Kuwait National Portfolio Poised to Make Significant New Investments?

AlAnba'a Newspaper (Kuwait) reports that the Kuwait Investment Authority ("KIA") met with three Kuwaiti investment companies last week to hear their proposals for investing the remainder of the National Portfolio set up by the Government in 2008 to combat the effects of the global financial crisis on Kuwait's economy.  The NP was capitalized at KD1.5 billion, though only KD0.4 billion has been invested to date.  That has led to criticism from various parties for the need for greater speed, especially punters caught in the market downturn.  Not of course for concern for their own finances, but for the greater national self-interest, I am sure.

AlAnba'a reports that the NP earned 13% during 2009, a rather incredible return considering the overall KSE is down some 10% for the year. (More on this remarkable result below).  Furthermore the article notes that expectations are for a 30% return on the NP this year. 

For some reason, AlAnba'a expects that once a firm is chosen there will be a significant infusion of funds by the NP into the market - either all or a great portion of the remaining KD1.1 billion.  As you might guess from that comment, I have some doubts as to whether this can move forward in the next few days (" خلال الأيام القليلة المقبلة").  The Government still has to pick new managers for its portfolio and sign contracts with them.  Then funds have to be transferred.   Then one would expect a careful process of analysis and selection of stocks.    

According to the news article, the Government will apply the following criteria in selecting a new fund manager:  The firm should not have any financial weakness or be involved in any financial irregularities (an alternative translation would be crimes) and have good performance over the past five years. It's also "necessary" that it have a good reputation and possess both confidence (presumably in its abilities) and in its commitment.  That I suspect should quite smartly narrow down the list of potential new managers, though I suppose there could be local variants of some of these standards.  There is after all Australian Rules "footy".  And it works quite nicely I am told.

At the end of the article there is a precis of criticisms levied by the (Government) Audit Bureau ("ديوان المحاسبة") about the National Portfolio's performance in 2009.  The AB's report begins by listing a series of decrees by the Council of Ministers and the Finance Minister that the AB believes have not been implemented in the NP.  These have to do with maintaining conformity with certain ratios limiting the amount of the portfolio that can be invested in an industry or a single company within that industry.  What this means is that at least some the existing managers of the NP are running portfolios less diversified  than the Government regulations determined was appropriate.  The AB report also notes that the NP's goals also include improving the factors influencing trading on the KSE - to foster positive factors and eliminate negative ones.  And presumably there is a criticism implied here that the NP hasn't been doing enough in that area.

As a side note, it is a requirement of Kuwaiti law or regulations that when the Government owns 25% or more of a company that that company be subject to an audit by the Audit Bureau.  There have been some complaints raised that there are listed firms in which the Government has broken this threshhold but which have not been made subject to an AB audit.  And if you've been following the matter, some investors have raised a formal complaint with the KSE.  It is an old but wise truism to be careful what you wish for. 

Dubai Islamic Bank Signs Wakala with UAE Ministry of Finance

Dubai Islamic Bank announced on the Nasdaq Dubai today that "like other national banks", it had signed a Wakala Agreement with the UAE Ministry of Finance.  This is part of the UAE Government's program of providing funding to banks to strengthen their financial resources.  As with the other transactions, the UAE MOF may convert the Wakala Deposit and any accrued but unpaid profit distributions (interest in a conventional financing) to equity in the Bank.

Two intriguing things from this announcement:

1. The agreement was signed on 31 December 2009.  Yet the announcement was only made today 7 February.
2. Apparently, the amount of the Wakala Deposit is a minor detail which need not be disclosed.  At least at this point.

The date of the agreement (just in time for 2009 financials) suggests a pressing need at DIB for additional funds of a capital nature.  AA wonders if the deal was actually signed on 31 December 2009 or if it was signed "as of 31 December 2009".  In the latter case, it may have been signed sometime after 31 December 2009.  And that might explain that the apparent late disclosure was not late after all.  

DIB's Board will meet on 10 February to discuss the fiscal 2009 financials, perhaps another sign that ducks have only  recently been lined up, including this one.

And then again it may just be a case that disclosure standards differ from those AA is familiar with. 

Esterad Convertible Bond Offer Withdrawn

Further my earlier post, today Esterad announced on the BSE that it has withdrawn its Convertible Bond Offer due to "prevailing market conditions" and that BBK (the Collecting Bank) will return funds to those who did subscribe for the Offer.

As well, Esterad also announced that its ordinary general meeting of shareholders would be held on 30 March.  More importantly it disclosed that its Board had recommended against any cash distribution (dividends) for the fiscal year 2009.

That latter point is signficant, though not surprising.   

The company didn't pay dividends in 2008, a year in which it had a net loss of roughly BD 11 million (income statement) and a BD 14 million comprehensive loss.   For 2009, it had net loss of BD 3.8 million (income statement) and BD1 million in comprehensive loss.  The difference between net income or loss and comprehensive income is that comprehensive income  (or in this case loss) includes changes in equity, such as fair value changes,  that do not pass through the income statement.  

It should be noted that from at least 1975 through 2007, Esterad paid cash dividends each year with the latter years at a generous 45% distribution rate.

Lu'lu (Pearl) Real Estate Kuwait Delaying Resumption of Trading Pending Determination of Gulf Bank Legal Position on Derviatives Trades

AlQabas quotes informed sources that Lu'lu Real Estate Company is delaying the resumption of trading in its shares pending determination of Gulf Bank Kuwait's legal position regarding those firms who traded derivatives through it and caused the major losses (which led to a change in the Board at Gulf Bank and the KIA taking a significant stake).  And that Lu'lu (=Pearl) is apparently among this group.  The report states that Lu'lu is finalizing its 30 September 2009 financials (a pre-requisite for the KSE allowing it to trade again), but doesn't want to restart trading less Gulf Bank take legal action against it and cause its shareholders losses.

