In The Name of Allah,

Most Gracious,

Most Merciful,

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Sha'ban - 1436 H.

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INTRODUCTIONThis Guidance is intended to provide to the potential

investors who is seeking the SIDF financial support an idea on the procedures SIDF follows in considering, processing and following up the loan applications. It also provides answers to some investors’ frequently asked questions. It is not intended to be inclusive Guidance since each project is different in nature and thus requires to be dealt with separately.

This Guidance contains general guidelines on the SIDF requirements for project loan applications. It is advisable that the project be early discussed with the pertinent SIDF Customer Services representative, who will be readily pleased to check the project’s conformity with these guidelines, as an early approach spares investor’s time and effort and enable SIDF to proceed timely and efficiently with the proceduresfor project appraisal and process of loan applications.

For further information, please visit the SIDF Offices located on King Abdulaziz Road, Riyadh or call the Customer Services at:

Toll Free No.: 8001160004 Fax: 00966114775135Saudi Industrial Development FundP.O. Box 4143,Riyadh, 11149Saudi ArabiaTelephone : 00966 11 477-4002Fax : 00966 11 479-0165E-mail: info@sidf.gov.saWebsite: www.sidf.gov.sa

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Section (1)Introducing the Saudi Industrial Development Fund (SIDF):

The Saudi Industrial Development Fund, established by virtue of a Royal Decree dated 26/2/1394H, is a government financing institution administratively affiliated to the Minister of Finance. SIDF mission is to extend support and contribute to development of the industrial activities of the private sector through providing long-and medium-term loans for setting up of new industrial projects and/or modernization, replacement and expansion of the existing ones. In addition, SIDF provides professional consultative services in the administrative, financial, technical and marketing fields to SIDF-financed industrialprojects.SIDF performs its lending activities from its premises in Riyadh and it has no branches elsewhere.The Fund launched its businesses to accomplish the objectives entrusted to it in accordance with specified lending controls, procedures and policies. The SIDF initialcapital of SR 500 million has been increased gradually to reach SR 40 billion.

SIDF is a corporate body administratively affiliated to the Ministery of Commarce and Industry, Controlled by a Board of Directors and managed by H.E. the minister of Commerce and Industry as a chairmen. The Board of Directors approves the loans exceeding SR 30 million; and disbursement be effected based on the actual costs incurred by the investor and properly documented.

The Role of the Fund:

The Fund’s human and financial assets contribute in overcoming the formidable obstacle of providing financeto the industrial projects. For forty years, SIDF has been maintaining its pioneering role of supporting and developing the industrial private sector by extending medium- and long term loans in addition to providing technical, marketing financialand managerial

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consultative services to the SIDF-financed industrial projects. The loans approved by the Fund since its inception up to the end of the fiscal year 1434/1435H totaled 3624 in terms of number and SR 112 billion in terms of value.

The Objectives of the Fund:

The Fund effectively contributes to accomplishing the goals, policies and programs of industrial development in the Kingdom. This is realized through availing all types of material and consultative support needed for developing and upgrading local industry. SIDF’s developmental role requires verification of the economic viability of borrower projects and augmenting the industrial projects’ potential of success through the optimum allocation invested capital. Among SIDF’s prime objectives in the context of industrial development in the Kingdom are:

1. Achievement of a good return on industrial invest-ment;

2. Insuring a suitable value added to the national econ-omy;

3. Replacement of imports by local products;4. Realization of industrial integration among the dif-

ferent sectors;5. Creation of employment opportunities for Saudi na-

tionals;6. Maximum exploitation of the Kingdom’s natural

resources and raw material;7. Attraction of foreign capital 8. Observation of industrial safety and hazards

reduction;9. Protection of the natural environment;

10. Development of Promising regions;11. Transfer of technology

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Section (2)SePROCEDURES AND DOCUMENTATION

A) PROCEDURES:

1.Registration of Loan Applications and Evaluation:

Loan applicants are encouraged to start up procedures of the loan in early stages of the project. The loan application is accepted and evaluated in two stages;

- Initial acceptance of the study and application review.

- Final acceptance of the detailed study and registering the application.

Study initial acceptance and application Review.

The loan application is initially accepted if it satisfies the following requirements:

1. Commercial viability of the industrial sector of the business for which loan is required in the local market.

2. Valid industrial license.

3. Comprehensive and updated feasibility study.

4. For project’s cost of less than SR 20 million, use only the Small Enterprises Form

5. Provision of information and documents required in the loan application Form as explained in the Guide for Phases of Industrial Investment and Details of Economic Feasibility Studies.

6. Completed statement of personal net worth for each partner.

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7. Copies of owners ID cards.

8. Articles of Associationor Articles of Incorporation (for companies).

9. Electronic copy of the documents submitted.

10. An official letter addressed to the Customer Services Division Manager.

11. Provision of minimum necessary documents needed for acceptance of the project file, in addition to any other conditions related to the requirement of the industrial sector that is considered important by the fund.

The project representative may contact the Customer Services Division to review the submitted information, and check if there are any missing information.

Application registration and conducting the detailed study:

At preliminary study stage a list of missing information and documents are sent to the sponsor. Once that information and documents are made available to SIDF then the loan application will be accepted and the project is registered and given a number, the Fund will do the following:

� Assigning one of the credit officers to study and analyze the project.

� Assigning consultants from the Projects’ Studies and Consultancy Department to study the project.

� A lending recommendation will be made to the management committee (for loans up to or under SR 30 million) or Board of Directors (for loans over SR 30 million).

� The applicant will be notified of the final decision after this process is completed.

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It should be noted that the evaluation process will be considerably speeded up if sponsors co-operate fully with the assigned consultants to help them evaluate proposed project.

2. Legal Procedures:

Evaluation:

During evaluation of the loan application, the Fund will determine the project’s evaluation cost and will prepare an agreement in this regard to be signed by the sponsor prior to the loan registration.

Approval:

When the Fund approves the loan, a commitment letter will be sent to the sponsor informing him of the loan’s approval and loan’s terms and conditions. The loan agreement and follow up fees agreement will be prepared upon the sponsor’s acceptance of this offer by signing and returning the commitment letter to SIDF. Signing of the loan agreement will take place after the fulfillment of conditions precedent (if any).

Documents necessary for signing the loan agreement are as follows:

a. Copy of valid industrial license stamped as “reproduction” or bringing the original for verification.

b. Copy of valid commercial registration stamped as “reproduction” or bringing the original for verification.

c. Notarized copy of the Articles of Association or Articles of Incorporation of the company with an evidence that it was published (for companies only), stamped as “reproduction” or the original be brought for verification.

d. Copy of the land lease agreement or original land title deed.

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e. Non-objection letter on mortgage of the fixed assets of the project from the leased land owner if the land is not owned by the borrower.

f. Duly endorsed authorization issued by the company’s competent authority empowering a person to sign the loan agreement, other related agreements and the order notes. For sole proprietorship, the owner shall sign the same or authorize someone on behalf empowered with a legal power of attorney.

g. Detailed list of the project’s fixed assets that are subject to be mortgaged, including buildings(provide detailed building areas), machinery & equipment (provide a detailed list indicating type, description, serial number and origin), vehicles, furniture and other fixed assets that will be mortgaged. Following the signing of the loan agreement, the borrower will register a mortgage in favor of SIDF or provide other security or both, according to the loan terms.

Loan Disbursement:

The loan disbursement takes place after the signing of the Loan Agreement, registering the mortgage, obtaining the required guarantee (if any) and fulfillment of special conditions relating to disbursement (if any).

After review of supporting documents, disbursements of up to 50% are made based on actual expenditures on eligible financeable costs.

In order to facilitate a quick disbursement, the borrower must take the following steps:

a. Open a separate and independent bank account for the project.

b. Maintain basic accounting records for the project.

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c. Establish and maintain a proper filing system for all documents supporting recorded costs (contracts, invoices, receipts, shipping and custom documents, bank statements, etc).

d. Employ a qualified accountant for the project. Once SIDF approves the loan, an appointment shall be arranged for the project’s accountant to visit SIDF and meet with one of the officers in the Audit and Financial Analysis Division who will give him the format and explainhow to prepare a disbursement request documents.

e. Loan payments shall be deposited in the project account through bank transfers.

Note: if the project’s actual cost is less than the estimated cost, the Fund proportionately reduces the loan amount and a subsequent letter to the loan agreementshall be prepared.

