwaiti Dinars are maintained on a floating rate basis. The average interest rate yield from bank deposits and available-for-sale investments during 2011 was 0.80% (2010: 0.99 %).

At the reporting date, the interest rate profile of the Group's interest-bearing financial instruments was:

2011 2010

Fixed rate instruments

Financial liabilities 41 167

Variable rate instruments

Financial assets

Fair value sensitivity analysis for fixed rate instruments The Group does not account for any fixed rate financial assets and liabilities at fair value through the profit or loss. Therefore a change in interest rates at the reporting date would not affect the profit or loss. Increase or decrease in equity resulting from variation in interest rates will be insignificant.

Cash flow sensitivity analysis for variable rate instruments A change of 1 00 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by BD 803 (201 0: BD 697). This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2010.

(iii) Other market price risk The primary goal of the Group's investment strategy is to ensure risk free returns and invest surplus fund available with the Group in risk free securities. Market price risk arises from available-for-sale investment held by the Group. The Group Treasury Function monitors its investment portfolio based on market expectations and credit worthiness of the underlying investees. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Company's Board of Directors.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measures:

• Level1: Quoted market price (unadjusted) in an active market for an identical instrument.

• Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

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26

BD'OOO

• Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The table below analyses financial instruments measured at fair value at the end of 31 December 2011, by the level in the fair value hierarchy into which the fair value measurement is categorized:

2011 2010


Investment securities fair valued at level 1 11,684 23,291

(iv) Other price risk

Other investments include AFS investments. These investments carried at cost are exposed to risk of changes in market values. Refer to note 3 i) for accounting policies on valuation of AFS investments and note 3 o) for significant estimates and judgements in relation to impairment assessment of AFS investments. The Group manages exposure to other price risks by actively monitoring the performance of the investments. The performance assessment is performed on an annual basis and is reported to the Board of Directors.

d) Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the Group. The Board seeks to maintain a balance between the higher returns and growth that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The Board of Directors monitors the return on capital, which the Group defines as total equity and the level of dividends to shareholders. The Group's objectives for managing capital are:

• to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders; and

• to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt. There were no significant changes in the Group's approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.

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e) Classification of financial instruments

27

80'000

Classification of financial assets and liabilities, together with the carrying amounts as disclosed in the statement of financial position, are as follows:

31 December 2011

Available-for-sale investments Trade receivables Unbilled revenue Cash and bank balances

Trade payable Amounts due to telecommunications operators

31 December 2010

Available-for-sale investments Trade receivables Unbilled revenue Cash and bank balances

Trade payable Amounts due to telecommunications operators


-49,987

1,435 107,893

159,315

-

-

-


-45,946

3,198 86,817

135,961

-

-

-

Available-for-sale

16,703 ---

16,703

-

-

-

Available-for-sale

28,403 ---

28,403

-

-

-


- 16,703 - 49,987 - 1,435 - 107,893

- 176,018

25,971 25,971

14,167 14,167

40,138 40,138


- 28,403 - 45,946 - 3,198 - 86,817

- 164,364

26,397 26,397

14,853 14,853

41,250 41,250

With the exception of available-for-sale investments carried at cost less impairment allowances, the fair values of the Group's assets and liabilities closely approximate the carrying value.

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5 PROPERTY AND EQUIPMENT

Cost At 1 January Additions Projects completed Disposals

At 31 December

Depreciation At 1 January Charge for the year Disposals

At 31 December Net book value

At 31 December 2011

At 31 December 2010

Freehold land

19,026 -

96 -

19,122

---

-

19,122

19,026

Network assets & telecom

Buildings equipment

52,004 392,981 - 8,669 - 18,906 - (21,991)

52,004 398,565

45,771 258,631 871 29,444

- (18,907)

46,642 269,168

5,362 129,397

6,233 134,350

28

BD'OOO

Motor vehicles, furniture,

fittings & office Assets under Total Total equipment construction 2011 2010

34,949 23,676 522,636 538,219 498 17,467 26,634 27,280 675 (16,103) 3,574 4,217

(787) (105) (22,883) (47,080)

35,335 24,935 529,961 522,636

26,760 - 331,162 342,200 3,147 - 33,462 34,959 (775) - (19,682) (45,997)

29,132 - 344,942 331,162

6,203 24,935 185,019 191,474

8,189 23,676 191,474

Free hold land includes certain property at Hamala with a carrying value of BD 44 (201 0: BD 44) held as investment property for earning rentals or capital appreciation. The fair value of the property as at 31 December 2011 was BD 10,060 (201 0: BD 9,600). The fair value of the property was determined by a registered independent appraiser having an appropriate recognised professional qualification and experience in the location and category of the property being valued. Fair values were determined having regard to recent market transactions for similar properties as the Group's property.

