TAQA Responds: No Merit to Peter Barker Homek Lawsuit

TAQA issued a press release on the Abu Dhabi Exchange this morning:

1. No merit to Mr. Barker-Homek's lawsuit.
2. The Company will respond through legal channels at the appropriate time.
3. No impact on financial statements expected.

Earlier post here.

Kuwait Stock Exchange - Mushrif Pays Its Listing Fees Now There are Six Suspended Firms

The KSE has updated its list of companies suspended for failure to pay their 2010-2011 listing fees.  Mushrif Trading and Contracting has apparently paid.   So now this august group is six.  Earlier post here with the original list.  Mushrif was #5.

[10:13:37]  ِ.إيقاف شركات عن التداول لعدم تسديد رسوم الاشتراك السنوي ‏
يعلن سوق الكويت للأوراق المالية بأنه تم إيقاف تداول الشركات
التالية لعدم تسديد رسوم الاشتراك السنوي لعام 2010- 2011 ‏
اعتباراً من 1-09-2010:- ‏
ِ1- المجموعة الدولية للاستثمار ‏(المجموعة د)(موقوفة) ‏
ِ2- الشركة الخليجية الدولية للاستثمار ‏(غلف انفست)(موقوفة) ‏
ِ3- شركة لؤلؤة الكويت العقارية ‏(لؤلؤة)(موقوفة) ‏
ِ4- شركة الصفاة العالمية القابضة ‏(صفاة عالمي) (موقوفة) ‏
ِ5- شركة الابراج القابضة ‏(الابراج)(موقوفة) ‏
ِ6- شركة الشبكة القابضة ‏(الشبكة)(موقوفة) ‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏

Bahraini Regulatory Quiz: When Do Bahraini Banks Have to Publish Their 30 June Basel II Pillar 3 Disclosures?

As if there weren't enough excitement here at Suq Al Mal with compelling analyses of zakat payments, magical provisions, we're going to have a contest to liven things up a bit more.

My understanding was that locally incorporated banks in the Kingdom of Bahrain are required to publish their Basel II Pillar 3 disclosures concurrent with their 30 June financials.

But one firm noted for its unwavering verbal commitment to disclosure and transparency has yet to do so.  That obviously means that my understanding is wrong.

Hence, this competition.  

The first one to post the chapter and verse from the CBB's Rulebook will receive the grand prize --  a slightly worn "proven business model" formerly the property of a self-proclaimed world class "Islamic" investment bank.  Early responders may be eligible for a bonus prize - a half baked business plan for a US$4 billion energy city/financial and day care center.

Multiple entries are permitted.

Threat to Capitalism Warning Notice: Disclosure of Salary Metrics

I was just recovering from the warning that bicycle riding socialists were invading our great land to impose mandatory recycling, when a new danger to the free market system has apparently appeared on the horizon. 

It is the provision in the Dodd Frank financial "reform" legislation that requires financial firms to publish the ratio between their CEO's pay package and that of the average worker. 

It doesn't sound like much of a danger but it must be because I read it in the Financial Times where the article was placed prominently  on the first page.  Clearly a reflection of the seriousness of this mortal threat.  

It is I suppose human nature to avoid confronting the hard truth.  And AA is no exception.  Yesterday I said nothing.   But today in a rare display of personal courage, I've decided to post on this so that those of you out there who may have missed the warning, will be alerted.   I'm not sure what you or I can do to stop this pernicious danger to our very way of life.  How we might "Restore Honor to America".

Two quotes illustrate the danger.

The rules’ complexity means multinationals face a “logistical nightmare” in calculating the ratio, which has to be based on the median annual total compensation for all employees, warned Richard Susko, partner at law firm Cleary Gottlieb. “It’s just not do-able for a large company with tens of thousands of employees worldwide.”

It's hard to disagree, I suppose, with learned counsel Susko.  I mean after all there'd be the initial compliance puzzle of distinguishing among median, mean and mode.  Then the onerous data collection (no doubt by hand) of salary and compensation data which of course companies don't bother to keep as they don't need it to calculate pensions, raises, bonuses, payments to local social security schemes,  etc.  "Fred, would you mind bringing in your paystubs from last year?  You won't believe this but some pointy headed bureaucrat in Washington requires that we figure out what we're paying you!"  And what if it were a foreign employee, a Jacque in Paris, a Sanjay in Mumbai, how on earth can banks be expected to figure out what a Euro or Rupee is worth in good old American money?

But beyond that there would be the number crunching.  And if one thing is crystal clear, it's that banks have a real devil of a time working with numbers.   Imagine the difficulty this calculation poses in contrast to more pedestrian things such as valuing Level III assets, determining VaR, running Monte Carlo simulations to mark to market trading positions in exotic instruments, running credit portfolio risk models, keeping track of all those credit card transactions for  their millions of customers, etc.   

When you reflect on all of the above, you'll understand why financial firms are just not equipped to do this sort of thing.  And why imposing it on them is not only unfair but another step on the road to serfdom!

And

“We’re not debating the concept of disclosure – we think it’s a good thing,” said Larry Burton, executive director of the Business Roundtable, which represents chief executives of the biggest US companies. “But you can do more harm than good if you take a well-intended piece of policy and implement it badly. That’s the risk here.”

Another eminently sensible position.  Of course, we agree with the concept of disclosure.  Where we part company is on actually implementing the principle.  In an earlier time, I suppose the refrain was:  "Of course, we hold that all men are created equal.  But just don't ask us to free our slaves.  It would lead to all sorts of harm." 

As would disclosing this data.  First, there would be dissension within firms.  The old collegial spirit of the group broken down.  Then imagine what might happen if shareholders used a metric like this to  determine the value added by the Chairman or CEO.   One hopes that the more enlightened members of our legislative branch are already working to eliminate not just this foolish idea but any disclosure of senior officer compensation.  Or if not now, maybe in November.

Haven't banks and bank CEOs suffered enough unjustified persecution?

BIS Releases Triennial Central Bank Survey on FX and OTC Derivatives Markets

The BIS released its Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Market Activity.  Use the links at the upper right of the press release page to access the full report.  The links at the bottom of the page are to individual country reports released by individual country central banks.

