ABC Rights Offering: Libya to Underwrite and ADIA May Not Participate

ABC posted a "Board Circular" concerning its proposed US$1.110 billion proposed priority rights issue of 1,110,000,000 common shares.   

This document contains some highly interesting information:

1. Central Bank of Libya will underwrite the offer at quite an attractive fee. 
2. ADIA may not participate in the Offer, thus reducing its stake in the bank from 27.6% to 17.7%.
3. A strong signal that ABC is in the market to acquire a regional "universal" bank to diversify away from its volatile sub par wholesale businesses.
   
4. A candid assessment of ABC by SICO.

More detail on those points below, but first an introductory "tafsir" of sorts.

The Central Bank of Libya has agreed to underwrite the entire rights issue.  Under a priority rights issue, shareholders have an absolute right to subscribe for and be allotted a sufficient number of shares to maintain their percentage shareholding in the Offeror.  They may of course subscribe for less than that amount (in which case they are absolutely entitled to that amount) or more (in which case the amount allocated to them above their minimum right will depend on the action of other existing shareholders).   In a situation like this an Underwriter agrees to purchase any unsubscribed for shares.

Since there is a high likelihood that enough shareholders will not subscribe for shares,  the Central Bank of Libya ("CBL") will very likely acquire enough shares under its underwriting commitment to trigger a mandatory offer requirement under the Central Bank of Bahrain Regulations Module TMA Takeovers, Mergers, and Acquisitions  Section 3.1.  ABC's Board is soliciting shareholder approval to waive this right as the CBL is not prepared to acquire the bank.

ABC's shares are currently selling at US$0.67 a substantial discount  to par, US$1.00.  Under Bahraini law, the Offer must be at par.  There is no straightforward way to offer shares at a discount from par.  This poses a real problem.  Why would a shareholder pay more for a share through an Offering than he would pay in the secondary market?  

Since the government-related institutional shareholders are presumably not  actively trading their shares, then ABC's share price is being driven by the private sector investors.   That suggests to me that retail investors are unlikely to be enthusiastic about acquiring more shares at US$1.00 when they could potentially buy them at the BSE for US$0.67.  Assuming of course they have any interest in acquiring more shares.  If that were the case, then one would expect ABC's shares to be trading near par - especially in an illiquid market like Bahrain where just a few trades can move the price significantly.

The government related entities have a different agenda and as well more detailed inside information to inform their decisions.

Let's turn to the Board Circular:

The first bit of information that jumps off the page is the comment about expectations of participation in the offer by the existing institutional shareholders who own 93.6% of the bank.  The Circular states:  "ABC expects Kuwait Investment Authority (“KIA”) and all the Libyan entities to subscribe to the rights entitlement in full."  There is one remaining institutional shareholder, Abu Dhabi Investment Authority, with 27.6%.  It would seem that it would be quite easy for ABC's Board to ask ADIA if it intends to participate.  And equally easy for ADIA to respond.   First, it's not like this is a surprise question.  Second, ADIA can move quickly on investment decisions.  After all, it decided to plunk down the modest sum of US$7.5 billion in an investment in Citigroup with three days "due diligence" though perhaps the outcome of that transaction has lengthened and strengthened due diligence procedures.  My guess is that this silence means that there is a very strong likelihood it has decided not to open its wallet.  Hence, the need for an underwriting.  Because if it has not, what is the point of the Board engaging an underwriter to cover 6.4% of the shares?  Especially given the proposed underwriting fee is greater than 6.4?

That leads into the second bit -  the underwriting fee.  As per the draft agreement Clause 4 (page 19 in the Circular):  "In consideration of the Underwriter agreeing to underwrite the Issue pursuant to the terms of this agreement the Company shall pay to the Underwriter a flat underwriting fee of US$ 110,000,000."  That is, CBL earns the full fee regardless of how many shares  it actually acquires.   Some simple math.

1. This amount represents 10% of the total Offer.  
2. But surely the Libyans know if they are participating, so if we remove their shares from the "risk of purchase column", then the CBL is getting US$110 million to take risk that it might have to purchase 63.7% of the Offer.  In this case the effective underwriting fee is a whisker short of 15.7%. 
   
3. If it is reasonably certain that the KIA will participate, then CBL is really taking risk on 34%  of the Offer and earning an effective fee of  29.4%. 
   
4. If the same holds true for ADIA, then CBL is taking risk on 6.4% of the Offer and earning an effective fee of 156.3%.
5. You will recall I said above that there was no straightforward way to offer new shares at below par.  What's interesting here is that the KIA has apparently not objected to this mechanism and is content to purchase its allotment at par.  Presumably because it does not wish to increase its shareholding.

Let's look a bit more closely at the effective discount on the shares.

1. If every existing shareholder steps up for its shares and there is no risk of their not doing so, then the Libyan Group as a total acquires 403,395,812 shares for US$403,395,812 and receives US$110,000,000.  The effective discount is 27.3%.  This is the maximum discount.
   
2. If the KIA participation is certain but the remaining shareholders' participation is not, then CBL acquires 780,465,916 shares for US$780,465,916 and the effective discount is 14.1%.  (In case you're wondering I allocated the "missing" share in the Table on Page 12 to the Libyans).  This is the minimum discount.
3. Note in the cases mentioned above, I am assuming that if there is no risk of participation by a shareholder then the underwriting fee earning on those shares is in effect a disguised discount for CBL.
   

The third item is that from the discussion of the use of proceeds and the recommendation of the independent consultant. It's clear that in addition to organic growth ABC is looking to achieve its business transformation through the purchase of a stake in a universal bank. It's a bit early to speculate on potential targets.  Or is it?  Anyone out there who wants to nominate a target, please post a comment.

Those who know their ABC history know that this was the strategy at one point.  Under Abdulla Saudi, ABC bought significant shares in Banco Atlantico (Spain),  International Bank of Asia (Hong Kong)  ABC Brazil and Daus (Germany).   These were acquired I believe largely because at that time it was not possible for ABC to acquire MENA banks.  As well, Abdulla's strategy was to build a truly global Arab bank "champion".  According to my analysis, some of these (Atlantico , IBA) were disposed of  later (early part of this century) or stakes reduced (Brazil) to raise cash to help ABC over a rough patch so that it would not have to raise capital.

The final item is the review of ABC by SICO which discusses subpar performance relative to peers 6%. to 10% ROE versus to its peer's 15% to 30%.  Well worth a look.

The fundamental strategic issue that any of the commercial banking oriented wholesale banks (former offshore banks) in Bahrain face is that they do not have the solid foundation of a domestic business.  That affects both sides of the balance sheet.

They do not have a natural "home" market to develop assets.  They must go abroad to develop these.   (Note:  Since the Bahrain market is relatively small, even a domestic bank cannot develop a very large domestic business platform).  Usually, the foreign lender who rides into town has a set of unpalatable choices to develop any sizeable business.  It can be the "stufee" on loans underwritten by the local banks.  Then it gets a participation in a loan but very little or none of the ancilliary business that the home banks get.  Such loans will be priced at razor thin margins over a domestic base rate.  Foreign lenders like Bahraini banks (as opposed to say foreign banks from Europe with a strong domestic base) don't have access to the same funding at the same price so the miniscule margins are compressed even more.

If that is not palatable, the foreign bank can go downmarket to chase yield.  But here as a foreigner usually operating out of an office in New York City, it is hard put to understand such credits or to monitor them.   Thus, it winds up making a lot of bad underwriting decisions.