For a list of properties owned and rented by the Company, please refer to note 29.

F-66



6 GOODWILL

Cost At 1 January Exchange rate adjustments

At 31 December

a) Analysis of Goodwill

2011

125,129 (447)

124,682

29

80'000

2010

125,129

125,129

Goodwill acquired in business combination is allocated to "Jordan" for the purposes of segment reporting.

b) Impairment of Goodwill

(i) The Group tests for impairment of goodwill annually, or more frequently if there are any indications that impairment may have arisen. The recoverable amount of a Cash Generating Unit ("CGU") is determined based on the higher of fair values less costs to sell and value-in-use calculations. Fair values less costs to sell are estimated by using the capitalised earnings approach and comparing the same with those of other telecom companies within the region.

(ii) The key assumptions for the value-in-use calculations are those relating to discount rates, the long term growth rates, penetration and market share assumptions, average revenues per user ("ARPUs"), earnings before interest, taxation, depreciation and amortization ("EBITDA") and capital expenditure to sales ratio. These calculations use cash flow projections based on financial budgets approved by management, covering the period of the validity of the telecom license. Cash flows are extrapolated using the estimated growth rates. The weighted average growth rates are consistent with forecasts. No impairment losses were recognised in 2011 (201 0: BD Nil).

(iii) The above estimates were tested by the Group for sensitivity in the following areas:

• An increase I decrease in the discount rate and the long term growth rates used • A change in market share • A decrease in future planned revenues and EBITDA margins • An increase in capex to sales ratio forecasts

The results of the sensitivity testing revealed that the value in use calculations is sensitive to the above changes, although these did not result in a materially significant change in the carrying value of the goodwill and related assets.

F-67



7 INTANGIBLE ASSETS

Cost At 1 January Additions during the year Disposals during the year

At 31 December

Amortisation At 1 January Charge for the year Disposals during the year

At 31 December

Net book value at 31 December

8 INVESTMENT IN ASSOCIATES

At 1 January Receipts from Associate Share of loss (net) Share of currency translation (loss)/gain Investment classified as held for sale (Note 9)

At 31 December

2011

64,386 464

(800)

64,050

35,982 4,523 (763)

39,742

24,308

2011

130,124 (1,930) (3,124)

(17) (46,473)

78,580

The summarized aggregate financial information of the associates is as follows:

2011*

Assets 139,454 Liabilities 111,488 Revenues 60,240 Profit/ (loss) 1,944

*Unaudited and as of 31 October 2011. Excludes "Investment classified as held- for- sale".

9 INVESTMENT IN ASSOCIATE CLASSIFIED AS HELD-FOR-SALE

30

BD'OOO

2010

64,772 1,457

(1,843)

64,386

32,979 4,745

(1,742)

35,982

28,404

2010

148,388 (6,094)

(13,199) 1,029

130,124

2010

248,934 174,520 90,455

(24,186)

As at 31 December 2011, the Group's investment in STEL Private Limited ("STEL") is classified as asset held-for-sale, following the Board of Directors earlier decision in April 2011 to actively pursue the sale of the investment, whilst identifying other investment opportunities for the Group to remain active in Indian telecom market. The Group has a binding agreement to sell its investment in STEL by quarter ending 31 December 2012 for US$174.5 (BD 65.8) million. Investment in STEL is measured at lower of its carrying amount and fair value less cost to sell, in accordance with I FRS 5- Non-current Assets Held-for-Sale and Discontinued Operations.

F-68


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 9 INVESTMENT IN ASSOCIATE CLASSIFIED AS HELD-FOR-SALE (continued)

31

BD'OOO

As result of classification of the investment in STEL as held-for-sale, effective 1 April 2011, the Group has discontinued recognising its share of loss from STEL. The unrecognised share of loss from associate company amounted to BD 13,217 as at 31 December 2011.

