Tuesday, August 3, 2010

Lu'lu (Pearl) Real Estate -2009 Losses KD9.5 Million Bank Lawsuit for US$539.2 Million

Pearl issued a press release on its 2009 financials this morning (3 August) on the KSE.  Text below.  Arabic only as usual.

While the loss is eye-catching, what is of even more importance is the lawsuit by a Kuwaiti bank against the Company for US$539,200,000 plus interest for derivatives transactions.   Even in the miraculous world of Kuwait, there is no way Pearl can pay even one tenth of that amount.

Quick translation of the main points from the press release and then some comments.  (Note the figures on the left are 31 December 2008 comparables):
  1. 2009 Net Loss KD9.542,591
  2. Loss per share KD37.94
  3. Current Assets KD20,653,865
  4. Total Assets KD56,686,155
  5. Current Liabilities KD42,979,231
  6. Total Liabilities KD47,262,815
  7. Shareholders' Equity KD9,423,340
  8. Income from Related Parties KD1,290,260
  9. Expenses to Related Parties KD137,332
Pearl's auditors noted they do not have details on how the lawsuit amount was calculated.  And that this case raises a material uncertainty so they cannot express an opinion on the financials.  Technically, an audit opinion disclaimer.

Now the tafsir.
  1. At 3Q09, Pearl's net loss was KD6,777 million.  So there doesn't appear to have been any dramatic increase in losses in 4Q09.
  2. Minority interest which was KD1.225 million at 3Q09 seems to have disappeared.  Usually Shareholders' equity is reported excluding Minority Interests.  Unless roughly half the 4Q09 loss is attributable to Minority Interests.  Anyone out there who knows, please post a comment.
  3. By my rough calculation, Pearl has lost around 71% of legal (paid in capital).  One caveat:  without knowing what happened to the Minority Interests, this can be only a rough guess.
  4. AlZumorrodah Investments owns a majority of the  Company.  Somewhere around 53%.  You can access other posts involving AlZumorrodah by using the epynomous "label"
  5. Pearl is suspended from trading on the KSE as it has not presented its 31 March 2010 financial yet.
  6. The Board has sensibly recommended against any dividends for 2009.  (Mentioned in the headline  on the KSE's announcement page but not in the Arabic text below).

]  مجلس ادارة(لؤلؤة)(موقوفة)يوصي بعدم توزيع ارباح للسنةالمنتهيةفى31-12-09 ‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة شركة لؤلؤة الكويت العقارية
ِ(لؤلؤة) قد اجتمع يوم الاربعاء الموافق 28-07-2010،واعتمد البيانات المالية
السنوية للشركة للسنة المنتهية في 31-12-2009 ،
وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند       السنة المنتهية في 31-12-09   السنة المنتهية في 31-12-08‏
الربح(خسارة)(د.ك)             (9.542.591)         (7.935.133)‏
ربحية(خسارة)السهم (فلس كويتي) (37.94)               (31.54) ‏
اجمالي الموجودات المتداولة    20.653.865         27.550.454‏
اجمالي الموجودات              56.686.155         66.884.194‏
اجمالي المطلوبات المتداولة     42.979.231         42.335.372‏
اجمالي المطلوبات               47.262.815        47.539.987‏
ِ اجمالي حقوق المساهمين       9.423.340          19.344.207‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 1.290.260 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 137.332 د.ك
علما بان تقرير مراقب الحسابات يحتوي على اساس عدم ابداء الراي التالي:‏
اساس عدم ابداء الراي:‏
قامت شركة لؤلؤة الكويت العقارية - ش.م.ك.(مقفلة) بالدخول في معاملات مشتقات
مالية مع احدى البنوك المحلية ، وقد قام البنك برفع دعوى قضائية على الشركة
بالمطالبة بمبلغ 539.200.000 دولار امريكي مع الفوائد . ان اساس احتساب هذا
المبلغ غير متاح لنا ، وحتى تاريخ اصدار البيانات المالية المجمعة المرفقة ‏
ما زالت القضية منظورة امام القضاء ولايمكن حاليا تحديد نتيجة هذه القضية ‏
على الشركة (ايضاح 35) .‏
عدم ابداء راي:‏
بسبب الاثر الجوهري للامر المذكور في فقرة اساس عدم ابداء الراي ، لم نتمكن ‏
من الحصول على ادلة تدقيق كافية وملائمة لابداء راي التدقيق ، ولذا فإننا ‏
لا نبدي راي حول هذه البيانات المالية المجمعة .‏


Advocatus said...

I understand that Pearl got stuffed with the derivative contracts from Al Zamaroddah - was there a Jassim Zainal lurking around at the parent co who was ex Gulf Bank Head of Investments and Secretary to the Board? Word was all the good assets were being removed from Pearl and it ws being set up as the fall guy!

Laocowboy2 said...

Interesting. But unless Pearl was actually the original counterparty to the duff derivatives contracts that GB guaranteed, how did AlZ move the contracts over after they had gone wrong?

Abu 'Arqala said...


Many thanks your comments.

I take it from your these that this is "fall out" from the famous Gulf Bank derivatives implosion.

I guess I should read the KSE announcements more closely. I missed the announcement by either Pearl or the bank about the Pearl case!

As to an explanation how Pearl could be party to the lawsuit, could it be that Pearl was a co-signer on the transactions? Not the main credit the bank hung its proverbial "credit hat" on, but a "nice to have" second party?

And that GB is pursuing - sorry for the pun - a derivative suit (against Pearl) from its suit against Abu Wasta (its primary client on the deal).

Also one final question - the structure of the original GB derivatives contracts.

I had understood that GB had a derivatives transaction with its client and then a mirror transaction with the foreign financial institution.

Not that its client had a contract with the foreign financial firm with a GB guarantee on it.

Did I miss something again?

Laocowboy2 said...

Not entirely sure of the derivatives structure but effect on GB was the same - disasterous. But perhaps some mis-selling by someone as well - the details will be interesting when and if this eventually comes to court. If someone from GB "sold" the product to the counterparty (whoever this may be) then there could be a defence in law. I would guess that the lawsuit is more a show to impress on shareholders that GB management have done all they can to recover the very real losses than a realistic hope of a real recovery.

Abu 'Arqala said...


There were rumors (note that word) that the counterparty client was related. And that one was a primary reason why the authorities surgically removed the Board and elements of senior management.

But who other than the principals really knows?

And if it worked for Procter and Gamble, why not Pearl?

Advocatus said...

Zamaroddah shareholders also significant Gulf Bank investor and was on good terms with Bassam. Easy enough to rewrite the derivative contracts with Pearl as counterparty.