Sunday, August 15, 2010

AlJoman: Cross Holdings on KSE Equal KD3 Billion or 9.4% of Market Value

AlJoman issued another interesting analytic piece.  This one on cross holdings on the KSE.

A bit of initial tafsir:
  1. It's based on information from the KSE on shareholders of listed companies.  
  2. As per KSE rules, shareholdings 5% or more are to be reported. 
  3. Data is as of 5 August 2010.
Here's a quick summary.
  1. 84 listed companies have cross shareholdings spread across 132 companies.
  2. The amount is KD3.035 billion which represents 9.4% of the total market capital of KSE listed companies (KD32.4 billion).
  3. It also is 21% of the disclosed investments by KSE listed firms (KD14.7 billion).  
  4. Al Joman estimates that aggregate cross holdings (including those below the 5% threshold) equal 20% of the market capital of KSE listed firms.  It doesn't detail its rationale.
  5. It ascribes this motive for this cross holding essentially as market manipulation.  Companies cross hold, inflate demand (sometime fictitious) for their partners' shares, and thus create bubbles.  When the downturn came, this mechanism which had been so powerful in creating the updraft was powerless to stop the downdraft.  Not the manipulators, nor the market makers, nor even the Government with its National Portfolio.   Al Joman refers to it as like a snowball rolling downhill, getting bigger as it goes and crushing all in its path.
  6. As it has done before it faults the regulator and the weakness of the existing system, noting that many companies violated their corporate charters by investing in economic activities outside of the one listed in their Articles.   There's a biting comment about some real estate companies that own no real estate - not even a single apartment or shop.
  7. In closing it notes that some out there may say that Al Joman is "beating a dead horse" on this topic.  But that it's intent is to remind the Kuwait CMA of the necessity of ending such "deviant" practices.
Here's an abbreviated version of the chart in the report.
Sector# w Cross HoldKD Millions% Total
Banking  6   836 27.5%
Investment311,237 40.8%
Insurance  4     44   1.4%
Real Estate17   286    9.4%
Industry  9   371  12.2%
Services11   108    3.6%
Food  2       4    0.1%
Non Kuwaiti  3   148    4.9%
Parallel Market  1       2    0.1%
TOTAL843,035100.0%

One final note, an appeal actually for some linguistic help.  There are two expressions that Al Joman uses in the report, the precise translation of which elude me.  Appreciate it if someone will post to give me not only a translation but a  ذوق of the expression.
  1. الضحك على الذقون       
  2. طاح الفاس بالراس

7 comments:

The Rageful Cynic said...

طاح الفاس بالراس

that phrase, in context, means that some might say there's no point talking about it now that everyone has been burned by the crash or now that "the ax" has fallen on our collective "heads". :)

i.e. the discussion about it now is "too little, too late" but in the next portion of the sentence, they justify it by saying that they were one of the few who warned about the danger of these practices well before the crash.

by الضحك على الذقون I guess he means good times... though not sure...

very interesting pieces put out by Al Joman.... if only the relevant parties would listen...

Abu 'Arqala said...

TRC

1,001 thanks.

The second: Laughing at beards.

Is this one of the mustache insults? I laugh at your beard because it's so pathetic?

As to listening, Al Nafisi at Al Joman has been giving a khutba to an empty masjid for some time now. And the new CMA can't seem yet to find a head despite what is it now - 15 or 20 "no thank yous".

Laocowboy2 said...

If anything, the figures probably understate the true position. There will also be holdings of under 5% held by other parts of a "concert party" or holdings where the connection is not obvious. the fact that it is the investment company sector that shows the largest pattern of such cross-holdings should not come as a surprise.

Unless and until some of this froth is squeezed out, the KSE is going nowhere.

The Rageful Cynic said...

LOL... who knows? although i thought it was "laughing at chins"... ??

Laocowboy2? I would argue that the KSE is a veritable cappuccino.. all foam, very little else....

sorry for the caffeine reference :) i couldn't help myself...

Anonymous said...

Literally: the first one is: it is too late or/and the damage has been done.
The second: Bluffing your way or/and fooling people, or Marketing Gimmicks> A good example is the difference between Profit from Morbaha and Interest on the Conventional Loan , a good marketing gimmick.

Abu 'Arqala said...

RC

Thanks.

But not for the caffeine reference!

Abu 'Arqala said...

Anonymous

Thanks.

If I learn enough Kuwaiti expressions, I'm hoping I'll qualify to have my personal loans bought out by the Majlis AlUmma.