Kuwait FSSA: Snapshot of the Investment Company Sector

This post uses the data in the recent IMF update to its Financial Sector Stability Assessment to look at the Investment Company Sector in Kuwait. Building on that information, we'll do a bit of "back of the envelope" analysis on what distress in that sector means for the economies of other GCC countries.

You can find the earlier post on the Kuwaiti Banking Sector here.

Page 13 of the update gives a breakdown of the assets of Investment Companies in percentage terms.

Asset Category	Percent Total Assets
Cash	7%
Stocks	35%
Bonds	1%
Real Estate	20%
Private Equity	6%
Other	31%

That's somewhat useful. However, the large "Other" category at 31%  hides a lot of details.  

For a more detailed picture, let's turn to the Central Bank of Kuwait's Quarterly Bulletin for March 2010. Figures below are in KD millions and are from Tables 19-1 and 19-4 as of 4Q09.

Asset Category	Conventional	Shari'ah	Total
Cash & Banks	403.3	401.5	804.8
Domestic Loans	808.9	622.6	1,431.5
Domestic Financial Assets	1,925.2	1,753.6	3,678.8
Domestic Non Financial Assets	143.3	376.8	520.1
Foreign Assets	3,821.0	2,675.6	6,496.6
Other	823.0	1,374.4	2,197.4
Total	7,924.7	7,204.5	15,129.2

 

Some observations. 

1. First, you'll notice that the percentages derived from this table don't agree to that from the FSSA. There's no explanation for this.  Presumably, some reclassification of items.  Perhaps, Global's blocked deposit at NBUQ reallocated back from Other Assets to Cash? Plus of course some other assets - domestic and foreign loans to Other etc.
2. Second, foreign assets are 43% of total assets. At a rough exchange rate of KD1=US$3.50, that equates to US$22.7 billion dollars.   Clearly, the activity of Kuwaiti Investment Companies is not just important in Kuwait but elsewhere.
   

Where are those foreign assets?  Are they concentrated? 

The FSSA update has some answers.

1. Stocks, Bonds and Real Estate: 43% Kuwait, 43% Other GCC, Rest of World 14%. 
2. Stocks: 47% Kuwait, 36% Other GCC, Rest of World 17% (7% Emerging Markets, 10% US/Canada, Europe, UK, Asia). 
3. Bonds: 15% Kuwait, 72%  Other GCC, 13% Emerging Markets. 
4. Real Estate: 38% Kuwait, 53% Other GCC, Rest of World 7%.

As the above indicates, Kuwaiti Investment firms have significant exposure to Other GCC markets.  This suggests is that distress in Kuwaiti investment firms will have a direct impact on those markets.  If we use the 43% in stocks, bonds, and real estate (as per the FSSA) as an overall proxy for GCC investment, then very roughly some US$10 billion of demand for assets will be affected  -- primarily in equities and real estate.  Note: Since as mentioned earlier the data in the CBK's Quarterly Bulletin doesn't appear to exactly tally with the FSSA's, there is a bit of approximation in these numbers.  But I'd argue close enough for a directional analysis.   

The impact  - both in Kuwait and other GCC states - will come from distressed companies:

1. Selling assets putting pressure on prices. 
2. Scaling back or abandoning existing projects. 
3. Reducing or eliminating new projects and investments thus constraining future investment flows in these asset classes.

Now to the IMF's conclusions about the Kuwaiti Investment Sector:

1. In its Risk Assessment Matrix (Page 7), the IMF notes the Sector suffers from (a) high leverage, (b) significant dependence on foreign funding, (c) maturity mismatches – long term often illiquid assets financed with short term funds, (d) large exposure to equity and real estate, (e) weak disclosure, and (f) fragmentation of industry. Negligible exposure to European assets.  No real big surprises here.
2. In terms of a severe realization of threats in the next three years, the IMF assigns a high probability (PD) and a medium impact (LGD).  But note this is in terms of impact on the Banking Sector.  The impact on the Investment Sector is much more dire and outlined in the stress test results.  Again this is no surprise.
   

On that latter topic, as it did with the Banks, the IMF stress-tested the Investment Companies.  However, it only tested an 11 member cohort out of the 100 Investment Firms.    It used three scenarios (which differ from those used in the Bank stress tests) outlined in Appendix Table 6 (page 40): a mild case, a moderate case, and a severe case. 

