Showing posts with label National Bank of Kuwait. Show all posts
Showing posts with label National Bank of Kuwait. Show all posts

Saturday 23 July 2016

Global Investment House - 2015 Financial Performance Reveals Structural Problems with Earnings

It's a small world after all, and for some even smaller

It’s been five years since Global signed its first restructuring agreement and three years since its final settlement with creditors.

How is Global doing?   What are its prospects for the future?   
The first question is the subject of this post.  I’ll cover the second in a companion post.
Catching Up with Global
 
When last I posted, Ms. Maha was Chairman, GIH had published financials showing about KD 1 billion in assets, and the firm was touting its first rescheduling deal with its creditors.
At that point, commenting on the deal’s principal repayment terms—10 percent the first year, 20% the second year and a whopping 70% the third year—I noted that:
“It's highly unlikely that Global is going to be able to meet the repayment schedule even with one or two small miracles coming its way.   With the short fuse and the extensive trip wires (by way of covenants below), the spectre of a second default has to be haunting Global's management and shareholders.”
Not surprisingly in mid-2013 GIH negotiated a second rescheduling deal that gutted the firm: almost all of GIH’s “fine” assets were transferred to creditors in settlement of the debt.  Because the assets weren’t that “fine”, the creditors took a 70 percent stake in the “rump” GIH.  For a variety of reasons, the firm focused its business strategy on fee-based not balance sheet intensive business.  Ms. Maha was replaced as Chairman, though she remains on the Board as Vice Chairman and retains a role in management.
Review of 2015 Performance and Financials
Overview
The structure of GIH’s revenues and expenses indicates a high probability of future earnings volatility. Normalized expenses are 140% of AUM related revenues.  Non AUM LOBs can’t consistently generate enough revenue to cover the remaining expenses and generate a meaningful profit. They are market sensitive (volatile) themselves and more importantly lack scale.  They are more “hobbies” than substantial LOBs.
Besides these structural earnings problems, I noticed a few things in the loan portfolio and murabaha receivables worthy of comment.  Nothing that is life threatening.
Income and Expense
Net Income:
Global earned KD6.5 million in 2015 versus KD6.4 million the year before.  However, 2015 net income was bolstered by a (non-cash) write back of KD4.3 million of loan provisions.   Without this “timely” reversal, net income would have been a much lower KD2.2 million.
Revenues:
Fees and Commission Income accounted for 89% of total revenues in 2015 and 66% in 2014.   Within this category, AUM related fees account for some 80% of revenues, and represent a relatively stable revenue stream.  The other key fee-generating LOBs-- brokerage and investment banking-- each generate about one tenth of the AUM fees but are more volatile.
In 2015 Global benefited from KD 1.8 million in FX translation gains (KD 2.2 million in 2014) due to depreciation of the KD against the US dollar.  Not a stable core revenue source.
Net interest income contributed KD 1.6 million.
Fair Value Through Profit and Loss a loss this year of KD1.5 million vice KD0.8 million in positive revenue the year before.
Expenses:
Excluding loan provisions and impairment losses, Global’s average expenses are about KD 14 million a year – 140% of its stable AUM related earnings.
Structural “Problem” with Earnings
That’s a problem because Global’s other fee-generating LOBs (chiefly brokerage and investment banking) are market sensitive and more importantly lack the scale to  consistently generate significant revenue  to both cover expenses and generate a profit.   Growing earnings by growing assets is constrained by policy and no doubt as well by limited market access. 
Global then is forced to rely on one-offs such as continued depreciation of the KD or provision write backs to turn a reasonable profit.  Note that if there had been no FX translation gain in 2015 and no write back of the provision, Global would have had a modest profit.   
Balance Sheet
As mentioned above, a couple things caught my eye in the loan portfolio and murabaha receivables.
Loan Loss Provision Write Back
According to GIH’s 2015 annual report note 13, the write back provision for credit losses “for the year include KD 3,292 thousand (2014: KD 130 thousand) written back as a result of settlement agreement with a borrower.” 
Note the term “settlement agreement”.  GIH did not restructure the loan. The amount was not repaid in cash. Rather the bank took securities to settle the loan as is clear from an analysis of the firm’s cashflow statement and note 11.  The absolute increase in assets in note 11 is much more than the amount shown on the cashflow statement.