Another option is to load up on bonds instead of loans.  Both Gulf International Bank and ABC did that, relying on ratings and professionalism of the investment banking firms who sold them investment grade (at least nominally) sub prime securities.  Both lost $1 billion in 2008 with GIB's losses apparently even more (hence the sale of some US$5 billion of assets to shareholders).

The one potentially attractive business line is specializing in banking services for foreign customers in one's "home" market.  But here there is another disability, an offshore or wholesale bank in Bahrain cannot provide the same service as a retail or onshore bank in Bahrain.  And of course competing against a National Bank of Kuwait or Samba for business in Kuwait or Saudi is even more difficult.

The picture is not much better on the liability side.  Instead of a core of very stable and generally lower cost retail deposits, the foreign wholesale bank is dependent on bought money (interbank deposits) and placements by its shareholders (a form of disguised or quasi equity which of course earns very low returns relative to its equity like risk).  This means that funding costs are higher and more volatile.

Finally as offshore banks, generally there is no assurance of support from the Central Bank of the country.  This is true with wholesale banks in Bahrain whose size dwarfs the local banking sector.  Simply put, Bahrain does not have the resources to stand behind these banks.  Now, when there are governmental shareholders, the bank does not suffer as much in terms of ratings and funding costs as say those banks which do not have such shareholders.  But it still operates at a disadvantage.

This was the reason that Abdulla Saudi, a much under appreciated banker in some quarters, embarked on his acquisitions of Atlantico, IBA, etc. as discussed above.  

Golden Belt Sukuk 1 Management Advises Saad Group Not Responding to Info Requests

A disturbing disclosure on the Bahrain Stock Exchange today from Golden Belt Sukuk 1 management.

"Regular requests for various documents and information have been made by Golden Belt and the Delegate to Saad.  Saad has also been asked for money to pay various expenses of Golden Belt (which has no money of its own), including the BSE listing fees. Saad has neither acknowledged or responded to any of these inquiries."

One might understand an inability to provide money given that Maan's assets have been frozen.  It's harder to explain why information wouldn't be forthcoming.

Citibank is the Delegate on the transaction.   Golden Belt is managed by Ohad Trust.  Graham, is that your signature?

By the way it's not only the BSE listing that's in jeopardy if the company doesn't pay.  Golden Belt's Bahraini Commercial Registration (C.R. 65124-1) is up for renewal 9 May 2010.  And, as I've noted before, there's the very interesting fact that the registered owner of 99% of Golden Belt's shares is AlGosaibi Investment Company!

Markaz Analysis of GCC Banks

 Markaz has published another of its insightful research pieces.  This one is on the GCC banking sector in 2009.

Here's sample paragraph.

The year 2009 can truly be declared as a year of provisioning. The 61 banks in the GCC region are estimated to provide a whopping USD9.4 bn in provisions during 2009, a 40% jump from 2008 and a 5-fold increase from the modest level of USD 1.8 bn for 2007. As a percentage to loans, we forecast provisioning to hit 1.3% in 2010 as compared to 0.8% seen between 2003-2009.

Markaz provides a macro GCC analysis and then individual country and bank details looking at provisions, loan growth, and the loans to deposits ratio.

A very good review.

Mastercard Does Burj Khalifah

There is an absolute gem of a post over at the Gulf Blog.  Not only priceless but brilliant.

If you haven't seen it, click here.

Global Investment House - Shareholders Approve Restructuring Plan Collateral

GIH announced that at yesterday's ordinary general meeting of shareholders, the shareholders approved:

1. The transfer of US$1.4 billion equivalent of equity investments from GIH to Global Macro Fund (based in Bahrain).
2. The transfer of US$295 million equivalent of real estate assets in Kuwait  from GIH to Mushaa Islamic Real Estate Company Kuwait.
3. The pledge of these assets to GIH's creditors as part of the restructuring.

You'll recall that the Kuwait Stock Exchange had required that GIH obtain shareholder approval before it would allow the transfer of the company's holdings on the KSE to Global Macro Fund.

The use of holding companies for these assets accomplishes several things for the creditors.

Here are what I think are the key ones:

1. Provides control over the assets and the proceeds of  sales.  They are isolated in separate legal entities which will have their own independent financial statements.  Monitoring of each KD of cash flow will be quite easy.
2. Facilitates perfection of the security interest.
3. Facilitates transfer of ownership in default.  If there is a default, the ownership of the holding company can be transferred to the creditors.  That saves re-registering each individual security in the name of the lenders.  This is not only legally efficient but also cost efficient.
4. Enhances asset sale possibilities.  In addition to selling individual assets, each holding company could be sold in toto.
   

One other bit of news in the press release that caught my eye was the comment that:  "There is no security offered over Global Investment House KSCC, its core businesses and related assets, namely; the Asset Management, Investment Banking and Brokerage businesses."  I'm aware that GIH has a good track record in Asset Managment and Brokerage.  Frankly, I'm not aware of their Investment Banking franchise. 

These businesses do not have any significant amount of assets to pledge as they are primarily people based service industries.  Any real assets in these lines of business are owned by  the clients.

That being said, conceptually it is possible (at least in some jurisdictions) to pledge revenue streams.  Earlier I had read a comment in AlQabas to imply that this was being done.   The press release has settled that issue. 

GIH is now poised to go forward with its restructuring.  Assuming it is successful in realizing its assets,  it will emerge from this ordeal a much slimmer institution focused (at least initially) on intellectual  services rather than principal investments.  That is, it will make money by providing professional services to its clients rather than from its own proprietary investments.

Bahrain Tops Arab World in UN E- Government Survey

According to Dubai's Gulf News, Bahrain tops all Arab countries in electronic government readiness in the United Nations  E-Government Survey.  The Kingdom is also #3 in Asia and #13 in the world. 

The UN Report doesn't seem to have been posted yet on the UN's Public Administration Program website.

Here's the list as per GN.

1. Bahrain (13 globally – 42 in 2008)
2. UAE (49 - 32)
3. Kuwait (50 - 57)
4. Jordan (51 - 50)
5. Saudi Arabia (58 - 70)
6. Qatar (62 - 53)
7. Tunisia (66 - 124)
8. Oman (82 - 84)
9. Egypt (86 - 79)
10. Lebanon (93 - 74)
11. Libya (114 - 120)
12. Morocco (126- 140)
13. Algeria (131 - 121)
14. Syria (133 - 119)
15. Iraq (136 - 151)
16. Sudan (154 - 161)
17. Mauritania (157 - 168)
18. Yemen (164 - 164)
19. Somalia (184 - 183)

The Investment Dar - Latest on Restructuring

According to AlQabas, the Creditors' Committee held a meeting yesterday attended by representatives of those creditors who have agreed to the proposed restructuring plan as well as the Restructuring Officer ("RO").

