Construction Industry - Background Primer

The Real Nick, who advises he works in the industry, has contributed some insightful comments. 

If you're not familiar or would like to check what you think you know, suggest you check out the comments here and here.

Burj Khalifa: Meeting Space at DH10,000 An Hour

The National carries an article about the cost of renting meeting facilities at the BK.

Some quotes from the article and comments.

1. High-flying businessmen will be able to host their board meetings on the uppermost floors of the Burj Khalifa when the commercial space opens this year.  AA;  Not sure if "high flying" is intended as a pun - in either of the two senses that occur to AA.
2. “At the top it’s very small space,” Mr Alabbar said. “So we’re going to lease it out for board meetings, for companies, for workshops, for Louis Vuitton doing their corporate board meeting in Dubai. It is the very top.”  AA:  More puns. "At the top".  This is almost as good as the press coverage of the "world's tallest hotel".  Small and exclusive.  Don't plan a large event it seems.  What sort of "workshops" would be appropriate for this venue?  I'm thinking annual budget setting.  And then perhaps later budget variance analysis.  Pass the canapes, Carl.  
   
3. “It would be a marvellous place for a meeting,” he said. “A large international company could have a corporate event and build some publicity around it. It could be a venue for landmark board meetings.”  AA:  A large international company having a small meeting or function it would appear. But no doubt there will be appeal and clients.  Kidding aside, this could be a useful financial tool.  If a company flew in its board to Dubai and rented space for a board meeting for a transaction, it could be a very good sell signal.
   
4. “The buildings are not investments on their own, but it adds value to the city itself.”  AA:  One hopes the building owner will enjoy a financial return on his investment unlike say another famous Burj in town.  
5. The main restriction for the event spaces would be their limited size. They are small because the building tapers as it rises higher.   AA:  Natural of course.  A very tall building has to taper significantly.  With extremely tall buildings the top floors may be pretty much dead space - small and odd shaped.   
   

The Investment Dar - More Creditors Agree to Restructuring?

Under the headline "80% of Creditors Approve Dar Debt Plan" Maktoob carries a story that additional creditors have agree to the restructuring.

Some quotes and comments.

1. Almost 80% have signed or will sign in the coming days," one person familiar with the plan said. "The number of creditors could reach as much as 90% in the next month or two."  AA:  Since implementation of the deal is being held as more creditors' approval is sought/obtained, I still wonder what the reference to the required two-thirds majority means.  If two-thirds were enough, then it would seem given TID's timeline work should be proceeding full bore.
2. Dar is expected to sell most of its assets to pay its debts after saying in May it had defaulted on a $100 million Islamic bond, or sukuk, as the Shariah compliant investment firm ran into trouble due to the global financial crisis.  AA:  The firm ran into trouble because of its business and business model.  The financial crisis was a contributing factor not the primary cause.  
3. A nine-member committee representing banks and creditors, that include HSBC Holding and Lloyds Banking Group, was set up to help arrange the restructuring of Dar's debt.  AA:  In terms of visibility, the Creditors' Committee has been largely invisible.  Bader Abdullah Al Ali , CEO,  of  Gulf Investment House, a relatively modest-sized regional investment bank has been the public spokesman in all the press statements I've seen.  Perhaps, this is because the majority of holdouts are local banks and it was felt that a local face would be more effective in securing approval from holdouts?
4. "In terms of the process, the legal framework for the proposal has yet to be drawn up," another person said.  AA:  If this is true, another indication that the deal is not yet done.  One would expect that lawyers would be busily scrivening away to meet the desired February close because once they prepare draft legal agreements the creditors have to be given time to review them and provide their comments which leads to another drafting round.
5. "The parties would like to be done by the end of February."  AA:  AA would like to own 23 Severn Road in Hong Kong, though I will settle for 10 Big Wave Bay Road.  Unless there is a miracle, both AA and the "parties" are likely to be disappointed with their respective wishes.   

More on TID by using the label "The Investment Dar" on the home page of this blog.

Burgan Bank Takes Majority Control of Bank of Bagdhdad

Burgan announced on the Kuwait Stock Exchange today that it had bought another 5.3% of Bank of Baghdad taking its total shareholding to 50.6%.  The new shares were acquired for US$10.7 million, thus valuing its investment at US$102.2 million.   Consolidation of results will begin with 1Q2010.

Burgan earlier acquired Baghdad Bank along with Algeria Gulf Bank, Jordan Kuwait Bank and Tunis International Bank from United Gulf Bank.  The deal was announced in May 2008.  Both UGB and Burgan are majority owned by KIPCO Kuwait and occasionally conduct transactions with one another.   The sales were concluded in stages - bank by bank - during 2008 and 2009.

Yes, United Gulf Bank declared a profit on the sale of the four banks to its affiliate company.

And, no, neither UGB or Burgan operate according to "Shari'ah" principles.

[8:51:41]  ِ.بنك برقان يزيد ملكيته فى اسهم بنك بغداد ليصبح شركة تابعة ‏
يعلن سوق الكويت للاوراق المالية بان بنك برقان افاد بانه قد اتم الاستحواذ ‏
على نسبة اضافية تبلغ 5,3% من اسهم بنك بغداد بقيمة 10,700,000 دولار مما ‏
يجعل البنك شركة تابعة لبنك برقان بنسبة ملكية تبلغ 50,6% ،وعليه فسوف ‏
يتم تجميع نتائج اعمال بنك بغداد ضمن البيانات المالية للبنك ابتداء من ‏
بيانات الربع الاول لعام 2010 .‏

Kingdom Holding – Follow Up

So what happened after Kingdom Holding Company ("KHC") made the announcement on 5 January 2010 about its planed reduction in share capital and the donation of 180 million shares of Citigroup stock by Prince AlWaleed Bin Talal to KHC?

On 6 January, trading exploded (in a relative sense) from 1.4 million shares the day before to 28.6 million shares. KHC's share price rose from SAR 4.7 per share to close at SAR 5.15. This gain of SAR0.45 was roughly in line with the value of the Citi stock contributed by Prince AlWaleed (SAR 2.24 billion divided by 6.3 billion shares of stock outstanding).

