Dubai Courts: Potential Conflict of Jurisdiction Between Onshore and DIFC Court

Bradley Hope over at The National reports on the case between Taleem versus Deyaar and National Bonds.  In September the DIFC ruled that the case could be heard in its system.  Earlier National Bonds had sued Taleem in Dubai Civil Courts. 


Justice Chadwick of the DIFCC wisely did not issue an order to the DCC to stay their proceedings preferring sensibly to wait until he sees their ruling.  At that point if it is contrary to the DIFCC's then it will be time no doubt to seek the intervention of a higher power.  And hopefully this case will lead to a mechanism for co-ordination between the two courts on future such situations.

It seems this is all about a failure in precision to specify the governing law and judicial forum.  And so I'd mark this down to a lapse in one of the most routine matters of contract drafting.  As the episode of Shuaa's convertible securities, those of Citi Group, and those of  National Bank of Umm AlQaiwain show, it really does pay to pay attention.

And as with the examples cited above, the amount involved is no small beer -- AED236.6 million.  

Hard to understand this.  The parties to the examples mentioned above consider themselves sophisticated firms.  The amounts are substantial.  Yet they fall down on rookie mistakes?

Mayzoon the Magnificent

Kuwait sheep sold for KD25,000. Apparently gets KD200 per night for his "particularly good breeding ability."  Next stop Dubai?

This beats Sa'eed Al Huweiti's take on his falcon.  But not yet those tasty Kuwaiti pigeons!

International Investment Group - Explanatory Note on 2009 Financials

IIG Funding issued a brief explanatory note on IIG's 2009 financials on Nasdaq Dubai today.

Dubai Escrow Law: Exemptions Fueled Boom and Left Buyers High and Dry

 Credibility - Now You See It, Now You Don't

A very good piece of investigative reporting by Asa Fitch at The National.

In 2007 with great fanfare Dubai passed a law requiring that developers set up escrow accounts to ring fence buyers' funds so they would only be used for construction and related costs on the projects that the buyers invested in. 

Rather quietly and quickly the Dubai Land Department gutted the law by granting exemptions to certain master developers. Among this select group were Nakheel and Emaar as well as other Dubai World entities.  The latter two have recently (three years later!) disclosed this fact.  Apparently, neither they nor the DLD considered it material information an investor/buyer might be interested in knowing or have a right to know.

A couple of quotes:

The developers of multiple projects in Dubai that are stalled spent money in this way, and now homeowners find that their investments were spent but that the projects cannot continue without new funding.

But having to comply with escrow laws could be burdensome for developers such as Nakheel and Emaar because of their obligation to build expensive infrastructure in their master developments. Emaar said in its prospectus last week that if it had to comply with escrow laws, its "business model may be significantly impaired as it would only be able to finance the construction of projects with corresponding purchase price instalments once certain construction milestones are met".

Poof, there goes the last illusion of Dubai as a world class financial center.

And, no, it's not a matter of professionalism  as one "expert" has it.  It's much more basic.  It's a matter of running a fair, honest market.  When the games are rigged, one is well advised to go to another casino.  When one doesn't get a fair shake (or a fair Shaykh), it's time to look to another market.

To be very clear, the central issue here is not that an exemption was given.  It was that the granting of the exemption was not disclosed.  Neither by the Government or the companies.  There may have been what were considered at the time very good reasons to give an exemption.  The problem was that buyers had no way of knowing.  They should have.  

International Leasing and Investment Company - Attempt to Stack Board?

Al Qabas has a follow-up to their earlier report of the resignation of 3 directors at ILIC.  See earlier post on that topic here.

