Saturday, 18 June 2016

Barclays Capital Raising 2008 Timeline

Technical Note:  For some reason the footnotes in the text don't go to the respective URLS.  So you have to go down into the Endnotes Section and click on them there.
31 October 2008
Barclays announces a GBP 5.8 billion “hard” capital raising with a potential additional GBP 1.2 billion if associated Warrants are exercised.  
Qatar Holdings and  a company representing the personal interests of HE Shaikh Hamad Bin Jassim Bin Jabr Al Thani, Chairman of Qatar Holding initially subscribe for GBP 2 billion  and HH Sh. Mansour Bin Zayed al Nahayan (Sh. Mansour) for GBP3.5 billion.[i] 
The generous deal terms suggest that Barclays is seeking to avoid participation in a UK Government rescue scheme that could impose constraints, including on executive salaries.
Sh. Mansour (UAE) Share Only
GBP 2 billion of Mandatory Convertible Notes (MCNs)[ii]
GBP1.5 billion in Reserve Capital Instruments (RCIs)[iii] Later reduced to GBP 1.25 billion.
The RCIs are accompanied by warrants (Warrants) for the purchase of 758,437,618 common shares of Barclays at 197.775 pence each[iv].    The Warrants are a “true” bargain.  They cost GBP76 pence roughly equal to $1.20.
Barclays initially identifies UAE investor as Sh. Mansour. [v]
25 November 2008 Barclays announces that Sh. Mansour will fund his investment through “an Abu Dhabi government investment vehicle which will become the indirect shareholder of the Warrants, the MCNs and the RCIs.”[vi]
This entity later identified as International Petroleum Investment Company (IPIC) Abu Dhabi (100% owned by Abu Dhabi Government) in Barclays' filings with UK and US regulators.[vii] Sh. Mansour is Chairman of IPIC.
IPIC uses special purpose companies to hold the individual investments.
PCP Gulf Invest 1 Ltd. for the MCNs. [viii]
PCP Gulf Invest 2 Ltd for the RCIs.[ix]
PCP Gulf Invest 3 Ltd for the Warrants. [x]
PCP companies are directly owned by Kadin Holdings Inc. which in turn is owned by IPIC.[xi]
This structure allows Kadin to sell off individual investment types.  
Barclays paid GBP110 million (approximately $174.9 million) in fees to Sh. Mansour on the deal.[xii]  He later pays GBP 30 million to a foreign intermediary per Euromoney.[xiii]  
The fee does not appear as income in IPIC’s 2008 or 2009 financial statements. [xiv][xv]  It does not appear to have been netted against the cost of the MCNs and RCIs. 
Thus, it appears that Sh. Mansour retained the remaining GBP 80 million.
18 November 2008
Qatar Holding and UAE agree to each sell GBP 250 million of RCIs back to Barclays.   No Warrants returned. [xvi] 
Reduction in UAE share of RCIs to GBP 1.250 billion.
The returned GBP 500 million in RCIs were placed by Barclays with institutional shareholders.[xvii] 
These investors had complained about being excluded from acquiring the richly priced 14% coupon RCIs. 
1 June 2009
As per SEC filing, KAQ Holdings (KAQH) announces 8 June 2009 that on 1 June 2009 it acquired the option to acquire 100% of Kadin Holdings Ltd any time after 5 June 2009.[xviii]  As per the same SEC filing, KAQH described as 100% owned by HE Khadem Al Qubaisi (KAQ).[xix] 
Sale price and reason for KAQH’s involvement are not disclosed.
The sale doesn’t appear to be an attempt to avoid appearance of conflict of interest because both KAQ and Sh. Mansour are members of IPIC’s Board.
5 June 2009
As per SEC filing, 8 June 2009 IPIC/Kadin announces that it has sold shares on 5 June arising from conversion of MCNs but that it still holds the Warrants.[xx]   
The MCN’s are exchangeable into 1,304,835,721 shares.  IPIC converts MCNs to common shares and sells.
IPIC’s 2008 annual report states that all Barclays investments sold after 31 December 2008.   E & Y’s audit is signed 22 June 2009 placing the sale of “all” Barclays investments prior to that date.[xxi]