Loan Repayment and Follow-up:

The loan is repayable according to a schedule shown in the Loan Agreement and the borrower must repay the loan installments according to the Loan Agreement. The Fund, represented by the concerned consultant, shall follow the project’s performance through the financial statements submitted by the borrower and through periodic contacts and site visits to the project, such follow up activity shall continue until the full loan amount is repaid.

Information important to investors:

a. Please be informed of the non-viable industrial sectors that the Fund ceases to finance new projects thereof by visiting the SIDF website: www.sidf.gov.sa

b. SIDF does not finance:

• Project assets that are more than one year old as at the date of commercial start-up.

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• Machinery, equipment and vehicles that are used or more than one year old from the date of customs clearance.

• Used or imported furniture, or employees/laborers housing furniture.

• Buildings that are more than two years old from the prescreen date and the steel hangers imported from countries other than GCC countries, as well as employee housing buildings.

c. A local consulting firm (acting independently or in cooperation with a foreign firm) should be employed during the project’s implementation.

d. A Saudi auditing firm must be employed to audit the project’s financial accounts throughout the term of the loan.

e. A plan should be developed to attract Saudi nationals to work in the project.

f. SIDF stipulates certain conditions for financing limited number of industrial sectors, know more detailed information thereon by contacting a Customer Services employee before submitting the loan application.

SIDF finances Industrial projects in the Promising cities and regions

The table below shows distribution of SIDF loan percentages to the cities of the Kingdom:

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Category City/RegionMaximum loan term

SIDF loan percentage

(%)

First

Including major cities of Riyadh,Jeddah, Dammam, Jubail, Makkah Yanbu and Ras Al-Khair.

15 Years 50%

Second

Including the cities of some economic advantages, namely Qassim, Al-lhssa, Rabigh, Taif, Kharj Industrial City, Sudair Industrial City, Madinah (except Yanbu)

20 Years 60%

Third

Including economically Promising cities and regions such as Hail, Northern Boarders, Jouf, Tabouk, Jizan, Najran, Al-Baha and Assir*

20 Years 75%

* For financing projects in cities of the third category, it is conditioned that:

• The project site to be located no less than 150 kilometers from the centers of major cities.

• The project site to be located no less than 70 kilometers from the nearest industrial city of the second category.

B) Documentation:

Documents required for the complete loan application file are:

1. A copy of the Fund’s Application Form, duly completed (See the side pocket).

2. Complete the “Statement of Personal Net Worth” Form for each individual owner and shareholders separately. (See the side pocket).

3. A copy of the Industrial License.

4. A copy of the owner’s ID.

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5. Detailed and recent feasibility study (should not be more than one year old from the date of the loan application) in Arabic or English. In preparing the feasibility study, guidelines in section 2 should be followed. (The essential purpose of the study is to demonstrate clearly and in detail why the project is feasible).The Small Project Form shall be suffice For small projects whose costs are less than SR20 million.

6. A copy of the Commercial Registration (If the Commercial Registration has not yet been obtained, a copy of the draft articles of association may be acceptable as an interim solution).

7. A copy of the Land Lease Agreement or copy of the Land Deed.

8. Three quotations for machinery and equipment from different sources showing detailed prices and specifications. Catalogs for the machinery should also be submitted, identifying the preferable offer for the project and the reasons for selection. The feasibility study or the Small Projects Form should highlight the value of the selected offer.

9. Full set of the building drawings including machinery layout,identifying the preferable offer for the project and the reasons for selection.

10. Three quotations for the building and civil works supported by bill of quantities, andidentifying the preferable offer for the project and the reasons for selection..

11. Three quotations from different sources for raw and packaging materials used in manufacturing the proposed products, and identifying the preferable offer for the project and the reasons for selection.

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12. If there is an agreement with another party for know-how, management, licensing, marketing and distribution or any other form of agreement related to the project, a copy should be included.

13. For expansion, modernization or replacement of machinery for existing projects, audited financial statements for the past 3 years must be submitted.

Important Note:

If any of the items from (6) to (13) are not provided, an explanation must be provided and a date to submit it specified. It should be noted that these documents are essential parts of the feasibility study, and non-submission of the same shall delay the appraisal or rejection of the loan application.

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Section (3)SeAnswers to some investors’ inquiries

What are the types of projects eligible to be financed by SIDF ?SIDF finances the following projects:

1. Setting up of new industrial projects. SIDF finances the fixed assets and 25% of the working capital for the first year, as a part of the project initial operational cost .

2. Expansion of existing projects with the objective of increasing the production capacity or adding new products.

3. Modernizing or replacing the machinery of the ex-isting plants in order to add new technologies, or to improve the efficiency of the power use.

4. Financing the costs of relocating the project.5. Industrial support and logistical services projects

inside the industrial cities.6. Building private industrial cities.

What are project’s significant features encouraged by SIDF?

1. Background and professional experience of the investor in the industrial sector and the products intended to be produced. For instance, he may be an importer, dis tributor, marketing agent or producer in a relevant industrial sector.

2. Good solvency of the investor to insure support of the project in its initial production stage and fulfill-ment of the required guarantees.

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3. Adoption of knowledge-based industrial projects for the production of innovative products using state-of-the-art technologies.

4. Entrance of foreign partners having property rights of technologies used for manufacturing internation-al brands. Otherwise, the project needs to have tech-nology transfer agreements.

5. Focusing on exporting through off-take agreements.

What are the Joint-Venturesand Foreign Investment Projects and the SIDF’s Role in Financing them?

Joint-venture projects are projects including foreign capital along with Saudi capital. Direct foreign investment is considered instrumental in attracting and transferring technology to the Kingdom, creating employment opportunities for Saudi nationals and opening external markets for national products. With this in mind, SIDF continued, since inception, to encourage establishment of joint-venture projects, particularly with reputable international companies. Factors of success of such projects are available in the Kingdom. In addition to the joint-venture projects, SIDF finances in full the industrial foreign investment projects. SIDF does not imposes a condition of Saudi shareholding in these projects. Furthermore, SIDF finances projects exclusively owned by foreigners with whom SIDF deals on equal footing.

Who is eligible to apply for Fund loan?

They are individuals, establishments, sole proprietorshipand Saudi, foreign and joint-venture companies. They should

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be commercially registered in the Kingdom and granted an industrial license allowing them to conduct industrial business in the Kingdom. However, certain industries are no longer financed by the Fund. The SIDF website is furnished with pertinent details.

What are the industrieseligible to be financed by SIDF?

The financeable industrial project needs to have a valid industrial license and to realize a considerable value added to the national economy. Sometimes, assembly industries are given preference commensurate with the use of locally sourced materials and the value added to such materials.

The Fund concluded that the Kingdom has become self-sufficient in certain industrial sectors. Any increases in the production capacities in such sectors are useless and may lead to negative results. A list of economically viable projects has been developed and is regularly updated. (The list may be obtained from the Customer Services Division). In addition, some other industrial sectors are financeable under certain conditions.

What are the main conditions required to be satisfied by the project applying for SIDF Loan?

The project should be:

a. Economically viable.b. Able to provide training and employment opportuni-

ties for Saudi nationals.c. Able to use locally sourced raw materials.

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d. Able to integrate with other projects in the Kingdom or in the GCC countries.

e. Able to replace imports by local products.f. Able to target export opportunities.g. Able to bring advanced technology.

Will the industrial facility remain financeable if it becomes a joint-venture or owned wholly by Foreigners?

Yes. SIDF finances any project, wholly owned by foreigners or otherwise, by 50% of its cost provided that it satisfies conditions stipulated for major cities-based projects; or by 75% so long as it meets the terms set for projects implemented in Promising areas.

Are distribution and transport vehicles Financeable by SIDF?

Distribution trucks and transport trailers are financeable if determined important to the project by TCD and MCD, provided that their cost does not exceed 8% of fixed assets value.

Does the Fund takes the initiative to direct investors towards the industry where to invest in?

The Fund leaves to local investor the discretion to choose on his own the appropriate industrial investment project. However, SIDF assumes a leading role in upgrading the industrial investment awareness of the investors applying for financing. The Fund’s specialists receive investors, explain SIDF policies and educate them on the situation of the industrial sector they are about to engage in. Furthermore, the specialists provide the investors with the requirements

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of the economic feasibility studies of their projects as well as the requirements for completing the loan application file. Thereinafter, the specialists study the file and make appropriate recommendations on the economic feasibility of the investor’s project. In addition to that, SIDF provides professional consultative services in the financial, technical, marketing and administrative fields to borrower projects.

