Sunday, 25 July 2010

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

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

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

The article notes that TID's "file" is complicated (and presumably this is the reason for the CBK's caution):
  1. A significant amount of creditors want nothing to do with the restructuring and are determined to continue legal action.  The concern is that a foreign judgments will be immune from the FSL and thus will disturb the Company and upset the legal protection given.   AA:  There is no real way that the CBK or Kuwaiti authorities can get 100% a priori assurance this will not happen.  The hope is that a foreign jurisdiction will recognize the FSL as being analogous to USA Chapter 11 and stay legal actions in their countries.  This is something the Kuwaiti authorities have to make a leap of faith on once they've decided the larger issue - whether it is better to liquidate or rehabilitate TID.  The USA (State of New York to be precise) has recognized the Administration of TIBC in Bahrain as a fair and reasonable process and has stayed legal actions. One would hope Kuwait could get similar treatment.
  2. The Company has yet to issue any financial reports from 2009 or 2010. The article describes several legal/regulatory issues -- the holding of annual shareholders' meetings, restoration of trading on the KSE --  as well as the determination of the Company's financial situation.  AA:  The regulatory issues are immaterial to the issue of ability to repay creditors.  The major issue is whether it makes sense to liquidate the Company or run it as a going concern (which will have a higher expense level).  Which course provides the highest net payout?   Which course does the least damage to Kuwait? The longer the file is left undecided the more value that will be lost. 
  3. Complete and detailed information and explanation from the Company is lacking.  The Creditors Co-Ordinating Committee failed in obtaining information on some issues - where the answers are still "floating" according to creditors.  AA:  The CBK, CCC and creditors need to determine if the Company is being forthright.  If it is not, then it's time to remove the Board and management and go forward with the restructuring.  Or put the Company in Administration.  If the situation is unclear because of external factors and the Company cannot respond with precision, then the creditors will have to learn to live with ambiguity.  One would have hoped that by now the creditors would have made a decision on this score or decided to accept less than forthright answers.
  4. Some points remain open.  It appears the chief one is shareholder support.  AA:  It seems a mite optimistic to expect shareholders to put more money into TID at this point (as it does for Global) until shareholders seem the direction of the restructuring.  Presumably, any money put in will wind up immediately in the creditors' pockets.  A rather hard sell to shareholders who have probably lost most if not all of their past equity.  Invest money not to build for the future but to pay off loans. Even putting money in to build the business requires a bit of optimism - perhaps irrational - at this stage.
  5. Another major unresolved issue is expense reduction/control including grants, bonuses etc for management.  AA:  Unless this is the typical bankers' myopic focus on pennies in a restructuring, this is a rather disturbing bit of news.  If repayment of TID's mountain of debt depends on reducing relative hillocks of expenses, it may be time to consider Administration.  Unless of course the intent of the plan is a disguised liquidation.  Or there is no alternative to current management and controls are required to avoid dissipation of assets.   
  6. Ernst and Young (who the CBK hired to evaluate TID's financial condition) ran a series of stress tests (to use a term common in the press).  Apparently under some of these TID was unable to repay principal and/or service debt.  That led E&Y to comment on the Company's debt burden and  reliance on two sources of revenue.  The CBK is said to be looking for 100% assurance that TID will be able to service its debt according to the plan.  AA:  Perhaps this is just a flight of rhetoric.  But if the CBK is looking for 100% assurance, it needs "tae think again".   The only thing the CBK can be sure of with that level of precision is that banks under its supervision are likely to make manifestly stupid loans again and get themselves into a serious deteriorated situation.  It cannot be sure that TID will sail through.  What it needs is a reasonable assurance - tempered by a keen understanding of what a bankruptcy this size will mean for Kuwait.   The US Court didn't have 100% assurance when it let General Motors through the gates of reorganisation.  
There are a couple of other points of note in the article:
  1. Legal experts say that the CBK is not bound by the Special FSL Court's request.  That as the Central Bank it has certain powers beyond and above the FSL.  
  2. The Company is described as being in the position of "one standing on shifting sand" given the decline in asset prices and the problem of coming up with asset values given different and moving prices.
  3. Some local banks (Kuwaiti) have provisioned between 50% to 100%.  In any case by the end of the year according to CBK requirements, provisions will have to be at 100% as for other troubled investment companies.  AA:  Presumably at that point, having taken the pain, banks don't need to accommodate a plan because they have nothing to lose.  The bankers' rule that a recovery on a fully provisioned loan is found (new) money as opposed to recoveries of old lost money.
Additional conditions and safeguards - while no doubt justified - are unlikely to provide 100% assurance of TID's success.  At some point the CBK will have to make a decision - formed largely by the intersection of approximations of fact and the realities of policy - what is best for Kuwait.   And then prepare itself for criticism that its decision was flawed.  With no doubt a major part of that criticism coming from the "wise and learned" members of the Majlis al Umma.

Friday, 23 July 2010

Dubai World - Lenders Will Be Worse Off If They Reject Current Deal


Reuters reports in an exclusive that it has seen a document that DW has circulated to its creditors warning of the dire results if creditors reject the current deal.
  1. No government guarantee
  2. Loss of pari passu with the Dubai Fund.
  3. Withdrawal of the generous offer to use previously ring fenced assets from Isthimar World and Infinity (MGM Grand in Las Vegas) to fund repayments.
  4. Longer tenors.
  5. Significant reduction in ultimate recovery.
As Reuters notes and quotes:
The document made clear that creditors would suffer in a liquidation scenario and that Dubai's own coffers would be protected.

