New Graft Case at Nakheel

As reported by the Khaleej Times.  Some rather expensive non existent pens.

Mubadala US$2.5 Billion Refinancing

As announced yesterday, Mubadala successfully refinanced its US$2 billion loan.  Some additional details today courtesy of Gulf News.

While the margin increased from 17.5 basis points to 75, this is still a comfortable margin especially given current market conditions.  And as well the downgrade by Moodys in March to Aa3.

The facility was also well received.  US$4 billion in demand.  And it was up-sized (I just had to use that word) by US$500 million to provide a back-stop for refinancing under Mubadala's ECP program.

Dubai World Rescheduling - Nakheel Trade Creditors Offered 10% on Settlement Bonds

There's been some commentary on the princely interest rate that Nakheel was reported to be offering its trade creditors - 10% - compared to the much smaller 1% to financial creditors.

This article from Maktoob Business outlines the rationale. 

It's all a matter of devoting resources to those parties that benefit the company and the national economy the most.

Simply put there is more bang for the buck locally in paying our trade creditors.

Something discussed in an earlier post here.

Oula Fuel

 

Following up on my earlier post, I noticed that today there was an announcement on the Kuwait Stock Exchange that the Chairman and Managing Director of Oula, Mr.Ahmad Abdul Aziz Al Ghannam, had resigned.

[9:13:10]  ِ.استقالة عضو في مجلس ادارة شركة الاولى للتسويق المحلي للوقود
يعلن سوق الكويت للأوراق المالية بأن شركة الاولى للتسويق
المحلي للوقود افادته بأن مجلس ادارة الشركة وافق على استقالة ‏
كل من السادة شركة عبدالعزيز احمد الغنام واخوانه وممثلها
السيد / احمد عبدالعزيز الغنام رئيس مجلس الادارة والعضو المنتدب ‏
من عضوية مجلس ادارة الشركة.

International Investment Group Issues Clarification - It's Business As Usual

Today IIG issued a press release on the Bahrain Stock Exchange (Arabic) and NasdaqDubai (English).

The press release notes that in addition to engaging KPMG Advisory WLL IIG has hired the Law Office of AlWaqayan, AlAwadhi and AlSaif (local Kuwaiti law firm) and DLA Piper (international law firm).  It is also looking to set up a committee (the NasdaqDubai press release uses the more elegant word "forum") to negotiate with creditors.   

As noted before, an interim report from KPMG is expected at the end of May with the "final" at the end of June.  As per my earlier post, this appears to be a rather preliminary report.

Now creditors would be naturally concerned when their obligor misses  the payment of what some might characterize as  a relatively trivial sum of US$3.4 million for interest. 

Notwithstanding the above announcement IIG wishes to confirm that IIG's and its associated businesses continue to trade on a normal basis and the day to day operations of such businesses have not been effected by the above event.

While an interesting definition of what is "normal", this belated entry into our competition is clearly not strong enough to cause our distinguished panel of judge (AA) to reverse the earlier award to Dr. Adnan Musallam and TID.   Though I suspect there will be additional opportunities for further entries as time passes.

DIFC Court to Hear Case by Amwal AlKhaleej Against Abdullah Brothers

The National reports that the DIFC Court has rejected a motion by counsel for the Abdullah Brothers to the DIFC Court to dismiss the case for lack of jurisdiction.

Earlier post here.

Agility Wins Kuwaiti Court Case

Agility announced on the KSE today that the Kuwaiti Cassation Court (the highest court in the land) had ruled in its favor in the case brought against it by Kamal Sultan.  KS was asserting a right in the contracts signed between Agility and the US Defense Department.  This is a final judgment against which there is no appeal.

Agility may have preferred a victory in another venue, but this is a victory nonetheless.

English language press release here (from Dubai Financial Market).

Press release from KSE below.