Is the idea of setting up a factory initiated by investor alone or with SIDF’sinvolvement?

The idea of establishing a project is initiated by the investor. The investor submits a recent and comprehensive economic feasibility study of his proposed project. SIDF’s financing decision is essentially based on such study. Any project submitted to the Fund is subjected to thorough evaluation in order to verify its financial, technical and marketing viability. After that, the Fund avails financial and consultative support to the project provided that all required documents are supplied and conditions satisfied.

What is SIDF’s loanceiling?

The ceiling of a loan extended to an individual project owned by a private individuals company or a limited liability company amounts to SR 300 million in major cities and Promising cities and regions. The ceiling of a loan for a project owned by a joint stock company or a company in which 20% of its shares are owned by a foreign partner with strong financial and technical resources amounts to SR 900 million in the major cities, and SR 1200 million

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in Promising areas and towns. At any time, the ceiling of SIDF’s commitment to investors in a joint stock company having a project in a major city should not exceed SR 3 billion.

If SIDF’s commitment to a project owned by a sole proprietorship, a general partnership company, a limited liability company or a limited partnership company exceeded SR 900 million, the Fund has, at any time, the right to impose a condition upon the borrower to change the legal entity of the company to a joint stock company or amend the ownership of the company so that at least 20% of its shares be owned by a joint stock company or a foreign partner having strong financial/technical resources, good name and outstanding credit record.

What is the SIDF loan ceiling for general partnerships and limited partnerships?

How does SIDF evaluate investor’s financial solvency?

Evaluation starts by verifying the credit worthiness of the sponsors of the project and sending a request for credit check to the pertinent agencies to provide the Fund with the required information on the credit records of the borrowers and sponsors and their previous relationship with the Fund and other credit institutions; and that they have no any financial obligations to third parties, namely the local banks and other government funds. Examining the personal property (moveable and fixed assets) statement of the investor enables evaluating such assets and comparing their market value with

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the requested loan. Hence, the investor’s solvency and his ability to honor his obligations to the Fund and to provide the required personal guarantees may be determined.

What is the security demanded by the Fund?

SIDF demands the some or all following guarantees:1. Mortgage of the fixed assets in favor of the Fund.2. Personal guarantees from the owners provided by

the shareholders in the limited liability companies. Such guarantees are based on the appraised finan cial solvency.

3. Corporate guarantees from the companies and the shareholders in the borrower companies, including:

• Waiver of the technology rights in favor of SIDF (if any)

• Waiver of insurance premiums in the SIDF’s favor from the project insurance policy and the Fund be the first beneficiary in any insurance claims.

4. Additional security by mortgaging some personal property or a bank guarantee covering the total loan amount in case of high risk projects.

5. Demanding an additional security from projects implemented in leased buildings or lands outside industrial cities and areas, with an undertaking to guarantee repayment of SIDF’s loan in case the project ceased its operations for whatever reason.

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What are the covenantsset to be committed by borrowers?They are two types of covenants:Special Covenants:

• Dealings with related parties are to be conducted at arm length basis.

• Not to expand the project in the future without SIDF’s approval.

• The borrower undertakes to comply with the standards and specifications of the Saudi Standards, Metrology and Quality Orga nization and the requirements of the Presidency of Meteo rology and Environment whenever available.

• The borrower undertakes to submit a Saudization

• plan with an implementation schedule acceptable to the Fund.

• The borrower undertakes to maintain, in the books of the project, a minimum owner’s equity of (25%) of the total assets.

• The borrower undertakes that any requisition from an authority concerned to stop the operations of the project, because of its site (outside the industrial cities), shall not impact on his commitment to honor SIDF loan agreement.

Financial Covenants

• Ratio of current assets to current liabilities not to nfall below 1:1 throughout the term of the loan.

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• exceed 3:1 throughout the term of the loan.• Dividends not to be more than the lesser of SIDF

repayments in any fiscal year or 25% of the paid-in capital.

• Annual capital expenditure not to exceed an specific limit.

• Annual rental not to exceed an specific limit.

What are SIDF requirements following receipt of the Loan?

1. The Fund should, at least once a year, be provided with audited financial statements.

2. The Fund should be provided with provisional inter-nal quarterly financial statements, even not audited.

3. An approved consultative Saudi firm should, alone or in col laboration with a foreign consultative firm, be hired to manage implementation of the project.

4. An approved Saudi audit bureau is to retained to audit the project’s financial statements throughout the term of SIDF’s loan.

5. A plan to attract national manpower should be de-veloped.

Does the Fund provide donations?

SIDF does not provide donations. Instead, the Fund provides financing in the form of medium and long-term loans payable in full as per an agreed upon maturity schedule based on the study of the projected cash flow of the project.

What is the maximum time limit for SIDF loan repayment?

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The grace period and the loan repayment installments amounts and maturity dates are determined on the basis of the results of the study of the projected cash flow of the project and its potential risks. Generally, the project’s implementation period is estimated and an extendable draw down period is determined on the basis of contingencies during the implementation phase. Then, in accordance with the projected commercial operation start-up date, an extendable two-year grace period is given to the project. In addition, the term of the loan is specified and the installments amounts and maturity dates are determined on a semi-annual basis. Hence, the loan term would be within a period of 6 to 10 years. It is worth mentioning that the maximum term of SIDF loan is 15 years. However, such maximum period may be extended to 20 years for projects implemented in Promising cities and regions.

Does the Fund provide any services other than loans to projects?

Yes. Upon request, SIDF provide professional consultative services in the administrative, technical, marketing, financial, and accounting fields to borrower projects (please, refer to the consultancy Services Guide booklet).

Does the Fund charge any interest on its loan?

SIDF does not charge any interest on its loans, but charges the investor the fees and costs of providing the professional consultative services, evaluation and study ofthe submitted project. Such costs are agreed upon, in advance, with the sponsor of the project; they are not payable before starting disbursement of the loan amount.

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Furthermore, SIDF charges the investor for the follow up fees as of the project’s implementation phase up to the full repayment of the loan. Such fees are payable semi-annually.

Does the Fund finance the capital expenditures for expansion/ modernization projects of the existing factories?

Yes, after verifying the viability of the project. The application is processed and studied as per the regular procedures and basis. However, procedures and conditions may be much easier for sponsors who have had loans for their existing projects. This is because substantial information has already been provided during the process of the original loan. In certain cases, procedures may be accelerated; some steps may be skipped. This takes place if the expansion project concerns the same product and/or the investment is well-known and has good relationship with the Fund. SIDF finances the existing projects for the purposes of expansion, modernization, upgrading and relocation. In addition, the Fund finances the working capital by 25% of the operating costs of the first year.

Why does SIDF require from the project sponsor so much details and information on the project?

Basically, for the benefit of the investor. In order to make a well-advised decision, from the start, the investor needs to collect sufficient information before submittinga loan application to the Fund. Requiring such detailed information helps the sponsor of the project become knowledgeable about his project at an earlier stage. Hence, it enhances his ability to make sound plans and solidifies his potential for future success.

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What are the minimal required documents for loan applications submitted by major projects?

• Filling out completely the Loan Application Form.• Filling out completely the Personal Property

Statement Form.• Owners’ Civil Register Information.• Copy of the Industrial License.• Copy of the Commercial Registration (if any).• Copy of the Company’s Articles of Association or

Articles of Incorporation (for companies).• Up to date and integrated Economic Feasibility

Study of the Project.

What are the requirementsto be satisfied in the industrial license?

Above all, the industrial license should be valid. The nature and scope of work of the project should be in conformity with the conditions stipulated in the industrial license. The products of the proposed project should be the same licensed products. Likewise, the proposed production capacity should be consistent with the licensed capacity. The name of the project should be written correctly. The proposed project costs should be reasonably comparable with the costs included in the industrial license.

Does the Fund finance commercial, real estate or agricultural activities?

SIDF financing is restricted to industrial projects having industrial licenses as well as industrial and logistical support projects within the scope and supervision of the Saudi Industrial Property Authority. The Fund does not finance commercial and services projects.

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Industrialists Complain About the Conditions Imposed by SIDF. What are Your Comments?

