Monday, August 30, 2010

The Investment Dar and Commercial Bank of Kuwait - Settlement of Boubyan Bank Shares

Quoting informed banking sources, AlQabas reports that Commercial Bank of Kuwait has proposed to TID that the BB shares be sold and that any amount remaining after the settlement of TID's obligations to  CBK will then be remitted to TID.

In effect then, CBK is proposing to treat the transaction as a secured loan rather than a failed repurchase agreement.  Under the latter, CBK would be entitled to absolute ownership of the shares with no payment at all to TID.

Clearly, CBK doesn't want to enter into the rescheduling as one of the creditors and share the BB shares (very good collateral) with the entire set of creditors in return for "security" in the pool of what Adnan Al Musallam has more than once described as "strong" assets (which are probably less "strong" and certainly less liquid than Boubyan's shares). 

There is a reason why some creditors lend on a secured basis as opposed to an unsecured one.   They get to pick the collateral that gives them the credit comfort they need to extend the loan.  And know that if the borrower doesn't pay, they have a second way out that doesn't involve a rescheduling.

The proposal seems an eminently reasonable solution.  

As the parties have haggled over this problem, they lost a chance to conclude a quick sale with a willing buyer with deep pockets (National Bank of Kuwait).   Perhaps, the Central Bank can be persuaded to allow NBK to buy another 19.196%.  The share price is an attractive KD0.560.

3 comments:

Anonymous said...

I am in the process of doing a bottoms-up valuation of Investment Dar's assets (I do this for fun in my spare time). There is very little information available on Investment Dar's 48% equity stake in Al Bilad Real Estate Investment Company. Does anyone know anything about the current value of this stake in Al Bilad? I presume is probably worth today around 40%-60% of 2008's book value. But I could be far off given that there is no information available.

Abu 'Arqala said...

Anonymous

Part 1

AlBilad is as far as I know a one trick pony. http://www.albiladbh.com/

And the one trick is Water Garden City in the Seef District of Manama. http://www.watergardencity.com/

Al Bilad Founding Shareholders

(a) Sh. Hesham Abdul Rahman Mohammed Al Khalifa 5% (he appears to be the Chairman)

(b) AlBilad Holding SPC (Bahrain) 30% -- probably a device for regal personages to keep their identities confidential.

(c) Stehwaz Real Estate Kuwait 10%

(d) Efad Kuwait 2%

(e) Bahrain Islamic Bank 5.5%

(f) TID 47.5%

You notice that this is a familiar "school of investor fish" who often swim together - TID, Efad, Stehwaz plus TID's subsidiary BIsBk.

As per the MOIC website paid in capital is BD10 mm of which BD9.9 million was contributed in "kind". What "kind" precisely isn't stated.

(Paid in capital would not include any premium paid over par value.)

Ownership as per this source is BD4.050mm Bahraini and BD5.950 mm GCC (presumably Kuwaiti). Which as you will notice is just the math from the above founding shareholders list.

A word of caution, the MOIC website is not necessarily error free.

Abu 'Arqala said...

Anonymous

Part 2

WGC is a BD 1 billion project (estimated costs).

As far as I know, WGC has broken "ground" or perhaps more aptly "water". But the project has a long way to go before it's built.

The value of the project depends on completion and then sale. The immediate fundamental question is who will finance a project of this size. Then comes the market demand for the project. If you build it, will they come?

Some thoughts on valuation.

(a) Other Shareholder Valuations
Where you can access shareholder financial reports, you can check their valuation. (I think the BIsB share may be too small to be broken out). This is probably though not going to give a market price for various reasons. Thus, not highly useful.

(b) Market comparables
Probably your best bet for valuation.

Top of the list would be a RE sector report on Bahrain which would give you some parameters to haircut the value. Maybe a bit more than others if they're further along.

Alternatively, you could look at some of the other projects - Arcapita's harborside project, Riffa Views, Amwaj and see what sort of values are being put on these. Either in financials. Or in terms of secondary sales of existing units. Again you won't get absolute precision but maybe close enough for your purposes.