1. The Company has supposedly written to the MOCI requesting that it approve the replacement of Mr. Mohammed Al-Jasser with Mr. Basil Al Mutawa (a relative of Mr. Bassim Al Mutawa one of the major shareholders).  If this is approved then Abraj Holding/Boubyan Bank would not be represented on the Board despite AH's 32.3% share in the Company.  Boubyan has made a loan to Abraj and its representation on ILIC's Board was no doubt a way of looking after its interests in the collateral.
2. Also the Central Bank is said to have approved ILIC's 2008 financials which reportedly show a loss of US$120 million with the result that shareholders' equity was reduced to US$45 million.  Loans are said to remain at 2007's level:  US$600 million.  The CBK has, it is said, reservations on the financials.  And the auditors are refusing to give an opinion.
3. The two directors from the Islamic Development Bank are still tendering their resignations given their concern that the actions being taken are not in the interest of rescuing the Company.  Official bodies are reported to have rejected charges levied against the two directors as inventions and levied by parties who want to take control of the Company without involving other shareholders.
4. When the 2008 financials are released various infractions will be disclosed.  It's said that the auditors have concerns about the use to which loans were put.
5. The same parties behind the Board machinations are reported to be trying to block Mr. Faisal Al Zamil (Kuwait's representative on the IDB Board) from assuming a position in executive management  in the Company in order to enable them to put in someone who will look after their interests.
6. Finally creditors are said to be disgusted with the developments at the Company.

As I mentioned earlier, IDB and Abraj Holding, control over 60% of ILIC and should be able to take control of the Board.  If the Central Bank can finalize ILIC's financials, then the MOIC can call for a shareholders' meeting and presumably the majority of shareholders can vote in their own candidates for the Board - at least a majority.

Gulf Finance House - Back in the Game with Tunis Financial Harbour

Today on the fringes of the IMF/World Bank meetings in Washington, GFH announced the addition of a Financial Harbour to its existing project in Tunis.

This takes me back to the heady days of 2005 and 2006.

Can the US$10 billion Suq Al Mal Financial Harbour Cafe & Blog be far behind?  Get in on the ground floor, while you still can!  The Turkish coffee and baklawa concession could be easily worth twice that.  But be sure to scotch-guard those carpets.

SICO Bahrain: Dubai Debt Problems Just Deferred Until 2014?

SICO Bahrain has issued a new report, "Dubai Debt Concerns Deferred to 2014".  SICO Research is only available to registered users so you'll have to sign up to read the report in detail.

Here are some highlights.  Themes that might already be familiar and some not.

1. Forgetfulness of investors in limelight.  Some history on the trends in CDS spread differentials between Dubai and Abu Dhabi (180 bps in October 2009 to 480 bps in early December and then again to similar levels around the Greek crisis).
2. Recent US$1.25 billion issue not sufficient to plug the 2010 deficit (estimated at US$1.6 billion).  Plans to slash subsidies and other transfers by 64%, though wages to increase by nearly 20% as the Government needs to make room for more nationals entering the workforce.
3. Repayment schedule remains a challenge.  SICO estimates very modest debt repayments in 2011 and 2012.  For the period 2013 - 2015 excluding bilateral, the estimates are US$1.7 billion in 2013,   US$19.23 billion in 2014 and US$0.5 billion in 2015.   So a definite debt hump in 2014 - and the reason for the title to SICO's article.
4. Economic recovery may not improve Government revenues.  Trade and tourism not expected to generate significant large government revenues.
5. Not many options to improve finances.  Taxes a possibility but pose competitive disadvantage vis-a-vis other GCC states.
6. Sale of assets a possibility.  SICO believes the Government may take the strategy of selling partial stakes to raise cash rather than relinquish control of strategic assets.
7. Dubai increasingly "leveraging" the UAE brand.  Apparently in the prospectus for the recent bond, a great deal was made of the fact that the UAE has a AA sovereign rating.  SICO sees this as a way of diverting attention from Dubai's 395 bps CDS roughly 296 bps higher than Abu Dhabi.  In my opinion it may also be a way of reminding investors of Abu Dhabi's deep pockets.
8. Despite the negatives, SICO does not believe a sovereign default is likely.  It seems to me that the major issue here is one of pricing of credit as well as lenders and investors being careful about the quantum they commit to the Emirate.