Key points from the article are as follows:

1. First the article makes a point of describing the RO as representing the creditors.  AA:  In October TID announced it had hired Mike Grant as Chief Restructuring Officer to work as a consultant to assist the Company.  If he is now working for the lenders (but being paid by TID), then this is quite a significant development.  One I suspect reflects creditor concerns about existing management.
2. Discussions have been completed with a number of creditors about loans extended against pledges or assets.  These creditors have been informed that amounts due will be paid under the proposed restructuring plan and no single creditor will get separate funds as happened through last July.  AA: It's hard to imagine a secured creditor able to exit at  par or near par surrendering its collateral to take part in the restructuring.   And, if I am correct and there is no cram down of creditors, their participation cannot be forced.  So I'm not sure what to make of this. Perhaps these are creditors whose collateral does not cover their entire exposure.  In this case then the creditor's decision is predicated on his estimate of whether he'd be better "in" or "out" of the restructuring.  On the July reference, a key concern of creditors is that none are preferred over others, though a creditor has been known to make a "principled" exception when that preferred creditor is himself.  It's a very good idea for an obligor to treat all creditos alike as a matter of managing the creditor group to get a deal.
   
3. Investment Dar Bank Bahrain intends to appeal the judgment against it lifting the precautionary freeze of Investment Dar's assets.  AA:  If accurate, not good news for TID.  IDBB is a very substantial creditor.  If IDBB can tie up or get access to TID's assets, it can threaten implementation of the restructuring.  TID has significant assets outside Kuwait (though I don't think Kuwaiti law provides for a mechanism to force dissenting creditors to join a restructuring so creditors in Kuwait who refuse the restructuring could still sue there).  In Bahrain, TID is a major shareholder in IDBB itself as well as Bahrain Islamic Bank.  TID has major subsidiaries in Europe, Austin Martin and Grosvenor House Apartments.  So there are plenty of non Kuwaiti assets of significant size to attack.
   
4. The creditors discussed the criminal lawsuit against the Chairman of Commercial Bank of Kuwait and one of his assistants as well as other cases filed by TID with respect to its shareholding in Boubyan Bank.  AA:  You'll recall that in 4Q08, CBK and TID had entered into a "repo" agreement for the shares of Boubyan.  CBK's position is that TID defaulted and it was entitled to take ownership of  the shares on default.  TID's position is that the shares are still its property.  From CBK's vantage point, it would rather be a secured lender who took collateral (or the "Islamic" variant thereof) rather than join the restructuring.  In the first case, it recovers at least 100% of principal immediately.   National Bank of Kuwait no doubt remains interested in acquiring even more of BB.  In the latter case, CBK waits for several years with no assurance of full repayment.  And if one believes the earlier AlQabas article on the creditors' valuation of TID's estate, expectations are pretty much for an assured loss.  This is why this matter is of keen interest to the creditors.  Boubyan is a major asset in terms of value.   Getting it into TID's estate enhances their recovery.  Assuming the documentation was drafted tightly (and that is not necessarily certain), CBK should be on firm ground. 
   
5. With respect to TID's 2008 annual financials, the Central Bank of Kuwait has still not approved them.  The sticking point is that some notes and explanations are not yet acceptable to the Central Bank.  It was noted that the CB's approval was an extremely important matter for the creditors as it was a matter of confidence and a major "push" in implementing the deal.  That being said, creditors are apparently willing to move forward if the CB's approval is not obtained within a fairly limited time, then they will go ahead without it.   AA:  There isn't a consistent story on why the CB is refusing to approve the financials.  In its lawsuit reported on in an earlier post, the story was was that the CB objected to the "audit disclaimer".   Now it's that some notes and explanations are deficient.  In discussing this topic the article mentions "additional reserves and accounting entries"  --  perhaps a  hint at some or all of the issues.  My guess is that the CB does not believe the financials reflect the company's financial condition or position and will not release them until it does.  From the creditors' perspective  these historical financials are a matter of trust.  Loans are  settled by cash.   And repayment has to trump trust at this moment. By placing all the company's assets in dedicated liquidation vehicles and requiring that any asset disposition be approved by creditors, the issue of trust (or any lack thereof) is neatly settled.  One also presumes that the condition that future financials are subject to creditor approval would provide reasonable assurance of the integrity of financials going forward.  These of course will be very important in ensuring that the cash flow goes where it should: to repay the creditors.  Presumably, the financials of these liquidation vehicles will be subject to enhanced scrutiny by the creditors' committee as well as their approval.
   
6. There is a reference to 80% as the "final number" - presumably the creditors who have agreed.  
7. The Restructuring Officer is quoted as saying that TID is taking "rapid" actions to increase the value of major and prominent assets (for sale).  Austin Martin is cited as one example.
8. There is also a discussion about expense reduction from KD 14 million per annum to KD 6 million in 2009 with the goal of a further reduction to KD 4.6 million.  AA:  Since TID is essentially embarking on liquidation (or, if not a liquidation, shrinkage to a mere shadow of itself), expenses would naturally go down. Not much rationale for large bonuses - unless these are tied to the amount and speed of asset liquidations.
   
9. The meeting also discussed loans from TID to affiliated companies and the prospects for recovery.  AA:  A list of TID's affiliates in Kuwait suggests that 100% recovery may not be possible from these entities - either on an absolute or a present value basis.
10. Finally, the RO is quoted as saying that they had obtained confirmation from those organizations they had consulted with that the proposed plan is legal.  AA:  The KD64,000 question though is are the creditors who did not agree bound by the plan.  If not, how are the assets then pledged to only a segment of the creditors?      
    

INSOL - First MENA Conference in Dubai

INSOL International, the International Association of Restructuring, Insolvency and  Bankruptcy Professionals, will hold its first ever MENA conference in Dubai.

While given recent developments the choice of Dubai might bring a smile to more than a few faces out there, the conference has been long in the planning.  And as usual when there is an initiative to improve corporate governance, one finds Hawkamah involved.   They have been working closely with INSOL over the past few years to analyze the state of creditors' rights as well as the legal regime for corporate reorganization, bankruptcy reform in the area. 

In that vein you'll recall that the IBRD/IFC "Doing Business in the Arab World -2010" survey gave the UAE the lowest marks among the GCC states in insolvency and recoveries.  Earlier post here.

Dubai: Calls to Lift Immunity of Officials

Copyright The National Abu Dhabi

“If we want to recollect the wasted public money, everybody guilty has to be held accountable and those suspected need to be questioned regardless of their rank,” Gen Tamim told a press briefing. 

With a relative handful of cases - eleven - the Government of Dubai appears to have found DH3.58 billion ($975 million) in "lost" money.   So far 63 individuals have been identified, excluding those Lt. General Khalfan Tamim wants stripped of immunity.

This latter group is key for two reasons.

First, it doesn't include SR from Canada or JK from England.  But rather locals.  Very senior locals if they hold immunity.  If the Government of Dubai is serious, it is precisely this group that it needs to prosecute.  But in doing so it faces the problem of the societal disruptions this may cause.  The recent law to encourage the restitution of stolen funds may  well be an attempt to avoid or minimize such problems.  

Second, much larger sums are likely involved given these individuals' positions.   With US$60 to $80 billion of easy money sloshing around the Emirate there were ample occasions for "commissions",  bribes, overcharging, tag-along deals.  I suspect it's going to be quite easy to find individuals who by themselves are AED 3.58 billion men.

All this shouldn't be a surprise to anyone with a knowledge of regional business practices or anyone who was paying attention to the early signs - Philip Thorpe's comments in 2004 and the first round of corruption that became evident in 2008.  

Sadly, the Government of Dubai has not given strong anti-corruption signals in the past.  Thorpe's abrupt and harsh dismissal was a very clear message that the "old ways" of doing business were just fine even at the "Western" DIFC.  The pardon of the former Head of Dubai Customs another.  Though to be perfectly fair:  if we're going to be casting stones at corruption, we can focus on more local targets.  It's harder to throw a stone all the way to the UAE with the same velocity and impact as one closer to home.