SIDF is a development financing institution providing investment opportunities for all. The economic feasibility of the project submitted to the Fund should be verified. SIDF lending conditions serve the borrower and hence the best investment of the loan amount. In addition, the Fund is committed to study the submitted project carefully in order to insure its competitiveness, success and repayment of SIDF loan. The Fund is, also, observant that all relevant information and data need be provided so that SIDF’s staff concerned may decide on the loan application.

It is worth mentioning that commercial banks pay attention to SIDF’s approval, knowing that such approval is made after careful consideration. The banks, also, know that the professional consultative services provided by the Fund to the approved projects greatly contribute to their success. As for SIDF’s loan guarantees, the Fund usually requires mortgaging the fixed assets of the project as well as corporate and personal guarantees. These guarantees are reasonable and indispensable for protecting the public funds and continuity of SIDF’s lending activity and support of the Kingdom’s industry.

Is SIDFslow in processing loan applications and what SIDF loanspercentages?

The Fund spares no effort so that the period of evaluating a project and making a decision as to finance it or not may not exceed three months from the date of registering the application and completing the required information and documents. For the expansion projects the evaluation period would be shorter since the investor has already provided most of the required information at the approval of the principal

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loan. The time taken in approving the submitted application depends on the responsiveness of the investor regarding provision of the required information and documents. This means that SIDF can not be blamed for being slow resulted from the investor’s reluctance in providing the information required for the evaluation and fulfilling the set conditions. The Fund finances the industrial projects, which satisfies the conditions and the rules, by an amount of up to 50% of the cost of the project in major cities and 75% in Promising areas.

Is there any fees to be paid to SIDF upon submission of the loan application?

No initial fees are against submittal of a loan application.

Is SIDF a partner in industrial projects?As per its charter, SIDF’s task is confined to providing

finance. Thus, the Fund does not involve as shareholder of any industrial project.

Does the Fund stipulate that the project’s feasibility study be prepared by approved and competent consulting firms?

The Fund does not make such a condition. However, the economic feasibility should be complete, current and detailed. As indicated in the “Guide To Industrial Loans”, such features facilitate understanding the technical, financial and marketing aspects of the project.

Does the Fund finance the working capital?

Yes, the Fund finances part of the current assets needed by the project, at all times, as part of the long-term cash flow requirements. Such financing would be within certain

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restrictions. The project’s requirements for 3 months regarding the costs of the raw materials, manpower, utilities, maintenance and sales are calculated from the proposed full operation in the first year only.

The financeable working capital for a period of three months includes:

1. Manpower.2. Utilities.3. Maintenance.4. Overhead and sales expenses.5. Imported Raw materials.6. Project’s one-month’s requirement of lo cally

sourced raw materials.The “project’s one-month’s requirement” applies to

the estimates of the first year of operation; rather than the project’s requirement at full (100%) capacity production.

Does the Fund conduct full-fledged studies as part of the consultative services to customers?

The Fund conducts full-fledged studies as part of the

consultative services rendered to borrower projects. This is one of the developmental services provided by SIDF to the investors in industry.

Has SIDF a “Preferable Consulting Firms list” for projects’ feasibility studies?

The Fund does not keep a list of preferable consulting firms which prepare the feasibility studies. SIDF does

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not stipulate that the feasibility studies be prepared by certain consulting firms. It is up to the investor to select an appropriate firm which is specialized in the proposed products of his project. Details of these firms may be obtained from the chambers of commerce and industry.

What are the economic indicators the Fund uses In project evaluation?

• Profitability and Cash Flows.• Internal Rate of Return• Value Added Percentage• Capital RecoveryPeriod• Maximum Sales• Raw Materials Maximum Cost• National Manpower Percentage• Local Raw Materials percentage• Local Sales Percentage• Project sales percentage of the gross national

product • Export Sales Percentage• Percentage of Imports of the same products

Is a borrower from the Saudi Credit & Saving Bank illegible to obtain an SIDF Loan?

Yes. The borrower from the Saudi Credit and Saving Bank has the right to obtain an SIDF loan in order to finance an industrial project; not the same project already financed by the SCSB. The investor may not obtain loans from two government financing institutions for one project; that is possible for different projects.

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What is the drawdown period of an approved Loan?That depends on completing the legal procedures

regarding signing the loan agreement and the estimated time for establishing the project as well as providing all the required documents and the disbursement requisites. So, the draw down period is determined for each project on its own merits; it may be extended depending on the implementation status of the project.

Can the client track his application status through SIDF Website?The client may electronically submit his loan application.

After the approval of his application, the client may follow up his record of investment with the Fund, in terms of disbursements and repayments amounts, by following the steps indicated in the SIDF website.

Can the investor make material changes to the project after loan approval?

The borrower may not make any material changes on the project, as described in the application submitted to the Loan Committee, without prior written approval by the Fund.

Without the approval of the Fund, the borrower may not do any of the following:

1. Merge or consolidate with any person or enterprise.

2. Sell, lease, transfer or otherwise dispose of (whether by a single or multiple actions which are separate or related) all or a material part of the project (except for that related to normal trading business) or its fi nancial assets, whether currently owned or will be owned in the future.

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3. Distribute profits or gain or incur a material part of the assets or obligations of another person or en terprise. Disbursements won’t be made for items changed or amended unless there is a Fund approval prior to effecting such changes or amendments.

When borrower is considered “in default” by the Fund?The borrower is considered in default in the following cases:

1. If he fails to honor the maturity dates of repayments of the principal loan amount, the promissory notes or any amount due as per the loan agreement and related agreements.

2. If it is evidenced that a permit, a guarantee provided by the borrower, a promissory note, the mortgage deed or a statement or certificate provided by the borrower is false.

3. If he fails to repay his debts at their maturity dates or by the end of a relevant grace period (if any). Such debts cover amounts borrowed for the project, term purchasing costs of items owned by the proj ect (where, currently or in the future, the borrower is responsible for, undertaker or guarantor) or other amounts due.

4. If the borrower has:a. Submitted an application for, or agreed to

appointing a custodian or a liquidator of his personal and real prop erty.

b. Failed or acknowledged, in writing, that he failed in re paying his debts upon their maturity.

c. Performed a general assignment for the benefit

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of credi tors.d. Become bankrupt or insolvent.e. A liquidator or a custodian being appointed for

his per sonal and real property.f. Submitted an application of voluntary

bankruptcy.g. Jointly or severally discontinued to be a partner

or owner without the approval of the Fund.

Can the Borrower Repay the Total Loan Amount Before its Maturity?

The borrower may at any work day repay the total or part of the loan amount in advance without any additional amounts or dues.

What are the actions to be taken against a borrower in default on loan repayment?

If the borrower is in default on repayment, legal actions are taken in accordance with the Applicable laws and regulations such as the Public Funds Collection Act and its by-laws which stipulates collection of the State’s dues as preferential debts. This may lead to attachment of the borrower’s movable and fixed assets, selling assets mortgaged in his favor and taking any other necessary measures.

Is it possible to have SIDF loan maturity rescheduled?

In certain cases, and after studying the economic and financial status of the project, and in case the borrower is unable to repay in accordance with the maturity schedule for reasons beyond his control such as economic or operating

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conditions, repayment maturities may be rescheduled. It is noteworthy that each case is treated on its own merits, with consideration to the maximum period of loan repayment .

Can the borrower apply for an additional loan before full repayment of the principal loan or an approved loan be reduced?

Additional loan or loans applications may be submitted for the expansion of the project or the diversification of its products. In such a case, the principal financing loan may be consolidated with the expansion loans and the repayment scheduled re-calculated. Also, the loan amount may be reduced if it became evident that there is no need for the whole amount of the loan.

Does the Fund charge any fees or commissions for the services it provides?

Yes; upon approval of the loan, the Fund deduct a lump sum amount from the first disbursement of the loan amount as a compensation for technical and economic evaluation of the project conducted after submission of the application. Such charges compensate the Fund for the time spent in conducting the evaluation and the related expenses. If the loan application is rejected, no charge is made. The Fund also charges the actual follow up costs of the project. Such follow up costs are based on the working hours spent by SIDF’s officers, experts and technical officers on performing the jobs related to appraising and following up of the projects and the field visits they make in order to insure the sound management of such projects. In both cases, the costs are governed by the agreements concluded with the

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borrowers before presenting the projects to the Fund’s Loan Committee.

