GFH Announces Payment of US$300 Million and Six Month US$100 Million New Debt

GFH announced today that it had reached agreement with the West LB syndicate on its US$300 million loan maturing today.  It will repay the full amount of US$300 million and has received a "new" US$100 million six-month murabaha facility from the lenders.  In effect, it will pay US$200 million in cash and the lenders are deferring payment on the US$100 million due today for six months.

GFH's press release touts this as a significant accomplishment  and a vote of confidence by its lenders.

However, I think there is a subtle message in the statement of West LB's Representative.

“We were pleased that we were able to act as a bridge between the syndicate and GFH in finding an acceptable solution to all parties within such a short period of time. We believe that the terms of the refinancing provide GFH with the necessary time to execute the comprehensive plan presented to the banks to return to profitability. The fact that GFH was able to secure unanimous support of the banking group is as a direct result of the pragmatic way in which all parties approached the situation,” added David Pepper, Head of CEEMEA Syndicate at WestLB.

First, his language is that of a problem solved:  "acceptable solution", "pragmatic way".  This is not the language of unbounded enthusiasm.  The banks were presented with two alternatives.  The first was to insist on full repayment.  This likely would have meant a default on the US$100 million.  All sorts of unpleasant consequences for the lenders (and for GFH) would have followed.  The second option was to extend and pretend.  From where I sit the decision seems quite an easy one.  As well in terms of  pragmatism it will be interesting to see the terms on the new facility and how they differ from the previous one.  Unless there is disclosure from GFH in the interim we will have to wait until the release of the 31 March financials for that data. 

Second, the extension is billed as providing "GFH with the necessary time to execute the comprehensive plan presented to the banks to return to profitability".  It is unclear how an institution with a fundamental problem in its business model is going to return to profitability within six months.  I certainly don't believe it's possible and frankly wonder if Mr. Pepper does as well.  Of course,  the banks had to give some justification for the six month tenor.

Saudi Capital Markets Authority - Corporate Governance Seminar in Partnership with Swedish Trade Council 9 February 2010

 

Copyright AlRiyadh Newspaper Saudi Arabia

Last December I had noted that the CMA had planned a corporate governance seminar for February in partnership with the Swedish Trade Council.

Here's the report and pictures from AlRiyadh Newspaper on the seminar.  Impressive list of speakers and good topics.  Summary here.  You can use this link to view additional information on the seminar.

Also here are the CMA's Corporate Governance Regulations (issued in 2006).  Definitive text here in Arabic.

Dubai New Oil Discovery - Just How Big?

 

Mubarak Offshore Field UAE Copyright Crescent Petroleum/Icethorn 

Here's one assessment - a repeat of an AFP news wire story in The Kuwait Times.  Essentially the message here is "not big enough to matter".

And here's the UAE Federal Government website page on Oil and Gas.

Just a note about the picture above, Mubarak Offshore Field belongs to the Emirate of Sharjah.  The picture is included to give a generic idea of what an offshore platform looks like.

GCC Secretary General Update: GCC Central Bank & EU-GCC Free Trade

Asharq AlAwsat reports on comments by Abdulrahman Hamad AlAttiyah, the Secretary General of the GCC, from a Qatari-Saudi business conference this Saturday.

1. The first meeting of the GCC Central Bank is scheduled for 30 March in Riyad.  The Governors of the Central Banks of Bahrain, Kuwait, Qatar and Saudi will attend.  Discussions will focus on legislative, institutional, and procedural aspects related to the currency union and the single currency.  More technical meetings will follow to continue the steps necessary to launch the single currency.
2. He remains optimistic that the UAE will join the single currency project and will be able to quickly catch up.
3. The EU has presented some new proposals in a bid to reinvigorate the stalled EU-GCC Free Trade negotiations (which began in 2008).  Their proposals have to do with a more flexible less time bound approach to the issue of customs duties, including those on exports.  The GCC is studying and will revert.

There were also some points on the GCC railway:

1. Project is in the detailed study/technical drawings after having obtained agreement in principle.
2. HQ for the organization to supervise the railway has not yet been chosen.  