Aayan Leasing and Investment - Restructuring Proposal

AlQabas quotes an informed source that Aayan's restructuring proposal contemplates a two year delay before starting assets sales.  During the interim Aayan will use its working capital to make  debt service payments.  No doubt with no or minimal principal payments during this period.  The goal is to allow time for markets to recover so that a higher value can be obtained for Aayan's investments which are primarily on the Kuwait and Saudi stock exchanges.  The company is reportedly planning a meeting with its bankers in the "coming days" to try to persuade the holdouts to agree to the proposal and get a "final read" on their position towards implementing the plan.

The last major loan was April 2008, when HSBC and Standard Chartered arranged a US$175 million murabaha facility.  13 participants in all.  Other than the two arrangers, Bank of Bahrain and Kuwait, Doha Bank, First Gulf Bank, KFH Malaysia, Emirates International Bank, Arab Investment Company, Asia Islamic Bank, and Nour Islamic Bank.  Plus some other "international" banks.

Initially Aayan's proposal appears a sensible approach.  But the decision to wait or fire sale  assets depends on the quality of the assets and whether there is a reasonable expectation they will recover.  Aayan's creditors have that information not AA.

Interestingly, Aayan's 30 September 2009 financials show KD 570 million in assets and KD 115 million in shareholders' equity (including some KD 44 million in minority interests).  As such, it would appear that creditors might be reluctant to wait for an asset rebound.  However,  among its assets, Aayan has KD 122 million of "Islamic Financing Receivables".  A few placements with other companies in constrained circumstances (e.g. Global or The Investment Dar) and these assets might be a lot less liquid than their contractual maturities would suggest.  And perhaps subject to less than full recovery.  

A bit of background on Aayan's default.  In 4Q08, Aayan defaulted on KD 51.6 million in murabaha payables and then suspended payment on the rest.  Total murabaha at 31 December 08 were roughly KD 400 million.   3 banks with exposure of KD 136 million agreed to assist with a debt restructuring.    Later Aayan got extensions of maturities to April and June 2009 from all but one creditor - a local money market fund who Aayan owe some KD 32 million.  It's been in discussions with creditors since then to come up with a deal.  At one point, it announced it had hired Tijari Finance (an affiliate of Commercial Bank of Kuwait) to assist it with the process.

Earlier posts on Aayan can be found using the label "Aayan" on the SAM home page.

Link to the KSE page on the company here.

New Dubai Government Media Office

Established as WAM notes "to enhance channels of communications with the local, Arab and international media community and mobilise resources and potentials necessary for conveying an accurate image of events going on in Dubai and delivering Dubai message via clear, objective AND affective style at bar with the highest international recognised professional standards and practices."

I suspect that's "effective style at par".

However, since journalists (particularly those impudent Western ones) are known  for frequenting bars, this could be quite a savvy strategy.  Chat them up in the bar, buy a few drinks.  Maybe a way that space at the top of the Burj Khalifah could be put to good use.  The Tip Top Tap.  And perhaps a Nady Al-Iftar.  (Apologies to the Allerton, though the TTT has been closed for many a year now).

Or maybe that's an English law reference as in "If you print something negative, we'll see you in court".   They say that some in Dubai see Singapore as their model.

Anyways, hopefully, the new office's press releases will be a bit more carefully crafted.  Or they'll provide WAM with better English translations.

Here at SAM we're filing this in multiple files as the tags indicate.

The two most important are:

1. "Лучше поздно чем никогда" Of the two this one is the most important.   One should learn from one's mistakes.  And it's never too later to start.  Especially in correcting one's mistakes in one's own blog!
   
2. Politically correct.  All the news "that's fit to print" fits the government line.  It is important to correct all that inaccurate press reportage out there.
   

Construction Industry - Background Primer

The Real Nick, who advises he works in the industry, has contributed some insightful comments. 

If you're not familiar or would like to check what you think you know, suggest you check out the comments here and here.

Burj Khalifa: Meeting Space at DH10,000 An Hour

The National carries an article about the cost of renting meeting facilities at the BK.

Some quotes from the article and comments.

1. High-flying businessmen will be able to host their board meetings on the uppermost floors of the Burj Khalifa when the commercial space opens this year.  AA;  Not sure if "high flying" is intended as a pun - in either of the two senses that occur to AA.
2. “At the top it’s very small space,” Mr Alabbar said. “So we’re going to lease it out for board meetings, for companies, for workshops, for Louis Vuitton doing their corporate board meeting in Dubai. It is the very top.”  AA:  More puns. "At the top".  This is almost as good as the press coverage of the "world's tallest hotel".  Small and exclusive.  Don't plan a large event it seems.  What sort of "workshops" would be appropriate for this venue?  I'm thinking annual budget setting.  And then perhaps later budget variance analysis.  Pass the canapes, Carl.  
   
3. “It would be a marvellous place for a meeting,” he said. “A large international company could have a corporate event and build some publicity around it. It could be a venue for landmark board meetings.”  AA:  A large international company having a small meeting or function it would appear. But no doubt there will be appeal and clients.  Kidding aside, this could be a useful financial tool.  If a company flew in its board to Dubai and rented space for a board meeting for a transaction, it could be a very good sell signal.
   
4. “The buildings are not investments on their own, but it adds value to the city itself.”  AA:  One hopes the building owner will enjoy a financial return on his investment unlike say another famous Burj in town.  
5. The main restriction for the event spaces would be their limited size. They are small because the building tapers as it rises higher.   AA:  Natural of course.  A very tall building has to taper significantly.  With extremely tall buildings the top floors may be pretty much dead space - small and odd shaped.   
   

The Investment Dar - More Creditors Agree to Restructuring?

Under the headline "80% of Creditors Approve Dar Debt Plan" Maktoob carries a story that additional creditors have agree to the restructuring.

Some quotes and comments.

1. Almost 80% have signed or will sign in the coming days," one person familiar with the plan said. "The number of creditors could reach as much as 90% in the next month or two."  AA:  Since implementation of the deal is being held as more creditors' approval is sought/obtained, I still wonder what the reference to the required two-thirds majority means.  If two-thirds were enough, then it would seem given TID's timeline work should be proceeding full bore.
2. Dar is expected to sell most of its assets to pay its debts after saying in May it had defaulted on a $100 million Islamic bond, or sukuk, as the Shariah compliant investment firm ran into trouble due to the global financial crisis.  AA:  The firm ran into trouble because of its business and business model.  The financial crisis was a contributing factor not the primary cause.  
3. A nine-member committee representing banks and creditors, that include HSBC Holding and Lloyds Banking Group, was set up to help arrange the restructuring of Dar's debt.  AA:  In terms of visibility, the Creditors' Committee has been largely invisible.  Bader Abdullah Al Ali , CEO,  of  Gulf Investment House, a relatively modest-sized regional investment bank has been the public spokesman in all the press statements I've seen.  Perhaps, this is because the majority of holdouts are local banks and it was felt that a local face would be more effective in securing approval from holdouts?
4. "In terms of the process, the legal framework for the proposal has yet to be drawn up," another person said.  AA:  If this is true, another indication that the deal is not yet done.  One would expect that lawyers would be busily scrivening away to meet the desired February close because once they prepare draft legal agreements the creditors have to be given time to review them and provide their comments which leads to another drafting round.
5. "The parties would like to be done by the end of February."  AA:  AA would like to own 23 Severn Road in Hong Kong, though I will settle for 10 Big Wave Bay Road.  Unless there is a miracle, both AA and the "parties" are likely to be disappointed with their respective wishes.   