On 9 January, trading was similarly elevated with 20.5 million shares changing hands. The closing price was SAR 5.00 per share.

Let's look a bit closer at trading on the 9th.  Details are at the Saudi Exchange website.

1. With 6,3 billion shares, 20.5 million shares represent about 0.3% of total shares.  Looking at free float (5%), the day's trading is still small at 6.5% of free float (315 million shares).
2. There were 3,987 transactions for an average "ticket" of 5,152 shares.  Retail.  Small investors.

100 KM Per Liter - Congrats to Bahrain Training Institute Team

Copyright Gulf Daily News Bahrain

Congratulations to the students and faculty at BTI for their very good showing in the annual 2009 Society of Automotive Engineers (SAE) International Super Mileage Competition.  Bahrain competed against 45 other teams and placed a very respectable 19th.  Considering that other competitors had significantly more in the way of facilities and resources, Bahrain did very well indeed.

GDN account here.

Central Bank of Bahrain - Proposed New Regulation on Board Attendance

The CBB issued a consultation paper on 6 January with comments due by 30 January.

The proposal would make two main changes to the CBB's Module HC  "High Level Controls" which specifies corporate governance principles as well as the approval process for certain positions.

1. Board members would be required to attend 75% of all board meetings.  Attendance by video or telephone conference would constitute attendance as well as in person attendance.  The CBB encourages banks to amend their constitutional documents to allow video or telephone conference attendance at board meetings.
   
2. Publication of individual director attendance at (a) time of re-election (b) quarterly on the financial firm's website and (c) annually in the bank's audited financials details of each committee - number of meetings and attendance of individual directors.

Presumably, the consultation document evidences the CBB's concern that directors are not participating at a sufficient level in board meetings.

Sharjah Islamic Bank - AED 55 Million (US$15.1 Million) Exposure to AlGosaibi

You may have seen the reports that at the opening of its new headquarters building Muhammad Abdullah, CEO, of Sharjah Islamic Bank said that SIB's exposure to AlGosaibi is AED 55 million (roughly US$15.1 million).  In this article he is also quoted that the bank's capital adequacy ratio is 27% and that both liquidity and investments are strong.  He said profits for 2009 were good.

Last September SIB disclosed this as well as the fact that it had already taken provisions of 50% of its exposure as well as the fact that it has no exposure to Saad Group.   The Central Bank of the UAE had mandated a 50% provision for both Saad and AlGosaibi and a 100% provision for their banks (Awal and The International Banking Corporation).

SIB has about AED4.1 billion (US$1.1 billion) in shareholders' equity so the residual exposure should be no problem.

RTA Denies Work Stoppage on Dubai Metro

Here's the news item from WAM.

Two major points.

1. Work has not stopped.  AA:  The Reuters story mentioned a slow down in work, not a stoppage.
   
2. RTA also reiterates its contractual commitments to the flow of payments in accordance with the progress of work made in the project.  AA: It's unclear what precisely this means.  Does it mean payments are being made in accordance with progress?  But if this is the case why are the Japanese firms slowing down?  And why are they involved in negotiations with the project owner?  Is it over the work change orders?  Those who know their regional history will remember that contractors in Saudi had a big problem with payment for change orders in the 1980's.  Redec being a prime example, though at the time the Saudi Government claimed that the  the change orders were not properly documented.  Of course, at that time the Saudi Government also was having cashflow problems.  It's an often observed phenomenon that payments on contracts get scrutinized very very carefully and often rejected for technical reasons when cashflow is tight.  That way one technically isn't in default on the payment.  And of course the door is then open to negotiate, which often leads to negotiations on price.
   

Unpaid Japanese Firms to Halt Work on Dubai Metro

Rupert Bumfrey has a post on this.   Here's another from Reuters.

Some comments.

1. It's not unexpected that construction costs would increase from the original estimate.  As per the article costs have doubled.  Culprits are cost inflation in materials and change orders.
2. Also not unexpectedly despite the announcement that contractors would be paid, it does take time for money to move through the system.  While the unnamed company official has denied that they have a receivable of US$5.3 billion, even half that amount is serious money.

The problem may be that there isn't enough available cash.

The Emirate owes substantial unpaid amounts.  Dubai Metro is just one of the Emirate's projects.

New financing seems unlikely.   Government revenues are insufficient.  Shaykh Khalifa hasn't written another check.

This coupled with Shaykh Mohammed's waiving of fines for late CR renewals suggests that more economic pain is on the way in Dubai.  Despite this week's festivities for Burj Khalifa, there is a lot more pain in store for Dubai.

NY Judge Questions Whether Mashreqbank v Al Gosaibi Belongs in NY Courts

Bloomberg reports that New York State Supreme Court Justice Richard Lowe postponed a hearing and other proceedings in Mashreqbank v Ahmad Hamad Al Gosaibi and Brothers asking counsel to provide him arguments why the court case (and AHAB's countersuit against Mashreqbank over which he is also presiding) should be heard in New York.

“I find it incredible that everyone here represents someone over there,” Lowe told lawyers. “All of the parties, all of the witnesses, all of the documents here have to be translated from Arabic and I have to then apply New York state law,” he said.

A decision that Saudi Arabia is the proper forum could have an impact on the case raised by AHAB against Maan AlSanea in New York as well.

Dubai Ports to List on London Stock Exchange - The Not So Hidden Meaning

Wednesday, January 6, 2010

In March 2009 the Board of DP World stated it would evaluate all available options to address its continued disappointment with the markets valuation of the company.
After an extensive period of review with advisers, and discussions with shareholders, the Board of DP World has decided to seek a premium listing on the London Stock Exchange whilst maintaining the existing primary listing on Nasdaq Dubai. It is currently envisaged that we will seek admission for listing in the second quarter of 2010.
The Board remains committed to our shareholders in the region and believe that they will also benefit from this move.

Here's the link to the press release.

There are a couple of messages here:

1. DP World believes that investors on Nasdaq Dubai are not properly valuing it.  That speaks volumes about its view of Nasdaq Dubai and local investors.
2. It will seek its "premium listing" on the LSE and not on one of the other UAE or regional exchanges which similarly conveys its feelings about these exchanges.  For one thing  it would appear that DP World does not consider any of them to be "premium".
   