And some news from the Qatar-Saudi businessmen's conference which 300 businessmen attended:

1. 2008 trade between Qatar and KSA was some SAR6.2 billion (US$1.65 billion).
2. The number of joint Q-KSA projects in the Kingdom through June 2009 was 16 with capital of SAR6.1 billion.
3. Various speakers called for increased co-operation.
4. Ahmad Al San'i (Saudi businessman) called for creation of a joint company in which the two governments should invest to promote business in Qatar and Saudi.
5. Picking up on that theme, Khalid AlMuqayrin, (another Saudi businessman) called on the SWFs of the two countries to invest at least 5% of the value of their holdings in the two countries so that "there would be a direct return to the two countries and their citizens rather than having all their investments far from the region which don't have a direct impact on citizens".

How the Mighty Fall and How Management Gurus Get Rich

A very good column today at the FT by Stefan Stern.

Interesting insights into the cycle of decline:

1. Hubris born of success - We can do no wrong.
2. Undisciplined pursuit of more
3. Denial of risk and peril
4. Grasping for salvation
5. Capitulation to irrelevance or death

In re my earlier post about the USA today and the Dubacle, I will leave it to you to decide which stage each of these parties is in.

The other interesting insight is that there is a market for management gurus and books apparently unrelated to success.  Perhaps, the most important lesson of all.

USA AAA Rating

The Treasury Secretary of the United States of America gave an interview with ABC this weekend.  He was asked about Moody's comment that the USA might lose its triple A rating.  He replied.

“Absolutely not,” Geithner said, when asked in an ABC News interview broadcast yesterday whether a downgrade is a concern. “That will never happen to this country.”

You notice that Secretary Geithner said "never".

When one thinks that the laws of gravity (physical or financial) do not apply to one, one is likely to be in for a surprising downfall.

And that leads into another issue.  Chairman Mao's  observation of the relationship between political power and guns is oft quoted.  Of course, guns cost money. 

Here's another perhaps cautionary tale from a land on whose Empire the sun never set.  And never would or so we were told.

Damas Appoints Chief Restructuring Advisor

Damas announced some senior management changes at Nasdaq Dubai today.  Most of these are interim appointments while the Board conducts a search for a permanent replacement.

But one appointment did stand out:  that of  Mr. Sanjay Manchanda, a Partner at PricewaterhouseCoopers,  as  Chief Restructuring Advisor.

Burj Khalifa - Observation Deck - 60 Stranded for Over One Hour Saturday

 

Image Credit: Karen Dias/XPRESS

Gulf News (Dubai) reports that a "minor incident" on Sunday is responsible for the close of the BK's Observation Deck.

Sixty people were stranded for over an hour at the top after an elevator apparently got stuck on the way up. A loud bang and cloud of smoke frightened those on the deck.  The passengers in the elevator had to climb up a ladder to get out.

Two views of the situation.

An American tourist:

"But there was a big lack of communication throughout the whole ordeal and it has certainly put me off going back up or taking visiting friends and family."

An unnamed "official".

"It is absolutely normal for a new building to face minor issues such as this, which involved one of the Burj Khalifa's elevators."

As I noted in an earlier post, often new buildings particularly skyscrapers have problems during their initial opening phase.  That's not the issue.  It is how any such problem is handled.   Pretending that they don't  exist isn't really the best way to go.

So it might be helpful to refer to this not as "maintenance" but what it really is "repairs" - fixing defects.  After only one month in operation, there hasn't been any significant wear and tear.

Gulf Finance House - Update on Rescheduling US$300 Million West LB Facility

AlAnba'a Newspaper (Kuwait) reported the following on 8 February:

1. The West LB-led syndicate had agreed to GFH's request to reschedule US$100 million of the $300 million due 10 February for six months.
2. GFH and West LB were in discussion about a US$50 million Sukuk with a two year tenor (maturity  June 2012).
3. Last week GFH was in discussions with various private sector parties in Kuwait and the Gulf seeking a US$100 million loan to be secured by real estate and shares.  (Note most of GFH's facilities are so secured). These were undertaken as a back-up to the West LB discussions. Status of these negotiations is unclear - whether they achieved anything and whether or not they are continuing.
4. Whether repayment of the US$100 million will come from GFH's capital increase last year or from expected profits from GFH's investments (which AlAnba'a says were US$500 million last year).