More on TID by using the label "The Investment Dar" on the home page of this blog.

Burgan Bank Takes Majority Control of Bank of Bagdhdad

Burgan announced on the Kuwait Stock Exchange today that it had bought another 5.3% of Bank of Baghdad taking its total shareholding to 50.6%.  The new shares were acquired for US$10.7 million, thus valuing its investment at US$102.2 million.   Consolidation of results will begin with 1Q2010.

Burgan earlier acquired Baghdad Bank along with Algeria Gulf Bank, Jordan Kuwait Bank and Tunis International Bank from United Gulf Bank.  The deal was announced in May 2008.  Both UGB and Burgan are majority owned by KIPCO Kuwait and occasionally conduct transactions with one another.   The sales were concluded in stages - bank by bank - during 2008 and 2009.

Yes, United Gulf Bank declared a profit on the sale of the four banks to its affiliate company.

And, no, neither UGB or Burgan operate according to "Shari'ah" principles.

[8:51:41]  ِ.بنك برقان يزيد ملكيته فى اسهم بنك بغداد ليصبح شركة تابعة ‏
يعلن سوق الكويت للاوراق المالية بان بنك برقان افاد بانه قد اتم الاستحواذ ‏
على نسبة اضافية تبلغ 5,3% من اسهم بنك بغداد بقيمة 10,700,000 دولار مما ‏
يجعل البنك شركة تابعة لبنك برقان بنسبة ملكية تبلغ 50,6% ،وعليه فسوف ‏
يتم تجميع نتائج اعمال بنك بغداد ضمن البيانات المالية للبنك ابتداء من ‏
بيانات الربع الاول لعام 2010 .‏

Kingdom Holding – Follow Up

So what happened after Kingdom Holding Company ("KHC") made the announcement on 5 January 2010 about its planed reduction in share capital and the donation of 180 million shares of Citigroup stock by Prince AlWaleed Bin Talal to KHC?

On 6 January, trading exploded (in a relative sense) from 1.4 million shares the day before to 28.6 million shares. KHC's share price rose from SAR 4.7 per share to close at SAR 5.15. This gain of SAR0.45 was roughly in line with the value of the Citi stock contributed by Prince AlWaleed (SAR 2.24 billion divided by 6.3 billion shares of stock outstanding).

On 9 January, trading was similarly elevated with 20.5 million shares changing hands. The closing price was SAR 5.00 per share.

Let's look a bit closer at trading on the 9th.  Details are at the Saudi Exchange website.

1. With 6,3 billion shares, 20.5 million shares represent about 0.3% of total shares.  Looking at free float (5%), the day's trading is still small at 6.5% of free float (315 million shares).
2. There were 3,987 transactions for an average "ticket" of 5,152 shares.  Retail.  Small investors.

100 KM Per Liter - Congrats to Bahrain Training Institute Team

Copyright Gulf Daily News Bahrain

Congratulations to the students and faculty at BTI for their very good showing in the annual 2009 Society of Automotive Engineers (SAE) International Super Mileage Competition.  Bahrain competed against 45 other teams and placed a very respectable 19th.  Considering that other competitors had significantly more in the way of facilities and resources, Bahrain did very well indeed.

GDN account here.

Central Bank of Bahrain - Proposed New Regulation on Board Attendance

The CBB issued a consultation paper on 6 January with comments due by 30 January.

The proposal would make two main changes to the CBB's Module HC  "High Level Controls" which specifies corporate governance principles as well as the approval process for certain positions.

1. Board members would be required to attend 75% of all board meetings.  Attendance by video or telephone conference would constitute attendance as well as in person attendance.  The CBB encourages banks to amend their constitutional documents to allow video or telephone conference attendance at board meetings.
   
2. Publication of individual director attendance at (a) time of re-election (b) quarterly on the financial firm's website and (c) annually in the bank's audited financials details of each committee - number of meetings and attendance of individual directors.

Presumably, the consultation document evidences the CBB's concern that directors are not participating at a sufficient level in board meetings.

Sharjah Islamic Bank - AED 55 Million (US$15.1 Million) Exposure to AlGosaibi

You may have seen the reports that at the opening of its new headquarters building Muhammad Abdullah, CEO, of Sharjah Islamic Bank said that SIB's exposure to AlGosaibi is AED 55 million (roughly US$15.1 million).  In this article he is also quoted that the bank's capital adequacy ratio is 27% and that both liquidity and investments are strong.  He said profits for 2009 were good.

Last September SIB disclosed this as well as the fact that it had already taken provisions of 50% of its exposure as well as the fact that it has no exposure to Saad Group.   The Central Bank of the UAE had mandated a 50% provision for both Saad and AlGosaibi and a 100% provision for their banks (Awal and The International Banking Corporation).

SIB has about AED4.1 billion (US$1.1 billion) in shareholders' equity so the residual exposure should be no problem.

RTA Denies Work Stoppage on Dubai Metro

Here's the news item from WAM.

Two major points.

1. Work has not stopped.  AA:  The Reuters story mentioned a slow down in work, not a stoppage.
   
2. RTA also reiterates its contractual commitments to the flow of payments in accordance with the progress of work made in the project.  AA: It's unclear what precisely this means.  Does it mean payments are being made in accordance with progress?  But if this is the case why are the Japanese firms slowing down?  And why are they involved in negotiations with the project owner?  Is it over the work change orders?  Those who know their regional history will remember that contractors in Saudi had a big problem with payment for change orders in the 1980's.  Redec being a prime example, though at the time the Saudi Government claimed that the  the change orders were not properly documented.  Of course, at that time the Saudi Government also was having cashflow problems.  It's an often observed phenomenon that payments on contracts get scrutinized very very carefully and often rejected for technical reasons when cashflow is tight.  That way one technically isn't in default on the payment.  And of course the door is then open to negotiate, which often leads to negotiations on price.
   

Unpaid Japanese Firms to Halt Work on Dubai Metro

Rupert Bumfrey has a post on this.   Here's another from Reuters.

Some comments.

1. It's not unexpected that construction costs would increase from the original estimate.  As per the article costs have doubled.  Culprits are cost inflation in materials and change orders.
2. Also not unexpectedly despite the announcement that contractors would be paid, it does take time for money to move through the system.  While the unnamed company official has denied that they have a receivable of US$5.3 billion, even half that amount is serious money.

The problem may be that there isn't enough available cash.

The Emirate owes substantial unpaid amounts.  Dubai Metro is just one of the Emirate's projects.

New financing seems unlikely.   Government revenues are insufficient.  Shaykh Khalifa hasn't written another check.

This coupled with Shaykh Mohammed's waiving of fines for late CR renewals suggests that more economic pain is on the way in Dubai.  Despite this week's festivities for Burj Khalifa, there is a lot more pain in store for Dubai.

NY Judge Questions Whether Mashreqbank v Al Gosaibi Belongs in NY Courts

Bloomberg reports that New York State Supreme Court Justice Richard Lowe postponed a hearing and other proceedings in Mashreqbank v Ahmad Hamad Al Gosaibi and Brothers asking counsel to provide him arguments why the court case (and AHAB's countersuit against Mashreqbank over which he is also presiding) should be heard in New York.

