Dubai World Restructuring: No Restructuring Proposal Offered No Standstill Requested

Apparently, as per Reuters Dubai World did not formally request a standstill or offer any proposals on the restructuring today.

The latter is not surprising.

What's unclear is precisely what happened at the meeting.

Under best practice, Dubai World would have 

1. Introduced its internal team and external advisors with the goal of conveying a sense of competence and willingness to do business with its creditors in a transparent professional fashion.   
2. And, as is often appropriate (and seems to be the case here), introduce the new senior managers to confirm to the assembly that the ritual sacrifice of old management has been made.
   
3. Outlined its financial position: group structure, overall and subsidiary quantum of debt, debt maturities, asset values, cashflow as a way of framing future discussion over the restructuring.   (If DW and its subsidiaries still don't have an idea of what deal they are seeking at least in broad terms, that is not good.)
4. Requested the standstill.
5. Asked for the formation of a steering committee.
   

A real danger in a case like this is opening the floor for bright ideas.

This is the time for DW to recall that the bright folks who made the loans to them are by and large represented in the august body of creditors that will now decide their fate.  A realization that is perhaps a "la gota fria" moment.

Dubai World Debt Restructuring: Dubai World Statement

Something I missed but worth noting, a statement from Dubai World about Dubai Government support from 14 December.

HE Al Mansouri Denies Erroneous News Reports

As reported by the official news agency of the United Arab Emirates, HE Sultan AlManouri has denied earlier erroneous news reports, which apparently do not include the one that AA quoted earlier today.

"Minister of Economy Sultan Al Mansouri affirmed today that Dubai's debts issue has a local specialty and is being handled by the competent government agencies on contrary to what a foreign news agency has quoted him today saying that ''Dubai, whose debts are matured in 2010, could receive more assistance either from the federal government or emirate of Abu Dhabi."

''A massive media campaign is being waged against the UAE with the aim of distorting facts and misleading the public opinion about the economic reality in the country, the minister said astonishingly.

''This campaign will not touch the economic reputation of the UAE and its vibrant national economy which has proven its merit in handling and managing diverse global economic challenges and changes,''he stressed.

And he noted:

''The UAE is always keen to deal with all situations and circumstances with high transparency and scientifically and well-studied method based on accurate analysis using international state-of-the-art standards to ensure delivery of best aspired results,''he concluded.

AA for one stands corrected, but only mildly astonished.

Dubai World's "Small Debts"

HE Sultan AlMansouri sets the record straight for all the chicken littles out there:

"Dubai World's debts are small and some companies have been saddled with debts more heavier than those of the Dubai group, UAE Minister of Economy Sultan Al Mansouri affirmed today."

And to think I was worried.

Central Bank of UAE - November Banking Statistics

CB UAE has released November Banking Indicators - summary statistics.

Two differences from October:

1. AED 3 billion decline in personal loans. (A 1.4% decrease)
   
2. AED 3 billion increase in specific provisions. (A 10.3% increase).
   

Other metrics, including capital funds, have increased or held steady.  

Capital funds (=capital plus reserves but not including current year profit) increased to AED 217.9 billion from AED 211.7 billion.

The Investment Dar - Extension of Time for Creditor Approval

AlQabas quotes an unnamed financial source that he expects that the Creditors' Co-Ordinating Committee will announce an extension of the deadline for creditors to agree to the restructuring proposal.  At least two weeks perhaps more.

The extension is being justified as needed to complete certain legal requirements and comply with requests from creditors.

Here's my take on the story behind the story:

1. The comment about the completion of certain legal requirements and creditor requests may indicate that some creditors may have imposed conditions on their agreement requiring some changes to the deal, though I think this is just the story to provide cover for an extension without admitting failure in securing creditor agreement.
2. Clearly not all creditors have agreed.  As outlined before, 100% of creditors are required to close the deal.  In an earlier post  on 6 December press accounts, I noted that at that point it seemed that only 66% of creditors (by amount) had agreed. Investment Dar Bank Bahrain at 27%  had not but was expected to agree "soon".  One would think that its agreement would have been trumpeted as a way of building momentum to sweep up the other creditors.  Since this hasn't been announced, it's a safe bet that it hasn't happened.  Though looking at Dubai's PR campaign you might well object that there is a completely plausible alternative explanation.  After all, TID is still running a rather boastful account of its 2007 earnings on its website, which seems (at least to AA) as a bit out of place given its current situation.
   
3. What's telling is the reference in the article to persuading creditors to join who are determined on pursuing their rights through court cases.  An ongoing court case or two could derail implementation of the restructuring as creditors rush to protect themselves.
4. It's now been approximately two weeks since TID submitted its 2008 financials to the Central Bank for approval.  It will be very interesting to see how long before they are released.
   

If the AlQabas story is accurate, this is not good news for TID.

You can access previous posts on The Investment Dar by using the label section on the right side of the Suq Al Mal homepage.

Saudi Capital Markets Authority Announces Corporate Governance Seminar For February

The Saudi CMA has announced it is organizing a corporate governance seminar in co-operation with the Swedish Chamber of Commerce.  The meeting will be held in Riyadh February 9.  Press details here.

GCC Monetary Union: Imminent Meeting to Form Gulf Monetary Council

AlRiyadh newspaper quotes Dr. Nasir Al'Uqud, Assistant Deputy Secretary General for Economic Co-Operation of the GCC as saying that the Governors of the Central Banks of Bahrain, Kuwait, Qatar and Saudi Arabia will meet in the coming weeks to form the Gulf Monetary Council ("GMC") as a first step in the creation of a unified currency for the GCC and a GCC Central Bank.

Oman and UAE are not participating in either the common currency program or the GCC Central Bank.  Apparently the UAE was miffed that the CB will be headquartered in Riyadh as opposed to Abu Dhabi.  It announced this May that it was not participating.  Oman had advised its withdrawal back in 2006 (or early 2007?).

The GMC is charged with taking all the steps necessary to establish monetary union, including the timing thereof and the issue date of the new common currency.    the specifics of the unified currency and its issue date as well as setting up the basic infrastructure.  Associated with the common currency will be the development of plans to co-ordinate GCC economies  and set up related units to implement and monitor that process.

The original plan was to issue the unified currency in 2010, but the GMC will have the right to determine the timing.   The article notes that unnamed Gulf officials expect it to take several years for the currency to be issued.

Hope remains that Oman and the UAE can be persuaded to join at a later time.

Dubai World Restructuring - Options

The National (Abu Dhabi) has an article titled Full Repayment Is Option For Dubai that has left me scratching my head.

Here are three quotes along with some comments in blue italics.

1. “They made clear there were a number of options the Government of Dubai saw as feasible and desirable for Dubai World and repayment in full was one of them,” said a person at the talks who declined to be identified because the meetings were private.  AA:  That means the Government of Dubai sees other "feasible and desirable" options.  Would one of those be refusal to pay anything?  A haircut on principal?  Conversion of the debt into season passes at Wild Wadi?   
   