Let's take a look at the results using Table 7 (page 41) and not the summary on Page 22:

1. In the mild case, 3 firms had capital adequacy less than 10%. 
2. In the moderate case, 3 firms had negative capital and 3 more had capital adequacy under 10%. 
3. In the severe case, 7 firms had negative capital and 3 additional firms had capital adequacy below 10%. Recapitalization of these firms (note the 11) would require an outlay equivalent to 2% of GDP.  
4. You'll recall that for the Banks the recap required from the "Severe" scenario was 3.8% of GDP.  However, that was for the entire Bank "universe".  Here the 2% is for 11 out of 100 Investment Companies!
5. Given the distress in the Investment Sector, one expects that the results using the entire universe would be much worse.  And the total recap much much higher.

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

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

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

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

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

These are not the only potential causes.

There could be some that are rather benign:

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

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

You Said What? Subervsion Alert: The Bicycle Conspiracy

Communist Bicyclists on the Way to Your Town!

In a saying wrongly attributed to Sinclair Lewis we're told that "When Fascism comes to America it will be wrapped in the flag and carrying a cross".

But have you ever wondered how Collectivism and eventually Communism will come to America?  And perhaps to your own country, if they haven't already?

Well, I certainly have!

One brave man (pictured below) Dan Maes has broken the silence and dared to tell the shocking truth.  It will come on bicycles bearing re-cycling bins! 

Dan Maes, Patriot, Profound Thinker and Proud SUV Driver

If you're faint of heart or a sun-shine patriot read no further.   But if you love your country, read on, brave citizen.   From the Denver Post.

"Republican gubernatorial candidate Dan Maes is warning voters that Denver Mayor John Hickenlooper's policies, particularly his efforts to boost bike riding, are "converting Denver into a United Nations community."

"This is all very well-disguised, but it will be exposed," Maes told about 50 supporters who showed up at a campaign rally last week in Centennial.

Maes said in a later interview that he once thought the mayor's efforts to promote cycling and other environmental initiatives were harmless and well-meaning. Now he realizes "that's exactly the attitude they want you to have."

"This is bigger than it looks like on the surface, and it could threaten our personal freedoms," Maes said.

He added, "These aren't just warm, fuzzy ideas from the mayor. These are very specific strategies that are dictated to us by this United Nations program that mayors have signed on to."

Aldar Properties - S&P Lowers Rating to "Junk"

S&P has lowered Aldar's ratings to BB- from A-.   That's a more than one step change! Outlook is negative.  So S&P's message is a significant negative.

"We understand that despite relatively sound overall supply demand fundamentals in the Abu Dhabi property  market," added Mr. Trask, "Aldar has been significantly affected by spill-over effects from the heavily oversupplied Dubai real estate market, characterized by significant declines in rental and market values."

This is having a negative effect on both the demand for, and the price achieved by, Aldar for the sale of real estate in Abu Dhabi.  Based on the pipeline of new supply both in Abu Dhabi and Dubai, we do not anticipate a reversal of this situation anytime soon. 

Two items worthy of comment:

1. The last sentence "We do not anticipate a reversal of this situation anytime soon."   S&P's ratings action also reflected a revision of their assumption re likely government support.
2. Ascription of Aldar's problems to the "spillover" from Dubai.

 On the negative outlook.

We are also assigning a negative outlook, which reflects our view regarding Aldar's future  profitability and cash flow generation in light of the challenging market conditions.

Kuwait FSSA: Snapshot of Banking Sector

You probably have seen articles mentioning some of the criticisms and recommendations contained in the IMF's recent update of its Financial Sector Stability Assessment for Kuwait.

While I hope to review those in following posts in the not too distant future, I'd like to start by drawing on some of the material to give a macro picture of the Kuwaiti commercial banking sector – both conventional and Shari'ah compliant. This will complement the earlier post on other economic sectors in the country based on Al Joman's analysis.

Let's begin with a look at some macro numbers on the sector. These are taken from Table 5 Page 19. And these are only a few of the statistics there.