Some thoughts:

1. As I recall the story about Gulf Bank and the derivatives, these were largely foreign currency derivatives.  Many involving the Euro.  With allegations (not yet legally proven) that a good number of them were for related parties.
2. And that Gulf Bank's losses were caused when customers failed to settle their obligations.
3. It would seem to me that if Pearl (Lu'lu) were one of those customers, it might be reasonable for it to expect that Gulf Bank would expect it to settle up.  Just as if Pearl had a loan from GB, it wouldn't strain belief to expect that GB would want its money plus interest back.
4. You might be thinking as I initially did that Lu'lu's desire to pretend there wasn't a loss by delaying trading was a bit silly.   Losses don't occur when we open our eyes.  Or go away when we close them.  But, as long as no trading has occurred many parties will be valuing their Pearl stock at its last traded price.  And that could be very comforting for banks holding it as collateral for loans  who are adverse to booking provisions, for the borrowers themselves and for others ho don't want to recognize impairments in their own financials. 
5. As to resumption of trading, last time I checked (Thursday), Lu'lu owed the KSE financials for 30 June 2009 as well as 30 September 2009.  And shortly it will be past due on the year end financials.  It's intriguing to speculate if Lu'lu's delays are strategic in the hope that something good will happen before it resumes trading.
6. Finally, Pearl does have foreign projects at least one in Morocco and a hotel somewhere in the Eurozone - Germany or Austria.  So there would perhaps be some reason they might need an FX hedge.  One hopes that it was not among those many Kuwaiti firms who over the past few years found their core businesses less interesting than punting in the Kuwaiti Stock Market or making even wiser financial investments in markets on foreign shores.

Central Bank of Kuwait - Mandates Special Disclosure by Banks on Derivatives

This is a post from over one month ago (November 16 to be precise).  I made a small edit to it today and now it is on today's new posts lists.

About one year ago, Gulf Bank had a major loss arising from foreign currency derivatives undertaken for a customer who refused or was unable to settle.  Market speculation at the time was that the customer may have been a related party.  The loss was KD375 million requiring the recapitalization of the bank, including the Kuwaiti Government taking a 16% stake through KIA.

Today AlQabas reported that  the Central Bank of Kuwait ("CBK") issued instructions to local banks that they were to have their external auditors prepare a special audit report on their dealing in derivatives both for their own as well as customer's accounts. 

As per the press report, the CBK emphasized that the audit work and subsequent report should:

1. Review the sufficiency of the rules/principles of the system of internal control established and followed over this activity and its effectiveness
2. Examine extent of risks the bank might be exposed to, i.e., risk limits
   
3. Disclose the (financial statement) results of the existing position (of derivatives) as of 31 December 2009
4. Contain a statement outlining the development of the sufficiency and effectiveness of internal controls 
5. Compare the above points to the status as of the 31 December 2008 financials

The CBK warned that failure to provide this special report would be treated as a serious matter and would result in delays in the CBK approval of a bank's 2009 annual report.  Apparently the CBK wants to ensure that there are no more unwelcome surprises in the banking sector in 2009.

AlQabas believes that since Gulf Bank's 2008 problem, many local banks have closed their derivative positions or substantially reduced both volumes and riskiness of derivatives traded.

AlGosaibis File New Fraud Claim Against Maan AlSanea

  

The National reports that the AlGosaibis' attorneys have filed papers with the Supreme Court of New York arguing that the case be heard in NY and not Saudi Arabia.  More importantly the filing is reported to contain a variety of third party reports which seem intended to support the AlGosaibis' contention that they were the victims of a fraud perpetrated by Mr. Al Sanea.

This goes back to the comments by a reader on one of my earlier posts.

There are three cases before the Supreme Court of the State of New York.

1. Mashreqbank psc v Ahmad Hamad AlGosaibi and Brothers  #601650/2009
2. Mashreqbank v Yousef AlGosaibi and Partners #602171/2009 and
3. Ahmad Hamad AlGosaibi and Brothers v Maan al-Sanea 590643/2009.

Camel Burger

 

Image Credit: xpress/virendra saklani

One day a "beauty queen" the next a "patty".

UAE Central Bank Governor Outlines UAE Bank Support Measures

Here is short two page speech in which HE Sultan Bin Nasser AlSuwaidi, the Governor of the Central Bank of the UAE, outlines the various programs undertaken by the UAE Government to support its banking sector.  Note:  This does not include the steps taken by Abu Dhabi to provide financing support to the Emirate of Dubai.

Not mentioned here are other initiatives being taken by the CB UAE, such as changing the non accrual rule from 180 days to 90 days, implementation of Basel II, etc.

Esterad Rumored to Have Pulled Convertible Bond Issue

I heard that Esterad has announced that it is withdrawing its BD 7 million  (US$18.6 million) convertible bond offer and that the Collecting Bank (BBK)  will be returning subscription funds to investors.  I didn't see anything in the Bahraini press, though to be candid, I did not do an "e" - search. 

Earlier Esterad had extended the period for subscriptions saying that several institutional investors had asked for more time to complete due diligence.  At that time, I  took that to be a strong indication of less than robust demand.

There should be something in the press tomorrow (meaning Sunday's paper) or an announcement at the BSE so until then treat this as a market rumor.

Dubai World Restructuring - Standstill Delay Due to DFSF Requiring Collateral?

The National reports that Dubai World's standstill request is being delayed because the Dubai Financial Support Fund ("DFSF") is insisting that it take collateral for the money it advances to DW.  Not unexpectedly, the existing lenders are concerned that under this approach their position will be eroded as the DFSF steps in front of them in terms of priority in a liquidation.  They probably  also find the idea of allowing DFSF to take collateral objectionable because they view it as  a "shareholder" in DW since both belong to the Emirate.

Complicating matters is the fact that DW has been preferring certain creditors over others.  For example, the holders of the Nakheel bond received 100% of the principal and interest due them on the maturity date - a not inconsiderable US$4billion+.   A large part of the US$6.2 billion  in DFSF funding referred to in the article. Other creditors are likely not  to be so lucky  - certainly with respect to time and perhaps with respect to the amount ultimately recovered. 