Interesting ideas from a Dubai Government related company.

The Gulf Curve "Nails" It

A brilliant quote from Saad at The Gulf Curve.

Interesting are days when the payment of an expected coupon payment is considered good news! DP World (BB+, Ba1) announced yesterday that they had paid out the semi-annual coupon payment due on its $1.5 billion sukuk that matures in 2017 - $46.9 million. DP World, which is not part of its parent's debt restructuring plans, also said it had completed a coupon payment of $59.9m for the period ending December 31, 2009 on a $1.75bn bond issue due in 2037.

Global has also announced its making scheduled debt payments as well. 

Quite a different market we're in these days where the major story is debt service not growth.

Allah

This news item doesn't need much comment.

It's not a proper name.

The label "Manifest Absurdity" says it all.

IMF Researchers Review Lobbying by US Financial Firms - Those with the Most to Spend Have the Least to Offer

Three IMF researchers claim those US financial firms who lobbied the hardest engaged in the least sound activities and had the lowest profitability.

Those who can compete in the market do.  Those who can't lobby for profits.

Study here.

More Signs of Distress in Dubai? HH Shaykh Mohammed Lifts Penalties for Non Payment of CR Registration

Today WAM carried an announcement that HH Shaykh Mohammed Bin Rashid Al Maktoum had issued "a decree exempting companies operating in Dubai from all fines imposed on them for not renewing their licences of practicing the profession on time".

The press release notes that:  "The move is part of Sheikh Mohammed's sustained support for the business community in Dubai. It underlines his keenness to find effective alternatives and solutions to spur activities of businesses in a positive approach."

But ever the contrarian AA believes that if this is a significant enough problem that HH is getting involved  then it must be fairly widespread.

And, if so, is that a sign of corporate distress?  Or just that entities who are able to pay are refusing?

Burj Khalifa - Now the Tricky Bit: Filling It Up

The National has an article on the tricky bit that follows the "launch" of a building- attracting tenants and getting them into the building.  This is a case of value for money.  A case yet to be made.

Kuwaiti Ministry of Commerce and Industry Delays Ordinary Shareholder Meeting of Al Imtiaz Investment Kuwait

Revised after more carefully reading the Arabic text above.  How did I miss the word "tajil"?  It couldn't be in larger print.

AlQabas reports that the Kuwaiti MOIC has abrogated the earlier ordinary general meeting of shareholders of Al Imtiaz Investment Company Kuwait (a Shari'ah-based investment company) as this was not called by the Chairman nor did he attend.  The meeting was held based on the request of the Vice Chairman.   The new meeting is limited to accepting the resignation of certain directors and the election of their replacements.

The above notice from Al Imtiaz notes that it is postponing its OGM originally called for 10 January 2010. And will publish a further announcement when the date is reset.

Kingdom Holding Company Issues Press Release on Capital Reduction

Kingdom Holding issued a press release which  provided additional details on its proposed capital reduction as well as announcing that Amir AlWaleed was donating 180 million shares of his personal holdings of Citibank to KHC.

1. The 180 million Citibank shares represent an immediate profit for KHC of some SAR2.24 billion (roughly US$597 million).
2. The capital reorganization is designed to "enable KHC to distribute dividends to the Company’s shareholders".  Earlier post here, he says while patting himself on the back vigorously.
   

Both moves are portrayed as evidence of commitment to KHC and as steps that will enhance its borrowing capacity.

On that latter point ---

When AA labored in the DCM field, we focused on the total of shareholder funds and  the quality of the amounts therein.  We weren't really all that fussed about the balances in the individual equity accounts unless these affected our legal rights as lenders.

Reducing paid in capital and offsetting accumulated losses in retained earnings are just bookkeeping entries - moving money from account "A" to account "B" within equity.  The total amount of equity stays the same.   While it helps shareholders get dividends,  I can't see that it does anything  to strengthen the lenders' position. 

Perhaps, this move is for local banks?  Of for those "bankers" who believe in implicit guarantees?

A Dubai Carol - Stave V - But Not Quite the End of It

"A remarkable boy! Do you know whether they've sold the prize Turkey that was hanging up there -- Not the little prize Turkey: the big one?"

The FT reports that various law firms, accountants and sundry other advisors mouths are a-water at the thought of US$100 million in fees associated with Dubai World's restructuring.

We are taking nominations for the role of "founder of the feast".  Submit your entry via a comment.

And so, as Tiny Tim observed, God Bless Us, Every One!

If not every one, then at least the successful firms who will feast on the restructuring.  Certain folks always come out ahead in restructurings.

Omani New Income Tax - Effective 1 January 2010

Rupert Bumfrey has a post on this topic.

Here are some commentaries by accounting firms.  BDO Jawad Habib (soon to change its name to just BDO).  And Deloitte.

The major change is a reduction in the rates paid by foreign owned companies, though there are some other modifications, outlined in detail in the BDO Jawad Habib piece.

Saudi CMA Approves 41% Reduction in Kingdom Holding Capital

The Saudi Capital Markets Authority has approved an approximate 41% reduction in the paid of capital of Kingdom Holding Company subject to approval by shareholders at an  Extraordinary General Meeting.  Securing shareholder approval won't be a problem as Amir AlWaleed owns 95% of KHC.

The proposal is to reduce the number of shares from 6,300,000,000 to 3,705,882,300 and the capital from SAR 63,000,000,000 (US$16,8 billion) to SAR 37,058,823,000 (US$9.9 billion).

As per information at the Saudi Stock Exchange, KHC's shareholders' equity has decreased from SAR51.2 billion (US$13.7 billion) at 31 December 2008 to SAR22.3 billion (US$5.9 billion) at 30 September 2009.

A bit of hopefully informed speculation:  The reduction is an accounting exercise designed to eliminate negative retained earnings.  KHC will move roughly SAR 26 billion from the paid in capital account to the retained earnings account.   The transaction has no economic effect.  It is designed to have a legal effect.

Why would KHC want or need  to do this?

While I don't know the corporate law in Saudi, I assume that there are restrictions on the payment of dividends by companies with negative retained earnings.  As well, it could be a matter of optics.  It's hard to sell shares in a company with negative retained earnings - the growth story is less believable.