Investment in associate classified as held for sale

10 AVAILABLE-FOR-SALE INVESTMENTS

Debt securities Equity securities Less impairment allowance

2011

46,473

2011

6,316 14,413 (4,026)

16,703

2010

6,409 26,020 {4,026)

28,403

Non-current investments include BD 11 ,684 representing 15 % equity investment in Etihad Atheeb Telecommunications Company ("the investee"). There is a five year lock in period starting from April 2009.

The investment has been written down from its original cost of BD 15,081 to the current carrying value based on the latest available share price before suspension of trading on the Saudi Stock Exchange on 25 May 2011. The decrease in original cost and carrying value is recognised in other comprehensive income and presented within equity in the Investments fair value reserve.

The investee's shareholders have approved the SAR 1,175 million ( BD 118.1 million) rights issue in an Extra-ordinary General Meeting on 14 January 2012. The Group's share of rights issue is BD 17.7 million, being 15 % of BD 118.1 million. The investee expects to complete the rights issue by quarter ending 31 March 2012.

As part of the financial restructuring, the investee company has reduced the share capital by BD 60.3 million (SAR 600 million) corresponding to a 60 % reduction. In the interim, the investee is dependent on interim funding committed from its founding shareholders to meet operational cash requirements. The Group's share of such interim funding commitment is BD 9.0 million of which BD 2.8 million has been disbursed. The commitment will be applied against the Group's share of the rights issue, once the rights issue is completed.

11 TRADE AND OTHER RECEIVABLES 2011 2010

Trade receivables 66,294 62,120 Less impairment allowance (16,307) (16,174)

49,987 45,946

Unbilled revenue 1,435 3,198

Prepaid expenses and other receivables 20,340 15,690

71,762 64,834

F-69


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 11 TRADE AND OTHER RECEIVABLES (continued)

32

BD'OOO

The maximum exposure to credit risk for trade receivables at the reporting date by type of counterparty was as follows:

Customers' accounts Telecommunications operators

2011

36,500 13,487

49,987

2010

37,680 8,266

45,946

Based on historic default rates, the Group believes that no impairment allowance is necessary in respect of trade receivables not past due. Trade receivables are considered past due when they are aged over 30 days from the billing date. The aging of past due trade receivables at the reporting date was as follows:

Not yet due Overdue:

Up to 90 days 91 - 180 days More than 180 days

Gross trade receivables Impairment provision

Net trade receivables

The movement in the allowance for impairment was as follows:

At 1 January Impairment loss recognized during the year Written off during the year

At 31 December

12 CASH AND BANK BALANCES

2011

20,733

18,298 6,688

20,575

66,294 (16,307)

49,987

2011

16,174 3,413

{3,280)

16,307

2010

15,963

18,517 5,878

21,762

62,120 (16,174)

45,946

2010

16,021 2,798 {2,645)

16,174

Cash and bank balances include BD 2,798 (201 0: BD 6,381) on account of unclaimed dividends and short-term deposits with maturities exceeding three months. These have been excluded for the purposes of statement of cash flows.

2011 2010

Cash and bank balances 107,893 86,817

F-70



13 TRADE AND OTHER PAYABLES

a) Current

Trade payable Amounts due to telecommunications operators Provisions and accrued expenses (note 14) Customer deposits and billings in advance Current tax liability

b) Non-current

Trade payable Deferred tax liability (note 15)

14 PROVISIONS

2011

23,416 14,167 69,605 21,867

4,813

133,868

2,555 4,193

6,748

140,616

33

80'000

2010

23,334 14,853 62,443 28,311 4,920

133,861

3,063 4,732

7,795

141,656

Included within provisions and accrued expenses are amounts provided for employee redundancy programme benefits and donations. The movement in provisions is as follows:

At 1 January Amounts provided during the year Amounts paid during the year

At 31 December

Provision for employee redundancy

benefits 2011 2010

2,100 2,061 3,407 3,332

(5,087) (3,293)

420 2,100

15 DEFERRED INCOME TAX ASSET AND LIABILITY

Provision for donations

2011 2010

2,353 1,318 2,169 2,626

(2, 117) (1 ,591)

2,405 2,353

The deferred tax assets and liabilities are attributable to the following items relating to Jordan:

Intangible assets Aggregate temporary differences mainly on expenses

Total

2011 Assets

-

2,018

2,018

2011 Liabilities

4,193

-

4,193

2010 2010 Assets Liabilities

- 4,732

1,271 -

1,271 4,732

F-71



16 SHARE CAPITAL

a) Authorised: 2,000 (2010: 2,000) million shares of 100 fils each

c) Issued and fully paid: 1,440 (201 0: 1,440) million shares of 100 fils each

34

BD'OOO

2011 2010

200,000 200,000

144,000 144,000

- The Company has only one class of equity shares and the holders of these shares have equal voting rights.

