Global Investment House and National Bank of Umm Al Qaiwan - $250 Million Deposit

The Art of the Deal?

When last (18 October 2010 to be precise) we looked, Global Investment House and National Bank of Umm AlQaiwain were locked in an epic legal battle over a US$250 million “deposit” (if you’re GIH) or a “contractually binding pre-payment” for convertible securities (if you’re NBQ).

You’ll recall that in July 2008 NBQ and GIH had signed an MOU for GIH to purchase NBQ convertible bonds. GIH deposited the funds, but December that same year requested their return as it began to encounter debt problems of its own.  NBQ refused stating that there was a binding deal to buy the convertibles.  

The Dubai courts became involved shortly thereafter and the case was still live in early 2015 with no final ruling.    

During that period, the Supreme Court of Dubai several times reversed lower court judgements and sent the case “down” for a second look by the Appeals Court.  “Experts” from the Dubai Financial Market were asked to provide their input.  That apparently wasn’t enough.  So “experts” from the Emirates Securities and Commodities Authority were pressed into service.

AA is pleased to note that during 2015 the parties agreed an out-of-court settlement.  Of the $250 million original amount, NBQ kept $35 million plus the equivalent of another $34 million (the penal interest amount, the Dubai court had required NBQ to place in escrow with it).   The remaining $215 million was returned to GIH --more precisely to GIH’s creditors who acquired this asset along with no doubt many other “fine” ones in the debt swap.

NBQ is roughly $79 million richer.  GIH’s creditors $35 million plus lost interest/lost opportunities poorer.  GIH poorer as well but hopefully wiser.

Another chapter in structuring and legal documentation breakthroughs (or more precisely breakdowns) of convertible securities in the GCC comes to a close.     On that topic, relevant posts here: 

http://suqalmal.blogspot.jp/2009/11/one-billion-dirham-camel.html

http://suqalmal.blogspot.jp/2010/03/adia-investment-in-citigroup-time-for.html

While this saga has ended, AA’s interest has not.  Expect a post soon on Global Investment House.

Memory lane:

Earlier posts on GIH/NBQ can be found here. 

http://suqalmal.blogspot.jp/search/label/National%20Bank%20of%20Umm%20Al%20Qaiwain

If you’re interested, Note 14 in NBQ’s 2015 Annual Report provides a summary of the court saga.  

http://www.nbq.ae/annual_report/NBQ-2015-REPORT-EN.pdf 

National Bank of Umm Al Qaiwain 3Q10 Financials - Update on Global US$250 Million Deposit Dispute

NBUQ released its 3Q10 financials earlier today.  (Yes, I'm still stubbornly using that abbreviation even though their stock symbol is NBQ  But I will alternate today between the two to partially satisfy those who have "complained".)

The major focus is as usual on the dispute over the US$250 million "deposit" (if you're Global Investment House) or the "prepayment" (if you're NBUQ).  As you'll recall the dispute turns over whether an MOU between the two parties was a binding contract obliging GIH to buy securities convertible into NBQ equity.  Yet another example of poor transaction structuring and legal documentation involving this instrument - which has been a rather costly mistake for purchasers in the past.

You can find more on this topic by using the labels "Convertible Bonds" and "National Bank of Umm Al Qaiwain".

The relevant notes in their financials are Other Assets (Note 13) and Other Liabilities (Note 17).  

As per Note 17, NBQ is holding the funds in a non interest bearing account in the amount of AED918.25 million (equal to US$250 million at the FX rate as of 30 September).  But as you'll see from Note 13, it has deposited AED1,034 million with the First Instance Court of Dubai pursuant to an order from that Court.  

The difference (just under AED 116 million) is presumably interest and perhaps legal costs for Global.   The amount represents a little over one quarter's net income for NBUQ.

The Appeals Court is scheduled to hear NBQ's appeal on 8 November 2010.   The 29 September session adjourned without taking a decision and was designed to let NBQ object to both the decision in Global's favor and the interest payment.

You'll also note that in Other Assets, NBQ is showing some AED82.7 million in "split deals".  Shades of Mashreqbank and its deals with Awal Bank and with TIBC.

Global Investment House v National Bank of Umm AlQaiwain: NBUQ Deposits US$250 Million with Dubai Court

National Bank of Umm al Qaiwain ("NBUQ" or "NBQ", if you prefer) announced on the Abu Dhabi Stock Exchange this morning (23 August) that earlier this morning (the 23rd) it had deposited the US$250 million which is the subject of the lawsuit between it and Global with the Dubai Court.   It went on to note that previously the amount had been on deposit with the Central Bank of the UAE.  