Global Investment House - Denies Deal With Arab African International Bank

GIH issued a press release on the Kuwait Stock Exchange to deny reports in the local press that it had concluded a deal with Arab African International Bank Egypt (in which the KIA owns roughly 50%) to sell its Egyptian real estate subsidiary to AAIB.

First, it rejected the idea that the sale was part of a "quid pro quo" for AAIB agreeing to join the rescheduling.  It also noted that AAIB had told one of the Egyptian newspapers that the transaction was not related.

Second, it noted that discussions were in a preliminary stage and that no deal had been concluded.

As part of the restructuring, GIH is selling assets to repay its debt so this transaction is expected.  What would be interesting to know is whether these negotiations are the result of a bidding process that AAIB won or AAIB is the only interested bidder.  Or if AAIB is a preferred bidder.  If the latter, then there may be something to the "quid pro quo" story.

The KSE announcement (Arabic text only) is below.

[9:0:57]  ِ. ايضاح من (جلوبل) بخصوص ما نشر في احدى الصحف المحليه ‏امس
يعلن سوق الكويت للأوراق الماليه انه قد ورد اليه الان من شركة
بيت الاستثمار العالمي (جلوبل) انها تود أن توضح بخصوص ما نشر في ‏
احدى الصحف المحليه امس حول تخارج بيت الاستثمار العالمي (جلوبل) من ‏
حصته في بيت التمويل للتمويل العقاري المصري تود الشركة ان توضح ما يلي:‏
ِ1- ان تخارج (جلوبل) من شركة بيت التمويل للتمويل العقاري لصالح البنك ‏
العربي الافريقي الدولي ضمن تسوية ديون هو خبر غير صحيح .‏
ِ2- ان المفاوضات مازالت في مراحلها الاوليه .‏
ِ3- في تصريح لجريده مصريه نفت مصادر بالبنك العربي الافريقي الدولي وجود
اى علاقه بين عملية الاستحواذ و تسويه المديونيات المستحقه للبنك على
شركة (جلوبل) .‏

Stehwaz (Istiwath) Holding Company - Shareholders' Legal Complaint Against Board and The Investment Dar

AlQabas reports that 47 shareholders of Stehwaz Holding Company -شركة استحواذ القابضة  - have raised a legal complaint against the board of directors, the auditors and the parent company, The Investment Dar ("TID").  As its name implies, Stehwaz is involved in mergers and acquisitions as well as pre IPO transaction.  The company has some 5,000 shareholders.   TID and Efad Group are the major shareholders.  Efad is also a major shareholder in TID.

AlQabas describes this as an "unprecedented" action by shareholders against a Kuwaiti company.

These 47 shareholders' allegations (and note that word) consist of the following:

1. After undertaking the increase in the company's capital to KD 250 million, TID caused the company to enter into a series of contracts for its benefit allowing it to take most of the capital of the company.
2. One example is the sale of Madar Investment Company - which allegedly resulted in a KD 50 million profit for TID and no benefit to Stehwaz.
3. Another item in the list of complaints is the company's lending activity.  The shareholders allege that it is unclear if  KD 3 million obtained by the Board is loan or another type of facility.
4. Exaggeration (overstatement) of goodwill in the amount of KD 50 million.
5. A pattern of conducting real estate transactions solely with related parties - reaching an amount of approximately  KD 300 million.  Stehwaz supposedly conducted these with  just three related parties  from among the founding shareholders.  The complaint specifically raises the point that no real estate transactions were undertaken with other market participants.  The thrust here seems to be a concern over purchases of real estate.  That logically would be one of overpayment.   AA:  In 2007, Stehwaz had KD 450 million in total assets.  The company has not released its 2008 financials.
6. Funding provided to TID via wakala and tawarruq transactions - a major issue given the constrained financial position of TID.

The complaining shareholders are requesting guarantees from those parties who benefited from the transactions described.  That is the first step in seeking to impose personal liability on  member of the board of directors.  An initial (statutory) fine of KD5,001 is also being requested as well for the decline in share value to KD 20 fils.

The Court is to hear the case 11 February.

Some observations.

1. Another bit of bad news for TID in securing creditor agreement to its rescheduling proposal, particularly in light of the charges made in this complaint.  Without full details and noting that this is only a complaint and not a legal judgment against TID, these are the sort of activities that could be behind the Central Bank's delay in approving TID's financials as well as some of the content of the restructuring proposal.  Earlier post here. 
   
2. As well, this suit is reminiscent of some of the issues that the Ministry of Commerce and Industry is pursuing with respect to related party transactions. Earlier posts here and here. 

It's important to re-iterate that these are unproven allegations at this point.  The Kuwaiti Courts will determine if they have legal merit and if sufficient evidence is provided to substantiate them.  In any case this is not good news for TID, particularly at this critical juncture.

Burj Khalifa

AlphaDinar has an interesting article on the surprise naming of the Burj and the economics of the new building.  Well worth a look.

This is similar to donors to universities having buildings named after them.  And in some cases a big enough contribution gets the donor's name attached to a school. 

Shaykh Khalifa is only lending US$ 25 billion to Dubai so it's just his name on the Burj.   At least for now.

Saad Group: Al Sanea Resists Deposition

The National reports that Maan AlSanea's lawyers are resisting his giving a deposition in Saudi Arabia in connection with a lawsuit against him by AlGosaibi.

Wouldn't an elegant solution be for the Court to ask him to visit New York to give the deposition?

Theater of the Absurd – The “West” End

From the US "liberal" site "Talking Points Memo".

First, a quote that is too good to pass up from TPM's daily email. "As Sen. Schumer (D-NY) calls for stronger security measures at foreign airports, his colleague, Sen. Kerry (D-MA), is denied entrance to Iran." AA: Unclear if the two are related.

Second, a more detailed quote from Senator Schumer: "You don't have to be Albert Einstein to realize that flights that originate in foreign countries pose a greater danger," said Schumer, who also added: "What's crucial is that we immediately send many more of our TSA agents to the airports to check on their compliance." AA: I believe all the aircraft hijacked on 11 September 2001 were domestic flights.