Boubyan Bank to Liquidate Shares Owned by Awal Bank to Partially (Very Partially) Collect Debt

Mohamed Sha'ban at Al Qabas reports that having received judicial authority, Boubyan will sell some 300,000 shares in International Finance Company on the KSE to partially settle a debt of SAR 111 million owed by Awal to it.  Furthermore it will sell some 61,000 Global GDRs listed on the LSE through the manager of the fund holding the  shares.

Since AlDawliah is trading at around KD0.250 per share the recovery is half of that pictured above.  A penny on a dollar of debt.

US Elections: Nur Ein Wenig Harmloser Spass (Just A Little Harmless Fun)

Spot the Republican candidate for the Reichstag, sorry, Congress from the 9th District in Ohio.  Rich Iott.

He's not on the far right but second from the right which I guess might make him a moderate of sorts when you consider the wider context.

He explained that he participated as a history buff and as a way for a father to bond with his son.  If I remember correctly, there is an old saying "The family that goose steps together"  though I forget the rest of it.  I suppose that's the important bit, though, isn't it?

While I'm probably confusing a historical event, I believe the candidate was also heard to say:

1. Ich erkenne mich nicht schuldig.
2. Befehl ist befehl. 
3. Die Fahne hoch!

In any case, those familiar with this repulsive ideology  know the central importance of the Viking in the "Aryan" myth along with the Celtic Cross and Runic symbols.  That's why of course the SS Unit adopted the name  in the first place.  And why other later adherents of the ideology did.  The Wiking-Jugend.  Several "Aryan" rock bands  with variants of Wiking in their names. 

Just a little harmless fun, so they tell us.

Department of the Tragically Absurd: A New Structure for Arab Joint Action on the Table

It's Got to Hurt When Only a Few Recognize Your Completely Imaginary Genius

As Emirates 24/7 informs us:

Chairing the opening session, the Libyan President Colonel Muammar Al Gaddafi welcomed the Arab leaders and said that the summit would discuss a new structure for Arab joint action.

He added that a five-member committee under his chairmanship was formed during the last summit in Sirte to oversee implementation of the new structure.

Another decisive step forward.  A new structure.  Proven visionary leadership.  What could possibly go wrong?  (For one thing see picture above).  

Who could possibly object?

Amr Moussa voiced some skepticism and warned that steps should not be taken which would undermine the highly effective Arab League.

But as the report tells us several critical breakthroughs were made at the meeting:

HH Sheikh Mohammed Al Maktoum had several very important visits.

1. He visited Egyptian President Mohamed Husni Mubarak on Sunday for a session filled with Hope.
2. He met with Syrian President Bashar Al Asad also on Sunday.  While we're not told,, I believe this session was about Change. (Quite a busy day, it seems).
3. On Saturday the Bahraini Deputy Prime Minister and his entourage visited HH  and his entourage and conveyed the greetings of King Hamad of Bahrain!  That was, if I'm not mistaken. one of the major achievements of the conference.
4. Though there were no doubt many more,  perhaps more than could be recorded.  One of note,  that was, was a visit to a heritage market.

This event certainly lived up to its billing as the  extraordinary Arab summit.

Despite the many imaginary achievements of this remarkable event, I am left with one nagging doubt.  What sort of people make a habit of indulging a psychotic in his delusions?

Golden Belt Sukuk 1 Certificateholders Make Up Their Minds

Today via an announcement on the Bahrain Stock  Exchange Citibank, the Delegate on the Golden Belt Sukuk, advsied:

The Delegate refers to previous notices issued by the Delegate dated 24 August 2009, 7  October 2009, 17 November 2009, 23 November 2009, 2 February 2010, 16 March 2010, 28 April 2010 and 22 July 2010.

In these notices, the Delegate noted that, in accordance with the Terms and Conditions of the Certificates, prior to acting upon any instructions from Certificateholders it is entitled to be  indemnified to its satisfaction.

The Delegate confirms that on 27 September 2010, it entered into a deed of indemnity (the  Deed of Indemnity) with a number of Certificateholders (the Indemnifying  Certificateholders). The Indemnifying Certificateholders represent at least 25 per cent in  aggregate face amount of the Certificates outstanding.

