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

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

Some thoughts:

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

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

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

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

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

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

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

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

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

AlGosaibis File New Fraud Claim Against Maan AlSanea

  

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

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

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

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

Camel Burger

 

Image Credit: xpress/virendra saklani

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

UAE Central Bank Governor Outlines UAE Bank Support Measures

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

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

Esterad Rumored to Have Pulled Convertible Bond Issue

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

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

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

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

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

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

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

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

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

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

Best of Luck, Salim!

 

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

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

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

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

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

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

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

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

It will be interesting to learn more.  

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

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

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

Saad Golden Belt Sukuk 1

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

Main points and my comments:

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

More on Zain - Al Barrak Resignation

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

AlQabas (Kuwait) has two reports. 

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

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

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

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

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

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

More in the earlier post (link above).

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

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

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

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

Here's the text of TID's statement.

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

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

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

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

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

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

Zain - Sa'ad Al-Barak Resigns

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

Here's the notice.

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

كوكب الشرق

 

Copyright Blago Tebi - Creative Commons License

هذا هو اليوم الذي فيه توفي الموسيقى 3 فبراير 1975

 ذكرى فاطمة ابراهيم البلطجي

إنا لله وإنا إليه راجعون

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

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

 

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

Earlier post here.   

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In this vein the following quote is remarkable.

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

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

بدون التعليق

Global Investment House - Restructuring Implementation Update

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

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

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

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

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