A single customer was responsible for 77% of the write-back.   A quick scan of annual reports back to 2012 suggests--but does not prove--that GIH has held this provision since at least 2011. 
The same note states:  “Loans are granted to GCC companies and individuals and are secured against investments in the funds and securities held in fiduciary portfolios by the Group on behalf of the borrowers.”
Why didn’t GIH seize and realize the collateral long ago?  Why hasn’t done the same with the borrowers representing the KD 5.9 million in unused provisions?
One explanation might be that legal processes in Kuwait are painfully slow.  Thus, GIH was legally unable to seize the collateral and extinguish the loan, but rather forced into prolonged negotiations with the borrower. 
That the reversal came at just the “right” time to protect earnings is certainly a remarkable coincidence.  Perhaps difficulties in 2015 caused management to redouble its efforts to collect.  Perhaps a long period of negotiation finally came to a close.  From the financials, it does not appear that GIH gave the borrower a discount on the asset swap.
Loan Portfolio:
Is there room for more earnings positive settlements with borrowers?
Net loans are KD 1.6 million = gross loans KD 7.5 million less provisions of KD 5.9 million (note 13). 
That KD 5.9 million would appear to be able to fund a few “timely reversals”.  
Particularly because Global holds KD17.8 million (fair value) collateral as per note 25.2.2 page 57.  That’s 240 percent coverage of the gross amount of the portfolio.  One might argue and AA certainly would that there doesn’t appear to be a compelling reason to hold a loss reserve when collateral coverage is so high.   
But there’s more.
Global is accruing interest on the gross portfolio because KD 490K in accrued interest in 2015 equates to a whopping 21% per annum yield on the average net loan portfolio. (Simple average of 31 December 2015 and 2014 amounts).  It’s a more reasonable 4.8% on the average gross portfolio. 
To accrue interest, Global would either have to be receiving cash or have almost certain assurance of payment of the interest. 
The cashflow statement shows that Global did not receive cash payments in 2015 for about KD 500 million of interest accrued that year, an amount very close to the interest accrued on these loans.  Of course, the KD 500 difference could well relate to other interest bearing assets.  It could relate primarily to the loans but be due to timing difference:  the interest payment was received after 31 December 2015.  If cash is being received and Global holds such an excess of collateral, how does it justify maintaining the reserve to its auditors? 
On the other hand, if Global is accruing interest—but not receiving cash—, its justification is likely based on asserting that collection of interest is almost certain given the collateral it holds. If the interest is secure and again the collateral so much larger than the principal, then it would seem the principal is also secure and no provision is needed.
All this suggests to AA that Global has some “dry powder” for future contingencies.
Murabaha Transactions
Global is earning a princely 5.28% per annum on these one year transactions (note 12).  Not many good investments offer such a return for a one year tenor.  Kudos to GIH for finding this consistently attractive opportunity—5.24% in 2014, 5.3% in 2013, and 5.45% in 2012.
One would think that such rates would come at the cost of higher risk, but the provision is a modest KD 123K on some KD 3.1 million. 
One thing did catch my eye.  Note 25.2.2 page 57.   The murabaha receivables were more than 180 days past due (but not classified as impaired) as of 31 December 2015 and as well at 31 December 2014.  I didn’t see a reference to collateral for these transactions.  Of course, AA has been around the block a few times on “Islamic” banking transactions and knows that in addition to careful structuring (technically حيل) “Islamic” finance is one area of the faith where miracles occur with a dazzling regularity.
Notwithstanding the above, perhaps a provision of some sort would be warranted.  And could be accomplished by a simultaneous reversal of some of the loan provisions and booking of an equivalent amount as provision for the receivables.  But of course الله اعلم

Monday 1 November 2010

National Bank of Kuwait – Related Parties’ Loans Analysis


One of our regulator and insightful commenters, Advocatus, said that there were rumors in the market that NBK was experiencing problems with its exposure to M Al Khorafi and had to extend the loans more than once to keep them from becoming classified as non performing.