Acting under instructions from the Indemnifying Certificateholders, the Delegate has served a  Notice of termination of the Sub-Lease and made a demand for all amounts due under the  under the Costs Undertaking.

The Investment Dar - Creditors Warn TID Central Bank Will Not Impose Restructuring Against Our Will

Nancy Reagan

White House Photo in the Public Domain

Al Qabas, as it often does, has a different take on the story about TID proposing a 50% haircut than Al Watan.

Here the story is that the creditors have said that if Dar's request for a 50% haircut proves true, then this will give the Central Bank of Kuwait full justification for turning down its application for the FSL.  (You may as I have been struck by this formulation.  Either a deficient translation on my part.  Or maybe the story of the 50% haircut was wrong).

They also remarked that the Central Bank will never force a restructuring on them without their consent as they are the owners of the money and should decide their fate.  So a consensual plan agreed by all parties will be required.

Finally they are quoted as saying that there is an indication that the entity charged with preparing the report on Dar's ability to remain a going concern and pay its debts shares Dar's opinion that it can comply with the financial ratio set in the new Central Bank of Kuwait regulations if it can deal with approximately KD500 million of burden which will strengthen shareholders' equity in addition to bringing it in compliance with the new principles.   I'm taking Al Qabas description of the "entity" to mean E&Y.  And am not sure why the circumlocution is necessary.

As I've indicated before, I really don't understand the fixation on the new CBK principles.  Dar is in a life or death situation with the rescheduling.  It seems eminently reasonable that if it can't meet the new regulations that should be a very minor consideration in the greater scheme of creditor repayment and the continued existence of the Company.  There are many ways this can be "handled" to preserve the regulation but give Dar some breathing room.  Would one really "put down" Dar because it couldn't meet a ratio if it could repay a substantial portion or all of its debt?

All this talk of the regulations makes about as much sense to me as arguing about the  poor  quality  of the band as it plays the final songs just before the Titanic sinks.

Maybe one of my regular readers can tell me precisely what I'm missing. 

It's also unclear if this story came before or after this one.

Ah, Kuwait land of mystery and intrigue.  And also family values.

The Investment Dar - No Intent to Ask for 50% Haircut

Barbershop in the Bus Station Tirth Raj, Rajasthan
Copyright funky footage

Creative Commons Attribution 2.0 Generic

Al Watan quotes sources close to The Investment Dar as saying that the Company has no intent to ask for a 50% haircut (KD 500 million) on its existing debts .  That it intends to repay its debts in full.  Moreover it would never sue the Central Bank of Kuwait  which it respects and values.  I guess the meaning here is won't sue again as they did earlier.

You'll recall earlier that there were reports that TID had made just such a request bypassing its creditors and writing directly to the Central Bank of Kuwait.

"Islamic" Property Financing in Syria "This Time It's Different. Really, It Is."

Rasha AlAss over at The National has an interesting article on how the pricing on "Islamic" banks' real estate financing in Syria and Lebanon is much higher than at conventional banks.  While she doesn't give a reason, I'm guessing that it's their much higher cost of funds and not any desire to earn an outsize profit.  The latter of course would run afoul of prescriptions to deal fairly.  Wouldn't it?

A couple of quotes from "wise" local bankers:

Some bankers are pleased with this, pricing their products on the speculative idea that property prices will continue to rise. Explaining why the traditional mortgage rates are so high, one banker says: "Well, real estate in Syria keeps going up. So even with a high interest rate, the appreciation will still be higher." Mr Darkazally echoes this sentiment. "Real estate prices in Syria will never go down," he says.

So does this constitute aggressive lending? And could the speculative behaviour by customers and bankers on a property boom that has not yet gone bust lead down the same road that brought the world to its knees in the recent credit crunch? "Not in our day," says Mr Darkazally .

Normal financial laws apparently don't apply in Syria.  This time it really is different.

Oh, and if you want a real surprise on your "Islamic" real estate loan, buried there in the fine print is a "prepayment penalty" or perhaps something called a profit rate protection clause. 