Banks' asset composition (Central Bank of Kuwait and IMF estimates). Amounts below are percentages.

Category	06	07	08	09
Trade	11.6	10.1	9.8	8.8
Industry	4.3	5.4	6.2	5.8
Real Estate & Construction	28.7	30.6	31.3	32.2
Agriculture & Fishing	0.2	0.1	0.1	0.1
Investment Companies	8.8	11.7	10.9	11.1
Oil &Gas	0.6	0.4	0.6	1.0
Public Services	0.7	0.4	0.1	0.1
Consumer – Credit Cards	1.5	1.2	0.8	0.6
Consumer –Auto	4.0	2.6	2.2	2.0
Consumer – Consumer Loans	19.9	17.0	15.2	16.4
Consumer – Mortgages	3.5	2.7	2.5	2.2
Consumer – Equity Purchase Loans	10.3	10.1	11.1	10.5
Other	5.8	7.6	9.2	9.1

 
Some observations. 

1. There is significant exposure to Real Estate/Construction, Investment Companies, and Consumer Loans for Share Purchases. Almost 54%.   One might describe these as not primarily productive sectors but derivative sectors feeding off wealth created by other sectors. 
2. By contrast there is relatively little lending to what are usually considered primary productive sectors:  manufacturing, farming and trading sectors.  That reflects lending opportunities by and large rather than lender red lining.
3. Consumer lending is a significant LOB at 39.2%, 33.6%, 31.8% and 31.8%. 
4. Lending for share purchases is 10%+. A particularly tricky business to engage in given the volatility in the KSE and lack of proper supervision/regulation. 
5. Consumer loans are another major segment. In the words of the FSSA "low risks loans since they are guaranteed by salary assignments". This is a mantra you will just about every commercial banker in the Gulf mention. What they don't mention is that at many lenders there are no maximum loan to salary ratios – designed to make sure borrowers have a serviceable debt burden. A reason why the Central Bank of Bahrain established these in a regulation. Or that if a person loses his job (something happening a bit more frequently these days), there is no salary to assign. And what are we to make of agitation in the Majlis Al Umma for the Government to buy up consumer debt, if everything is fine?
   

Some additional metrics, again percentages.

Category	06	07	08	09
NPLs to Total Loans	3.9	3.2	5.3	9.7
NPLs Net of Provisions to Capital	14.3	11.4	26.0	45.7
Large Exposure to Tier I Capital	144.0	129.8	129.5	144.9
ROAA	3.7	3.6	0.9	0.8
ROAE	28.8	29.4	7.7	6.8
Equity Exposure to Shareholders' Equity	53.2	56.9	67.6	68.5

 

More observations. 

1. I think the trends are what are more important. Clearly, the direction of these ratios is not surprising given knowledge of the difficulties faced by the banking sector over the past few years. 
2. The second ratio's dramatic increase is due to an almost doubling of NPLs between 2008 and 2009. There was an equally dramatic drop in provision coverage from 124% in 2007 to 89.4% in 2008 and 68.3% in 2009. 
3. Also note that the last ratio reflects (a) lending for equity purchases and (b) equity taken as collateral for other extensions of credit.
   

Let's look at the FSSA's comments.

1. In its Risk Assessment Matrix, the IMF notes concentrations in exposure to real estate, investment companies and stock prices, commenting that a decline in real estate or stock prices could lead to a major increase in Non Performing Loans ("NPLs"). 
2. It also notes Kuwaiti banks have minimal sovereign risk exposure. 
3. Reasonably good liquidity with liquid assets at 26% of total assets. 
4. Banks' assets predominantly domestic – some 80%. And I'd guess international exposure may be primarily with NBK. 
5. Loan to deposit ratio under 100% at 91% in 2009. 
6. In terms of assessing a severe realisation of a threat sometimes in the next three years, it assigns a medium risk of occurrence (PD) and medium loss (LGD). 
7. Banks could broadly withstand IMF's stress tests (outlined in Appendix IV Tables 3, 4 and 5.

Referring to the stress tests there were three: a base case, an intermediate case and a severe case.  And the test was for yeat 2010.