2. Full repayment would be the preferred option for the creditors, represented by the British banks RBS, Standard Chartered, Lloyds and HSBC, with the regional banks Abu Dhabi Commercial Bank and Emirates NBD representing the Gulf.  AA:  Great minds think alike.  That was AA's strategy as well when he was active in the underwriting and funding of debt.  In fact, getting back one's principal (plus interest) was a key business principle in the debt markets - at least at that time.     
   
3.  “We will have to see what timescale they [Dubai] are looking at as a feasible repayment period,” one banker who asked to remain anonymous said yesterday. “If they can come up with a plan to repay over a period of, say, five years, with a commitment to maintain interest payments over that period, we would have to consider that.”  AA:  Does this mean that if the proposed repayment were over six years, these banks would refuse to consider it?  And precisely what would they do in such a case?  Ask the BBA to write a letter to Lord Davies  so he would have a word with Shaykh Khalifa?  When AA was involved in debt restructurings, we generally began by constructing a reasonably based cashflow for the debtor.  After applying some margin of safety, we could pretty much determine the required repayment tenor.  Working the other way around by positing a repayment tenor without reference to reality is a bit riskier.
   

First Dig Your Camel Out

3-0!

A Gem of an Investment: Damas

One of this blog's select group of readers raised a question about Damas and provided a link to an article in The National newspaper from Abu Dhabi.  I promised to put a few thoughts together in a post and belatedly am making good on that promise.

First, a bit of background to set the stage.

1. In Summer 2008 Damas offered 270.6 million shares of which 233.9 million were new shares.  36.7 were sold by Amwal al Khaleej Commerical Investment Company (Saudi Arabia)  as per the Final Offering Circular ("FOC").  As per page 72 of the FOC, the three Abdulla Brothers (Tawfique, Tamjid and Tawhid) would own more than 51% of the Company after the Offer.
   
2. Fees and expenses on the transaction were reported as US$10.4 as  (page 19 FOC).
3. In July 2008, Damas listed on the DIFX, now NasdaqDubai.
4. In December 2008, the Company changed its fiscal year from 31 December to 31 March with the following justification:  "The Board of Directors of the Company vide their resolution dated 22 December, 2008 has changed its Financial Year End from 31 December, 2008 to 31 March, 2009 due to the following reasons.
   i) Since the market conditions were very much volatile, the first part of 2009 would give the Company, some time to see how expansions could be made effectively in the later part of the calendar year.
   ii) All the Auditors were extremely busy at the end of the calendar year and feel pressurised to deliver and that it would be a better option to choose a lean period for audit reviews and for consolidation of more than 75 Group companies."    
5. On 12 October 2009, Damas announced the resignation of Mr. Tawhid as Managing Director and CEO "due to his disclosure to the Board of what is understood to be unauthorized transactions conducted by him.  The full extent of these transactions has not been ascertained at this time but the Company’s initial estimate is that these transactions could amount to approximately USD 165 million."
6.  On 15 October 2009,  the Board of Damas announced "the appointment of PricewaterhouseCoopers (PWC) as an independent auditor to examine the unauthorized transactions conducted by the former CEO and Managing Director Tawhid Abdulla."
7. On 4 November 2009,  the Company announced a Settlement Agreement with the three Abdulla Brothers to repay US$165 million over the following 18 months in three installments of US$55million due within each of the three six-month periods comprising that longer period.  Certain real estate was pledged as were 350 million shares of Damas to be taken in the event that the Settlement Agreement was not honored.

Now to more recent details.

On 16 December 2009, Damas published its September 2009 interim financials.

The following five notes particularly caught my eye:

(1) Note 6:  Provision Against Consignment and Receivables Exposure

"Included in unimpaired receivables (note 9) are debts amounting to AED 53 million (31 March 2009: AED 47 million) due from particular consignment debtors and AED 32 million (31 March 2009: AED 54 million) due from certain high net worth customers who are familiar and acquainted with certain Directors."  AA:  It would be interesting to know who these "high net worth" customers are who apparently forgot their credit cards or chequebooks at the time of  purchase.

(2) Note 11 Related Party Transactions

"The Executive Directors have provided personal guarantees amounting to AED 150 million (31 March 2009: AED 150 million) in respect of risks associated with unfixed gold lying with certain parties, dues from particular consignment debtors and certain high net worth and important customers (note 6)."  AA: I wonder if these "important customers" are among those who haven't settled their purchase payments yet.

(3) Note 12 Directors' Current Account

"The above balances relate to Mr.Tawfique Abdulla, Mr. Tamjid Abdulla and Mr. Tawhid Abdulla. Against the balance above there are loans due to these directors amounting to a total of AED 150 million which are subordinated to bank facilities.

Subsequent to the period end, the management has entered in to a Settlement Agreement with the concerned directors wherein they have undertaken to repay an amount of US$55 million within 6 months; an aggregate of US$110 million within 12 months; and an aggregate of US$165 million within 18 months; and, should there be any balance in excess of the US$165 million as a result of any findings arising from an ongoing independent investigation or otherwise, any such excess amounts in cash and/or unencumbered assets within 24 months. All payments are to be made in cash and/or unencumbered assets.

As part of the Settlement Agreement, the concerned directors have produced a list of assets that are potentially available for liquidation to be converted by them into cash and/or to be contributed to the Group as unencumbered assets to meet their obligations under the Settlement Agreement. Such assets consist principally of real estate investments in the Middle East and North Africa (including a number of residential and commercial buildings and units in the United Arab Emirates) and an investment in a shopping mall in Turkey.

As part of the Settlement Agreement, the concerned directors have pledged 350 million of their shares in the Company that would be transferred in whole or in part back to the Company in the event the terms of the Settlement Agreement are breached. These shares had a market value of AED 275 million as at 25 November 2009.

As at the date of authorisation of this financial statement, the process of independent valuation of the assets available for liquidation is still under process. An independent investigation is also ongoing into transactions undertaken by the former CEO and Managing Director of the Company. This investigation is being overseen by a subcommittee of the Board.

Subsequent to the period end due to increase in the price of gold and additional transactions the amount due from the directors was AED 635 million as at 25 November 2009 (net of loans due to directors amounting to AED 150 million)."  AA: There are several more interesting details in this note in the comparative table of outstandings and their movements, including the use of a company deposit to secure a related party's loan.  Presumably, one of the unauthorized transactions.  Or at least one hopes so.

