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.

Saudi Capital Markets Authority Levies Fines and Penalties in Excess of SAR102 Million

On 12 October the Saudi Capital Markets Authority levied another set of record fines and penalties but not as high as its all time record of SAR278 million last January.  If you look closely, you'll see that many of those cited today were also involved in that fine.

The CMA levied SAR800,000 in fines and SAR99,434,098.10 in penalties (disgorgement of illegal gains) against seven individuals (two of whom were apparently not involved in illegal activity but received gains from that activity).  The fines and penalties concern trading in the shares of Al Baha Investment and Development Company between 23 July 2006 and 27 September 2006 as follows:

A.  Mr. Jarrallah Bin Muhammad Bin Nassir Al-Jarrallah

1. Return of SAR28,923,826.57 in illegal trading earnings on the trading.
2. A fine of SAR 300,000.
3. Prohibition from purchasing traded shares for seven years.
4. Prohibition from working in a securities firm for seven years.
5. Prohibition from acting as a broker, portfolio manager or investment advisor for seven years.

B.  Messrs. Sa'id Bin Muhammad Bin Nassir Al-Jarrallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfouz, Nabil Bin Mu'id Bin Yahya AlQahtani

1. Sai'd to return illegal trading gains of SAR2,119,935.00
2. Nabil to return illegal trading gains of SAR24,896,213.23
3. Each of the three of them fined SAR100,000.
4. Prohibition from purchasing traded shares for five years.
5. Prohibition from working in a securities firm for five years.
6. Prohibition from acting as a broker, portfolio manager or investment advisor for five years.

C.  Mr. Abdulrahman Bin Abdulmuhsin Bin Sulayman AlMoajil

1. A fine of SAR200,000.
2. Prohibition from purchasing traded shares for five years.
3. Prohibition from working in a securities firm for five years.
4. Prohibition from acting as a broker, portfolio manager or investment advisor for seven years.

D.  Mr. Muhammad Bin Nasser Bin Jarallah Al-Jarallah

1. Return of illegal trading gains in his account of SAR38,293,835 caused by actions of Jarallah, Said and Fa'iz.   No fine as he apparently was not involved in the activities just a beneficiary.

E.  Mr. Nasser Bin Muhammad Bin Nasser Al-Jarallah

1. Return of illegal trading gains in his account of SAR5,200,288.30.  Like Mr. Muhammad immediately above, a fine was not levied against him, presumably because he was not involved in the illegal activities.

I'm guessing our friends above just didn't trade two stocks back in 2006 so we may be seeing more enforcement actions from the Saudi CMA.

The Capital Adequacy Ratio – How Accurate a Measure?

Hard to Tell the Time With Just One Hand

In a post on the Booz & Company study on Kuwaiti banks' stress tests, I said that The National Bank of Kuwait was the most creditworthy bank in Kuwait.

Advocatus, one of the frequent readers/commenters on this blog, challenged that statement noting that as of 31 December 2009, NBK had the lowest CAR 15.03% versus 15.9% for Gulf Bank, 17.23% for Ahli Bank of Kuwait and 18.22% for Commercial Bank of Kuwait.

I'd like to address his remarks in a bit more detail than is convenient in a comment reply. So I'm moving the discussion to the "main board".

My intent is to reply with two posts. The first theoretical. The second specific to NBK and a few other Kuwaiti banks.

In this post I will discuss some shortcomings in the CAR which make it an inaccurate as well as incomplete measure of financial strength.

To start off a bit of introduction.

What is the CAR?

It is a ratio which measures equity capital against risk weighted assets ("RWA"). Neither the numerator nor the denominator in this ratio are the same numbers that appear in the financial statements. Rather both are constructed according to certain rules set forth in Pillar 1 of the Basel II Framework. A document of some 192 page. As that suggests, the rules are complex. Rather than delve into too much detail, I'll give a broad overview.

Regulatory Capital

The first step in determining regulatory capital is the allocation of a bank's accounting capital into one of three tiers. Tier 1 is considered the most solid. The others progressively less so. For example, common equity is Tier 1. Subordinated debt Tier 2. The amounts of Tier 2 and Tier 3 capital that a bank can use in calculating its regulatory capital for the CAR are limited. Tier 2 may be no more than 100% of Tier 1. Medium term subordinated debt may not exceed 50% of Tier 2 capital. However, to be counted even at the 50% level it must have an original maturity of five-years. If the maturity is shorter, it does not count. If the subordinated loan is a bullet loan, each year it must be reduced by 20% for CAR purposes. Tier 3 capital consisting of short term subordinated debt can be only used to support market risks and only to the tune of 72.5% of such risks. Any amount over these limits for Tier 2 and Tier 3 capital is not counted as part of regulatory capital for the CAR.

Once these have been determined there are a series of further adjustments. Goodwill is deducted from regulatory capital as are significant minority investments (which are deducted 50% from Tier 1 and 50% from Tier 2) and excesses over the 15% single obligor (Group) credit exposure limit. The full amount of equity in insurance firms may be required to be deducted from regulatory capital at the discretion of the national regulator. There are also a variety of haircuts on revaluation reserves for both property and securities.

Risk Weighted Assets

Basel II classifies risks (for the CAR) as either credit, market or operational.

The Basel Framework allows banks three options for determining Credit Risk. 

1. A Standardized Approach (the bank is given formulas to apply to the face value of its exposure). 
2. An Internal Ratings Based Foundation Approach ( the bank determines the Probability of Default for customers but uses the Loss Given Default, Exposure at Default, and Maturity as mandated in Basel II). 
3. An IRB Advanced Approach (here the banks determines all these factors). 

For Market Risk there are two basic approaches.

1. The Standardized Approach (banks use the set of factors given in the Basel II Framework to determine risk weighted "assets" for market risk)
2. A Model Approach (generally VaR). 

 For Operational Risk there are three approaches: 

1. The Basic Indicator Approach
2. The Standardized Approach and 
3. The Advanced Measurement Approach

Most banks in the MENA region use the Standardized Approach for credit, either the Standardized or a Model for Market Risk and the BIA or Standardized Approach for Operational Risks. As a general rule, Central Banks in the area prohibit use of the more advanced models: the two IRB approaches for Credit Risk and the Advanced Measurement Approach for Operational Risk.

One way to get a quick sense of how this system works is to look at the Basel II Pillar 3 disclosures of Kuwaiti banks. For 2009, you'll find NBK here (starting on Page 33), CBK here, and Gulf Bank here (from page 17).

