Kuwait Stock Exchange Warns 74 Companies of Potential Suspension

You may read elsewhere today the KSE issued warnings to 88 companies that if they don't provide their 31 March 2010 financials to the KSE by 8:30 AM on 16 May (Sunday), they will be suspended from trading.  

Let's look a bit closer as this is less "scary" than it would seem from the headline..

1. Since 14 companies are already suspended for failure to provide earlier financials, the warning theoretically could result in the suspension of an additional 74.  Hence, my use of the number 74 in this post. 
2. Many of these companies will likely provide financials in time - particularly those companies that have scheduled board meetings to discuss their financials.  This is just the warning stage.  
3. In fact if you read the remainder of the KSE announcements today, you'll notice that day 51 board meetings are scheduled to take place today to discuss financials and 6 on Saturday.

As per the announcement, the "cohort" is divided into two groups:

1. Those that haven't provided their financials and have NOT set a date for a Board meeting to discuss their financials.  This group comprises some 34 companies of whom 14 are already suspended for failure to provide earlier financials.  Suspended companies have  (موقوفة)  (= suspended) after their names.
2. Those that haven't provided financials but HAVE set a date for a Board meeting to discuss.

Normally, I'd provide the names in English but 88 is a rather long list.  And, many of these are likely to provide financials by the deadline.   Let's see what happens on Sunday.

[8:4:17]  ِ.ايضاح بخصوص الشركات التي لم تقدم البيانات المالية في الموعد المحدد
يعلن سوق الكويت للأوراق المالية واستنادا الى قرار لجنة السوق بجلستها
رقم 97/4، والذي يلزم كافة الشركات والصناديق المدرجة في السوق بتقديم
البيانات المالية المرحلية في موعد أقصاه 45 يوما من تاريخ انتهاء الفترة،
فان الشركات التي لم تقدم البيانات المالية المرحلية للربع الاول المنتهي ‏
في 31-03-2010 كما يلي :‏
ِ1-شركات لم تقدم بياناتها المالية ولم تحدد موعد اجتماع مجلس الادارة و
عددها (34) شركة على النحو التالي: ‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت)(موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
الشركة الدولية للتمويل (د للتمويل ) ‏
شركة الكويت والشرق الاوسط للاستثمار المالي (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة الامان للاستثمار (الامان) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
شركة بيان للاستثمار (بيان) ‏
شركة بيت الاستثمار العالمي (جلوبل) ‏
الشركة الخليجية الدولية للاستثمار(غلفت انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة تمويل الاسكان (اسكان) ‏
شركة المدار للتمويل والاستثمار (مدار) ‏
شركة الصفاة للاستثمار (الصفاة) ‏
شركة القرين القابضة (قرين قابضة) ‏
شركة المدينة للتمويل والاستثمار (المدينة للتمويل) ‏
شركة نور للاستثمار المالي (نور) ‏
الشركة الكويتية البحرينية للصيرفة الدولية (صيرفة) ‏
الشركة الكويتية الصينية الاستثمارية (الصينية) ‏
شركة المسار للاجارة والاستثمار (المسار) ‏
شركة وثاق للتامين التكافلي (وثاق)‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة مجموعة المستثمرون القابضة (المستثمرون)(موقوفة) ‏
شركة المشروعات الكبرى العقارية (جراند)(موقوفة) ‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
الشركة الوطنية للميادين (ميادين) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للخدمات الطبية (عيادة ك) ‏
ِ2- شركات لم تقدم البيانات المالية وحددت موعد اجتماع مجلس الادارة وعددها ‏
ِ(54) شركة على النحو التالي: ‏
الشركة الوطنية العقارية (وطنية) ‏
الشركة الكويتية العقارية القابضة (العقارية) ‏
شركة الامتيازات الخليجية القابضة (امتيازات) ‏
شركة ايفا للفنادق والمنتجعات (ايفا فنادق) ‏
شركة الارجان العالمية العقارية (ارجان) ‏
شركة الانظمة الالية (الانظمة) ‏
شركة مركز سلطان للمواد الغذائية (م سلطان) ‏
شركة هيومن سوفت القابضة (هيومن سوفت) ‏
شركة طيران الجزيرة (الجزيرة) ‏
شركة مجمعات الاسواق التجارية الكويتية (اسواق) ‏
شركة اكتتاب القابضة (اكتتاب) ‏
شركة كويت انفست القابضة (كوين انفست) ‏
الشركة  الدولية للمنتجعات (منتجعات) ‏
شركة حيات للاتصالات (حيات كوم) ‏
الشركة الكويتية للاغذية (اغذية) ‏
شركة المعدات القابضة (المعدات)‏
الشركة العالمية للمدن العقارية (المدن ) ‏
الشركة العربية العقارية (ع عقارية) ‏
شركة داماك الكويتية القابضة (داماك كويت) ‏
شركة الاتصالات المتنقلة (زين) ‏
الشركة الكويتية السورية القابضة (السورية) ‏
شركة فلكس ريزورتس للمنتجعات والعقارات (فلكس) ‏
شركة الصفاة للطاقة القابضة (صفاة طاقة) ‏
بنك الاثمار (الاثمار) ‏
الشركة الاولى لتسويق الوقود (اولى وقود) ‏
شركة عيادة الميدان لخدمات طب الاسنان (الميدان) ‏
الشركة الكويتية للمسالخ (مسالخ ك) ‏
شركة المجموعة المتحدة للصناعات الغذائية (الغذائية) ‏
شركة الخطوط الوطنية الكويتية (خطوط وطنية) ‏
شركة النخيل للانتاج الزراعي (النخيل) ‏
شركة مجموعة الخصوصية القابضة (الخصوصية) ‏
شركة التمدين العقارية (تمدين ع) ‏
الشركة الكويتية لصناعة مواد التغليف (التغليف) ‏
شركة الديرة القابضة (الديرة) ‏
شركو مجموعة السلام القابضة (السلام) ‏
شركة جيزان القابضة (جيزان) ‏
شركة صكوك القابضة (صكوك) ‏
شركة نفائس القابضة (نفائس) ‏
شركة مبرد للنقل(مبرد) ‏
شركة ابيار للتطوير العقاري (ابيار) ‏
شركة مشاعر القابضة (مشاعر) ‏
شركة الصفاة تك القابضة(صافتك) ‏
شركة الشامل الدولية القابضة (الشامل) ‏
شركة المعادن والصناعات التحويلية (معادن) ‏
شركة صفوان للتجارة والمقاولات (صفوان) ‏
شركة الصناعات الهندسية الثقيلة وبناء السفن (السفن) ‏
شركة اعيان العقارية (اعيان ع) ‏
شركة مشرف للتجارة والمقاولات (مشرف) ‏
شركة المقاولات والخدمات البحرية (بحرية) ‏
شركة المخازن العمومية (اجيليتي) ‏
شركة منا القابضة (منا قابضة) ‏
شركة هيتس تيلكوم القابضة (هيتس تيلكوم)‏
شركة المجموعة المشتركة للمقاولات (مشتركة) ‏
شركة مجموعة عربي القابضة(عربي قابضة) ‏
وعليه فانه سوف يتم ايقاف اسهم تلك الشركات عن التداول فى حال عدم تقديم ‏
البيانات المالية المذكورة فى الموعد النهائي المحدد فى الساعة 8:30 من صباح
يوم الاحد الموافق 16-05-2010 .‏