Department of Sycophancy: "Sheikh Mansour Emerges as the Arabian Warrent Buffet"

الشيج واران بوفيت منصور

So we're told by Arabian Business.

When I think of Warren Buffet I think of many things:

1. A determination to succeed and lots of hard work.  Warren began his career delivering newspapers from his bicycle (which he duly depreciated on his tax return!).
2. A ferocious pursuit of deals, many originating from "cold calls" on firms.
3. A generally single-minded focus on a particular investment philosophy (value investing as taught by Benjamin Graham).  
4. A cool rational head not swayed by whatever was the then current irrational exuberance.
5. A painstaking building of a fortune.  Earning money, saving, reinvesting, making a profit, and repeating the cycle
6. Many highly profitable and visible deals.
7. Despite all of this, little affect on his ego or lifestyle.  He lives in the same rather modest house in Omaha that he bought long ago.

Arabian Business is silent on all but the sixth point so we can only imagine how the other six apply to the Sheikh.

What we do learn from the article apropos of the sixth point is that:

1. He owns Manchester City Football Club.  How this came about and how it was funded are presumably too well known to require recounting, which is perhaps sad because we are left not knowing how he displayed his legendary skill in closing this transaction.  Did he begin with a paper route for The National or perhaps more likely Akhbar Al Arab?  Save his first earnings and by repeating the cycle amassed the GBP 300 million to buy the Club?
2. "He" made an investment in Barclays in the dark days of 2008 and has now made US$3 billion on an "exit".   One that we learn that leaves "the sheikh exposed to any upside in the share price and completely protects him from any downside."  

The latter deal sounds almost miraculous.  He exited Barclays yet retains upside in the shares.

So how can we understand Arabian Business's statement: he "completed his exit from this cool investment"?    Frank Kane has an account here.  As the words suggest, risk has been hedged but not eliminated.

First, PCP3, not the Sheikh,  will continue to own the shares.  PCP 3 has entered into a derivatives transaction with Nomura.  In effect risk on Nomura has been substituted for Barclays.

And as always with derivative transactions the devil is in the details.  What are the conditions for exercise?  Any restrictions or limits on the number of shares to be "put" at any one time?  What is the strike price (or its equivalent) on the transaction?  Current market price?  Something lower?  Is there a time limit at which point the (derivative) contract expires and Nomura is no longer obligated?   Will PCP3 need to roll the derivative forward to maintain its protection at that future date at a price to be determined?    And perhaps very importantly what did the derivative cost?  Are there future costs associated with it?   One presumes Nomura priced for the risk they're taking considering both price and time.  So this isn't a costless transaction.  But then PCP3 gets to keep the upside.

Still a remarkable return.  One worthy of much praise.  Especially when one considers such debacles  as one SWF's investment in Citibank convertible securities.

But before Arabian Business rushes to describe the Sheikh as the Arabian Warren Buffet, it may be appropriate to wait for the development of a consistent track record.  

Not so long ago, Maha AlGhunaim, Esam Janahi and others were lauded for their investment prowess.  And like many a legend, time has not been kind to these.

Special Dubai World Court Orders Nakheel to Pay CDG's Legal Costs

According to Tom Arnold over at The National, Sir Anthony Evans, The Chairman of the Special Tribunal, ordered Nakheel to pay CDG's legal costs.

At this point the Court has not rendered a judgment on CDG's claim.

Dubai's Real Estate Woes Continue

A Not So "Unique" 50 Story Dream from 1997 

 

One of our regular readers/commentators, Laocowboy2, called this New York Times  article on the continuing woes in Dubai's real estate market to my attention.

Some quotes with captions.

"We're not in Kansas anymore, Toto"  The biggest mistake - mistaking a foreign country for your own - and assuming that legal systems, services, construction quality are just like "back home".

“It’s not like in Western countries. It’s very difficult to exit here if there’s a problem. And we’ll never get our money back, but now we’re stuck dealing with this hole.”

AA's Second Law of Lending and Investing: "Due Diligence Before the Deal Not After"

"At the time, few asked if there was a legal framework for resolving potential disputes. Now, with the glitter gone, interviews with investors, legal specialists and real estate analysts here show that many who bought in are finding it hard to get out."

