Central Bank of Kuwait - New Regulations on Investment Companies

AlQabas published a summary of key elements in a recent Central Bank of Kuwait general circular to investment companies subject to its supervision.

Here are the main points.

The new regulations were approved by the CBK's Board of Directors on 8 June 2010.  More details to be advised later. 
 

They apply to both parent and affiliate/subsidiary investment companies.  And on a consolidated basis.

Three key ratios are at the heart of the new regulations.

1. Leverage Ratio:  Total Liabilities to Equity may not exceed 2:1.  Liabilities are "all" liabilities except for general and specific provisions.   This definition appears to include accounts payable, other liabilities, etc.  Not just debt to financial institutions or bondholders.  Total Equity excludes Treasury Stock and losses.  What's not clear is the treatment of  "fair value" and similar reserves. representing unrealized profits.  Those familiar with "history" in the area know that a lot of financial firms got in trouble by borrowing against "fair values" which later reversed.  And in some cases may never have existed in the first place.  Declaring profits against these fair values, paying bonuses and dividends against them, etc.  So the treatment of this element in equity is key.  Probably a limit on the amount of fair value that can be included in "Equity" is one solution.  What I'm thinking of is something similar to Basel II's treatment of the components of equity - Tier 1, Tier 2, and Tier 3.  Otherwise, "clever" bankers may discover  or manufacture hidden value in their balance sheets and thus undo the constraint. 
2. "Quick" Ratio:   Liquid assets equal to 10% of Total Liabilities must be held.  Liquid assets are those than can be liquidated within a month and are composed of cash and deposits with the Central Bank and other financial institutions; Kuwait Treasury Bonds and similar Government paper including Central Bank of Kuwait paper;  other sovereign debt rated BBB or above.  Ratings must be from S&P, Moody's, or Fitch.
3. Maximum Foreign Debt Ratio:  No more than 50% of Equity as defined above.  Foreign debt appears to be defined by location of the creditor (credit from "non residents") not the currency in which the debt is denominated.   At a leverage ratio of 2:1 then only 25% of debt can be to non residents.

The new regulations and ratios apply as of 30 June 2010.  If a firm is not in compliance, it must make efforts to improve its compliance with the final date to meet all the requirements no later than 30 June 2012.
  

Dr. AlHashel to the New Capital Markets Authority. Sh. Mishal to the Central Bank?

Both AlQabas and AlWatan report that Central Bank of Kuwait Deputy Governor, Dr. Mohammed Y. AlHashel has agreed to take up the post of the head of the newly formed CMA.

AlQabas reports that Shaykh Mishal AlJabir AlAhmad Al Sabah has been chosen to replace him as Deputy Governor at the Central Bank.  Shaykh Mishal is currently Assistant Undersecretary at the Ministry of Commerce and Industry where he is also head of the Office of Investment of Foreign Capital.

Dr. Mohammed is described as both an academic and a banker.  More importantly he is seen as active and decisive - two things that are required for the position.

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 .‏

AlGosaibi v Maan AlSanea - AlGosaibi Attempts to Enlist Kuwaiti Banks Against Saad

AlQabas reports that AlGosaibi and its counsel (Saudi and American lawyers) met with Kuwaiti banks exposed to both AlGosaibi and the Saad Group to request that they unite their legal actions against Saad by forming an alliance whose goal would be the combining of their individual legal documents and other evidence, including any forged documents or documents suspected of being forged to strengthen the legal position of all creditors in recovering their money through the legal process.

At the beginning of the meeting the Kuwait banks reportedly indicated their intention not to co-operate with one party of the debtors.  

The representatives of AlGosaibi responded by:

1. Assuring of the start of a "new page" of co-operation between AlG and its creditors.  You'll recall earlier that AlQabas had carried a report that Kuwaiti creditors were frustrated with AlG's responses to their attempts at contact and negotiation.
2. That the Kuwaiti banks should have a permanent representative in the creditors committee in Riyadh and Dubai so that they would learn "in near proximity" (first hand) what was happening.
3. That 70% of the AlGosaibi Group's wealth had been designated to pay its debts.

The banks responded to the last point by noting they were not going to entertain any discounts on the debt from any party (either AlG or Saad).  And that they were on the verge of taking legal steps against Saad.  This is described in the last paragraph of the article as the filing of cases in Saudi by some and by others in the USA.

The article then notes that the Central Bank of Kuwait has instructed Kuwaiti financial institutions to provision 100% for AlG and Saad exposure by 31 December 2010.  Three banks have almost already achieved that level.  It being understood that some banks had relatively small exposures.  As for those with larger exposures it's expected that they will require until the end of the year.