Gulf Finance House - Not to Sell Khaleeji Commercial Bank Stake?

AlQabas quoting Reuters quotes Ted Pretty, Group CEO at GFH, that GFH is not considering selling its  37% stake in KHCB, but rather increasing it.  Apparently, as part of planned foray into retail and commercial banking in Bahrain and the region.

Since GFH desperately needs to sell assets and since KHCB is likely the most attractive of what it has to offer for sale, it's hard to understand the business rationale here.

Obviously, there's more to this story that just this news item.  Was GFH successful in selling some other assets?  Has an old or new shareholder suddenly agreed to invest capital?  Was GFH unable to find a buyer for its interest?  Perhaps, a 37% stake isn't sufficiently attractive to a potential investor in KHCB who may want to ensure control over management?

Damas - Al Manara Jewellery Files AED114.7 Million Lawsuit Re JV

Damas announced this lawsuit on NasdaqDubai earlier today.

Damas International Limited (the Company) stated today, that it received a legal notice from Al Manara Jewellery on 10 May 2010, notifying the Company and one of its subsidiaries Damas Jewellery LLC, of a claim filed before the Abu Dhabi Courts for AED 114.7 million in relation to one of the joint venture business that the subsidiary had participated in Abu Dhabi, UAE.

The civil suit filed by the JV partner claims compensation of an apparent breach of the joint participation agreement that the subsidiary of Damas had signed when establishing the venture. The Company firmly believes the case to be without merit and intends to vigorously defend its interests related to this civil action.

There is a mention on pages 46 and 75 of "Al Manara" in Damas' 2008/2009 financials in reference to a 49% owned JV.  

Probably an issue of failing to meet a cash call - no doubt motivated by its current cash position.

Shaykh Sultan Bin Khalifa - Let's Make A Deal?

A very interesting post over at Rupert Bumfrey's blog.

Here's another link to the story at Moscow Times.

And an earlier one to the Times of London.

Let's see if more emerges.  Right now the story is a bit hard to swallow.

As far as I can tell this is still on the level of an accusation by one party in a rather bitter dispute with another.

A Barbarous Law is Not a Just Law

There is a lot of talk but relatively little action by so-called "Muslims" and "Islamic" countries to uphold Islam.

Legally circumcised?  A five year old child?

What sort of an animal would do this to anyone?  What sort of father would do this to his daughter?

What sort of doctor would perform such a mutilation?

What hospital would allow such barbarity within its walls?

What sort of judge or judicial system would look upon this with other than horror?

This sort of thing goes on in the lowest forms of civilization - brutal unthinking unenlightened backward tribes where the jahiliyya still reigns.

And the upshot is that the wife is going to be prosecuted for calling this كلب  out?

Gulf Finance House - Comments on 1Q10 Financials

GFH has posted its 1Q10 financial on its website.  That has to be a record.

Let's take a quick look.

Going Concern/Matter of Emphasis

Here's what KPMG had to say in its Review Report.

"Without qualifying our conclusion, we draw attention to note 1 in the interim financial information which discusses material uncertainties relating to the Group's liquidity position and regulatory capital adequacy, which, may cast doubt about the appropriateness of the going concern assumption used in the preparation of the interim financial information."

And here's the relevant portion of note 1.

"As at 31 March 2010, the Group's had accumulated losses of US$ 440.173 million and, as of that date, its current contractual obligations exceed its liquid assets.  As a result, the ability of the Group to meet its obligations when due depends on its ability to achieve a timely disposal of assets.  Further, the regulatory capital adequacy ratio of the Group as at 31 March 2010 stood at 13.97%, which restricts the Group's ability to absorb further losses or undertake additional exposures.  These factors indicates the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern."