- Names and nationalities of the major shareholders and the number of equity shares held in which they have an interest of 5 % or more of outstanding shares:

Name

Bahrain Mumtalakat Holding Company BSC (c) Amber Holdings Limited Social Insurance Organisation

- Distribution schedule of equity shares:

Categories

Less than 1 % 1 % up to less than 5 % 5% up to less than 10% 10% up to less than 20% 20 % up to less than 50 %

17 STATUTORY AND GENERAL RESERVE

a) Statutory reserve

Nationality

Bahrain Cayman Islands

Bahrain

Number of shares

(thousands)

247,409 80,493

--

1,112,098

1,440,000

Number of shares Share

(thousands) holding(%)

528,000 37 288,000 20 296,098 21

%of total Number of outstanding

shareholders shares

11,089 16 2 6 - -- -3 78

11,094 100

The Bahrain Commercial Companies Law 2001 requires all companies incorporated in Bahrain to transfer 10 % of net profit for the year to a statutory reserve, until such reserve reaches a minimum of 50 % of the paid-up capital. The reserve is not available for distribution, except in the circumstances stipulated in the Bahrain Commercial Companies Law 2001. Transfer to statutory reserve, effected by the subsidiaries in accordance with the applicable law of the country of incorporation, is retained in the subsidiary concerned, and is not available for distribution except in circumstances stipulated by the law in the respective country of incorporation.

F-72


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 17 STATUTORY AND GENERAL RESERVE (continued)

b) General reserve

35

BD'OOO

The general reserve is distributable only upon a resolution of the shareholders at the Annual General Meeting. Transfer of BD 15,000 (201 0: Nil) was made during the year 2011.

18 DIVIDENDS

The dividends paid in 2011 and 2010 were BD 64,800 (45 Fils per share) and BD 72,000 (50 Fils per share) respectively. The dividends paid in 2011 include an amount of BD 36,000 relating to the final dividend for the year ended 31 December 2010 and interim dividend of BD 28,800 in the year 2011. A final dividend in respect of the year ended 31 December 2011 of 20 Fils per share, amounting to final dividend of BD 28,800 was proposed by the Board of Directors and is to be put forward for approval at the Annual General Meeting on 22 February 2012. These financial statements do not reflect this final dividend payable.

19 REVENUE

Mobile telecommunications services Fixed line telecommunication services Internet Data communication circuits Wholesale Others

20 NETWORK OPERATING EXPENSES

Outpayments to telecommunications operators Operating lease rentals Cost of sales of equipment and services Licence fee Repair and maintenance

21 OTHER OPERATING EXPENSES

Marketing, advertising and publicity Impairment allowances Other expenses

2011

150,855 27,974 38,124 55,271 37,352 17,396

326,972

2011

43,462 27,596 26,079

5,662 10,663

113,462

2011

13,311 3,413

19,834

36,558

2010

161,809 34,037 37,873 52,971 39,831 13,731

340,252

2010

47,983 23,308 23,455 6,569 8,047

109,362

2010

14,768 2,798

17,376

34,942

F-73



22 FINANCE AND OTHER INCOME

Rental income Interest income Others

23 EARNINGS PER SHARE ("EPS")

Profit for the year attributable to equity holders of the Company Weighted average number of shares outstanding during the year (in thousands)


2011

294 750

2,213

3,257

2011

80,014

1,440,000

55.6

36

BD'OOO

2010

738 586 (31)

1,293

2010

86,773

1,440,000

60.3

Diluted earnings per share has not been presented as the Group has no commitments that would dilute earnings per share.

24 COMMITMENTS AND CONTINGENCIES

a) Guarantees

(i) The Group has furnished a guarantee for BD 27.1 (2010: BD 36.9) million to a bank for extending credit facilities to an investee company in Kingdom of Saudi Arabia.

(ii) The Group has furnished guarantees amounting to BD 1.6 (201 0: BD 2.5) million to suppliers on behalf of an investee company in Kingdom of Saudi Arabia relating to the equipment supply contracts.

