The Investment Dar - Analysis of 2008 Financials - Auditors' Report

Earlier today TID released its 2008 financials on NasdaqDubai (in connection with TID's Sukuk).  Apparently, it's not yet had the opportunity to release them on its website.  Nor do they appear yet on the KSE website, but then again it does take quite a bit of work to accomplish a task like this.

Let's start with the audit report - which should be the careful investor's first stop in reading any financial report.

There are a couple of new bits of news here - previously not reported:

1. A change in auditors - or at least one of them.  PwC has exited.
2. A report of a material violation of Central Bank of Kuwait exposure limits in (you guessed it) a related party transaction.

First the change of auditors. While KPMG is still engaged, Deloitte now appears in place of PricewaterhouseCoopers.  (By Kuwait regulations a Kuwaiti company must engage two auditing firms).  No reason given why PwC left.  Unclear whether they excused themselves or were excused.  I'm guessing the former for both risk management reasons (not just here but related to other troubled auditing clients) as well perhaps disagreements over the application of some accounting principles. I'm sure that all of these are theoretically in line with the letter of IFRS,  though I suspect they may have been a bit aggressive for PwC's taste.  Having said that I'd acknowledge that I tend to be a bit "high church" on this topic so I may be projecting my own feelings onto PwC.  See the comments section for some discussion of the shuffling of local partners among PwC, E&Y, and Deloitte.  There may be other factors in play here than the ones I mentioned above.

Second, as noted earlier, the auditors have disclaimed an opinion.  That is, they did not express an opinion on the financials.  Their position is based on (a) uncertainty about ability to agree the restructuring and (b) the fate of the Boubyan Bank shares.  If there's an adverse judgment against TID on the latter it could lead to an approximate KD67 million or so loss - a major impact on its KD201 million in shareholders' equity.

On the former - the restructuring - TID's auditors state:  "We have not been able to obtain sufficient, reliable audit evidence to determine whether the Group will be able to reach an agreement to restructure its debt obligations."

What's particularly interesting is they are making this statement not as of 31 December 2008 but as of 13 April 2010 the date they signed their audit report.  A date after the FSL Court had granted  at least initial protection under the FSL to the company.

No doubt, the auditors are being careful.  They can't be 100% sure and so prudence would dictate such an approach. A completely rational response not only given the situation (a restructuring) but also the company's reputation.  

Finally, there is a bit of new news in the last paragraph in the section on legal and other regulatory requirements where the auditors note that they have not become aware of any material violations except relating to Murabaha and Wakala placements with a related party, "which exceeds the credit concentration limit stipulated by the Central Bank of Kuwait" as disclosed in Note 7.   Apparently, not a sufficiently important item to be mentioned in TID's earlier announcement on the KSE of its 2008 summary financial results, where it mentioned the two reasons for the auditors' disclaimer of an opinion.  Sitting here it seems to me that a material violation of a CBK regulation would be a bit of material information that an investor would want to know to enable him to make an informed decision.  

As an aside I'd note there is also an apparent similar issue for The Investment Dar Bank Bahrain which seems to have placed KD253 million with TID as disclosed in Note 16.  While TIDBB's website is no longer password protected, it has no content (though to be fair it has some really nice pictures) so it's a bit difficult to see what percentage this amount represents of its capital.

I'll go out on a limb here and guess well over 25%.

TID's report (Note 2 page 9) informs that TIDBB's auditors have modified  their earlier 2008 audit report to include an "emphasis of matter" item that if TIDBB can't recover the placements with TID it might not be able to continue as a going concern.  Not having seen the original audit report for TIDBB, it's unclear why this sort of eminently reasonable comment wasn't made before, particularly given the rather large "bet" TIDBB had placed on TID.

Comments on the body of the financials will follow.

GCC Refuses to Revive Free Trade Agreement Talks With EU

AlQabas reports that the GCC has rejected recent European attempts to revive the trade talks.  The key issue is the right of states to impose export duties.  And the key focus is the petrochemical industry where the GCC have a cost advantage - not only in terms of low feedstock costs but also newer technology.

The GCC has rejected the latest European proposals stating that while both sides recognize the right to impose export duties, the GCC wants that right constrained by WTO regulations and agreements.

