Kuwaiti Investment Companies Blame Central Bank for Delay in 2009 Financials

AlQabas reports that unnamed listed Kuwaiti investment companies have launched a sharp attack against the Central Bank claiming that they provided their financials four months ago, responded to requests from the Central Bank for clarifications three months ago and have heard nothing.

Since CBK approval is required to release financial reports and since financial reports are a condition for the holding of the required annual shareholders' meeting, these meetings have not taken place exposing the companies to fines from the MOIC.  

The article also notes that where another company has a significant ownership stake in a "delayed" company its own financials are delayed because the first company's auditors don't have enough information to complete their audit work.

While Al Qabas did not name the companies, according to the KSE, the following companies have been suspended for failure to provide 2009 financials:

1. The Investment Dar, last financial released 31 December 2008.  It is therefore missing the quarterly reports from 2009 plus FYE 2009 plus the first two quarters of 2010.
2. International Leasing and Investment, last financial released 30 September 2008.  So it is missing FYE 2008, the first three quarters and FYE for 2009 plus the first two quarters of 2010.
3. Abraj Holding, last financial released 31 July 2009 so it is missing FYE 2009 (October fiscal year end) and the first two quarters of 2010. (Technically Abraj Holding is not an "investment firm", though it may look like one from its activities).

Perhaps, it's a question of whether they (CBK) believe what they been given.

Footnote:  As if "poor" Abraj didn't have enough problems already, a group of shareholders has reportedly written to the MOIC complaining that in contravention of the law two government employees are member of the board:  one gentleman who works in the general administration of the fire department and the second who works in handicapped citizens affairs.

International Leasing and Investment Company - Attempt to Stack Board?

Al Qabas has a follow-up to their earlier report of the resignation of 3 directors at ILIC.  See earlier post on that topic here.

1. The Company has supposedly written to the MOCI requesting that it approve the replacement of Mr. Mohammed Al-Jasser with Mr. Basil Al Mutawa (a relative of Mr. Bassim Al Mutawa one of the major shareholders).  If this is approved then Abraj Holding/Boubyan Bank would not be represented on the Board despite AH's 32.3% share in the Company.  Boubyan has made a loan to Abraj and its representation on ILIC's Board was no doubt a way of looking after its interests in the collateral.
2. Also the Central Bank is said to have approved ILIC's 2008 financials which reportedly show a loss of US$120 million with the result that shareholders' equity was reduced to US$45 million.  Loans are said to remain at 2007's level:  US$600 million.  The CBK has, it is said, reservations on the financials.  And the auditors are refusing to give an opinion.
3. The two directors from the Islamic Development Bank are still tendering their resignations given their concern that the actions being taken are not in the interest of rescuing the Company.  Official bodies are reported to have rejected charges levied against the two directors as inventions and levied by parties who want to take control of the Company without involving other shareholders.
4. When the 2008 financials are released various infractions will be disclosed.  It's said that the auditors have concerns about the use to which loans were put.
5. The same parties behind the Board machinations are reported to be trying to block Mr. Faisal Al Zamil (Kuwait's representative on the IDB Board) from assuming a position in executive management  in the Company in order to enable them to put in someone who will look after their interests.
6. Finally creditors are said to be disgusted with the developments at the Company.

As I mentioned earlier, IDB and Abraj Holding, control over 60% of ILIC and should be able to take control of the Board.  If the Central Bank can finalize ILIC's financials, then the MOIC can call for a shareholders' meeting and presumably the majority of shareholders can vote in their own candidates for the Board - at least a majority.

International Leasing and Investment Company - 3 Directors Reportedly Resign

Outside the KSE: They Walk Among Us But Are Forbidden to Trade

 

According to Tamir Hammad at Al Watan 3 members of ILIC's Board have resigned in the past two days.  On Sunday, Mohammed Ahmed Saad Al-Jasser, the representative of Abraj Holding (a 32.3% shareholder in ILIC).  On Tuesday Messrs. Khaled Mohamed Nasser Al-Aboude and Badr AlDeen Noyoh, representatives of the Islamic Development Bank (a 28% shareholder).