What's the purpose of the CAR?

Regulators are charged with preventing problems at a single bank or group of banks from having a systemic impact on their economies. Accordingly, Basel II is designed not only to measure risks (to give early signs to the regulator of impending problems) but by the  very act of measurement itself (expressed in the CAR) to dissuade banks from certain types of activities which are felt to be risky. This is achieved by raising the risk weights for these activities.

It's important to understand this function. It is not merely a measure of creditworthiness. It is also a control device. And since the stakes are high, the controls are generally set with large safety margins.

What are the major issues with the CAR?

Capital

From the above discussion it should be clear that regulatory capital does not consider all the equity support a bank may have. One simple example: If subordinated debt at Bank A is twice its Tier 1 capital, half of that subordinated debt is not factored into the CAR. Yet, if Bank A encounters problems, that "excess" is still subordinated to other creditors providing an element of protection.

More importantly, one critical aspect of capital the quality of retained earning is not considered. And often is not considered on a consistent basis.

One example are changes in the fair value of financial instruments. If a bank takes these changes to income (Fair Value Through Profit and Loss – FVTPL), they are considered a part of Tier 1 capital dinar for dinar. If the same financial institution were to take the changes in fair value to equity (Fair Value to Equity), this income would be considered part of Tier 2 capital and would be haircut 55%. Calling these earnings FVTPL or FVTE does not change their fundamental economic characteristics. Yet for calculation of the ratio it does. 

One might also argue that changes in fair value are not the same as cash earnings. If these changes are deliberately inflated or markets are in a period of irrational exuberance which reverses, equity can vanish with astounding rapidity. 

Classifications of bond holdings as "banking book" versus "trading book" can result in different income and fair value treatments for exactly the same securities. Again the economic substance is the same, yet the CAR will differ. Same asset. Same economic reality. Different income and equity treatments.

Assets

Credit Risk
 
As indicated above, the mere act of classification of an asset can have an impact on its value. The same with its risk weighting. Securities held in the trading book generally have lower risk weights than those held in the banking book.

But the key issue for banks is the Standardized Approach for RWA for loans, the major earning assets of most commercial banks.

Under the Basel II Standardized Method for Credit Risk, risk weights are assigned to loans to private sector companies based on their credit grades (if any). 

1. AAA to AA- receive a 20% risk weight
2. A+ to A- a 50% weight
3. BBB+ to BB- a 100% weight 
4. Below BB- a 150% weight
5. If the loan is unrated, a 100% weight. 

You can well imagine that weaker credits avoid ratings like the plague because if one is objectively a B credit but not rated, one gets the same risk weighting as a BBB- to BB+. Again the presence or absence of a rating (but not the underlying economic reality) drives the CAR.

More importantly, the following are not considered in determining the risk weight of a loan: the final maturity, the pattern of principal repayments, and the pattern of interest payments. Thus, a five year loan to Company XYZ has the same risk weight as a one year loan. A five-year bullet loan with quarterly interest payments is the same as a five-year zero coupon loan and is the same as a loan with quarterly principal and interest payments. The purpose of loans is not considered. A loan for real estate speculation is treated the same as a loan for a factory. Many forms of collateral are not recognized for CAR risk mitigation purposes, e.g., real estate, except the latter gives a partial mitigation for residential mortgages. Yet, the bank does have recourse to that collateral in the event of a borrower default and is more protected than one that has no collateral. Yet, the CAR does not reflect this.

Operational Risk
 
For Operational Risk, banks are generally limited to the Basic Indicator Approach or Standardized Approach. Under the BIA Operational Risk is 15% of the average of past three years' revenues (adjusted for certain banking book securities income and other items). If a bank has had zero adjusted revenue for those three years, it has no Operational Risk - at least for the CAR. Under the Standardized Approach a similar formulaic approach is used against revenues for eight defined lines of business with specific assigned LOB risk weight to each of the 8  ranging from 12% to 18%. 

As you might expect, banks generally determine which method will give the lowest Operational Risk charge and select that method as being the most "accurate". Again the mere selection of the measurement method affects risk – at least for the CAR, though not I'd add in the real world.

Market Risk

Market risk calculations are more complicated so I'm just going to wave my hands here with an unsupported assertion.

Sometimes VaR will give a lower market risk number than the Standardized Approach.   Sometimes not.  Depending on the choice of the measurement method, the same portfolio can have quite different risk weights.   No difference in economic reality.  But a difference in CAR.

Examples

Let's take two imaginary banks: Bank A and Bank B. For simplicity sake we'll ignore market and operational risk.

Bank A is a conservative bank that lends only for productive activities (no speculation) and structures its loans to require semi-annual payment of interest and principal. It also diversifies its risk among many customers, has a wide variety of tenors on its loans,  and makes a practice of taking real estate as collateral with borrowing base of 50% of collateral. Its KD100 loan portfolio is all to unrated clients so its RWA are KD100. After adjustments it has KD13 in capital giving it a CAR of 13%.

Bank B is less conservative. It also has a KD100 loan portfolio. Its underwriting standards are much lower than Bank A's. If a borrower can find his way to a Bank B Branch, he can get a loan. As part of its customer friendly approach, Bank B does not take real estate or other collateral. All the loans it makes are for five-year tenors with interest and principal due at maturity. It also is less diversified than Bank A and has numerous customers with loans equal to 14% of its regulatory capital (just under the 15% threshold). After adjustments it has KD 15 in capital.

Bank B's CAR is 15%. Bank A's CAR is 13%.

Based solely on CAR, one might think that Bank B was a stronger more creditworthy bank than A. It is not.

What credit factors are not considered in CAR?

1. The quality of the Board and senior management. Are they seasoned and prudent bankers? Do they have a good business and strategic sense? Or do they chase the latest fad? As long as the music is playing, are they dancing? 
2. Corporate culture and ethics.  Loose standards lead to problems.
3. The quality of credit underwriting and structuring.  Most problems in the portfolio are caused by easy credit standards, weak or sloppy loan terms, etc. 
4. The quality of loan monitoring and administration.  The earlier a bank finds a problem the earlier it can try to fix it.
5. The quality and liquidity of assets. If the bank needs to raise cash, can it do so quickly? What sort of discount, if any, will be required on its assets? 
6. The quality of earnings. Equivalent to cash or accruals of  imaginary promises? 
7. The structure of liabilities. Diversified across lenders, instruments, and markets? Are maturities  appropriate for the bank's business? Or is the bank dependent on a very limited source of  funding? Most or all of which is short term?