Free trade negotiations have been going on for some 20 years and were suspended late 2008 over this issue.

The GCC did sign a free trade agreement with the much smaller four member European Free Trade  Association (Iceland, Liechtenstein, Norway and Switzerland)  in 2009.

Burgan Bank Second Round Rights Offer a Success

Burgan announced on the KSE today that its shareholders had subscribed for roughly 89% of the 360 million shares not taken up in the first round of its Rights Offer.  The remaining 38,266,812 shares are now being offered to the general public during the period 2 May through 9 May.

[13:34:9]  ِ.الاكتتاب في اسههم زيادة بنك برقان
يعلن سوق الكويت للأوراق المالية عطفا على اعلانه السابق ‏
بتاريخ 13-4-2010 بشأن الاكتتاب في زيادة رأس مال بنك
برقان فان البنك افاده بما يلي:‏
فقد تم الاكتتاب خلال الفترة من 13-4-2010 وحتى 27-4-2010‏
بعدد 321.733.188 سهم ومن ثم فقد تم طرح فائض الاسهم البالغ
عددها 38.266.812 سهم للاكتتاب العام الذي تقرر له الفترة
من 2-5-2010 الى 15-6-2010 وقد تم تغطية الاكتتاب في كامل
الاسهم المطروحة للاكتتاب عملا بنص القانون.‏

The Investment Dar - 2008 Financials Released

TID Global Sukuk  released TID's 2008 financials on NasdaqDubai this morning.  I haven't seen them yet on TID's website, but as we all know it can be such a bother transcribing all those numbers and then posting them. A burden made even more difficult by the nature of the numbers to report - a loss.

Once I've taken a look I'll post a comment if anything catches my eye.

DIFC Investments Reports US$562.1 Million Loss

The National carries an article today about DIFC Investments loss.  

Beyond the details, this is another sign that the economic distress in the Emirate is not limited to Nakheel and Dubai World. 

Rather the impact from the crisis is broad.  With new funding constrained, the Emirate  is now in a very difficult position.  It simply cannot devote all of its limited cash to triage. - salvaging those bits with the most commercial promise. Substantial funds have to be devoted to paying Nahkeel's creditors to prevent a complete implosion of the economy.  And to be clear, I'm not focused so much on banks and other financial creditors as much as on trade creditors and investors/purchasers in the projects.

International City Dubai

Sewage floods a road in the Russia and England area of International City yesterday.  

Paulo Vecina / The National

That is a heck of a lot of sewage.  It is hard to avoid drawing the conclusion that a few corners were cut in building the project.

Perhaps, our resident civil engineer/construction expert The Real Nick can weigh in.

AlAbraj Holding "Small" Shareholders Call for Emergency Ordinary General Meeting

PLEASE NOTE THIS POST IS ABOUT A KUWAITI COMPANY, NOT THE UAE COMPANY ABRAAJ.

Both AlWatan and AlQabas report that small shareholders in excess of the 10% required under Kuwaiti Commercial Law have banded together and engaged a law firm to raise a complaint against the Ministry of Commerce and Industry and the Kuwait Stock Exchange for failure to discharge their supervisory duties with respect to AHC and to lodge the formal demand that the MOCI call an emergency ordinary general meeting of shareholders.  The meeting would be designed to protect the rights of the small shareholders in the company, including the right to elect a new board.

You'll recall the Boubyan Bank is pursuing a legal case to have AHC declared bankrupt.  

Also AHC is currently suspended from trading on the KSE for failure to provide its financials  for 31 October 2009 and 31 January 2010 within the required time.

The AlQ article is longer and has some more details, including that the Boubyan debt was incurred to purchase a majority stake in International Leasing and Investment.    According to the KSE, AHC  currently owns some 39.28% of ILI.

With respect to AHC itself small shareholders own 58.5% of the company and large shareholders some 41.5%.

Kuwait International Bank - Dr Mahmoud Abu Al Uyyun as General Manager

AlQabas reports that KIB has secured Central Bank of Kuwait approval to appoint Mahmoud Abu AlAyyan as General Manager.

