As per GIH's financials, two deposits totaling KD115 million (US$402.6 million) have been attached or otherwise seized by third parties and are now the subject of legal actions.
KD71.75 million of this amount relates to an investment that GIH had intended to make in National Bank of Umm AlQawain ("NBQ") for KD183.6 million (US$642.5 million) to purchase a 20% stake. The two parties signed an MOU in July 2008. GIH placed the equivalent of KD 71.75 million (US$249.9 million) with NBQ. (I suspect the amount placed was US $ or AED as the amount fluctuates from one quarterly report to another. It would not if the amount were denominated in KD).
Subsequently, GIH obtained commitments for a US$410 million loan to fund the remaining amount of the purchase price. In November 2008, it decided not to proceed, canceled the loan and asked for its deposit back.
NBQ refused alleging breach of contract. See NBQ's 2008 Annual Report Note #13. (You will have to page through this as it is interactive).
Reportedly, a court in the Emirates gave the first round to NBQ. No doubt there will be several more rounds. The two parties' legal arguments are summarized in this article.
The second amount, KD43.2 million (US$148 million), is a deposit placed with a Kuwaiti bank by a subsidiary of GIH (AlThouraia) which that bank offset against obligations owed to it by GIH.
The total KD 115 million represents roughly 0.1% of GIH's total cash of KD89.6 billion. From that standpoint it's not a highly significant amount.
From an equity standpoint, if GIH were to lose the court case against the Kuwaiti bank, the result should be no impact on equity as it would merely be a substitution of liabilities - the liability of GIH towards the bank replaced with one towards AlThouraia. At some point GIH would have to make its subsidiary whole by transferring funds or other value.
With respect to the NBQ case, it's difficult to make a statement.
It is hard to understand the basis for this lawsuit. In other words hard to fathom how a properly worded MOU could create a contractual obligation. But then again AA didn't understand the structure of the convertible bond agreed to by Shuaa Capital and Dubai Banking Group. Since the NBQ/GIH deal is also structured as a convertible, it may be that some cutting edge financial innovation in the Gulf has produced a breakthrough in convertible deal structuring. Or then again maybe just a breakdown.
However, even if it did, the damage should be containable.
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