[8:44:28]  ِ.ايضاح من(اجيليتي) بخصوص صدور حكم لصالحها ضد "شركة كمال السلطان"‏
يعلن سوق الكويت للاوراق المالية بان شركة المخازن العمومية (اجيليتي) ‏
افادت بان محكمة التمييز قضت برفع الطعن بالتمييز رقم 1234/2008‏
المرفوع من شركة كمال مصطفى السلطان ضد شركة المخازن العموميةواخرين بجلسة
ِ20-04-2010وبذلك يكون النزاع القائم بشان الادعاءبوجود عقد محاصة بين شركة
كمال مصطفىالسلطان وشركة (اجيليتي) وادعاء شركة كمال مصطفى السلطان بان لها ‏
حقوق مالية مرتبطة بهذا العقد قد انتهت بصورة قطعية ونهائية.‏
وقد انتهت عدالة المحكمة برفض الطعن وبتاييد احكام القضاء التي قطعت بان ‏
هذه الشركة لا وجود لها فى الواقع ،وانه قد تم التقايل عنها وان شركة كمال ‏
السلطان لم تنفذ اى من التزاماتها الخاصة بالشراكة على النحو الموضح تفصيلا ‏
بالاحكام القضائية المؤيدة بالحكم اعلاه ،وبذلك تكون القضايا المرفوعة من ‏
شركة كمال السلطان ضد شركة المخازن العمومية قد انتهت بحكم نهائي وبات وجائز
لحجية وقوة الامر المقضي فيه بما يمنع اعادة طرح الموضوع على القضاء مجددا .‏

2-3

Isn't Wiggum a character on The Simpsons?

Neat Ad

Nothing whatever to do with the GCC or the financial markets, at all.

The Long Wait is Over - Finally

From Ithmaar's press release on the BSE this morning.

“The CBB’s formal approval allowed Ithmaar to immediately implement its highly anticipated plans for a comprehensive reorganization with its wholly-owned subsidiary, Shamil Bank,” said HRH Prince Amr. “The reorganization involved both banks pooling their resources together to create a single, more efficient and significantly stronger retail- focused bank with an Islamic license under the Ithmaar brand. Although the Shamil Bank brand now no longer exists, the reorganization is entirely seamless and there is no change, whatsoever, in customer, depositor or investor accounts or relationships,” he said.

The unbearable suspense ends with one quick stroke, a seamless stroke at that.

Kuwaiti Banks to Sue Saad and AlGosaibi This May

Following up on an earlier story, AlQabas reports that the lawyers for four local banks (named earlier as Kuwait Finance House. Commercial Bank of Kuwait, Gulf Bank and Burgan Bank) are putting the finishing touches on the "files" (cases) which will be filed in London and Riyadh.  Apparently, some of the loans (which are described as being no less than US$1.5 billion) are subject to Saudi law!

According to the article, the motive for pursuing the cases in Court is that negotiations weren't fruitful.

The article also mentions the ongoing suit by AlAhli Bank of Kuwait against Saad in the New York Supreme Court.

AlKhorafi Group Moves on Oula Fuel and Gulf Bank

AlQabas reports that the AlKhorafi Group has increased its stake in two Kuwait companies.

1. Oula Fuel (KSE Symbol 645):  A 40 unit gas and service station chain.  Shares were bought from National Investment Company by companies owned by Mahmoud Haidar (Emerald Group) in the amount of 38.2 million shares at KD0.420 per share (roughly KD16 million).  But shares were for the AlKharafi Group and other allied investors.
2. Gulf Bank (KSE Symbol 102):  A major commercial bank in Kuwait.  Major owners are the AlGhanem Family, Behbehani, KIA and now shown on the KSE website "Emerald and others".  Reportedly, AlKharafi has been buying shares in the KSE and is one of the major shareholders.  

AlQ reports that directors at both Oula and Gulf are expected to resign shortly so that AlK and his co-investors can appoint their own candidates to the Boards.

Kuwait Court Delays Action in Boubyan Bank Case Against AlAbraj Holding

AlQabas reports that legal sources informed it that the Court decided on 20 April to postpone action in Boubyan's bankruptcy case against AlAbraj until 6 June.  This appears in part to be to allow the addition of a fifth defendant, an unnamed local bank, in the case.  The article also notes that Boubyan had filed a motion to compel other Kuwaiti banks to disclose any AlAbraj assets they held.  No doubt in an attempt to block these and eventually realize them.

Boubyan's attorney reportedly asked the Court to set the future hearing as soon as possible given the long and persistent delays so far. (Welcome to the GCC court system!).  On a closing note, AlQ comments that Boubyan's (separate) case against the Board of Directors for temporary compensation is scheduled for a hearing on 27 April.

Idiocy Knows No Borders: The Great Microchip Danger

At times of national danger, it's particularly comforting to know that there are those out there ever vigilant to manifest threats to our way of life and wise enough to develop workable solutions.