Comments on Financials

I've already made some comments.  So rather than repeat them here, I'd invite you to first take a look here and then follow below - where the comments elaborate on that earlier post.

Capital and Liquidity

KPMG had a similar "matter of emphasis" in the company's 31 December 2009 audited financials at which time it should be noted that GFH's CAR was 12.91%.  So, clearly, some improvement on that score.

Unfortunately, as is pretty common practice, there is no note in the interims on CAR.  And note 41 in GFH's audited FYE 2009 financials does not provide a lot of detail on the components of risk weighted assets ("RWA").  One particular issue is understanding why at 2009 they are almost twice total assets as per the balance sheet.  Also the determination of Tier 1 capital isn't clear.  It's shown as US$381.5 million as compared to nominal capital of US$433 million.  Deductions for subsidiaries?

What we know is that CAR was 13.97% as of 31 March 2010.  If we assume that we can use the changes in equity since then to compute a new regulatory capital, then we come up with roughly US$392 million. Which gives RWA of US$2.8 billion.  Or some 2.15X nominal assets.  More detail would be very useful in sorting this out.   I suspect that's not going to be forthcoming.

Also as I commented earlier, it's hard to understand why any rational investor would be converting the Deutsche Bank murabaha into equity given GFH's situation and the market price of its share.  It occurs to me that this could be a convenient device for capital infusions.  There is no need to call an OGM to issue additional shares and the holder can decide when and how much capital to "contribute".  Perhaps just enough to keep the CAR out of the CBB's "red zone" and to avoid tripping covenants.  At this point, only about US$28.3 million remains.  And as I hope you'll recall (who says optimism is dead) from one of my much earlier posts, the DB transaction was issued at a discount.

As to liquidity as I pointed out in my earlier post, GFH's 31 March 2010 cash of US$21.5 million gives scant margin to cover operating expenses and interest, much less the US$100 million in principal due in August and the US$20 million in principal due in September for the debts rescheduled earlier this year.   Note that roughly US$140 million of "Placements" are blocked to support potential contributions by GFH to fund projects.  So a first glance at the balance sheet might suggest a more robust liquidity position than actually exists.

Asset sales are likely therefore to be critical over the next 12 to 18 months.  GFH is unlikely to develop sufficient cash flow from operations to repay US$120 million this year and pay roughly an additional US$30 million to US$45 million in operating expenses.  And I am low balling those expenses.

But what is even more perplexing is note 7 where we learn that  during the first three months of 2010 GFH has bought back US$15 million of its sukuk maturing in 2011.   Given the near term demands on cash, it boggles the mind to think that they would be using precious limited liquidity for such a purchase.  Even if it is at a discount.  Also when one looks at the relative cost of GFH's debt, this debt is the cheapest by far.  The US$100 million is Libor plus 5%.  The LMC rescheduled facility an eye popping 8% flat.  While the 2011 sukuk is at Libor plus 1.75%.  Perhaps, GFH is helping a friend exit?  I have a similar  question on the rational reason why a company in GFH's position would purchase US$35 million in Treasury Shares during 2009.   And one cannot help but wonder did GFH's lenders not impose any conditions on prepayment or purchase of debt?  Could they have missed so obvious a covenant, especially since GFH has shown a penchant for buying this particular debt back?

Balance Sheet

Other than the comments above regarding the 2011 sukuk and the "Placements", some additional points.

1. No movement on the US$85 million Investment Banking Services Receivable.  You'll recall that GFH wrote down roughly half of this in 2009.
2. Other assets Financing Projects is up a US$1.5 million.  Seems small to be additional funding.  Is this interest?  And if so, it would be very interesting to know how much of this amount is accrued unpaid interest.  As I noted earlier, it's unlikely that FP are going to be a source of cash in the near term.
3. Investors' Funds declined by US$50 million though I only see US$29 million in the Cashflow statement. 

Income Statement

1. Roughly US$5 million of investment banking income was from related parties.  The comparative figure for 1Q09 was US$46.5 million.  With related party business a firm can enjoy dramatic savings on marketing costs.  Sometimes even on underwriting and due diligence.  Well, at least initially.
2. As I noted in my earlier post, cash is going to pay GFH's running bills and its debt repayment.  So far cash generated as a percentage of income is relatively low.  Of course, this is early going.  But then the US$120 million in debt maturities is "early" as well.

All in all GFH is in a tough spot.  Let's hope that management's apparent optimism isn't misplaced.

Gulf Finance House Responds on Auditors' Matter of Emphasis on "Going Concern"

Update:  GFH denies issuing this statement.  Let's see if AlQ replies.

According to AlQabas GFH has issued a statement on its auditors' matter of emphasis on management's assumption of GFH as a going concern.

GFH's well reasoned argument is reported to consist of the following:

1. This sort of thing is a part of internationally accepted auditing principles.  Unspoken apparently is the idea that auditors are always doing this sort of thing - making a mountain out of a mole hill because of some silly "principle".
2. 1Q10 results demonstrate clear improvement.  
3. And the results are really "distinguished"  ( نتيجة مميزة )  given the difficult times.
4. The improvement reflects the hard work of executive management who have reorganized operations without the need for additional provisions.

I glad that GFH has taken the time to set the record straight.  

After hearing these powerful arguments, I'm sure many of you will have a hard time taking the auditors'  apparent "box-ticking" quibble about lack of liquidity or weak capital adequacy seriously.  I know I don't.