(4) Note 13:

"* A subsidiary of the Company had provided a loan amounting to AED 294 million (USD 80 million) to Dubai Ventures Group Limited (“Dubai Ventures”) at a rate of interest of 6% p.a. which was due to be repaid in August 2009. On 18 August 2009 an investment agreement was signed with Dubai Ventures, wherein Dubai Ventures confirmed that all monies previously provided to it under the loan facility were held by it as money provided for investment purposes and would be transferred into a investment account over which Dubai Ventures would have discretionary management powers. Subsequently when the Group requested information as to the nature and value of the investments held in the investment management account they were informed that the account held shares in Damas International Limited with a value of only AED 73.5 million and that no other assets were available to the Company. Although discretion had been given to Dubai Ventures in respect of investment choice, the Board of Directors of Damas International Limited had not authorised Dubai Ventures to invest in shares of the Company. The Board intends to dispute Dubai Ventures actions in this regard and will seek to recover the full amount due under the original loan facility agreement.  For reasons of prudence a provision has been made amounting to AED 312 million against the total loan amount including accrued interest."

(5) Note 17 Going Concern

"The increasing spot price for gold has resulted in a decline in sales and an increase in margin calls from financial institutions from whom the Group obtains gold loans. These factors combined with the amounts withdrawn by a director (note 12) have resulted in a significant decline in the liquidity of the Company. It has also resulted in the Group defaulting on certain of their facilities subsequent to the period end and a number of financial institutions reassessing their facilities with the Group.

Discussions are currently ongoing with banks regarding renewal/restructuring of facilities and securing sustained funding to carry on its operations. As part of this process the Group has signed an agreement with certain institutions that may result in certain diamond inventory being sold at a loss in future as an additional cost of finance. Additional funding is required to ensure that the Company can continue its operations and meet its financial obligations as they fall due.

Whilst the results of the negotiations with the banks cannot be determined at this time, the Board of Directors has elected to prepare these financial statements on a going concern basis as they are optimistic that agreement will ultimately be reached with the banks."

Now to some commentary.

How did this happen?  

It appears from the timing that the conversion of the loan to Dubai Ventures happened during the tenure of the previous Managing Director/CEO.  Earlier I had raised a question as to what a jewelry company was doing making a commercial loan to another entity and whether this was ultra vires.  A glance at Damas' Articles of Association show that the answer to the latter question is a resounding no. 

Basically Article 1.4 (b) allows the company to anything that's not illegal.  As well, Article 15.3 would seem to permit the delegation of authority to engage in such transactions to the MD/CEO by the Board.

Of course, there is still the valid question of why this company got into the loan business, when it appears to have been in financial distress from unfavorable developments in its core business.  This loan was disclosed in Damas' 2008 fiscal financials issued in July 2009.  So the Board  cannot disavow knowledge, though its knowledge may have been post facto after the loan was granted.   It would be interesting to know the Board discussion that took place on this issue.

As indicated in Note 13, when the loan was not repaid, presumably because Dubai Ventures could not, it was converted to an investment account.  Not an untypical strategy to prevent the recognition of an impairment or a loss.  The AED64,000 question here is whether the MD/CEO undertook this decision on his own or the Board was involved.

What is also intriguing is whether Dubai Ventures inability to pay is evidence of a wider pattern of cash shortages or other financial distress within Dubai Inc.

What about the Settlement Agreement?

As is probably obvious from previous posts, AA has a particular fancy for settling obligations in cash.   As per Note 12 it seems that settlement can be made in "cash and/or unencumbered assets".   Since Damas is not a real estate investor (or at least AA hopes they're not), it would seem that settlement should be in cash.  Any real estate should be sold and the proceeds given to the company with the Abdulla Brothers bearing the conversion risk, not the Company.   

Also I'd note that Article 2.15 of the Company's Articles states:  "The Company may not take a lien over any of the shares."  Presumably legal work has been undertaken by clever counsel to make the pledge by the three Abdulla Brothers legally effective.

Bottom Line

When investing in a family company make sure you've got adequate control  at the Board over the family members' management of the company and signature authorities (enhanced requirements for Board approval is one technique), robust corporate governance actually implemented, and of course detailed disclosure of company affairs. 

The Deep View: Emerging Markets

The Financial Times's recurring column "The Short View" ran an article last Thursday on emerging markets, noting the stellar performance of emerging markets as well as some of the smaller "developed" markets.

Indeed the indices of some of these markets have increased dramatically.

There are some other considerations that might be relevant to investors.

Let's drill a bit deeper.

How is the local index constructed and is it dominated by one or a few companies? 

In other words is there enough diversification available in that market to deal with idiosyncratic risk?  Or does one need investments in other markets?  Very key questions for those whose philosophy is informed by the CAPM, the efficient markets theory, etc. 

The Dow Jones average is composed of some 30 stocks.  United Technologies has the largest share in that index with some 6.5%.  By contrast in Norway's OBX, Statoil accounts for a whopping 25.98%, Telenor 10.84%, and DnB Nor 9.64%.  Just three shares account for 46.5% of the index.

Another is what is the liquidity of the market?  Sometimes even the most inveterate punter wants to cash in his winnings.

If I'm not mistaken daily trading on the Ukrainian Stock Exchange maxes out at US$60 million.  Closer to "home" one could look at the monthly reports issued by the Bahrain Stock Exchange and learn that many stocks do not trade.  And that trades are often in small amounts.  For the month of November, BBK had the largest BD volume of shares traded at just short of BD 11 million (roughly US$29 million) - that was roughly 50% of the entire month's trading.

Other market factors that affect investors are:

1. Free float
2. Structure of market infrastructure, e.g., does one broker control the market as (at least) used to be the case in one GCC state
3. Balance of institutional versus retail investors in the market
4. Market practice - is insider trading a national sport?
   

And Now for Something Completely Different: Basel Fawlty?

Friday's Financial Times Lex Column had a comment under the title "Basel was faulty" which as you might guess coming in an "English" context reminded me of a long ago television series.

Is Basel II to blame for the financial crisis?

If there's no stop sign at the corner, do I just speed on through the intersection without looking for other traffic?

And, if I get hit, do I blame the lack of a stop sign or my own imprudence?

And perhaps equally as important, if I am the constable at the intersection, do I defer my own independent judgment to the traffic control signs that are present or not present?

And if there is an accident, do I blame the chap who did or didn't put up a sign?

Of course Basel II wasn't perfect.   Basel I wasn't either.  Regulators need to engage their brains in applying regulations.

There was a time when regulators would call their charges to admonish them, to warn them from  engaging in certain behavior when they saw something dangerous or stupid. 

Long ago, the last real central banker the USA had, crushed speculation in the silver market by telephoning the CEO's of major US banks and telling them to stop financing speculation in the precious metals market.  He also then rang up the commodities exchange to "suggest" that they change their margin rules.  The combination of margin call and no access to additional financing deflated the silver bubble quite nicely.  All done without an explicit rule.  And some would argue with a bit of ultra vires in regard to the change of the margin rule.

Dubai World Standstill

There's an interesting article in today's Gulf News "Bankers Expect "Standstill" Nod".

"Bankers expect Dubai World to make a formal request for a "standstill" on its $26-billion (Dh95.4-billion) debt at Monday's creditor meeting, but it could be more than a month before banks agree, bankers said yesterday."