Assuming the article is correct, what's interesting about this is the apparent attempt by AlGosaibi to enlist creditors in its campaign against Maan AlSanea and the Saad Group.  As you'll recall, AlG has accused Mr. AlSanea of forging certain documents to obtain loans in AlG's name but then using the funds for his own purposes.  And, as you'll recall, Mr. AlSanea vigorously denies these accusations.

AlG appears to be trying to bolster its accusations of wrongdoing by Mr. AlSanea  by enlisting third parties to join in its campaign.  By portraying itself as the innocent victim of wrongdoing,  AlG may hope to  deflect creditor anger and pressure (from itself) to Mr. AlSanea.  A tactic, that if successful, might also set the stage for a later justification for a discount on the debt.

The Investment Dar - Financial Stability Law - Central Bank Appoints Ernst and Young

AlQabas reports that it has learned that the Central Bank of Kuwait has appointed Ernst and Young as consultant to study TID's financials.  E&Y is said to have received the formal engagement letter yesterday (4 May).

As you'll recall from the earlier discussion of the Financial Stability Law, there are several steps in the process.

Once the special FSL Court has received the completed application from an investment company to enter under the FSL, the Court issues an immediate but temporary stay.  After interested parties receive formal notice of this action from the Court, they are given time to file any objections as to why the Court should not continue with the FSL process (which ultimately may result in the cramdown of dissident creditors through the staying of all legal cases).

At the end of this period and if there have been no objections or the Court did not find any of them compelling, it issues another notice and refers the debtor's case to the Central Bank of Kuwait.

That's the point we're at now.  The relevant chapter and verse from the FSL is Part 3 Article 19.   The CBK is to study the debtor's financials and determine whether a restructuring makes sense.  In other words can the company be saved?  If not, the company should be liquidated.  It then also evaluates the proposed restructuring plan to determine if it is  fair as well as sufficient to allow the company to continue as a going concern.  The CBK has four months to submit its report, though t is allowed an additional four months if required.  It's very important to note that the FSL gives the CBK the power to amend the restructuring plan if the CBK believes changes are required.

AlQ also mentions that next week TID's and the Creditors Co-Ordinating Committee's lawyers will meet in Dubai in a small working meeting to discuss certain (undescribed) details of the restructuring plan that they were unable to cover in the last meeting.

The article also notes that various courts have delayed hearing open cases and appeals related to TID until 17 and 24 May.  Technically these are not finally stayed until the FSL Court issues its final acceptance of the plan - which will follow the Central Bank of Kuwait's report.  The courts are  therefore going to keep these cases "live" but "napping" until the FSL Court issues its final ruling.  That way, if by some chance the FSL Court rules against TID's request,  the courts can proceed with these cases.

Kuwait International Bank - Dr Mahmoud Abu Al Uyyun as General Manager

AlQabas reports that KIB has secured Central Bank of Kuwait approval to appoint Mahmoud Abu AlAyyan as General Manager.

Mahmoud is a long serving banker of Egyptian origin.  He was Deputy to Egypt's Director at the IMF, Deputy Governor of the Central Bank of Egypt, Governor and Chairman of the Board of the Central Bank of Egypt.  He's also been an economic and financial advisor at the Kuwait Fund for Arab Economic Development.  The AlQ article details his other banking experience.

A pair of safe hands to implement the new strategy.

The Investment Dar Clears Another Hurdle in Its Restructuring

Citing a well connected but unnamed source, AlQabas reports that the Financial Stability Law Court has issued a decision halting all legal cases against TID.  As you'll recall the FSL procedure is that upon the receipt of a request from an investment company (accompanied by all necessary documents), the FSL Court issues a temporary stay and notifies creditors who have a limited time in which to submit their objections.  That step has come to an end with the Court upholding TID's entry under the FSL process.

So while as AlQabas headline says "TID Breathes a Sigh of Relief After the Freezing of Court Cases Against It".  The next step is for the Central Bank to study the proposed restructuring plan and report back to the Court on whether it supports it or not.

I think the CBK will approve the plan.  It's an important step in restoring financial stability to the country.  So if it has a reasonable chance of success, the CBK will probably approve.

As well, a decision by a Kuwaiti Court does not necessarily stay court actions in other jurisdictions unless those jurisdictions are convinced that the proceedings in Kuwait under the FSL are equivalent to their own bankruptcy/insolvency/restructuring regimes.  Again I think other jurisdictions will give Kuwait the benefit of the doubt.