"Recoveries for all creditors except DFSF in a liquidation scenario would be significantly below those expected under the proposal," the debt plan said.
Of course this announcement is completely unrelated to the fact that DW is trying to get creditor approval for its current plan which it "improved" once already because of creditor pressure.

Having been involved in similar such exercises,  AA can vouch that borrowers and/or bank steering committees never ever ever use dire threats to try and persuade other creditors to accept a plan.  No fear mongering.  No threats. You know stuff like:  This is the best deal you'll ever get.  Take it or leave it.  The alternative is destruction of value in a messy bankruptcy.  I'll hold my breath until my face turns blue.

And AA should know as he has been both a threatenee and a threatenor - though in an institutional and not a personal capacity.

Realistically at this point, DW is close enough to the magic number necessary to cram down creditors that it needs just a few more.  

You do remember how out of a solicitude for a fair and just process Shaykh Mohammed issued a special decree that DW's debt restructuring would be handled according to the DIFC regime.  And some said the Shaykh didn't have The Vision Thing.  As far as AA can see, he saw this coming all along.

And finally a virtual tip of AA's enormous tarboush to Aidan and DW.  It seems DW will sell "strategic assets" to fund repayments at least at some stage.  Note the use of the term "strategic" as opposed to "non core".

Thursday, 22 July 2010

Kuwait: "The Age of Taxes is Coming"


Kuwaiti Citizens Demonstrate Near Sheraton Hotel Kuwait City

So screams the headline from the 23 July issue of AlWatan.  A most scary development.

According to the article, the Ministry of Finance is preparing a public awareness campaign under the slogan "Tax the Permanent Source of Development" as well as that the Ministry had sent some of its staff to Egypt to learn methods for fighting tax evasion as part of a plan to introduce a comprehensive tax plan including an income tax.

Can it be too much longer before  حزب حفلات الشي   eclipses the salafist bloc in the Majlis al Umma? 

Can the local versions of   سارا بالين  and   جلن باك  be far behind?

Though knowing Kuwait, this may turn out to be like electricity.   At the end of the day citizens will delay paying their taxes until the government bails them out.

Aayan Leasing and Investment - MOCI Shareholders' Meeting 10 August


Aayan (no doubt with a bit of encouragement from the MOCI) announced on the KSE this morning that its ordinary and extraordinary general shareholders' meeting will be held on 10 August at the MOCI premises at 11 AM.   I expect this will be an "interesting" meeting as the centerpiece will be the MOCI's presentation of its report on the Company's financial condition as well as certain violations it believes have occurred.

The KSE also noted that it had not yet finished its review of ALI's  2009 financials and would publish them once it completed the review.


[11:43:59]  ِ.اجتماع الجمعيه العمومية لشركة اعيان للاجارة والاستثمار ( اعيان )‏
يعلن سوق الكويت للاوراق المالية بأن شركة اعيان للاجارة والاستثمار (اعيان)‏
شركة موقوفه عن التداول لعدم تزويد ادارة السوق ببيانات 31-12-2009 وبيانات ‏
ِ31-3-2010 وقد افادتنا بانه قد حدد موعد لاجتماع الجمعيه العمومية العادية
والغير عادية يوم الثلاثاء الموافق 10-8-2010 في تمام الساعة الحادية عشر
صباحا في وزارة التجارة والصناعة .علما بأن ادارة سوق الكويت للاوراق ‏
المالية لم تنتهي من دراسة البيانات المالية السنوية عن السنه المالية ‏
المنتهية في 31-12-2009 والتى تم تقديمها لادارة السوق بتاريخ ‏
ِ18-7-2010 وسيتم خلال اجتماع الجمعيه العمومية العادية والغير عادية ‏
مناقشة جدول الاعمال المرسل للمساهمين ‏
وسوف تقوم ادارة سوق الكويت للاوراق المالية بنشر بيانات 31-12-2009 ‏
لشركة اعيان الموقوفه حاليا عن التداول فور الانتهاء من دراسة البيانات ‏
المالية للشركة ‏

Damas Extends Standstill To September - Business Model Apparently Validated Yet Again


From Nasdaq Dubai 22 July:
Damas International Limited (the Company) announces today that the Company has signed an extension to the standstill agreement signed with a majority of its bank lenders. 
 
The standstill agreement has been extended until 30 September 2010 in accordance with its terms in order to allow the Company to finalize its restructuring plan and having regard to the Ramadan period. The Company has agreed a term sheet with the steering committee of its bank lenders and which has now been sent to the entire lender group for approval.  

The Company is pleased to announce that a majority of its bank lenders have approved the extension which proves once again the confidence of the Company's bank lenders in the strength of the underlying business model of Damas, a Company spokesman stated.
With respect to latter comment, I was surprised that Damas neglected to mention their lenders' confidence in Damas proven corporate governance model.  So I will mention it here.

Some commentators might remark that the lenders are making the best of a bad situation in the hopes of securing their recovery.  But those with Vision (like AA) know this can't possibly be right.  Can it?

What Were They Thinking?: Bharti Airtel US$7.5 Million Loan - "Sour" Skim


You'll recall that Bharti Airtel secured a US$7.5 billion loan last March to fund its purchase of African assets from Zain Kuwait.  Original pricing on this 4.7 average year life loan was 195 basis points with a 20 basis point up front fee.