As the story goes, the three former directors refused to give a reason.  Indications are that there are sharp differences in the company which will be laid at the feet of the regulators to sort out.

And much there is to sort out.  Among the listed but suspended (from trading) companies on the KSE, ILIC and Villa Moda have the dubious distinction of having failed to issue 7 financial reports - their last being 30 September 2008.  Even poor old TID only has 6 reports past due and shares that honour with Safat Global.

You'll recall there was an earlier flap over whether Mr. Fuad Hamed Abdulqader Al-Homoud was returning in an executive role to the company.   Apparently, that rumor has surfaced again.  Supposedly, a neutral party was negotiating a debt rescheduling agreement with the lenders supported by the IDB and Mr. Al-Jasser.  The latter to take a key management role.  Then some shareholders started pushing for the return of Mr. Al-Homoud as the story goes.   Apparently, those who thought his previous stewardship exemplary.   In any case this supposedly led the 3 directors to exit.  

What's interesting here is that shareholders with more than 60% of the firm don't seem to be able to control the Board.

Anyone with an insight or opinion, please post.

For those interested in a trip down memory lane, you can access earlier posts by using the tag "International Leasing and Investment".

International Leasing and Investment Board Announced- Fuad AlHomoud as Member

ILI announced its new board this morning on the KSE.  It includes Mr. AlHomoud as a member. 

You'll recall that AlQabas had published an article stating that the regulatory authorities and one large creditor had reservations about his returning to ILI in an executive capacity.   A day later AlQabas published Mr. Al Homoud's strong denial.  Relevant post here.

The Chairman, Mr. Hajjaj Mohamed BuKhadur, has been appointed as Managing Director not Mr. AlHomoud.  A face saving compromise.  A tempest in a teapot.  A bit of a "fix"?  Unclear to me.

[11:11:36]  ِ.تشكيل مجلس ادارة الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
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مجلس ادارة الشركة فقد تم تشكيل مجلس الادارة ليصبح على النحو التالي:‏
السيد / حجاج محمد بوخضور                  رئيس المجلس والعضو المنتدب
السيد / عبدالوهاب عبدالرحمن المطوع        نائب رئيس مجلس الادارة
السيد / اسامة علي المطوع                                  عضو
السيد / فؤاد حامد الحمود                                    عضو
السيد / بدر الدين نويرة                                      عضو
السيد / محمد احمد الجاسر                                  عضو
السيد / خالد محمد العبودي                                  عضو

Fuad AlHomoud Responds: "No Regulatory Concerns About My Return to Internation Leasing and Investment"

AlQabas published a response by Mr. AlHomoud to its earlier article claiming that regulatory authorities and one major creditor had reservations about his return to an executive management role at ILI.

He categorically denied the article stating that it was baseless and contrary to the facts.  And then chided AlQabas for what he described as a failure to adhere to proper journalistic standards.

International Leasing and Investment - The "Fix" is in? Central Bank Trying to Stop?

The 16 August issue of AlQabas has an intriguing article on ILI: "Supervisory Reservations About Return of AlHomoud to International Leasing."  KSE page on ILI here.

The article states that:

1. The regulatory authorities, among them the Central Bank of Kuwait, have reservations about the return of Fuad AlHomoud to ILI especially after his membership to the Board and appointment as Managing Director.  
2. One of the largest creditors of ILI has joined in these reservations on the basis that he has been following the company for years and knows its "ins and outs".
3. PWC who the creditors had engaged  issued a report that accused the previous executive management of taking loans and using them for other than the purposes for which they were obtained.  
4. And PWC had recommended that court action be taken against previous executive management.  
5. The article quotes an unnamed source in Munshaat (a Kuwaiti Real Estate company) that Mr. AlHomoud is facing a court case related to the time he was at both Munshaat and ILI.  
6. After an examination, the Central Bank of Kuwait found that the previous management guilty of a number of violations and excesses and levied a fine of KD200,000.