As I read the law, all Nakheel and Limitless need to do to get an effective legal standstill in the UAE is to nip round to the special DIFC Court and persuade the judge to give them one as part of a company voluntary rescheduling proposal.  There is no requirement for any bank agreement to the standstill.  There is of course one to the voluntary rescheduling program - more than 75%.

And as I argued in my earlier post, it is likely that many jurisdictions will accept the DIFC proceedings as taking place under a reasonable regime and law.  Therefore, it's also likely that they will agree to hold enforcement in their own jurisdictions pending the resolution of the case in Dubai.

So this article is puzzling.  In effect the banks don't have to agree for a standstill to become effective.  Since they don't appear to have a  choice in the matter, what sense does it make to talk of the law as giving them an "incentive"?

I'd also note that in applying the DIFC bankruptcy law to these companies, the Government of Dubai has  in effect given itself the right to impose a standstill.  Though to be fair, the law includes important protections for lenders and represents an improvement over local law.

KFH Lawsuit Against Commercial Bank of Kuwait - Re Bank Boubyan Shares

AlQabas has an article on the above topic today.

Kuwait Finance House ("KFH") has filed suit to keep Commercial Bank of Kuwait ("CBK") from disposing of shares in Boubyan Bank that it acquired because of a failed "repo" agreement with The Investment Dar ("TID").

KFH which has KD 44 million of exposure to TID apparently is arguing that CBK should not be allowed to sell the shares but rather that these should be placed at the disposal of TID's creditors.  As I understand it (and note that caveat), KFH is arguing that CBK is just another creditor of  TID and should share the collateral with other lenders.  The amount involved is significant.  At the last closing price, some US$387.5 million.  If you'll recall the estimate of assets versus liabilities, the creditors believed there was likely to be a shortfall in TID's repayment.  So including these shares in  TID's "estate" would improve the overall payback rate roughly 9 to 10%.

In any case, as per the article, the High Court has transferred the case to the Experts Department.

Some background:

1. Boubyan Bank ("BB")  was formed in 2004 as an Islamic Bank.  
2. In December 2008 TID sold CBK its BB shares (19.16% of BB) with an option to repurchase.  In effect what appears to be a form of "repo".
3. Around this time NBK received approval from Kuwait Central Bank to purchase up to 40%  of BB.  NBK is interested in BB in order to expand its franchise into Islamic banking.  For those who don't know, NBK is the premier non Shari'ah bank in Kuwait and a very strong contender for that position throughout the Arab world.
4. In May 2009 CBK announced that TID had failed to buy back the shares within the agreed time frame. And therefore it was taking control of the shares.
5. June 14 NBK announced it had agreed to buy the shares from CBK. The price  was roughly $420 million.
   
6. On 16 June responding to a motion from TID,  the Kuwaiti Court stopped the sale pending determination of ownership.
   
7. In July/August 2009, KIA auctioned its 19.8% share in BB.  National Bank of Kuwait  won 13.2% and Securities Group 6.6%.  NBK previously held 14.3% or so.  After the auction, it held 27.5% of BB and was the largest shareholder. 
   
8. NBK acquired Securities Group's shares plus some additional shares.   It is now the largest single shareholder in BB with some 40%.   And at the limit of shares it may own without further approval from the Central Bank of Kuwait.
   

Happy New Year!

كل عام وأنتم بخير

The Banker: 2009 “Best Bank” Awards by Country

The Banker has announced the winners of its award for 2009 Best Bank in each country.

Click on that link to read the rationale for the selection.  As always, it's important to read the fine print to determine what the criteria for evaluation were.   I recall reading a ranking of a university where two of the criteria (apparently equally rated with the rest of the criteria) were the survey taker's view on the beauty of the campus and the vigor of the social life. 

Here are the relevant GCC winners:

1. Bahrain - Ahli United Bank
   
2. Kuwait – National Bank of Kuwait
   
3. Oman - Bank Muscat
   
4. Qatar – Qatar National Bank
   
5. Saudi Arabia – Saudi British Bank
   
6. UAE – First Gulf Bank
   

And in Lebanon, BLOM!

Societal Attitudes Hold Back Saudi Women - Not Religion

It's fairly typical that when a businessman fears a competitor he seeks to disadvantage or bar them from competing.  And usually tries to find some high sounding reason to disguise the true reason.

It's refreshing to see this poll disabuse the notion that keeping women in an inferior state is founded on  Islam.  Rather it's founded on (a) traditional societal beliefs which have been conflated with Islam and (b) fear of competition. 

When a nation does not employ all its capital - human, financial, etc - its achievements are lower than if it did.

New Basel Committee Consultative Documents

The BIS BCBS has released two consultative documents today:

1. International framework for liquidity risk measurement, standards and monitoring
   
2. Strengthening the Resilience of the Banking Sector

Emirati Women Hold AED 12.4 Billion (US$3.4 Billion) in Investments

Raja AlGurg (Al Qurq), President of the Council of Dubai Businesswomen, said at a press conference held in Dubai to announce the seventh competition for Emirates Prize for Businesswomen that there were 11,000  businesswomen in the UAE.  4,300 in Dubai, 3,200 in Abu Dhabi.  With AED12.4 billion (US$3.4 billion) in investments in a diverse range of assets: hotels, real estate, buildings, shares, etc.

Earlier post on women's wealth in the GCC.

Qatar National Day

Happy National Day

Dubai: Sign of Cashflow Problems at the Government Level?

Bloomberg reports that "A new law “requires government entities which enjoy financial independence as well as government companies to transfer surplus income to the government’s treasury, considering it to be public income,” according to an e-mailed statement from the ruler’s office."

Some reactions:

1. The definition of surplus income is unclear.  Does this mean that only net income is to be transferred?  As say, opposed to cash received from the collection of receivables?  Or cash on hand? Over what period is the surplus determined?  Immediate needs?   Needs over the next 'x" months?
2. While a prudent cashflow step, the mobilization and centralization of cashflow is also a tactic used by entities experiencing cashflow problems.  The tricky issue in such situations is reversing the cashflow when the contributing unit needs cash. 
   
3. Does this co-mingling of funds belonging to "independent" government owned companies like DEWA and Investment Corporation of Dubai with sovereign government entities' funds undermine the assertion that they operate separately from the sovereign?   
   
4. Or is this a revision of existing dividend policy at the commercial companies?  If so, how does that affect (a) their creditworthiness and (b) existing covenants on any debt they have?  

These questions are not only pertinent to existing lenders but to lenders contemplating an extension of  new credit.

I think that this step could well be a sign of cashflow distress at the Government.  And coming so soon  after the recent US$10 billion rescue bond from Abu Dhabi, perhaps a condition of that financing.

And therefore perhaps further support for my earlier post on the relative positions of the two Emirates.

Cobalt IPO Follow-Up

Here's the first day's trading results.