Subsequent to granting of the loan, S&P reduced Bharti's credit rating from BBB- (investment grade) to BB+ (non investment grade).  It seems now that the lead arrangers have a bit of problem.  Their hoped for skim on the loan has gone sour.  Rather than being able to sell the loan at say 190 basis points margin, the lead arrangers are reportedly finding that the "market" is demanding around 250 basis points.  

I've seen comments that suggest the mark to market would be on the order of US$40 million to 42 million.  Without the exact amortization schedule, it's not practical to calculate.   BofA is reportedly going to mark.

Funny thing is, when the lead arrangers were pricing the deal, S&P put the Company on ratings watch for a possible downgrade.  One would have thought (at least this one) that perhaps the pricing would have been linked to the rating.  Apparently not.

The frenzy with which the loan was bid may be a leading indicator of the end of the banking recession and the return to "happy days".  Though the sour skim may be a contrary sign.

Lead Managers and their reported shares are:
  1. Stan Chart US$1.3 billion
  2. Barclays: US$0.9 billion
  3. ANZ, BNP, BofA, Credit Agricole, DBS, Bank of Tokyo Mitsubishi, Sumitomo Mitsui:  US$0.8 billion.
(There's apparently a bit of rounding in the above numbers).

Wednesday, 21 July 2010

Another Insult to the United Kingdom: Frosty Chill Settles Over Anglo-American "Special" Relationship


US-UK "special" relationship apparently "on the rocks".

As pictured above, the Prime Minister and the US President exchanged  cases of beer at the conclusion of the Toronto G-20 summit to settle a bet over the winner of the USA/UK World Cup match.   As it was a tie, each drank the other's choice of a beer.  The Prime Minister Goose  Island 312.  The US President Hobgoblin Ale.

At that time incredulous reporters noted that the US President had refrigerated his drink.  As per contemporaneous and reliable press reports, the Prime Minister gently advised the US President that Hobgoblin is to be drunk at room temperature.

Based on intelligence gleaned from highly reliable sources (The Financial Times), Suq Al Mal can now report a further chilling deterioration in what has clearly become the former "special" Anglo-American relationship.    

During their Washington meetings this week, the US President drank another chilled Hobgoblin in the Prime Minister's presence.  A clear, deliberate and direct slap in the face to  English tradition, and thus, to Mr. Cameron, Parliament and the United Kingdom. As of yet, there have been no reports of the reaction of  a no doubt shocked Prime Minister.

Some commentators have linked the US President's behavior to his interpreting  the tie in the US-UK World Cup Match as evidence that the United Kingdom was now "punching below its weight".

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


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

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

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

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

It really does pay to pay attention as they say.

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

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

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

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


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

Aayan Leasing and Investment - MOCI to Press Forward with Shareholders' Meeting

Muhammad Sha'baan at AlQabas reports that the Ministry of Commerce and Industry is determined to push forward with the shareholders' general meeting it has called and which will take place in early August.  At that meeting the MOIC will deliver its report to shareholders on the Company's financial condition as well as violations of various laws and regulations committed by the Company - including the delay in releasing financial statements, holding the required shareholder's annual meeting along with other unspecified violations.

As per the article, the MOCI does not intend to tell the shareholders what to do but expects that they will in light of its report take action.  It will also refer certain violations to the Public Prosecutor for investigation.

The Company has apparently tried to get the MOCI to let it set the agenda for the meeting.  The MOIC has refused and has noted that the shareholders' meeting it has called will take place prior to any OGM that the Company may call. 

Apologists for the Company have reportedly argued that the Company was unable to secure the Central Bank of Kuwait's approval of its financials until just recently and so it shouldn't be held accountable for the delay in financials.  Further as financials are a condition precedent to an OGM, neither should it  be blamed for the failure to hold the OGM.   Critics have retorted that the Company delayed in providing certain information to the Central Bank and is therefore, after all, culpable.

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

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

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

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

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

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

Tuesday, 20 July 2010

The Future of Sukuk - Asa Fitch at The National


Asa Fitch over at The National has a piece on the sukuk market which you might find interesting.

Personally, I vote for a future.  As with any new financial instrument there is a bit of teething pain.  And the problems encountered today will lead to changes in structures  to correct defects.  As well, one can wish for a bit more investor intelligence though that is perhaps pushing the frontier of optimism a bit far.

Financial Times: The Great (Economic) Debate


Today's Financial Times resounded with more than its usual "plop" when it hit my doorstep this morning.  When this happens, AA knows that the issue is freighted with more than the usual amount of weighty insight and ponderous thoughts.

The FT has opened its opinion page to a one week debate between the advocates of austerity and of stimulus which promises at least five more such issues.  And at least that number of resounding thuds.  Luckily, the doorstep at Chez AA is sturdy.

Wrapped comfortably in their blankets of blind dogmatism (perhaps a bit too tightly wrapped), several learned thinkers have already weighed forth.  There have been the usual appeals to authority, though as of yet we have not heard what Master Aristotle's position is.  Prophets of various economic sects have been quoted along with the lesser works of apostles and disciples.   Holy books have been referred to.    Heretical scriptures and false prophets denounced. 