AlQ notes one wrinkle and that is that ("Islamic") murabaha holders had conditioned their acceptance of the restructuring on their being given priority of payment over other creditors given the difference of their position versus other creditors.  Essentially that argument was that they had deposit or trust arrangements as discussed in an earlier post.

The article goes on to note that the recent travel disruptions in Europe had caused the postponement of Creditors Co-ordinating Committee meetings.  The CCC will meet on Monday and then with TID with on  Tuesday.  Venue Dubai.

Topics are the possibility and modality of the accommodation with Commercial Bank of Kuwait regarding the Boubyan Bank shares.  Creditors are reportedly concerned about two things.  First, that time is a factor.  A key concern is that if a fixed price contract is struck, BB shares may decline in value before implementation.  Then the parties interested in buying (note the use of the plural) will decide to pick up the shares in the market rather than pay above market.  Second, the creditors want to discuss getting their cut of the proceeds from any sale. 

Other topics are the role of the CCC in the period while the FSL process moves forward (CBK review, approval, etc). A process expected to take several months. And whether the Chief Restructuring Officer should be given additional duties for the implementation phase.

Previous posts can be accessed using the labels "The Investment Dar" and "Financial Stability Law".

The Investment Dar - 2008 Results KD80.3 Million Loss

TID has issued a press release on its 2008 financials (Arabic only).  The actual financial report or extracts from it (balance sheet, income statement, etc) don't appear to have been released yet.   So this is a preliminary review.

What are the major financial headlines?

1. 2008 net loss of KD80.3 million.
2. Total assets of KD1,200 million.
3. Total liabilities of KD1,000 million.
4. Shareholders' Equity of KD168.5 million.  A quick look at the above numbers suggests that this does not include minority interests.

Once the financial reports are issued, I post again with an analysis of the numbers.  

The announcement had some other important information:

1. First, we (that is TID) were able to pass through this crisis of asset valuation (definitely nothing to do with our business model) through patience, deliberateness and sound planning.  I'm going to pause for a moment or two while I compose myself.  Luckily at this hour there is no Turkish coffee to spill.  There is apparently plenty of praise to go around and it's only fair to mention all those who deserve it, including oneself.  
2. Elsewhere in the press release TID thanks the Central Bank and the Governor again, the Central Bank's "man" at TID, investors, banks, the Co-Ordinating Committee, TID's advisors, the creditors' advisors.
3. We confirm the soundness of the financial position of TID the improvement in the value of the assets with the recovery in markets  will enable us to discharge all of our obligations.
4. We are committed to implementing the terms of the restructuring which more than two-thirds of our creditors and investors approved as the best solution to exit from the crisis.
5. A significant component of all our assets have values much higher than their accounting values.
6. The provisions and write-downs are both unrealized and temporary.
7. A couple of times elsewhere in the release it's mentioned that more than 80% of creditors and investors approved the restructuring plan as the best way forward.

Now fair is fair (and AA is nothing if not fair).  Earlier I had granted an award of sorts to Dr. Esam Janahi and Gulf Finance House for creative thinking in press releases about their own financial difficulties.  Private sector competition of course. 

Tonight I'm going to have to re-award that honor to Adnan Mussalam and  his team at TID.  Dr. Janahi and his team are going to have to settle for the silver.

How was TID able to pull off this last minute sprint for the Gold?

The three primary factors in their victory were (in order of importance).  

1. Their trumpeting that their losses are not just unrealized.  But are also temporary. 
2. The self-praise. While the entire phrase "with patience, deliberateness and sound planning" was especially well crafted, it was the bit about sound planning.  That's sort of like the chap who  doesn't know how to swim, jumps in the English Channel, gets pulled out just before he goes down for the third and final time and then credits his athletic training and foresight for not drowning.  It takes a special sort of competitor to pat himself so vigorously on the back after falling into such a self-made disaster.
3. Presenting recourse to the Financial Stability Law as a major positive instead of the last recourse to prevent the restructuring from unwinding. 

Of course there were some negative marks for not mentioning the soundness of TID's business model.  Not having a reference to non core assets also cost a few points, though not that many since TID probably has to sell off most or all of its assets to repay its creditors.  It's difficult to use that last expression if one doesn't have a reasonable amount of core assets.

But in the game of life one doesn't have to be perfect, just a bit better than the other contestants.

The Investment Dar - More on the "Thanks"

The Arabic language version of TID's press release is on their site this AM.   I'm looking forward to the English language translation.