“The rules of the game are definitely opaque here,” said an investor who has bought several properties in Dubai and who insisted on anonymity because of delicate talks with developers and regulators. “In the United States, I would know my legal position much more clearly and could take actions if necessary.“ 

Besides "location, location, location" supply and demand also impacts prices.

Although about 70 percent of empty lots from three years ago have been filled, real estate construction since then has far exceeded the purchases, more than doubling the amount of vacant space available, said Timothy Trask, the director of corporate ratings at Standard & Poor’s in Dubai.

No mention of quality of materials and construction.  Perhaps, that will become  more widely apparent in a few years time, though there's always the odd Discovery Gardens or Sky Gardens or The Villa to help discover flaws.

The Investment Dar - Rumor of Restructuring Bombshell: Request for 50% Hiarcut

Major Al-Musallam Rides to Glory

Before we go further to be very clear this is an account which neither the Company, the Central Bank or the creditors have confirmed.
Update:  TID has denied this story.

Al Qabas reports that TID has submitted a completely new restructuring plan to the Central Bank of Kuwait which calls for lenders to forgive 50% of the existing debt, i.e. KD500 million.   According to the report, lenders were not consulted or advised prior to TID sending the proposal to the CBK.

What's going on here is anyone's guess.

Mine is that the Company and the lenders are jockeying from (what I think is) the fallout from the Ernst and Young report.  As you'll see below. TID and its lenders appear to have been discussing alternatives /modifications to the original plan. From the Al Qabas account these seem predicated on the fact that the Company cannot repay all the debt.  The unpayable quantum seems around a 50% or so.

I suspect that Ernst and Young came back with a very negative assessment of  TID's ability to repay in full and, thus, case serious doubt on the Company's ability to continue as a going concern.  As you're aware, the Financial Stability Law is designed to give protection to viable companies.  It is not intended as a mechanism to provide legal cover for disguised liquidations.  If I'm right (and as Umm Arqala will tell you that's a rare occurrence), a report like this would have thrown quite a large "wrench" into things, complicating the CBK's acceptance of the already agreed restructuring.  How could the Central Bank recommend to the Court that the Company be allowed under the FSL under such circumstances?

I'm also guessing this occurred prior to the end of the first four month period the CBK had for evaluation of the suitability of the original plan and of TID to enter finally under the FSL.

What leads credence to both assumptions are reports in the article that the lenders have floated some  proposals or modifications of their own and the timing of those negotiations.  One was the conversion of  roughly half the debt to equity with some preservation of the rights of the existing shareholders.  Presumably, the lenders could quite easily make the argument that if a debt conversion were required, the old equity has been lost .  And thus the old equity holders should be wiped out.  Their proposal is reported as more generous, though it's not clear what percentage they would allow the old shareholders in the post conversion equity.  Leaving 10% or 20% might for example be considered highly generous by the lenders and an "outrage" by the existing shareholders.  Negotiations on this proposal supposedly took place between July and September.  The story goes that TID's Board went back on a tentative agreement because some of the existing major shareholders did not want their equity interests diluted.  (Unclear to me how you dilute something worth nothing.  There's also a hint here that the major shareholders are very important people.   And, if you know Al Q's politics, you might suspect they are pointing the finger at regal personages).

As a second alternative, the lenders suggested taking some assets in exchange for the debt.  The article says  that E&Y determined that this proposal was acceptable under international principles.  Dar supposedly made a counter offer that brought things back to zero. 

At this point, the two sides are in a deadlock.  I think that TID's proposal (assuming the report is accurate) is more a negotiating tactic than a viable proposal.  Rather it is an attempt to break the logjam by setting forth a maximum position.  One they probably know both the lenders and the Central Bank would have a hard time accepting.  What this proposal does, though,  is shift the parameters of the debate.  While lenders may reject a 50% discount, it may be harder to avoid some meaningful haircut - particularly, if the choice is bankruptcy.  And in order to get itself out of having to make a decision that may prove wrong or hurt its and the country's reputation, the CBK may be inclined to lean on the parties to compromise.  TID has just set one bound on the compromise.