Generally IPO offering prices are set so that there is an initial price rise.

Anyways, don't be discouraged.  This time it's different.  It really is.  Trust me.

Abu Dhabi/Dubai: Who's in Control?

Following Monday's surprise announcement, there's been discussion about the terms of the deal between Abu Dhabi and Dubai. In short which Emirate has the upper hand? 

What follows is a re-worked comment to an article at The Emirates Economist blog. There is a discussion there along with some other useful posts, which I suggest those interested in this topic take a look at.

Because details of the funding and any side agreements have not been revealed, we have no way of knowing.

Despite these limitations, we can engage in some hopefully informed speculation.

My own view is that Abu Dhabi has the most leverage.

I look forward to hearing your views, particularly those with different positions.  This is after all a "suq" and one should never take the first price (or opinion) as the last word without a big of haggling.

In large part though not exclusively, I've relied heavily on the 14 Dec Government of Dubai announcement. There are some risks with basing an argument on this document as to do assumes that it was crafted with each word and phrase carefully pondered before its selection That may not have occurred for time and what might be described as "cultural" reasons.

First, the funding itself.

I'm reading two statements from the press release to mean that funding is being provided in stages and with conditionality. First, "The Government of Abu Dhabi has agreed to fund." Not has funded. Of course, on the day of the announcement it's highly unlikely that funds would have been disbursed. The deal was probably struck hours before the release was issued. But there is another indication. In a following paragraph, it states that use of the remaining US$5.9 billion (after the apparent preference to Nakheel sukuk holders) is conditioned upon Dubai World securing creditor agreement to a standstill.

While there's no way of knowing for certain at this point, it sounds like that cash is not yet in hand. I'm guessing (hopefully an informed guess but note that word) that the funding is going to be phased in as needed and as milestones are met. Why? Because this is the tactic that Abu Dhabi took with the recent US$5 billion sale of the second tranche of the US$20 billion bond issue. As you'll recall while NBAD and AlHillal subscribed for US$5 billion, they only paid in US$1 billion immediately with another $1 billion to come within a week or so and then the remainder over the year. It would seem likely that Abu Dhabi would continue the same tactic rather than giving a carte blanche to Dubai.

If this analysis is correct, Abu Dhabi has tremendous leverage over Dubai. Particularly, if negotiations with creditors are difficult. And even more so because I believe that there are more economic shoes to drop in the Emirate (as described below).

There is I admit a second interpretation here – Dubai has the funds or will have them all shortly. And that this statement is designed to put pressure on DW's creditors to conclude a deal.

Second, the form of the financing.

It would have been quite easy for Abu Dhabi to have subscribed to the remaining tranche of the existing US$20 billion bond offering. And to use surrogates – the Central Bank or commercial banks as was recently done. And much quicker since legal documents for these existing bonds were already in place. As well, there was ample unfunded capacity on the second US$10 billion tranche. As noted above, at least US$8 bllion.  So Abu Dhabi's incremental purchase in the existing bond issue could have easily provided funds for the Nakheel bond.

So why wasn't this route taken?

One answer is of course to make the commitment of Abu Dhabi clear. But, by and large the market saw the hand of Abu Dhabi behind the Central Bank and the two commercial banks' purchases. What is the benefit? Discretion. As public entities, both the Central Bank and commercial banks would have to disclose material terms of the bonds – interest rate, repayment and very importantly if there were any material conditions – pledge of collateral, options to acquire assets, etc. – associated with the bonds. They would also be obligated to report any material changes to the bonds' terms or any delays in repayment. In a state to state deal, particularly one between two absolute rulers, disclosure can be what the two parties want. There are no Central Bank or listing regulations. Nor IFRS to deal with.

A direct state to state deal also puts Abu Dhabi's hand a bit closer to Dubai's throat, though it also puts Dubai's hand on Abu Dhabi's. A default to a commercial entity would have to be reported. There is more opportunity for discretion in a government to government deal.

Third, the relative positions of the two parties.

In the context of Dubai's debt, US$10 billion is not solution. It's temporary life support. It's likely Dubai will need more assistance in dealing with its debt. There are the indications that the Emirate itself has a cashflow problem: trade creditors to the government are reportedly among those with past dues. As well, even with bankers and investors' well known affliction of financial ADD, Dubai is likely to find its access to financing constrained for a while. The winding down of the real estate machine, which has driven a good portion of economic "performance", is going to have more than one bout of knock-on effects on the economy.

If so, there will be plenty of future opportunities for Abu Dhabi to apply pressure.

Dubai's main leverage is a Samson-like bringing down of the temple. A weapon perhaps more useful as a threat than for actual use as Dubai is likely to be ground zero in any such application.

Fourth, Abu Dhabi's primary goals may be more political than economic. The more dependent Dubai is for financial support the more it will have to accommodate itself to enhanced pre-eminence for Abu Dhabi and to the latter's policies and wishes.

In this context allowing Dubai to retain its flagship assets and its "face" may be small prices to pay.

Ride Into the Future: TED Sixth Sense

Incredible India!

Ride Into the Past: The Glorious Past Indeed!

And made like a gun so the slogan goes.  

Ride into the past.

Tie Your Camel First, Then Trust in God Part VI - The Implicit Guarantee Defense - Turnaround is Fair Play

According to the Financial Times, in deciding to make its investment in Citigroup the Emirate of Abu Dhabi "assumed the US government would make any investor in Citi whole".  They also apparently believed that "Citi is America" as the sophisticated head of another unnamed sovereign fund in the region so carefully summed up the matter.

The article also notes that ADIA plunked down US$7.5 billion after "only three days of due dilgence".

Seems it's not only sophisticated and sober investors and bankers from the West who believe in the implicit guarantee and apparently as well the Great Magic Pumpkin, though it may be lonely in the pumpkin patch at times.

Some hopefully helpful hints:

1. "Too big to fail" does not mean too big to have one's share price go down, way down.  
2. There appears to be a real unmet need in the region, particularly the UAE,  for courses in convertible bond/security basics and structuring. And thus a significant  business opportunity to be seized.
   

Earlier posts here and here.

Commercial Bank of Kuwait - Board Resignation - Fuad I. Dashti

CBK has announced to the KSE that Mr. Fuad Ismail Dashti has resigned as a member of its Board.

11:16:47]  ِ.استقالة عضو من مجلس ادارة البنك التجاري الكويتي
يعلن سوق الكويت للأوراق المالية بأن البنك التجاري الكويتي
افاد باستقالة السيد / فؤاد اسماعيل دشتي من عضوية مجلس
ادارة البنك وان مجلس الادارة اعتمد استقالته في اجتماعه
المؤرخ في 14-12-2009

1-1

Saturday.