Does the Fund finance the total investment cost for setting up a project?

According to the approved lending policy, the Fund finances up to a maximum of (50%) of the capital cost of projects implemented in major cities and (75%) for projects implemented in Promising towns and areas. The loan applier (or his partners) should substantiate his (their) solvency and financial liquidity which enables him (them) finance no less than (25%) of the total project cost through owner account. The remaining project cost may be financed through commercial or shareholders loans.

SIDF finances a maximum of (50%) of the total costs of projects implemented in Riyadh, Jeddah, Dammam, Jubail, Yanbu and Ras Al Khair. Loan repayment should not exceed 15 years for projects in these cities. As for other towns and areas which are Promising in terms of industry such as Qassim, Ahsa, Al Madinah Al- Munawarah (except Yanbu), Rabegh, Taif, Kharj Industrial City and Sudair Industrial City, SIDF’s loans amount to a maximum of (60%) of the total costs of projects implemented in these towns and areas. Loan repayment should not exceed 20 years for projects in these towns and areas.

As for other areas and towns which, in addition to being Promising in terms of industry, lack the other prerequisites (such as Hail, Northern Frontiers, Joaf, Jazan, Najran, Baha and Aseer), SIDF’s loans amount to a maximum of (75%)

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of the total costs of projects implemented in these areas and towns. Loan repayment should not exceed 20 years for projects in these areas and towns. Also, as per SIDF’s policy, loans to projects in the provinces and towns which are more than 150 kilometers away from the centers of the major cities (Riyadh, Jeddah, Dammam, Jubail, and Yanbu) amount to (75%) of the total costs of the projects. This also applies to projects in the provinces and towns which are at least 70 kilometers away from the industrial cities in Qassim, Ahsa, Al Madinah Al-Munawarah and Taif. Repayment of loans for projects in these provinces and towns should not exceed 20 years.

What are the submission channels of loan applications?A completed Loan Application Form and the required

documents should be attached to an official covering letter and sent to the Customer Services Division. The employee concerned should check the completion of the Application Form and the attached documents and send it to the Administrative Communication Section. The Administrative Communication Section registers the application in the official incoming mail register and sends it to the Credit Department. In the Credit Department the application is received by the Division concerned. The investor may apply electronically, i.e., through SIDF website and attach the required documents. In such a case the application would directly be transferred to the Division concerned. Before submitting his application, it is advisable that the sponsor of the project makes an appointment to meet with the Customer Services Division. Such a meeting enables the credit officer concerned check the information provided, the economic viability of the industrial sector and

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whether it is financeable or not. Furthermore, the officer would explain SIDF’s conditions and tell the borrower about any other lacking information (if any).

Why SIDF stipulates a condition for investor’s financial solvency?As known, investment in industry requires substantial

financial capabilities. This is because the project needs financial support, particularly in its first years of operation. At this stage the costs exhaust the capital of the project. Hence, the project needs provision of the required working capital; knowingly profits from operation are not achieved yet. Also, availability of sufficient liquidity is crucial for covering the expenses of implementing the project. Over and above, financial solvency is essential since it enables the investor provide the personal guarantees required for approving SIDF’s loan.

Does the Fund finance the industrial and logistical support projects?

Yes; the Fund finances the industrial and logistical support projects provided that such projects are located within the industrial cities and obtaining a permit from (MODON). SIDF also finances the areas cooling systems projects which have industrial licenses for the production and distribution of central cooling capacities by pumping cold water through insulated underground pipes connected to offices and industrial buildings. Moreover, the Fund finances the standard factory buildings within the industrial cities. Added to that, SIDF finances the technical training centers as per the following conditions:

• The project should be located within an industrial city and have a permit from (MODON).

• The project should be accepted for study and evaluation

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based on its merits .• Projects should be wholly owned by the private sector.• The project should be economically viable and

supported by a complete and up-to-date feasibility study acceptable to the Fund.

• Disbursements will be based on the actual payments credentials.

• Logistic support projects will be treated like the other industrial projects in terms of loan amounts, repayment periods, required guarantees, conditions and covenants.

• It is noteworthy that the Fund has financed services projects related to the industrial sector, such as:

• Natural gas distribution projects (distribute natural gas in the industrial cities).

• Water desalination and sewage treatment projects which serve the industrial cities.

• Medical and industrial chemical waste treatment projects which protect the environment and reduce the damages caused by the industrial waste.

• Projects using electronic and X rays technologies for sterilizing food and drugs.

• Mobile sea water desalination projects (barges) which are considered pioneering projects worldwide. They contribute to overcoming water shortages in different parts of the Kingdom.

• Industrial housing projects which provide favorable environment for the employees and workers of the factories reduce haphazard spread of manpower in the industrial areas and cut down the housing and transportation costs incurred by the factories.

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Is there any conditions imposed on extending finance to specific industrial sectors?

Careful studies of the different industrial sectors show that the Kingdom is self-sufficient in certain domestic products targeting the local market. Loan applications may be accepted from such sectors for modernizing their machinery and equipment provided that no increase in the production capacity is considered. Likewise, a number of other industrial sectors are open to restricted financing. Hence, SIDF encourages potential investors to contact the Customer Services Division at an earlier time in order to discuss their investments proposals before submitting their applications. Reference may be made to SIDF’s website for details about commercially none viable industrial sectors.

What is the maximum grace period before starting to repay the loan ?

Based on a number of factors including the recommendations of the evaluation of the project and the conditions surrounding its implementation as well as the financial projections, the grace period differs from one borrower to another.

Generally, the Fund gives a grace period of two years commencing after completion of the implementation of the project. The rationale is to give the project amble time to gain cash flows sufficient to repay SIDF loan.

What is the maximum allowable period for repayment of SIDF loans?

SIDF loan term is determined as per the estimated value of the cash flows of the project. The Charter of the Fund stipulates

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that the term of SIDF loan should not exceed a maximum of 15 years (or 20 years for projects implemented in Promising areas) from the date of signing the loan agreement up to the date of the last repayment installment. However, the term of most of SIDF loans does not exceed ten years; on average the term extends to 8 years. This is due to the fact that SIDF believes in the economic viability of the financeable projects. Most projects which are unable to serve their debts within a period of 10 years starting from the date of the preliminary approval would not be able to provide sufficient returns on their capitals; such projects are economically none viable.

What is meant by project registration and given a number?After completing all of the required information and

documents during the preliminary screening, the Credit Teem Leader responsible for the subject industrial sector requests assigning the project a (Registration Number). Registration is an official commitment on the part of the Fund to spend time and effort on comprehensive evaluation of the registered project, whether it is a new, an expansion or an upgrading and modernization project. Then, the project is presented to the Loan Committee for making its recommendations to the Board of Directors or to the Management Committee. It is noteworthy that the evaluation process may be sped up if the sponsor of the project provided SIDF consultants with the required information on a timely basis.

Can the loan approval procedures be accelerated?Quick evaluation procedures may be used in processing

some loan applications. The objective is to shorten the time and effort exerted in evaluating the project so that the investor

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known to the Fund (SIDF client) gets the required financing in a shorter time. In such a case, the project evaluation report would be considered by the Loan Committee within a period not exceeding 4 weeks from the date of registration. Regardless of the loan amount, there are two conditions for treating a project with the quick evaluation procedures:

1. The project is an expansion or upgrading & modernization project including an increase of the production capacity of its current products. No addition of new products is considered.

2. The client has good credit record with SIDF

How much should be the owner’s equity in the industrial project? Should it be freeze?

The owner’s equity required for financing the project should be no less than (25%) of the total costs of the project (aside from the financeable costs). This may be through paid-in capital, subordinated loans from the shareholders or internally generated funds from the expansion project. SIDF does not object that commercial banks be party to financing the project’s costs provided that the bank’s financing of any fixed costs be based on a loan(s) with an appropriate term. The Fund does not stipulate that the contributing owner’s equity be frozen since it represents the liquidity needed for paying the expenses of the project at its early phases of implementation.

What is the SIDF non-financeable policy?The Fund does not finance:

• Some industrial sectors because of self-sufficiency

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regarding local production or low value added.

• Projects which commenced commercial production, at least, a year ago.

• Used Machinery and Equipment and Vedhicles.

• Machinery and equipment imported more than a year ago as per the customs clearance documents.

• Used or imported furniture.