Mahmoud is a long serving banker of Egyptian origin.  He was Deputy to Egypt's Director at the IMF, Deputy Governor of the Central Bank of Egypt, Governor and Chairman of the Board of the Central Bank of Egypt.  He's also been an economic and financial advisor at the Kuwait Fund for Arab Economic Development.  The AlQ article details his other banking experience.

A pair of safe hands to implement the new strategy.

Dubai Holdings Commercial Operations Group - Voluntary Suspension of MTN Listing on Nasdaq Dubai

DHOC announced that it was voluntarily suspending its listing due to failure to provide 31 December 2009 financials within the mandated time frame.  It expects to report by 16 May as reported earlier.

NasdaqDubai also announced that it had suspended IIG for failure to provide its 2009 financials as well as the continuing suspension of the following (already suspended) for failure to provide 31 December 2009 financials:

1. TID Sukuk
2. Nakheel 2
3. Nakheel 3

Idiocy Knows No Borders: Virginia Attorney General Cracks Down on Pornographic State Seal

 

Fully Clothed and Wholesome Seal Shown Above

The Commonwealth of Virginia's fearless and crusading Attorney General, Ken Cuccinelli, has struck a decisive blow for decency and morality in the Commonwealth.  Not since John Ashcroft has a public servant taken so needed a step.

Seems that the Great Seal of the Commonwealth was pornographic.  It was almost as big a moral threat as those two hijabless members of the Majlis AlUmma in Kuwait.  And while not perhaps rising to the same level as the manifest danger of provocative manikins in the malls of Bahrain that were according to the wise solons in the Bahrain lower chamber leading the callow youth of the nation (males) astray, it was nonetheless a major danger to society.

Note:  Since this is a family site, I have refrained from posting the previous pornographic logo.  Those overcome with prurience can find it at the link above. Shame on you!

While it's hard not to applaud this step, one thing is troubling me.  The figure depicted in the Great Seal is the Roman pagan goddess Victus. Can the war on Christmas have started early this year? Is Brother Ken a foot solider in this endeavor?

The Investment Dar - FSL Court Waiting for Central Bank of Kuwait Input

AlWatan reports that the Central Bank is expected to give its comments on TID's restructuring plan (though no time frame is discussed in the article).  Once the CBK gives its input and assuming it supports the plan, TID expect that the FSL Court will quickly  issue the final order to implement the plan.

Not a lot of  new "news" in this article.  The real issue here is how long the CBK will take for its review of the plan.  Hopefully, less time than it took to get TID's 2008 financials approved - which by the way have yet to make it on to TID's website.

Drill, Baby, Drill

CAUSE #1  - Simple Minded Politics

CAUSE #2 - Simple Minded Regulation

By 2003, U.S. regulators decided remote-controlled safeguards needed more study. A report commissioned by the Minerals Management Service said "acoustic systems are not recommended because they tend to be very costly." 

An acoustic trigger costs about $500,000, industry officials said. The Deepwater Horizon had a replacement cost of about $560 million, and BP says it is spending $6 million a day to battle the oil spill. On Wednesday, crews set fire to part of the oil spill in an attempt to limit environmental damage.

That's right an acoustic trigger would have cost BP US$500,000!  Not only did BP not install one, it apparently didn't buy any oil spill insurance.  Perhaps two very strong arguments why one shouldn't rely on the "free market" to provide protection.

EFFECT

Hissa Hilal - New Book of Poetry on Divorce and Women's Rights

According to The National Ms. Hilal's new book. Divorce and Kholu’ Poetry: A Reading of the Status of Women in Tribal Society, Nabati Poetry as a Witness, is stirring up a controversy over whether women had more rights in the 1950's than now.

“Ms Hilal wants to show that women have always had the right to voice their opinions about who they wanted to marry,” he said. “It is an important book for the new generation to read.”

Whether one agrees or disagrees with the central thesis in her book, the important point is to get people thinking about the rights of women.

And perhaps then they'll remember women like  نسيبة بنت كعب  Nusaybah Bint Ka'ab and ask what might have happened if at Uhud she decided that "mixing" with men folk was haram.  