These are critical factors that can impact the ability of a bank to weather a storm. They are an essential element of its financial health.  The CAR does not consider them at all.

For these reasons, one cannot rely on the CAR alone as the single measure of a bank's financial health and strength. A wider view is required.   One that evaluates a range of factors, such as the CAMEL approach used by US regulators.  To its credit the Basel Committee on Banking Supervision has recognized this - which is why it instituted the Pillar 3 disclosures - a first step to giving lenders and investors a look under the "hood" of a bank.

The above also explains why some banks (Bank B in our case above) should be required by the regulator to hold more than 12% capital.  Economic capital is the buffer than absorbs unexpected risks.  The riskier the bank the more capital it should hold.

The Investment Dar - Creditors Warn TID Central Bank Will Not Impose Restructuring Against Our Will

Nancy Reagan

White House Photo in the Public Domain

Al Qabas, as it often does, has a different take on the story about TID proposing a 50% haircut than Al Watan.

Here the story is that the creditors have said that if Dar's request for a 50% haircut proves true, then this will give the Central Bank of Kuwait full justification for turning down its application for the FSL.  (You may as I have been struck by this formulation.  Either a deficient translation on my part.  Or maybe the story of the 50% haircut was wrong).

They also remarked that the Central Bank will never force a restructuring on them without their consent as they are the owners of the money and should decide their fate.  So a consensual plan agreed by all parties will be required.

Finally they are quoted as saying that there is an indication that the entity charged with preparing the report on Dar's ability to remain a going concern and pay its debts shares Dar's opinion that it can comply with the financial ratio set in the new Central Bank of Kuwait regulations if it can deal with approximately KD500 million of burden which will strengthen shareholders' equity in addition to bringing it in compliance with the new principles.   I'm taking Al Qabas description of the "entity" to mean E&Y.  And am not sure why the circumlocution is necessary.

As I've indicated before, I really don't understand the fixation on the new CBK principles.  Dar is in a life or death situation with the rescheduling.  It seems eminently reasonable that if it can't meet the new regulations that should be a very minor consideration in the greater scheme of creditor repayment and the continued existence of the Company.  There are many ways this can be "handled" to preserve the regulation but give Dar some breathing room.  Would one really "put down" Dar because it couldn't meet a ratio if it could repay a substantial portion or all of its debt?

All this talk of the regulations makes about as much sense to me as arguing about the  poor  quality  of the band as it plays the final songs just before the Titanic sinks.

Maybe one of my regular readers can tell me precisely what I'm missing. 

It's also unclear if this story came before or after this one.

Ah, Kuwait land of mystery and intrigue.  And also family values.

Kuwait Stock Exchange - Mushrif Pays Its Listing Fees Now There are Six Suspended Firms

The KSE has updated its list of companies suspended for failure to pay their 2010-2011 listing fees.  Mushrif Trading and Contracting has apparently paid.   So now this august group is six.  Earlier post here with the original list.  Mushrif was #5.

[10:13:37]  ِ.إيقاف شركات عن التداول لعدم تسديد رسوم الاشتراك السنوي ‏
يعلن سوق الكويت للأوراق المالية بأنه تم إيقاف تداول الشركات
التالية لعدم تسديد رسوم الاشتراك السنوي لعام 2010- 2011 ‏
اعتباراً من 1-09-2010:- ‏
ِ1- المجموعة الدولية للاستثمار ‏(المجموعة د)(موقوفة) ‏
ِ2- الشركة الخليجية الدولية للاستثمار ‏(غلف انفست)(موقوفة) ‏
ِ3- شركة لؤلؤة الكويت العقارية ‏(لؤلؤة)(موقوفة) ‏
ِ4- شركة الصفاة العالمية القابضة ‏(صفاة عالمي) (موقوفة) ‏
ِ5- شركة الابراج القابضة ‏(الابراج)(موقوفة) ‏
ِ6- شركة الشبكة القابضة ‏(الشبكة)(موقوفة) ‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏

Bahraini Regulatory Quiz: When Do Bahraini Banks Have to Publish Their 30 June Basel II Pillar 3 Disclosures?

As if there weren't enough excitement here at Suq Al Mal with compelling analyses of zakat payments, magical provisions, we're going to have a contest to liven things up a bit more.

My understanding was that locally incorporated banks in the Kingdom of Bahrain are required to publish their Basel II Pillar 3 disclosures concurrent with their 30 June financials.

But one firm noted for its unwavering verbal commitment to disclosure and transparency has yet to do so.  That obviously means that my understanding is wrong.

Hence, this competition.  

The first one to post the chapter and verse from the CBB's Rulebook will receive the grand prize --  a slightly worn "proven business model" formerly the property of a self-proclaimed world class "Islamic" investment bank.  Early responders may be eligible for a bonus prize - a half baked business plan for a US$4 billion energy city/financial and day care center.

Multiple entries are permitted.

Aayan Leasing and Investment - 1Q10 Loss of KD7.8 Million

ALI announced its 1Q10 earnings today on the KSE.  As usual only Arabic text  (below) is available. The Central Bank of Kuwait approved release of the financials on 16 August.  There was no explanation for the delay.  Based on "history", I'm guessing that as with the Company's 2009 financials, the delay has been occasioned by the KSE's more than usual scrutiny.

The headline number is a loss of KD7.8 million for the first quarter compared to a loss of KD12.5 for the period the year earlier.  Shareholders' equity is KD23.6 million versus KD89.1 million at 1Q09.  Equity was KD31.2 million at 31 December 2009. 

As you might expect, the auditors have raised a matter of emphasis about the Company's ability to continue as a going concern.  Current Liabilities (KD410 million) exceed Current Assets (KD166 million).  Accumulated losses are KD75 million.  

That last comment has got me scratching my head.  On 10 August ALI held its OGM/EGM in which shareholders agreed to use Reserves of KD37.8 million plus reduce the paid in capital to KD29.6 million (from KD63.9 million) to offset accumulated losses.  They also agreed to a KD10 million capital increase by way of a rights offer at par (KD0.100 per share).  So is it that the legal steps to accomplish this have yet to be finalized?  If so, isn't this fact worth noting?  That is, that the Company is taking steps to rectify the situation. Otherwise readers might infer there is an ongoing unaddressed  violation of Article 171 of the Commercial Companies Law.