Here are some headlines from the BIS press release.

1. Turnover on the Global foreign exchange market

• Global foreign exchange market turnover was 20% higher in April 2010 than in April  2007, with average daily turnover of $4.0 trillion compared to $3.3 trillion. 
• The increase was driven by the 48% growth in turnover of spot transactions, which represent 37% of foreign exchange market turnover. Spot turnover rose to $1.5 trillion in April 2010 from $1.0 trillion in April 2007.
• The increase in turnover of other foreign exchange instruments was more modest at 7%, with average daily turnover of $2.5 trillion in April 2010. Turnover in outright forwards and currency swaps grew strongly. Turnover in foreign exchange swaps was flat relative to the previous survey, while trading in currency options decreased.
• As regards counterparties, the higher global foreign exchange market turnover is associated with the increased trading activity of "other financial institutions" - a category that includes non-reporting banks, hedge funds, pension funds, mutual funds, insurance companies and central banks, among others. Turnover by this category grew by 42%, increasing to $1.9 trillion in April 2010 from $1.3 trillion in April 2007. For the first time, activity of reporting dealers with other financial institutions surpassed inter-dealer transactions (ie transactions between reporting dealers).
• Foreign exchange market activity became more global, with cross-border transactions representing 65% of trading activity in April 2010, while local transactions account for 35%.
• The percentage share of the US dollar has continued its slow decline witnessed since the April 2001 survey, while the euro and the Japanese yen gained relative to April 2007. Among the 10 most actively traded currencies, the Australian and Canadian dollars both increased market share, while the pound sterling and the Swiss franc lost ground. The market share of emerging market currencies increased, with the biggest gains for the Turkish lira and the Korean won.
• The relative ranking of foreign exchange trading centres has changed slightly from the previous survey. Banks located in the United Kingdom accounted for 36.7%, against 34.6% in 2007, of all foreign exchange market turnover, followed by the United States (18%), Japan (6%), Singapore (5%), Switzerland (5%), Hong Kong SAR (5%) and Australia (4%).

2. Turnover in OTC interest rate derivatives

• Activity in OTC interest rate derivatives grew by 24%, with average daily turnover of $2.1 trillion in April 2010. Almost all of the increase relative to the last survey was due to the growth of forward rate agreements (FRAs), which increased by 132% to reach $601 billion.

More detailed results on developments in the foreign exchange and OTC derivatives markets and comprehensive explanatory notes describing the coverage of and terms used to present the statistics are included in the separate statistical release of the data. Explanatory notes follow statistical tables.  The BIS plans to publish, in November 2010, the detailed results of the activity in April 2010 and of the positions at end June 2010 on FX instruments. A specific press release will also be published in November on the global OTC positions at end June 2010. In addition, special features will be devoted to the Survey in the December 2010 BIS Quarterly Review.

Kuwait Stock Exchange Suspends 5 Additional Companies for Failure to Pay Listing Fees

The KSE announced that it had suspended seven companies from trading due to failure to pay 2010-2011 listing fees.  Two of the companies, Shabka and Safat Global, were already suspended for failure to pay the previous year's listing fee.

While financial distress is not the only reason why a Company might not pay the fee, it's a pretty safe bet that most of the companies on the list did not pay for that reason.  Six of them  them have already been suspended for failure to provide financial reports.  Some for quite extended periods.  For those previously suspended, I've highlighted the word  "موقوفة " in blue.

The companies are (listed in the same order as the Arabic):

1. International Investment Group
2. Gulf Invest  aka Gulfinvest International
3. Pearl (Lu'lu) Real Estate
4. Safat Global
5. Mushrif Trading and Contracting (the only company on the list not suspended for failure to provide financials)
6. Al-Abraj Holding
7. Shabka Holding

 

[10:26:55]  ِ.إيقاف شركات عن التداول لعدم تسديد رسوم الاشتراك السنوي ‏
يعلن سوق الكويت للأوراق المالية بأنه تم إيقاف تداول الشركات
التالية لعدم تسديد رسوم الاشتراك السنوي لعام 2010- 2011 ‏
اعتباراً من اليوم 1-09-2010:- ‏
ِ1- المجموعة الدولية للاستثمار ‏(المجموعة د)(موقوفة) ‏
ِ2- الشركة الخليجية الدولية للاستثمار ‏(غلف انفست)(موقوفة) ‏
ِ3- شركة لؤلؤة الكويت العقارية ‏(لؤلؤة)(موقوفة) ‏
ِ4- شركة الصفاة العالمية القابضة ‏(صفاة عالمي) (موقوفة) ‏
ِ5- شركة مشرف للتجارة والمقاولات ‏(مشرف) ‏
ِ6- شركة الابراج القابضة ‏(الابراج)(موقوفة) ‏
ِ7- شركة الشبكة القابضة ‏(الشبكة)(موقوفة) ‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏

Gulf Investment House - Debt Problems Largely Solved: Only US$7 Million of Foreign Debt Left KD45 Million Rescheduled by KFH

In an exclusive interview, AlWatan quotes GIH's CEO, Badr Abdullah Al-Ali, saying that: 

1. GIH has repaid all by US$7 million of its foreign debt.  The remaining amount is due in November and GIH may prepay given its strong financial condition.
2. The Company has been successful in rescheduling KD45 million with KFH (who own about 30.72% of GIH's shares) over five years.  No doubt KFH's shareholding interest was a major  positive factor in achieving the rescheduling agreement.  This amount is substantially all of the non foreign debt of the Company - whose total bank debt as of 30 June 2010 was KD56.8 million.  It's unclear at that point just how much foreign debt remained. In May if I remember they were reported to have KD13 million of foreign debt.

With respect to 2010 financial performance, GIH reported 1H10 losses of KD1.9 million roughly half of 1H09's KD3.8 million, though it should be noted that for the full year of 2009, GIH's losses were KD20.5 million. 

KFH's support provides a nice safety net for GIH's future which Mr. Al-Ali sees as bright.