The Georgia Legislature has stepped up to take decisive action to criminalize the involuntary implanting of microchips in its citizens.

And from the testimony of the lady in the article apparently not a moment too soon.

Three troubling thoughts though:

1. If evildoers out there (if I may be allowed to coin a term) decide to plant a microchip in the unsuspecting citizen, is a misdemeanor penalty likely to deter them?
2. If fact since the crime is involuntary implantation, won't that just lead them (and if you have to ask who "they" are, well you may already have been implanted) to refine their mind control techniques?
3. The two main sponsors of the bill are Majority Leader "Chip" Rogers and "Chip" Pearson.  And that is perhaps the most troubling fact of all.  And may be the only fact in relation to this bill.

Capitalism and Bad Investments

An absolutely brilliant letter in the FT today from Mr. Peter Berchtold.

Investors know there are two opposite sides to every transaction. If you fail to understand what you are buying don't go blaming the seller. I am always amazed to see big, so-called sophisticated investors try to litigate themselves out of a bad investment.

Or sometimes look for the Shaykh up the road to bail them out.   Or request a bail-out from their governments not mind you to save their profits but out of a selfless concern for the good of their respective national economies.

Damas Elects New Board

As you've probably seen in press reports yesterday, Damas held an Extraordinary General Meeting of shareholders yesterday at which a new board was elected.  Here's the press release on NasdaqDubai with more details

As to the new board, the new members are:

1. Abbas G. Ameeri
2. Abdullah Fadhel Ahmed AlMazrui
3. Anan Fakreddin
4. Ehsan Abbas
5. Ibrahim Belsalih
6. Nicholas G. Hegarty
7. Simon Copleston
8. TN Pratap
9. Tariq L. Ali

The EGM also approved:

1. Dual listing of shares in both US$ and AED.  (Previously, Damas was listed only in US$ on NasdaqDubai).
2. The resignation of the former directors.

As you'll recall the DFSA settlement required a change in the Board along with other measures outlined here.

Dubai World Restructuring – Why Interest Rates Matter

You may have seen the news reports that DW and its creditors were haggling over the interest rate on the rescheduling.  DW reportedly having offered 1%.  And its creditors (or some of them) insisting on 5%. From the context it seems that this is a fixed rate and not a margin over a benchmark like Libor. I can't imagine that Reuters would confuse "margin" with "rate".

Of course, both parties are negotiating so it's probably safe to bet that neither side is expecting to get what it is asking for.

What do these levels mean in terms of a haircut? What's the appropriate discount rate to use for a net present value calculation?

Let's turn to the second question first.

There are two discount rates we can use. 

The creditors' proposed rate of 5%.  This rate is most likely designed to minimize/eliminate the haircut that will arise from an IAS #39 impairment test due to the new rate being lower than the contractual rate.  (Recall the assumption is that lenders are carrying their DW exposure at historical cost.  If they're not, then IAS mandates they discount estimated cashflows based on a market rate.  Also we're making a critical assumption here that the banks are estimating they will receive all their original principal back plus interset).  Why this focus on an accounting haircut as opposed to looking an economic value?  Banks will be most concerned about accounting losses as these are the most visible. 

How do we estimate the economic (real) haircut?  We can use a recent market rate. DEWA just raised a US$1 billion five-year bond at 8.5%.  Some caveats.  It's important to note it's highly likely that the DEWA bond was deliberately priced above market. Why? First of all, Dubai cannot afford to have a major transaction fail in the market. So the bond has to be priced to ensure success. Second, the issue was reportedly 11x oversubscribed. That in itself is a pretty good indication that the price could have been tighter. Of course, Dubai would not only like the deal succeed but also to have a very strong display of market appetite for its paper for this highly visible post crisis issue.  So another reason to overprice.  While the rate might not necessarily be the right market rate for DEWA credit,  the Dubai World rescheduling is not a BBB- credit like DEWA. So we can argue that 8.5%  is probably a more reflective market rate than the 5% rate and thus a better measure of economic loss.

It's important to note that neither rate is completely accurate.  But we're not after what is fundamentally elusive precision here as much as we are interested in a directional measure of the haircut.

Now that we have our discount rates, we need cashflow scenarios.

The actual proposed cashflows on the rescheduling aren't known so we'll use two proxy "worst" and "best" cases to set bounds - much as we did with the interest rates.