BSEC Firing on All “Cylinders” – Another ABS Auto Deal

BSEC announced another automobile related ABS deal. This time for Bassoul & Heneine.

This is the second ABS for B&H – "Cylinder II".

The structure is a mirror image of Rymco. And again the issuer is holding Tranche B.

Here's the earlier press release on Rymco Drive 1.   And earlier post.

Cylinder II has been terms - lower price and longer tenor.  This is probably reflective of a combination of things:  better market conditions and the fact that Rymco Drive was a debut issue.

BSEC also has issued some interesting publications on securitization and related issues in Lebanon.

Kudos again to the fine folks at the BEMO Group and the even finer distinguished banking family of Obegi.

When the Going Gets Tough, The Tough Unilaterally Reinterpret Their Contracts

Article from The National here on Mashreqbank's unilateral change of base rate on mortgages.  Spoiler: it's not a decrease.

I believe the relevant technical term is chutzpah.

But wait there's more - perhaps technically rising to the level of egregious chutzpah

Mr Beckett said. Mashreq has waived refinancing fees until the end of March so customers can take their business elsewhere if they choose.

Yes, indeed.  Banks in the UAE are falling all over themselves to make new loans for more than the value of the property.

New Addition to Links - LSE / Kuwait Programme on Development, Governance and Globalisation in the Gulf States

A new addition to the roll of Interesting Blogs and Other Links:    Kuwait Programme on Development, Governance and Globalisation in the Gulf States.

This looks to be an excellent source of information on a variety of topics concerning the GCC.

And as Kristian Ulrichsen noted in a comment to my earlier post, they also offer seminars in London.  BTW in addition to co-ordinating academic content, he is also a post doctoral fellow who seems to specialize in GCC security matters.

Here's a link to their "Events" page.

And finally a tip of AA's virtual tarboush to the Kuwait Foundation for the Advancement of Sciences who is the "founder of this feast".

2-1 !

HH Shaykh Mohammed Bin Rashid AlMaktoum - Anniversaries

 

This week marks two important anniversaries for Shaykh Mohammed.  Accession to the throne.  And election as Vice President of the UAE (5 January).

A variety of tributes and celebrations have or will take place.

Here are some of the customary homages.  And here as well.

There is more information at the Shaykh's website.   If you read his poems (Nabati style), the original Arabic is preferable to the English translation.

SAMA Governor Denies Saudi Bank "Settlement Deal" with Saad

In an interview with the Saudi Newspaper, Al Iqtisad, HE Dr. Mohammad Bin Sulayman Al Jassir, Governor of the Saudi Arabian Monetary Agency denied that there had been any settlement among the Saad Group and Saudi banks.

Continuing he noted that since AlGosaibi and Saad were commercial enterprises SAMA had not right of supervision - either directly or indirectly.  Thus, it had to rely on the banks for information.  They told SAMA that they had offset the collateral they held against their loans.  The article does not  contain any comment on how much of the exposure was collateralized/offset.   Governor Al Jassir noted that this was something that foreign banks had been doing as well.  His point being that offsetting collateral is a normal banking practice.

He also said that the uncovered portion of both local and foreign banks' exposure remained a problem and that as far as SAMA knew there had been no settlement between Saad and its creditors.

Some observations:

1. Banks get to choose on what basis to lend their clients:  secured or unsecured.
2. Lenders with security (and properly drafted legal documents) have the right to take possession of and realize the security upon the occurrence of certain defined events.
3. It may be that Saudi banks were relatively more collateralized then foreign lenders.  As a side note, one of the interesting patterns in lending is that often foreign lenders impose fewer conditions on borrowers than local lenders.  Generally, those foreign lenders, often Western, justify this by their greater sophistication in underwriting and their more developed risk management skills.  Of course, competition plays a role.  Pricing and requirements are the two ways to compete for a borrower's business.
   

LSE Study on Nationalism in the GCC

This is part of the Kuwait Project on Development, Governance and Globalisation in the Gulf States being undertaken by the LSE.   The report is available here. 

Here is a description of the Kuwait Project.

There are more interesting publications from the Project available here.

And more to come judging by the list of proposed and in-process papers listed.

This looks like an excellent source of information and analysis on the GCC.

Dubai: Jailed Businessmen Buy TVs for Inmates

Some businessmen jailed for financial crimes in Dubai bought flat screen televisions for inmates as the prison management refused to replace old non functioning models. 

The Investment Dar Wins Lawsuit (Administrative Court) Against Central Bank of Kuwait for Non Approval of Financials

The 1 January 2010 edition of AlQabas carries the news that TID has won a lawsuit in the Administrative Court against the CBB for its refusal to approve TID's 31 December 2008 financials.  The Court  abrogated the CBK's decision to refuse to approve TID's  financials and awarded provisional compensation KD 5,001 (US$ 17,500).  The competence of the court to hear the case was challenged by one of the parties (unstated, but presumably the CBK.) and this matter was referred to the Circuit Court  (?) #10 who are expected to review the matter on 28 January 2010.

Most of the article - roughly three-quarters - consists of a letter that TID says it sent the Central Bank on 14 July 2009 (and which appears to be part of the  documentary evidence submitted for the case).  The letter states that the financials were fully prepared and signed by both auditors, though the auditors stated that they were unable to give an opinion (in accountant-speak a "disclaimer of an opinion").   TID argues that the auditors had no issues with the company's assets, did not find any violations of law, etc.  and so the disclaimer does not mean there are any of these sort of problems.  TID states (in the letter) that CBK asked for the removal of the disclaimer.  TID pointed out that the auditors had the "first and last" word on their opinion and that the company could not compel the auditors to make a change and that to do so would be to violate Kuwaiti law.  The letter ends with a statement that CBK's refusal is causing serious damage to TID and its shareholders.

Some reactions to the news story:

Global Investment House released its financials on 26 April 2009.  These contain an audit disclaimer.  If the disclaimer in TID's report is broadly similar to that in GIH's, it is hard to understand why the CBK would approve GIH's financials but hold TID's.   Unless there were other serious factors involved.  The alternative explanation - that the CBK is engaged in a vendetta against TID -  doesn't seem credible to me.