Today GFH issued an announcement in reply to a request from the BSE about the 8 February article denying that it was in discussion with West LB over a new US$50 million Sukuk.

Some thoughts:

1. First it's a pretty good assumption that GFH is on the "watch list" by the authorities.  A press report is published in Kuwait on 8 February.  The same day the BSE writes to GFH asking for a clarification.  This enhanced supervision is a major takeaway.  The regulators are concerned about GFH's situtation.
2. Second, it's probably not unreasonable to assume that if GFH were sitting on a pile of cash, the West LB lenders would insist on full payment of the amount due them tomorrow.  So where did that US$450 million go?  Well US$200 million is going on Thursday. No responsible institution is going to pay away all of its cash.   There are bills to pay.  GFH has been running about US$35-$40 million in operating expenses per quarter, though this will now come down as the US$200 million payment will reduce interest expense.  Balance that against cash inflows and you'll see the need to conserve cash:  revenues have pretty much dried up.  In 3Q09,  operating revenues were a paltry US$5.9 million.  And you'll recall I had raised earlier the perplexing fact that Deutsche Bank was converting its facility into stock in GFH.  Could that have been related to a cash outflow? When Fiscal 2009 financials and 1Q10 financials are released, we'll be able to understand better GFH's cash position and what the cash was used for.

Boubyan Bank Capital Raising - 85% Takeup Only

 

AlQabas reports that the recent share offer by Boubyan only received shareholder subscriptions for  495,257 shares which are equivalent to approximately KD127 million. (actually about KD126.3mm)   This is 85% of the amount offered.  That leaves  according to AlQabas 87,398 shares worth some KD20 million unsubscribed for.  

The offer was at KD0.255 per share (a KD0.155 premium over the nominal share value of KD0.100) and extended only to existing shareholders closing on 7 February 2010.   The privileged rights offering mechanism gives existing shareholders the right to subscribe for enough shares to maintain their percentage ownership in the company after the offer closes.    

My understanding is that 583,000 shares were offered - which would make ALQ's numbers above wrong.  Of course, there is another explanation - one which Umm Arqala might well suggest:  that AA is wrong.   Whatever the case, this is an attractive offering price as the shares currently trade around KD0.400 per share.

Al Qabas outlines several options to complete the offering:

1. Boubyan can offer additional shares to existing shareholders.  Any shareholder holding 5% or more would require Central Bank of Kuwait approval.  Absent CBK approval, an existing shareholder could subscribe to a 4.5% stake.
2. Shares could be offered to KIA.   

Personally I think this is not highly likely because KIA sold its  shares just about one year ago.  Earlier post with some background here.

It's more likely that an existing shareholder might buy an additional stake.  The article notes that National Bank of Kuwait (which currently owns 40% of Boubyan) has asked the Central Bank of Kuwait for permission to increase its shareholding to 60%.  And they would be a likely buyer.  As would another investor looking to secure a major block of stock.  NBK's interest is that  they are looking to establish an "Islamic window" to conduct banking operations and sensibly want to ensure that control is firmly in their hands.  At the present they have management control, but not an absolute voting control.   

The article closes by noting that other banks seem happy to invest alongside NBK as several banks had participated in the offering.  That is no doubt true especially since NBK has a good track record in running the businesses it enters.  But then again it just might be that these banks figure that as time passes NBK will  increase its stake in Boubyan and they will be well placed to turn a nice profit on their investment by selling it to NBK.  And would explain as well why a bank or other investor might be interested in the unsubscribed for shares.

Earlier posts on Boubyan including the legal battle between Commercial Bank of Kuwait, The Investment Dar and Kuwait Finance House over the fate of TID's shares can be accessed by using the label Boubyan Bank.