No public information on who bought the Barclays shares.
IPIC engaged Credit Suisse to sell shares and place RCIs, as per Bloomberg.[xxii]
1 September 2009
As per SEC filing KAQH announces it has exercised an amended Option on 1 September 2009 that allowed it to acquire PCP 3 the owner of the Warrants.[xxiii]
There is a discrepancy between IPIC’s report it had sold “all” Barclays investments in June and KAQH’s 1 September date.    
Perhaps, PCP3 wasn’t sold till September and was held at its original cost carrying value ($1.20) and so considered de minimis?
Sale price is not disclosed.
Estimated fair value of the Warrants (341.79P less 197.775P) x 758 million-- about GBP1.1 billion based on 1 September5 share price.  [xxiv]   Using the 5 June share price of 263.27P, the fair value is some GPB 497 million. [xxv] 
 31 December 2009
IPIC recognizes $2,198,074 in profit on sale of its interests in MCNs, RCIs, and Warrants.[xxvi]
As per Note 20 to IPIC’s financials, profit is $2.2 billion equal to net proceeds of GBP 4.7 billion ($7 billion) less derived cost of GBP 3.2 billion ($4.8 billion).[xxvii]
The net proceeds of the MCNs are estimated to have been GBP3.4 billion based on Barclay’s closing share price of GBP 2.6327 on 5 June of 2009.[xxviii]   
The sales proceeds of the RCIs are estimated at GBP 1.25 billion given that the RCIs trading at near par in early June as per London Stock Exchange provided data.[xxix]
This suggests that the Warrants were sold at nominal cost.
12 February 2010
As per SEC filings, 12 February KAQH announces it transferred PCP 3 to Nexus Capital Investing Ltd. (NCIL). [xxx] [xxxi]
In the same SEC filing, NCIL declares its ownership of all the share capital of PCP 3.[xxxii]
Transfer of ownership of the Warrants from KAQH to NCIL.
KAQH’s name changed to Future Capital Management Ltd. [xxxiii]
NCIL.  According to SEC filing, Abdul Aziz Al Ketbi owns 100% of shares of NCIL.[xxxiv]  Fatima bint Mubarak al Ketbi is mother of key sons of Sh. Zayed
FCML is transferor of record of PCP 3 to Nexus.[xxxv]
Note transaction is “transfer” not “sale”.  Does this indicate no payment made?
Reason for KAQH’s name change and transfer not disclosed.
17 February 2010
As per SEC filing, PCP3 exercises Warrants to buy 626,835,443 shares of Barclays' common stock, leaving it Warrants to purchase an additional 131,602,175 shares.[xxxvi]
Shares were not sold so profit was not realized. [xxxvii]
Barclays' closing price per share 17 February 2010 was 279.25.[xxxviii]   Because cost of the Warrants appears to be zero or near zero, the estimated unrealized profit on exercise is (share price less Warrant price of 197.775) times number of shares.   GBP 511 million or $803 million.[xxxix]
7 July 2010
As per SEC filing, Al Ketbi “transfers” 100% of NCIL to Abu Dhabi International United Investments LLC.[xl]
As per the SEC filing, Sh. Mansour owns 100% of Abu Dhabi International United Investments LLC (ADIUI) which in turn owns NCIL.[xli]
Another “transfer” instead of sale. 
11 October 2010
As per SEC filing, NCIL exercises remaining Warrants acquiring 131,602, 175 shares of Barclays.[xlii]  NCIL (Sh. Mansour) now owns 758,437,618 shares. [xliii]
Barclays' closing price per share 11 October 2010 was 275.55.[xliv]  Estimated unrealized profit on exercise GBP102million or  $163 million.[xlv]  
Value of all shares held and thus Sh. Mansour’s total unrealized profit is estimated GBP590 million or $938 million.
20 June 2013
As per SEC filing, PCP 3 no longer holds any Barclays shares.[xlvi]
The reason given is the “closing and settlement of hedging transactions”.  The details of the hedging transactions are not public and so it’s not possible to determine the final profit realized by Sh. Mansour on the Warrants/Barclays shares.