(iii) As at 31 December 2011, the Group's banks have issued guarantees, amounting to BD 7.8 (201 0: BD 8.5) million and letters of credit amounting to BD 0.31 (2010: BD 1.9) million.

(iv) The Group has furnished a comfort letter for BD 1.9 (201 0: BD 1.9) million to Telecommunications Regulatory Commission, Jordan for providing a financial guarantee for the subsidiary companies operating in Jordan.

b) Operating leases

The Group enters in to cancellable operating lease agreements in the normal course of business, which are principally in respect of property and equipment. These lease agreements are cancellable with a notice period less than a year.

F-74


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 24 COMMITMENTS AND CONTINGENCIES (continued)

c) Staff housing loans

37

BD'OOO

The Company provides loans to its Bahraini employees for the acquisition of residential properties. The loans are funded through a local commercial bank and secured by a guarantee issued by the Company. The policy of providing staff housing loan guarantees was discontinued in 2007.The Company bears 75% (2010: 75 %) of the loan interest. At 31 December 2011, the Company has an outstanding guarantee of BD 2.4 (201 0: BD 3.1) million towards housing loans to staff.

d) Foreign currency facilities

The Group currently has foreign currency facilities from commercial banks totalling approximately BD 11.7 (2010: BD 11.7) million. At 31 December 2011, the Group has utilised BD Nil (201 0: BD Nil) of the foreign currency facilities.

e) Commitments

(i) The Group has capital commitments at 31 December 2011 amounting to BD 17.0 (2010: BD 15.5) million.

(ii) The Company has commitment to contribute BD 17.7 million to the equity of an in vestee company as a part of the proposed rights issue of the investee company.

f) Contingent liabilities

The Group is involved in certain matters relating to notifications from regulatory authorities and government tax departments of claims and other notices amounting to BD 5.5 (201 0: BD 5.5) million. The Group is of the view that there are no legitimate legal grounds for such claims and notices, and all necessary legal steps to respond to and defend its position are being taken.

g) Claims against STEL

Claims have been made against STEL by certain government authorities in India, which have been incorporated in litigation commenced in the Supreme Court of India in January 2011 that STEL was ineligible to be granted Unified Access Services ("UAS") licenses in 2008, due to its alleged noncompliance of certain UAS License guidelines. STEL is taking all necessary legal steps to strenuously defend its position.

25 EMPLOYEE BENEFITS

The Group's contributions in respect of local employees against their pension rights and other social benefits amounted to BD 3.5 (2010: BD 3.8) million. The provision for leaving indemnity in respect of expatriate employees amounted to BD 2.5 (2010: BD 2.4) million and is included under provisions and accrued expenses.

F-75



26 TRANSACTIONS WITH RELATED PARTIES

38

BD'OOO

(i) The Company qualifies as a government related entity under the definitions provided in the Revised lAS 24. The Group provides telecommunication services to various Government and semi government organisation and companies in the Kingdom of Bahrain. The Group also avails various services from Government and semi government organisation and companies in the Kingdom of Bahrain. Such transactions are in the normal course of business and are not considered to be material.

(ii) Transactions with key management personnel: Key management personnel of the Group comprise of the Board of Directors and key members of management having authority and responsibility for planning, directing and controlling the activities of the Group. The key management personnel compensation is as follows:

Short-term employee benefits Post-employment benefits

Total key management personnel compensation

Post employment benefits due

Directors remuneration (including sitting fees)

(iii) Transactions with associates are disclosed under note 8 and 9.

2011

2,540 64

2,604

2011

182

601

(iv) Directors' interests in the shares of the company at the end of the year were as follows:

2011

Total number of shares held by Directors 3,878,361

As a percentage of the total number of shares issued 0.27 °/o

2010

2,163 28

2,191

2010

118

597

2010

3,598,361

0.25%

F-76



27 SEGMENT INFORMATION

Operating segments

39

BD'OOO

The Group's operations are segregated between Bahrain, Jordan and Other countries. Other countries include Kuwait, Yemen, Egypt and India. Segment information disclosed for the year ended 31 December 2011 is as follows:

Segment revenue & profit

Revenue (external customers) Inter-segment revenues Finance and other income Depreciation and amortisation Interest expense Share of loss of

associates (net) Profit I (loss)

