The Investment Dar - Financial Stability Law - Central Bank Appoints Ernst and Young

AlQabas reports that it has learned that the Central Bank of Kuwait has appointed Ernst and Young as consultant to study TID's financials.  E&Y is said to have received the formal engagement letter yesterday (4 May).

As you'll recall from the earlier discussion of the Financial Stability Law, there are several steps in the process.

Once the special FSL Court has received the completed application from an investment company to enter under the FSL, the Court issues an immediate but temporary stay.  After interested parties receive formal notice of this action from the Court, they are given time to file any objections as to why the Court should not continue with the FSL process (which ultimately may result in the cramdown of dissident creditors through the staying of all legal cases).

At the end of this period and if there have been no objections or the Court did not find any of them compelling, it issues another notice and refers the debtor's case to the Central Bank of Kuwait.

That's the point we're at now.  The relevant chapter and verse from the FSL is Part 3 Article 19.   The CBK is to study the debtor's financials and determine whether a restructuring makes sense.  In other words can the company be saved?  If not, the company should be liquidated.  It then also evaluates the proposed restructuring plan to determine if it is  fair as well as sufficient to allow the company to continue as a going concern.  The CBK has four months to submit its report, though t is allowed an additional four months if required.  It's very important to note that the FSL gives the CBK the power to amend the restructuring plan if the CBK believes changes are required.

AlQ also mentions that next week TID's and the Creditors Co-Ordinating Committee's lawyers will meet in Dubai in a small working meeting to discuss certain (undescribed) details of the restructuring plan that they were unable to cover in the last meeting.

The article also notes that various courts have delayed hearing open cases and appeals related to TID until 17 and 24 May.  Technically these are not finally stayed until the FSL Court issues its final acceptance of the plan - which will follow the Central Bank of Kuwait's report.  The courts are  therefore going to keep these cases "live" but "napping" until the FSL Court issues its final ruling.  That way, if by some chance the FSL Court rules against TID's request,  the courts can proceed with these cases.

Idiocy Knows No Borders: When You Worship Guns, It's Just Natural

Representative Henry Burns

If you need an armed guard to protect you from fellow worshippers in your mosque, synagogue or church,  that may be a sign that it's time to find another house of worship.  

As part of the debate on this bill, which has been approved (this is America after all), one Representative raised an interesting point.

Rep. Charmaine Marchand Stiaes, D-New Orleans, said that when armed congregants shoot at an attacker, "nine out of 10 times they will hit a constituent of the  church and not the person they were looking for."

I guess down there in Waziristan, excuse me,  Louisiana there are enough shootings in churches to come up with these statistics. 9 out of 10.  Not 7 out of 10.   The answer is clearly  mandatory marksmenship lessons as part of Sunday school.

And perhaps the most telling quote of all .....

Under federal law, people who pose a heightened risk of violence cannot buy or own firearms, including convicted felons, domestic abusers, the seriously mentally ill and several other categories. Suspected terrorist is not one them.

Individuals on the government’s terrorist watch list can be barred from boarding airplanes, but not from purchasing high-powered guns or explosives.

Several attempts have been made to pass a bill to correct this error.  If you know the USA, you know that we love our guns.  The bill has repeatedly failed.

The National Rifle Association has come out more than once four square on the terrorists' constitutional right to "bear arms" and explosives as well.    It is they believe the original intent of the Founders.

KFH's CEO Vows Support For Aref Investment

Both AlWatan and AlQabas carried identical articles today relaying a CNBC-Arabiyya interview with Muhammad Sulayman Al-Omar, CEO of KFH.

He said that KFH which owns 52% of AIG (the KSE gives the holding at 53.08%) intends to act as lead bank in AIG's restructuring of its US$450 million in debts.  The company has good assets and it just needs time for them to recover their value and for AIG to return to its position in the market. 

Part of the strategy is to extend short term debt to give the company sufficient time for asset values to recover.  He mentioned new tenors between 18 months and 5 years.  

If you've been following news on the Kuwaiti financial sector, you know that there have been some rumors about KFH's financial position - including one about one to two weeks ago that the Central Bank of Kuwait was putting pressure on KFH which had disturbed their relationship.  KFH dismissed this as unfounded market rumor.

In his CNBC interview, Al Omar took pains to point out that KFH was doing just fine.  He noted that since AIG is consolidated into KFH's financials there will be no sudden surprise from its losses.  In good Essam Janahi fashion he noted that in any case most of these losses were unrealized. In a similar vein,  I have a colleague who has an "old" General Motors stock certificate in a very nice frame on his office wall.  Since he has not sold it, I believe that technically he hasn't realized the loss yet. 

Al Omar also described progress at KFH Malaysia - it has restructured its debts and a new GM has been appointed. There has been growth in assets of 7%, deposits 17%, and shareholders' equity 30%.  And that it had Malaysian Ringgit 485 million in revenues and MR 162 million distributed to shareholders. 

He also mentioned some other overseas subsidiaries under the rubric that their progress showed that KFH's franchise was broad enough to withstand any negative impact. 

New UAE Corporate Governance Code - Effective 30 April 2010

Below are the texts of the "new" corporate governance code.


Arabic language - which is the governing text.

English language - for convenience.

Kuwait International Bank - Board Accepts Resignation of Ra'id Jawad Bu Khamseen

Today AlWatan reported that the Chairman of KIB, Shaykh Muhammad Jarrah Al Sabah, announced that the Board had accepted the resignation of Ra'id Jawad Bu Khamseen.  The reason given was the same as with the two previous resignations - that Ra'id did not hold enough qualifying shares.  And Shaykh Muhammad personally assured that this was the only reason that Ra'id is leaving the Board.

And, if you're willing to believe that the son of Jawad BuKhamseen could not come up with  qualifying shares in what was his dad's bank, please post and leave your contact details.  I have some lake-front property in the International City development in Dubai.  It's almost as fragrant as Tubli Bay.   

The article also notes that Ms. Najah Al Suwaydi respectfully declined to take up her position for personal reasons.

The Board will call an ordinary general shareholders meeting in the near term so that shareholders can vote to fill the "gap" in the Board.

Looks like the new owners are moving smartly to put their personnel in the key positions.   Yes, I know there hasn't been any material change in ownership posted on the KSE.   "Family Values" as we say out in the West here.  And apparently in Kuwait as well.  There are no better values or so I am told.  And what better place to read about them than a family friendly newspaper like AlWatan.

Лучше поздно чем никогда: Dubai Makes Emcredit Official Credit Agnecy

As reported in Gulf News, Shaykh Mohammad has mandated that Dubai Banks use Emcredit.

As indicated above this is a definite Лучше поздно чем никогда moment.

It is also yet another confirmation that bankers are not particularly smart folk.  Though I suppose if you've been watching the testimony of staff from the Goldmine on the TV this isn't going to come as a big surprise.

Why should a sensible and responsible banker have to be forced to get needed credit information?

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.