Aref Investment Company - 1H10 Losses of KD21.4 Million

Aref Investment Group reported its 1H10 financial results on the KSE this morning.  As usual, the announcement is in Arabic only (text below).  With the provision of this report, the KSE will allow the resumption of trading of AIG's shares.

1H10 losses KD21.4 million versus KD38million for the comparable period the year before.  The KD206 million amount for shareholders' equity includes minority interests of some KD37 or so million.

As I've noted before KFH owns some 53% of AIG and is providing support to weather the current crisis.  Earlier posts can be accessed using the tag "Aref".

[10:27:46]  بلغت (خسارة)(عارف) (21.4) مليون د.ك لل6 أشهر المنتهية في 30-06-2010‏
يعلن سوق الكويت للأوراق المالية أن شركة عارف الاستثمارية (عارف)‏
حصلت على موافقة بنك الكويت المركزي على بياناتها المالية المرحلية للفترة ‏
المنتهية في 30-06-2010، يوم الاثنين الموافق 30-08-2010 ،
وفقا لما يلي:‏
البند     ال3 أشهر المنتهية في 30-06-10     ال6 أشهر المنتهية في 30-06-10‏
الربح (خسارة)(د.ك)             (16.954.474)            (21.418.959) ‏
ربحية(خسارة)السهم (فلس كويتي)     (16)                         (20) ‏
اجمالي الموجودات المتداولة                                   299.743.103‏
اجمالي الموجودات                                            661.056.688‏
اجمالي المطلوبات المتداولة                                   392.279.750‏
اجمالي المطلوبات                                             452.963.950‏
ِ اجمالي حقوق المساهمين                                     208.092.738‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 680.466 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 7.859.169 د.ك
الفترات المقارنة:‏
البند     ال3 أشهر المنتهية في 30-06-09     ال6 أشهر المنتهية في 30-06-09‏
الربح (خسارة)(د.ك)            (20.470.712)           (38.020.436)‏
ربحية(خسارة)السهم (فلس كويتي)     (19)                       (36)‏
اجمالي الموجودات المتداولة                                  311.066.999‏
اجمالي الموجودات                                           657.443.445‏
اجمالي المطلوبات المتداولة                                  333.757.640‏
اجمالي المطلوبات                                            450.767.484‏
ِ اجمالي حقوق المساهمين                                    206.675.961‏
وعليه سوف تعاد الشركة الى التداول اليون الثلاثاء الموافق 31-08-2010‏ 

The Price of Honor: Opening Bid US$430 Million

The National carries the story of Mr. Peter Barker-Homek, once CEO of Taqa, now dismissed and in court in Michigan to assuage the insult to his honor with a US$460 million lawsuit in the State of Michigan. Of which US$430 million is for pain, suffering, reputational damage, etc.

 In case you're wondering his claim is for approximately 21% of the Company's net worth at 30 June 2010 (excluding minority interests and shareholder/government loans).   Or 2.11 x the net income for the first six months of 2010.

The Investment Dar and Commercial Bank of Kuwait - Settlement of Boubyan Bank Shares

Quoting informed banking sources, AlQabas reports that Commercial Bank of Kuwait has proposed to TID that the BB shares be sold and that any amount remaining after the settlement of TID's obligations to  CBK will then be remitted to TID.

In effect then, CBK is proposing to treat the transaction as a secured loan rather than a failed repurchase agreement.  Under the latter, CBK would be entitled to absolute ownership of the shares with no payment at all to TID.

Clearly, CBK doesn't want to enter into the rescheduling as one of the creditors and share the BB shares (very good collateral) with the entire set of creditors in return for "security" in the pool of what Adnan Al Musallam has more than once described as "strong" assets (which are probably less "strong" and certainly less liquid than Boubyan's shares). 

There is a reason why some creditors lend on a secured basis as opposed to an unsecured one.   They get to pick the collateral that gives them the credit comfort they need to extend the loan.  And know that if the borrower doesn't pay, they have a second way out that doesn't involve a rescheduling.

The proposal seems an eminently reasonable solution.  

As the parties have haggled over this problem, they lost a chance to conclude a quick sale with a willing buyer with deep pockets (National Bank of Kuwait).   Perhaps, the Central Bank can be persuaded to allow NBK to buy another 19.196%.  The share price is an attractive KD0.560.

Aayan Leasing and Investment - 1Q10 Loss of KD7.8 Million

ALI announced its 1Q10 earnings today on the KSE.  As usual only Arabic text  (below) is available. The Central Bank of Kuwait approved release of the financials on 16 August.  There was no explanation for the delay.  Based on "history", I'm guessing that as with the Company's 2009 financials, the delay has been occasioned by the KSE's more than usual scrutiny.

The headline number is a loss of KD7.8 million for the first quarter compared to a loss of KD12.5 for the period the year earlier.  Shareholders' equity is KD23.6 million versus KD89.1 million at 1Q09.  Equity was KD31.2 million at 31 December 2009. 

As you might expect, the auditors have raised a matter of emphasis about the Company's ability to continue as a going concern.  Current Liabilities (KD410 million) exceed Current Assets (KD166 million).  Accumulated losses are KD75 million.  

That last comment has got me scratching my head.  On 10 August ALI held its OGM/EGM in which shareholders agreed to use Reserves of KD37.8 million plus reduce the paid in capital to KD29.6 million (from KD63.9 million) to offset accumulated losses.  They also agreed to a KD10 million capital increase by way of a rights offer at par (KD0.100 per share).  So is it that the legal steps to accomplish this have yet to be finalized?  If so, isn't this fact worth noting?  That is, that the Company is taking steps to rectify the situation. Otherwise readers might infer there is an ongoing unaddressed  violation of Article 171 of the Commercial Companies Law.

The auditors also mention ALI's default on some KD100 million of debt.  In the August 10 OGM/EGM Ali "T" AlGhanem, the Company's Chairman, predicted the signing of a rescheduling agreement within two to three weeks.   KFH is the lead bank on the rescheduling negotiations.

A difficult situation. 