First, a bullet repayment at the end of the repayment term with interest at 1% being paid annually. This represents our worst case from a calculation of discount.   While this would be the ideal debt restructuring from DW's perspective, it's highly unlikely this could be sold to creditors.

Second, equal amortization of principal with interest at 1% being paid annually. This represents our best case. The ideal case from the lenders' perspective (absent of course an even better case of a generous neighboring Shaykh paying off the entire debt today).  But not very realistic and certainly not what DW would want.  It is highly likely that restructuring principal amortization will be back ended as is typical in debt restructurings. 

And finally to conform to the details of the restructuring – we'll model a 5 year and 8 year tranche.

To summarize, these two scenarios give us a reasonable approximation of the best and worst discounts. Results are rounded to the nearest percentage. The discount can be figured by subtracting the NPVs shown below from 100%.

Bullet Principal Repayment 1% Interest Rate Paid Annually in Arrears

Discount Rate	5 Years	8 Years
5%	83%	74%
8.5%	70%	58%

Equal Principal Amortizations 1% Interest Rate Paid Annually in Arrears

Discount Rate	5 Years	8 Years
5%	89%	85%
8.5%	81%	74%

On the 5 year tenor, the banks are trying to avoid an accounting "haircut" of between 11 and 17%. And on the 8 year tranche between 15% and 26%. 

From an economic perspective the haircut is even more 19% to 30% on the 5 years and 26% to 42% on the 8 years. As stated above, the banks are going to be more concerned about the visible accounting haircut. 

These are fairly crude approximations - the compound effect of uncertain cashflow patterns and inexact discount rates - but they give an idea of what is at stake here.

Global Investment House - Proposed KD100 Million Increase in Capital

Today GIH announced on the KSE that it would hold its Annual General Meeting and Extraordinary General Meeting of Shareholders on  5 May 2010.

3 key agenda items were listed:

1. Shareholder agreement that no dividends be distributed for Fiscal Year 2009.
2. Cancellation of the previous shareholder approval to issue KD150 million in new shares at 100 fils each (nominal value) with issuance expenses to be no more than 10 fils per share.  This was granted on 15 June 2009, but was never used.
3. Shareholder agreement to issuing KD100 million in new shares at 100 files per share with issuance expenses to be no more than 5 fils per share.  This would be a priority rights offering for existing shareholders with the approval covering the entry of new shareholders for any shares not taken up by the existing shareholders.

AlQabas has an article in its 19 April issue stating that:

1. Some local and regional banks are considering the advantages of participating in the share offering on the theory that there would be a capital gain from the entry price.
2. Foreign banks are said not to be evidencing any interest in the participating.
3. The article also notes that GIH needs the money.  Shareholders' equity was eroded during the crisis.  Additional capital would provide some support for the successful implementation of the restructuring.  What's interesting is the particular point made that while GIH should have no problem making the first year's debt service payment, it's expected that there will be difficulties with the second year payment.   
4. As I've written before, the problem with the restructuring was its short tenor (three years).  The main repayment of the facility is intended to be sales from the Global Macro Fund (its holdings of listed companies).  To expect markets to recover in that short period was to be charitable optimistic.    The deal also has a step-up interest rate structure with the rate increasing 1% per year from 1.5%.  Banks do really need to be responsible - not only in underwriting but also in working out problem credits.  I'm not advocating a  100 year deal at 0% interest.  But the banks could have structured a longer deal with a mandatory cashflow sweep for prepayments with triggers for asset sales based on market recovery.  That way, if markets recover early, the banks get paid.  And, if markets don't, there isn't a potentially fatal second default.  The goal is to milk the cow not kill it.    

Here's the announcement from the KSE (Arabic only).