Today the abject failure of one particular sect to learn from history was noted, perhaps more in sadness than bitterness.  They are, it appears, sadly doomed (and perhaps damned) to repeat it.  One bearded chap was called out for holding a particularly laughable view - at least in the opinion of one economic "scientist".

As of yet there have been no remarks on opponents' paternity nor the virtue of their womenfolk, though like the 2006 World Cup there is still plenty of time.

While many important matters have no doubt been settled in this way, such as the number of wills and natures of Christ,  I expect this debate will prove a vain attempt to enlighten those who are manifestly in error.   

And so AA is preparing for the eventual regrettable recourse to force to secure recantations (or perhaps more precisely "refudiations") from the evil,  the ignorant and those of mixed disposition between the two.  And, if necessary to eliminate the various Great and Small Satans from the "science" of economics before they mislead others from the path of righteousness.

At present, AA is busily sharpening a rather sturdy stave for the intellectual battles to come.  What better way to make a point forcefully?

But which side to choose?  As a young undergraduate, I had fancied one day enlisting in Minsky's legions to do battle with the unbelievers.  Recently though I have considered joining the forces of Arthur Laffer.  A man whose profound insight was with Occam-like economy inscribed on the back of a cocktail napkin.  When I consider the venue, a potent motive for enlisting in his research corps.

Global Investment House - Announces It Has Paid Restructured Debt Installment


When times are good, one announces a new loan with great fanfare and self congratulation.  Once one has defaulted the situation changes.  Repayment of one's contractual obligations - previously taken as a given - is no longer certain so one announces the "successful" making of a repayment.  This is also a strategy to burnish one's now tarnished name with a bit of "good news".

Today GIH issued press releases on the DFM, BSE and KSE announcing that it had successfully repaid US$50 million in principal on its restructuring for value 21 July.

As noted, with this repayment and the first US$28.9 million repayment in April, GIH has repaid US$78.9 million on its restructuring, 46% of the amount due by 10 December 2010, Plus an additional US$20 million in interest.

It has also repaid some KD20 million in bonds (US$68,7 million).

In very rough numbers, GIH has about US$2 billion in debt.  The above amounts (excluding interest) are roughly 7% of the total.  That this amount is low is not surprising - the repayments schedule has been designed to give some breathing room for asset price appreciation.   It begins with rather modest payments in the first year which then increase in the latter years.  The problem GIH faces is that the tenor on its restructuring is an unrealistic three years.  So the increase is rather sharp.  And represents a very real minefield for the Company particularly if the economic recovery is modest or slow.

Aayan Leasing and Investment - Press Release on 2009 Financials


Below is Aayan's announcement of its 2009 financial results from the KSE.  As usual Arabic only.  If you're wondering why Total Liabilities and Equity don't foot to Total Assets of KD510 million, the difference is Minority Interests of KD 42 million.

Looking at Aayan's 3Q09 financials, it's pretty clear that the bulk of the loss was due to the watchful eye of the Central Bank of Kuwait which no doubt suggested that ALI recognize  in 4Q09 an additional KD50 million of its full year losses of KD77 million.  That latter figure includes the share of Minority Interests in the loss - roughly KD3.8 million.  When the full report becomes available, it will be possible to refine that calculation. 

For those who don't read Arabic:
  1. The first line is net profit/loss.  KD(73.3) million
  2. The second net profit/loss per share.  KD(119.18)
  3. The third current assets.  KD162.2 million.
  4. Then total assets.  KD510.1 million.
  5. Then current liabilities.  KD400.4 million.
  6. Then total liabilities.  KD436 million.
  7. Then shareholders' equity (excluding minority interests).  KD31.2 million.
  8. 2009's figures are on the right with comparable 31 December 2006 figures on the left. 
  9. And to facilitate your reading, I've included after each of the categories above the rounded 2009 figures.
That information is followed by standard details on related party transactions:  KD0.321 million of income and KD4 million of expenses.  The fact that the Board has decided to recommend against a cash dividend for 2009.  The longish bit is an extract from the auditors' comments on the Company's financial condition (summarized in my post yesterday so I won't repeat here) along with the comment that ALI's accumulated losses exceed three-quarters of its legal capital and so in accordance with Article 171 of the Commercial Companies Law it is required to call an extraordinary shareholders' meeting to come up with a solution.  The options are  (a) raise new equity, (b) reduce capital or (c) dissolve the Company.   A solution can involve both options (a) and (b).