Analysis of Dubai Government 14 December Statement on Restructuring Dubai World

Below the dotted line is the text of the announcement made by the Dubai Government on 14 December 2009 regarding the US$10 billion  support from the Emirate of Abu Dhabi and the restructuring of Dubai  World. My comments are in blue italics. One caveat:  My analysis is based upon the press release having been  crafted with the import of each word and sentence carefully considered.   That may not have been the case for a variety of reasons, including time  pressure.  That theory is somewhat supported by the fact that there are  two almost identical press releases issued by Dubai within less than  one hour. ------------------------------------------------------------------------------------------------------------------------------

WAM Dubai, Dec14th, 2009 (WAM) --- Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee (SFC) reassured investors, financial and trade creditors, employees, and citizens all out support of the government and has said that Dubai is, and will continue to be, a strong and vibrant global financial center. "The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy", he said in a statement on Monday. "The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders," he added.  AA:    With the apparent agreement of the Emirate of Dubai, Nakheel has paid the holders of its US$3.52 billion sukuk US$4.1 billion.   That is, the holders of the sukuk are not being asked to participate in the restructuring – either in terms of a retiming of their repayments, the interest rate thereon or the amount of any adjustment ("haircut") of principal. Assuming that the point of the rescheduling will be to ask other creditors to accept some or all of these steps, exactly how  are the interests of all stateholders being served? If this payment is a preference of one group of creditors over another, precisely what "high standards" have been applied?     The Government of Dubai, acting through the Supreme Fiscal Committee ("SFC"), today announced a set of actions in relation to Dubai World. Full text of Sheikh Ahmad Bin Saeed Al Maktoum, Chairman of the Dubai Supreme Fiscal Committee statement: Like other global financial centers, Dubai has faced recent market challenges driven by global economic slowdown and severe real estate market correction.  Recently, Dubai World announced that it might not be able to commercially support its obligations. Since that time, the Government of Dubai has worked closely with the Abu Dhabi Government and the UAE Central Bank addressing and assessing the impact of Dubai World on the UAE economy, banking system and investor confidence.   AA: This sounds the theme of separation between Dubai World and the Emirate. Something that I have noted that careful lenders and investors should have been aware of from day one. The following provides comprehensive set of actions: First, the Government of Abu Dhabi and the UAE Central Bank have agreed to provide important support. Specifically, the Government of Abu Dhabi has agreed to fund $10 billion to the Dubai Financial Support Fund that will be used to satisfy a series of upcoming obligations on Dubai World.  AA: Does this mean that other creditors (in addition to Nakheel sukuk-holders) will be paid their obligations.?   Simply because those obligations come due before others?  Meaning that those creditors whose obligations are not so temporally favored will have to reschedule their obligations?     Perhaps, more importantly, note the words "has agreed to fund".  This implies that the full US$10 billion has not yet been disbursed. As a first action for the new fund, the Government of Dubai has authorized $4.1 billion to be used to pay the sukuk obligations that are due today. The remaining funds would also provide for interest expenses and company working capital through April 30, 2010 - conditioned on the company being successful in negotiating a standstill as previously announced.  AA: This does not appear to contemplate any repayments of principal.  Yet the paragraph prior to this one specifically mentions "upcoming obligations". Are these only interest? Or do they just comprise trade creditor obligations?   Crtically, how is the support conditioned?   Will Abu Dhabi only disburse the funds if a standstill is negotiated? A bit of leverage to use against the creditors.  Though  this admission is a two edged sword.  If Dubai World cannot pay interest on its obligations absent this cash infusion, how will it pay the obligations themselves?  This deferred disbursement mechanism also gives Abu Dhabi significant leverage over Dubai.    In addition, the Government of Dubai is particularly focused on addressing the concerns of Dubai World trade creditors within the Emirate of Dubai. To help address these concerns, today the Government of Dubai is announcing that the remainder of the funds provided will be used for the satisfaction of obligations to existing trade creditors and contractors. Discussions with affected contractors will begin in short order.  AA: The concern is stated as being particularly for trade creditors within the Emirate of Dubai.  Does this mean that those outside will not receive the same treatment? It is also unclear how much is the amount (the "remainder of the remainder") to be devoted  to this group of creditors. Within DW's trade creditor group within the Emirate of Dubai, will only past due amounts be paid?  Here I have the same question about "preferences" though on a temporal basis rather than geographic basis. Next, the central bank is also prepared to provide support to local UAE banks.  AA: Two reasons this support might be necessary.  The first because other banks refuse to lend  some UAE banks over concern about  their creditworthiness related to exposure to Dubai World.  Here the CB UAE would provide liquidity support.   The second because the local banks were potentially subject to serious losses on their DW exposure.  Here the CB UAE would provide various forms of support including perhaps capital infusions. On 29 November the Central Bank announced additional liquidity support for both local and foreign banks in the UAE.   Is thie press release merely restating this support?  Or is this a new statement related to the second rationale for support? Finally, today the Government of Dubai will announce a comprehensive reorganization law, a framework that is based upon internationally accepted standards for transparency and creditor protection. This law will be available should Dubai World and its subsidiaries be unable to achieve an acceptable restructuring of its remaining obligations.   AA: A not too subtle hint to creditors: do a deal or face the consequences.  Realistically, the law and court will probably have to be resorted to in order to secure creditor approval of the restructuring package. The "new" law provides that if more than 75% of creditors vote for a reorganization plan it is accepted and binding on all creditors, which provides a much needed cramdown mechanism. Explained in more detail in this earlier post.   Today's actions, taken together, demonstrate our strong commitment as a global financial leader to transparency, good governance, and market principles. There will certainly be challenges periodically, just as there are challenges in other major financial centers around the globe. We believe today's actions will best serve the interests of all stakeholders.  We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices. Dubai is, and will continue to be, a strong and vibrant global financial center. Our best days are yet to come.  The Government of Dubai remains committed to its high standards and its obligations. We are confident in our economic model, and we are confident in the long-term health and outlook for our economy. The actions taken today are consistent with our market development, and we believe they are the actions that will best serve the interests of all stakeholders." WAM/AMIR

Cobalt IPO

I had mentioned this "compelling" investment opportunity earlier.

Seems the IPO was priced at US$13.50 per share below the initial price talk range of US$ 15-17 and even then only raised US$850.5 million.

This NY Times article has some quite apt quotes.

1. Cobalt International Energy Inc. hoped investors would contribute more than $1 billion to its search for oil miles beneath the ocean even though it has no proven reserves and it expects no revenue for at least another two years.  
   
2. Cobalt is a risky bet, say analysts who research IPOs.
3. ''IPO buyers are looking for financials that are tangible, a revenue stream that's visible and profits. They're not looking for concepts right now,'' said Scott Sweet.  It is unusual for an oil and gas company to go to the public markets without reserves in place or production under way, said research analyst Nick Einhorn of Renaissance Capital based in Greenwich, Conn.   ''There's a lot of risks but I think for an investor who kind of believes in this deepwater opportunity, it is a good way to get 100 percent exposure to that,'' he said.