1. Baseline Case:  All 10 banks have Capital Adequacy over 12%.  No problems with liquidity.
2. Scenario 1(Intermediate):   1 bank has capital less than 8%, 4 between 8% and 12% and 5 over 12%.  Of the Top 5 banks, 3 are in 8 to 12% category and 2 above 12%.  No liquidity problems.  Recapitalization of banks below 12% threshold requires 1% of GDP.
3. Scenario 2 (Severe):  1 medium size bank loses all its capital, 4 banks are below 8% but above 0%, 2 banks in the 8% to 12% range, and 3 banks above 12%.  Of the Top 5 Banks, 3 are in the 0% to 8% range, 1 in the 8% to 12% range, and 1 bank only exceeds 12%.  (Presumably Abu Shukri).  No liquidity problems.  Recap amount here is 3.8% of GDP. 
   

New BIS Data Report on Property Prices

The BIS has launched a new data series on worldwide property prices.  Available here.

The property price statistics bring together data from a variety of national sources. The BIS, with the assistance of its member central banks,  has obtained approval of these sources to disseminate the  statistics as long as the national sources are clearly indicated. The sources and any relevant disclaimers are listed separately (sources of data). Copyright in these data must be honoured. 

The property price statistics include data from 37 countries, and are available at different frequencies. The dataset is updated at the end of each month. The data differ significantly from country to country, for instance in terms of type of property, area covered, property vintage, priced unit and seasonal adjustment. This reflects the fact that there are currently no specific international standards for property price statistics

Lu'lu (Pearl) Real Estate -2009 Losses KD9.5 Million Bank Lawsuit for US$539.2 Million

Pearl issued a press release on its 2009 financials this morning (3 August) on the KSE.  Text below.  Arabic only as usual.

While the loss is eye-catching, what is of even more importance is the lawsuit by a Kuwaiti bank against the Company for US$539,200,000 plus interest for derivatives transactions.   Even in the miraculous world of Kuwait, there is no way Pearl can pay even one tenth of that amount.

Quick translation of the main points from the press release and then some comments.  (Note the figures on the left are 31 December 2008 comparables):

1. 2009 Net Loss KD9.542,591
2. Loss per share KD37.94
3. Current Assets KD20,653,865
4. Total Assets KD56,686,155
5. Current Liabilities KD42,979,231
6. Total Liabilities KD47,262,815
7. Shareholders' Equity KD9,423,340
8. Income from Related Parties KD1,290,260
9. Expenses to Related Parties KD137,332

Pearl's auditors noted they do not have details on how the lawsuit amount was calculated.  And that this case raises a material uncertainty so they cannot express an opinion on the financials.  Technically, an audit opinion disclaimer.

Now the tafsir.

1. At 3Q09, Pearl's net loss was KD6,777 million.  So there doesn't appear to have been any dramatic increase in losses in 4Q09.
2. Minority interest which was KD1.225 million at 3Q09 seems to have disappeared.  Usually Shareholders' equity is reported excluding Minority Interests.  Unless roughly half the 4Q09 loss is attributable to Minority Interests.  Anyone out there who knows, please post a comment.
3. By my rough calculation, Pearl has lost around 71% of legal (paid in capital).  One caveat:  without knowing what happened to the Minority Interests, this can be only a rough guess.
4. AlZumorrodah Investments owns a majority of the  Company.  Somewhere around 53%.  You can access other posts involving AlZumorrodah by using the epynomous "label"
5. Pearl is suspended from trading on the KSE as it has not presented its 31 March 2010 financial yet.
6. The Board has sensibly recommended against any dividends for 2009.  (Mentioned in the headline  on the KSE's announcement page but not in the Arabic text below).

