Friday, 13 November 2009

Kuwait Stock Exchange Warns 25 Companies of Potential De-Listing - Sign of Continued Financial Stress in Kuwait

The press reports that 12 November the KSE warned 25 companies that unless they provided  their 3Q09 financial statements by this coming Monday it would suspend trading in their shares.    Earlier this year in May, the KSE gave just such a warning and suspended firms - many of whom are from the distressed "investment firm" sector.  Suspension is lifted when the financials are provided.

The key takeaway from this announcement is that serious distress in the financial sector continues.

Current data on the KSE website differs from the press accounts  Perhaps, an earlier KSE statement was amended.  The latest KSE statement (Arabic only) is here.  (Note:  This news page will be updated on  the next trading day (Sunday) and so after then this link won't be valid).

In the latest statement the KSE's warning is to only 23 firms. 

First, you're probably asking yourself about the discrepancy.  The press reports say 25.  Suq Al Mal  says 23.  I presume the difference are the two firms the KSE suspended this morning:  IFA (investment firm) and Watha'iq (insurance company).  The KSE also suspended the trading of Commercial International Bank Egypt.  As noted above, all three stocks are suspended until the provision of their 3Q09 financial reports.

Second, 6 of the 23 firms are already suspended.  These are probably the stragglers from the 26 the KSE suspended last May. So the potential incremental trading suspensions  are 17 not 23.

Third, let's look at the data a bit closer to see what conclusions we might draw from it  Industry categories are per KSE definitions. The first number followed by a "W" is the number warned.  The second number followed by an "S" are those already suspended:
  1. Banks:                       2W 0S
  2. Investment Firms:   11W 2S
  3. Real Estate:              2W 2S
  4. Industrial Firms:       3W 2S
  5. Service Firms:          4W 0S
  6. Parallel Market:        1W 0S
As noted above the presence on the list of two banks and 11 investment firms (there are 46 investment firms listed on the KSE) indicates the serious distress in the Kuwaiti financial sector  continues  The investment firms have been particularly hard hit losing something on the order of KD 9 billion (US$31.5 billion).  And are currently locked in difficult negotiations with the local banks over debt restructurings as well as the provision of new finance.  Here's a recent article from AlQabas about an upcoming meeting called by the Association of Investment Companies with the Association of Kuwaiti Banks to discuss those two topics.  It's titled "Crisis in Financing (to be discussed) in Meeting between Association of Banks and Investment Companies".

Fourth, the financial statements of all banks and investment firms licensed by the Central Bank of Kuwait ("CBK") are subject to its approval prior to release.  This gives the CBK considerable leverage over these firms.  It can demand changes in the financials.  And it can use the approval process to press for a firm's acquiescence to other of its requests.

Fifth, let's look at the three names on the list which were mentioned in the press accounts:  Commercial Bank of Kuwait, Burgan Bank and Aref (Investment Firm).

One possible interpretation of the delay is that discussions are ongoing between the CBK and these two banks over the level of their provisions (the most likely sticking point between banks and the CBK) and/or as a way of encouraging them to commit to raise new capital.

The inclusion of Aref is a bit of a surprise.  In late September Kuwait Finance House (KFH)  - a 52% or so shareholder in Aref - announced that it was providing facilities so that Aref could reschedule some KD 132 in liabilities.  So Aref should be well placed to finalize its 3Q09 report.  Not clear why they have not. 

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