[xxxii] http://www.sec.gov/Archives/edgar/data/312069/000094787110000108/ss84563_sc13g.htm                                                                
Posted by Abu 'Arqala at 6/18/2016 03:17:00 pm 0 comments
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Sunday, 12 June 2016

Department of Technical Quibbles: The Arabtec Liquidity Crisis and Basic Accounting

Last Conference:  Abu Arqala's Name Tage


A 1 June Gulf News article on liquidity problems at Arabtec caught Abu Arqala’s lately reopened eye last week. 
http://gulfnews.com/business/sectors/construction/arabtec-running-out-of-options-for-liquidity-1.1839055 
I don’t have an issue with the contention that Arabtec’s liquidity is strained.  Nor that the company is struggling.
The firm’s financials show it is indeed having financial difficulties.  The auditors’ qualified opinion for 2015 made even “less pretty” by the “matter of emphasis” comments and the income and cash flow statements paint a rather unhappy picture.   
But I do have a beef with two statements in the article. 

These appear to be based on less than a solid knowledge of accounting or UAE laws.  Because they are coming from “experts” I think they could well mislead readers.  Those concerns prompted this post and the start of a new feature on this blog “The Department of Technical Quibbles” or DOTQ for short.  
       Here are the two “offending” quotes.
  • “Analysts questioned whether Arabtec would be able to break even this year after the company held a general assembly on Wednesday to get shareholder approval to pull Dh1 billion out of its statutory reserve.” [This may sound like the company can lay its hands on AED 1 billion in “cash”. It also seems to infer that accounting entries about past events can affect the future].
  • “He said that having such massive losses also makes banks more reluctant to give out loans, which leaves the statutory reserve as the only resort for immediate liquidity.” [The “found cash” theme again.]
Let's drill a bit deeper into what Arabtec is doing.
First, what Arabtec is proposing is an accounting entry.   
  1. If shareholders approve, Arabtec will debit the statutory reserves by 1 billion AED and credit retained (accumulated) losses with the same amount.   
  2. This accounting entry will take place solely on the liability side of Arabtec’s balance sheet.  Assets will be unaffected.  Keep this in mind as it will be a central idea in the "fourth" main point below.    
Second, a glance at the shareholders’ equity account as of 31 March 2016 shows that the statutory reserve is included in shareholders’ equity along with other equity accounts resulting in total shareholders’ equity of 3.2 billion AED.   
  1. What that means is that after the entry, the balance sheet total shareholder’s equity will not change. In effect the statutory reserve has already been netted against the accumulated losses on an economic basis.   
  2. If bankers and financial analysts do not understand this, may God protect them from their lack of knowledge and from making duff loans or investments.  
  3. http://www.arabtecholding.com/FinancialReports/FY16Q1_English.pdf
Third, if there isn’t a cash benefit, why is Arabtec taking this step?  For legal reasons.  
  1. Like other GCC states, the UAE requires (Article 285 Commercial Companies Law 1984, as amended) that companies take action when accumulated losses are greater than 50% of statutory or legal capital.  At that point, companies have two choices:  dissolve the company or continue.  In the latter case the situation must be rectified. 
      • Reducing legal capital raises a host of inconvenient issues, e.g., redenomination of nominal share price/par value, reduction in the number of shares, etc.  Raising new capital is expensive and difficult at such times, though perhaps not when one has a motivated government shareholder. Using existing reserves is relatively painless.
  2. As of 31 March 2016, Arabtec’s legal capital was 4,615,065,000 AED.  Its accumulated losses at that point were 2,273,762,000 AED.  A further 33,770,501 AED—a relatively small amount--would trigger the operation of Article 285.  
  3. By acting now, Arabtec “buys” itself legal breathing room by pushing the 50% trigger further out.  It’s also much easier to take this step at an AGM than at an EGM.  
  4. Does Arabtec need breathing room?  Sure looks like it.
  • A modest 34 million AED will trigger Article 285.
  • 1Q 16 losses were 48 million AED. 
  • There is no evidence of dramatic turnaround in the last few months. 
  • The company’s management is privy to to-date undisclosed 2Q16 performance. 
  • Perhaps, the limit has been breached already, but since the AGM voted 1 June to use the reserves, the problem is solved.  For now at least.  

Fourth, but what about the liquidity the second quote refers to? 
  1. Liquidity generally refers to two things. 
    • The ability to convert assets to “cash” quickly and at or very close to their carrying values on the balance sheet. 
    • The ability of a firm to pay its current debts and obligations as they come due. This is different than “solvency” which deals with long term obligations and debt.  
    • The more quality current assets one has and the fewer current liabilities the more liquid the firm. 
    • But Arabtec’s proposed action has no effect on non-equity liabilities or on assets.  When the entry is made, the same assets and non-equity liabilities will be on the books after the entry as were there before.  The entry will not change their characteristics or values. 
  2. Often individuals not familiar with accounting believe that if there is a “reserve” on the liability side—particularly one called a “statutory” or “legal” reserve--there is an account with “cash” of an equivalent amount on the asset side in a proverbial “lock box” that can’t be touched. That is not the case.  Liabilities merely show how assets were funded.  
  3. As the company’s financials show there is no “pot” of “cash” sitting on the balance sheet that is equivalent to the statutory reserve amount and that will be freed up by accounting entry proposed by the company.  http://www.arabtecholding.com/FinancialReports/ARTC_FS_Ann_E_2016.pdf      
Fifth, how would the company’s accounting entries regarding past accumulated losses and accumulated statutory reserves affect its ability to turn a profit or generate cash in the future?  The entry doesn’t provide additional cash.  It doesn’t change the value of assets or non-equity liabilities. It doesn’t change current economic conditions.  In short, it doesn’t.
Posted by Abu 'Arqala at 6/12/2016 01:21:00 am 0 comments
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Friday, 10 June 2016

إعادة فتح "باب الاجتهاد" المالي - قريبا





بعد تقريبا ستة سنوات الصمت

سنفتح من جديد "باب الاجتهاد" المالي  - -- قريبا

نفس مقالات طويلة 

نفس كتابة غامضة

باذن الله افكار مفيدة 


Posted by Abu 'Arqala at 6/10/2016 09:57:00 am 2 comments
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Saturday, 9 August 2014

Comment Moderation Enabled

Regretably, persistent posting of rubbish advertisements on the site has compelled me to enable comment moderation.

If you have a legitimate post, be patient. 

It may take a few or more days before it appears.
Posted by Abu 'Arqala at 8/09/2014 11:51:00 pm 3 comments
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