On the other hand, the DFSF is arguing that it has to put funds into DW on a commercially reasonable basis.

While this dispute may be occupying the banks and DW now, I think there is a more fundamental issue at hand.  So far no one has raised it.  So let me break the silence.

If DW needs external cash infusions to enable it to pay interest, its current financial situation is very weak.   Its operations aren't generating enough cash to pay the interest on its loans plus other operating expenses.  The proposed standstill is six months.  Does anyone out there believe that in six months these two companies operating cashflow is going to dramatically increase?  Does anyone out there anticipate that the market for assets is going to improve to the extent that DW will be able to dispose of assets at good prices? 

Or is the plan that the DFSF is going to keep paying the interest?  And perhaps taking collateral?  But then how does the principal get repaid?

Best of Luck, Salim!

 

Fifty-six years old, after a lifetime of supporting his family which prevented him from finishing school, Salim Owainid Al-Anezi is taking exams to earn his secondary school degree.  Once he accomplishes this, he intends to go on to study English and French.

The International Banking Corporation - Just A "Potemkin" Bank?

Update:  I've managed to secure copies of the Ernst and Young Report on TIBC and the Hibis Europe Report on Awal Bank.  You can find the relevant posts here and here.

In case you've missed it a reader has posted an interesting comment to my post about the arrest of the former CEO.  He noted that the AlGosaibis are asserting that The International Banking Corporation had no real business but was merely a front for embezzlement.

That of course would explain then why a zero or near zero return is expected on the outstanding debt.  

However, tt does raise some very serious questions since such a scheme would require a lot of work.

Assuming normal auditing procedures, TIBC's auditors would verify the existence and terms of major assets and liabilities through "confirmations" written requests sent to counterparties in which they are requested to reply in writing confirming the existence of an asset or liability and its terms.  While no auditor confirms 100% of assets and liabilities (unless it is an extraordinary situation), it should confirm  a large enough number, a number sufficient for it to come to the conclusion that the financials fairly represent the company's condition.

Taking AlGosaibis' allegations at face value, this would imply a rather extensive conspiracy.  TIBC's records would have to contain addresses where the conspirators could take delivery of or intercept the  confirmations.  The individual confirmations would then have to be sent back to the auditing firm and the signatures on them would have to match those in TIBC's records.  Similarly, as part of the Kingdom of Bahrain's financial crimes legislation, TIBC should have due diligence files on each of its customers (even those receiving loans) which contain documents substantiating the existence of the customer.   TIBC's auditing firm has a reputation of being fairly conservative in its approach and by some accounts is the most conservative of the big three firms on the island - at least in relation to its interpretation of IFRS standards.  

It will be interesting to learn more.  

Hopefully, the individual who posted the comment will follow up with more comments.  

Anyone else out there with an opinion or insight is encouraged to add his or her voice to the discussion.

And, finally, just a note that the statements attributed to AlGosaibi are at this point their charges in  ongoing legal cases, which have not yet been judicially determined.

Saad Golden Belt Sukuk 1

Today the Delegate (agent) on the Sukuk, Citicorp posted an announcement on the Bahrain Stock Exchange.

Main points and my comments:

1. Vote to Dissolve (Acceleration) - So far only 13.62% of certificateholders have voted to dissolve the transaction.  This is remarkable given that until they trigger the repurchase obligation of Saad Trading and Contracting I believe they are in a worse position legally than Saad's direct creditors.  How is that?  Until the transaction is dissolved, the principal is not due.  Not  until the principal is due from Issuer (which is a shell company) can the purchase obligation of Saad be triggered.  Until then Saad is "past due" on the rent (interest).  This is the financial equivalent of staying in one's cabin after the Titanic has hit the iceberg.  The announcement does note that certificateholders have been forming groups.
2. Failure to Provide Rental Notes - Saad has not provided the promissory note for the upcoming rental payment.  As you'll recall from the earlier analysis of the transaction, Saad was supposed to provide promissory notes for each of the rental payments due (the "interest").  This mechanism was designed to have a simple straightforward document on which a lawsuit in Saudi Arabia could be based and thus avoid having to bring in all the transaction documents.   As discussed that in itself could pose a problem in a Saudi Court.  Since the "rental payments" were constructed without any reference to the economic value of the property, it could be even more troublesome.  Failure to provide the Notes is a Termination Event.  Let's see what the next action taken by the certificateholders is.
3. Failure to Provide Funds - Saad is not providing any funds and so the issuer may be unable to pay listing fees on the BSE in which case the Sukuk will be de-listed.  Both Citicorp (the Delegate) and Ohad (who are providing the Issuer corporate services) have not been paid.  In many deals like this where there is no real underlying business by the Issuer, the service providers make sure their fee is taken "off the top" from the issue proceeds.  In this case they contented themselves with a "promise to pay" from Saad.
4. Citicorp as Delegate - The address given by Citicorp is now "Restructuring Group" indicating that they have moved responsibility.  You might wonder why since other than their fees they have no money at risk.  In a situation like this, a certificateholder facing a loss (and here one has to assume it may be more of a head shaving than a haircut) might well start reviewing the conduct of the Delegate and Ohad to see if he can find any basis to sue them for "malpractice" in the discharge of their duties as a way of getting some money back on the investment.  Both have pockets to pick and probably with more cash than Saad.   There will also be scrutiny of the offering documents for failures by the placement agents.  My recollection is that these documents were very well crafted and the risks laid out very clearly.  As you'll note in the final point in its announcement, the Delegate is careful to note that certain powers have been retained by the Issuer - in effect carefully reminding readers of the limits of its legal responsibility and thus its exposure.

More on Zain - Al Barrak Resignation

The National (Abu Dhabi) attributes Saad's resignation to differences with the AlKharafi Group a major shareholder over the future direction of the company.

AlQabas (Kuwait) has two reports. 