In any case, in the interest of fairness, I'll be looking for additional commentary from GFH tomorrow on this topic - though I don't know how much piling on of logical firepower GFH's poor auditors are going to be able to withstand.

Commercial Bank of Kuwait - New Board Leadership & Commentary on 1Q10 Results

Two articles in AlQabas for 12 May.

1. On the Board:  Badr AlAhmad as Chairman and Ali Al Awadhi as Vice Chairman.
2. On 1Q10 earnings and strategy.

Frankly, both of these stories are hard to believe.

In the first we're told about the election of Badr and Ali with a side note that Mr. Ali AlMoussa (You'll remember him as the hero in the corporate governance charade at  CBK's April OGM) wasn't able to join the Board because the "authorities" (the MOIC and the KSE) are cracking down on standby directors requiring that they hold qualifying shares.  And Brother Ali hadn't bought his.  You'll recall he'd been mooted to take Dherar Al Rabah's place as Chairman.  Wonder if Ali owns any KIB shares?  Dr. Mahdi AlJazzaf, another director, also had to resign. given "other commitments" which necessitated his resignation.  It's unclear if these pre-dated his election.  Or recently developed.  Some how I'm guessing the latter.    It seems that directors' flu is not only quite virulent but also highly contagious.

Anyways to make an unbelievable story short, with AlJazzaf's resignation, another reserve director's no doubt reluctant excuse not to serve (Abdul Rahman Al Ali), and Ali Al Moussa's slip of the mind about buying qualifying shares, it seems the Board has decided to have an OGM for shareholders to elect a new Board.  Shareholders will be asked to submit candidates whose names will be submitted to the Central Bank for approval.  Then the OGM will vote.  

I hope your credulity isn't strained yet, because we haven't yet come to the "tafsir" on the 1Q10 financials.  And there is still some very heavy lifting to be done in the "Believe It or Not" Department.

First some comparative data.  1Q10 Operating Profit was KD22 million versus KD25 a year ago.  In 1Q10, CBK decided to take all Operating Profit to its reserves for loans and investments.  This led to a KD1.4 million loss versus a net profit of KD3.3 million in 1Q09.  CBK's CAR is now 19% versus 18.22% at 31 December 2009.  Expenses are down due to a rigorous expense control program - some 10% from 1Q09.

Explaining the decision, the article (which I suspect is based on a press release) states that this heavy provisioning was done to strengthen the bank's financial condition.  Here one is reminded of Jamie Dimon at JP Morgan Chase and his famous fixation on the "Fortress Balance Sheet".  

All well and good, but it seems to me that it is highly unlikely that a bank would deliberately incur a loss to strengthen its balance sheet since by incurring a loss it was depleting capital.   And preserving capital is a great way to have a strong balance sheet.  Rather I suspect that the Central Bank leaned on CBK to provision a certain amount to deal with known problems.  

Other tidbits from the report are that CBK has hired an international consulting firm to help it with its strategy.  A presentation to the Board elected this month is expected shortly.  Since CBK is likely to have a new board as outlined above, I'm not sure if this makes a whole lot of sense.  Note:  I'm not referring to the strategy but to its presentation.  More on the strategy in the next paragraph.

While the strategy isn't yet finalized, it seems that will be built on a focus on Kuwait.

Kuwaiti banks face a real strategic conundrum.  The Kuwaiti market is relatively small with not much scope for expansion of really productive business - which explains why there is a lot of speculation and  a plethora of bone-headed business ventures.  Some would say that the construction of the Kuwaiti economy actually forces businessmen into this sort of activity because other areas are closed to them.  And no doubt there is a lot of truth to this.  Also there are too many banks fighting over this limited pie. - which leads to all sorts of silly competition.  Another real problem is that what pass for acceptable business practices in Kuwait make the practice of prudent banking difficult.

Perhaps, a kindly paternal figure can help sort out this mess.  Or at least hire better script writers.

Hopefully, some of our readers will comment to expand the story and correct any errors in this post.

National Bank of Kuwait - Dabdoub Did Not Resign

AlQabas has an article in which the Chairman of NBK, Muhammad Abdul Rahman Al-Bahar, denies that Ibrahim Dabdoub has resigned from the bank.

And here's one from AlWatan in which Abu Shukri himself denies the report.  AlW says that resignation supposedly occurred in an exchange of emaisl.

This is a strange story and I'm guessing there's more here than meets the eye.  

The typical Kuwaiti investor pattern of making a small fortune by destroying an even larger one?

Perhaps one of our Kuwaiti readers will comment.

BTW when you see Abu Shukri resign that will be a sign to very very carefully re-evaluate your holdings of NBK shares.   His shoes are going to be very hard to fill.

Kuwait 1Q10 Earnings - CBK KD1.4 Million Loss and Burgan KD1.8 Million Profit

Press releases below.

I'm guessing loan loss provisions are responsible.

CBK's press release first, then Burgan's.  For those who don't read Arabic, 1Q09 is on the left and 1Q10 on the right.  The first line is net income.    In CBK's the brackets mean they had a loss - KD1,414,000. The second earnings per share. Then total current assets.  Then total assets.  Then current liabilities.  Then total liabilities.  And finally shareholders' equity.  

Then there's a sentence that tells when the Central Bank of Kuwait "approved" the bank's financial report.  In both cases 11 May.  So fairly prompt disclosure by the bank thereafter.

The last bit is disclosure on related party transactions. First revenue and then expenses.