“I find it incredible that everyone here represents someone over there,” Lowe told lawyers. “All of the parties, all of the witnesses, all of the documents here have to be translated from Arabic and I have to then apply New York state law,” he said.

A decision that Saudi Arabia is the proper forum could have an impact on the case raised by AHAB against Maan AlSanea in New York as well.

Dubai Ports to List on London Stock Exchange - The Not So Hidden Meaning

Wednesday, January 6, 2010

In March 2009 the Board of DP World stated it would evaluate all available options to address its continued disappointment with the markets valuation of the company.
After an extensive period of review with advisers, and discussions with shareholders, the Board of DP World has decided to seek a premium listing on the London Stock Exchange whilst maintaining the existing primary listing on Nasdaq Dubai. It is currently envisaged that we will seek admission for listing in the second quarter of 2010.
The Board remains committed to our shareholders in the region and believe that they will also benefit from this move.

Here's the link to the press release.

There are a couple of messages here:

1. DP World believes that investors on Nasdaq Dubai are not properly valuing it.  That speaks volumes about its view of Nasdaq Dubai and local investors.
2. It will seek its "premium listing" on the LSE and not on one of the other UAE or regional exchanges which similarly conveys its feelings about these exchanges.  For one thing  it would appear that DP World does not consider any of them to be "premium".
   

Interesting ideas from a Dubai Government related company.

The Gulf Curve "Nails" It

A brilliant quote from Saad at The Gulf Curve.

Interesting are days when the payment of an expected coupon payment is considered good news! DP World (BB+, Ba1) announced yesterday that they had paid out the semi-annual coupon payment due on its $1.5 billion sukuk that matures in 2017 - $46.9 million. DP World, which is not part of its parent's debt restructuring plans, also said it had completed a coupon payment of $59.9m for the period ending December 31, 2009 on a $1.75bn bond issue due in 2037.

Global has also announced its making scheduled debt payments as well. 

Quite a different market we're in these days where the major story is debt service not growth.

Allah

This news item doesn't need much comment.

It's not a proper name.

The label "Manifest Absurdity" says it all.

IMF Researchers Review Lobbying by US Financial Firms - Those with the Most to Spend Have the Least to Offer

Three IMF researchers claim those US financial firms who lobbied the hardest engaged in the least sound activities and had the lowest profitability.

Those who can compete in the market do.  Those who can't lobby for profits.

Study here.

More Signs of Distress in Dubai? HH Shaykh Mohammed Lifts Penalties for Non Payment of CR Registration

Today WAM carried an announcement that HH Shaykh Mohammed Bin Rashid Al Maktoum had issued "a decree exempting companies operating in Dubai from all fines imposed on them for not renewing their licences of practicing the profession on time".

The press release notes that:  "The move is part of Sheikh Mohammed's sustained support for the business community in Dubai. It underlines his keenness to find effective alternatives and solutions to spur activities of businesses in a positive approach."

But ever the contrarian AA believes that if this is a significant enough problem that HH is getting involved  then it must be fairly widespread.

And, if so, is that a sign of corporate distress?  Or just that entities who are able to pay are refusing?

Burj Khalifa - Now the Tricky Bit: Filling It Up

The National has an article on the tricky bit that follows the "launch" of a building- attracting tenants and getting them into the building.  This is a case of value for money.  A case yet to be made.

Kuwaiti Ministry of Commerce and Industry Delays Ordinary Shareholder Meeting of Al Imtiaz Investment Kuwait

Revised after more carefully reading the Arabic text above.  How did I miss the word "tajil"?  It couldn't be in larger print.

AlQabas reports that the Kuwaiti MOIC has abrogated the earlier ordinary general meeting of shareholders of Al Imtiaz Investment Company Kuwait (a Shari'ah-based investment company) as this was not called by the Chairman nor did he attend.  The meeting was held based on the request of the Vice Chairman.   The new meeting is limited to accepting the resignation of certain directors and the election of their replacements.

The above notice from Al Imtiaz notes that it is postponing its OGM originally called for 10 January 2010. And will publish a further announcement when the date is reset.

Kingdom Holding Company Issues Press Release on Capital Reduction

Kingdom Holding issued a press release which  provided additional details on its proposed capital reduction as well as announcing that Amir AlWaleed was donating 180 million shares of his personal holdings of Citibank to KHC.

1. The 180 million Citibank shares represent an immediate profit for KHC of some SAR2.24 billion (roughly US$597 million).
2. The capital reorganization is designed to "enable KHC to distribute dividends to the Company’s shareholders".  Earlier post here, he says while patting himself on the back vigorously.
   

Both moves are portrayed as evidence of commitment to KHC and as steps that will enhance its borrowing capacity.

On that latter point ---

When AA labored in the DCM field, we focused on the total of shareholder funds and  the quality of the amounts therein.  We weren't really all that fussed about the balances in the individual equity accounts unless these affected our legal rights as lenders.

Reducing paid in capital and offsetting accumulated losses in retained earnings are just bookkeeping entries - moving money from account "A" to account "B" within equity.  The total amount of equity stays the same.   While it helps shareholders get dividends,  I can't see that it does anything  to strengthen the lenders' position. 

Perhaps, this move is for local banks?  Of for those "bankers" who believe in implicit guarantees?

A Dubai Carol - Stave V - But Not Quite the End of It

"A remarkable boy! Do you know whether they've sold the prize Turkey that was hanging up there -- Not the little prize Turkey: the big one?"

The FT reports that various law firms, accountants and sundry other advisors mouths are a-water at the thought of US$100 million in fees associated with Dubai World's restructuring.

We are taking nominations for the role of "founder of the feast".  Submit your entry via a comment.

And so, as Tiny Tim observed, God Bless Us, Every One!

If not every one, then at least the successful firms who will feast on the restructuring.  Certain folks always come out ahead in restructurings.

Omani New Income Tax - Effective 1 January 2010

Rupert Bumfrey has a post on this topic.

Here are some commentaries by accounting firms.  BDO Jawad Habib (soon to change its name to just BDO).  And Deloitte.

The major change is a reduction in the rates paid by foreign owned companies, though there are some other modifications, outlined in detail in the BDO Jawad Habib piece.

Saudi CMA Approves 41% Reduction in Kingdom Holding Capital

The Saudi Capital Markets Authority has approved an approximate 41% reduction in the paid of capital of Kingdom Holding Company subject to approval by shareholders at an  Extraordinary General Meeting.  Securing shareholder approval won't be a problem as Amir AlWaleed owns 95% of KHC.

The proposal is to reduce the number of shares from 6,300,000,000 to 3,705,882,300 and the capital from SAR 63,000,000,000 (US$16,8 billion) to SAR 37,058,823,000 (US$9.9 billion).

As per information at the Saudi Stock Exchange, KHC's shareholders' equity has decreased from SAR51.2 billion (US$13.7 billion) at 31 December 2008 to SAR22.3 billion (US$5.9 billion) at 30 September 2009.

A bit of hopefully informed speculation:  The reduction is an accounting exercise designed to eliminate negative retained earnings.  KHC will move roughly SAR 26 billion from the paid in capital account to the retained earnings account.   The transaction has no economic effect.  It is designed to have a legal effect.

Why would KHC want or need  to do this?