]  مجلس ادارة(لؤلؤة)(موقوفة)يوصي بعدم توزيع ارباح للسنةالمنتهيةفى31-12-09 ‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة شركة لؤلؤة الكويت العقارية
ِ(لؤلؤة) قد اجتمع يوم الاربعاء الموافق 28-07-2010،واعتمد البيانات المالية
السنوية للشركة للسنة المنتهية في 31-12-2009 ،
وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند       السنة المنتهية في 31-12-09   السنة المنتهية في 31-12-08‏
الربح(خسارة)(د.ك)             (9.542.591)         (7.935.133)‏
ربحية(خسارة)السهم (فلس كويتي) (37.94)               (31.54) ‏
اجمالي الموجودات المتداولة    20.653.865         27.550.454‏
اجمالي الموجودات              56.686.155         66.884.194‏
اجمالي المطلوبات المتداولة     42.979.231         42.335.372‏
اجمالي المطلوبات               47.262.815        47.539.987‏
ِ اجمالي حقوق المساهمين       9.423.340          19.344.207‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 1.290.260 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 137.332 د.ك
علما بان تقرير مراقب الحسابات يحتوي على اساس عدم ابداء الراي التالي:‏
اساس عدم ابداء الراي:‏
قامت شركة لؤلؤة الكويت العقارية - ش.م.ك.(مقفلة) بالدخول في معاملات مشتقات
مالية مع احدى البنوك المحلية ، وقد قام البنك برفع دعوى قضائية على الشركة
بالمطالبة بمبلغ 539.200.000 دولار امريكي مع الفوائد . ان اساس احتساب هذا
المبلغ غير متاح لنا ، وحتى تاريخ اصدار البيانات المالية المجمعة المرفقة ‏
ما زالت القضية منظورة امام القضاء ولايمكن حاليا تحديد نتيجة هذه القضية ‏
على الشركة (ايضاح 35) .‏
عدم ابداء راي:‏
بسبب الاثر الجوهري للامر المذكور في فقرة اساس عدم ابداء الراي ، لم نتمكن ‏
من الحصول على ادلة تدقيق كافية وملائمة لابداء راي التدقيق ، ولذا فإننا ‏
لا نبدي راي حول هذه البيانات المالية المجمعة .‏

AlGosaibi v Maan AlSanea - Al Gosaibi to Get "Fixed"?

There are several meanings to the word "fix":

1. To repair something that is broken:  He "fixed" the pipe.
2. To arrange for a desired outcome:   He "fixed" the race.
3. To spay or neuter an animal:  Tom's cat was "fixed".

In previous posts on this topic we've dealt with the one or more of the first two meanings.

Now let's look at the third.

As seems likely now, the main action in the resolution of the dispute between AHAB and Mr. AlSanea over allegations  of misconduct as well as the resolution of the creditors' repayment is going to take place in the Kingdom.

In legal action outside of the Kingdom, AHAB (or its counsel) have:

1. Made rather serious allegations against Mr. Al Sanea (Allegations he continues to vigorously deny) which are not only personally damaging to him but as well to the reputation of the Kingdom.  And a bit socially discordant for folks who like to settle their disputes among themselves - quietly, by mutual consent out of the lime light.
2. Expressed a preference for NY and other foreign non Saudi jurisdictions which might be seen as spreading doubts about their ability to secure justice in the Kingdom.  And, if a family like AlGosaibi can't get justice, who then can?  This has involved some comments about the Special Saudi Commission.  As well, there have been other comments usually in response to forum non conveniens pleadings - which could be interpreted  to evidence the belief that the Saudi Courts are inferior to those of say New York.  And again very publicly made.

Will there now be a strong sentiment on the part of the authorities to send a clear message to Saudis that the patient quiet strategy that Mr. Al Sanea practiced is preferable to the more noisy one of the AlGosaibi's?  Or will all be forgiven in the reconciliation proceedings to take place in Saudi?  After all, the family is an old and important one.

In case you're wondering, AHAB's logo is in two separate "pieces" on its website.  Perhaps a symbol of things to come?

AlGosaibi v Maan AlSanea - The Financial Times "The Fix is In"

Here at Suq Al Mal some of the most vigorous exercise we get is from patting ourselves on the back. 

Before I head to the showers after this strenuous work-out, I'd just note that those who read Suq Al Mal read the main theme from today's Financial Times article starting back in June.  And most recently here.

From the FT:

The two decisions put a halt to the key cases at the heart of the scandal, and are a blow for Ahab, which has mounted an aggressive campaign against Mr Sanea, accusing him of a “massive fraud” that it claims could be as much as $10bn

Saudi officials have been tight-lipped about the dispute, and a high-level committee was set up to resolve the issue away from public glare. But it has reportedly been annoyed by the attention Ahab and its allegations have heaped on the conservative kingdom. 