• Buildings constructed more than two years ago and imported steel hangers.

• Imported equipment, when an appropriate local substitute is available.

What is the difference between mortgages and guarantees?

Every SIDF loan requires mortgage on the fixed assets of the project. In case a project is built on a land in an industrial city or area, the Fund mortgages all of the buildings, machinery & equipment, vehicles, furniture and any other fixed assets. If the project is built on a private land located outside an industrial city or area, the land would be mortgaged. Sometimes, SIDF accepts banker’s guarantee instead of mortgage on the fixed assets of the project. The Fund also requires personal / corporate guarantees from all shareholders, except joint stock companies. Occasionally, SIDF requires joint and several guarantees from the shareholders or requires guarantees covering the total loan amount from one or two of the shareholders. The shareholders guarantees may be replaced by banker’s guarantees from banks approved by the Saudi Arabian Monetary Agency (SAMA).Guarantees issued

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by foreign banks need be supported by local banks by SAMA. In case the borrower is a sole proprietorship, the required guarantees are built in its legal entity. That is why the Fund does not ask the sole proprietorships to provide independent documents for the personal guarantees.

What are the risks SIDF evaluates? The Fund evaluates several risks, namely: Technical Risk:The Fund evaluates the manufacturing process, the

proposed technology and to what extend it is established, and the potential difficulties in implementation and/ or production. This risk is mitigated by the technical agreements, the availability of a qualified production management team capable of implementing and running the project as well as the knowledge and experience of the sponsors of the project.

Marketing Risk:The marketing risk is represented by the level of imports

and the severity of competition between local producers and the reaction of these producers towards the new entrants in the industry which all lead to lowering the prices. This risk is mitigated by two factors. The first factor is the sponsors’ experience in distributing the product and their presence in the market before entering in the industry. The second factor is the demand for the product and the demand growth rate. Added to that, advertisement and promotion campaigns for increasing product sales.

Financial Risk:The risk is determined in the light of the financial

estimates, the viability of the project, the general economic factors and their influence on the purchasing power of the

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clients, demand level and competition between producers. This risk is mitigated by the good cash flows of the project which enable repayment of SIDF’s loan as well as the good financial standing of the sponsors of the project which enables them support the project if need be.

Security Risk:Normally, SIDF settles for mortgage on the fixed assets

of the project and personal corporate guarantees from the owners of the project covering the total (100%) amount of the loan. Depending on the risk level in certain cases, the Fund requires mortgage on personal assets and effects covering the loan amount as additional guarantee.4 0

What are the cases in which the project’s file is closed after registration?

Closing the project’s file means that SIDF officially abstains from deciding on the loan application. After a closure, the project’s file may never be activated. However, a new loan application for the same project may be accepted and assigned a new application number.

Before closing the project’s file, a letter would be sent to the sponsor of the project. The letter clearly expresses that SIDF has closed the project’s file for one or more of the following reasons:

• The sponsor of the project has withdrawn the application.

• None follow up by the sponsor of the project.• The sponsor of the project did not provide the

required information; nor did communicate with the

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Fund for six months (the maximum limit) during the pre-screening study in spite of notifying him, in writing, to do so.

• Ineligibility of the Project: The project’s file may be closed if the sponsor of the project arranged to use second-hand machinery & equipment or imported the components of the plant from suppliers outside the Kingdom although such components are available locally. Any other reason compared to the details indicated in the original file of the project may render it ineligible for financing.

• The project may not be economically feasible from marketing, technical or commercial point of standing.

Is there a minimum limit for SIDF loans to new projects?

SIDF stipulates no minimum limit for loans to new projects and SIDF-financed expansion projects, but declines to finance new projects with investment of less than SR 2 million. SIDF advises small projects to tap financing from commercial banks guaranteed by other government agencies, namely SMEs Loan Guarantee Program (Kafalah), Saudi Credit & Saving Bank or the Centennial Fund.

Does SIDF treat small and medium (SMEs) projects differently?SIDF defines projects with investment of less than SR

20 million as small and medium projects. They are dealt with by a specialized credit team, and their applications are processed with streamlined procedure and short turnaround time compared to major projects. Sponsor is just required to fill out the assigned Small Project Form and provide

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the required documents. Further details are available from SIDF Customer Services Division (CSD).

Is any deadline for submission of documentation required for application processing and initial appraisal?

Following the initial evaluation report, sponsor shall be contacted to provide the required documentation within three-month period, which may be extended up to 6 months, based on investor’s seriousness. Failure to do so will result in closure of the project file.

How does SIDF deal with change of ownership or sale of the project?

If owners of a factory decide to sell it or transfer the factory liability towards SIDF loan, the Fund reserves the right to call for repayment of the full amount of loan instalments. SIDF may approve factory’s ownership change or loan obligations transfer if and when SIDF satisfies that such change and transfer will serve the interest of the project, provided that the borrower obtains SIDF prior consent for such action. If the borrower decides to sell some SIDF-financed assets of the factory, prior consent from the Fund should be obtained, which may be provided on the condition the borrower prepays half (50%) of SIDF dues based on the loan maturity schedule. Furthermore, borrower must obtain SIDF prior consent for disposing of assets mortgaged to, but not financed by, the Fund.

How SIDF loan approval be communicated to project sponsor?Following completion of the project appraisal and

submission of the same to the loan committee for financing recommendation, the project file will be submitted to the Management Committee in case the sum of the proposed

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loan is less than SR 30 million, and to the Board of Directors if it amounts to more than SR 30 million. Thereafter, a letter of commitment will be prepared and sent to project sponsor, specifying commitment amount, loan maturity schedule, drawdown period, grace period, conditions precedent, special conditions, and covenants, if any. The sponsor shall approve and sign the letter as a prelude for signing the loan agreement and finalizing the required formalities within 6 months.

The letter of commitment, which conveys SIDF initial approval for loan and borrower’ acceptance by signing it, is considered a first step to be followed by submission of various required documentation. The credit consultant will forward the letter of commitment, well in advance, under a memo, to the Legal Department, directing the Department to prepare the loan agreement and other related documents, based on the following information contained in the letter of commitment:

1. Name and address of the borrower .2. Legal entity.3. Maximum loan amount.4. Start-up date of project commercial operation and

draw-down expiry date.5. Project rationale and location.6. Loan maturity schedule.7. Financial covenants.8. Date of operation of the project.9. Special Conditions and covenants.

10. Project description (a brief stating the project cost, including the land, buildings and civil works, machinery, equipment, furniture and cars.

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11. mortgages and guarantees to be provided by project owner (s).

Does SIDF stipulate conditions for loan approval? What are they?SIDF stipulates three different types of conditions

aligning with project initial implementation stage, out of SIDF’s desire to facilitate granting finance and understanding of non-availability of certain documents at this stage. These conditions must be satisfied prior to the loan disbursement. These conditions are:

1. Conditions precedent: must be satisfied prior to signing the loan agreement ( such as requirement for industrial license amendment).

2. Special conditions: must be satisfied after signing the loan agreement and be implemented in specified times prior to partial disbursement of the loan (such as requirement for signing technical or marketing agreements or installation of safety equipment).

3. Ongoing covenants: obligation on the borrower throughout lifetime of the SIDF loan (such as submission of the financial statements).

4. Financial covenants: Borrower to maintain certain financial, leverage, and current ratios.

What is SIDF’s policy to over-run cost incurred during the project implementation?

In general, SIDF may finance overrun cost. If borrower applies for financing the overrun cost for the same quantity and quality of the project’s products, no further marketing appraisal will be required, but the technical evaluation may be reviewed again to re-consider the extent of need for additional capital costs as well as the plant’s components and structure as the case may be. Financial estimates and sources of finance may

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also need to be reviewed which may necessitate amendments of loan conditions, guarantees or covenants.

When does the borrower become eligible to sign the loan agreement?

The loan agreement shall be signed when technical, marketing, and financial studies are completed by the Fund; the Loan Committee positively recommended the loan; the borrower signed evaluation and follow-up costs agreements; Board of Directors approved the loan; the borrower accepted and signed the commitment letter, all are implemented on the scheduled times and all conditions precedent are satisfied.