[13:38:23]  بلغت (خسارة) (أعيان) (7.7) مليون د.ك لل3 أشهر المنتهية في 31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن شركة أعيان للاجارة و الاستثمار (اعيان)‏
حصلت على موافقة بنك الكويت المركزي على بياناتها المالية المرحلية للفترة ‏
المنتهية في 31-03-2010، يوم الاثنين الموافق 16-08-2010 ،
وفقا لما يلي:‏
البند       ال3 أشهر المنتهية في 31-03-10     ال3 أشهر المنتهية في 31-03-09
الربح (خسارة)(د.ك)               (7.785.523)              (12.553.455)‏
ربحية(خسارة)السهم (فلس كويتي)   (12.6)                    (20.6)‏
اجمالي الموجودات المتداولة      165.971.276             248.207.741‏
اجمالي الموجودات               510.637.020           595.882.901‏
اجمالي المطلوبات المتداولة      410.252.612             351.840.048‏
اجمالي المطلوبات               441.957.164             458.057.552‏
ِ اجمالي حقوق المساهمين        23.643.193              89.142.376‏
بلغ اجمالي الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 66.680 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 1.303.522 د.ك
علما بان تقرير مراقبي الحسابات يحتوي على عدم التأكد المتعلق بالاستمرار
على اساس مبدأ الاستمراريه :‏
دون التحفظ في نتيجتنا ، نلفت الانتباه الى الايضاح 2 حول المعلومات الماليه
المرحليه المكثفة المجمعه و الذي يبين ان المجموعه تكبدت خسائر بمبلغ ‏
ِ8.042.649 د.ك لفتره الثلاثة اشهر المنتهيه في 31-مارس-2010 ، و كان لدي ‏
المجموعه خسائر متراكمه بمبلغ 75.175.026 د.ك ، وكما في ذلك التاريخ تجاوزت ‏
المطلوبات المتداوله للمجموعه موجوداتها المتداوله بمبلغ 225.830.362 د.ك
اضافة الى ذلك ، عجزت الشركة الام عن سداد التزامات دين بمبلغ 99.993.871د.ك
و علقت دفعات سداد المبالغ الاساسيه لالتزامات الدين الى البنوك و المؤسسات ‏
الماليه ، و هي تعمل بفاعليه مع الممولين لاعادة جدولة التزامات ديونها ‏
بالكامل ، ان هذه الظروف مع الامور الاخرى المبينه في ايضاح 2 تشير الى وجود
عدم تأكيد مادي مما يمكن ان يثير شك كبير حول قدرة المجموعه على الاستمرار ‏
في اعمالها على اساس مبدأ الاستمراريه .‏

 

Kuwait Stock Exchange: 11 Companies Warned to Pay 2010-2011 Listing Fees

The Kuwait Stock Exchange published a list of 11 companies who have not yet paid their 2010-2011 listing fees, warning that 31 August is the last day for the payment of such fees.   Failure to pay results in suspension of trading.  Presumably, most of these firms will pay the fees.

As you will notice from the list below, seven of the companies have already been suspended (for failure to provide financials within the required period).  I've indicated those already suspended by highlighting that word in blue.  These include The Investment Dar (number #2 on the list).

The four unsuspended companies are in order:  National International Holding Company (#4),  AlDar National Real Estate ADNAK (#6) , Abbar (#8), and Mushrif Trading and Contracting (#9).

For 2009-2010, only two companies, Shabka and Safat Global were suspended for failure to pay listing fees.  They're indicated in red.

[13:31:26]  ِ.إيقاف شركات عن التداول في حالة عدم تسديد رسوم الاشتراك السنوي ‏
يعلن سوق الكويت للأوراق المالية بأنه سوف يتم إيقاف تداول الشركات
التالية في حالة عدم تسديد رسوم الاشتراك السنوي لعام 2010- 2011 ‏
اعتباراً من 1-09-2010:- ‏
ِ1- المجموعة الدولية للاستثمار ‏(المجموعة د)(موقوفة) ‏
ِ2- شركة دار الاستثمار ‏(الدار) (موقوفة) ‏
ِ3- الشركة الخليجية الدولية للاستثمار ‏(غلف انفست)(موقوفة) ‏
ِ4- الشركة الوطنية الدولية القابضة ‏(وطنية د ق) ‏
ِ5- شركة لؤلؤة الكويت العقارية ‏(لؤلؤة)(موقوفة) ‏
ِ6- شركة الدار الوطنية للعقارات ‏(ادنك) ‏
ِ7- شركة الصفاة العالمية القابضة ‏(صفاة عالمي) (موقوفة) ‏
ِ8- شركة برقان لحفر الابار والتجارة والصيانة ‏(ابار) ‏
ِ9- شركة مشرف للتجارة والمقاولات ‏(مشرف) ‏
ِ10- شركة الابراج القابضة ‏(الابراج)(موقوفة) ‏
ِ11- شركة الشبكة القابضة ‏(الشبكة)(موقوفة) ‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏
علما بان اخر موعد للسداد هو 31-08-2010 .‏
علما بان اخر موعد للسداد هو 31-08-2010 .

DEPA 1H10 Loss: The AED185 Million Burj Al Khalifah Claim

If you've seen DEPA's 1H10 financials, you know they declared a loss of some AED117.5 million of which AED103.7 million is attributable to the shareholders of DEPA.  The firm bills itself as the third largest interior contractor in the world.

You've also seen their earnings press release that this loss relates to expenses incurred on a contract at Burj al Khalifah (but not with Emaar the project developer).  Apparently, a large portion is for overhead expenses incurred over a couple of years.  As per the press release, were the claim paid, DEPA's 1H10 results would have been a net profit of AED81 million, making the size of the claim AED185 million.

That seems a rather large amount.  Unclear what this represents as a percentage of total project cost.  And what the likelihood of getting the full amount is.  As well as the identity of the project owner (obligor).

Perhaps, The Real Nick can weigh in with an observation.  And certainly anyone else out there with something to contribute is welcome as well.

The Investment Dar - The Zakat Issue

As is often the case, our readers contribute greatly to the posts here, providing additional information and correcting my mistakes.

Such is the case with two recent posts on TID and Zakat.  The first here.  The second here.  And at the latter you'll find the reader's comments that sparked this post.

Let's start by going over the history.