It could be that they are trying to play for time - hoping for a miracle.  Realistically playing for time  hurts all parties - TID, the lenders, Islamic Banking, and Kuwait.  But maybe that's the goal - to maintain the status quo.

The article describes the choices in front of the Central Bank as:

1. Issue a conditional acceptance of the proposal subject to conformity with accounting principles and the agreement of the lenders.  (Or in other words neatly pass the buck.  Or is that the dinar? As Al Q elegantly puts it, getting the lenders to agree may be very difficult given the Company's breach/violation of the existing agreement.  That raises AA's first law of underwriting and due diligence "know your customer".)
2. Reject the proposal.  In which case it's expected that TID will sue the CBK in an attempt to confuse the issue and buy more time.  As Al Qabas elegantly puts it الى ما لا نهاية . (Probably not a first choice. More likely is forcing the Company and its creditors back to the negotiating table.  Or putting them in a situation where they will decide the fate of TID, if that fate is to be bankruptcy).
3. Push the lenders to bankrupt the Company - which will lead to all sorts of negatives for all parties and harm the financial sector, Islamic Banking and the reputation of Kuwait. (I'm guessing not an alternative high on the CBK's list).
4. Convert TID to a holding company.  This would remove it from Central Bank supervision so that the lenders can apply the restructuring deal agreed.  Also the CBK's June ratios would not apply.  (This seems to me to be a bit of red herring.  The CBK can grant an exemption to TID as a finance company from the regulations.  Supposedly the lenders will reject this because they don't think the administration of the company is really interested in solving the problem.  The lenders have on more than one occasion made it quite clear what they think about management's ethics.  They began by asking the CBK to place a minder in the Company.  Then they pushed for the appointment of a Chief Restructuring Officer).
5. Force TID back to the negotiating table with the lenders to find a solution and return to the original plan.  (This seems contradictory.  The original plan is probably moot at this point.  I think the lenders are going to have to accept some changes - and these will be against their interests.  From the report of the alternatives they've offered already it seems pretty clear that they've accepted this - even if it was no doubt reluctantly.  The CBK may well force the parties back to the negotiating table but there will be a new deal.  Perhaps the CBK could impose a time limit for reaching an agreement using as the deadline some date prior to the date it's required to give a recommendation to the FSL Court).
6. Give TID an exemption from the new ratios saying the old plan was devised based on Central Bank advice to the lenders and thus it's not fair to change the rules on them.  As per the article, TID has apparently been saying that the original restructuring plan doesn't conform with the CBK's  "new rules".  The implication being the plan must be modified.   (I don't think that the CBK new rules are the real issue here.  The sticking point is TID's ability to pay and to continue as a going concern.  If the new rules were the only point, then I think the CBK would have given the exemption.  This could be quite easily fudged as an agreed plan to implement the new rules. And so it could be presented not so much as an exemption but a granting of additional time to achieve the goal.  When the debt is paid in full, TID will clearly be in compliance).
7. Exit TID from the FSL and leave it to its fate.  (The CBK probably doesn't want to be the one who puts down this dog.  Better to have the lenders do so.  The "trick" is to find a way to put the parties in a situation where they either come up with a solution or fail - a way which keeps the CBK's hands pristine.  The time limit for the CBK to give its recommendation to the FSL Court is a neat escape hatch.  If the parties haven't agreed by then, the CBK can tell the Court it cannot make a recommendation.  The Court should then refuse to allow TID final entry into the FSL.  Since this is the last extension allowed, the matter is out of the CBK's hands.  Nature and the courts then take their course.  That should be quite a frightening thought for the lenders .  As they stare into the abyss  of almost a complete loss, all sorts of discounts and compromises may become possible).