An intriguing comment.


Abu Shukri is known as a careful banker, but even Homer nodded from time to time. And sometimes it is very hard to say "no" to a very well connected shareholder. As they say: "Past performance is not a guarantee of future results."


Without access to NBK's internal records, it's not possible to say one way or another. Let's look and see if we can find any signs of difficulties in NBK's financials.


Related Party Information


The first assumption is that loans to MAK or other AlKhorafi entities would be reported in the Related Parties Section. The data below is taken from the Related Party Notes in the Bank's Quarterly financials and is expressed in millions of KD.


QuarterRP LoansCollateral% Cover
1Q07215.1519.7242%
2Q07262.2608.4232%
3Q07294.9634.3215%
4Q07307.3672.6219%
1Q08285.5728.2255%
2Q08295.2742.0251%
3Q08316.6719.1227%
4Q08350.6494.4141%
1Q09278.8451.5162%
2Q09310.4544.9176%
3Q09189.7363.8192%
4Q09219.3343.8157%
1Q10210.7380.2180%
2Q10186.5350.7188%
3Q10183.7413.1225%

  1. Collateral coverage is reasonably comfortable, except for 4Q08. If there was a problem with Related Party loans, it's likely this is when it occurred. Two factors accounted for this change: a very dramatic decline in collateral and an increase in outstandings. 
  2. The significant drop in collateral coverage in 4Q08 coincides with the dramatic decline in market values following the collapse of Lehman. This suggests that the collateral is composed of equities and other marketable securities. 
  3. One would also expect that this would be a time of liquidity and cashflow stress leading borrowers to draw down additional amounts to cover their needs. 
  4. However, there is remediation on the principal side in 1Q09 with a KD71.8 reduction (twice the increase in 4Q08). That's quite remarkable because this was not exactly a "boom" time for Kuwait or the world in general. 
  5. Further declines in 2010 appear to indicate that there is no problem with RP loans. By 1Q10 these were below their 1Q07 level. Collateral coverage remains comfortable and the absolute of loans outstanding is below those in 1Q07. 
  6. I'd guess that Zain shares make up a good portion of the collateral for MAK exposure. But that is just a guess. If so, the Itisalat acquisition should lead to a further dramatic reduction in RP loans.
Renegotiated Loans

Another place to look is for the IFRS #7 Note on renegotiated loans. 
  1. Note 28.1.4 to NBK's 2009 financials state that only KD8.4 million of loans were renegotiated in that fiscal year and nil the year before. I didn't seem similar disclosure in the 2007 financials.
  2. If NBK were having problems with MAK exposure, one might expect to see larger "renegotiated" amounts, though it is possible in this sort of situation for a bank to extend a new loan to repay another short term loan and treat it as a new loan. One would expect that interest would have to be paid in full for the auditors to sign off. I'd note that one's expectations are not always fulfilled.
Conclusion

The financials don't disclose any problems, though as mentioned above this analysis is based on an external diagnosis without benefit of x-rays (details of NBK's exposure to the AlKhorafi Group).

Tuesday 5 October 2010

Department of No Surprises: Leaked Results of Booz Study - One Bank is Strong the Rest at Lower Levels


5 October's  Al Qabas contains a supposed "leak" of the study Booz did for the Central Bank of Kuwait.  The results one bank is strong and the remainder satisfactory and partially satisfactory.

Since no names were given, I suppose it's a big mystery who the one strong bank is.  That is, of course, if you don't know anything about Kuwait and Kuwaiti banking history.  

Al Qabas' sources tell it the report was given to the Central Bank last week and that the CBK is studying Booz's conclusions to determine which banks need to raise additional equity and which can strengthen their balance sheets by issuing bonds.

Sunday 26 September 2010

HSBC: “No Provision Relief for Kuwaiti Banks Until 2012”



AlQabas published a summary of a recent HSBC research report in its Sunday issue.