The auditors also mention ALI's default on some KD100 million of debt.  In the August 10 OGM/EGM Ali "T" AlGhanem, the Company's Chairman, predicted the signing of a rescheduling agreement within two to three weeks.   KFH is the lead bank on the rescheduling negotiations.

A difficult situation. 

[13:38:23]  بلغت (خسارة) (أعيان) (7.7) مليون د.ك لل3 أشهر المنتهية في 31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن شركة أعيان للاجارة و الاستثمار (اعيان)‏
حصلت على موافقة بنك الكويت المركزي على بياناتها المالية المرحلية للفترة ‏
المنتهية في 31-03-2010، يوم الاثنين الموافق 16-08-2010 ،
وفقا لما يلي:‏
البند       ال3 أشهر المنتهية في 31-03-10     ال3 أشهر المنتهية في 31-03-09
الربح (خسارة)(د.ك)               (7.785.523)              (12.553.455)‏
ربحية(خسارة)السهم (فلس كويتي)   (12.6)                    (20.6)‏
اجمالي الموجودات المتداولة      165.971.276             248.207.741‏
اجمالي الموجودات               510.637.020           595.882.901‏
اجمالي المطلوبات المتداولة      410.252.612             351.840.048‏
اجمالي المطلوبات               441.957.164             458.057.552‏
ِ اجمالي حقوق المساهمين        23.643.193              89.142.376‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 66.680 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 1.303.522 د.ك
علما بان تقرير مراقبي الحسابات يحتوي على عدم التأكد المتعلق بالاستمرار
على اساس مبدأ الاستمراريه :‏
دون التحفظ في نتيجتنا ، نلفت الانتباه الى الايضاح 2 حول المعلومات الماليه
المرحليه المكثفة المجمعه و الذي يبين ان المجموعه تكبدت خسائر بمبلغ ‏
ِ8.042.649 د.ك لفتره الثلاثة اشهر المنتهيه في 31-مارس-2010 ، و كان لدي ‏
المجموعه خسائر متراكمه بمبلغ 75.175.026 د.ك ، وكما في ذلك التاريخ تجاوزت ‏
المطلوبات المتداوله للمجموعه موجوداتها المتداوله بمبلغ 225.830.362 د.ك
اضافة الى ذلك ، عجزت الشركة الام عن سداد التزامات دين بمبلغ 99.993.871د.ك
و علقت دفعات سداد المبالغ الاساسيه لالتزامات الدين الى البنوك و المؤسسات ‏
الماليه ، و هي تعمل بفاعليه مع الممولين لاعادة جدولة التزامات ديونها ‏
بالكامل ، ان هذه الظروف مع الامور الاخرى المبينه في ايضاح 2 تشير الى وجود
عدم تأكيد مادي مما يمكن ان يثير شك كبير حول قدرة المجموعه على الاستمرار ‏
في اعمالها على اساس مبدأ الاستمراريه .‏

 

Kuwait Stock Exchange: 11 Companies Warned to Pay 2010-2011 Listing Fees

The Kuwait Stock Exchange published a list of 11 companies who have not yet paid their 2010-2011 listing fees, warning that 31 August is the last day for the payment of such fees.   Failure to pay results in suspension of trading.  Presumably, most of these firms will pay the fees.

As you will notice from the list below, seven of the companies have already been suspended (for failure to provide financials within the required period).  I've indicated those already suspended by highlighting that word in blue.  These include The Investment Dar (number #2 on the list).

The four unsuspended companies are in order:  National International Holding Company (#4),  AlDar National Real Estate ADNAK (#6) , Abbar (#8), and Mushrif Trading and Contracting (#9).

For 2009-2010, only two companies, Shabka and Safat Global were suspended for failure to pay listing fees.  They're indicated in red.

[13:31:26]  ِ.إيقاف شركات عن التداول في حالة عدم تسديد رسوم الاشتراك السنوي ‏
يعلن سوق الكويت للأوراق المالية بأنه سوف يتم إيقاف تداول الشركات
التالية في حالة عدم تسديد رسوم الاشتراك السنوي لعام 2010- 2011 ‏
اعتباراً من 1-09-2010:- ‏
ِ1- المجموعة الدولية للاستثمار ‏(المجموعة د)(موقوفة) ‏
ِ2- شركة دار الاستثمار ‏(الدار) (موقوفة) ‏
ِ3- الشركة الخليجية الدولية للاستثمار ‏(غلف انفست)(موقوفة) ‏
ِ4- الشركة الوطنية الدولية القابضة ‏(وطنية د ق) ‏
ِ5- شركة لؤلؤة الكويت العقارية ‏(لؤلؤة)(موقوفة) ‏
ِ6- شركة الدار الوطنية للعقارات ‏(ادنك) ‏
ِ7- شركة الصفاة العالمية القابضة ‏(صفاة عالمي) (موقوفة) ‏
ِ8- شركة برقان لحفر الابار والتجارة والصيانة ‏(ابار) ‏
ِ9- شركة مشرف للتجارة والمقاولات ‏(مشرف) ‏
ِ10- شركة الابراج القابضة ‏(الابراج)(موقوفة) ‏
ِ11- شركة الشبكة القابضة ‏(الشبكة)(موقوفة) ‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏
علما بان اخر موعد للسداد هو 31-08-2010 .

The Investment Dar - Al-Musallam Denies Problems

This Thursday (26 August) TID held its 2008 shareholders' annual meeting (delayed because of the delay in finalizing its financials).   Both AlQabas and AlWatan have accounts of that meeting.  Some 73.11% of shareholders' interests were represented.  As per the KSE, the only disclosed major shareholders of TID are the Kuwaiti General Organization for Social Insurance (7.7%) and Efad Real Estate Company and associated companies (18.21%).  So there appears to have been broad shareholder participation.

AlQabas notes that the meeting was held in an atmosphere of "impressive calmness".   All items on the agenda were approved, including agreement with the Board's recommendation that no dividend be declared for 2008. (TID reported a net loss of  KD80.3 million for 2008 of which KD78.6 million is attributable to TID shareholders.  From 2007 to 2008 TID's total shareholders' equity declined from KD349.6 millionn to KD168.5 million due to KD52.9 million of 2007 dividends, KD 37.4 million of losses recorded directly in equity and net purchases of treasury shares of some KD12.2 million.)

The tenor and results of the meeting no doubt a clear reflection of shareholders' confidence in Mr. Al-Musallam's stewardship and performance.