1. The first is that AlBarrak has not resigned from Saudi Zain (in which Zain Kuwait owns 25%).  The Chairman of Saudi Zain, Amir Husam Bin Sa'ud AlSa'ud, is quoted as saying that he has not resigned and that he doesn't expect him to lose his seat on Saudi Zain's board.  AlBarrak is CEO at Saudi Zain.  In that article the board of Zain Kuwait is said to be looking to appoint someone with a completely different strategy than the previous incumbent (AlBarrak) in the areas of control over expenses and expansion.
2. The second is that it's expected that Zain Kuwait will choose Nabil Bin Salama, an ex Minister of Communications to take AlBarrak's place.  At this point I don't believe there's been a formal appointment so this is an unconfirmed report.

Turning to the strategic differences at Zain Kuwait, as I've written before some shareholders in Kuwait,

strapped for cash, have been looking to monetize their holdings in Zain to bail them out of current financial difficulties. 

The first plan was for Zain to sell off its African assets and then dividend the shareholders the proceeds.

The current plan is for these shareholders to undertake a secondary market transaction and sell the shares to a buyer - the current putative buyer is a consortium of Indian firms.  That seems to be taking a little longer than planned.  Which might raise questions as to whether it is still on track.

This resignation indicates that there may be a back-up plan to conserve the company's cash - which could be used  perhaps for dividends rather than future investments?

More in the earlier post (link above).

The Investment Dar "Our Appeal in Case with Aref Investment Group Still in Process"

I mentioned in my post yesterday on Aref Investment Group's announcement that we could expect a statement from The Investment Dar.

Today TID released a statement on the KSE (text below).

TID states that the judgment is not final and that the matter has been referred to Experts Board for review.  And thus the appeal is still in process.

Here's the text of TID's statement.

[11:36:9]  ِ.ايضاح من دار الاستثمار بخصوص رفض الاشكال المرفوع ضد مجموعة عارف ‏
يعلن سوق الكويت للاوراق المالية بانه ورد اليه الان من شركة دار الاستثمار ‏
بخصوص الاعلان الصادر عن شركة مجموعة عارف الاستثمارية بشان رفض ‏
الاشكال رقم 33379/2009 مستعجل 7 المرفوع من شركة دار الاستثمار ضد ‏
مجموعة عارف الاستثمارية ،وصدور حكم فى الدعوى رقم 7400/2009 ‏
تجاري بالزام شركة دار الاستثمار بمبلغ 12,644,771 د.ك ،فان الشركة تفيد ‏
بان الاشكال المذكور صدر فيه الحكم بجلسة 27-01-2010 وهو حكم وقتي ‏
وتم استئنافه .‏
اما بالنسبة للحكم رقم 4700/2009 تجاري كلي ،وهو حكم لمحكمة اول درجة ‏
وتم استئنافه من قبل شركة دار الاستثمار بالاستئناف رقم 4190 لسنة 2009 /‏
اسئناف تجاري 1 وصدر الحكم فيه بجلسة 31-01-2010 بقبول الاستئناف شكلا ‏
وفى الموضوع باحالة الدعوى الى ادارة الخبراء ،مما يعني ان الحكم المذكور
غير نهائي ولازال محل بحث لدى محكمة الاستئناف .‏

Gulf Finance House - Only US$100 Million to be Deferred

GFH formally announced today on the Bahrain Stock Exchange that it was only requesting the deferral of US$100 million for six months not US$200 million as I reported earlier. 

My earlier post which incorrectly stated the amount as US$200 million has been amended. 

Since the GDN press item was correct, there isn't anything by way of excuse that can be said for my error.  Except an apology.  Sloppy,  poor work can never be justified.

The BSE resumed trading in GFH's shares after this announcement.

Zain - Sa'ad Al-Barak Resigns

There's an announcement on the Kuwait Stock Exchange today that Saad Al Barak has resigned as Vice Chairman/Managing Director.  The announcement says the Chairman will present his resignation to the Board for consideration.  No reasons were given for his departure.

Here's the notice.

[11:48:28]  ِ.استقالة العضو المنتدب -نائب رئيس مجلس الادارة فى (زين)‏
يعلن سوق الكويت للاوراق المالية بان شركة الاتصالات المتنقلة (زين) ‏
افادت بان العضو المنتدب -نائب رئيس مجلس الادارة فى شركة الاتصالات ‏
المتنقلة (زين) ،الدكتور سعد حمد البراك قد تقدم باستقالته الى رئيس مجلس ‏
ادارة الشركة ،وسوف يقوم رئيس مجلس الادارة بعرض الاستقالة على اعضاء ‏
مجلس الادارة للنظر فيها .‏
وافادت الشركة بانها سوف تقوم بموافاة السوق باى جديد بهذا الخصوص .‏

كوكب الشرق

 

Copyright Blago Tebi - Creative Commons License

هذا هو اليوم الذي فيه توفي الموسيقى 3 فبراير 1975

 ذكرى فاطمة ابراهيم البلطجي

إنا لله وإنا إليه راجعون

رجعوني صوتك لأيامي اللي راحوا
علموني أندم على الماضي وجراحه
اللي سمعته قبل ما تسمعك اذنيه 
عمر ضايع يحسبوه إزاي عليّ
انت عمري اللي ابتدي بنورك صباحه
قد ايه من عمري قبلك راح وعدّى
يا حبيبي قد ايه من عمري راح
ولا شاف القلب قبلك فرحة واحدة

Al Arabiyya Loses Appeal on Court Judgment Over Failure to Air Interview with Saudi Shaykh

 

Maktoob reports that the Appeals Court has upheld the judgment of the Court of First Instance fining Al Arabiyya for not showing an interview with the Saudi Shaykh who reportedly suffered immensely from this slight.   

Earlier post here.   

Warning:   Before you click on this link, you should be aware that this earlier post contains some rather graphic language describing the harm done to the Shaykh by the failure of Al Arabiyya to air the interview.    

In commenting on the case, the following quote was attributed to Al Arabiyya.