What's apparently troubling some is the sudden "understanding" between Mr. AlHomoud and Mr. Bassam AlMutawa, the investor who has proposed a plan to save ILI.  The question is whether they have joined forces to save the company or for another reason.

At this point, AlQabas speculates (and note that word) that legal cases relating to ILI could be very uncomfortable for a variety of people and that having  control over the Company's "files" related to such cases could be a powerful motive for some to seek to obtain control over ILI.

ILI is currently suspended from KSE trading due to failure to provide financials.  It has not yet provided its 31 December 2008 financials or any subsequent ones.

And finally, while not stated in the article, I am going to presume that Mr. AlHomoud like a prominent expatriate Kuwaiti  businessman denies all allegations of wrongdoing.

AlJoman - Why the Kuwait Stock Exchange Needs Strong Regulation

Earlier this month AlQabas published a lengthy summary of a recent report by AlJoman Center for Economic Consultancy.  Here's the full report from AlJoman's website.  

You'll notice that AlQ has reordered the topics.  We'll work with AlQ's order in this post.  

The article is a blistering attack on market manipulation and regulatory failures. 

1. Al Joman says that there are about 15 main "investment blocs" that each control from 2 to more than 10 companies that are active in the KSE.  According to its analysis only a very few of them engage in professional or responsible behavior. 
   
2. Three of the groups have fallen and AlJ expects at least one other to this year.
3. The first group mentioned is the Abraj Bloc (Abraj Holdings, Shabka Holdings, and International Leasing and Investment).
4. The second is the Ahlia Bloc (AlAhlia Holding Company and Gulf Invest).
5. The third the International Group Bloc (PetroGulf, Grand, Investors Bank, Usul, and International Investment Group.)
6.  It then turns to a discussion of large and unjustified losses to the shareholders of the companies comprising these groups - which it notes shake confidence in the KSE as well as harm its foreign reputation stating that they consider that removing these distressed companies from the list of traded companies (presumably an expulsion from the KSE) would be considered a positive step. even if only partially (meaning this step by itself is not sufficient).  And that it is possible to lighten the harm caused shareholders and the economy by  removing  these long notorious companies instead of having let them continue to exhausting shareholder money for a long time and in a clear open fashion visible to all.  Clear responsibility for this state of affairs is laid upon the management of the KSE.

I've sort of given away the plot here.  The original research report by Al Joman begins "innocently" enough with a discussion of  the decline in KSE trading in April compared to May.   After presenting some comparative statistics, AlJ begins to describe the reasons.  The first hint is the comment that negligent traders have discovered there are more paper companies and so have become more selective in trading.  Turning to its list of factors, the first item is the lessening of manufactured or imaginary trades or trades agreed beforehand.  Which have come to everyone's attention through increased complaints.  The impact of the new capital market law which criminalizes these wrong practices.  The second is exceptional "feverish"  trading in transport or logistic company  as shares as part of an organized propaganda and scheduled effort to to spread rumors.  Manipulated volumes and prices.

Not too far into the report and it's pretty clear that this is not your normal market analysis.

It only gets better.  Comments on those responsible for cheating numerous innocent traders.  Management from the companies themselves, media circulating lies - print, satellite television, internet sites (heavens an attack on bloggers!).   Than an absolutely blistering attack on the KSE.

Some discussion of the Commercial Bank of Kuwait 11 April Board meeting and the responsibility of directors under the title "Commissioning Not Entitling" (my loose translation).  Calling for independent investigations of board conduct at troubled companies to find out the real reasons for losses and the decline in asset values along with steps to recover funds if board members are guilty of wrongdoing.

The end of the article deals with a review of 2009 earnings predictions by 4 newspapers in Kuwait along with AlJoman's.  And some comments that so far (not all firms have reported results yet!) net income for the two year period 2008-2009 is approximately zero.