[13:39:17]  بلغت (خسارة) (تجاري) (1.4) مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة البنك التجاري الكويتي
ِ(تجاري) قد اعتمد البيانات المالية المرحلية للبنك للفترات المنتهية ‏
في 31-03-2010 وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند      ال3 أشهر المنتهية في 31-03-10    ال3 أشهر المنتهية في 31-03-09‏
الربح (الخسارة) (د.ك)            (1.414.000)                 3.139.000‏
ربحية السهم(فلس كويتي)           (1.1)                                2.6‏
اجمالي الموجودات المتداولة     2.888.791.000            3.323.149.000‏
اجمالي الموجودات           3.652.804.000              4.038.104.000‏
اجمالي المطلوبات المتداولة    3.185.980.000             3.543.040.000‏
اجمالي المطلوبات            3.210.609.000                3.586.829.000‏
اجمالي حقوق المساهمين       442.195.000              451.275.000‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الاحد الموافق 11-05-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 737 الف د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ (20)الف د.ك .‏

[14:20:44]  بلغ ربح (برقان) 1.8 مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة بنك برقان (برقان)‏
قداعتمد البيانات المالية المرحلية للبنك للفترات المنتهية  في 31-03-2010 ،
وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند      ال3 أشهر المنتهية في 31-03-10    ال3 أشهر المنتهية في 31-03-09‏
الربح(د.ك)                 1.874.000                      10.988.000‏
ربحية السهم(فلس كويتي)       1.9                                10.9‏
اجمالي الموجودات المتداولة     2.743.779.000            3.017.318.000‏
اجمالي الموجودات           4.139.624.000              4.303.350.000‏
اجمالي المطلوبات المتداولة    3.522.748.000             3.557.177.000‏
اجمالي المطلوبات            3.692.878.000                3.895.370.000‏
اجمالي حقوق المساهمين       446.746.000              407.980.000‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الثلاثاء الموافق 11-05-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 2.074.000 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 850.000 د.ك .‏

 

Dubai Holding Debt Restructuring

Asa Fitch over at The National has an article about Dubai Holding which has left me scratching my head.

If I'm not mistaken, in the last day or so, I read a statement by HE AlSuwaidi or maybe HE AlTayer that there would be no additional mega debt reschedulings.

And I definitely recall Shaykhk Ahmed Bin Saeed Al Maktoum saying around mid April that Dubai Holding doesn't have any problems.  Apparently not a single one.  And that's quite an enviable position to be in for a company at any time, but especially in the current environment.

So you can imagine my surprise when I read in both the Financial Times and The National that indeed Dubai World (Oops, that should be Dubai Holding) had engaged advisors to study the financial condition of its two key subsidiaries.

"The accounting companies are being asked to evaluate the subsidiaries’ financial health and make recommendations that could include pushing for lower interest rates and delaying debt repayments."

Either or both of these would fit my bankers' definition of a restructuring.  And would as I've noted before fit that of IFRS as well. 

Gulf Finance House - 1Q10 Results Continuing "Transparency"

In GFH's announcement of 1Q10 results, Mr. Essam Janahi, Chairman, stated:

"The Board has taken a very prudent approach in declaring this result and is committed to continuing transparency in the way we do business."

This wouldn't be the first time that Mr. Janahi has publicly recognized the virtues of transparency.  Nor do I suspect it will be the last.  And if you were reading my post of yesterday carefully, you will notice that I highlighted this continuing commitment to transparency.  Or as we like call it here on SAM  كلام شريف

A noble goal.  One which of course an Islamic bank would have no trouble keeping.

I believe that GFH will be announcing tomorrow one small matter - almost too trivial to mention.  Oh, well, let me mention this since I've already typed this much of the post.

Seems that GFH's accountants added a matter of emphasis to their review report noting that while they did not qualify their opinion they called attention to Note 1 which discusses the lack of fundamental certainty about management basing preparation of the 1Q10 financials on the assumption that GFH is a going concern.  The auditors cited concerns about liquidity and the adequacy of the company's capital.

Now, I am sure that many of you out there are probably saying that I am being overly harsh.  This is not the sort of thing that need be disclosed in the press release.  After all, the company releases its financials and a seasoned investor will go first to the auditors' report.  So disclosure is made.  Indeed.

But, it seems when getting ready to send in its 1Q10  financials to the BSE, GFH inadvertently forgot to  include page 1 with the auditors' report.  As you might expect from the time it took to update GFH's ratings page on its website,  they haven't yet gotten around to loading the financials on the website yet.  All that's there is a copy of the newspaper ad.

We'll see tomorrow whether the disclosure of the matter of emphasis is in response to a letter from one of the exchanges.  Or whether GFH belatedly realized the small oversight and is releasing the info unprompted.

However, rather than leave on a negative note, I'll close with this quote from Group CEO, Ted Pretty:

“GFH is a flagship institution in Bahrain and the Islamic financial sector and we are committed to working hard to set a better example as a model participant. Islamic finance has excellent growth prospects and GFH is well placed to take advantage of this growth.”

 The commitment to set a better example as the flag bearer of Islamic finance is admirable.

Commercial Bank of Kuwait - Ali Moussa to the Board Next the Chairmanship?

CBK announced on the KSE today that the Board had accepted the resignation of Mr. AlRabah, the Chairman, and had called up the reserve director, Mr. Ali AlMoussa.  

Suspect he's got a bright future at CBK.

[10:12:59]  ِ.استقالة رئيس مجلس ادارة البنك التجاري الكويتي
يعلن سوق الكويت للأوراق المالية بأن البنك التجاري الكويتي افاده
بأن مجلس الادارة اعتمد استقالة السيد ضرار الرباح رئيس مجلس الادارة
وقرر استدعاء العضو الاحتياطي الاول السيد / علي موسى الموسى.‏

Gulf Finance House - 1Q10 US$7.5 Million Loss

GFH has posted press releases on 1Q10.   English language here.   Arabic here.