And as always we close by noting that Mr. AlSanea continues to vigorously deny involvement in any fraud or other misconduct.

Dubai: The Emirati Goldfinger

Fancy expensive car proving honesty and sincerity.

Dubai is known as an important gold trading center.  Apparently the story of Damas is just one of many.

This is another.

An Emirati identified solely as AA, was taking gold from an Iranian woman, FH,  promising her he was selling to Russians at a "higher price".  Presumably because the Russians in the UAE are not sharp traders.  In one example, she gave him gold worth DH850,000 and he gave her a check for DH500,000.  

One could make a small fortune in such exchanges - though starting with a large fortune would be a prerequisite.

In any case the woman was sure this chap was on the "up and up". 

FH said that each time the accused, who addressed her as 'mother' visited her he used a different car. And, therefore, she believed whatever he said and never suspected him.

As Ken over at Wall St WTF can testify, justice has both a long arm and is swift in the Emirate of Dubai.  Interpol arrested the chap in Thailand and he's been arraigned in Dubai.

The accused has denied the accusation and the Dubai Misdemeanor Court has adjourned the case until August 9.

A couple of further notes.

Despite the similarity of names (AA), like a certain prominent Kuwaiti-Saudi businessman, I continue to deny any wrongdoing.  Mother, why won't you believe me?

And for Ken at Wall St WTF:

1. You've expressed some concern at your blog as to the  vigor (or lack thereof) in the legal pursuit of the Flying Abdullah Brothers.  Perhaps the judicial venue for this case  - the Misdemeanor Court - is an indication of the seriousness with which such crimes are viewed in the Emirate?
2. Also as one who has worked with the DIFX/DFSA, perhaps you can  advise whether Iranians are working there in senior management.  That potentially could explain a lot of things.  He called me "mother" when he signed his Enforceable Undertaking.

Al Joman: Analysis of Loans by Kuwait Economic Sectors

Last month the fine folks at Al Joman Center for Economic Consultancy published a series of reports analyzing loans by economic sectors (as defined on the KSE) except for the Banks Sector.

Looking at aggregate sector data, we can get an idea of the relative size of a sector and thus its relative importance in the national economy. 

Also by looking at the relative borrowings by firms within a sector we can get a better understanding of the dynamics of that sector. Is the sector dominated by one or a few firms? Or is competition fairly widespread? Which firms are the major players in a sector? 

In several sectors the largest firms (measured by debt) are fairly small.  This is a reflection of the overall size of the Kuwaiti economy as well as government dominance in certain economic activities.

But, and there is always a "but" with AA, there are some factors which mean any conclusions we draw are imperfect: 

1. Al Joman's reports are based only on companies whose shares are traded on the KSE. Private firms are not included. 
2. We're using debt as a proxy for asset size. This ignores equity, though one might argue in a land devoted to OPM debt is not a bad proxy. 
3. Not all firms have released current financial reports. 
4. Companies in certain sectors have borrowed for offshore business and investments. Examples are companies in the Investment Sector or in the Services Sector, e.g., Zain or Agility. Thus, there is some external "noise" in the numbers.
   

But, (a word used almost as often on SAM as "interesting"), we can get a reasonable macro idea or directional perspective from the data we have.

Before we do, some technical "directions" to make your navigation of the reports as useful and easy as possible.  This KSE link will take you to the English language drop down menu for Sectors and the list of companies comprising each Sector. Each company is shown and its Stock Symbol Number. Those SSN's are important (especially for those who don't read Arabic, the language of Al Joman's reports) because the data in Al Joman's report for each Sector is roughly in SSN order. A click of the language button on the right عربي will get you to the Arabic language page. And this link to Al Joman's report page.

Let's begin with an overview via Al Joman's 7 September report - their initial report meant as a macro summary.

All amounts are in KD millions.

Sector	31 Mar 10	30 Jun 09
Investment	5,747	5,937
Insurance	17	30
Real Estate	1,978	1,835
Industry	1,845	1,853
Services	3,916	4,347
Food	171	198
Parallel Market	65	33
TOTAL	13,740	14,233

 

As you look in the individual Sector reports, you'll notice that the total loans do not exactly agree to those shown in the above table. The differences are relatively minor and, to repeat myself (another common occurrence at SAM) can be ignored as we are looking for a macro perspective and general "directional" trends. 