On the same topic, AlQabas (whose site I couldn't reach last night) ran the press release with a screen shot of TID's website with its headlines about 2007 results with the caption "The remembrance/reminiscence of 2007 profits continues".

The Investment Dar - Central Bank Approves 2008 Financials

AlWatan (Kuwait) carries a press release issued by TID announcing that the Central Bank of Kuwait had approved its 2008 audited fiscal report.

What a difference a day makes!  From a bitter lawsuit against the Central Bank to what might charitably be described even by local standards (and AA is a very charitable guy) as fawning praise.  

After thanking HE Shaykh Salim Abdul Aziz Al Sabah, Governor of the Central Bank of Kuwait for approving its 2008 financials, TID takes this apparent first opportunity to launch into an encomium which occupies the major part of the press release.  TID praises the wisdom,  high level of professionalism, advanced technical proficiency, and hard work of the Central Bank in preserving not only the financial sector but the entire economy of Kuwait from the thick clouds of the global financial crisis which affected all parts of the globe.

The press release also notes that TID's assets have improved with the turn in the market, its financial position is strong, and it will meet its obligations.

The press release ends with thanks to Ahmed AlWunyan of the Special FSL Court who accepted TID's restructuring after studying it with the Central Bank of Kuwait.

Commentary on The Financial Stability Law by Attorney Abdul Razzaq Abdullah

Here's an interesting piece on the FSL by Attorney Abdul Razzaq Abdullah of the Kuwaiti law firm Abdul Razzaq Abdullah and Partners.

In the article he makes the point that legal protection from creditors under the FSL is not automatic.  There are procedures to secure the initial protection and then the debtor must continue to fulfill its obligations under the restructuring in order to maintain it.

Another of his key points is the key role of the Central Bank of Kuwait in the process in both the initial approval and subsequent monitoring.

Kuwaiti Banks Prepare to Sue Saad and AlGosaibi

AlQabas reports today that KFH, Commercial Bank of Kuwait, Gulf Bank, and Burgan Bank today launched the first steps towards suing the two groups after becoming convinced that negotiations had reached a dead end.  From the article, it sounds like negotiations never took place.  Quoting unnamed banking sources, AlQ says that the complaints were lack of response to repeated contacts (no answers) or agreeing to meetings but not showing.  Kind of hard to conduct negotiations under those conditions.

The four banks are owed some US$1.5 billion.  Legal advisors have apparently been selected.  Formal launch of legal proceedings is not expected for at least one month while loan files are put together (I'm assuming this refers to work at the lawyers since presumably the banks had their files together for their negotiations) and a decision is made as to where to file the suit.  Complicating factors are the diversity of governing laws for the debts (English, Kuwaiti, Saudi are mentioned), different types of credit extensions - bi-lateral loans, syndicated loans (in which Kuwaiti banks are participants). And I'll presume since KFH is involved some are structured as "Islamic" loans.   The latter point - where to file - will be a choice of the  most preferred/advantageous law (from the creditors' standpoint)  as well as the opportunity to put "hands" on the two group's assets.  

The Central Bank of Kuwait is said to be fully supportive.

The article notes that international banks are also reported to be getting ready to launch legal actions.

It also comments that Ahli United Bank has already (and it's been some time now) sued Saad Group in New York.

And what is perhaps the most relevant point here, the Central Bank of Kuwait has told the banks that they must comply with its request for 100% provisioning for the two groups by 31 December 2010.

Judging by that latter comment, I suppose the appropriate thing to do here is wish the banks in Kuwait الله معكم

The Investment Dar - Court Accepts TID's Petition to Enter FSL Process

TID announced on the KSE Sunday that Advisor Muhammad Abdullah AlWunyan, Agent for the Court of Appeals,  Member of the Technical Committee, and Head of the Special Office for Company Restructuring had accepted the petition and accompanying documents submitted by TID to place its restructuring under the Financial Stability Law.

According to the FSL, the acceptance of this request means that legal proceedings are now stayed.   However, this is not the end of the matter.   This now launches the procedure described in my earlier post.  Here's some additional background on the FSL.

Creditors have fifteen days after receipt of notice to object to the stay.  If there are no objections or if there are but the stay is upheld, then the Court has to determine the financial position of TID and whether with the restructuring TID can function as a going concern.   Whether the Court will accept the work already done by the Creditors' Co-Ordinating Committee or require this work to be performed again will become clearer as more time passes. 

Arabic text of TID's press release below.

