Wednesday, May 5, 2010

Global Investment House - Shareholders' Meeting Approves KD100 Million Capital Increase, Elects New Board and Deals with Shareholder Objections

AlQabas has an article on GIH's 4 May shareholders' meeting.  As well, GIH has posted a press release.  The AlQ article has a bit more detail, including an account of one shareholder's representative who raised several objections.

AlQ began by noting that Khaled AlWazzan was no longer on the Board.  If you don't recall, AlQ had reported his resignation last week which GIH denied.  This is AlQ's "I told you so" moment.  A tricky  issue. Technically, he did not resign.  He just did not stand for re-election.   Though I suppose one could argue that not standing for election was an effective resignation.  Point to AlQ for calling that Khaled was leaving the Board.  Also Shaykh Abdullah Jaabir Ahmad AlSabah, representative of the Public Institution for Social Security did not stand for re-election.   Nor was any Board member elected to represent Social Insurance.
  
The OGM and EGM agreed all the proposed agenda items. AlQ considers these the most significant:
  1. No distribution of profits for 2009.
  2. Annulment of the previous shareholder resolution to raise KD150 million in new capital (15 June 2009) and its replacement with a resolution to raise KD100 million at a price of KD0.105 per share.  (Book value is KD0.133 per share).  The extra five fils to cover issuance expenses.  The rights offering to be in a single tranche.
  3. Grant the Board the power to delist from any stock market the company is listed on.  
Ms. AlGhunaim, the Chairwoman of the Board, said that there were no plans to delist from any market. Nor had the Board undertaken any study in this regard.  The resolution is a precautionary move so the Board will have the power.

She continued that the reduction in the capital raising by KD50 million was done so that small shareholders would be able to cover their allotment.  She expressed confidence that the strategic shareholders would participate.  She also commented that the company was in discussion with many parties about participating.  Apparently in response to a question, she said that one option was for banks - both creditors and non creditors - to participate.  This has been discussed earlier in connection with a debt for equity exchange - which would of course lessen the repayment burden on GIH.

Ms. Al-Ghunaim also noted that GIH was a great buy trading currently at levels not seen since its founding 11 years ago.  And that shareholders knew well what a great deal it was.  That the company enjoyed a great reputation, confidence, etc.  

Also it appears that some shareholders must have expressed concern about GIH closing some of its funds.  She noted these were closed either because they were no longer appropriate investments in the current environment.  Or that their specified terms had finished.  She assured that GIH was ready to pay any fund holder his money at any time and in any condition if that was in accordance with legal conditions.

A representative of a Canadian shareholder then launched into a series of formal objections.  I suspect that Kuwaiti company law has a procedure similar to other GCC states.  Under these provisions a shareholder must formally record any objections to the conduct of the company's business.  Once these are formally recorded in the minutes of the shareholders' meeting, they legally exist and the shareholder may then seek to take further action.   As you'd expect, when a company has a difficult year or when it has gone through a corporate "transition" like a difficult restructuring, shareholders are more likely to voice objections and criticize management than when times are good. 