Kuwait International Bank - Board Resignations for Legal Reasons

Today both AlWatan and AlQabas carry a KUNA news report attributed to Shayh Muhammad AlJarrah AlSabah from 29 April.  He explained that the resignations of Fahad Al Ibrahim and Sanaa  Al Juma from the Board of KIB were purely for legal reasons.

He noted that within one month of election Board members must deposit their entire "qualifying shares" with an accredited bank.  The amount required is the lesser of 1% of the total number of shares of the firm or KD7,500 - whichever is less.

Neither Al Ibrahim nor Al Juma managed to do this and so "voluntarily and out of respect for the law" they resigned.  Shaykh Muhammad will be calling upon the "reserve directors" to serve in their place.

This is quite a remarkable story.  And I'm not sure what to make of it.  It's sort of like the old Ripley's "Believe It or Not".

1. Did they buy the shares but the maid knocked the "post it" note  "Deposit shares before 27 April" off the talaja and they missed the deadline?
2. Did the two newly minted directors not know of this requirement?  In which case one might ask about KIB's selection procedures for candidates.  And its post election counseling of newly elected directors.
3. Did the two directors know but just forgot?  Again might this suggest slightly more stringent selection criteria? 
4. Did the two directors know but after sitting in on their first board meeting, decide that even such a modest purchase was an unwise investment? 
5. Did they want to purchase the shares but like many Kuwaitis find they are tapped out with the local bank to finance another purchase?  Perhaps, the Majlis Al Umma's unceasing efforts to relieve the personal loan burden of Kuwaiti citizens have received yet another compelling reason to go forward.

And think of the embarrassment that this notice must be causing the two directors.  I think that officially it should have been said that they wanted to spend more time with their families.  As we all know or should, one's family is quite important in Kuwait.  And then of course there's The Family which some say may be even more important in some cases.  I'm sure there's a family or a Family involved here.

Damas Lenders Extend Standstill Two Months

Damas announced on NasdaqDubai late this afternoon that a majority of its lenders had agreed to extend the standstill two months to give the company time to complete its rescheduling proposal.

29 Apr 2010 - 17:48:58

Damas International Limited (the Company) announces today that the Company has signed an extension to the standstill agreement signed with a majority of its bank lenders.

The standstill agreement which was due to expire on 30^th of April 2010, has been extended for a period of two months in order to allow the Company to finalize its restructuring plan.

The Company is pleased to announce that a majority of its bank lenders have approved the extension which proves once again the confidence of the Company's bank lenders in the strength of the underlying business model of Damas, a Company spokesman stated.

I'm not sure that a standstill is really effective if only a majority of lenders have signed.  All it will take to start a panic is if one lender break ranks.

I'm also not sure that extending the standstill proves anything except the banks feel it is the best way to maximize their recovery.    As noted earlier, the UAE has fairly low scores among the GCC for recoveries in insolvency.  And judging by the last minute timing, it seems that sentiment built "slowly" to a positive response to the company's request.

Boubyan Bank - 1Q 2010 KD1.6 Million Profit

Boubyan disclosed its 1Q10 results on the KSE today (press release below).  KD1.6 million in income versus a KD11/7 million loss om 1Q09.

[9:57:0]  بلغ ربح (بنك بوبيان) 1.6 مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة بنك بوبيان (بنك بوبيان)‏
قداعتمد البيانات المالية المرحلية للبنك للفترات المنتهية  في 31-03-2010 ،
وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند      ال3 أشهر المنتهية في 31-03-10    ال3 أشهر المنتهية في 31-03-09‏
الربح(د.ك)                 1.620.000                        (11.721.000)‏
ربحية السهم(فلس كويتي)       1.04                                  (8.42)‏
اجمالي الموجودات المتداولة     926.426.596            816.152.664‏
اجمالي الموجودات           1.132.288.218              906.293.972‏
اجمالي المطلوبات المتداولة    894.313.613           773.480.853‏
اجمالي المطلوبات            917.581.930            779.565.379‏
اجمالي حقوق المساهمين       212.745.760          124.376.425‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الخميس الموافق 29-04-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 1.016.111د.ك ‏
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 197.024 د.ك .‏
و عليه سوف تعاد الشركة للتداول بعد عشر دقائق من نزول الاعلان .‏

Tabreed Announces "Postponement" of Extraordinary General Meeting Due to Lack of Quorum

Tabreed announced on the Dubai Stock Exchange that its recent attempt 28 April (the second one) to hold an EGM failed due to a lack of a quorum.  Next meeting will be held 5 May.