In the first, I relayed a comment in Al Qabas that the Creditors' Coordinating Committee had been surprised by TID advising them that some KD12 to 15 million of Zakat was unpaid.

In the second, I got into a discussion with one of our readers, who prefers to remain Anonymous, about whether there was a delay in payment of Zakat by TID.  He directed me to a source that I should have reviewed before uncritically repeating what Al Qabas had said in its article:  TID's financial statements. 

Like reading one's computer hardware and software manual before proceeding, it really does pay to read the financials.  (And this exchange has occasioned a new "label" or "tag" - "RTF" - shorthand for Read the Financials).

So there are three issues here:

1. Did TID "surprise" its creditors by recently informing them of pre-existing liability it had not disclosed before?
2. Has TID delayed payment of Zakat?
3. And related to the above two topics, how is TID calculating its Zakat obligation?

On the first question, a quick glance at TID's 2008 audited financials Note #15 shows that TID has disclosed its unpaid Zakat obligation.  KD11.4 million of Zakat is shown as part of the balance of Payables for FYE 2008.  Comparable balances disclosed earlier were KD5.5 million at FYE 2007 and KD1.3 million at FYE 2006.  So no surprise to those who RTF. 

As a side note, if you look carefully at the Consolidated Statement of Changes in Equity, you'll notice that TID's Zakat appropriations from Reserves are a year in arrears.  That is,  the appropriation in 2008 was actually for Fiscal Year 2007.  So, it's likely that there is a Zakat amount due for 2008 to be reflected in 2009's annual report and for 2009 to be reflected in 2010's annual report. Again careful readers of TID's financials will not be surprised that these obligations are there.  What will be the unknown is their amounts.

It may sound surprising that after reporting a major loss in 2008, TID would be subject to any Zakat at all for that year.

So let's turn to how TID calculates Zakat.  There are two ways:

1. A statutory obligation as per Law 46 of 2006.
2. Its adherence to Shari'ah. 

As per Law 46 of 2006 (English here and Arabic here), all companies in Kuwait (except government entities) are required to pay 1%  of income to the Ministry of Finance as Zakat.

And we learn from Note 38 to the 2007 financials:

During the year ended 31 December 2007, the executive regulations of Zakat has been issued and which stipulates that, each Kuwaiti shareholding company should deduct 1% of its net profit as Zakat and should be forwarded to Ministry of Finance. The amount of Zakat expense has been calculated on the basis of the Group’s profit multiplied by the number of days starting from the date of issuing the executive regulations  on 9 December 2007 to 31 December 2007.

What this means is that TID is complying strictly with its statutory obligations.  The Law came into force on 9 December and so its 2007 income subject to statutory Zakat is  only 22 days out of the year.  Because there was a loss in 2008, no statutory Zakat is due for that year.

Beyond its legal obligation, since Fiscal Year 2005, TID has been computing Zakat as follows (Note # 2.17):

Based on the recommendation of the Sharia’a Supervisory Board, the Group started to calculate Zakat based on Wea’a Al-Zakat which consists of assets and liabilities that are subject to Zakat. Zakat is deducted from the voluntary reserve.

Note 3.18 in the 2008 audited financials confirms that the Company is still calculating Zakat on this basis - which means there is likely to be a provision for 2008 despite the loss that year because this Zakat is calculated based on assets and liabilities - which while diminished are still there.  To complete the story, prior to 2005, TID computed Zakat on the basis of its adjusted Equity.

TID only recognizes the statutory Zakat (Law 46/2006) amount as an expense in its financials.   The  Wea'a Zakat amount is directly charged against Reserves.  Therefore, this amount does not appear as an expense on TID's income statement.  I presume that TID adjusts this Wea'a Zakat amount for the statutory amount so it doesn't "double pay" Zakat.

As per Note 16 in the 2007 audited report  you'll notice that the statutory amount is a relatively small KD78,874  - less than 1.9% of the net KD4.2 million that TID added that year to accrued Zakat. 

I'm making the presumption here that since the Wea'a Zakat amount is voluntary, there is not necessarily a deadline for its distribution.  Nor are the amounts required to be paid to the Government or another third party.  That means that the Company has discretion to whom and when to distribute.   Technically then TID would not violated any requirement for payment.  Strictly speaking, it would not be "late".

Though if I'm wrong on this latter point, I hope someone will post and correct me.

But let's look a bit deeper at the accumulation of unpaid Zakat obligations by looking at two tables.

The first is an attempt to derive the cash payments of Zakat that TID actually made during the period 2005 through 2008.   Amounts are in thousands of KDs.

Year	Open Bal	Additions	Close Bal	Payments
2005	2.7	1,096.9	320.5	779.1
2006	320.5	2,848.3	1,342.0	1,826.8
2007	1,342.0	5,746.4	5,541.3	1,547.1
2008	5,541.3	6,734.7	11,373.8	902.2
TOTAL		16,426.3		5,055.2

Notes:

1. Derived Payments = Open Balance + Additions - Ending Balance.
2. Opening and Ending Balances are from the Payables Notes in TID's Annual Reports for the period.
3. Additions are per the Consolodiated Statement of Changes in Equity.  You will notice that for a couple of fiscal years there is an increment to Zakat from TID's subsidiaries which appears as a separate entry to Retained Earnings.  The Zakat additions for TID are charged to Reserves.  I have used both in my calculations for Additions.
4. 2007 Additions in the table above includes KD78,874 of Statutory Zakat as there was no adjustment to net income for that year to back it out.

Now let's take a look at Zakat payments per year as a percent of Opening Balance and Additions during the year.

Year	Percent
2005	71%
2006	58%
2007	22%
2008	7%

Clearly, there is a sharp decline in amounts disbursed in 2007 well before the crisis started.  And the overall distributions during this period are some 30.8% of the Zakat accrued.

Perhaps, the cause is having to deal with larger amounts and the need to thoroughly vet a recipient before  disbursing funds.   Or, perhaps, it is a cash management issue.

If the timing of distributions is purely discretionary, then I wonder if the lenders can insist that Zakat distributions be stopped or greatly limited until they are repaid?