[9:41:29]  ِ.اجتماع الجمعية العمومية لبيت الاستثمار العالمي في 5-5-2010 لبيانات 2009‏
يعلن سوق الكويت للأوراق المالية بأن الجمعية العمومية العادية
وغير العادية لبيت الاستثمار العالمي سوف تنعقد يوم الاربعاء
الموافق 5-5-2010 في تمام الساعة 11 صباحا في مقر الشركة
حيث سيتم خلالها مناقشة ما يلي: ‏
ِ1- عدم توزيع ارباح عن السنة المالية المنتهية في 31-12-2009.‏
ِ2- الموافقة على الغاء موافقة الجمعية العامة العادية للشركة المنعقدة
في 15-06-2009 عن نهاية السنة المالية 2008 بزيادة رأس مال
الشركة بما يعادل 150.000.000 دينار كويتي موزعة ‏
على 1.500.000.000 سهم وبقيمة اسمية تعادل 100 فلس للسهم
الواحد وعلاوة اصدار 10 فلوس للسهم الواحد ومصروف اصدار 5 فلوس
للسهم الواحد
ِ3- الموافقة على زيادة رأس مال الشركة بما يعادل 100.000.000 دينار كويتي
موزعة على 1.000.000.000 سهم وبقيمة اسمية 100 فلس للسهم الواحد
وعلاوة اصدار 5 فلوس للسهم الواحد على ان لا يتجاوز مصروف الاصدار 5%‏
من القيمة الاسمية للسهم الواحد وان يتم استدعاء زيادة رأس المال على دفعة
واحدة والاولوية بالاكتتاب للمساهمين المسجلين بسجل المساهمين في اليوم
السابق على تاريخ دعوة مجلس الادارة للمساهمين للاكتتاب كما يجوز دخول
مساهمين جدد بالفائض غير المكتتب فيه من قبل المساهمين وتفويض مجلس ‏
الادارة بوضع الضوابط والشروط والقواعد لاستدعاء رأس المال
كما سيتم مناقشة بنود اخرى على جدول الاعمال.‏
علما بأن هذه التوصيات تخضع لموافقة الجمعية العمومية والجهات المختصة.‏

 

International Investment Group Appoints KPMG Advisory WLL Kuwait as Financial Advisor

Today IIG Funding (the Issuer) and Deutsche Bank (the Delegate) issued separate announcements on Nasdaq Dubai related to the payment default on IIG's US$200 million sukuk.

Basically, these are as required by the legal documentation governing the transaction.  Both parties must notify certificateholders of their right to vote for a dissolution (a minimum 25% of certificateholders must so vote) in order for the two parties to be required to take action.  They must also receive indemnification satisfactory to them from certificateholders for taking such action as well.

Deutsche Bank mentions that IIG has engaged KPMG Advisory WLL Kuwait as a financial advisor.  Here's DB's quote of an extract from a letter it received from IIG.

The Obligor has appointed KPMG Advisory W.L.L., Kuwait ("KPMG") in relation to carrying out an independent business review exercise for the Obligor, preceding a detailed financial restructuring engagement at a later date. KPMG's scope of work will include preliminary assessment of the company's present financial position and the possible options to meet its obligations.

This will involve:

• a study of the cash position, debt obligations (servicing and repayments) and cash flow requirements (short to medium term); 
• understanding of the timing and extent of expected cash inflows; 
• analysing the Obligor's cost structure and investment portfolio and understanding the management's strategy and intent regarding the same;  
• carrying out a high-level desktop valuation analysis of the Obligor's significant group  companies/investments as at 31 March 2010 or as at any other agreed cut-off date;  
• performing sensitivity analysis on the base forecasts provided by the management;  discussing actions (if any) taken/planned by the management; and  
• identifying the key gaps and issues the business faces and recommending alternative options and next steps.

The intention is that an interim report will be provided by 31 May 2010 with a final report available by 30 June 2010.

Some comments.

1. First of all the scope of work is typical "accounting firm" speak.  All the major steps are set forth, including the initial understanding of the company's position. 
2. Right now what the above describes is the first stage in a two stage process with the second stage involving detailed advice on the formal restructuring. 
3. Since the sukuk is secured by certain investments (investments in affiliates and available for sale investments) more than a desk top study will need to be done at some point as these are a key source of cashflow to IIG.  

Bin Sulaiman NOT Released on Bail

17 April 2010 Update:  The Attorney General of Dubai has issued a statement that Dr. Bin Sulaiman has not been released.

Below is the original post which is erroneous.

According to the Gulf News, Dr. Omar Bin Sulaiman, Former Governor of the DIFC, has been released on AED 50 million bail.  This amount is equivalent to the amount he is being investigated over.

As you'll recall earlier Dubai had passed an anti corruption law, which among other things provided  for immediate release in the case of full restitution. 

Of course, according to the press article, the amount involved here is "bail" and not a return of the disputed funds.