What are the prerequisites for signing the loan agreement?The loan agreement is a legal document governing the

lending relationship between the Fund and the borrower. It sets out the terms and conditions governing the obligations and rights on the part of both parties. Following documentation must be provided:

1. Copy of the commercial registration of the company, or its branch, together with the original for verification.

2. Copy of the industrial license together with the original for verification.

3. Duly notarized Articles of Association or Articles of Incorporation of the company with their amendments.

4. Contract of the Lease land on which the project is established if located in an industrial city or private-owned leased land; or deed of title of the land if owned by the borrower, together with the Municipality permit.

5. List of items and assets (in Arabic) intended to be mortgaged, duly singed by the credit consultant.

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The list includes buildings, civil works, machinery and equipment.

6. Powers of attorney and authorizations required to empower project representatives to sign the loan agreement and other attached agreements, order notes, finalization of mortgage procedures and signature of corporate and personal guarantees.

7. Original commitment letter duly signed by the client.

An appointment shall be set for signing the loan agreement and its attachments after the agreement, mortgage letter and all related legal documents are duly prepared and reviewed. The competent legal consultant shall request an appointment for signing the agreement in coordination with the Office of the Director General by a memo signed by the Heads of the Contracts Division and Collection, Mortgages and Follow-up Divisions. The loan agreement shall be signed by DG and the borrower or a borrower representative in presence of the competent legal and credit consultants.

The loan agreement shall be issued and signed in duplicate in Arabic and English; each page thereof shall be initialized, and a copy of which shall be delivered to the borrower and other copy be sent to Loan Accounting Division for safekeeping thereat, and photocopies of the agreement and its attachments be sent to the Legal and Credit Departments for file safekeeping thereat. The borrower shall be provided with the number and date of the mortgage letter sent by SIDF to the competent Notary Public for marginalization to evidence mortgage of the plant and its assets and deeds of title (if any) in favor of the Fund.

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No loaninstalment shall be disbursed until the borrower submits to the Fund the mortgage letter duly marginalized by the competent Notary Public, and other required documents for loan disbursement.

What are SIDF conditions for insurance?SIDF request from the borrower under the loan agreement

to obtain an insurance policy against fire and damage issued by an insurance company approved by the Saudi Arabian Monetary Agency at minimum book value of the project assets. Insurance policy should state that SIDF is the first beneficiary of the insurance policy and should include the following two conditions:

A - The name of the Saudi Industrial Development Fund shall be mentioned as the first beneficiary of any proceeds payable against the insurance policy.

B - The insurance company undertakes to send a notice of 30 days to the Fund prior to the effective date of any amendment in the terms or conditions, cancellation or non-renewal of the policy.

What are the steps to follow after signing the loan agreement?Following signing the loan agreement, the sponsor

shall provide the Fund with a list of project items and assets to be mortgaged. The list includes project buildings, machinery and equipment, cars and vehicles, furniture and office equipment, and other tangible items that need to be recorded and mortgaged pursuant to Notary Public regulations. Furthermore, the borrower provide the Fund with the required guarantees, whether real estate, personal,

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corporate, or bank guaranties, as determined by the Fund.

Thereafter, follow-up and loan disbursement procedure be initiated.

How mortgage process is implemented?Attached to the loan agreement is the mortgage document

which clearly describes the fixed or movable assets that are intended to be mortgaged to the Fund, specifying the land area, date of the lease contract, date, number and issuer of the deed of title of the land, general description of the project buildings, facilities, machinery and equipment, and other items to be mortgaged. It is noteworthy that the mortgage document shall be attached only to Arabic text of the loan agreement, clearly referred thereto in the English text.

What are the mortgages SIDF must notarize?SIDF shall notarize to its favor mortgages of the land on

which the project is established if it is owned by the borrower in addition to project movable and immovable assets, including buildings, machinery, equipment, furniture, cars and vehicles. A mortgage document shall be issued listing the plant assets; title deed of the project land, and in some cases a separate mortgage document listing machinery and equipment.

In case of leased land of the project, mortgage shall be confined to project’s assets only. It should be clearly declared in the lease contract the land owner’s consent the buildings be mortgaged in SIDF favor.

In some special cases, SIDF requires the borrower to

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provide additional security, such as real estate guarantees, and such additional guarantee should be stated in the mortgage document annexed to the loan agreement.

Mortgage formalities shall be processed in the same way as described above.

SIDF sends the mortgage letter to the competent Notary Public enclosing a list of the items and assets required to be mortgaged, together with the title deed of the land owned by the borrower or the land required to be mortgaged as additional guarantee. Upon completion of these formalities, the Fund receives from the Notary Public a cover letter enclosing the mortgage document and copies of the same shall be filed at Loan Accounting Division(LAD), Legal Department (LD) and Credit Department (CD).

In the event of loan agreement amendments, such as change of the legal entity, name of ownership of the borrower, mortgages shall be modified accordingly by the same way described above.

What is meant by the drawdown period?A period specified by the loan agreement during which

payments of loan amount are drew-down. It reflects the project implementation timetable until the start-up of its commercial operation.

Is the drawdown period extendable if the project des not implement on time after loan approval?

SIDF approves to extend the drawdown period sets forth in the loan agreement, in order to assist the borrower

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to utilize the Loan amount in full, upon SIDF satisfaction of the reasons of such delay. This shall not mean amendment of the loan maturity schedule.

Can the guarantees of the loan be amended after the loan approval?

SIDF consent to a borrower’s request for amendment / change of the main loan guarantees stipulated in the loan agreement depends on the satisfaction of SIDF Management of the reasons for such change; the Fund Management may accept, reject or propose alternative guarantees.

What is the loan agreement?The loan agreement is the first step in a series of legal

documentation the Fund requires for loan approval. Notarization of mortgages shall be implemented only after the signing of the letter of commitment by the borrower and the loan agreement which has already been prepared by the Legal Department upon a request containing all essential information that are to be included in the loan agreement; credit consultant shall enclose thereof the following documents:

1. Minutes of the approval.2. Letter of commitment signed by the borrower.3. A list of the assets that shall be mortgaged.4. A copy of the commercial register.5. A copy of the industrial license.6. A copy of the company’s Articles of Association or

Articles of incorporation for joint stock companies.7. A copy of the land lease contract.8. Any other documentation the Fund may require.

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The signing of the loan agreement, which culminates the project evaluation and approval process, shall be made by SIDF Director General and the borrower, usually in the presence of the credit consultant and LD employee who shall review and checklist the required documentation and ensures that the Agreement is properly signed.

Can the name, ownership or legal entity of the project be amended/changed after the loan approval?

Yes, in special cases the Fund may approve the change of the project’s name, ownership or legal entity upon submission by borrower of accepted and convinced justifications, provided that the borrower not enters into any legal or regulatory obligations prior to obtaining a written consent from the Fund to the project new ownership, and the SIDF legal procedures and respective requirements are duly completed.

Can the loan application be cancelled after signing the loan agreement prior to loan disbursement?

Yes, by a written request from the borrower, justifying the reasons for such cancellation. SIDF may cancel, reduce, or amend the loan commitment, and modify the maturity schedule accordingly.

What is required from the borrower after loan is received, project completed, and production started-up?

Borrower is required to provide the Fund with audited financial statements 90 days after the end of the fiscal year and quarterly interim financial statements 30 days after the end of each quarter of FY; borrower must be current in repayment of SIDF dues in line with the maturity schedule.

Competent credit consultant shall make occasional site

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visits to the project, at least twice a year, to follow up the project performance; project sponsor shall provide the Fund with the information required on production and sales. Such follow-up site visits shall be continued until SIDF loan is fully repaid.

Does SIDF require any special procedure for project insurance?Borrower is required to insure all project’s assets and

items by an approved insurance company against the risks determined by the Fund. The insurance policy should stipulate that the Fund is the first beneficiary of all claims for insured losses, and SIDF should be notified 30 days prior to the effective date of any amendment, material changes or cancellations, at a total amount not less than the loan amount.

What are supplement agreements to the Loan Agreement?A- Agreement on technical consultancy, evaluation,

and feasibility study of the industrial project:

It is an agreement sets out the fees for conducting project’s feasibility study, analysis, evaluation, and advisory services, whereby SIDF is not obligated to finance the project. It shall be signed after the loan is initially approved. CD directs LD preparation of said agreement, specifying fees for SIDF conducted study; it shall be signed upon or before signing the loan agreement.