[8:17:36]  مجلس ادارة (اعيان) يوصي بعدم توزيع ارباح عن عام 2009‏
يعلن سوق الكويت للأوراق المالية بان شركة اعيان للاجارة والاستثمار (اعيان)‏
افادت ان مجلس الادارة قد اجتمع يوم الاثنين الموافق 12-07-2010‏
واعتمد البيانات المالية السنوية للشركة للسنة المالية المنتهية في 31-12-09‏
وفقا لما يلي:‏
ِ1) نتائج أعمال الشركة:‏
البند             السنة المنتهية في 31-12-09   السنة المنتهية في 31-12-08‏
الربح(الخسارة) (د.ك)           (73.358.493)            413.729‏
ربحية (خسارة)السهم(فلس كويتي)   (119.18)                 0.68‏
اجمالي الموجودات المتداولة     162.182.723       259.676.790‏
اجمالي الموجودات              510.109.513        600.822.985‏
اجمالي المطلوبات المتداولة     400.371.774       333.762.993‏
اجمالي المطلوبات               436.985.779      450.438.515‏
اجمالي حقوق المساهمين        31.200.238        101.523.604‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 321.117 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 3.997.962 د.ك
علما بان موافقة بنك الكويت للاوراق المالية على هذه البيانات كانت بتاريخ
ِ07-07-2010 .‏
ِ2) التوزيعات المقترحة:‏
أوصى مجلس ادارة الشركة بعدم توزيع اى ارباح عن السنه الماليه المنتهيه
في 31-12-2009 . علما بأن هذه التوصيه تخضع لموافقه الجمعيه العموميه ‏
والجهات المختصه .‏
علما بان تقرير مراقبي الحسابات يحتوي على التالي :-‏
ِ1- عدم التأكد المتعلق بالاستمرار على اساس مبدا الاستمرارية :‏
دون التحفظ في رأينا ، نلفت الانتباه الى الايضاح رقم 2 حول البيانات ‏
المالية المجمعة والذي يبين ان المجموعة تكبدت خسائر بمبلغ 77.175.466 د.ك
للسنة المنتهية في 31 ديسمبر 2009 ، وكان لدى المجموعة خسائر متراكمة ‏
بمبلغ 67.505.320 د.ك ، وكما في ذلك التاريخ تجاوزت المطلوبات المتداولة
للمجموعة موجوداتها المتداولة بمبلغ 225.892.585 د.ك . اضافة الى ذلك ، ‏
عجزت الشركة الام عن سداد التزامات دين مبلغ 78.065.913 د.ك وعلقت ‏
دفعات سداد المبالغ الاساسية لالتزامات الدين الى البنوك والمؤسسات المالية،
وهي تعمل بفاعلية مع الممولين لاعادة جدولة التزامات ديونها . ان هذه الظروف
مع الامور الاخرى المبينة في ايضاح 2 ، تشير الى وجود عدم تأكد مادي مما ‏
يمكن ان يثير شك كبير حول قدرة المجموعة على الاستمرار في اعمالها على ‏
اساس مبدأ الاستمرارية .‏
ِ2- الامور القانونية والرقابية الاخرى :‏
ووفقا للمادة رقم 171 من قانون الشركات التجارية ، حيث ان الشركة الام قد ‏
خسرت اكثر من ثلاثة ارباع رأس المال ، يجب على مجلس ادارة الشركة ‏
الام الدعوة الى عقد جمعية عمومية غير عادية لمناقشة خطط الشركة الام ‏
في المستقبل .‏

Global Investment House - National Bank of Umm AlQaiwain to Appeal


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

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

Global Investment House - Poor Performance of Funds Highlighted Why?


AlQabas has an interesting article on YTD performance through 25 June performance of funds domiciled in Bahrain.  Global has I believe some 12 or so funds listed on the BSE.

For the record, the results were:
  1. European Stock Index Fund down 9.8%
  2. US Stock Index Fund down 7.52%
  3. Energy and Petrochemical Industries down 6.32%
Other firms similar negative performance is mentioned.  
  1. SICO's Gulf Stocks Fund is down 6.53%
  2. TAIB's Bank's MSCI-based GCC Stocks Fund (Islamic) down 5.77%.
Interesting article because of the focus on Global - and the performance of just three of its funds.  In an environment where other fund managers are incurring losses as well.  

Aayan Leasing and Investment - 2009 Losses of KD73.2 Million


Aayan Leasing and Investment has reported its 2009 earnings and they are dismal:
  1. A net loss for the year of KD77,175,466.
  2. Accumulated losses of KD67,505,320
  3. Current Liabilities exceed Current Assets by KD225,892,585
  4. Default on KD78,065,913
  5. Breach of Article 171 of the Commercial Companies Law = Loss of more than 75% of legal capital.
Not a pretty picture, but I suspect still prettier than what happens to creditors and shareholders.

AlGosaibi v Maan AlSanea - Abu Dhabi Commercial Bank Sues Saad for US$32 Million

Asa Fitch over at The National reports that ADCB has filed suit in London against Saad Trading and Contracting over a default on a currency swap of US$32 million.

There's really not much to add on top of what's in the article.

Monday, 19 July 2010

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


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

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

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

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

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

AlGosaibi v Maan AlSanea - Fortis Bank versus ADIB - The Letter of Credit

See important additional information here on Bunge's role in transaction and ADIB's knowledge of the nature of the transaction.

As promised a look at the Letter of Credit ("L/C") issued by Awal Bank which Abu Dhabi Islamic Bank ("ADIB") advised and confirmed to Fortis Bank Netherlands.

The text of the L/C issued by ADIB through Fortis is Exhibit #2 to Document #24, the Declaration of Nuhaid Saliba dated 31 August 2009. Note Exhibit #1 is the text that Awal proposed to ADIB.  That of course is not the instrument on which Fortis relied and through which ADIB conveyed its irrevocable undertaking.  Exhibit #2 is the key document as ADIB is its author.

And just to be complete, as you'll recall, ADIB is asserting fraud as the basis for voiding its obligation but not fraudulent documents or fraudulent shipment or non shipment.  Most jurisdictions have held that if the documents comply with the terms of the L/C then the bank is obligated to pay.  The "fraud" defense is applicable only in very limited circumstances.  