Mr. Al-Musallam also took the opportunity to "set the record straight" on several points, including most of the assertions in a recent AlQabas article:

1. As he has on several earlier occasions, he noted that statements that TID was going to be liquidated were not true pointing out the strength of TID's assets.
2. The CCC is not discussing resigning.
3. In that connection he commented that TID is happy to have the Central Bank of Kuwait's supervisor, Dr. Abid AlThafiri, stay on, but that decision is solely the CBK's.
4. There are no differences with the CBK.  The CBK poses questions and TID answers them.
5. More than 83% of the creditors have agreed to participate in the rescheduling.  The remaining 17% represent only KD110 million.
6. He expects to achieve success with Commercial Bank of Kuwait and Cham Islamic Bank (Syria)  and then will have 89% agreement.
7. He's optimistic about obtaining the Central Bank of Kuwait's approval for TID to enter under the protection of the FSL.  
8. He noted that many of the creditors who have indicated they intend to pursue legal claims (the 17% soon to be 11%) were waiting to see the results of the current stage (presumably whether TID gets under the FSL) before proceeding.  The unspoken point here being that if TID enters the FSL, then perhaps some or all of these holdouts may join the rescheduling.  Not an unreasonable assumption.
9. Contrary to rumors, there is no raise for any senior member of TID's management.  Apparently, not even an "unrealized" one! 
10. TID is not late with its prior year's zakat.  Though the wording used here seems to imply that perhaps the committee has not yet distributed it - which would qualify as being "late" for a simple minded guy like me.  وأكد المسلم أنه لا يوجد تأخير في دفع الزكاة عن الشركة، مستشهداً برأي لجنة الفتوى والتشريع التي أكدت على ان الشركة لم تتأخر ولكن هذه الزكاة تعود الى السنوات الماضية، منوهاً الى ان اللجنة تقوم باخراج الزكاة من وقت الى آخر حسب الحالات التي تقوم بدراستها من وقت الى أخرى
11. Perhaps, the answer is that "class is not yet over" and the studies continue?  Anyone who can confirm or amend my translation, please jump in with a post.
12. He did take the time to point out that the 2008 loss (largely due to provisions of KD89.5 million) was not realized.  
13. Asked about 2009's financials and the CBK's requirements for additional provisions, he declined to answer, commenting that the Company respected its regulator's (the CBK's) views, would have the auditors review them. But in the final analysis will do what the CBK requires.
14. One other important "bit" he stated that the Company had appointed new auditors (dual case used).  In 2008 TID used the local incarnations of Deloitte and Touche and KPMG.  
15. The Ministry of Commerce and Industry raised comments during the meeting that the Board did not meet during 2008 (I take this to mean regarding 2008 financial performance not that there were no board meetings that year) and that TID failed to properly register its shares in Bahrain Islamic Bank,.  These shares (8.7% of BIsB) were acquired by TID in satisfaction of a financing receivable and are discussed in Note #8 to its 2008 financials. Mr. Al-Musallam said that the Board did not meet because the financials were not approved (presumably he's referring to the auditors and CBK).  The BIsB shares are in the process of being registered.

A new Board was elected as follows:

1. Adnan Abdul Qadir Mohammed Al Musallam, Chairman and MD
2. Rajam Al Roumi
3. Ghanem Al Ghanem
4. Adel Behbehani
5. Adnan Nisif
6. Musa'id AlMukhaytar
7. Nabil Abdul Rahim

And "reserve" directors (in case of need for a replacement of a sitting director):  Nabil Amin, and Abdul Muhsin Al Kandari.

Hopefully, this impressive performance (there's that word again) will silence the unfounded criticism of TID in the market, leaving only the founded sort.

KSE Suspends Trading in 12 Additional Companies (Now 24 Suspended)

You'll recall that yesterday the KSE warned 55 companies that they risked suspension of trading if they did not present their 2Q10 financials by 10:15 AM Kuwait time this morning.

12 of the companies on the list were already suspended for failure to provide earlier financials so the warning to them was a matter of form.   I've highlighted them by changing the color of the word (موقوفة)  (suspended) after their names to blue.

Of the 43 new "warnees" (55-12), 31 of them managed to get financials in to the KSE.  Thus, the 24 suspended companies are composed of the 12 of this group "left behind" along with the 12 previously suspended.

In relatively short order most or all of these firms should provide financials and the list will shorten again.

[10:40:7]  ِ.وقف التداول باسهم شركات اعتبارا من اليوم ‏
يعلن سوق الكويت للاوراق المالية بانه تم وقف التداول باسهم (24) شركة ‏
وهى الشركات التالية:‏
الشركة الكويتية للاستثمار (كويتية)‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت) (موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
شركة مجموعة الاوراق المالية (م الاوراق) ‏
الشركة الدولية للتمويل (د للتمويل) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة مجموعة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
الشركة الاولى للاستثمار (الاولى) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
الشركة الخليجية الدولية للاستثمار (غلف انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة المدار للتمويل والاستثمار (المدار) ‏
شركة الصفاة للاستثمار (الصفاة) ‏
شركة المدينة للتمويل والاستثمار (المدينة) ‏
الشركة الكويتية البحرينية للصيرفة الدولية (صيرفة) ‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
شركة المعدات القابضة (موقوفة) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
اعتبارا من اليوم الاثنين الموافق 16-08-2010 ،وذلك لعدم تقديم البيانات ‏
المالية المرحلية للفترة المنتهية فى 30-06-2010 ،فى الموعد المحدد .‏

Kuwait Stock Exchange Warns 55 Companies of Suspension of Trading

The KSE issued an announcement today that 55 companies had until 10:15AM tomorrow (16 August) to provide their financials.

The group is divided into two:

1. 33 companies who have not set a meeting for their directors to discuss the financials.   This includes 12 already suspended companies.
2. 22 others.

A pretty clear indication of the state of company finances up in Kuwait.

Text of KSE announcement below in Arabic.