A Tale of Two Headlines: Arabic Knowledge at Wharton Jeff Silver Interview

Arabic Knowledge at the Wharton School of Business at the University of Pennsylvania recently published an article with Jeff Singer, CEO of Nasdaq Dubai.  They don't just teach finance at Penn, but market segmentation as well.

Here's a link to the Arabic version and the English version  Presumably the first is targeted at Arabs and the second at non Arab English language speakers.

The Arabic headline is "International investors are not looking to own most of the shares in the region".

The English "Now is the perfect time for exchange consolidation".

An insight into the assumed different focus of each group.

Wharton also publishes Knowledge@Wharton which befitting a great university like Penn often has  interesting articles.

The Investment Dar - Al-Musallam Denies Problems

This Thursday (26 August) TID held its 2008 shareholders' annual meeting (delayed because of the delay in finalizing its financials).   Both AlQabas and AlWatan have accounts of that meeting.  Some 73.11% of shareholders' interests were represented.  As per the KSE, the only disclosed major shareholders of TID are the Kuwaiti General Organization for Social Insurance (7.7%) and Efad Real Estate Company and associated companies (18.21%).  So there appears to have been broad shareholder participation.

AlQabas notes that the meeting was held in an atmosphere of "impressive calmness".   All items on the agenda were approved, including agreement with the Board's recommendation that no dividend be declared for 2008. (TID reported a net loss of  KD80.3 million for 2008 of which KD78.6 million is attributable to TID shareholders.  From 2007 to 2008 TID's total shareholders' equity declined from KD349.6 millionn to KD168.5 million due to KD52.9 million of 2007 dividends, KD 37.4 million of losses recorded directly in equity and net purchases of treasury shares of some KD12.2 million.)

The tenor and results of the meeting no doubt a clear reflection of shareholders' confidence in Mr. Al-Musallam's stewardship and performance.

Mr. Al-Musallam also took the opportunity to "set the record straight" on several points, including most of the assertions in a recent AlQabas article:

1. As he has on several earlier occasions, he noted that statements that TID was going to be liquidated were not true pointing out the strength of TID's assets.
2. The CCC is not discussing resigning.
3. In that connection he commented that TID is happy to have the Central Bank of Kuwait's supervisor, Dr. Abid AlThafiri, stay on, but that decision is solely the CBK's.
4. There are no differences with the CBK.  The CBK poses questions and TID answers them.
5. More than 83% of the creditors have agreed to participate in the rescheduling.  The remaining 17% represent only KD110 million.
6. He expects to achieve success with Commercial Bank of Kuwait and Cham Islamic Bank (Syria)  and then will have 89% agreement.
7. He's optimistic about obtaining the Central Bank of Kuwait's approval for TID to enter under the protection of the FSL.  
8. He noted that many of the creditors who have indicated they intend to pursue legal claims (the 17% soon to be 11%) were waiting to see the results of the current stage (presumably whether TID gets under the FSL) before proceeding.  The unspoken point here being that if TID enters the FSL, then perhaps some or all of these holdouts may join the rescheduling.  Not an unreasonable assumption.
9. Contrary to rumors, there is no raise for any senior member of TID's management.  Apparently, not even an "unrealized" one! 
10. TID is not late with its prior year's zakat.  Though the wording used here seems to imply that perhaps the committee has not yet distributed it - which would qualify as being "late" for a simple minded guy like me.  وأكد المسلم أنه لا يوجد تأخير في دفع الزكاة عن الشركة، مستشهداً برأي لجنة الفتوى والتشريع التي أكدت على ان الشركة لم تتأخر ولكن هذه الزكاة تعود الى السنوات الماضية، منوهاً الى ان اللجنة تقوم باخراج الزكاة من وقت الى آخر حسب الحالات التي تقوم بدراستها من وقت الى أخرى
11. Perhaps, the answer is that "class is not yet over" and the studies continue?  Anyone who can confirm or amend my translation, please jump in with a post.
12. He did take the time to point out that the 2008 loss (largely due to provisions of KD89.5 million) was not realized.  
13. Asked about 2009's financials and the CBK's requirements for additional provisions, he declined to answer, commenting that the Company respected its regulator's (the CBK's) views, would have the auditors review them. But in the final analysis will do what the CBK requires.
14. One other important "bit" he stated that the Company had appointed new auditors (dual case used).  In 2008 TID used the local incarnations of Deloitte and Touche and KPMG.  
15. The Ministry of Commerce and Industry raised comments during the meeting that the Board did not meet during 2008 (I take this to mean regarding 2008 financial performance not that there were no board meetings that year) and that TID failed to properly register its shares in Bahrain Islamic Bank,.  These shares (8.7% of BIsB) were acquired by TID in satisfaction of a financing receivable and are discussed in Note #8 to its 2008 financials. Mr. Al-Musallam said that the Board did not meet because the financials were not approved (presumably he's referring to the auditors and CBK).  The BIsB shares are in the process of being registered.

A new Board was elected as follows:

1. Adnan Abdul Qadir Mohammed Al Musallam, Chairman and MD
2. Rajam Al Roumi
3. Ghanem Al Ghanem
4. Adel Behbehani
5. Adnan Nisif
6. Musa'id AlMukhaytar
7. Nabil Abdul Rahim

And "reserve" directors (in case of need for a replacement of a sitting director):  Nabil Amin, and Abdul Muhsin Al Kandari.

Hopefully, this impressive performance (there's that word again) will silence the unfounded criticism of TID in the market, leaving only the founded sort.