Segment assets & liabilities

Non-current assets Current assets

Total assets


Total liabilities

Bahrain

202,877 9,510 5,810

23,546 -

-67,833

Bahrain

138,672 154,517

293,189

82,695 3,513

86,208


Other segment Jordan countries ~limination Total

88,866 35,229 - 326,972 18,319 1,259 (29,088) -

146 13 (2,712) 3,257 12,466 1,973 - 37,985

(262) - - (262)

- (3, 124) - (3,124) 13,587 2,435 - 83,855


Other segment Jordan countries elimination Total

199,231 93,407 - 431,310 12,405 73,003 (11 ,928) 227,997

211,636 166,410 (11,928) 659,307

35,736 24,177 (8,740) 133,868 6,748 - (3,513) 6,748

42,484 24,177 (12,253) 140,616



222,653 87,593 30,006 - 340,252 8,793 11,379 1,242 (21 ,414) -3,747 130 110 (2,694) 1,293

25,335 12,531 1,838 - 39,704 50 296 - - 346

- - (13, 199) - (13,199) 86,044 11,795 (7,206) - 90,633



155,207 204,461 145,137 - 504,805 123,152 17,980 24,097 (11,563) 153,666

278,359 222,441 169,234 (11 ,563) 658,471

83,394 36,119 22,476 (8, 128) 133,861 3,513 7,795 - (3,513) 7,795

86,907 43,914 22,476 (11,641) 141,656

F-77


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the year ended 31 December 2011 BD'OOO

28 COMPARATIVES

The comparative figures for the previous year has been regrouped, where necessary, in order to conform to the current year's presentation. Such regrouping does not affect the previously reported profit, comprehensive income or equity.

29 LIST OF PROPERTIES OWNED AND RENTED BY THE COMPANY

Description Usage Owned/Rented

Hamala Headquarters Offices Owned

Diplomat Building Offices & Telecoms Owned

Telephone House Offices & Telecoms Owned

Telegraph House Offices & Telecoms Owned

Batelco Commercial Centre Offices & Exchanges Owned

Earth Station Satellite Station Owned

Hamala Transmitters Transmission Station Owned

Abul Land Car Park Car Park Owned

Eid Mosque Car Park Car Park Rented

Salmaniya Car Park Car Park Rented (Telephone House)

Sales Site (in BCC) Customer Service Centre & Offices Owned

18 Sales Sites Customer Service Centre Rented

67 different sites used for GSM GSM & fixed telephone network Owned base stations and exchanges

232 different sites used for locating GSM & fixed telephone network Rented Remote Line Units (RLUs)

F-78

THE ISSUER

Batelco International Finance No. 1 Limited

c/o Maples Corporate Services LimitedP.O. Box 309

Ugland House

Grand Cayman KY1-1104

Cayman Islands

THE GUARANTOR

Bahrain Telecommunications Company B.S.C.

Batelco Building – Hamala

P.O. Box 14

Manama

Kingdom of Bahrain

TRUSTEE

Citibank, N.A., London Branch14th Floor

Citigroup Centre

Canada Square

Canary Wharf

London E15 5LB

United Kingdom

PRINCIPAL PAYING AGENT REGISTRAR, PAYING AGENT AND

TRANSFER AGENT

Citibank, N.A., London Branch Citigroup Global Markets Deutschland AG

14th FloorCitigroup Centre

Canada Square

Canary Wharf

London E15 5LB

United Kingdom

Reuterweg 1660323 Frankfurt

Germany

LEGAL ADVISERS

To the Issuer as to Cayman Islands law

Maples and CalderThe Exchange Building, Level 5

Dubai International Finance Centre

P.O. Box 119980, Dubai

United Arab Emirates

To the Issuer and the Guarantor as to English law To the Guarantor as to Bahraini law

Linklaters LLP

Ninth Floor

Currency House


P.O. Box 506516Dubai


Zu’bi & Partners

P.O. Box 2397

Manama

Kingdom of Bahrain

To the Joint Lead Managers and the Trustee

as to English law

To the Joint Lead Managers as to Bahraini law

Allen & Overy LLP Hassan Radhi & Associates

Level 2

The Gate Village Building GV08


P.O. Box 506678Dubai


Attorneys & Legal Consultants

605 Diplomat Tower

Diplomatic Area

ManamaKingdom of Bahrain

AUDITORS TO THE GUARANTOR

KPMG Fakhro

Chamber of Commerce Building

P.O. Box 710

Manama

Kingdom of Bahrain

imprima — c108207

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