B- Agreement on project follow-up and evaluation:It is an agreement on the actual incurred costs of

monitoring the project progress by site visits carried out by competent SIDF employees; for implementation of subsequent screening and follow-up of estimations and

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expenses. It sets out the tasks to be carried out by the

Fund for the project, including appraising, monitoring and checking the project accounts and making site visits to ensure the competence of the management team and project’s compliance with the terms and conditions of the loan agreement. It shall be signed after the loan is recommended for the project, whereby the borrower is obligated to pay the fees of providing such services as SIDF bills the borrower from time to time.

C- Subordinated shareholders loan agreement:It is an agreement on injecting an additional amount of

capital to enable sound and continued progress of the project and settlement of its financial obligations under the loan agreement. Provision of such additional amount may be made by a loan from some or all shareholders of the project, or external creditors in some cases. To ensure repayment of its loan, SIDF stipulates that such subordinated loan shall be repaid to the shareholders or any third party only after all SIDF loan and dues are fully repaid. Subordinated shareholders loan agreement shall be signed by three parties, the borrower, the Fund and the lender.

Does SIDF finance additional costs of accidental or unpredictable capital items during the ongoing implementation of the project?

It may happen while the project implementation is underway that a cost of a project’s item or component increases significantly due to economic variables in contrast with the originally submitted cost estimations; or it happens

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that a component be deliberately amended to achieve project higher performance. In such both cases, SIDF may be approached to either finance the additional costs of those new items or a separate loan application be submitted if the additional costs are high enough to justify for a separate application.

Is it possible to make immaterial amendments to submitted and agreed upon items in the course of ongoing implementation of the project?

Certain amendments arising during the implementation of the project are acceptable if found by SIDF evaluation reasonably justifiable and are beneficiary to the project. They include change of the machinery and equipment supplier, or adding a new item required for project production, provided that the additional costs are acceptable, financeable, and within the loan limit.

When does loan disbursement commence?Loan payments shall be disbursed upon the signing of

the loan agreement and mortgages notarization, submission of required guarantees, and satisfaction of all conditions precedent and special; based on the actual implementation and the money spent virtually on the project implementation. The Fund disburses minimum 50% (or maximum 75% in Promising regions) of the submitted evidences and progress bills until the loan is fully disbursed upon completion of audit and review of the letter of credit and supporting contracts. The borrower shall open a special bank account for the project on the basis of the commercial register issued for the project and maintain accounting books as well as all other supporting

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documents for disbursement. The borrower is also required to appoint a qualified accountant to coordinate with the SIDF competent employees; prepare the financial statements and required disbursement documentation.

What are the conditions stipulated by SIDF for machinery and equipment (M&E) financing?

The Fund finances only new machinery and equipment; declines to finance used, refurbished or remanufactured M&E.

1. SIDF may consider financing M&E that have been recently procured by project sponsor if they were purchased no more than one year from the date on which the prescreen study was registered; M&E purchase date shall be outlined in the customs clearance documentation.

2. The Fund finances M&E to enable the project reaches to:• Required production capacity based on the

market conditions

• Or production capacity licensed by the industrial license.

3. Borrower shall be required to amend the project industrial license for higher capacity if and when installed production capacity exceeds the licensed capacity during the first years of the project operation. Such amendment is stipulated by SIDF either as a condition precedent or covenant in the project evaluation report.

4. Financeable M&E include forklifts, loading, and unloading machinery, costs of installation, inventory of spare parts, safety and loss prevention equipment,

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lab and quality control test equipment.

What are the documents required for effecting loan disbursement?5 The borrower submits to SIDF request for loan disbursement

during the implementation of the project. The request should be supported by submission of required information on the costs of the project.

Documentation required for loan disbursement shall be delivered to credit officer who is assigned by the Fund to manage the project and sign the Order Note in the SIDF offices for the full disbursed amount.

Borrower is required to submit the guarantees stipulated by the loan agreement, LD verifies and approves that these guarantees are satisfied. Disbursement-related special conditions should also be satisfied (if any).

For disbursement of the amount assigned to finance M&E, following documentation should be submitted:

• Copy of the contract for M&E supply and respective invoices.

• letter of credit from the borrower’s bank, along with certified invoices and detailed specifications.

• Certificate of final delivery and certificate of origin.• Bill of lading and customs clearance documents.• For disbursement of the amount assigned to finance

buildings, following documentation should be submitted:

• Copies of the signed contracts and detailed schedules of quantities.

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• Bank financial statements on bills for the work already implemented and receipts of cash payments.

• Work progress report.

The competent SIDF officer shall make a site visit to the project to verify conformity and ensure quality of implementation. Borrower is also required to submit an official letter from his bank certifying the open of the required letter of credit (L/C), detailing the value and term of credit, validity of L/C, name of the beneficiary. L/C should contain the bank’s undertake to cover the credit by transfer the amount provided by SIDF only, and not to amend the maturity date except under SIDF prior consent.

How pre-operational costs are calculated?Pre-operational expenses include all costs incurred in

the course of the project implementation, such as cost of M&E commissioning, wasted raw materials, design and supervision of the project buildings, travels, feasibility study, advisory services and respective license fees. Credit and Technical Consultancy Divisions shall decide on the items listed in the shaded areas.

Is it possible to transfer financing from a project item to another?In some cases, transfers of financing among capital

items may be implemented as required, based on convinced justification and SIDF prior approval.

Does SIDF finances purchase of private land for industrial project?

The Fund accepts setting up of an industrial project on a

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private land located within the supervising boundary of the municipalities in case of non-availability of land within industrial cities, provided that the land is fully owned by the borrower who possesses the land title deed and the necessary permits . SIDF may finance the value of the purchased land, at up to SR 50 per square meter including the land preparation cost.

Does SIDF accept to finance projects located on leased land?Yes, but requires in such case submission of additional

guarantees to cover the higher level of risk involved.

What is SIDF lending policy towards lands on which projects are located?

• SIDF prefers to finance projects located in the Kingdom’s industrial cities, which are available in all urban regions

• SIDF finances also projects located justifiably outside the industrial cities, while declines to finance the cost of land priced at value exceeds SR 50 per square meter. The Technical Consultant determines the area needed for a project.

• Project sponsor’s own personal preference is not always considered a rational reason.

• Project proposed site must be suitable for the project in terms of area, location, topography, soil and supply of required facilities.

• Cost of land acquisition for the project should be included in the total cost for SIDF competent officers need to ensure that the financing SIDF provides covers all estimated costs of the project.

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• Cost for land preparation, sometimes is called infrastructure, is part of the cost for land, including surface levelling, road asphalting, sewerage system, erection of electric cables, water piping, and site fencing, the details of such works shall be described in the feasibility study, and duly asserted by the Technical consultancy Division.

• Land preparation cost is among SIDF- financeable items.

What are SIDF conditions for disbursement of the final 20% of the loan?

When a request submitted for disbursement of 80% or more of the loan, the project is in its final stage of implementation, and prior to disbursement of the final 20%, borrower should prepare and submit a detailed Arabic and English list of all project’s fixed and existing assets, such as buildings, M&E, cars and furniture, as they are virtually on the ground. The list shall be reviewed by the Audit Division and forwarded then to LD for finalizing the mortgage notarization. Disbursement of the final (20%) of the loan also stipulates borrower’s compliance with all industrial safety, environmental and protection requirements, and the SIDF Safety Unit is satisfied that all safety and prevention equipment are in place.

What are SIDF procedures for default?Borrower shall be served 30-day notice to remind him

of the repayment on the maturity date, if not responded, an official warning letter signed by SIDF Director General shall be sent to the borrower warning that the overdue must be

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repaid within 15 days maximum pursuant to the Collection of State Funds Regulation. Meanwhile the borrower shall be closely followed-up, and SIDF may review and discuss the proposals the borrower may submit for settlement, and a solution may be reached before initiating any legal action.

What are the cases for loan rescheduling?Taking into account the maximum balance repaid of

the loan, and providing the borrower a further opportunity for repay, maturity rescheduling can be considered in the following cases:

1. Delays in implementation of the project resulted in delay in the planned date set for start-up of the commercial operation.

2. Some marketing issues and adverse market conditions, in addition to project’s inability to generate enough cash flows.

3. Economic conditions related to work environment of the industrial sector in general affecting the project performance.

In all circumstance The borrower should submit re-scheduling proposal including updated study on the project evaluating marketing and economic conditions, supported by updated and audited financial statements, and borrower’s commitment to spare no effort to handle difficulties faced by the project.