These and other documents can be found at the NY Supreme Court Website http://iapps.courts.state.ny.us/webcivil/FCASMain  under Case # 601948/2009, 

Let's step through the details of the L/C.
  1. Issue Date: 16 June 2008.
  2. Expiry Date:  14 July 2008
  3. Applicable Rules:  UCPURR = Uniform Customs and Practice for Documentary Credits (#600 of 2007) and Uniform Rules for Bank-to-Bank Reimbursement under Documentary Credits (#725 of 2007).  The former sets forth the rules for the handling of L/Cs.  The latter the rules for banks to reimburse or pay one another   These are pretty much the standard governing principles for commercial letters of credit (aka "documentary credits").
  4. Issuing Bank:  Awal Bank BSC Bahrain
  5. Applicant - AlGosaibi Trading Services Hamilton Bermuda
  6. Beneficiary - Bunge SA Switzerland
  7. Currency/Amount:  US$39.999,996.52
  8. Payment:  360 Days after acceptance of documents.
  9. Port Loading:  Any port in Brazil.
  10. Final Destination: Any port in Taiwan and/or Spain.
  11. Latest Date of Shipment:  30 June 2008.
  12. Goods Description:  (a) 52,686.31 MTS of Brazilian soybeans, packing in bulk at US$564.90 Per MT CFR Taiwan (b) 30,000.00 MTS of Brazilian maize SLM packing in bulk at US$341.25 per MT CFR Spain.  (Note: CFR = Cost and Freight)
  13. Documents Required:  (a) One copy of commercial invoice.  (b) One photocopy of the bill of lading. (c) One copy of beneficiary's certificate stating that the copies of shipping documents provided are true and correct copies of the originals.  That the original bills of lading relating to the shipment should be sent to the Notify Party stated in the B/Ls or to the agent at destination and that the goods described should be discharged at the port state in the B/Ls.
Additional Conditions:
  1. Third party documents except drafts and invoices acceptable.
  2. Documents showing one or more third party (ies) as shipper and/or exporter are acceptable.
  3. Fax or photocopy of documents are acceptable.  Documents issued before LC issuance (including B/L) are acceptable.
  4. Documents acceptable inspite of any and all discrepancies with exception that invoice value drawn may not exceed the maximum letter of credit value and the letter of credit may not be expired.
  5. Typing mistakes do not constitute a discrepancies.
  6. Late presentation of documents is accepted on the condition that documents are presented within LC validity.
  7. Bill of lading presenting a greater quantity/amount than shown on invoice is acceptable.
  8. Documents shall be acceptable as presented.
  9. Abu Dhabi Islamic Bank Abu Dhabi UAE is authorise to confirm this L/C and advise it to Fortis Bank Rotterdam.
  10. Fortis Bank Rotterdam is authorised to confirm this L/C at the request and for the account of the beneficiary.  The confirmation of the first advising bank, that is Abu Dhabi Islamic Bank, Abu Dhabi UAE covers the obligation of the issuing bank, that is Awal Bank BSC, Manama and the confirmation of the Fortis Bank (Nederland) NV Rotterdam only covers the obligations of the first advising bank, Abu Dhabi Islamic Bank, Abu Dhabi UAE.
  11. Charges:  ADIB's confirmation charge (a cool US$500,000) for Awal.  Fortis' charge (not specified here) for Bunge.
Now to the tafsir.