"The interview was nothing special, there was nothing new in it ... Just because he is a prince doesn't mean he has the right to have his interview broadcast," Nasser al-Sarami, head of media at Al Arabiya, told Reuters.

For a company owned among others by Saudis and one Shaykh from a delightful country on the Mediterranean who has two passports (because of this he's got to be twice a Shaykh) and operating out of Dubai Media City, it seems to me that a little more respect for Shaykhs is in order. 

Al Arabiyya does have the right of a final appeal to the Court of Cassation, though I for one wonder just how much pain they think they can inflict on the already highly wronged Shaykh.

Gulf Finance House - Requests Six Month Extension for US100 Million - It's Not Looking Pretty

Earlier post had an erroneous amount US$200 million instead of the correct US$100 million.  This has been corrected with apologies to any who have been misinformed by my previous sloppy work.

This morning I posted that the Bahrain Stock Exchange had suspended trading in GFH's shares pending clarification of press reports on their negotiations with West LB.  And earlier this morning GFH issued a press release which was notable for the lack of any concrete information on the substance of those negotiations.

Between then and now, someone has taken time to "think again".

As per an article in the Gulf Daily News, GFH has now announced that it has requested the lenders of its US$300 million facility, led by West LB, to extend the payment of US$100 million for six months from the 10 February maturity date.

Frankly, this doesn't make much sense to me.  

1. GFH's problem is that its revenue from deal placement has pretty much dried up.  
2. This is not exactly the market in which one would expect to be conducive to a highly profitable sale of an asset.  
3. It has significant commitments.  At 30 September 2009, it had US$70 million in various commitments along with US$46.6 million and contingent financing obligations of US$170 million. (Note #12).  I believe, but don't know for certain,  that the latter relate to the Dubailand venture which GFH exited just in time for its 31 December 2009 financials.  
4. It's also hard to imagine another "bright" creditor stepping up to refinance this amount.  I suppose though if they could get an "implicit" guarantee someone out there might step up.Though with its rating now in CC territory, even an implicit guarantee might not be enough.  S&P comments like "We believe Bahrain-based Gulf Finance House's liquidity position is under immediate and severe stress" are unlikely to be the sort to attract bankers.  

I find it really hard to imagine that any of the issues is going to disappear in the next six months.

What's needed is a multi-year debt restructuring to enable GFH to right-size itself, pare down expenses and focus on core businesses.  In other words to reverse its strategy 180 degrees. In my opinion six months is scarcely enough time.  That's the sort of time some obligors appear to need just to come up with a standstill request.

In this vein the following quote is remarkable.

Acting CEO Ted Pretty said: "The management team at GFH has four key priorities, namely grow revenues, reduce costs, improve its liquidity and exit non-core assets.

I'd like to suggest a fifth priority which I think is the most important, assuming that GFH intends to continue in business:  urgently address its liability structure, including significant near term maturities  by repaying/refinancing its existing debt and building a sustainable liability structure.  This is not only the key to continued existence, but also is the issue that has the shortest fuse.  The first step to dealing with a problem is to recognize and acknowledge the problem. 

بدون التعليق

Global Investment House - Restructuring Implementation Update

If you've been following company news in the press and stock market announcements, you've noticed that representatives of GIH have been been resigning from various companies - formerly subsidiaries and affiliates.

This is natural.  The creditors want to ensure proper control over these entities which are now owned by Global Macro Fund.  Or by Mushaa Islamic Real Estate Company.

This is also a sign that the post restructuring GIH is going to be quite a different animal than the old GIH.  Much smaller and not focused on proprietary investments.

Here's one such announcement from the Kuwait Stock Exchange.

[8:16:56]  ِ.استقالة اعضاء من مجلس ادارة الشركة الوطنية ‏الدولية القابضة
يعلن سوق الكويت للأوراق المالية بأن الشركة الوطنية
الدولية القابضة قد افادته بأن مجلس ادارة الشركة وافق
على استقالة الاعضاء الممثلين لشركة بيت الاستثمار
العالمي (جلوبل) في مجلس ادارة الشركة اعتبارا
من 1-2-2010 وهم :‏
السيد / عبدالله خلف ابو حديدة
السيد / احمد محمد خميس
السيدة / منى عبدالعزيز المخيزيم

The Investment Dar - Aref Investment Group Court Case: Judgment in Aref's Favor Apparently Upheld

Aref Investment Group announced on the Kuwait Stock Exchange that Kuwaiti Court had rejected TID's non payment of KD12,644,771 previously awarded in favor of Aref.  It's unclear if this was a judgment by the appeals court, the press release uses the term "Istishakal" and "Ishkal".  In any case it seems Aref has won another judgment and TID has been fined KD100, ordered to pay KD 50 in lawyers' costs and forfeited its guarantee.  TID had apparently filed a request with the Court to stay the implementation of the earlier judgment.

You'll recall that the Court of First Instance ruled in Aref's favor in November.  Earlier posts here and here.

This confirms my earlier comments that approval of the restructuring plan by 2/3 of TID's creditors does not stay legal actions by creditors deciding to pursue their rights outside the restructuring.  In other words that there is no legal mechanism in Kuwait to "cram down" dissident creditors.  This could complicate the implementation of the restructuring.

I expect that tomorrow TID will issue its own press release so stay tuned.

Here's the Arabic text of Aref's press release.

[12:29:48]  ِ.ايضاح من (عارف) بخصوص رفض الاشكال فى التنفيذ المقام من دار الاستثمار
يعلن سوق الكويت للاوراق المالية بانه ورد الينا الان من شركة مجموعة عارف ‏
الاستثمارية بانه قد سبق ان صدر حكم لصالح مجموعة عارف الاستثمارية ‏
فى القضية رقم (7400/2009) تجاري كلي ويقضي بالزام شركة دار الاستثمار ‏
بان تؤدي لمجموعة عارف الاستثمارية مبلغ وقدره 12,644,771 د.ك مع الزام ‏
شركة دار الاستثمار بالمصروفات واتعاب المحاماة ،واستشكلت شركة دارالاستثمار
فى تنفيذ الحكم المذكور بالاشكال رقم 3379/2009 مستعجل /7 وصدر حكم برفض ‏
الاشكال المذكور وتغريم الشركة المستشكلة 100 د.ك ومصادرة الكفالة وخمسون ‏
د.ك مقابل اتعاب المحاماة .‏

Gulf Finance House - US$300 Million Syndicate Negotiations in Process - Default Looming?