Here's a quick summary of the main points:
  1. HSBC notes the dramatic growth in distressed loans at Kuwaiti banks – from 5.3% in 2008 to 9.7% in 2009. 
  2. And predicts that the banks will continue to make substantial provisions this year and next only reaching a normal level of provisions in 2012. 
  3. That being said, there should be a recovery in ROE for 2010.
  4. Banks in Abu Dhabi and Kuwait were the worst affected among GCC banks. However, Kuwait has average provisions equal to 10% of total loans while Abu Dhabi only 4%. 
  5. A concentration on loans to real estate, construction, and investment companies is responsible for the decline in the value of Kuwaiti bank assets. 
  6. Real estate exposure:  Given the absence of Kuwaiti government spending on infrastructure or development projects during the boom years (2005-2008) credit was to the private sector largely to individuals and unlisted companies. The focus was on commercial, residential and investment real estate. Listed real estate companies only account for 13% of the total of such loans. 
  7. Investment firm exposureLoans to investment companies were KD2.8 billion with KD1.2 billion to conventional firms and KD1.5 billion to "Islamic" firms.  The loans granted were largely used to fund investments in real estate and regional stock markets (thus increasing the lenders' total exposure to these sectors). 85% of investment companies' assets are in the GCC as per the IMF. Since the crisis hit, banks have seen their loan security drop by at least 50% as per HSBC's estimates, though it does note that in the absence of transparency the true impact is not known. 
  8. Consumer loans:  These extensions of credit are believed to be of better quality because  they are secured by rentals and salaries. HSBC notes that most Kuwaitis are employed by the Government, the implicit presumption being that their incomes are secure.
There were two interesting tables accompanying the article, which I've reproduced below.

First, Kuwaiti bank exposure to real estate as a percentage of shareholders' equity.

Amounts in KD millions.

BankReal Estate & Construction ("REE")Shareholders EquityREE % of Equity
NBK
1,450
1,871
78%
CBK
   733
   440
167%
Burgan
   976
   422
232%
KFH
1,591
1,537
194%
Gulf
1,495
   391
382%

Second, Kuwaiti bank exposure to investment companies.

Amounts in KD millions.

BankExposure% of TotalShareholders' EquityExposure as % of Equity
Gulf    486  18%   39180%
Burgan   190    7%   42245%
CBK   269  10%   44061%
NBK   216    5%1,87112%
KFH   944  34%1,53761%
Others   658  26%--------
Total2,763100% ---- ----
 
From the above one can draw some conclusions on relative business models and underwriting standards.  

Of course without knowing the details of the loans and in particular the security obtained, these can be only preliminary. 


As usual, the pattern seems to be repeating itself.  One bank is distinguished by its prudence.  And some of the same names seem to be pushing the envelope. 

Monday 17 May 2010

National Bank of Kuwait - Boubyan Bank Share Purchase Authorization


NBK announced on the KSE today that the authorization it received from the Central Bank of Kuwait to purchase up to 60% of the shares in Boubyan Bank expires 22 June 2010 not 20 May 2010 as previously reported.

This  gives a little more breathing room to Commercial Bank and the Investment Dar to work out a deal so they can sell to NBK.


[11:23:20]  ِ.ايضاح من (وطني) بخصوص المهله المحدده لتملك حصة في (بوبيان)‏
يعلن سوق الكويت للأوراق الماليه ، عطفا على اعلانه السابق بتاريخ ‏
ِ28-03-2010 و الخاص بموافقة بنك الكويت المركزي ‏على رغبة بنك الكويت
الوطني بشراء حصه بحد أقصى 60% من رأسمال بنك بوبيان لمدة ثلاثة
أشهر ، يفيد البنك بأن المهله الممنوحه من بنك الكويت المركزي تنتهي في ‏
ِ22-06-2010 و ليس كما ذكر سابقا بأنها تنتهي في 20-05-2010 .‏

Wednesday 12 May 2010

National Bank of Kuwait - Dabdoub Did Not Resign



AlQabas has an article in which the Chairman of NBK, Muhammad Abdul Rahman Al-Bahar, denies that Ibrahim Dabdoub has resigned from the bank.

And here's one from AlWatan in which Abu Shukri himself denies the report.  AlW says that resignation supposedly occurred in an exchange of emaisl.