Dubai World: No Assets Ring Fenced From Sale

Reuters has published an exclusive report that they have a document circulated among DW's creditors which states that:

1. Total DW debt is some US$39.9 billion instead of the mid US$20 billions.
2. Though there is an apparent US$11 billion non recourse debt at Istithmar subsidiaries and US$2 billion at Infinity.  These amounts are important because they will affect the net proceeds from the sales of those assets.  Debt at the subsidiaries will have to be either assumed by the buyers or repaid by the seller (Istithmar).  
3. DW warned that if it sold its assets quickly it could only raise US$10.4 billion.  It's a safe bet that DW is being conservative as it doesn't want to give the lenders incentive to push for a quick sale.
4. Rather it needs 5 to 8 years to realize the assets at higher prices - the midpoint of which is US$17.6 billion.  The highpoint of which is US$19.4 billion.
5. Heretofore strategic and ring fenced assets are now on the table:  DP, JAFZA, Barneys, Atlantis Hotel, etc.   Though one might question whether this is more a negotiating tactic.  It's hard to imagine the Emirate parting with these assets.  So the hope may be that a recovery in markets will lead to higher values recognized on other assets.  Or that bankers' and investors' ADD will kick in and Dubai World will be able to refinance after five or so years.  Either case obviating the need to part with the "crown jewels".  And, thus, any sale would be an absolute last resort.
6. In an attempt to get banks to sign on to the rescheduling, DW is offering a signing bonus / consent fee.

Quite a remarkable turnaround.

But with roughly US$40 billion worth of debt and US$20 billion from asset sales, there is quite a "financing gap" to fill.  Even more so, when one considers the fact that as the prize assets are sold, DW's right to their earnings and cashflow will end as well.  Is the gap to be funded by the Emirate?  If so, quite an expensive admission ticket to a relatively short ride on the "leveraged assets express".

Anyone out there who would like to share any creditor documents with me can contact me using the Contact Form.

The Investment Dar - Creditors Committee "Fed Up" or Posturing for the Central Bank?

Today's (25 August) AlWatan and AlQabas carried two quite different articles on the Creditors Committee.  One can consider these straightforward news items.  And perhaps, just perhaps, attempts to influence the Central Bank's decision making process.

Playing the role of good cop is Bader Abdullah Al-Ali, CEO of Gulf Investment House Kuwait, the official spokesman of Creditors' Coordinating Committee ("CCC").  As reported in AlWatan, he noted:

1. That the Central Bank of Kuwait had played a pivotal role in the rescheduling expending considerable efforts to bring agreement between the concerned parties.
2. That the CCC believed the rescheduling remained the best means available and offered the ideal reclamation of lenders' rights.
3. That the fundamental goal of the CCC was the essential role of involving the lenders in crafting the rescheduling according to generally accepted international principles.
4. That the CCC was confident that the CBK understood the role the CCC played.
5. That the CCC hoped for the response of the CBK in the shortest time possible.

Or in other less polite words:

1. You've done your part and we acknowledge your professionalism.  So now it's time to acknowledge ours.
2. The plan is fine we, the CCC on behalf of the lenders, crafted it according to generally accepted international principles (which should no doubt trump any purely local or regional views that you might have).
3. So don't tamper with it.  And be sure not to exclude us in the process.
4. Get off your duffs and approve it.

The bad cop role falls to unknown sources who have provided AlQabas with the background for its article.

1. TID's application for entry under the FSL has effectively ended the productive work of the CCC.  The Central Bank has the entire file in its hands.  As a result, the CCC is reduced to holding meetings to discuss the latest developments without being able to influence them.
2. The FSL represents the last chance of the Company.  If entry is rejected, a myriad of lawsuits against the Company and its management will be launched seeking bankruptcy.
3. Ernst and Young have bluntly told the CCC that they were engaged by the CBK and have no connection with the CCC or the lenders.  Their marching orders come from the CBK alone.
4. The CCC, mindful of its responsibility to the lenders, are fearful that actions may be taken affecting the Company without their involvement or knowledge.
5. As a result, they discussed at their last meeting whether or not they should withdraw and resign en masse.
6. Adding to their rancor from exclusion from the process are several items, some of which have recently emerged.  
7. Apparently TID has advised the CCC that it had some KD12 to 15 million of  unpaid Zakat arrears which date from before the crisis.  The CCC do not understand why these were not paid as the associated profit has already been distributed.  There was no note of these in information provided.  Nor does there appear to be any fatwa authorising the delay.
8. There are increases in salary for one of the senior executives as well as a requested bonus.  (No doubt a "performance" bonus.  And, yes, the term "performance" is used in the same sense as in my recent post on GFH's 2Q10 financials).
9. The Company's failure to present financials for periods after 2008.
10. The resolution of TID's file is dragging on and may extend to next year.
11. The dissolution of the CCC would deal a fatal blow to the Company as the CCC is the glue which binds the "alliance" of consenting creditors.
12. Failure to obtain the protection of the FSL will lead to thousands of lawsuits which will rain down on the Company.
13. The article closes by noting the frustration of the CCC with TID's public relations firm who are felt to have issued a torrent of meaningless press releases about nothing.  Adding insult to injury, it seems that TID has incurred payables of 7 million (presumably KD) for these services.  This last bit has me questioning my translation as I'd expect there would be some sort of expense controls in place from the CBK appointed manager and/or the CRO.  So I'm inviting comments on my translation - the last sentence in the Al Qabas article.

Certainly, there's a lot of justification for rancor in the CCC and among the lenders.  They've expended a lot of time dealing with the rather slippery management at TID to get this far.  That matters aren't moving more quickly has got to be distressing.  As I am sure are the latest "shenanigans" of the Company - though frankly speaking, the lenders can no doubt expect many many more during the implementation phase of the restructuring.

But as we did above with the good cop's position, let's translate the bad cop's argument into less politically correct speak:

1. We, the CCC, are the critical guys in the process holding the creditors together. If we walk, TID comes crashing down.
2. You're ignoring us.
3. We're fed up by your inaction and by the Company's shenanigans. (Notice, as usual, AA is being highly charitable.  And my zakat in that respect is being paid on time!).
4. If we don't get what we want, we're going to take our ball and go home.
5. Then you'll be the culprit as TID collapses.

While no doubt this tactic does put a bit a pressure on the CBK, in the final analysis it's not very credible.  The lenders are not going to walk away from their best hope of recovery:  the rescheduling and the FSL.

If the Central Bank is looking for way out of approving TID's request, then this may be just the entree they're looking for.    That being said, I don't expect that.  My worst case scenario is that the CBK comes back with modifications to the plan - which by that time the parties thereto should be sufficiently exhausted that they will willingly accept what the CBK wants in order to finally close the file and move forward.