First, as is pretty clear from the text of the L/C this is not a typical documentary letter of credit.  It is closer to a standby letter of credit - which you can think of as a guarantee of payment.
  1. At no time do any of the banks involved have an original bill of lading in their possession.  An original bill of lading is generally required by a shipping company to release goods it has shipped.    Having the B/L provides a measure of collateral security, if the applicant does not pay.  Now in a transaction in which the bank is giving its obligation to pay the beneficiary in the future (in this case 360 days after it accepts the documents) having the B/L only provides collateral comfort for a short period while it is at risk for the applicant or issuing bank's failure to pay.
  2. In Additional Conditions #4, the issuing bank has explicitly waived all and any discrepancies in the documents except for the amount drawn under the credit and presentation within the L/C validity.  That means any other condition.  Hardly the stance that a party concerned with the underlying commercial transaction would take.  The power to refuse payment for discrepancies (in the documents) provides a way to enforce the terms of the contract on the seller. Giving this right up doesn't make a lot of commercial sense.
  3. In Additional Conditions #7, B/Ls showing a larger quantity are acceptable.  Under UCP 600, for bulk commodities, a variation of +/- 5% is allowed (Article 30 (b)) unless prohibited.  5% of the amount shipped would be roughly US$2 million.  Would all of you out there who think that Bunge is going to ship another US$2 million worth of crops but not get paid for them, please raise your hands?  Didn't think I'd see any.  Of course there is no harm in this clause as it benefits the applicant.   But what is the commercial reason this would be included?  
  4. A couple other conditions are worthy of mention.  As noted above, Additional Condition #1  allows third parties on the shipping documents.  Meaning the shipper need not be Bunge and the party receiving the goods need not be AlGosaibi.   Additional Condition #3 allows documents to be dated prior to the L/C issuance. Faxes of documents are acceptable.  Coupled with the earlier waiver of  all discrepancies except for payment amount and presentation within L/C validity, all this looks like setting up the conditions for document shopping.  That is, making it very very easy to find conforming documents from another trade transaction not involving the parties named in the L/C.  All one needs is access to documents and a photocopier.
Second, is there a commercial reason for such a structure?  Possibly but how likely?
  1. The above conditions would be useful if both parties were engaged in rapid turnover trading.  Bunge strikes a deal with ATS at price X but finds another seller willing to sell at less than X.  Being able to substitute sellers/shippers allows Bunge to make an additional profit by buying the goods from this other party and delivering to ATS.  This condition allows ATS to sell the goods  to a third party, Buyer B, before it has taken possession by switching the delivery party.
  2. But waiving the right to refuse to pay for any discrepancies could be problematical if ATS has on sold the goods as described to new Buyer B.   One would think Buyer B would have stipulated certain quantity and type of goods and reserve the right to refuse payments if these and other conditions that it required were not met.  Now perhaps Buyer B has waived these.  But what are the chances?  The goods are the commercial heart of the transaction.
  3. On that score it might be more typical to see an inspection certificate (of the goods) particularly since a third party shipper might not be as reliable as Bunge. 
  4. Now it's not unheard of that cargoes already at sea are sold (remember that documents issued prior to the L/C issuance date are acceptable).  But at that point, one should know the exact quantity of the goods and the identity of the parties.  And this could be incorporated into the L/C.  Now, I suppose the transaction could be taking place so quickly that speed was of the essence - a split second response required.  However, the documents submitted in the case indicate that ADIB cogitated for a while (though perhaps not long enough) before agreeing to the transaction.  And then it appears the transaction amount was increased after it had given an approval for a lower amount.  And so it had an opportunity like Proud Edward "tae think again".  Though to be fair, ADIB seems like Proud Edward to have thought again after "24 June" and not before.
  5. Generally, transactions of this sort would be secured (from the intermediary buyer's perspective -- here ATS) by use of a transferable letter of credit (opened by the final buyer Buyer B in favor of ATS).  Or through a "back to back" L/C which is a particular favorite among many MENA banks though it is technically less sound from a protection perspective, including for the issuing/confirming banks of the second or "back to back" L/C.
Third, so what could be another reason for this structure?   To provide Awal and/or ATS financing.  But this requires a few bits more in the structure.
  1. This L/C provides for a payment to Bunge 360 days from documentary acceptance.  At this point there has been no movement of funds.  Now it's not uncommon in such situations for the seller (Bunge in this case) to ask the confirming bank (Fortis) to make an immediate payment.  The bank would "buy" (discount) the acceptance for an amount less than its face value.  You can think of the difference as interest.  This could get the money to Bunge, though strictly speaking that's not necessary to get funding to ATS/Awal.  
  2. If you reflect on the typical "Islamic" "trade" financing described above, you'll see that the ADIB L/C is the equivalent of the purchase of the goods on deferred payment basis.
  3. Getting the funds to Awal/ATS requires the other half of the "Islamic" "trade" financing structure: the offsetting transaction the sale of the goods for spot settlement.  Such as sale could be either back to Bunge.  Or to a third party.  This may be a reason why ADIB's lawyers are pushing for further disclosure by Fortis to see if they are involved in this critical leg.
  4. Just to close the Bunge circle.  The usual "Islamic" "trade" finance transaction keeps the deal "all in the family" so it's not inconceivable that they might have been involved.  If Bunge were involved, one would presume that it discounted the Fortis payment to use as the purchase price back from ATS/Awal - of course with a suitable commission for its trouble.   Note:  This is hypothetical.  I have no knowledge of Bunge being involved in the second leg. This discussion provides an illustration of how the transaction may have been structured.  Not that it was so structured.
  5. Presumably, ATS did not hang on to the commodities with the intent of selling a year later.  Equally, it's unlikely that ATS has a "factory" in which to process the goods.  So the likely disposition of the goods is a sale.  If the goods were sold on a spot basis, then ATS/Awal have a one year loan due when the Fortis acceptance "matures" - irrespective whether Fortis has or has not discounted that obligation.
  6. It's well known out there that commodity companies and brokers (including the one named in the TIBC  BNPP / ADIB legal dispute) specialize in providing "trade documents" for "Islamic" "trade" transactions that are really disguised financings.  Because Shari'ah Boards have become a bit more alert, many of these parties have established special purpose subsidiaries with completely different names so the buyers and sellers appear to be unrelated parties.   And have made presentations to  banks who wish to engage in "Islamic" "trade" transactions (or loans if you'd prefer) on how they  can help.
  7. How does this work?  The financing bank arranges to acquire goods from Company A (Let's call it Dewey Night Company).  It then sells them to the Buyer (borrower if you will) on a deferred payment basis (the tenor of the loan) at original cost plus a mark-up.  At the same time it offers to sell the goods spot for the Buyer (borrower) to another company (Let's call that one "Eagle" Trading Company).  Usually the Murabaha contract (for this is a Murabaha trade transaction not a loan!) specifies that the spot sale cannot be for less than the original cost. The helpful commodity firm or broker provides all the required documents for the two sales   The mark-up miraculously just happens to equate to the interest on the loan.  Proving that in some forms of "Islam" miracles are indeed common. The commodity company makes a fee for its role - just as the innkeeper makes a profit for renting you a room for a night.  Documents are available for the Shari'ah Board to review if it wants.  These on their face document a trade transaction.  It seems everyone is happy.  و الله اعلم
  8. And if you'd like to place a deposit with a bank, you can do the reverse transaction.
Fourth, how does this transaction differ from a typical "Islamic" "trade" transaction?
  1. The ultimate financing bank in the transaction is ADIB.  While it is true that it does not advance funds, it is ultimately on the hook if Awal does not pay.  Under its confirmation it is obligated to pay Fortis if Fortis claims within the validity of the L/C and complies with the miniscule conditions provided.
  2. For this transaction it only requires half of the set of documents.  A bit less financial engineering.
  3. More importantly what is in effect a guarantee or a standby L/C is treated as a commercial L/C with a lower capital charge under Basel II.  Thus, ADIB's risk adjusted ROE/ROA is higher.  And more importantly, its CAR is higher.
Fifth, how credible is ADIB's sudden charge that something was wrong with the transaction?  That there was potential for fraud.
  1. First, to accept ADIB's contention, one has to begin by assuming that ADIB has a very limited understanding of letters of credit and UCP600.  Or that the L/C Department personnel assigned to this transaction were incompetent.
  2. Second, one also has to assume that ADIB is rather new to structured transactions.  However, since AA has seen ADIB's "Islamic" "trade" documentation of various flavors, at least for AA accepting that is more than a "bit of a stretch".
  3. Third, the documents submitted by lawyers in this case indicate what would appear to be scrutiny of the transaction by ADIB's credit department.  If this transaction "slipped by" and wasn't recognized as a "structured" transaction - a payment guarantee and not a trade transaction - then one has to draw some rather unfortunate conclusions about credit analysis and risk management at that bank.
  4. Rather what seems to have happened is that ADIB decided for about 500,000 good reasons (the US$ equivalent of the confirmation commission it received from Awal) to go forward with a structured transaction.   One that had some CAR advantages.  
  5. Now that Awal has hit the wall, in what sadly seems to be a tradition of some "Islamic" banks (paging TID in re BLOM)  it's looking for a legal way out. (Paging Abu Yusuf).  At least in this case, it doesn't appear they're resorting to spurious arguments regarding the Shari'ah.
  6. Finally most of what is labeled "Islamic" "trade" finance  is structured with manufactured transactions   All the parties (save perhaps for the Shari'ah Boards) know that these transactions are structured.   That they are really money on money loans, dressed up in thaubs and ghutras to disguise the reality.  For ADIB to suddenly claim ignorance of this is well beyond the plausible. 
A bit later I'll post some more comments on this case.  In the interim, you can look at the NY Supreme Court website.  Documents #78 and #79 contain letters by the two sides recapping the main points of their arguments.