And summary financials here.

Hard to do an in-depth analysis based on a one page "newspaper" announcement.

Nonetheless, some preliminary comments.

GFH's liability restructuring defused an imminent threat, but only "just". Of the US$180 million restructured, US$120 million comes due this year. US$100 million in August and US$20 million one month later.

Barring an asset sale miracle, it's probably likely that these amounts - or substantially all of them  - are going to have  rescheduled.

But that's really only a small part of GFH's problems.  The central issue for GFH still remains whether its  "proven business model" can generate sufficient cash to pay the light bills.   Debt repayments can be stretched out, but if you can't make the operating expenses it's very difficult to continue in business.

Based on 1Q10 numbers, it's hard to be optimistic.

A very quick and admittedly crude estimate is that GFH has a quarterly minimum cashburn rate of  somewhere around US$ 12 million to US$15 million before other cash drains, e.g.,  customer deposit withdrawals, repayment of interbank deposits, project funding, etc.   GFH's ending "cash" at 31 March 2009 was US$21.5 million.

While it's early in the hoped for turnaround, so far cash income generation is still lagging.  In 1Q10, cash operating income was roughly one-third of the declared US$18.5 million in accrual income.  Less than 50% of the minimum estimated cash burn.  Only a "timely" sale of Investment Securities (US$21.l2 million) saved the cash position which was US$21.3 million at 31 March 2010 as per the Cashflow statement.

Apropos of Ted Pretty's comment about new products, one has to ask what products customers are going to be comfortable buying from it.  Will they be willing to give GFH money today for products to be delivered in the future?  Would the Central Bank be wise to approve GFH selling such products?  If not, then the deals have to be spot - customer cash against an existing asset.  That will require a lot of volume to generate significant profit.  Can GFH move US$100 to US$200 million in product?  What sort of margins can it generate on such sales in this environment?  And with its own name a bit tarnished?

So it appears that asset conversion not income is the key in the near term - probably the rest of 2010 and perhaps the early part of 2011.  

So let's take a look at some of the sources and uses of cash.

1. Placements - Shown as US$156.7 million with Cash of US$5.4 million.  Looks like comfortable  liquidity.  But roughly $140 million of these are pledged for projects so liquidity is weaker than  it  appears. That pledge was disclosed in Fiscal 2009 financials.  And you get a hint here in the 1Q10 Cashflow statement - where only US$16 million of Placements are considered "cash".  Without the 2009 note, you wouldn't know if that's due to tenor or because they're pledged.   
2. Investment Banking Receivable - No change since 31 Dec 2009.  This bears watching for timing and probability of collection.  GFH had written roughly half of the IBR off during 2009.
3. Other Assets -  Recall that roughly US$188.3 million of this is project costs funded.  So return of principal is dependent on sale of the projects.  Assuming the best regarding ultimate value, probably not a likely near term event.  This category also ties back to the Placements.  If GFH can extract itself from future obligations to fund, then US$140 million or some portion of Placements could become liquid.  But might that risk the US$188.3 million already invested and carried here? 
4. Investors' Funds are down roughly US$50 million.  The Cashflow appears to only account for US$29 million.  Hopefully the notes will explain.  The question here is whether customers are withdrawing funds - which could add another cash drain burden.

In this context it's hard for me to understand the continuing conversion of the murabaha.  I really don't see an economic rationale.  One thing that does occur to me is that this is a device to provide equity to the company - with amounts and timing of contributions at will.  Perhaps to avoid triggering covenants in debt agreements.  Once converted the shares could be sold back into the market - taking a loss on the conversion but still perhaps a price to be paid for keeping the company operating.  If anyone out there has a thought on this topic, I'd be very interested.

The Investment Dar - Commercial Bank of Kuwait - Boubyan Bank

AlQabas has a report that Jamal AlMutawa, the former GM of CBK, was in the bank to assist with negotiations with TID (being run as per the article by TID's Chief Restructuring Officer) to solve the dispute over the BB shares.  Jamal was "in charge" when CBK and TID agreed the repurchase transaction in 4Q08 which led to CBK asserting final ownership of the shares when TID failed to repurchase them in 2009.  So presumably he's there to share what he knows about the genesis of the original deal and what promises and understandings both parties had at the time.

Reportedly the deal will preserve the rights of CBK to its money - this in effect sounds like the transaction is being treated as a secured loan rather than a sale/repurchase transaction.  Presumably, CBK not only wants it principal plus interest back - but as well to be excused from the restructuring.    The CRO, Mike Grant, is quoted as saying that any excess after CBK is paid its dues will accrue to TID.

The rest of the article deals with the resignation of Mr. AlRabah as Chairman of CBK and speculation that a ordinary general meeting of shareholders may be called if the call to a reserve director is unsuccessful.

Gulf Finance House - 1Q10 US$7.5 Million Loss

GFH announced its 1Q10 earnings: a US$7.5 million.  Here's the report from AlBilad in Bahrain.

As you'd expect management tried to put the best face on the results by noting the improvement  over 1Q09 and the disastrous 4Q09.   The progress cited is a cut in expenses by 45% to prior quarter - unclear if it's 4Q09 or 1Q09.  I'm guessing the latter.  As well as that there were no additional provisions.  Then a comment that the earnings release was in the spirit of transparency which the Bank has followed in the conduct of its activities.   Hope was expressed that 2Q10 would should continued improvement.