Gulf Finance House - 1H10 Financials: Now You See It Now You Don't -- The Magical US$137 Million Provision

GFH has finally posted its 2Q10 interim report.

Let's get straight to the heart of the analysis and our headline, Note 15:

"During the period, the Group's credit enhancement amounting to US$ 102 million issued to financial institutions against credit facility arrangements for a project managed by the Group were enforced by the lenders due to contractual defaults by the project company.  Further, based on the Group's assessment of the likelihood that another project will be able to meet the financing when they fall due, the Group has estimated that its financial guarantee of US$ 35 million may be enforced.  In accordance with the requirements of IAS #37, Provisions, Contingent Liabilities and Contingent Assets, the Group has recognised a provision of US$ 137 million towards these liabilities until revised/ renegotiated terms are agreed with the lenders of the project companies.  The Group has recognised an equivalent amount of reimbursement right which has been included in other assets (note 8)."

Presto, changeo with a bit of Accounting Magic a potential US$ 137 million addition to 1H10's net loss is transformed into an asset!  What's even more astounding is that these projects that cannot meet their debt commitments (to the apparently impatient lenders) will nonetheless be able to honor GFH's reimbursement claim upon them.  Now that is truly magical!

(Side Note:  According to my copy of KPMG's Third Edition of "Insights into IFRS" page 635 commenting on IAS 37.35 (about the recognition of Contingent Assets), KPMG states:

"When realisation of a contingent asset is virtually certain, it is no longer considered contingent and is recognised.  In our view, virtually certain generally should be interpreted as a probability of greater than 90 percent."

Unfortunately, I don't have the latest edition so I would caveat that there may have been some new thinking on the topic of what constitutes "virtually certain".)

Taking this amount to the income statement would roughly triple GFH's loss.  It would also breach the US$400 million minimum shareholders' equity covenant.  But there's one more adverse effect making this US$137 million truly a "triple threat".

As we learn in Note #2 during the discussion of the going concern issue, GFH's capital adequacy ratio at 30 June was 12.92% - leaving little room for maneuver or in the words of KPMG "which restricts the Group's ability to absorb further losses or undertake additional exposures".   (Note to KPMG:  You need to amend the reference in your report to the matter of emphasis from Note #1 to Note #2.)

And I suppose -- to add a fourth reason -- such a loss and such consequent events might make a difficult capital raising exercise just a "wee bit" more difficult.

Where there is a need and a will, there is a way -- as the old saying goes.

Turning to the rest of the financials:

1. Note #5: US$115.4 million (95%) of 1H10's US$121.4 million of Placements with Banks and Other Financial Institutions is pledged against commitments and facilities of projects of the Group.   And so should be excluded from liquidity.  You'll notice it is in the Cashflow Statement.  Some might suggest that proper presentation would be to have these amounts in Other Assets.  And well they might but to no apparent avail.   Some of this cash may be pledged to those adversely affected projects discussed in Note #15.
2. Financing Receivables US$14 million decline (which took place between FYE09 and 1Q10) is still a mystery to me.  It's not in the cashflow statement so it must have been offset against something else?
3. Receivable from Investment Banking Services declined from US$85.3 million at 1Q10 to US$40.5 million at 2Q10.  I can find a provision of US$20 million but am unable to locate the remaining US$25 million in the cashflow statement.  Another magical offset?
4. Note #6:  Assets held for sale include Bahrain Financial Harbour Company (US$175 million), $50 million of GFH's long outstanding Receivable from Sale of Investments (now reduced to US$44.5 million and carried in Other Assets) plus US$35 million of Financing to Projects.  The first two items will be settled "against receipt of consideration in the form of cash and land plots."  Well, when you can't pay cash why not settle your obligation with a highly valuable piece of (no doubt) blank land.  The upside potential is, well, enormous, especially at current depressed prices! 
5. Other Assets - As noted above there are reductions of some US$85 million (See Point #4 above), against the introduction of reimbursement rights of US$137 million whose collection is no doubt at least virtually certain if not certain to a much higher degree.
6. Note 9 updates on the financing.  The LMC US$100 million facility (US$80 million outstanding) carries a "profit rate" (read interest rate of 8.5%!).   The rescheduled West LB facility a 3.75% profit rate (reduced from 5%).  This facility is now secured by GFH's shares in Khaleeji Commercial Bank, which no doubt explains why the promised sale of this asset suddenly was postponed.  Perhaps, the collateral will be sufficient cover to prevent an impairment under IAS #39. Also of note during 2Q10 some "wise" and brave lender has provided a US$16.64 million Murabaha financing due in November 2010.
7. Note #10:  Some 69% of Other income (1H10: US$8.6 million) is composed of income declared because certain liabilities were no longer payable (US$4.2 million) and from recoveries of project expenses (US$1.7 million).  

All in all quite a performance in 2Q10.  For those curious that's not a reference to financial performance but the magic of accounting.

Global Investment House v National Bank of Umm AlQaiwain: NBUQ Deposits US$250 Million with Dubai Court

National Bank of Umm al Qaiwain ("NBUQ" or "NBQ", if you prefer) announced on the Abu Dhabi Stock Exchange this morning (23 August) that earlier this morning (the 23rd) it had deposited the US$250 million which is the subject of the lawsuit between it and Global with the Dubai Court.   It went on to note that previously the amount had been on deposit with the Central Bank of the UAE.  

NBUQ described this step as evidence of its good intentions in the matter.   It also noted that it had appealed the verdict of the Dubai Court of First Instance in Global's favor.  The first session of the Appeals Court is scheduled for 29 September.

As I've posted before, if NBUQ can drag the proceedings out, the pressure increases on Global to reach a compromise since it's facing a looming cash crunch due to the unrealistic and unprofessional repayment schedule imposed on Global by its "wise" lenders.  With markets as they are asset sales are difficult.   And the price of an asset fire sale probably much more than paying a break-up fee and forgiving the interest on the "deposit" (if you're Global) or "prepayment" (if you're NBUQ). 

Previous posts can be accessed using the tags "National Bank of Umm AlQaiwain"  or "Global Investment House Kuwait".