UGB to Purchase Burgan Bank Shares at KD0.390?


Citing informed sources, Jamal Ramadan over at AlWatan reports  that UGB will purchase the additional 13% of Burgan shares using an auction mechanism.  The contemplated starting bid is reported to be KD0.390 per share. 

Three separate tranches are envisioned.  The first two for 5% each and the third for 3%.

I'd like to note the following which I hope will put the purchase into perspective:
  1. BB last traded at KD0.390 or higher on 24 March 2010.
  2. During April this year BB offered new shares amounting to a 35.47% increase in capital at KD0.280 fils per share.
  3. The KD0.390 starting auction price is a 16% premium over 18 July's close.
  4. An auction process where the buyer's starting bid is KD0.390 is likely to result in a higher price.  
If successful, the auction will lift BB's share price having a favorable impact on its collateral value and allowing selling shareholders to cash out at a nice profit.  Particularly those who bought shares at KD0.280 in April.  

Over the past three or so months the KSE  Index has, if I'm not mistaken shed some  1,000 points.  This sale marks a truly unique value creation event.

Kuwaiti Listed Companies – Who’s on the Boards?


Augustus Pugin Senior and Thomas Rowlandson - Public Domain

In a recent article, Eissa Abdul Salaam at AlQabas published a study on the board seats held by various Kuwaiti families. Here's the more important link to the detailed results.  

The study considers families with 5 or more board seats on listed companies.  It also notes the legal and regulatory requirements to be eligible to be a director as well as restrictions.

At first blush, this report might be considered a way of getting an insight into economic influence in the country, though one has to recall that owners often have a corps of dedicated retainers known in local parlance as رجال النعم who serve in a variety of functions, including as board members. As well, one would expect that certain prominent families, especially those with a particularly noble and regal presence, might be asked to adorn the board of this or that company as happens in the "developed" West.

In any case there is some utility to the report. It gives a snapshot of the prominent families. And perhaps to a limited extent a relative ranking of wealth.

Here's a quick summary.  Note:  I'm using the numbers in the details not the article.  Below is only a partial list.  Those families with  14 seats and above.  As noted above, the AlQabas list extends to  five seats and above - giving a grand total of  583 seats.

Family# Seats
AlSabah42
Cadet Branches37
AlGhanem30
AlKhorafi23
AlOsaimi19
AlBahar19
Behbehani19
AlMutairi18
AlShaya16
AlWazzan15
AlKhalid15
AlHomaidi15
AlMarzouk14

Cadet Branches are identified as Sultan, Bin Eissa, AlBadr, AlMutawa by AlQabas.

AlQabas also provides a breakdown of the number of directors, though again it seems there is a difference in totals. The article refers to 192 listed companies. Excluding Non Kuwaitis and parallel market stocks, I believe 198 companies are listed on the KSE. Unless I've done the maths wrong, the total companies accounted for are 186.
 
# Directors# CompaniesTotal Directors
4    4    16
5  74  370
6  14    84
7  65  455
8  10    80
9  16  144
10    3    30
TOTAL1861179