Finally to close out this post, a recap from the Creditors' Committee official letter to the Central Bank rejecting TID's new plan "in whole and in detail":

1. TID's proposal makes a gift of the money of others (the lenders) to the Company and strengthens (supports) the rights of equity at the expense of the lenders who have not received a single fils since the beginning of the crisis but only promises.  (But they were some really nice promises. Perhaps, even said with one's hand on the Qur'an).
2. TID's proposal is contrary to international and global practices (customary usage) and puts the lenders in the situation of a fait accompli with the proposal being put forward without their agreement or consultation.
3. TID's management is "hitting" (harming) the interests of the creditors and shareholders.  Therefore the lenders reject the idea of a discount which is unjust.
4. The Committee considers that TID's proposal ignores the repayment schedule already agreed.  10% in Year 1, 20% Year 2, 20% Year 3, 30% Year 4 and 20% Year 5.  (There seems to be an argument of a breach of faith here.  And, yes, while the lenders may be thinking of a breach of the agreed business contract for the rescheduling, AA also is thinking that in this context the term applies as well to  religion).
5. TID's proposal prefers (in the sense of giving priority) the shareholders over the lenders contrary to what was agreed previously.
6. The Company has wasted the shareholders' money hiring financial and legal advisors and wasted the banks time negotiating the past 18 months.  

This has been a bad situation from Day #1.  The passage of time has not made things better.  It's likely to get worse.

The lenders face a real dilemma.  Do they compromise to try and get back as much as they can?  Or at some point do they just bring down the house of cards?  With 18 months of time on their hands, lenders may have built rather hefty provisions against this name.  That may give them a bit more negotiating room.

The Central Bank is in the most uncomfortable of positions.  It's got to be hoping that third parties or events are dispositive and that it doesn't have to make a difficult decision.

Threats to Capitalism International Edition: Dateline Qatar Taxes at the QFC

Outside the QFC in the Near Future?

Asa Fitch over at The National reports some distressing news from the Qatar Financial Centre - a corporate tax of 10%.  To add insult to the "grievous" injury caused the tax is retroactive.

 

 

Dubai’s Back: CD Spreads Down But …

 Jakub Hałun
GNU Free Documentation License Version 1.2 

富士山- 5 合目

There have been numerous stories in the press how Dubai is making progress coming back. The conclusion of the Dubai World restructuring agreement and the issuance of the sovereign bond are touted as a watershed in this process.

That's not to say that there is no progress, but that it's a bit premature to declare success.

I'm planning a post on the bond later. Today I'd like to turn to the CDS spreads.

What we are told is that there has been a remarkable compression in CDS spreads which touched 650 or 660 bps, if I remember correctly, at the height of the crisis. The spreads are now down to pre-crisis levels, though pre-crisis is measured as the spread just before the announcement.

There's an apparent fallacy in that statement.  Prior to Dubai's November announcement, its spreads were not in some "golden age" except when compared to the market reaction post announcement. And a lot of that was over reaction due to the market being one-sided (a preponderance of demand for protection over the supply of protection) coupled with the fact that the CDS market is rather thin on the best of days. And even thinner the further one's obligor from the major markets.

There is a tendency among some to imagine that credit is like a light switch. It's either good (on) or bad (off). That's not the case.  There are gradations and usually (but not always) credit improvement or deterioration takes place over time.

Prior to the DW announcement, Dubai's CDS spreads had been trending larger, reflecting deterioration in its credit.

As an illustration, let's take a look at some very easily accessible data on five-year CDS spreads from Markaz. You won't need a Bloomberg for this.

Country	Spread
Germany	38.1
USA	47.1
Japan	59.1
China	62.9
UK	63.8
France	79.0
Saudi Arabia	80.2
Qatar	95.3
Abu Dhabi	106.4
Turkey	150.9
Bahrain	175.7
Oman	221.0
Egypt	227.7
Lebanon	288.7
Dubai	391.3

As indicated above, there are a lot of factors besides credit that affect the spreads. But I think this gives a relatively good idea of where the market sees Dubai's credit. And one would expect Dubai to be higher in the ranking.

So progress has been made. But … there's a longer way to go as indicated in the picture above.  And if you got to the Fifth Station on the bus as many do, your most strenuous efforts are yet to come.  Such is the case with Dubai.