The former arguments were made by Essam Janahi.  Then Ted Pretty took the press release "floor" noting   that cost cuttings had saved US24.5 million in expenses.  And that the firm was launching new products which would contribute to future earnings.   That's the key issue for GFH - driving the revenues line.  There's only so far one can go with cost cutting.

To be fair there's been some progress.  But GFH still has a rough road ahead of it.  Key will be rebuilding customer confidence in its ability to deliver.

There's nothing on GIH's website yet.  When the financials are released, I'll take another look.

AlJoman - Why the Kuwait Stock Exchange Needs Strong Regulation

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

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

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

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

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

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

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

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

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

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

Damas - Update on Enforceable Undertaking

From Nasdaq Dubai.

Damas International Limited (The Company) announced today that it is taking all reasonable steps to secure and recover the drawings amount owed to the Company by the Abdullah brothers.

The Company is working with the Abdulla brothers within the overall timeline, to recover the drawings amounts, as agreed in the Settlement Agreement and the Share Pledge Agreement (the "Agreements"). Given the complexity involved in transferring / selling the assets declared to the Company, it is taking more time to affect the recoveries as per the timeline mentioned in the previous announcement by the Company on 4 November  2009. The delay in payments does not constitute an event of default under the Agreements.   However, the amount of US$55 million to be paid by the Abdullah brothers to The Company on or before 30th April 2010 will be carried forward and settled in accordance with the terms and conditions of the Agreements. Active efforts are underway by the Company and the Abdulla brothers to repay the amounts either in cash or by transfer of assets.

The Company is constantly engaged with the Abdulla brothers to ensure expeditious realization from the sale of assets to settle their drawings. These efforts are on going and the Company will report to its shareholders and the market on a regular basis as to its efforts, and the effectiveness of its efforts in recovering all amounts due to the Company by the Abdullah brothers.

The Company, having clarified this matter and informed the market of the developments requests an immediate reinstatement of the trading on its shares.

 Some reactions.

1. Sounds like the recovery isn't going particularly well.  Old hands in the banking business will tell you it's not a good sign when the obligor can't make the first scheduled payment on a deal he's recently negotiated with you.  I have good reason to believe that this rule applies pretty much around the world - even in Dubai. 
2. The Brothers took cash and a "bit" of gold from Damas.  The company is unable to pay its lenders. 
3. When I read comments about transfers of assets (even with a new presumably alert and scrupulous board), I worry about the transfer of illiquid and potentially duff assets.  If the Brothers can't liquidate the assets, why should Damas presume that it can?  And if the debt is extinguished at transfer and not upon realization, why should Damas bear the liquidity risk (that the price they actually get will be much less than the transfer value) and the costs of carrying the asset until realization.
4. As noted above, the Brothers took cash and a "bit" of gold.  Their obligation is to return the company to the position before the "withdrawal".   The goal should be to avoid a BPPN "settlement" that lets the obligors skate away scot-free.

Commercial Bank of Kuwait - Another Board Resignation?

AlWatan reports that Mr. Abdul Rahman Al Ali, described as a reserve director for CBK (one to take the place of a sitting director in the event of that director's departure) has resigned to take up the position of CBK's board representative at Industrial Bank of Kuwait.  Supposedly Ali Moussa of Securities Group has resigned his seat on IBK's board and will join CBK's board as (initially) a reserve director.

The article ends by saying that there are many scenarios floating around - including that CBK's board will be reorganized or that one of the reserve directors will be appointed Chairman.

If you've been following the comments  on my posts on CBK, then you've seen some comments by readers with apparent better knowledge and appreciation of what's going on than I have.  If you haven't, then you should!

So tonight's invite is for Advocatus, H Al Essa to weigh in again.

This is getting more complicated than "Lost".  Though the nice thing about working in a family company is that there's a job for everyone.  And the family takes care of its own.

Dubai World Restructuring - Signing in Two Weeks

AlQabas carries an account of an interview by Shaykh Ahmad Bin Saeed Al Maktoum, Head of the  Supreme Committee for Fiscal Policy of the Emirate of Dubai with CNN Middle East Markets.

He's quoted as saying that the process has reached the final stages and he expects that the restructuring will be signed in a couple of weeks.

What's perhaps more important are his comments that Dubai learned from the financial crisis the necessity of focusing/concentrating on the sectors which constitute the core/backbone of its economy.  The article states that he did not mention the real estate sector.  He reportedly called on workers to revisit their plans confirming that the previous real estate boom will not return just at the revival in real estate will not begin again before some years.

On the rescheduling he said the proposal ( قُب.ل   Not sure what this means.  Cable?  Anyone out there with an idea please post.) is in its initial forms and we are putting the finishing touches on it. today  We're optimistic in getting all signatures with the hope this will be completed in the next two weeks.

About the complaints of local creditors about the interest rate they will get is unfair to them compared to what the Western creditors are getting, an unnamed Emirati official is quoted as saying:  "The offer of Dubai World is generous for all.  And we have made it clear that we do not want to harm any of our creditors.  The creditors in turn understand what we are doing.  And it's incumbent on them to thing about their long term presence (in Dubai)."

Zain - Turkcell Negotiations with Major Shareholder in Progress

AlQabas reports that an unnamed Bahraini Investment Bank is acting as a middleman between Turkcell and major shareholders.  Starting price talk is KD1.5 per share.  Last time I looked Zain was trading at KD1.3 per share.  If I'm reading the last our words correctly وعند اي سعر  major shareholders sound eager to sell.