NBUQ described this step as evidence of its good intentions in the matter.   It also noted that it had appealed the verdict of the Dubai Court of First Instance in Global's favor.  The first session of the Appeals Court is scheduled for 29 September.

As I've posted before, if NBUQ can drag the proceedings out, the pressure increases on Global to reach a compromise since it's facing a looming cash crunch due to the unrealistic and unprofessional repayment schedule imposed on Global by its "wise" lenders.  With markets as they are asset sales are difficult.   And the price of an asset fire sale probably much more than paying a break-up fee and forgiving the interest on the "deposit" (if you're Global) or "prepayment" (if you're NBUQ). 

Previous posts can be accessed using the tags "National Bank of Umm AlQaiwain"  or "Global Investment House Kuwait".

Global Investment House v National Bank of Umm AlQaiwain: GIH Proposes Negotiations?

In what is billed as an exclusive interview with AlWatan, Amir Yusri writes that Badr AlSumait, GIH's CEO, said that Global's doors remain open to NBUQ to discuss an amicable solution outside of the court room.  One that would of course respect GIH"s right to the deposit.

As you'll recall from earlier posts on SAM, the Dubai Court of First Instance has ruled in GIH's favor ordering NBUQ to return the deposit with legal interest at 9%.

It's hard to know what is at play here.  

Is GIH concerned that NBUQ will launch an appeal and win?  Or that it will be able to tie up the funds for a prolonged period - a rather dangerous development for GIH given the unrealistically short repayment tenor on its restructuring?  

And thus by offering to accept a lower interest rate or a staged repayment to secure repayment?  And a relatively prompt repayment?

Global Investment House - National Bank of Umm AlQaiwain to Appeal

Following yesterday's announcement by Global Investment House that the Court of First Instance in Dubai had ruled in its favor over the long standing dispute between NBUQ and GIH over a US$250 million deposit, today NBUQ issued a press release on the ADX relating its side of the story and advising that it intends to appeal the judgment.

When NBUQ files its appeal, the judgment of the lower court will be stayed while the Appeals Court hears the case.  The party losing in the Appeals Court will have the right of a final appeal to the supreme court.

Global Investment House Wins Round #1 Against National Bank of Umm Qaiwain

GIH announced this morning that the Court of First Instance in Dubai had ruled in its favor against NBUQ ordering it to return GIH's US$250 million deposit plus interest and costs to GIH.

This is indeed good news for GIH.  Or perhaps more precisely for GIH's creditors.

As of 31 March 2009, NBUQ had roughly AED3.2 billion in cash and banks (roughly US$859 million).  Repayment to GIH would leave NBUQ will a net positive balance in interbanks to the tune of some AED1.7 billion or so.

But it's important to note that this is also just the Court of First Instance.  NBUQ has the right of appeal in which case implementation of the judgment will be suspended.

You can also read NBUQ's discussion of the law case (prior to this judgment) in Note 13 to its 31 March 2010 financials linked to above.

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 .

Global Investment House v National Bank of Umm Al Qaiwain US$250 Million Deposit

You'll remember the long standing saga and legal case of the US$250 million deposit that GIH placed with NBQ re a potential investment by GIH in the shares of NBQ.

So what's happened since the last time we looked?

Well here's an extract from NBQ's recently released 2009 audited financials.

"Other liabilities include AED 918.25 million (equivalent of USD 250 million) received from Global Investment House - Kuwait (GIH) as advance payment on the proposed issue of bond to be converted in to 330 million shares of AED 1 each at a premium of AED 6.15 per share totaling AED 2.359 billion, entered through a Memorandum of Understanding (MOU) dated July 16, 2008. This amount is included in  other liabilities without any interest attached towards it.

During December 2008, the Bank has received a letter from GIH for the cancellation of the above transaction and for refunding the advance of AED 918.25 million. On legal advice, the Bank has taken the view that GIH request is not valid and that the MOU is a binding sale purchase agreement. Accordingly, the Bank proceeded for completion of the transaction by seeking the balance due from GIH.

GIH had filed a lawsuit during 2009 in the First Instance Court of Dubai which was rejected due to arbitration clause in the MOU. The Court of Appeal has set aside the arbitration clause in the MOU stating reasons that authorised signatory from GIH who signed the MOU was not explicitly empowered by GIH to arbitrate and thus to sign an arbitration clause which was included in the MOU.

Based on the appeal filed by GIH, the Court of Appeal has decided to return the lawsuit to Court of First Instance and to judge the case based on its merits."

Global Investment House Kuwait - Seized Deposits

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. 

In any case, it's hard to imagine the UAE court confiscating GIH's deposit in toto.   

However, even if it did, the damage should be containable.