[13:0:22]  ِ.تطورات خطة اعادة الهيكلة المالية لشركة دار الاستثمار ‏
يعلن سوق الكويت للاوراق المالية بان شركة دار الاستثمار افادت بانها تقدمت ‏
بطلب الى رئيس الدائرة الخاصة بطلبات اعادة هيكلة الشركات بمحكمة الاستئناف ‏
طبقا لاحكام المرسوم بالقانون 2 لسنة 2009 بشان تعزيز الاستقرار المالي .‏
وبتاريخ 11-03-2010 قرر المستشار محمد عبد الله الونيان وكيل محكمة ‏
الاستئناف وعضو المكتب الفني ورئيس الدائرة الخاصة بطلبات اعادة هيكلة ‏
الشركات بمحكمة الاستئناف قبول الطلب المقدم من شركة دار الاستثمار بشان ‏
الدخول فى قانون تعزيز الاستقرار المالي والمستندات المرفقة به وامر ادارة ‏
الكتاب بالمحكمة باستيفاء باقي الاجراءات المقررة بالمرسوم رقم 2 سنة 2009 ‏
بشان تعزيز الاستقرار المالي.‏
واستنادا الى نصوص المرسوم بالقانون رقم 2 لسنة 2009 بشان تعزيز الاستقرار ‏
المالي يترتب على قبول رئيس الدائرة الخاصة بطلبات اعادة هيكلة الشركات ‏
بمحكمة الاستئناف لهذا الطلب وقف كافة اجراءات التقاضي والتنفيذ المدنية ‏
والتجارية المتعلقة بالتزامات الشركة وذلك لحين الانتهاء من التصديق على خطة
اعادة الهيكلة .‏

Global Investment House - KD 148.8 Million Loss for Fiscal 2009

GIH announced its 2009 audited annual results today.  Below is the press release on the KSE.  The English press release and the Arabic on the Bahrain Stock Exchange include extracts from the actual financial report. 

Here are the 2009 numbers followed by the 2008 comparatives in italics.

1. Net Income KD148.826 mm (US$520.9 mm).  KD257.649 mm (US$901.8 mm) 
2. Total Current Assets KD494.030 mm.   KD813.93 mm.
3. Total Assets KD832.759 mm.  KD1,251.763 mm.
4. Total Current Liabilities KD80.792 mm.   KD759.099 mm.
5. Total Liabilities 609.981 mm.  KD912.979 mm.
6. Shareholders' Equity KD162.853 mm.  KD303.487 mm.

As you might expect would occur right after a rescheduling, GIH's auditors have raised an emphasis of matter regarding the going-concern assumption on which the 2009 financial statements were prepared. They note that GIH's management is confident that the Company can continue its activities as a going concern.  The Auditors also call attention to the KD71.2 mm deposit which the National Bank of Umm AlQaiwain is blocking and which is the subject of a lawsuit between GIH and NBUQ.  Earlier posts on that topic here and here.

The press release also notes that the Board has decided not to distribute any cash dividends this year, which seems a wise move given the loss.  One would also expect that GIH's creditors may have had a hand in this matter - one way or the other - since no doubt they are trying to capture all cashflows for the worthy purpose of reducing their exposure. 

One other point worthy of note the CBK approved GIH's financials on 11 March.  Given the weekend, this is very prompt disclosure on GIH's part.

After another cup of Turkish coffee, I'll post some initial comments on the financials.

KSE press release below.  As usual Arabic only.