[11:1:3]  ِ.ايضاح بخصوص الشركات التي لم تقدم البيانات المالية في الموعد المحدد
يعلن سوق الكويت للأوراق المالية واستنادا الى قرار لجنة السوق بجلستها
رقم 97/4، والذي يلزم كافة الشركات والصناديق المدرجة في السوق بتقديم
البيانات المالية المرحلية في موعد أقصاه 45 يوما من تاريخ انتهاء الفترة،
فان الشركات التي لم تقدم البيانات المالية المرحلية للربع الثاني المنتهي ‏
في 30-06-2010 كما يلي :‏
ِ1-شركات لم تقدم بياناتها المالية ولم تحدد موعد اجتماع مجلس الادارة و
عددها (33) شركة على النحو التالي: ‏
الشركة الكويتية للاستثمار (كويتية) ‏
شركة الاستشارات المالية الدولية (ايفا) ‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت)(موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
شركة مجموعة الاوراق المالية (م الاوراق) ‏
الشركة الدولية للتمويل (د للتمويل ) ‏
شركة الكويت والشرق الاوسط للاستثمار المالي (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة الامان للاستثمار (الامان) ‏
الشركة الاولى للاستثمار (الاولى) ‏
شركة المال للاستثمار (المال) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
الشركة الخليجية الدولية للاستثمار(غلفت انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة تمويل الاسكان (اسكان) ‏
شركة المدار للتمويل والاستثمار (مدار) ‏
شركة الصفاة للاستثمار (الصفاة) ‏
شركة المدينة للتمويل والاستثمار (المدينة) ‏
شركة نور للاستثمار المالي (نور) ‏
الشركة الكويتية البحرينية للصيرفة الدولية (صيرفة) ‏
الشركة الكويتية الصينية الاستثمارية (الصينية) ‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
شركة المعدات القابضة (المعدات)(موقوفة) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا)(موقوفة) ‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للمنتزهات (منتزهات) ‏
بنك الاثمار (الاثمار) ‏
ِ2- شركات لم تقدم البيانات المالية وحددت موعد اجتماع مجلس الادارة وعددها ‏
ِ(22) شركة على النحو التالي: ‏
بيت التمويل الخليجي (تمويل خليج)‏
شركة مدينة الاعمال الكويتية العقارية (م الاعمال) ‏
شركة القرين القابضة (قرين قابضة) ‏
شركة وثاق للتامين التكافلي (وثاق)‏
شركة برقان لحفر الابار (ابار) ‏
شركة المساكن الدولية للتطوير العقاري (المساكن) ‏
شركة مركز سلطان للمواد الغذائية (م سلطان) ‏
شركة الصناعات الهندسية الثقيلة وبناء السفن (سفن) ‏
شركة المواساة للرعاية الصحية (المواساة) ‏
شركة الانظمة الالية (الانظمة) ‏
شركة مجموعة الصناعات الوطنية القابضة (صناعات) ‏
شركة مشاعر القابضة (مشاعر) ‏
شركة مبرد للنقل (مبرد) ‏
الشركة الاولى للتامين التكافلي (اولى تكافل) ‏
الشركة الاهلية للتامين (اهلية ت) ‏
شركة الديرة القابضة (الديرة) ‏
شركة الدار الوطنية للعقارات (ادنك) ‏
شركة التمدين العقارية (تمدين ع) ‏
شركة داماك الكويتية القابضة (داماك كويت) ‏
شركة مجموعة عربي القابضة (عربي قابضة) ‏
شركة صناعات التبريد والتخزين (تبريد) ‏
الشركة الكويتية لصناعة الانابيب (انابيب) ‏
وعليه فانه سوف يتم ايقاف اسهم تلك الشركات عن التداول فى حال عدم تقديم ‏
البيانات المالية المذكورة فى الموعد النهائي المحدد فى الساعة 10:15من صباح
يوم غدا الاثنين الموافق 16-08-2010 .‏

Gulf Finance House - Obtains Permission to Delay Release of 2Q Financials Until 16 August

GFH announced on the Bahrain Stock Exchange this morning that it had obtained the consent of the "regulatory authorities in Bahrain" to an extension of the time required to present its 2Q10 financial statements.  GFH has up to 16 August to issue the financials.  And since its Board will meet on 15 August to approve the financials, it appears that the release date will be next Sunday or Monday.

No reason was given for the need for the extension which is for a relatively "short" period.

There are two reasons that spring to my mind why such a delay would be required:

1. The extension of the roll-over of the US$100 million stub from the West LB syndicate which comes due this week has not been finally agreed.   If true, this could reflect some hard negotiating on deal terms and pricing.  Or perhaps a slow moving lender "thinking carefully" about its decision.
2. Its external auditors need for more time to complete their review of the 2Q report. This could be related to questions on the value of assets or income.  Equally clearly it could be related to the roll-over and the strength of the comments in their review "opinion" if roll over is or is not achieved.

These are not the only potential causes.

There could be some that are rather benign:

1. Inability to get a Board quorum until then for some reason, 
2. Unavailability of key audit firm personnel.   
3. The need to first finalize Khaleej Commercial Bank's 2Q report.  Though since its Board meets tomorrow the results should be known by now and could be included in GFH's financials for release the next day - Wednesday or Thursday.

However, I suspect these are not the cause but rather it's one of the first two above - which indicates the stress under which GFH is operating.

International Investment Group - Releases 2009 Financials in Kuwait 11 Days After Dubai and Bahrain

As you recall, on 18 July IIG released its financials on the DFM and BSE.  Just this Thursday 29 July, it released financials on the KSE.  Announcement in Arabic below.

Perhaps this event was partially responsible for the recent AlQabas article   "Companies Disclose in Foreign Markets Prior to Kuwait Due to Weak Transparency Laws".

One hopes that Kuwaiti investors have access to the Internet or they may be second  in line to receive official announcements of rather material information.