I particularly like this last quote.  It is indeed an excellent way to get 100% exposure to risks that one kind of believes in.

Nonetheless, US$850.5 million was raised.  

Harassment of Women

SAA

A distressing article.

Much stern talk comes from self-proclaimed defenders of Islam about the conduct of women.

Since my own reading of the Qur'an (Sura AlNur as above)  suggests that there is an obligation on Muslim men as well, I have a question for these defenders of virtue and preventers of vice.

Does their failure to devote at least equal time to men's conduct reflect a determination that

1. there are no truly Muslim men in the country to admonish and so no need to speak up
   
2. that men - whether Muslim or not - cannot be taught morals (as apparently women can) and so such efforts would be without result?
   

As a side note, once Umm Arqala (of Shirk fil Baraada fame) was walking along the corniche in Cairo and some young lads made some rude comments.  She turned and asked them (in what she described as a rather loud voice)  if they respected their mothers and sisters.

As with the tahini episode, I was absent.   Local mutawi'iyn and their  unofficial ansar were strangely absent.  Remarkable as the corniche was packed.  Perhaps though it was filled with those from more permissive religions or none at all.   Later that day we were walking in those same steps.  When the young lads saw Umm and Abu Arqala approaching, they scurried away.   I'm guessing not hurrying to salat.

But God knows best.

Kuwait Offers UAE Financial Assistance for Dubai

As per Bloomberg, Shaykh Muhammad AlSalem Al Sabah, Foreign Minister of Kuwait, revealed on the sidelines of the GCC conference in Kuwait that he had called his counterpart in the UAE to offer both moral and financial support to the UAE with financial problems.

A nice gesture.  UAE advised that it didn't need financial assistance.

ADIA Files Arbitration Claim to Terminate Citigroup Stock Purchase

Bloomberg reports that ADIA has filed an abitration to abrogate its obligation to purchase Citigroup stock at a price currently more than 9 times market.

Here's a more detailed report from Reuters.

As you'll recall, ADIA invested US$7.5 billion in Citicorp mandatory convertible securities in November 2007.  The strike price is a rather unattractive US$31.83 per share with the first purchases scheduled to begin in March 2010.      Earlier post here.   Citigroup is opening this morning around $3.47 share.

Another post on convertible securities and the importance of deal terms.

Ahli United Kuwait Confirms Receipt of Nakheel Payment

Ahli United Bank of Kuwait informed the Kuwait Stock Exchange today that it had received US$23.4 million from Nakheel representing principal plus interest.     Since it's likely that all bond holders were paid on the same date, this implies that Nakheel's payment on its sukuk maturing this Monday has been made.

Earlier AUK had disclosed exposure to Nakheel of some US$20 million.  With this payment, AUK would have no further exposure to Nakheel or Dubai World.

Here's today's announcement to the KSE.

[8:42:5]  

ِ.(اهلي) يستلم مبلغ 23,4 مليون دولار امريكي من شركة النخيل الاماراتية ‏
يعلن سوق الكويت للاوراق المالية بان البنك الاهلي الكويتي افاد بانه ‏
قد استلم مبلغ 23,4 مليون دولار امريكي يمثل اصل الدين مع الفوائد ‏
المستحقة فى تاريخ الاستحقاق من شركة النخيل العقارية التابعة لمجموعة ‏
دبي العالمية المملوكة لحكومة دبي.‏

The International Banking Corporation Bahrain Files For Chapter 15 Protection in Manhattan

Bloomberg reports that TIBC has filed under  Chapter 15 of Title 11 (Bankruptcy) of the US Code seeking protection from creditors.

As pointed out in the article, Deutsche Bank and Mashreqbank had obtained orders of attachment against TIBC assets in the USA.

Through this filing, TIBC seeks to provide legal protection against those two banks and any other creditors who might try to seize its US based assets.

Not surprising.

Two bits of news in the article.

1. First, for those who may have missed the news earlier: Ernst and Young has been engaged to investigate the business of the bank.  This relates to the allegations by AlGosaibi that Mr. AlSanea was engaged in improper transactions with the assets and companies of the AlGosaibi Group.TIBC's auditors are PwC.  Also Awal's.
2. The filing also reported assets of US$ 4 billion and liabilities of US$2.6 billion as of 31 July 2009.  At FYE 2008 (the last officially issued financials) the comparative numbers were US$3.8 billion and US$2.5 billion.  One would expect that financials would have been updated for any dimunition in value unless the nominal value of assets is being reported.
   

Global Investment House - Pictures From Sunday's Reception

Here's the link.

New Bankruptcy Law for UAE

It appears that the UAE will be adopting a revised bankruptcy code in the new few months as per reports in Gulf News (Dubai).

You'll recall that the UAE did not have stellar rankings for its bankruptcy regime in the World Bank/IFC "Doing Business in the Arab World -2010" report.

Click here and go to page 41 and you'll see that the UAE has the dubious distinction of not only having the lowest recovery rate in the GCC but also at 10.2 cents in the dollar just beats out Mauritania among those Arab countries with the lowest rates.

So presumably this will be an improvement.

National Day - Bahrain

Happy National Day. 

And 10th anniversary of the accession of the King.

Real Estate Problems at Faysal Islamic Geneva?

If true, not a pretty story.

Not from a return on investment perspective nor a fee perspective.

Sukuk Disclosure - NasdaqDubai

NasdaqDubai asked all of the issuers of listed sukuks the following questions:

1. Is the Issuer aware of any Price Sensitive Information concerning the Sukuk that has not been disclosed to the market?
 

2. Is the Issuer aware of any other Price Sensitive Information concerning any of the following (if applicable)?
a. The Issuer itself;
b. Any guarantees;
c. Covenants;
d. Cross Defaults;
e. Any restructuring plans;
f. Coupon Payments or Principal Payments;
g. Credit Rating changes;
h. Exposure to debt of other Dubai-based entities; and
i. Any other matter of a material nature required to be disclosed under the OSRs or Listing Rules.
 

3. Please confirm that the Issuer is in compliance with the Listing Rules and, in particular, the continuous disclosure obligations under Listing Rule 28.1.

Now, as we all know the financial crisis in the Gulf is over, but if there are some skeptical souls still out there you can check here.

If nothing eslse, you might want to see if your sukuk issuer responded.  Since the questions are rather routine, that bit of info might be quite telling.

Manifest Delusions - The West, The Developed West

Having commented yesterday on continuing manifest delusions in Dubai, it is only fair to cast an eye outside the region.

Today's FT regular feature "The Short View" contains the following lead paragraphs:

"There was a sense of relief in the markets yesterday. Abu Dhabi's $10bn bail-out of Dubai was cheered while Greece, the wobbliest eurozone member, strove to reassure investors of its plans to manage its own parlous finances.

Put them together and they look like a calming of the sovereign risk fears that arose last month. Of the two, Greece is the more important as an example of the danger posed by the market's lack of faith in a government's ability to manage its spending."