[9:25:37]  مجلس ادارة (جلوبل) يوصي بعدم توزيع ارباح عن عام 2009‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة بيت الاستثمار العالمي
ِ(جلوبل) قد اعتمد البيانات المالية السنوية للشركةللسنة المالية المنتهية ‏
في 31-12-2009، وفقا لما يلي:‏
ِ1) نتائج أعمال البنك:‏
البند          السنة المنتهية في 31-12-09   السنة المنتهية في 31-12-08‏
الربح (الخسارة)(د.ك)       (148.826.000)         (257.649.000)‏
ربحية (خسارة) السهم(فلس كويتي)       (122)                  (225)‏
اجمالي الموجودات المتداولة   494.030.000            813.930.000‏
اجمالي الموجودات            832.759.000           1.252.763.000‏
اجمالي المطلوبات المتداولة      80.792.000            759.099.000‏
اجمالي المطلوبات             609.981.000            912.979.000‏
اجمالي حقوق المساهمين      162.833.000            303.487.000‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 261.000 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 1.936.000 د.ك
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ
ِ11-03-2010.‏
ِ2) التوزيعات المقترحة:‏
أوصى مجلس ادارة الشركة بعدم توزيع اى ارباح عن السنة المالية المنتهية
في 31-12-2009 .‏
ِ3) أفادت الشركة ان تقرير مراقبي الحسابات يحتوى على التأكيد على موضوع على ‏
النحو التالي :‏
بدون التحفظ في رأينا ، نلفت الانتباه الى الامور التاليه :‏
أ) كما هو مبين في الايضاح رقم 29 حول البيانات الماليه المجمعه المرفقه ،
تخلفت الشركة الام في 15-ديسمبر-2008 عن سداد تسهيلات مشتركه بمبلغ ‏
ِ200 مليون دولار أمريكي (55 مليون د.ك) و بالتالي ، علقت سداد اى مدفوعات ‏
مستحقه من أصول الدين لصالح البنوك و المؤسسات الماليه بعد ذلك التاريخ ،
و قد أدى التخلف عن السداد هذا الى تفعيل أحكام استحقاق كافة الالتزامات ‏
القائمه الوارده ضمن مستندات الاقتراض للمجموعه و بالتالي اخفاق للمجموعه ‏
في تسديد كامل التزاماتها ، بالنسبه للسنه الماليه المنتهيه في 31-ديسمبر-08‏
فإننا لم نتمكن من الحصول على أدلة تدقيق كافيه و موثوق فيها لتحديد ما اذا ‏
كانت المجموعه سوف تتمكن من الوصول الى اتفاق حول اعادة هيكلة التزامات ‏
الدين و تحديد قدرتها على متابعة أعمالها على اساس مبدأ الاستمراريه، لذلك
فأننا لم نعبر عن رأينا حول البيانات الماليه المجمعه للسنه الماليه ‏
المنتهيه في 31-ديسمبر-2008 في تقرير التدقيق المؤرخ في 3-فبراير-2009.‏
في 10-ديسمبر-2009 ، وقع اعضاء مجلس ادارة الشركة الام اتفاقيه مع مقرضي
المجموعه لإعادة هيكلة التزامات الدين . و كنتيجه لتوقيع اتفاقيه
اعادة هيكلة الدين ،  فإن إدارة الشركة الام على ثقه من قدرة المجموعة ‏
على متابعة اعمالها على أساس مبدأ الاستمراريه . و بالتالي ، فإننا الان
في وضع يمكننا من ابداء الرأي حول البيانات الماليه المجمعه للمجموعه ‏
للسنة الماليه المنتهيه في 31-ديسمبر-2009.‏
ب) كما هو مبين في الايضاح 24 حول البيانات الماليه المجمعه المرفقه فيما
يتعلق بالدعوة القضائيه المرفوعه من قبل الشركة الام ضد بنك في دولة ‏
الامارات العربيه المتحده بخصوص الافراج عن وديعه بمبلغ 71.8 مليون د.ك
ِ(31-ديسمبر-2008 : 69.1 مليون د.ك ) لاتحمل فائدة .‏
ِ- فقرة الرأي : ‏
في رأينا ان البيانات الماليه المجمعه تعبر بصورة عادله  من جميع النواحي ‏
الماديه عن المركز المالي للمجموعه في 31-ديسمبر-2009 و عن أدائها
المالي و تدفقاتها النقديه للسنه المنتهيه بذلك التاريخ وفقا للمعايير ‏
الدوليه للتقارير الماليه المطبقه في دولة الكويت .‏
و عليه سوف تعاد الشركة للتداول بعد عشر دقائق من نزول الاعلان .

Commercial Bank of Kuwait 2009 Profits KD0.154 Million

AlQabas reports that the Central Bank of Kuwait has approved Commercial Bank's 2009 financials.  Net profit is reported as being KD154,000 after heavy (but unquantified) additions to provisions.  The Bank reported net profit of KD100.7 million for 2008. 

However, this year earnings have been "subdued" as the Bank has built provisions starting in the Second Quarter.  At 30 September 2009, it reported a net loss of KD1.6 million.   So this is not big news if you've been paying attention.

Central Bank of Kuwait Worried About Possible Ratings Downgrade

According to AlQabas it has learned from  high level banking sources that at a meeting held 3 days ago with chief executives and general managers of local banks, Yusuf AlAbid, Head of Banking Supervision, expressed concerns that the rating agencies might downgrade some Kuwaiti financial institutions as they had done in the UAE.

He anticipated that this would not be done for new reasons, but because of the operational situation the banks in Kuwait faced.  A particular note was sounded about the banks' loan problems with investment companies.