Third time lucky?

Dubai Holdings Commercial Operations Group - Delay in Financials

From today's Nasdaq Dubai.

29 Apr 2010 - 09:34:26

Dubai Holding Commercial Operations Group LLC (“DHCOG”) has extended the publication date for its 2009 consolidated financial statements by two weeks until 16 May 2010 as DHCOG has extensively realigned its operating businesses, undertaken a conservative revaluation of its real estate portfolio, and has conducted a thorough impairment testing exercise across all its projects.

These steps have resulted in a slight delay in completing the consolidation process of its financial statements.

The expressions "conservative revaluation of its real estate portfolio" and "thorough impairment testing exercise across all its projects" are unlikely to be accompanied by bumper earnings for 2009.

The Investment Dar - Creditors Press for Movement on Asset Sales

AlQabas has a report on the meeting in Dubai between TID and the Creditors' Co-ordinating Committee this Tuesday.

Here are the key points from the article.

The first topic discussed was the sale of Boubyan Bank shares where the desire is to get the best possible price.  Mike Grant, the Chief Restructuring Officer, is reported to have briefed on a meeting with National Bank of Kuwait in which they evidenced continuing interest in purchasing the shares assuming that TID and Commercial Bank can come to an agreement.  NBK is said to want to purchase at the market price.  The article then mentions that the price should be no less than KD0.600 per share.  BB has been trading at around KD0.540 to KD0.560 the past few days.  So I suppose that's not an unreasonable price. The article notes that the BB shares are outside the asset realization program under TID's restructuring so that they are not pressed to sell them.  NBK is awaiting a formal written response on the potential sale, including the proposed sales price.

The second topic has to do with the sale of assets that are subject to the restructuring.  Nothing has been done until now because of the previous legal cases which frustrated the closing of the restructuring.  Now with TID's entrance under protection from the Financial Stability Law, it's expected apparently that up to eight more months may pass before the restructuring will be finalized.  Since TID has to pay 5% of the principal amount during the first year, the lenders are encouraging the company to develop a clear asset sales plan so that it will be ready to spring into action when legal formalities are completed.  One target is to have foreign assets ready as the expectation is that these will be able to be sold quicker than Kuwaiti assets.

The Company has written expressing its commitment to move forward, but has apparently noted that there might be circumstances outside its control - a decision by the FSL Court or the Central Bank.  No doubt, this message sent more than one shiver down the creditors' spines.  And probably revived some of the previous concerns about management - the sort that motivated creditors to ask the Central  Bank to put a monitor into TID.  TID's letter in this regard has been forwarded to the Creditors' Co-Ordinating Committee's lawyers for study.

Golden Belt Sukuk #1 - Vote for Dissolution But Delegate to Take No Action

Citicorp as Delegate for the above transaction posted a notice on the BSE today that at least 25% of certificateholders had voted to dissolve the trust.  That in effect represents a sufficient vote to accelerate the maturity of the sukuk.  That means the issuer is obligated to pay.  As a shell company with no assets, the issuer will not be able to pay.  

At that point, Saad's purchase obligation will be triggered and the debt will become a direct unsecured liability of Saad.  

However, as pointed out in my earlier post, the certificateholders have no legal access to any real assets.  The land being "rented" in this transaction remains legally registered in Mr. Al Sanea's name.  So in effect they hold an unsecured obligation.  That means they will join the ranks of other Saad unsecured creditors - a large group both in terms of numbers of creditors and amount of debt.  That will enable them to take legal action against Saad.

So no guarantee of repayment.

One wrinkle, despite the vote, the Delegate does not have to take any action until it has been indemnified to its satisfaction.  Citicorp advises in the notice that it is not so indemnified.

I suspect the issue is certficateholder agreement to defray the not inconsiderable legal expenses associated with Citicorp taking action.  The issue is one of simple maths for the investors.  Will their ultimate recovery net of legal costs be positive?