An interesting factoid - as of the date of AlJ's report only 25% of Kuwait's 333 companies had reported 1Q10 earnings.  One suspects the delay is not due to needing a lot of time to add up the profits.

White Knight for Shabka Holding: The Saudi Investor

If you don't recall the rather sad story of Shabka Holding, here's the earlier link.

Earlier this week, Shabkha held its annual general shareholders meeting.  There were reports in several Kuwaiti papers.  Let's go to the largest circulation paper in Kuwait (and a princely one at that) for the details. 

The meeting proceeded with 63% of shareholders present.  Not a hard trick since Nayef Abdul Aziz Abdullah Al-Enezi, Chairman and Managing Director, holds 40.65% and Dr. Badr Abid AlThafiri, CEO holds 12%.  Both bought sometime in early 2009 if I'm not mistaken.

To get an idea of the problems that Shabka faces, let's review some details provided by AlThafiri who spoke to reporters at the meeting. 

There is an ongoing dispute with International Leasing and Investment.  Shabka has asked the Islamic Development Bank (Jeddah) which holds shares in both Shabka and International Leasing (roughly 28% in the latter!) to mediate.  

The dispute relates to related party transactions in the amount of KD22 million which are in the form of "wakala investments".  In addition to a contract to buy 7% of the shares of Athman  (Athman Investments in which I believe International Leasing was and may still be a shareholder) which led to additional losses of KD19 million.  

As a side note, you'll recall that in late March AlEnezi accused International Leasing of selling assets to Shabka at above market prices.  The sales he asserted were not ratified by the shareholders annual general meeting but approved at the board level (which IL controlled).  His assertion is that if these contracts were unwound, Shabka's losses would be KD5 million less than current.  

Back to the article, he says that current losses are some 68% of total capital as of year end 2009 and that this is an improvement from 233% as of year end 2008.  Shabka's 2009 financials aren't posted on the KSE yet.  Its 31 December 2008 financials show negative equity of KD7 million - the 233%. That would make the losses roughly KD10 million at 2009 year end.

Back to the article, during 2008, the previous shareholders increased the capital in the company from KD5 million to KD15 million (this refers to the legal capital - par value times the number of shares outstanding).  Since the shares were offered at KD0.250 per share (a KD0.150 premium per share), the gross amount of the capital increase would appear to be some KD25 million - though surprisingly elsewhere in the article AlThafiri says the the share premium account only holds KD9.93 million - leaving roughly KD5 million not accounted for.  Since Shabka has not yet published its 2008 financial report, one cannot come to a firm conclusion with what happened.  In any case, AlThafiri says that once the new board took over, they discovered the firm's assets were KD400,000.  He attributes the difference to use by some members of the previous board to acquire control over Abraj.  (AA:  This could be AlAbraj Holdings, which by the way owns 39.3% of International Leasing.)  And that there was only KD7 in Shabka's accounts.  That's not a typo.  Seven dinars.

To deal with its problems, the shareholders agreed at the AGM to:

1. Use the KD9.93 in the Share Premium account to cover some of the losses. This and other amounts appear sufficient to cover the 2009 losses.
2. Increase paid in capital from KD15 million to KD50 million.  No discussion of the price of the offer.  Shabka's shares have a nominal value of KD0.100.
3. An unnamed Saudi investor is willing to step up for 70% of the capital. 

Two puzzling things from that latter point:

1. Who the investor is?
2. Why he is stepping up?  It's not as though Shabka has a lot to offer, except for its license.

One final point, as disclosed in its 30 June 2008 interim financials, IL bought 70% of Shabka during the first six months of 2008 for some KD32.4 million. During that same period it sold 15.1% of the company for KD23.2 million.  You can do the math.  A good return.  And I suppose a "wise" investment for someone.  And also as disclosed, was in the stages of selling the rest of its investment. Shabka traded as high as KD0.590 in the second half of 2008.  Its last trade was at KD0.044 on 31 March 2009 before it was suspended by the KSE for failure to provide financials.