While this isn't stated in the article, I wonder if these concerns could lead the CBK and other relevant authorities to push the TID through the FSL.  With the conclusion of GIH's restructuring, TID is highly visible.  The amount is large.  Its restructuring is still hanging.  There's unfortunate publicity - the BLOM case for one.   Lack of progress may cause the rating agencies  to "mark down" ultimate recovery and  reflect that lower value in their rating of individual lenders. From a country reputation management perspective, it is probably ideal to move this case to "implementation".    Declare it is a success. If there is  a problem it's likely to be a year or so down the road,  And for that period, TID won't be a drag on the banks or the country.

Group to Make Offer for Kuwait International Bank

AlQabas reports that a local group of investors is ready to make a bid of KD0.500 per share to the major shareholder (BuKhamseen Group) for its 33% share in the bank as a prelude to securing majority control through purchases on the KSE.  The offer is conditioned on obtaining Central Bank of Kuwait approval.

KIB is the old Kuwait Real Estate Bank which now operates as an "Islamic" Bank.  For the past week or so its shares have been trading in a range of KD0.228 to KD0.248 per share.  So the offer represents a substantial premium over the market price.

As reported earlier here and here, there are some potential financial troubles plaguing Mr. Jawad BuKhamseen, who is the owner of the major shareholder.  I wonder if any of the old shareholding group who left after a falling out with Jawad might be staging a comeback?  The investor group is described as being composed of investment companies, manufacturing companies and individual investors.

Here's a link to KIB's page at the KSE.

The Investment Dar - Local Banks Reportedly "Comfortable" with Use of Financial Stability Law

Quoting unnamed banking "sources" AlQabas reports that local banks seem to be comfortable with TID using the Financial Stability Law as a tool to implement the restructuring.  As you're aware, while TID has advised that it has all the necessary legal documents ready, it has not sought to implement the restructuring because dissenting creditors are still pursuing the company in court.  The FSL contains a cramdown mechanism and so this would be a way to remove the legal weapon from their hands.

Two other points in the article worthy of note - perhaps much more worthy of note than the first for the implications they carry.

1. Morgan Stanley (advisor to the Creditors Committee) reportedly has two studies - an optimistic and a pessimistic one.  Under the former the banks recover 100% of their dues.  Under the latter 78%.  AA:  This is perplexing because in such a case it would make absolutely no economic sense for a creditor to sue.  Are the facts being fixed around the FSL requirements?  What's also clear here is that when the restructuring is over, TID which has pledged all its assets to the restructuring is going to left as little more than two guys, one desk and maybe a prepaid phone.
2. The sources also did not hide their concerns (literally fears) as to how the FSL might be applied to TID.  This would be the first use of the law.  AA:  I've posted some thoughts on possible issues.  One major stumbling block remains the company's 2008 audited financials and the Central Bank of Kuwait's apparent insistence on what would seem to be from the debate between CBK and TID to be rather substantial provisions and write-downs.

It's pretty clear that creditors (or at least 80% of them) are eager to close this file by implementing the restructuring.  Perhaps, the authorities in Kuwait are also interested in removing this case from the newspapers.  If there is a will, a way can be found.

Earlier posts can be accessed using the label "The Investment Dar".  My thoughts on the FSL are here and applicability to TID here.

The Investment Dar and the Financial Stability Law - What's Involved?

 

TID has been unable to secure the acceptance by 100% of its creditors to its restructuring plan.  A sufficient number of these creditors have launched or plan to launch legal actions.  Since these actions could derail the restructuring, TID has recently indicated that it is considering resorting to the cramdown procedures available in Kuwait's Financial Stability Law to stop this legal threat.

Let's run through the pertinent bits of the FSL.