Ahmed AlSuwaidi v Esam Janahi - Update on Lawsuit

According to press reports, the Court of Cassation in Bahrain (the country's highest court) has overturned the decision of the Court of First Instance and the Appeals Court to reject Mr. AlSuwaidi's lawsuit against Mr. Janahi.  The Court of Cassation has remanded the case to another Appeals Court.

Mr. AlSuwaidi is seeking US$125 million in compensation related to "The Energy City in Qatar".  As per the article originally he and Mr. Janahi were parters in a Caymans registered company "Gulf Energy Company" which was to develop the Qatar Energy City.  It's not explained how, but Mr. Janahi acquired control the project which the article states cost several billion dollars and opened in March 2006.

Here's a report from AlKhaleej (UAE) and AlQabas (Kuwait).  

You're not likely to see anything in the Bahraini press given the constraints imposed by the Press Law (Law #47 of 2002).  And that's why in the Bahraini press the name of the former CEO of The International Banking Corporation was not mentioned in the article on his arrest.  Or why the Bahrain press will not publish the name of a businessman or company declared bankrupt by the court.

Burjbacle Continues

 

Pawan Singh / The National

When you're on a roll, you're on a roll.

Sadly, though sometimes it's downhill.

To be fair, when the Hancock Building opened in Boston, smart folks soon learned to stay at least one or two blocks away because the windows had the unhappy habit of popping out.   And of course there's the "Building of 1,000 ------" in Hong Kong whose unique porthole style windows were designed to deal with problems as well.

So the reference to "Burjbacle" is not to the problems as much as to the way they are being handled. 

The Market Speaks: SuqAlMal Blogspot Value Declared IPO Rumored to Be Planned

It's hard to put a value of the things one does.  And then self-valuation of assets is always a tricky thing and subject to all sorts of moral hazard.

Today someone pointed out to me that an independent source had valued Suq Al Mal.

As with all good leaders I "immediately sprang into action" to take decisive action to learn the value:  about US$175.20.

That may not seem like much, but as a good GCC investor I see the upside potential here.  

Under my downside case business plan at 84 million hits per day Suq Al Mal will be worth a cool US$20.2 million.  84 million would represent just 1.2% of everyone in the world visiting my site each day.

At my base case plan of just a modest 12% (clearly something quite achievable) SAM is worth US$202 million.

And finally the upside case  at 30% (I'm still the same old conservative AA) US$500 million.

Can an IPO be far away?  

Or perhaps a mudaraba with Rotana?  We can each contribute our assets and share 60:40 in the profits.

Global Investment House's Apologia for the Restructuring

GIH has also published a ten page brochure on its debt restructuring. 

The brochure begins by answering the natural question how did this happen.  It seems Global's misfortunes were a direct result of the Global Financial Crisis (no pun intended) and apparently had little to do with Global's conduct itself.   Sadly, after giving us this insight, the brochure doesn't explain why some other firms weren't affected by the International Financial Crisis.

But then precious space in the report had to be used to describe how GIH's management "immediately sprung into action" and dealt with the crisis.  A wise move when faced with the threat of imminent death.

Certainly, GIH deserves credit for its conduct during the rescheduling - though it is a very sad state of affairs when acting professionally and honorably is apparently so rare an occurrence that it  is remarkable and worthy of comment.  That being said, GIH knows better than I do the nature of the market in which it operates.  From where I sit I would agree that GIH's behavior was out of the ordinary.

However, the tone and whole point of the brochure seems a bit too self-congratulatory.  Especially in a case where the terms of the restructuring clearly indicate that GIH's business model did not work and is being abandoned.

So all in all the brochure seems to me the product of a delicate and apparently still troubled ego.  "It's not my fault".  "See what I nice person I was and how I acted so nicely".  "Many people said so (and I'll devote a page in my brochure to recording their accolades)".

In the world of business one has set-backs.  One addresses them.  One goes on.  If one does look back, it's at the lessons.  Self-justification and self-praise seem out of place.  But then again GIH knows the market it operates in better than I do.