While I don't know the corporate law in Saudi, I assume that there are restrictions on the payment of dividends by companies with negative retained earnings.  As well, it could be a matter of optics.  It's hard to sell shares in a company with negative retained earnings - the growth story is less believable.

Global Investment House - Denies Deal With Arab African International Bank

GIH issued a press release on the Kuwait Stock Exchange to deny reports in the local press that it had concluded a deal with Arab African International Bank Egypt (in which the KIA owns roughly 50%) to sell its Egyptian real estate subsidiary to AAIB.

First, it rejected the idea that the sale was part of a "quid pro quo" for AAIB agreeing to join the rescheduling.  It also noted that AAIB had told one of the Egyptian newspapers that the transaction was not related.

Second, it noted that discussions were in a preliminary stage and that no deal had been concluded.

As part of the restructuring, GIH is selling assets to repay its debt so this transaction is expected.  What would be interesting to know is whether these negotiations are the result of a bidding process that AAIB won or AAIB is the only interested bidder.  Or if AAIB is a preferred bidder.  If the latter, then there may be something to the "quid pro quo" story.

The KSE announcement (Arabic text only) is below.

[9:0:57]  ِ. ايضاح من (جلوبل) بخصوص ما نشر في احدى الصحف المحليه ‏امس
يعلن سوق الكويت للأوراق الماليه انه قد ورد اليه الان من شركة
بيت الاستثمار العالمي (جلوبل) انها تود أن توضح بخصوص ما نشر في ‏
احدى الصحف المحليه امس حول تخارج بيت الاستثمار العالمي (جلوبل) من ‏
حصته في بيت التمويل للتمويل العقاري المصري تود الشركة ان توضح ما يلي:‏
ِ1- ان تخارج (جلوبل) من شركة بيت التمويل للتمويل العقاري لصالح البنك ‏
العربي الافريقي الدولي ضمن تسوية ديون هو خبر غير صحيح .‏
ِ2- ان المفاوضات مازالت في مراحلها الاوليه .‏
ِ3- في تصريح لجريده مصريه نفت مصادر بالبنك العربي الافريقي الدولي وجود
اى علاقه بين عملية الاستحواذ و تسويه المديونيات المستحقه للبنك على
شركة (جلوبل) .‏

Stehwaz (Istiwath) Holding Company - Shareholders' Legal Complaint Against Board and The Investment Dar

AlQabas reports that 47 shareholders of Stehwaz Holding Company -شركة استحواذ القابضة  - have raised a legal complaint against the board of directors, the auditors and the parent company, The Investment Dar ("TID").  As its name implies, Stehwaz is involved in mergers and acquisitions as well as pre IPO transaction.  The company has some 5,000 shareholders.   TID and Efad Group are the major shareholders.  Efad is also a major shareholder in TID.

AlQabas describes this as an "unprecedented" action by shareholders against a Kuwaiti company.

These 47 shareholders' allegations (and note that word) consist of the following:

1. After undertaking the increase in the company's capital to KD 250 million, TID caused the company to enter into a series of contracts for its benefit allowing it to take most of the capital of the company.
2. One example is the sale of Madar Investment Company - which allegedly resulted in a KD 50 million profit for TID and no benefit to Stehwaz.
3. Another item in the list of complaints is the company's lending activity.  The shareholders allege that it is unclear if  KD 3 million obtained by the Board is loan or another type of facility.
4. Exaggeration (overstatement) of goodwill in the amount of KD 50 million.
5. A pattern of conducting real estate transactions solely with related parties - reaching an amount of approximately  KD 300 million.  Stehwaz supposedly conducted these with  just three related parties  from among the founding shareholders.  The complaint specifically raises the point that no real estate transactions were undertaken with other market participants.  The thrust here seems to be a concern over purchases of real estate.  That logically would be one of overpayment.   AA:  In 2007, Stehwaz had KD 450 million in total assets.  The company has not released its 2008 financials.
6. Funding provided to TID via wakala and tawarruq transactions - a major issue given the constrained financial position of TID.

The complaining shareholders are requesting guarantees from those parties who benefited from the transactions described.  That is the first step in seeking to impose personal liability on  member of the board of directors.  An initial (statutory) fine of KD5,001 is also being requested as well for the decline in share value to KD 20 fils.

The Court is to hear the case 11 February.

Some observations.

1. Another bit of bad news for TID in securing creditor agreement to its rescheduling proposal, particularly in light of the charges made in this complaint.  Without full details and noting that this is only a complaint and not a legal judgment against TID, these are the sort of activities that could be behind the Central Bank's delay in approving TID's financials as well as some of the content of the restructuring proposal.  Earlier post here. 
   
2. As well, this suit is reminiscent of some of the issues that the Ministry of Commerce and Industry is pursuing with respect to related party transactions. Earlier posts here and here. 

It's important to re-iterate that these are unproven allegations at this point.  The Kuwaiti Courts will determine if they have legal merit and if sufficient evidence is provided to substantiate them.  In any case this is not good news for TID, particularly at this critical juncture.

Burj Khalifa

AlphaDinar has an interesting article on the surprise naming of the Burj and the economics of the new building.  Well worth a look.

This is similar to donors to universities having buildings named after them.  And in some cases a big enough contribution gets the donor's name attached to a school. 

Shaykh Khalifa is only lending US$ 25 billion to Dubai so it's just his name on the Burj.   At least for now.

Saad Group: Al Sanea Resists Deposition

The National reports that Maan AlSanea's lawyers are resisting his giving a deposition in Saudi Arabia in connection with a lawsuit against him by AlGosaibi.

Wouldn't an elegant solution be for the Court to ask him to visit New York to give the deposition?

Theater of the Absurd – The “West” End

From the US "liberal" site "Talking Points Memo".

First, a quote that is too good to pass up from TPM's daily email. "As Sen. Schumer (D-NY) calls for stronger security measures at foreign airports, his colleague, Sen. Kerry (D-MA), is denied entrance to Iran." AA: Unclear if the two are related.

Second, a more detailed quote from Senator Schumer: "You don't have to be Albert Einstein to realize that flights that originate in foreign countries pose a greater danger," said Schumer, who also added: "What's crucial is that we immediately send many more of our TSA agents to the airports to check on their compliance." AA: I believe all the aircraft hijacked on 11 September 2001 were domestic flights.

BSEC Firing on All “Cylinders” – Another ABS Auto Deal

BSEC announced another automobile related ABS deal. This time for Bassoul & Heneine.

This is the second ABS for B&H – "Cylinder II".

The structure is a mirror image of Rymco. And again the issuer is holding Tranche B.

Here's the earlier press release on Rymco Drive 1.   And earlier post.

Cylinder II has been terms - lower price and longer tenor.  This is probably reflective of a combination of things:  better market conditions and the fact that Rymco Drive was a debut issue.

BSEC also has issued some interesting publications on securitization and related issues in Lebanon.

Kudos again to the fine folks at the BEMO Group and the even finer distinguished banking family of Obegi.

When the Going Gets Tough, The Tough Unilaterally Reinterpret Their Contracts

Article from The National here on Mashreqbank's unilateral change of base rate on mortgages.  Spoiler: it's not a decrease.

I believe the relevant technical term is chutzpah.

But wait there's more - perhaps technically rising to the level of egregious chutzpah

Mr Beckett said. Mashreq has waived refinancing fees until the end of March so customers can take their business elsewhere if they choose.