[11:43:26]  مجلس ادارة (المجموعة د) يوصي بعدم توزيع ارباح عن عام 2009‏
يعلن سوق الكويت للأوراق المالية بان شركة المجموعة الدولية للاستثمار
ِ(المجموعة د) قد اعتمد البيانات المالية السنوية للشركة للسنة المالية
المنتهية في 31-12-2009، وفقا لما يلي:‏
ِ1) نتائج أعمال الشركة:‏
البند             السنة المنتهية في 31-12-09   السنة المنتهية في 31-12-08‏
الربح(الخسارة) (د.ك)           (36.613.067)          (21.488.623)‏
ربحية (خسارة)السهم(فلس كويتي)   (82.02)                  (49.40) ‏
اجمالي الموجودات المتداولة     35.153.190            54.615.998‏
اجمالي الموجودات              107.056.935           149.062.604‏
اجمالي المطلوبات المتداولة     83.008.705             30.258.046‏
اجمالي المطلوبات               83.624.358             84.578.526‏
اجمالي حقوق المساهمين        23.432.577             64.484.078‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 6.004.401 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 3.050.192 د.ك
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ
ِ13-07-2010.‏
ِ2) التوزيعات المقترحة:‏
قرر مجلس ادارة الشركة عدم توزيع ارباح عن السنه الماليه المنتهيه
في 31-12-2009، علما بان هذه التوصية تخضع لموافقة الجمعية ‏
العموميه و الجهات المختصه .‏
علما بان تقرير مراقبي الحسابات يحتوي على اساس عدم القدرة على ابداء الرأي
التالي :‏
اساس عدم القدرة على ابداء الرأي:‏
كما هو مبين في الايضاحات ارقام (2.1 - 12.5) من هذه البيانات المالية ‏
المجمعة فقد تخلفت المجموعة في الفترة اللاحقة عن سداد بعض ادوات الدين ‏
الاسلامية مما اسفر عن قيام بعض الاطراف الدائنة برفع قضايا ضد المجموعة
كما توقفت المجموعة عن سداد تكاليف التمويل المتعلقة بصكوك اسلامية ‏
بالاضافة الى مخالفة بعض الشروط الاخرى الواردة في اتفاقية الصكوك ، ‏
وقد ادى ما سبق الى ان اعتبرت المجموعة قد تخلفت عن سداد صكوك اسلامية ‏
وذلك وفقا للشروط المنصوص عليها في هذه الاتفاقية .‏
بالاضافة الى ذلك تعاني المجموعة من نقص في السيولة ، كما بلغت صافي ‏
خسائر المجموعة 36.6 مليون د.ك تقريبا عن السنة المنتهية في 31 ديسمبر 2009‏
ِ(21.5 مليون د.ك - 2008) كما تجاوزت الخسائر المتراكمة 75% من رأس مال
الشركة الام كما في 31 ديسمبر 2009 .‏
اقتراح مجلس ادارة الشركة الام وفقا لمتطلبات المادة 171 من قانون الشركات ‏
التجارية دعوة الجمعية العامة للمساهمين للموافقة على الاقتراح الخاص باعادة
هيكلة حقوق الملكية وذلك لاطفاء الخسائر المرحلة وتخفيض رأس المال ‏
ِ(ايضاح 22) كما تقوم المجموعة حاليا على وضع الخطط اللازمة والتفاوض
مع الممولين لاهادة هيكلة ديونها .‏
ان قدرة المجموعة على متابعى اعمالها على اساس مبدأ الاستمرارية تستند
بشكل كبير على انجاز هذه الخطط والمفاوضان بنجاح. لم نتمكن من الوصول ‏
الى ادلة تدقيق موثوق فيها وكافية لتحديد مدى قدرة المجمعة على النجاح في ‏
اعادة هيكلة حقوق الملكية والدين المستحق عليها .‏
ونظرا لجوهرية الامور المذكورة بفقرات اساس عدم القدرة على ابداء الرأي ،
فأننا لانبدي رأي على هذه البيانات المالية المجمعة المرفقة .‏
امور قانونية اخرى :‏
ما تم ذكرة في ايضاح رقم (6) فيما يتعلق بارصدة المرابحات والوكالات المدينة
مع اطراف ذات صلة والتي تتجاوز حد التركز الائتماني المسموح بة وفقا ‏
لتعليمات بنك الكويت المركزي .‏

Suq Al Mal Passes CEBS Stress Tests

In response to what I understand is some baseless concern in the market about Suq Al Mal's condition, particularly in light of the PIGS crisis in Europe, I'm very pleased to announce that SAM has passed the CEBS "Stress" Tests and will not require any additional capital to continue as a going concern even under the rather dire scenarios used.

Pictured below is the actual testing session which I can tell you was quite stressful.  As far as I recall this  experience, filling up the test form was the major stress.  In case you're wondering, I'm on the right.  Sadly, my buddy, KfW, was absent that day.  I'm hoping they'll hold a "make-up" test for him. 

In any case, I did pass, though my test paper and answers are "top secret".

Most everyone who showed up, passed.  No bank left behind as they are reported to say. Well maybe 7.  But over a 92% success rate is highly impressive.

The Investment Dar - Central Bank to Impose Conditions to Enter FSL

Muhammad Sha'baan at AlQabas quotes informed sources that the delay in the Central Bank's approval of TID's entry under the protection of the FSL reflects some fundamental concerns and that as a result the CBK is likely to impose conditions and constraints as the price for TID's entry - which they will secure prior to any approval.

The steps will protect the interests of creditors as well as support the rehabilitation of TID.  And this "workshop" (or perhaps worklist) of effective and swift measures will immediately follow entry under the FSL. 

The article notes that TID's "file" is complicated (and presumably this is the reason for the CBK's caution):

1. A significant amount of creditors want nothing to do with the restructuring and are determined to continue legal action.  The concern is that a foreign judgments will be immune from the FSL and thus will disturb the Company and upset the legal protection given.   AA:  There is no real way that the CBK or Kuwaiti authorities can get 100% a priori assurance this will not happen.  The hope is that a foreign jurisdiction will recognize the FSL as being analogous to USA Chapter 11 and stay legal actions in their countries.  This is something the Kuwaiti authorities have to make a leap of faith on once they've decided the larger issue - whether it is better to liquidate or rehabilitate TID.  The USA (State of New York to be precise) has recognized the Administration of TIBC in Bahrain as a fair and reasonable process and has stayed legal actions. One would hope Kuwait could get similar treatment.
2. The Company has yet to issue any financial reports from 2009 or 2010. The article describes several legal/regulatory issues -- the holding of annual shareholders' meetings, restoration of trading on the KSE --  as well as the determination of the Company's financial situation.  AA:  The regulatory issues are immaterial to the issue of ability to repay creditors.  The major issue is whether it makes sense to liquidate the Company or run it as a going concern (which will have a higher expense level).  Which course provides the highest net payout?   Which course does the least damage to Kuwait? The longer the file is left undecided the more value that will be lost. 
3. Complete and detailed information and explanation from the Company is lacking.  The Creditors Co-Ordinating Committee failed in obtaining information on some issues - where the answers are still "floating" according to creditors.  AA:  The CBK, CCC and creditors need to determine if the Company is being forthright.  If it is not, then it's time to remove the Board and management and go forward with the restructuring.  Or put the Company in Administration.  If the situation is unclear because of external factors and the Company cannot respond with precision, then the creditors will have to learn to live with ambiguity.  One would have hoped that by now the creditors would have made a decision on this score or decided to accept less than forthright answers.
4. Some points remain open.  It appears the chief one is shareholder support.  AA:  It seems a mite optimistic to expect shareholders to put more money into TID at this point (as it does for Global) until shareholders seem the direction of the restructuring.  Presumably, any money put in will wind up immediately in the creditors' pockets.  A rather hard sell to shareholders who have probably lost most if not all of their past equity.  Invest money not to build for the future but to pay off loans. Even putting money in to build the business requires a bit of optimism - perhaps irrational - at this stage.
5. Another major unresolved issue is expense reduction/control including grants, bonuses etc for management.  AA:  Unless this is the typical bankers' myopic focus on pennies in a restructuring, this is a rather disturbing bit of news.  If repayment of TID's mountain of debt depends on reducing relative hillocks of expenses, it may be time to consider Administration.  Unless of course the intent of the plan is a disguised liquidation.  Or there is no alternative to current management and controls are required to avoid dissipation of assets.   
6. Ernst and Young (who the CBK hired to evaluate TID's financial condition) ran a series of stress tests (to use a term common in the press).  Apparently under some of these TID was unable to repay principal and/or service debt.  That led E&Y to comment on the Company's debt burden and  reliance on two sources of revenue.  The CBK is said to be looking for 100% assurance that TID will be able to service its debt according to the plan.  AA:  Perhaps this is just a flight of rhetoric.  But if the CBK is looking for 100% assurance, it needs "tae think again".   The only thing the CBK can be sure of with that level of precision is that banks under its supervision are likely to make manifestly stupid loans again and get themselves into a serious deteriorated situation.  It cannot be sure that TID will sail through.  What it needs is a reasonable assurance - tempered by a keen understanding of what a bankruptcy this size will mean for Kuwait.   The US Court didn't have 100% assurance when it let General Motors through the gates of reorganisation.  