This is a strange story and I'm guessing there's more here than meets the eye.  

The typical Kuwaiti investor pattern of making a small fortune by destroying an even larger one?

Perhaps one of our Kuwaiti readers will comment.

BTW when you see Abu Shukri resign that will be a sign to very very carefully re-evaluate your holdings of NBK shares.   His shoes are going to be very hard to fill.

Sunday 25 April 2010

Boubyan Bank - Time to Sell?

So say Saud and Naser at AlphaDinar.

Some very interesting implications for 
  1. TID, CBK and the creditors of TID
  2. Existing shareholders with the upcoming Rights Offering

Monday 12 April 2010

National Bank of Kuwait Increases Stake in Boubyan Bank to 46.66%


NBK has increased its stake in BB to 46.66% as per the KSE.   (Very last item on the page).

Currently, NBK has Central Bank of Kuwait approval to acquire up to 60% of BB - which would mean that at present they could not buy all of Commercial Bank of Kuwait's 19.196% stake in Boubyan.  Though I suppose the Central Bank of Kuwait might be persuaded to allow them to buy more.

Sunday 4 April 2010

Boubyan Bank - Legal Struggle Between Commercial Bank and TID


Two articles in AlQabas today on the latest developments.

To recap late in December 2008, TID and Commercial Bank of Kuwait engaged in a US$200 million repo transaction. involving TID's shares in Boubyan Bank.  TID sold the shares to CBK against US$200 million and was to buy them back in 2009.   TID failed to settle the buyback.  In May 2009 CBK declared tthat he shares were now theirs.  Later they were on the verge of selling them to National Bank of Kuwait for a price reported to be US$420 million when TID got a "restraining" order.

What's at stake here?
  1. For CBK an apparent tidy profit.  Also putting aside the profit, it has to be concerned that if this transaction is unwound, it could become part of TID's restructuring.  Not a happy outcome.
  2. For TID a loss of highly liquid asset with significant value.  You'll recall that KFH has sued CBK trying to overturn the "sale".  As a participant in TID's restructuring, KFH has a clear self interest in getting as many good assets into TID's estate as possible.
  3. For NBK in either case a motivated seller (TID or CBK) and the chance to increase its stake in Boubyan to 60%.   And, as one of my Kuwaiti friends said the other day,  probably the quickest way to increase both prudent business conduct and good corporate governance in the Kuwaiti financial sector is for NBK to purchase a firm.
The first article says that TID announced that the Supreme Court Commercial Circuit refused to hear its appeal of the earlier judgment against TID over the sale of the shares of Boubyan Bank to Commercial Bank of Kuwait.   TID intends to appeal noting that the judgment against it was in the Court of First Instance.  Also it noted that it had succeeded in the past in getting a freeze order on the further disposition of the shares pending resolution of the larger case, though the shares are temporarily registered in the name of CBK.  Some 221,425,059 shares.  At yesterday's closing price of KD0.520 per share, the stake is worth roughly US$403 million.

The second article says that NBK is "open" to working out a solution to the struggle between the two parties.  Apparently, the Central Bank "Monitor" appointed at TID, Ayyad Thafiri (Dhafiri in Kuwaiti dialect) has been exploring a solution.  CBK is reported to say they don't want anything but their money.   NBK is an eager buyer.  Time will tell if this account is correct and if the parties can work out a settlement.

Sunday 28 March 2010

National Bank of Kuwait Gets Central Bank "OK" to Increase Stake in Boubyan to 60%




The National Bank of Kuwait announced on the KSE today that it had received Central Bank of Kuwait approval to increase its stake in Boubyan Bank to up to 60%.  Currently, NBK owns 39.99% of Boubyan.
The Central Bank of Kuwait's approval is for purchases during the period 22 March 2010 through 20 May 2010.

NBK has been pursuing a majority in BB for some time now.  Earlier it had tried to purchase the stake held by Commercial Bank of Kuwait of some 19.99% which CBK had acquired by taking the collateral posted by The Investment Dar for a defaulted repo.  If the lawsuits raised by TID and KFH have been resolved, then CBK may be the source of NBK's new shares.