The press is full of speculation that GFH is negotiating with West LB over an extension of all or part of its US$300 million loan which is due for payment 10 February.

The company had not previously commented on the rumors in the market and so this morning the Bahrain Stock Exchange temporarily suspended trading.

GFH issued a rather anodyne press release today which provides the following information:

"In reference to a recent news article, GFH would like to confirm that it is having discussions with West LB (the syndicate manager) in London in relation to the terms of its syndicated facility. GFH further confirms that it will immediately announce the results of such discussions in line with the disclosure requirements of the Central Bank of Bahrain and Bahrain Stock Exchange. The total amount of the facilities, the terms of which are under discussion, amount to $300 million due on February 10, 2010.”

At this point while all details are not available, it's a pretty safe guess that GFH is not negotiating with West LB over whether it will make full repayment via check or wire transfer.  And there would be little need for a covenant waiver (motivated by a ratings downgrade) if payment is going to be made within 8 days.

The press release is also yet another example of "disclosure" by a "Shari'ah-compliant" financing institution.

I guess when you're Shari'ah compliant you adhere to a different but much higher standard of rules.

Reminds me of another "Islamic" bank that capitalized just six and one-half years of pre-operating expenses when it opened which were used to give those who "incurred" these "expenses" some $10.2 million in equity (9.2% of the shares) in the Bank.  I asked an accountant at the firm that audits them  what accounting principle justifies the capitalization of six and one-half years  pre-operating expenses.  He responded it was "Islamic" not conventional accounting and since he only audited conventional banks, he couldn't really answer my question.  The Bank also paid cash US$12 million in fees to consultants and others in connection with the raising of the equity.  Since only US$101 million was actually raised from third parties, the cost of raising the equity was just short of 12%.  Of course, one would have to compensate someone for raising equity in an "Islamic" bank since that was quite a "hard" thing to do when the funds were being raised.  If on the other hand, there was great excitement in the GCC about stocks and the markets were booming, then it might seem exorbitant.  As they say, "God knows".

And for those of you tracking the performance of Deutsche Bank's investment in GFH which they purchased at US$0.38 per share.  The closing price of GFH is US$0.29.  With over 105 million shares, that translates into a paper loss of  roughly US$9.5 million.

That assume of course, that DB is "still holding".  They might have sold.  

Some speculation.  If I saw a rescheduling coming and had a chance to get out, I would.  The shares offer a convenient way out without creating any messy footprints.  Convert debt to shares, then sell the shares.   There is sufficient volume in the Kuwaiti market that one could do this quite easily over say a couple of weeks.  If there is a loss, it appears in one's financials as a trading loss not an impairment or provision on a loan. One might face an ethical dilemna if one's clients were in the credit.  Whose portion do you self first?  The clients?  Yours?  Pro-rata?  As noted above, this is one option a creditor might take in a deteriorating credit.  There is no reason to suspect that Deutsche Bank is engaged in this sort of behavior, which by the way would be perfectly legal. 

UAE Noor Bank Calls for More Support For Banking Sector - Central Bank Says Not Now

 

Today's The National quotes Hussain al Qemzi, the chief executive of the Dubai-based Noor Islamic Bank as saying that UAE banks need another AED20 billion (US$5.4 billion) to AED 25 billion  (US$6.8 billion) to help shore up their financial positions.  The Federal Government has already provided some AED 120 billion (US$32.7 billion).  It's unclear if Mr. AlQemzi is calling for a capital (equity) injection or additional liquidity support.

To put his request in context according to the 31 December 2009 statistics published by the Central Bank of the UAE, total bank equity at year end (before current year profits) was some AED231.4 billion (US$63.1 billion).  And monthly provisions are running just over twice the lower amount (AED 20 billion).

In a separate article the Governor of the Central Bank of the UAE was quoted as saying at the opening of Deutsche Bank's Branch in Abu Dhabi: "There is no need for more liquidity injections for the time being," Al Suwaidi told reporters. 

Same market, two views.  

It would be interesting to know what the basis for Mr. al Qemzi's view is.  That is, how he got his precise figure.

Public Service Announcement: Lost and Found - One Standstill Request Missing Since 21 December 2009

MISSING 

SINCE 21 DECEMBER 2009

ONE STANDSTILL REQUEST

GENEROUS REWARD

 

Lost on 21 December 2009 at the DIFC Gate Building.  Or maybe Dubai World Headquarters.  Or maybe in a taxicab on the way to an important meeting. 

Yellow folder containing not only a standstill request but a draft rescheduling  proposal (all pictured above).

Contents are of great sentimental and some limited commercial value.

Owners are eager for the safe and prompt  return of the folder and its contents.   

Generous reward of Dirhams 1,000.  As well as a season pass to the Burj Khalifa observation deck.

Please call Shaykh Mohammed at 971-4-555-1212.  

Or Aidan at 971-4-555-1313.

Kuwait Stock Exchange Suspends Trading in AlAbraj Holding

If you wondered what happened, AlAbraj did not get its 31 October 2009 fiscal year end financials to the KSE.  

And so the KSE has suspended trading.  Announcement below.

[8:38:8]  ِ.وقف التداول بأسهم شركة الابراج القابضة اعتبارا من اليوم ‏
يعلن سوق الكويت للأوراق المالية انه قد تم وقف التداول بأسهم شركة الابراج ‏
القابضة اعتبارا من اليوم الاثنين الموافق 01-02-2010، وذلك لعدم تقديم ‏
البيانات المالية السنوية للسنة المالية المنتهية فى 31-10-2009، فى الموعد ‏
المحد

Spate of Pigeon Kidnappings in Kuwait: Prize KD25,000 (US$85,500) Pigeon Stolen

You'll recall the story about Sa'eed Al-Huweiti and his SAR299,000 (US$79,733) falcon.