There are a couple of other points of note in the article:

1. Legal experts say that the CBK is not bound by the Special FSL Court's request.  That as the Central Bank it has certain powers beyond and above the FSL.  
2. The Company is described as being in the position of "one standing on shifting sand" given the decline in asset prices and the problem of coming up with asset values given different and moving prices.
3. Some local banks (Kuwaiti) have provisioned between 50% to 100%.  In any case by the end of the year according to CBK requirements, provisions will have to be at 100% as for other troubled investment companies.  AA:  Presumably at that point, having taken the pain, banks don't need to accommodate a plan because they have nothing to lose.  The bankers' rule that a recovery on a fully provisioned loan is found (new) money as opposed to recoveries of old lost money.

Additional conditions and safeguards - while no doubt justified - are unlikely to provide 100% assurance of TID's success.  At some point the CBK will have to make a decision - formed largely by the intersection of approximations of fact and the realities of policy - what is best for Kuwait.   And then prepare itself for criticism that its decision was flawed.  With no doubt a major part of that criticism coming from the "wise and learned" members of the Majlis al Umma.

What Were They Thinking?: Central Bank of Kuwait Approves Burgan Bank Share Buyback

When I read announcements like the one below (that the CBK has given permission to Burgan Bank to buy back or sell up to 10% of its shares) or the periodic announcements on the UAE exchanges reporting this or that bank's share buyback activity, I've got to wonder "what were they thinking"?  Or maybe "were they thinking at all?"  To be clear, here I'm not just questioning what the bank itself is thinking so much as what its apparently overly friendly or somnolent regulator is.

Those not suffering from banker's ADD will recall that Burgan Bank had a massive rights issue earlier this year -  April to be specific.  360 million shares.  Equivalent to a 34.57% increase in capital.  A Rights Offering that needed two stages because in the first Burgan managed to only place 85% of the amount.   If you have a banker's memory and don't remember, here's the link.

While one can never be certain, presumably Burgan raised this massive amount of capital because it needed it.   Perhaps, it was even encouraged by the Central Bank to do so.  To now partially decapitalize the bank seems not to make much sense though I suppose I could have missed the miraculous turnaround in the Kuwaiti economy in the last three months.  The boom in the KSE. The restoration of imagined ruddy health to the investment firm sector.  The disappearance of problem loans.

Looking southward,  one might also expect that the Central Bank of the UAE would stop or reduce sharebuybacks by local banks on the theory that in these difficult times banks need all the capital they can muster to provide a buffer against  problems. Though again I suppose difficult times may have ended. A dramatic recovery in the UAE.  The start of a new real estate boom.  The concomitant collapse of problem loans.  A new improved "Vision".  At least 20/5 this time!

It really does pay to pay attention as they say.

In cases like this where the decision seems contrary to good sense, it makes sense to look for additional motives.  As we all know, regulators are charged with looking out for the health of the banking sector and the economy as a whole - and not just that of this or that bank.

That suggests the Central Bank of Kuwait's decision is motivated by a higher  and more pressing need: raising Burgan's share price to a more appropriate level -- defined as one that makes its shares worth more in a collateral pledge and which increases the equity and perhaps income of its owners (FVTPL).  And goal so compelling and universal that a regulator "down South" might share a similar view, though of course for different banks.

As all good bankers know it is a cardinal rule of commercial banking to "have a second way out".  Even given the apparently generous pricing mooted on United Gulf Bank's purchase of 13% of Burgan is it really wise to rely solely on this "auction" to achieve this nationally important economic goal?  Apparently not!

And finally, yes, Burgan does hold Treasury Shares (some 29.6 million of them if I'm not mistaken) though I rather doubt they sought the CBK's approval because they want to sell them.  And of course, in such a case, the CBK could have limited its approval to a sale only.

[13:28:52]  ِ.موافقة بنك الكويت المركزي لبنك برقان بشراء ما لا يتجاوز 10% من اسهمها
يعلن سوق الكويت للاوراق المالية ان بنك الكويت المركزي وافق بتاريخ ‏
ِ21-7-2010 علي طلب بنك برقان بشراء او بيع مالا يتجاوز 10%‏
من اسهمه المصدرة لمدة سته اشهر اعتبارا من تاريخ انتهاء الموافقة ‏
الحالية في 5-8-2010 وذلك مع ضرورة الالتزام بما وضعه البنك المركزي
من ضوابط وشروط في شأن تملك البنوك لاسهمها اضافة الي ضرورة الالتزام
باحكام المداة ( 115 ) مكرر من قانون الشركات التجارية واحكام القرار ‏
الوزاري رقم (10) لسنة 1987 وتعديلاته بموجب القرارين الوزاريين رقم (11) ‏
لسنة 1988 ورقم ( 273) لسنة 1999