Yes, indeed.  Banks in the UAE are falling all over themselves to make new loans for more than the value of the property.

New Addition to Links - LSE / Kuwait Programme on Development, Governance and Globalisation in the Gulf States

A new addition to the roll of Interesting Blogs and Other Links:    Kuwait Programme on Development, Governance and Globalisation in the Gulf States.

This looks to be an excellent source of information on a variety of topics concerning the GCC.

And as Kristian Ulrichsen noted in a comment to my earlier post, they also offer seminars in London.  BTW in addition to co-ordinating academic content, he is also a post doctoral fellow who seems to specialize in GCC security matters.

Here's a link to their "Events" page.

And finally a tip of AA's virtual tarboush to the Kuwait Foundation for the Advancement of Sciences who is the "founder of this feast".

2-1 !

HH Shaykh Mohammed Bin Rashid AlMaktoum - Anniversaries

 

This week marks two important anniversaries for Shaykh Mohammed.  Accession to the throne.  And election as Vice President of the UAE (5 January).

A variety of tributes and celebrations have or will take place.

Here are some of the customary homages.  And here as well.

There is more information at the Shaykh's website.   If you read his poems (Nabati style), the original Arabic is preferable to the English translation.

SAMA Governor Denies Saudi Bank "Settlement Deal" with Saad

In an interview with the Saudi Newspaper, Al Iqtisad, HE Dr. Mohammad Bin Sulayman Al Jassir, Governor of the Saudi Arabian Monetary Agency denied that there had been any settlement among the Saad Group and Saudi banks.

Continuing he noted that since AlGosaibi and Saad were commercial enterprises SAMA had not right of supervision - either directly or indirectly.  Thus, it had to rely on the banks for information.  They told SAMA that they had offset the collateral they held against their loans.  The article does not  contain any comment on how much of the exposure was collateralized/offset.   Governor Al Jassir noted that this was something that foreign banks had been doing as well.  His point being that offsetting collateral is a normal banking practice.

He also said that the uncovered portion of both local and foreign banks' exposure remained a problem and that as far as SAMA knew there had been no settlement between Saad and its creditors.

Some observations:

1. Banks get to choose on what basis to lend their clients:  secured or unsecured.
2. Lenders with security (and properly drafted legal documents) have the right to take possession of and realize the security upon the occurrence of certain defined events.
3. It may be that Saudi banks were relatively more collateralized then foreign lenders.  As a side note, one of the interesting patterns in lending is that often foreign lenders impose fewer conditions on borrowers than local lenders.  Generally, those foreign lenders, often Western, justify this by their greater sophistication in underwriting and their more developed risk management skills.  Of course, competition plays a role.  Pricing and requirements are the two ways to compete for a borrower's business.
   

LSE Study on Nationalism in the GCC

This is part of the Kuwait Project on Development, Governance and Globalisation in the Gulf States being undertaken by the LSE.   The report is available here. 

Here is a description of the Kuwait Project.

There are more interesting publications from the Project available here.

And more to come judging by the list of proposed and in-process papers listed.

This looks like an excellent source of information and analysis on the GCC.

Dubai: Jailed Businessmen Buy TVs for Inmates

Some businessmen jailed for financial crimes in Dubai bought flat screen televisions for inmates as the prison management refused to replace old non functioning models. 

The Investment Dar Wins Lawsuit (Administrative Court) Against Central Bank of Kuwait for Non Approval of Financials

The 1 January 2010 edition of AlQabas carries the news that TID has won a lawsuit in the Administrative Court against the CBB for its refusal to approve TID's 31 December 2008 financials.  The Court  abrogated the CBK's decision to refuse to approve TID's  financials and awarded provisional compensation KD 5,001 (US$ 17,500).  The competence of the court to hear the case was challenged by one of the parties (unstated, but presumably the CBK.) and this matter was referred to the Circuit Court  (?) #10 who are expected to review the matter on 28 January 2010.

Most of the article - roughly three-quarters - consists of a letter that TID says it sent the Central Bank on 14 July 2009 (and which appears to be part of the  documentary evidence submitted for the case).  The letter states that the financials were fully prepared and signed by both auditors, though the auditors stated that they were unable to give an opinion (in accountant-speak a "disclaimer of an opinion").   TID argues that the auditors had no issues with the company's assets, did not find any violations of law, etc.  and so the disclaimer does not mean there are any of these sort of problems.  TID states (in the letter) that CBK asked for the removal of the disclaimer.  TID pointed out that the auditors had the "first and last" word on their opinion and that the company could not compel the auditors to make a change and that to do so would be to violate Kuwaiti law.  The letter ends with a statement that CBK's refusal is causing serious damage to TID and its shareholders.

Some reactions to the news story:

Global Investment House released its financials on 26 April 2009.  These contain an audit disclaimer.  If the disclaimer in TID's report is broadly similar to that in GIH's, it is hard to understand why the CBK would approve GIH's financials but hold TID's.   Unless there were other serious factors involved.  The alternative explanation - that the CBK is engaged in a vendetta against TID -  doesn't seem credible to me.

As a side comment, GIH's audit opinion is dated 3 February.  The release date suggests that the CBK required roughly three months to content itself with GIH's financials.  

What might those factors be?  And what might be some signs? 

1. GIH's financials were submitted fairly quickly to the CBK.  The presumption is shortly after the auditors signed off on them - 3 February 2009 - and GIH's board approved them.  TID's took a bit longer.   TID explained this as the need for "additional reporting requirements" in April 2009. 
   
2. At the request of creditors, the CBK appointed a special monitor at TID.  It did not at GIH.
3. As a result of negotiations with creditors, TID appointed a Chief Restructuring Officer.  Creditors at GIH did not require this.  The two creditor groups are not exactly the same so this may reflect their different composition.   Or there may be another reason. 
   
4. TID's restructuring agreement - as described by AlQabas - contains strong statements about increasing transparency and strengthening corporate governance.   There is also what might be a telling condition:  All asset sales to be undertaken on a sound basis (sahih), legally done, at market prices and not to related parties.  Without direct knowledge of the negotiations between TID and its creditors it's not possible to know what motivated this requirement.  One might infer that a provision of this sort is designed to prevent the recurrence of an event.  Then again creditors often impose "silly"  or "belt and braces" conditions given the dynamics of restructurings.
5. Similarly, the restructuring agreement gives the creditors' committee power over the company's financial statements - that is, creditors have the right of approval over financials.  Again there is no way of knowing for certain why this was included.  One might infer that this reflects some creditor concern about the quality/integrity of the financials.  And then again it might simply be creditor "overkill" in imposing conditions.
   
6. Finally that same report said that TID was submitting its financials to the CBK for approval.  It may be that with progress in the restructuring negotiations the auditors were willing to remove their disclaimer (no opinion).  Or perhaps there were some changes to the contents of the report.  As outsiders it is difficult to know.  However, auditors are generally reluctant to stick their necks out.  And in difficult situations like a restructuring, their natural caution increases. I would expect that until the definitive legal documentation for the restructuring were signed by all parties, the auditors would be cautious about issuing a "clean" audit opinion.  One compromise could be a "matter of emphasis" opinion - in which they put their concerns into a note to the financials.
   

It seems to me that there is more to the delay than just the auditors' disclaimer.  I don't have the impression that the CBK is capricious or vindictive.   It would seem to have some questions or concerns about TID's financial position.  But we will have to wait to see what happens when TID's financials are released.