Announcement from KSE (Arabic only) below.


[10:47:38]  ِ.(الوطني)يحصل على موافقةالبنك المركزي لشراء حصة بحد أقصى60% في بنك بوبيان
يعلن سوق الكويت للأوراق المالية أنه قد ورد إليه الأن من بنك الكويت الوطني
كتاب يفيد بأن بنك الكويت المركزي قد وافق على رغبة بنك الكويت الوطني في ‏
شراء حصة بحد أقصى 60% من رأس مال بنك بوبيان ، وان اجل سريان ‏
هذه الموافقة هو ثلاثة اشهر تبدا من تاريخ 22-03-2010 وتنتهي فى ‏
ِ20-05-2010 ، علما بان البنك يتملك حاليا نسبة 39,99% من اسهم بنك ‏
بوبيان .‏

Thursday 25 February 2010

Boubyan Bank - Old Board to Resign New Board to Be Elected

 

AlQabas quotes informed sources that the Board of BB has informed the Central Bank and major shareholders that it intends to resign so that a new board can be elected.  Presumably this accords with the wishes of the new shareholders.  The article goes on to praise the old board for taking decisive steps to strengthen the bank, e.g., the decision to take KD66.9 million in provisions and raising additional capital.

The AlQ article says that of the nine member board, 5 new members will be elected and 4 from the old board re-elected.

I guessing the National Bank of Kuwait wants to tighten its grip.  A rather large chunk of capital was provision away for 2009 and that's definitely not the sort of results NBK is known for.

Thursday 11 February 2010

Boubyan Bank - Capital Raising Follow-Up


It really does pay to think carefully about things, especially if one writes for a prestigious blog like this one.

There was another solution open to Boubyan Bank as Thursday's AlQabas reveals.  One that a moment or two of reflection should have occurred to at least one self proclaimed financial expert:  extend the subscription period.

Here are the main points from a press conference held by the Chairman of BB, Ibrahim alQadi (as reported by AlQ):
  1. BB raised over 85% (apparently just enough to be over).
  2. All the major shareholders participated:  NBK (40% shareholder); Commercial Bank of Kuwait (20% shareholder) [You recall that there are legal cases ongoing involving CBK, The Investment Dar, and Kuwait Finance House - with the latter two disputing CBK's ownership.  Acquired or not acquired as a result of a default by TID on a repo transaction involving the BB shares,   And, of course, depending on the view of your learned counsel and perhaps as well your own economic interest]; the Social Insurance Institution (4% shareholder) and other unnamed large natural person and legal entity shareholders.
  3. But since BB has over 80,000 shareholders many with holdings less than 2,000 - less than 15% of the shares offered were not subscribed for.
  4. According to the approval at the previous ordinary general shareholders meeting ("OGM"), the unsubscribed shares were to be offered in a public auction but the Government Department of Fatwa and Legislation refused to allow this.  The Department is I believe part of the Kuwaiti Finance Ministry. If anyone out there knows the reason for this, please post a comment.  Is it designed to protect shareholders' rights - even if they're too "lazy" to exercise them?
  5. So the plan is to hold another OGM and extend the subscription period for shareholders registered as of 21 January 2010.  Presumably the dates will be set by the OGM and the price will remain KD0.255 per share.  The Board met yesterday and formally approved recommending  this course of action to the OGM.   No timing for the OGM is mentioned in the article.

Tuesday 9 February 2010

Boubyan Bank Capital Raising - 85% Takeup Only

 

AlQabas reports that the recent share offer by Boubyan only received shareholder subscriptions for  495,257 shares which are equivalent to approximately KD127 million. (actually about KD126.3mm)   This is 85% of the amount offered.  That leaves  according to AlQabas 87,398 shares worth some KD20 million unsubscribed for.  

The offer was at KD0.255 per share (a KD0.155 premium over the nominal share value of KD0.100) and extended only to existing shareholders closing on 7 February 2010.   The privileged rights offering mechanism gives existing shareholders the right to subscribe for enough shares to maintain their percentage ownership in the company after the offer closes.    