1. TID has stated it does not require any new financing so it will focus on the legal protections afforded under the FSL.  That's probably a good thing because I rather doubt that Kuwaiti banks would rush to lend TID more money even with a 50% Kuwaiti Government shortfall guarantee. 
2. The basic condition for the cramdown procedure is that the investment company have sufficient capital, be able to continue its business and meet its obligations.  The FSL is not to be used as a cover for winding-up companies.  TID would then be subject to a study of its viability.  The question is can it pass?  My recollection of earlier accounts of the restructuring is that the restructuring seemed to be pretty much a disguised windup.  All the assets were being pledged to the lenders and all of them would have to be sold in order to have the possibility of 100% repayment.  That probably explains why 20% of creditors have chosen not to get on to the restructuring "boat" but are pursuing their claims in court.
3. The FSL requires that that study be performed by a specialist company.  To determine if it is viable and as well to provide the basis on which to found an appropriate restructuring plan.   Will the Court take the existing analysis on TID and the "agreed" restructuring plan with no need for a  new study?  Or will it require another study of TID's financial standing and viability?  Note that as per the Implementing Regulations Article 43 this study is the same as if TID were applying for financing under the FSL (Implementing Regulations Article 23).  If a new study is undertaken, could this reopen the terms of the restructuring deal?
4. And here the issue of TID's 2008 audited financials could be critical.  As of yet, the Central Bank of Kuwait has not yet given its approval.  All the press reports I've seen indicate that sticking point is asset valuation - with the CBK pressing TID to take some significant writedowns or provisions.  These must be quite major because the parties have been arguing over them since late last summer (by my calculation).  It's hard to see the FSL process going forward without audited financials.  They are for the "magic" date of 31 December 2008.   If the CBK mandated write offs are severe as they appear to be,  then TID may be on the borderline between solvency and insolvency.  And recall the test is not just solvency but capital adequacy.
5. Under the FSL, the CBK must appoint or approve the specialist who undertakes this study.  Will the CBK approve the creditors' or the company's consultants?  The choice could be material in determining whether TID "passes" or "fails" the viability test.  Earlier press reports said that there was a rather wide value in assessment of repayment with the company's consultants very optimistic and the creditors' consultants predicting a significant shortfall.  No doubt one reason why some creditors are pursuing repayment through the courts.  One potential solution would be to throw both studies out and come up with a new one.
6. But, if a new consultant is engaged, there is a "danger" that it could come up with its own restructuring plan.  One that might have terms not to the liking of one or both parties.  For example, an extended repayment tenor.  A debt to equity conversion.  A haircut.  And even if no such dire things occur, TID and its creditors may be looking at four+ more months of waiting.
7. As part of the process, the Central Bank of Kuwait must provide its own report on the restructuring plan to the Court.  Presumably, its statement would be critical.  If it opposed the restructuring, that would likely greatly lessen the Court's probability of approving the deal.  If it supported the restructuring, that would be a powerful argument for the Court to approve.  This process also apparently gives the CBK the opportunity to comment on the plan itself.  To suggest helpful amendments or new points.
8. Assuming the plan is approved by the Court and then implemented, the CBK becomes the monitor of adherence.  That could prove a double edged sword as in the discharge of these duties, the CBK make a decision one or both parties might not like.  
9. Finally, as per the Law, if the agreement is implemented by the Court and TID subsequently breaches  it, the CBK can ask the Court to abrogate the restructuring, thus re-instating creditors' rights to sue under their old contracts.  With a deal outside the FSL, there might be more scope for "forgiveness" by the banks over borrower transgressions under the agreement.

Of course, there is an old financial principal at play that can trump all of the above.  Where there is a will there is a way.  Or to paraphrase a canny Scot, facts are sometimes fixed around the policy.  AA has seen this done more than once during his career.  Sometimes as an observer.  Sometimes as one of the "repairmen" who helped "fix" something.

The Investment Dar To Enter Financial Stability Law Process

 

Two articles on TID and the FSL process.

The first from The National and the second from AlQabas.   Both seem to be largely constructed around TID talking points.

1. The Central Bank of Kuwait is "resisting" approving TID's 2008 financial statements.  AA:  Or from another perspective TID is resisting providing the CBK with financials satisfactory to it.  I find it hard to imagine that the CBK is capriciously refusing to approve TID's financials.
2. A "small minority" of creditors are frustrating TID's attempts to implement its restructuring plan which will result in a 100% repayment to all creditors.  AA:  Either TID is plagued with creditors who can't recognize a really great deal when it's offered to them.  Or some creditors don't think they're going to get paid back and are willing to take their chances in court.  When one considers the amount of money a typical court case of this sort costs, one might get an idea of the extent of these banks' (a) recalcitrance and pig headedness or  (b) assumption about the eventual repayment under the restructuring.
3. The recalcitrant group is described as a "small minority".  AA:  From where AA sits 20% is a significant minority of creditors.  A small minority would be perhaps 5% or so.
4. TID is considering availing itself of the Financial Stability Law.  It doesn't need any financial help from the government and would use the FSL merely to cram down these pesky recalcitrant creditors.

It's pretty clear from the tone of TID's comments relayed in these two articles that indeed the wheels have come off the restructuring deal or perhaps more precisely never were on the deal.  You'll recall the one that TID said had achieved sufficient creditor acceptance to go forward.