As a side comment, GIH's audit opinion is dated 3 February.  The release date suggests that the CBK required roughly three months to content itself with GIH's financials.  

What might those factors be?  And what might be some signs? 

1. GIH's financials were submitted fairly quickly to the CBK.  The presumption is shortly after the auditors signed off on them - 3 February 2009 - and GIH's board approved them.  TID's took a bit longer.   TID explained this as the need for "additional reporting requirements" in April 2009. 
   
2. At the request of creditors, the CBK appointed a special monitor at TID.  It did not at GIH.
3. As a result of negotiations with creditors, TID appointed a Chief Restructuring Officer.  Creditors at GIH did not require this.  The two creditor groups are not exactly the same so this may reflect their different composition.   Or there may be another reason. 
   
4. TID's restructuring agreement - as described by AlQabas - contains strong statements about increasing transparency and strengthening corporate governance.   There is also what might be a telling condition:  All asset sales to be undertaken on a sound basis (sahih), legally done, at market prices and not to related parties.  Without direct knowledge of the negotiations between TID and its creditors it's not possible to know what motivated this requirement.  One might infer that a provision of this sort is designed to prevent the recurrence of an event.  Then again creditors often impose "silly"  or "belt and braces" conditions given the dynamics of restructurings.
5. Similarly, the restructuring agreement gives the creditors' committee power over the company's financial statements - that is, creditors have the right of approval over financials.  Again there is no way of knowing for certain why this was included.  One might infer that this reflects some creditor concern about the quality/integrity of the financials.  And then again it might simply be creditor "overkill" in imposing conditions.
   
6. Finally that same report said that TID was submitting its financials to the CBK for approval.  It may be that with progress in the restructuring negotiations the auditors were willing to remove their disclaimer (no opinion).  Or perhaps there were some changes to the contents of the report.  As outsiders it is difficult to know.  However, auditors are generally reluctant to stick their necks out.  And in difficult situations like a restructuring, their natural caution increases. I would expect that until the definitive legal documentation for the restructuring were signed by all parties, the auditors would be cautious about issuing a "clean" audit opinion.  One compromise could be a "matter of emphasis" opinion - in which they put their concerns into a note to the financials.
   

It seems to me that there is more to the delay than just the auditors' disclaimer.  I don't have the impression that the CBK is capricious or vindictive.   It would seem to have some questions or concerns about TID's financial position.  But we will have to wait to see what happens when TID's financials are released. 

Jawad Bu Khamseen - Follow Up to Yesterday's Post

Mr. Jawad BuKhamseen - Picture Copyright AlQabas Newspaper

AlQabas ran an article today which consists of a letter from Mr. Bu Khamseen's attorneys (the Law Firm of Abdul Hamid AlSarraf, a very well known and respected law firm) in which Attorney Ahmed Tawfiq AlRashid makes the following points:

1. There has been no bankrutpcy or insolvency legal ruling made against Jawad Bu Khamseen.
2. The Court has ordered him to pay a certain sum to settle his deferred payment share trades.  AA:  Presumably those remaining from the Suq Al Manakh.
3. The judgment is not final but is subject to appeal which is what they are doing on his behalf.
4. By publishing the article AlQabas has violated certain laws and has impugned the good name of Mr. Bu Khamseen.  AHAS law firm will be taking the necessary legal action to seek redress for these violations.

At the end of the article there is a single sentence attributed to the Editor of AlQ:  "What we published yesterday was an official letter from the Ministry of Finance to banks regarding the necessity of implementing the judgment". 

New Year's Celebrations Cancelled At Suq Al Mal - And Just in Time!

Luckily I just saw this article in Gulf News.  I had just enough time to cancel Nancy Ajram's performance.  Hopefully, she can get a last minute booking in Bahrain.

Anyways, as you all know by now, if I read it in the Gulf News,  I know it has to be true.

"There must be a zero-tolerance policy towards any parties or celebrations marking the new year as they are against religion and the law," MP Mohammad Al Hayef said.

Since GN is from Dubai, it omitted the good MP's full name, Mohammed Al Hayef Al Mutairi.  And he represents the good folks in the Fourth District.

I hope all of you out there will take Brother Mohammad's words to heart.

AA will be spending the evening shortening the hem on his virtual thaub.  You would be well advised to do the same.

End of Year Protocol #2 - Words of ?

Copyright 2003 David Monniaux

Another contribution to the year end protocol of media retrospectives. 

This one not in the wisdom category but somewhere between incredible and bizarre.

1. "Something is unusual. We have never had such a high number of people involved in corruption," Dhahi Khalfan Tamim, who also heads the Dubai government's budget committee, told Reuters. 
2. Tamim said police had drawn "a list of more than 60 people mainly from government-linked companies" who are under investigation, adding no-one on the list was from a government department.

It's hard to understand this surprise.  

After all, what possibly could go wrong with US$ 60 billion of hot and easy money rocketing through the Emirate?  With contracts being let left and right for billion dollar projects?  And ignoring for a moment the regional history of commissions,  Philip Thorpe's observations in 2004 or the corruption trials at the beginning of 2008, who in their right mind might have guessed there was an increased potential for corruption?  Or that it was occurring?

As a distinguished Capitaine once put it "I'm shocked, shocked to find that gambling is going on here".

End of Year Protocol #1 - Words of Wisdom

The end of the year is a traditional time for reflection in the media - retrospectives on the year, best and worst of the year lists, etc.

As a newbie blogger, here's my first entry in that exercise, a link to an article by Richard Thaler of The University of Chicago on the efficient markets hypothesis.

Yes, the italics are deliberate.

Like all economic theories  the EMH is an opinion.   In economics one hopes for informed opinions, but opinions they remain.  Not scientific laws.  Nor Divine revelations.

Often the most profound thoughts are the simplest.  And perhaps the most obvious.

4-1!

I see my earlier request to increase the first number has been granted. But to avoid any appearance of greed, the second number can remain at zero.

On to Sunday.

Adeem Investment Company - The Work Continues

Boston Harbour Tunnel watch out, Adeem Investments is gaining on you.  Or for those with a taste for more local references - the street project in central Sana'a.

Yes, AIC's webmaster is still hard at work to better serve you.