Here are the points that he reportedly raised:
  1. The annual report he got was missing three pages which contained important information.
  2. There was a lack of disclosure about the subscribers for the GDR issue considering the fact that they own 35% of the total capital of GIH.  This doesn't appear to have been addressed but perhaps the answer is so as not to embarrass shareholders who paid KD0.995 per share and saw 90% of their purchase price vanish.
  3. GIH does not but should have an Investment Committee to find profitable business opportunities and generate returns for its shareholders and to pay off the debt.
  4. GIH should pay dividends for 2009 from reserves as it is allowed to under Kuwaiti law.
  5. In the rescheduling exercise, the management was more focused on protecting the rights of creditors than the shareholders.
  6. The 5% fee for the expenses associated with the Rights Offering will be a burden on the shareholders.
The Board answered these objections as follows:
  1. The missing 3 pages were an oversight.  The full report was sent to shareholders and available on the KSE website.
  2. The Investment Committee functions are contained within other already existing committees.
  3. Re dividends, the Company needs to pay 30% of principal this year and so has to focus its efforts on successfully repaying its debt.  A reason why it is increasing capital KD100 million - which also will serve to help increase revenue.
  4. The Rights Offering fees are justified given that leading local firms and world class names like Deutsche Bank and HSBC will be involved.  AA:  I'd note that the fees for the GDR were about 1.9%.  The proposed fees for the previous approved but not executed KD150 million RO were 10%.   5% is probably a very good price considering that the sale is going to be a tough one. 
  5. There were some comments meant to reassure shareholders about GIH, including one on the rescheduling that it won "Most Innovative Deal 2009".  This statement like the one about the shares being a great deal because the price is the lowest in 11 years is a great example of making lemonade from lemons.
  6. At the end of the article you'll see some comments about assets under management.  There's a typo.  It should be KD1.7 billion. Not million.  AA:  GIH has a very good franchise in asset management.  And as pointed out by GIH's Board, an endeavor that does not require a large amount of capital.
Another notable shareholder question was why GIH hadn't taken provisions against the US$250 million deposit with National Bank of Umm AlQaiwain (AlQaywayn in AA's transcription).   Because GIH's legal advisors recommended against it.   I'm guessing perhaps even more importantly because GIH didn't want to reduce its KD162.8 million in capital.  That would probably trip covenant triggers under the restructuring, hurt GIH's capital adequacy ratio, and make the Rights Offering more difficult.

As it is, GIH has reduced the RO by KD50 million.  I think less out of a concern for small shareholders being able to cover their allotments than to reduce the amount so that the issue is more likely to be successful.  Raising KD90 million or KD100 million against a KD100 million RO will look a lot better than raising the same amounts against a KD150 million RO.

Any RO is going to be a tough slog.  GIH has been trading below par since 15 April and has been trending downwards.  It closed 5 May at KD0.090.  It is therefore unlikely that small shareholders will have any interest in buying new shares for more than they can buy "old" shares in the market.  So the Board will have to schedule the RO to a more propitious time.
    At the end of the shareholders' discussion, it's common for the Chair of the meeting, presumably Ms. Al-Ghunaim in this case, to say something on the order of "We've addressed shareholder objections and questions".

    I'm guessing this happened and prompted the representative of the Canadian shareholder to pipe up again with a comment that if these clarifications were given in foreign countries, large amounts of money would have to be paid.  Apparently, frustrated, Ms. Al-Ghunaim is reported to have said "O Abdul Munim, O Abdul Munim, let us finish..."  As the AlQ article reports, enough shareholders clapped to show support for her attempt to silence Abdul Munim.  I'm taking from this comment that he probably was quite vocal in the meeting - more than is apparent from the article.  AlQ ends its article by saying that Ms. Al-Ghunaim did not finish her sentence.  Unclear if Abdul Munim did as well.

    As to the new Board, here are the names:

    • Mrs. Maha Al Ghunaim representing herself
    • Mr. Marzook  Al-Kharafi representing Al Kharafi Group
    • Mr. Alan H. Smith representing Al Bareeq Holding Company
    • Dr. Hj Mohammed Amin Abdullah representing Berlian Corporation (Brunei)
    • Mr. Bambang Sugeng Bin Kajairi representing Reem Investment Company (Abu Dhabi)
    • Mr. Ali Al-Wazzan representing Jassem Al-Wazan Sons Group of Companies
    • Mr. Hamad Tareq Al-Homaizi representing himself
    • Ofoq Arabian Real Estate Company (substitute)
    Generally, when directors are said to be representing this or that company or person, you can infer that these entities are significant shareholders.   However, the KSE does not show any of any of these.  The mandatory reporting threshold is over 5%.  On the subject of shareholders, you'll notice about 18.5% held by BNY Nominees Ltd and Bank of New York Nominees.  These are the GDRs.

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