For those, like AA, for whom no nit is to small to pick, here is an updated table. No, in an uncharacteristic move, I didn't refoot the detail to make sure these totals tally to the detail.

Sector	31 Mar 10	30 Jun 09
Investment	5,668	5,937
Insurance	17	30
Real Estate	1,963	1,838
Industry	1,845	1,853
Services	3,936	4,355
Food	171	198
Parallel Market	66	33
TOTAL	13,666	14,244

Since the first table adds to 13,739 for 31 March 2010, presumably due to rounding, the difference  between the original and adjusted tables is "off" by one.   
 

In the Investment Sector (51 firms) of the 5 largest borrowers 4 are distressed. KIPCO being the one "happy" firm. 

Data in KD million as of 31 March 2010. Total Loans at 1Q10 were KD5,668.

Firm	Amount	% Total Loans
Investment Dar	963	17.0%
KIPCO	619	10.9%
Global Investment House	588	10.4%
Aayan Leasing	416	7.3%
Aref Investment	339	6.0%
TOTAL	2,925	51.6%

 

In the Insurance Sector (7 firms) only 3 firms have loans, خليج ت (Gulf Insurance) at KD10.8 and اهلية ت AlAhleia at KD5.3 account for 92.6% of the 1Q10 total. AlAhleia having reduced its borrowings by roughly KD11 from 2Q09. 

In the Real Estate Sector (36 firms) there is no similar dominance. The largest borrower is تمدين ع (Tamdeen) with KD219 or 11.1% of the total as of 1Q10. Al Joman has not reported on لؤلؤة (Lu'lu) Pearl Real Estate or صفاة عالمي (Safat Global). Safat last reported FYE08 when it had KD15. Pearl 3Q09 when it had KD41. If you're looking at the KSE Sector page, note there is no stock with symbol 407. Also Al Joman has جراند (Grand) out of order in its list – using the KSE Symbol Number order as the right one.

In the Industry Sector (28 firms), صناعات (National Industries Group or NI Group) dominates with KD969.7 or 52.6% at 1Q10. The next largest firm أنابيب (Kuwait Pipe Industries and Oil Services Company) has only KD163. 

In the Services Sector (59 firms) زين  (Zain) and أجيليتي (Agility) dominate accounting for roughly 48.6% of total loans at 1Q10 with KD1,556 and KD356 million respectively as compared to 2Q09 when they were 59.1% with KD2,164 and KD411 respectively.

In the Food Sector (6 firms) the aptly named اغذية "Food" (Americana) dominates with roughly 92.2% of 1Q10 loans with KD157.7. And as the slogan now goes "Americana – 100% Arabian".  And note that United Food Industries Group's symbol is almost the same as Americana's, except UFIG has the definite article "أل" in front, i.e., الغذائية.  Be careful when placing that order with your broker!

In the Parallel Market (14 firms) صفاة عقار (Safat Real Estate) at KD19.8, ميدان (Maydan) at KD18.3 and عمار (Emaar) at KD11.2 account for 74.5% of 1Q10's total. Again note that the KSE list has gaps missing in the sequential order.  Symbols 2001, 2002, 2004, 2009, and 2016 are not used.

Damas - Auditors' Report

The Auditors' Report has been posted on NasdaqDubai:

This report is being released again due to technical difficulties experienced by some parties in downloading the Auditor’s Report.

Let's be crystal clear here.  This was definitely not due to a failing by the Company, nor its media consultant, nor NasdaqDubai.  Obviously, it's the fault of the downloader.  I apologize for my manifest error and lack of technical skills. 

In any case, Damas' auditors have issued an "emphasis of matter" report.  And that is muted by the language of Note  2 - which avoids such words as "material uncertainty" in reference to "going concern".  Clearly, it's smooth sailing.

Update:  It's been pointed out to me by a kindly reader that the Audit Report itself does contain the sentence:  "“In the event that the financial restructuring plan is not signed as envisaged or the standstill agreement is not extended further, there could be significant uncertainty over the ability of the group to continue operating as a going concern.”

Fair enough.  I stand corrected.