Well here's a companion story from Kuwait, after making allowances for apparent cultural differences.

Several newspapers carried differing accounts of the theft of a pigeon or pigeons on 30 January. 

AlWatan Newspaper (Kuwait) reports on the theft of a pigeon whose owner valued it at KD25,000 (US$25,000) from the Kabad neighborhood in Kuwait.

AlAnba Newspaper also in Kuwait reports that it was five pigeons each worth KD5,000.

And finally ArabTimes also from Kuwait reports that the pigeon was worth KD20,000.

What's not reported is that this is just part of a pattern.  Here's a story also from Kuwait's Awan on the theft of a KD5,000 pigeon reported on 4 January 2010.  This theft took place in the AlSurra neighborhood.

Two unexplained things:

1. How a pigeon can be worth KD5,000 (US$17,500) much less KD25,000 (US$85,500)? 
2. Just how much more pigeon kidnapping is going on in Kuwait?

It's unclear if the Majlis AlUmma is considering a pigeon compensation bill, though my guess is they will eventually.

Saudi Emaar SAR 5 Billion (US$1.3 Billion) Loan from Saudi Ministry of Finance

Reuters reports that Saudi Emaar will receive a SAR 5 billion loan (US$1.3 Billion) from the Saudi Ministry of Finance for its King Abdullah Economic City project.   KAEC is a SR 100 billion (US$26.7 billion) mixed use city to be built north of Jeddah.  

Emaar Economic City, listed on the Saudi Tadawal, (Symbol #4220) is the developer of the project.  This entity reportedly will get the loan.  As of its preliminary 31 December 2009 financials, EEC did not have any significant loans.

The loan is being described as designed to help speed up construction and delivery of the project.  I'd guess with a project this size there are bound to be delays.

What isn't clear is if this loan is an indication of difficulty for the project in accessing finance (Dubai World fallout, general trends in the area)?

Or whether this loan had been planned from the start and is just being announced now?

Knowing the answers to these questions would be a highly useful insight.  I am guessing it is the former.

Saudi Zain Foreign US$500 Million to US$600 Million Loan - What's Behind the News Item?

 

Kuwait's Al Anba'a newspaper reports that Zain is in discussions with non regional banks for a loan of between US$500 to US$600 million to finance the development and extension of the network of Saudi Zain in the Kingdom.  The reason for the recourse to foreign lenders is ascribed to "tight" lending conditions in the GCC.  You've probably seen all this reported elsewhere.

But, there's an element to the story that you haven't probably seen.

The "bit" that many news reports have left out is that the negotiations are being facilitated by equipment suppliers to Zain.  Most of whom are European.  And thus the assumption is that the banks involved are European.  

Does this indicate anything about Zain's financial condition?

As mentioned above, the ostensible reason for the recourse to foreign lenders is that local banks are imposing very complicated conditions and requirements for guarantees due to market conditions and due to tighter supervision by central banks.  The unspoken sub-theme is that the credit of Zain is sterling.  But that its access to financing has fallen afoul of external conditions.

No doubt lending conditions are tighter in the GCC.   Lots of distress with AlGosaibi, Saad, Dubai World has probably focused previously unfocused minds.

Unmentioned is the simple fact that Zain Saudi has not turned in stellar performance.  Also unmentioned is that it did not make the EBITDA earnings target covenants under its existing loan.  Or that existing lenders on that facility had to grant a waiver to remedy an event of default. 

Any foreign lender should exercise caution when it is told that the local banks don't understand the credit, aren't as sophisticated as the foreign bank, are over reacting  to market difficulties, or under pressure from allegedly strict regulators.  While it is nice to be told that one is smarter than others,  sometimes a "great" opportunity to take advantage of others' lack of sophistication and nerve is not so great after all.    

If a prospective lender also notices that the borrower needs to enlist help of others to secure financing, that may also suggest additional caution is prudent.  If the borrower cannot find any banks who "know" it who are willing to lend (and note the article says that negotiations with local banks for financing this new loan have stopped), then could be another red flag.  Having said this, once a firm I was with extended a financing offer to a prospect whose lead bank was unable to providing financing, though this was a skill set deficit not a credit issue.  We then became the lead bank.

Equipment suppliers have a keen interest in moving their merchandise.  And to the extent they can lock in a buyer to their equipment or increase "switching costs", all the better.  When their customers can't raise financing on their own, suppliers first turn to other sources of credit, e.g., export credit agencies, and financiers they know.  Often leaning on those sources to do the deal, explaining just how important it is to them and promising they won't forget.   Sometimes, as a last resort, they will even take the receivables on their own books.  During the "Asian Century" (which if I remember correctly began in the early 1990's and abruptly ended in 1997, though I believe it may have restarted again in 2009) one French and one US supplier found themselves later to their financial chagrin with a lot of duff receivables - which may in part have motivated a merger.

Another bit of information in the article which may be an indication of distress (though it need not necessarily be) is the statement attributed to the CEO of Zain Saudi, Saad AlBarak, that Saudi Zain was not "rescheduling" its existing murabaha loan but merely "refinancing" it.  

A refinancing certainly sounds much better than a rescheduling.  A rescheduling implies all sorts of problems.  A refinancing, well that's just the rollover of a great asset.  

The devil is as usual in the details.  If the existing lenders were to say "no",  is the alternative a rescheduling? Are there any new lenders ready to step up and "take out" some or all of the existing lenders?  Sometimes when a bank is stuck in a credit, it "refinances" rather than "reschedules" because reschedulings raise all sorts of  messy problems.  First, there is the need to report restructured loans under IFRS.   Auditors may insist on impairment tests.  Provisions may become necessary.  Second, as a general rule, Central Banks get nosy about rescheduled loans and start asking about provisions as well.  Third, equity analysts may form unfortunate conclusions if restructured loans increase.  Something one might want to avoid if one faces other loan problems.  Fourth, clients and depositors may get nervous.