Global Investment House - 2009 Earnings KD120 Million Loss?

Global has an announcement at the DFM today commenting on press reports that it lost KD120 million in 2009.   The announcement states that GIH's financials are with the Central Bank for its approval and until it receives the approval of the Central Bank of Kuwait, it cannot comment.

As of 30 September 2009, GIH had reported a net loss of KD105 million so a loss of KD 120 million would not be anything dramatic.  Operating expenses run about KD17 to 18 million per quarter.  There were probably some additional provisions required (as Ms. AlGhunaim has  hinted in interviews) and as well perhaps some expenses associated with the restructuring.

IMF Analysis: MENA Foreign Trade Constrained by Transport and Customs Clearance Problems

Rina Bhattacharya and Hirut Wolde of the IMF have analyzed MENA foreign trade and come to the conclusion that trade is some 86% below what would be expected given the characteristics of these countries' economies.  The non-oil exports of the MENA countries are significantly lower as a share of GDP compared to all other developing regions of the world.  Imports are also lower as a share of GDP compared to the same regions, with the exception of sub-Saharan Africa. This is documented in Figures 1-6 of the study.

The conclusion is that two factors are primarily responsible for trade under performance:

1. Transportation problems 
2. Customs clearance "inefficiencies"

While one might quibble about just how precise the conclusions are (Is it really 86%?  Or is it 83%?), the bigger picture of under performance is less subject to debate.   

And that really is the central message from the study - quite a disturbing one for an area facing a demographic "explosion" and the need to create new jobs.

Kuwait National Portfolio - A Slightly Different Take From Bader Al-Subaie

A slightly different take on the purpose of the National Portfolio from Bader Nasser Al-Subaie, Chairman of Kuwait Investment Company which is managing a portfolio for the Government.  Here's the KUNA account in Arabic and English.

From his reading of the founding documents of the National Portfolio concept, the primary focus is investment and investment returns with impact on the market a desirable secondary effect.  Of course in "providing liquidity to the market" the National Portfolio does support the market.  And that there was an entire package of steps - of which only two have been implemented.

Earlier post here.

DMCC Asks Dubai World to Remove Its Logo From DW's Website

The National (Abu Dhabi) reports that DMCC has asked DW to remove its logo from DW's website as it asserts that it was never owned by DW.

That's really not a vote of confidence in DW coming after all this time when apparently it either didn't notice or didn't care about the "mistake".  Funnily enough the Chairman of DMCC is the son of the Chairman of DW.

It would seem that not only were foreigners incapable of distinguishing between the Government of Dubai and companies owned by it but also it appears some Emiratis themselves.  And despite a very clear exposition from Abdul Rahman Al Saleh, Director General of the Dubai Finance Department repeated here in case you've missed or forgotten it. Or this one from Lt. General, Dahi Khalfan, Dubai Police Commander General and Head of the Dubai Government's Budget Committee.  Missing one admonition is sad, missing two (including one from the Police Chief) is just downright regrettable.

Take one implicit guarantee and call me in the morning if you're still confused.

"It's Unpleasant To Have A Rat In Your Flat"

 

Completely Unrelated Picture Courtesy of Joanne Servaes

Indeed.

Luckily the problem is solved.

Burj Khalifa Observation Deck Closed for Maintenance and Upgrade

 

Picture Courtesy of  Bu Jassem at the Buj Al Arab Blog

Gulf News reports that the observation deck has been closed for "maintenance and upgrade".  The National (Abu Dhabi) perhaps a politically less correct article given its first paragraph.

Luckily, it appears that the problems are only technical in nature:  "Technical issues with the power supply are being worked on by the main and sub-contractors and the public will be informed upon completion."

Of course, as with any building, one has to perform maintenance to keep it looking new and to repair any wear and tear on the building and its furnishings.   And one shouldn't wait too long to take steps to keep one's building looking "smart".

And one can often charge more rent in a building if one upgrades its facilities and decor.