The FT has captured the market's reaction quite well.

One wonders (well, at least AA does) what the "efficient" markets are thinking.  Or precisely if they are thinking.

A borrower with by some accounts $100 billion in debt has avoided a default by the timely kindness of the Shaykh up the road.  But the charitable contribution was for only for one-tenth the sum.  Upcoming debt maturities still loom.  The value of the borrower's largely debt-financed assets - which are composed primarily of overpriced and extravagant domestic and foreign adventures - are still depressed and unlikely to rise in value to their original cost in the next few years.   Operating cashflow remains weak - ignoring of course unrequited transfers as defined in balance of payments terminology. 

As far as I can see, there has been no fundamental change in that borrower's debt position or its financial resources., including cashflow which according to my experience is what most debtors use to settle their obligations.    There is even some disturbing indication that the borrower has yet to put aside its own delusions.  Yet markets are euphoric.

A politician from another borrower in the "developed West" has stated what everyone with a modicum of intelligence has known about his country for years.  He has vowed to do something about it. 

Yet again markets are relieved and calmed.

Developing a severe case of financial euphoria based on last minute bailouts and the apparent magical belief that they will continue seems a bit of an over reaction, one potentially hazardous to financial health.  Though I suppose there is something to be said for consistency.  After all by and large the  original commitments seem to have been based on the same sober theory.

Even more puzzling is what charitably might be described as naive credulity in the promises of politicians. While as the mandated warming on finance literature says "past performance is no guarantee of future results", it does seem that a careful investor would scan the historical record for some insight into probabilities.  In AA's experience a politician's promise generally has less worth than the famous implicit guarantee.

All this  I suppose explains the Cobalt IPO.   A company with a postulated market value of US$5.3 billion despite the lack of any current revenues and no prospects for revenue for the next two years. The shares of which are described by one wag as a lottery ticket.  

Sadly, I'll have to turn this down.  I've just received a compelling email investment proposal from a chap in Nigeria.  And not only will I be making myself rich but I will be helping out someone retrieve his father's ill gotten gains temporarily blocked by unsympathetic authorities.  But prudent investor that I am, I'm not putting all my money in just one bright idea.  I've got another email today and for a small sum, I can buy a share in ElGordo ticket.

I see an apartment in the Palm in my future.  High floor only.  A very high floor.  AA does read more than just the financial press.

Dubai Crisis Fallout

The economic impact of the crisis in Dubai is not just the Government of the Emirate or the Government-owned independent commercial enterprises but other participants in the economy.

Here's the story of one small firm.

Resignation of Deputy CE at Shu'a Capital

Karim Mitri has resigned.  It seems to pursue other interests.  Announcement thanked him for his many contributions.

Central Bank of UAE - New Disclosure Page: Data on FI Ownership

CB UAE has added a new disclosure page to its website detailing ownership in:

1. Banks
2. Finance companies
   
3. Investment firms
4. Money changers

AlGosaibi Shopping Assets?

AlQabas newspaper has two articles on reports of potential asset sales by AlGosaibi.  Both are based on articles in Akhbar AlKhalij AlIqtisadi.

The first concerns the flagship Pepsi business.

As per unnamed sources within AlMarai, they are in negotiations with Ahmad Hamad Gosaibi and Brothers ("AHAB") to purchase the Pepsi factory in the Eastern Province, the bottling rights, and installations.  These include as well the bottling (canning) plants in AlDammam and AlKhobar and the can factory in Jeddah.  Not included in the contract are bottling (canning) plants in Jabal Ali (Dubai) or in Jordan or Tunis.  No details were given about the size of the contract.

The article goes on to say that one motive for the sale is that Pepsi Co is considering withdrawing the Pepsi agency/franchise in the Eastern Province from AHAB due to its financial problems.

As a side note, those who follow affairs in the Kingdom know that currently there is a big flap going on about the increase in the prices of Pepsi products - in some cases 50%.  The Ministry of Commerce is investigating the increases.  By the way the higher outrageous price is SAR2 per can (roughly US$0.53).

The second article concerns their shares in National Gas and Industrialization Company ("Gasco").  According to the article, AHAB owns 4% of the company and is looking to sell its shares.  No potential buyer was named.  Gasco is owned 70% by Sabic with 30% owned by various Saudi companies.  The Company has 75 million shares.  This would make AHAB's holding 3 million shares.  At today's closing price of SAR23.7 per share, AHAB's stake would be worth SAR 71.1 million (roughly US$20 million) somewhere around one half month's interest on US$10 billion of debt.

Of the two the Pepsi sale has the larger cashflow potential.  But it's unclear why AHAB's financial problems would also not be a motive for Pepsi to cancel their agency outside the Kingdom, unless of course there is no cash constraint on the ex-Kingdom operations.

The Gasco sale seems too little to be of consequence in the context of a US$10 billion aggregate debt.  Maybe it is the visible tip of a larger program of asset sales.  Or perhaps it's for working capital.

Manifest Delusions - Dubai

One would have thought that recent events would have resulted in a bit of introspection and restrained behavior.  Unless of course one was familiar with the region.

Today's Khaleej Newspaper (Dubai) has a lead article entitled "We Can Do It".

Here is the first paragraph.

"GLOBAL crisis or not, Dubai has done it again. It has once again shown the world, beyond doubt, its ability and willingness not only to meet its obligations but any challenge to its unrivalled status as the most dynamic global financial and trading hub in the Gulf region."

I'm not sure precisely what Dubai has done. 

As I understand things, the kindly Shaykh up the road has sent around US$10 billion to be used to settle Dubai's debts.  And Dubai is mailing the check.   How that shows ability is beyond me.  And how living off the kindness of strangers beats back challenges to a postulated "unrivalled status" also escapes me.

On careful reflection, I can see how this might apply to my own life.  And that certainly gives rise to a proud feeling.

When I was a young lad, I used to make my parents' monthly mortgage payments.  Quite a feat for a lad of 10 or 11 when I first started.  Mom or dad would write the check and put it in the envelope.  I would take the envelope down to the postbox.  So it is clear that I made the mortgage payments.  Sometimes I even put the stamp on the envelope - which must count for even more.  I trust you can imagine the effort as these were the days before the self-adhesive postal stamp.

Having demonstrated both my ability and willingess to make payments in younger days, when I was at university, I never missed a payment of tuition or other fees.  Mom and dad used to send me the money which I deposited in my account.  Then I wrote the check myself.  I trust you notice the progression in my ability and willingness.  I think it's fair to say that I held an unrivalled status as fairly dynamic financial intermediary. 

We shall omit detailed discussion, however, of my many and consistent economic contributions to the business of the local pub at school largely funded through my own meager earnings supplemented now and then by parental largesse.  Let us say that my and my friends patronage resulted in a fairly dynamic increase not only in revenues but good cheer as well.  And if memory serves me, I believe we beat back many a challenge.  But then much of this is hazy.