The sale results from an urgent need for cash and constrained financing from Kuwaiti banks.

Dherar Khaled Al Rabah Resigns as Chairman of Commercial Bank of Kuwait to Accept Chairmanship at Subsidiary

In its 7 May edition AlWatan reports that Mr. AlRabah was elected as Chairman and Managing Director of Commercial Bank's 100% owned subsidiary, Al Tijari Investment Company.  Earlier today Advocatus, one of this blog's select group of readers and a frequent commenter, had posted a comment that Mr. AlRabah had resigned.

You'll recall that just about one month ago he was elected Chairman and MD at the bank in a stormy shareholders' meeting.  And if you don't, here's the link.  A bit more on that below.

The Kuwait Company Law does not permit an individual to be Chairman at more than one company so with today's election he had to make a choice.  Perhaps, not surprisingly, he has announced that he will be resigning from the Bank. 

Many critics out there, including AA, thought that CBK's shareholders' meeting in April - an admirable an attempt at great theater -  failed because miscasting of some of the leads just made the plot unbelievable.  

I have to say that this May production at AlTijari Investment Company is a bit thin also.  He's barely had time to warm the Bank Chairman's chair and he's jumping to a smaller and less significant subsidiary.

It's hard to avoid the conclusion that Dherar was a convenient stalking horse, a placeholder at the Bank until the desired candidate could be introduced.  In calmer times after the old Board was removed.

On a positive note, I think it's safe to say that all critics out there give both productions "two thumbs up - way up" for "Family Values". 

Perhaps, Advocatus and/or others will want to post some "literary" criticism of their own.

Dubai Court Appoints Expert in Mashreqbank Case Against Saad

According to Asa Fitch at The National, the Dubai Court hearing Masrheqbank's AED542 million (US$147.6 million) case has appointed an expert to study certain technical details.

Mashreqbank claims the expert's brief is to confirm outstanding amounts.

It's unclear how close the Court is to reaching a verdict.

Global Investment House - May 2008 GDR Issue

Like me you may have been intrigued by Abdul Munim's question at the shareholders' meeting about the owners of GIH's GDRs.  And you may be wondering a bit about the transaction.

Here's a link to the Prospectus.  

1. The shares were floated at KD0.995 each.  Each GDR equal to five shares and offered at US$18.75.
2. The shares currently trade around KD0.090 roughly a tenth of the offer price.  Book value is around KD0.133 per share.
3. GIH's 2008 audited financials say that KD5.3 million was deducted from the proceeds as GDR expenses (page 59).  That makes the fee roughly 1.9% of total proceeds a very good fee indeed considering that the banks actually underwrote the deal.  For underwriting details see page 143.  Note the numbers there are for GDRs.  So the number of GIH shares they underwrote is 5 times the number shown.

As to details of ownership of the GDRs,  of course,  the Prospectus doesn't include this information for obvious reasons.  It was issued prior to the placement of the shares.

Nor for that matter does the info at the KSE answer the question.  Here in Arabic.  The English page doesn't have shareholder info for some reason.

As you'll see from the Arabic page, the GDRs are registered in the nominee names of BNY Nominees Ltd (7.092%)  and Bank of Mellon New York Nominees (11.429%).  So the identity of ultimate shareholders is not disclosed.  The GDR issue was for 306.7 million shares in rough numbers.  The 18.5% represents about 243 million.  So about 64 million shares not accounted for - presumably converted to regular shares?  Roughly about 4.9% of the total shares.

Islamic Finance - Still A Niche Business

An interesting article from Karen Remo-Listana at Emirates Business on Sukuk and Islamic finance.

Kuwait Stock Exchange - Enhanced Supervision 10 Companies Under Investigation

Copyright Fg2

If we believe the report from AlQabas, the KSE may have to replace the  above carving which I understand currently is right over the entrance to its Supervision Section.  

According to the article, the Supervision Department has its "eyes open wide today" as compared to earlier periods when apparently its eyes were a bit more shaded from the light.  One certainly hopes that the process of adjusting to the light was gradual.  Otherwise serious ocular damage may have been caused.

In any case in the transitional period to the full implementation of the new Capital Markets Law we're told that the KSE is watching daily trading, monitoring activities for negative behavior, and taking appropriate regulatory action until it hands over the control lever (or rudder if you prefer a Kuwaiti appropriate nautical analogy).  Frankly,  precisely the actions you'd expect a stock market regulator to be doing as the normal discharge of its duties -- unless of course you understood how business was (is?) done up North. 

More than 10 companies are reportedly under investigation.  Trading of Board members is being scrutinized.  Files have been referred to the public prosecutor for legal action.  And where legal action is not warranted, the KSE will be dealing with minor infractions at an upcoming meeting of its committee of adjudication.

The article ran with this accompanying picture.

It's not clear to me if this is a "before" or "after" picture with respect to enhanced vigorous monitoring by the KSE.  But from what I know it's highly likely it's an "after" picture.   Supporting that view, you'll notice that the chap is actually at his desk!   And even though this is just a picture, I'm sure like me you can sense the tension as he focuses intently on monitoring the market. 

For those not familiar with the fact, I'd note that as part of the preparation for the implementation of the new law, KSE regulators were sent for a crash training course in a certain well-regulated market in the West.  The position being assumed by the KSE regulator at his desk is known in technical terms as "doing an Alan"  or sometimes "a half Greenspan".

In a separate post, I'll review a recent report by AlJoman Centre for Economic Consultancy - that shows the crying need for regulation.