And sometimes a refinancing is just that - bankers renewing a performing asset that they are happy to have on their books.

So, to be clear, all of the above do not prove there are serious problems at Saudi Zain.  

What they do suggest, however, is that a closer look at the company is warranted.

GCC China Economic Forum - Inaugural Meeting Bahrain 23-24 March

 

The GCC-China Economic Forum will hold its inaugural meeting this March 23-24 in Bahrain under the patronage of Bahrain's Prime Minister, HH Khalifa Bin Salman Al Khalifa.  Among the topics for discussion is the finalization of Free Trade Pact talks.

Trade and economic relations between the PRC and the GCC states are increasing.   Something that is in the political and economic interests of both sides.  Something that gives both sides greater options vis-a-vis certain other powers in the Western end of the Eur-Asian continent and in the Americas.  An earlier observation here. 

Saudi Supreme Court Stands Up for Treatment of Women According to the Shari'ah

Copyright The National Newspaper Abu Dhabi

Once again the Custodian of the Two Holy Mosques' intervention rights a wrong. 

As a result, Saudi Supreme Court takes a firm stand overturning taqlid from the Jahiliyya.

The National Newspaper Abu Dhabi "Beauty Queen Dazzles the Judges"

 Copyright The National Abu Dhabi

A long, slender neck, full lips, a well-shaped nose and long legs – Ruwayda had all that, and then some.

Sporting long, curly lashes, a full hump and even spacing between her toes, the one-year-old purebred Omani Asayel finished first in the beauty pageant at the Al Dhafra Camel Festival which began yesterday.

I just couldn't resist.  The article not the camel.

Dishonest Taxi Drivers

In reading this story, I am reminded of the story of the Prophet Shu'aib who God sent to the People of Maydan.  I don't see any exemption for taxi drivers from the strictures of the below ayya  (7:85) as I have pointed out on more than one occasion to a rapacious taxi driver in one of the GCC states.   

BD151 for a short ride is really beyond the pale.   Looks like Discover Islam may just have discovered some constituencies in need of the دعوة‎ , though they shouldn't forget the manifest need for some preaching in the court system as Ms. Zaid recently noted.

باسم الله الرحمـٰن الرحيم

صدّق الله العظيم

Saudi Capital Market Authority SAR278 Million (US$74.2 Million) in Penalties and Fines re 2006 Trading in Tihama Shares

 

The Saudi CMA announced today (30 January 2010) that the Appeals Committee for Disputes in Securities had issued its final judgment upholding the levying of penalties and fines in the aggregate amount of SAR278,122,905 (US$74,166,108) against several individuals for trading in the shares of Tihama Advertising and Public Relations Company (Tadawul #4070) during the period 23 July 2006 through 19 August 2006.  The penalties are composed both fines and return of illegal gains on the trades.  Of the two amounts, as you might expect, the disgorged profits are more substantial - 99.8% of the total to be precise.

These are I believe record penalties imposed by the CMA.  

The Appeals Committee upheld the following earlier findings and penalties:

First, that Muhammad Bin Nasir Bin Jarallah Al Jarallah violated Paragraph "و" ('waw") of Article 30  of the Saudi Capital Market Authority's Listing and Trading Rules and the imposition of a fine of SAR100,000. (US$26,666.67).  (This Article requires that anyone with 10% or more of the shares in a company may not trade them without CMA approval.  The standard is not only direct ownership but also an interest in the shares.  Debt securities or debts capable to be transformed into voting shares are also subject to this Article.)

Second, the trading violations of each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) as agents for the portfolios of Muhammad Bin Nasir Bin Jarallah Al Jarallah and to return illegal gains in the amount of SAR90,142198.89 (US$24,037,919.17) to the CMA.

Third, confirmation of the violation of each of the three individuals mentioned in #2 (Jarallah, Said and Fai'z) with contravention of Article 49 of  the Capital Markets Law and Articles 2 and 3 of the Rules of Market Conduct.  (All of the regulations cited deal with market manipulation, false trades etc.  Article 49 also deals with insider trading).  The following are the consequential regulatory actions:

1. Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah to pay SAR142,844,770.38 (US$38,091,938.79)  in illegal gains to the CMA.  
2. Said Bin Muhammad bin Nasir Al Jarallah to pay SAR26,088,174.83 (US$6,956,846.62) of illegal gains to the CMA.
3. Each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) to pay a fine of SAR100,000.  A total of SAR300,000 (US$80,000).
4. Each of Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah, Said Bin Muhammad bin Nasir Al Jarallah, Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) prohibited from (a) trading in shares listed in the Saudi Stock Market (Tadawul) and (b) working in companies whose shares are traded in the Tadawul for three years.

Fourth,  that Abdul Rahman Bin Abdul Muhsin Al-Muajil assisted  Fa'iz Bin Salih Bin Abdullah Bin Mahfuz (Mahfuth) the violations.  He is subject to the same three year ban on trading and working as described immediately above.  As well as a SAR100,000 (US$26,666.67) fine.

Fifth, that Jarallah Bin Muhammad Bin Nasir Bin Jarallah Al Jarallah engaged in illegal activity with the portfolios of Nasir Bin Muhammad Bin Nasir Al Jarallah and that he pay SAR18,547,761 (US$4,946,069.60) to the CMA.

As mentioned above, not only is this I believe a record fine for the CMA but the scope of the profits made in roughly one month is truly remarkable.   If you go to the Tadawul website to Tihama's page and look at historical data (hopefully this link will work) you'll see a Burj Khalifah like spike in trading volume in the latter half of 2006 just around the time the individuals named above were allegedly engaged in their manipulation.  For those who don't read Arabic, the scale on the left hand side of the chart is millions of shares.  The scale on the right hand side the price per share in SAR.  SAR3.75 = US$1.00