My understanding is that 583,000 shares were offered - which would make ALQ's numbers above wrong.  Of course, there is another explanation - one which Umm Arqala might well suggest:  that AA is wrong.   Whatever the case, this is an attractive offering price as the shares currently trade around KD0.400 per share.
Al Qabas outlines several options to complete the offering:
  1. Boubyan can offer additional shares to existing shareholders.  Any shareholder holding 5% or more would require Central Bank of Kuwait approval.  Absent CBK approval, an existing shareholder could subscribe to a 4.5% stake.
  2. Shares could be offered to KIA.   
Personally I think this is not highly likely because KIA sold its  shares just about one year ago.  Earlier post with some background here.

It's more likely that an existing shareholder might buy an additional stake.  The article notes that National Bank of Kuwait (which currently owns 40% of Boubyan) has asked the Central Bank of Kuwait for permission to increase its shareholding to 60%.  And they would be a likely buyer.  As would another investor looking to secure a major block of stock.  NBK's interest is that  they are looking to establish an "Islamic window" to conduct banking operations and sensibly want to ensure that control is firmly in their hands.  At the present they have management control, but not an absolute voting control.   

The article closes by noting that other banks seem happy to invest alongside NBK as several banks had participated in the offering.  That is no doubt true especially since NBK has a good track record in running the businesses it enters.  But then again it just might be that these banks figure that as time passes NBK will  increase its stake in Boubyan and they will be well placed to turn a nice profit on their investment by selling it to NBK.  And would explain as well why a bank or other investor might be interested in the unsubscribed for shares.

Earlier posts on Boubyan including the legal battle between Commercial Bank of Kuwait, The Investment Dar and Kuwait Finance House over the fate of TID's shares can be accessed by using the label Boubyan Bank.

Friday 18 December 2009

KFH Lawsuit Against Commercial Bank of Kuwait - Re Bank Boubyan Shares

AlQabas has an article on the above topic today.

Kuwait Finance House ("KFH") has filed suit to keep Commercial Bank of Kuwait ("CBK") from disposing of shares in Boubyan Bank that it acquired because of a failed "repo" agreement with The Investment Dar ("TID").

KFH which has KD 44 million of exposure to TID apparently is arguing that CBK should not be allowed to sell the shares but rather that these should be placed at the disposal of TID's creditors.  As I understand it (and note that caveat), KFH is arguing that CBK is just another creditor of  TID and should share the collateral with other lenders.  The amount involved is significant.  At the last closing price, some US$387.5 million.  If you'll recall the estimate of assets versus liabilities, the creditors believed there was likely to be a shortfall in TID's repayment.  So including these shares in  TID's "estate" would improve the overall payback rate roughly 9 to 10%.

In any case, as per the article, the High Court has transferred the case to the Experts Department.

Some background:
  1. Boubyan Bank ("BB")  was formed in 2004 as an Islamic Bank.  
  2. In December 2008 TID sold CBK its BB shares (19.16% of BB) with an option to repurchase.  In effect what appears to be a form of "repo".
  3. Around this time NBK received approval from Kuwait Central Bank to purchase up to 40%  of BB.  NBK is interested in BB in order to expand its franchise into Islamic banking.  For those who don't know, NBK is the premier non Shari'ah bank in Kuwait and a very strong contender for that position throughout the Arab world.
  4. In May 2009 CBK announced that TID had failed to buy back the shares within the agreed time frame. And therefore it was taking control of the shares.
  5. June 14 NBK announced it had agreed to buy the shares from CBK. The price  was roughly $420 million.
  6. On 16 June responding to a motion from TID,  the Kuwaiti Court stopped the sale pending determination of ownership.
  7. In July/August 2009, KIA auctioned its 19.8% share in BB.  National Bank of Kuwait  won 13.2% and Securities Group 6.6%.  NBK previously held 14.3% or so.  After the auction, it held 27.5% of BB and was the largest shareholder. 
  8. NBK acquired Securities Group's shares plus some additional shares.   It is now the largest single shareholder in BB with some 40%.   And at the limit of shares it may own without further approval from the Central Bank of Kuwait.