Kuwait Stock Exchange Suspended Companies - And Then There Were Six

As we close out the last day of 2009, here's the final list of companies suspended from trading by the KSE:

1. Lu'lu Real Estate Compay (Pearl Real Estate) - شركة لؤلؤة الكويت العقاريه (لؤلؤة)‏
2. Safat Global Holding - شركة الصفاة العالمية القابضة
   
3. Shabka Holding - شركة الشبكة القابضة
   
4. The Investment Dar - شركة الدار للاستثمار
5. International Leasing and Investment -الشركة الدولية للاجارة والاستثمار
   
6. Villa Moda - شركة فيلا مودا لايف ستايل

As before they are suspended for failure to provide financials.  With the use of  Western numbers in the press release, you can see which reports are missing. Safat and Shabka share the dubious distinction of also being suspended for failure to pay their 2009-2010 listing fees.

Arabic text of the KSE official announcement below.

[7:53:37]  ِ.الشركات الموقوفه عن التداول
يعلن سوق الكويت للأوراق الماليه بأنه تم وقف تداول اسهم بعض الشركات وفقا
لما يلي :-‏
اولا: الشركات التي لم تقدم بيانات 30-06-2009 و30-09-2009 :- ‏
شركة لؤلؤة الكويت العقاريه (لؤلؤة)‏
ثانيا:الشركات التي لم تقدم بيانات 31-03-2009 و30-06-2009 و30-09-2009:- ‏
شركة الصفاة العالمية القابضة(صفاة عالمي) ‏
شركة الشبكة القابضة (الشبكة) ‏
ثالثا: الشركات التي لم تقدم بيانات 31-12-2008 و31-03-2009 و30-06-2009 ‏
و30-09-2009 :- ‏
شركة الدار للاستثمار(الدار)‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا) ‏
رابعا: الشركات التي لم تسدد رسوم الاشتراك السنوي لعام 2009-2010 :-‏
ِ شركة الصفاة العالميه القابضه (صفاة عالمي) ‏
ِ شركة الشبكه القابضه (الشبكة) ‏

Aref Investment Group - Chairman Resigns

Aref Investment Group Kuwait announced on the Kuwait Stock Exchange that its board met on 30 December 2009 to accept the resignation of its Chairman, Dr. Ali Fahd AlZami'i, (both from the Board and as Chairman) and the appointment of Mr. Ibrahim Abdullah AlKhazaam, as Managing Director effective 1 January 2010.

The market had been rumoring a major change as evidenced in this earlier post.

This year there have been more than the usual changes in boards and management of financial companies in Kuwait - some of which I've commented on - reflecting the difficult situation of many companies there.  You will also recall that Aref has been identified as one of the companies opposing The Investment Dar's restructuring proposal.  The question is whether this change is at all related to any change in approach by Aref on that topc.  My guess is not and that the two are not related.  But as Umm 'Arqala can testify from years of experience AA isn't always right.

You can access earlier posts on both Aref and The Investment Dar by using the respective labels on SAM's home page.

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

9:44:3] ِ.استقالة رئيس مجلس إدارة مجموعة عارف الاستثمارية وانتخاب عضو منتدب ‏

يعلن سوق الكويت للأوراق المالية بأن مجموعة عارف الاستثمارية أفادته ‏

بأن مجلس إدارة الشركة قرر في اجتماعة بتاريخ 30-12-2009 قبول ‏

استقالة الدكتور / على فهد الزميع من رئاسة وعضوية مجلس إدارة المجموعة ‏

اعتباراً من نهاية دوام يوم 31-12-2009 واختار المجلس السيد / ابراهيم ‏

[عبدالله الخزام عضوا منتدبا اعتباراً من يوم 1-1-2010 .‏

Global Investment House - Shareholders' OGM to Approve Restructuring

GIH announced on the Kuwait Stock Exchange that it would hold a shareholders' ordinary general meeting on 12 January to approve the following in connection with its recent restructuring agreement:

1. Transfer of all its non real estate assets to Global Macro Fund in Bahrain.
2. Transfer all its real estate assets to Mushaa Islamic Real Estate Company (Kuwait)
3. Approve the pledge of all assets to the lenders.

As discussed below, this will be a critical meeting as this is the last key (legal) step to finalizing  the restructuring agreement struck by GIH with its creditors.  Failure by the OGM to approve these items would be a serious set-back to the restructuring.  One that I don't think is likely.

Here's the KSE announcement (Arabic only).

[8:30:16]  ِ.اجتماع الجمعية العمومية العادية لبيت الاستثمار العالمي (جلوبل)‏
يعلن سوق الكويت للأوراق المالية بأن الجمعية العمومية
العادية لشركة بيت الاستثمار العالمي (جلوبل) سوف تنعقد
يوم الثلاثاء الموافق 12-01-2010 في تمام الساعة 12.30‏
ظهرا في مقر الشركة حيث سيتم خلالها مناقشة ما يلي:‏
ِ1- الموافقة على تحويل ملكية اصول الشركة من استثمارات غير عقارية
مملوكة بشكل مباشر او غير مباشر للشركة الى صندوق جلوبل
ماكرو فند المؤسس في مملكة البحرين والمملوك بالكامل لشركة
تابعة مملوكة بالكامل بطريق مباشر وغير مباشر لشركة بيت
الاستثمار العالمي (ش.م.ك.مقفلة) جلوبل وذلك طبقا لاتفاقيات
اعادة هيكلة ديون الشركة.‏
ِ2- الموافقة على تحويل ملكية اصول الشركة من استثمارات
عقارية الى شركة مشاع الاسلامية العقارية (ش.م.ك.مقفلة)‏
والمملوكة بالكامل بطريق مباشر وغير مباشر لشركة بيت
الاستثمار العالمي (ش.م.ك.مقفلة) جلوبل وذلك طبقا لاتفاقيات
اعادة هيكلة ديون الشركة.‏
ِ3- الموافقة على رهن اصول الشركة من استثمارات عقارية
وغير عقارية لصالح دائني الشركة وذلك طبقا لاتفاقيات اعادة
هيكلة ديون الشركة.‏
علما بأن هذه التوصية تخضع لموافقة الجمعية العمومية والجهات المختصة.‏

This news item confirms the earlier AlQabas article.  Relevant post here.

