Al Abraj Holding Company Kuwait issued a press release on the Kuwait Stock Exchange today (text below) regarding press reports that Boubyan Bank had filed a bankruptcy case against it for non payment of loans.
In its press release AHC makes the following points:
- The loan from Boubyan was made in order to purchase a majority stake in International Leasing and Investment Company.
- The loan was secured by the shares in ILIC.
- With the decline in shares, the cover of the loan by the shares was less than agreed.
- Given that fact and that the company stopped servicing its debts, BB resorted to a court case.
- The Company received no formal advice/warning of the case from BB nor any official notice from the Court.
- Recently ILIC reduced its debts from KD 51 million to KD 39 million.
A bit of background on ILIC.
Islamic Development Bank Jeddah and Abraj are listed as the two main shareholders but I don't know recent percentages of holdings. The Company states that it operates according to Shari'ah principles in providing leasing services. It also makes investments in other companies. This seems to be a major activity.
You'll recall that ILIC is one of the six companies suspended from trading on the KSE, due to failure to release financial statements. The Company has not published its fiscal year 2008 nor any interim statements for 2009. In May last year it announced that the Central Bank of Kuwait had given it permission to hire Citibank as a consultant "as a specialized consulting agency, to examine and evaluate the company development and suggest the appropriate solutions".
The Company is clearly in financial distress.
Many of the names in its portfolio are Kuwaiti companies. And many of those are known to be in distress. There was an interesting phenomenon in Kuwait in the period just prior to the crash in 3Q08. Many industrial and other companies in Kuwait were making their profit from wise investments in the KSE rather than their core businesses. And that profit was largely based on increases in the carrying value of investments rather than ongoing cashflow. Money was borrowed from banks eager to increase their business to make these investments. And when they turned out to be an apparent wise idea, more money was borrowed to make even more investments. Banks were similarly eager to increase their business even more. A true meeting of commercial interests.
And, as though familiar with Kuwait know, there is often a "network" of related individuals and companies who trade shares not only to make a profit but also to prop up share prices. And perhaps in so doing keep local bankers happy with their collateral values as a result. The recent story of Nafais is just one example. For those who read Arabic, AlQabas has an account. For those who don't here's AlphaDinar's take.
Unfortunately, when the KSE "retreated", many an investment company ship was left stranded. And many a local banker felt his ankles get wet. Some their knees. A few their thighs.
And, as though familiar with Kuwait know, there is often a "network" of related individuals and companies who trade shares not only to make a profit but also to prop up share prices. And perhaps in so doing keep local bankers happy with their collateral values as a result. The recent story of Nafais is just one example. For those who read Arabic, AlQabas has an account. For those who don't here's AlphaDinar's take.
Unfortunately, when the KSE "retreated", many an investment company ship was left stranded. And many a local banker felt his ankles get wet. Some their knees. A few their thighs.
While it's unclear just how AHC reduced its debt by KD 12 million, one might understand that BB felt left out, which may be another motive for its lawsuit. If one isn't servicing one's debts, how does one reduce indebtedness roughly 24%?
To close out the story on Boubyan. Like many other financial institutions in Kuwait, BB is increasing its capital. BB by 50%. 583 million new shares are being issued at 155 fils (55 over par value). The rights offer will take place between 24 January and 7 February for shareholders of record as of 21 January.
AHC press release below.
[8:33:52] ِ.ايضاح من (ابراج)بخصوص ما نشر فى احدى الصحف المحلية امس
يعلن سوق الكويت للاوراق المالية بان شركة الابراج القابضة تود ان توضح
بخصوص ما نشر فى احدى الصحف المحلية امس حول رفع بنك بوبيان لدعوى افلاس
ضد الشركة ،تفيد الشركة، بان مديونيتها لبنك بوبيان ناتجة عن شراء الشركة
لحصة الاكثرية بالشركة الدولية للاجارة والاستثمار وقد كانت هذه المديونية
قد تمت تغطيتها بشهادة اسهم تغطى الكفالة البنكية مقابل القرض وبسبب
انخفاض اسعار الاسهم تم كشف التغطية الى ما دون المتفق عليه وبسبب
توقف الشركة عن سداد اقساط القرض فقد لجئ البنك الى القضاء لتحصيل
القرض علما بانه حتى تاريخ هذا الكتاب لم يصل اى اخطار من بنك بوبيان
او من قبل المحكمة رسمي بخصوص القضية المشار اليها .
وتفيد الشركة بان اجمالي القرض كان 51 مليون د.ك تقريبا وصل بعد التسديدات
الى 39 مليون د.ك تقريبا .
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