This announcement also confirms earlier comments on the restructuring - that it is a fairly tight agreement which means a fundamental change in GIH's business.  Basically GIH has mortgaged its "shop" to the creditors.

Also the requirment for the OGM is reflective of general legal practice in the GCC - enusring that shareholders agree to fundamental business decisions.  This prevents a later legal challenge from a shareholder.   

What this means is that technically the restructuring is not yet finalized.  There is a small probability that shareholders may refuse to agree.  In which case a very key element of the deal - the collateral -  is overturned.   That, I suspect, is a small probability.  But one to watch nonetheless.

Jawad Bu Khamseen - Assets Ordered Transfered in re Suq Al Manakh

Headline edited based on subsequent information.  See post here.
 
A story highly relevant here to Suq Al Mal - given our masthead and "mascot" picture.

Today's AlQabas reports that banks in Kuwait have received formal notification from the Office for the Clearance (Settlement) of Deferred Sales Shares Transactions informing them that judgment against Mr. Bu Khamseen in favor of the Office had been issued by the Court that he was to pay KD14,707,833.208 plus legal interest of 7% p.a. from 26 December 2002 to date of payment.

The Court order is final and there is no appeal.  In the subsequent post you will see that Mr. Bu Khamseen's lawyer challenges that assertion.

Accordingly, the banks were instructed to inform the Office of any of his assets in their possession, not to release any of these to him, but rather to pay any amounts immediately to the Office's account at Burgan Bank.

Jawad is one of the major punters in Kuwait.  He was one of the four or five "Fursan Al Manakh" ("Knights of the Manakh") responsible for the majority of the postdated check issuance during the Suq Al Manakh ("SAM") scandal.

The SAM was a "curb" or parallel market to the Kuwaiti Stock Exchange.  Most of the companies traded therein were not Kuwaiti.  And many if not all were paper companies with no assets or real businesses.  Transactions were settled with post dated checks.  Investor A would buy stock from Investor B against a check to be cashed in the future.  Investor A hoped to sell the shares to Investor C and cover his original check before "maturity".

As is common in many GCC countries, writing a check without cover is an offense punishable by imprisonment.   Hence the use of the post dating.   However, there was no legal bar to a holder submitting a check prior to its date.   The market took off.   In late 1982 investors started to get nervous and  one or more post dated checks were cashed.   Punters couldn't cover them which led to more checks being presented.  The market collapsed in a tremendous implosion in 1982 (1983?).   The wreckage was much more than the current declared debt of the Emirate of Dubai.  US$98 billion.   As noted above, 4 or 5 "investors" were responsible for most of the checks. 

Many of the banks in Kuwait - save for the flinty eyed bankers at National Bank of Kuwait - were involved in financing transactions in the SAM.  Loans based on the collateral value of the SAM shares.  That is, loans made against paper profits (where the underlying companies were paper shells).  No focus on cashflow.  A familiar story.  And one that has repeated itself since the SAM.

All the Kuwaiti banks save - NBK - were bankrupt and rescued by the Kuwaiti Government who bought their duff debts after the ejection of Saddam Hussein.  Take a look at Note #8 in the 2003 Gulf Bank annual report.  Or Note #7 in the 2003 Burgan Bank annual report.  You'll see that Burgan Bank was a major player.  Banks in other countries were hammered as well.  There was a region wide stock market mania - with IPOs being massively oversubscribed. 

Overnight I'll be approaching one of my early bosses to ask for a bit more color as the SAM crisis took place on his watch.  If I get anything interesting I'll post it.

It's the least we can do for those who inspired this website.  They were of course not the first temporally, but they were the first in terms of amounts of wealth destruction in the area.  And still hold that distinction though I believe that currently there is a strong challenger.

The Power of the Blackberry?

In today's fast paced wireless world of business, one's office can be in one's pocket.

Ex-chief of Deyaar accused of taking bribes while in jail.

Islam Guarantees Women Their Dignity

Saleh is of course correct.

Sadly, the courts in many "Muslim" countries do not.

AlArabiyya Loses Case for Not Showing "Royal" Interview

There is an old saying "Justice delayed is justice denied".

I suppose the Dubai Court has updated this to "Interview delayed is an interview denied".

I believe that the plaintiff's own words describe the harm caused him.  And there is really no need to say more.

The claimant's lawsuit said: "The defendant's failure to broadcast the televised interview inflicted emotional, moral and social damage on the prince's status as a royal and academician. His fame was affected before his family, students and the social circles to which he belongs. According to article 293 of the Civil Procedures Law, the claimant is entitled compensation because the defendant damaged his reputation and social status."

The Prince of a fellow had claimed Dh500,000 in "moral and financial" compensation.   There is a reason they call it lese majeste. 

The Court in Dubai granted him only DH100,000 but admonished AlArabiyya for breaching the "media code of ethics".

AlArabiyya has lodged an appeal with the expected decision date 12 January.

Gulf Finance House Bahrain Makes US$300 Million Provision for Dubailand / Legends Project

GFH issued a press release earlier today in which it advised that it had made a US$300 million provision for its investment in the Legends Project - part of the multi billion US dollar "Dubailands" complex.

GFH was one of the pioneer developers of mega real estate projects in the GCC - Bahrain Financial Harbour - benefiting it is said from business relations with important personalities.  From Bahrain it quickly spread its wings across the MENA region with similar projects and then beyond.  It's specialty was what it billed as "infrastructure development".

The business model was the typical "Islamic" banking mark-up model and GFH generated some 80% of its income from these projects.

Before the global problems of 3Q08, the bank was beginning to try and diversify away from over dependence on real estate.  Since then, the bank has been struggling to develop a new business model.  This is evidenced by the comment in the press release on Dubailand.  When a firm starts talking about the disposal of "non core assets", it's a pretty good bet (though not 100% certain) that there are problems in the business model.

That being said, it successfully raised US$300 million in new capital this "2 November/October", a US$100 million convertible murabaha transaction with Deutsche Bank 15 November, plus an earlier sale of the bulk of its shares in QInvest (Qatar) plus an planned $100mm convertible murabaha with Macquarie.

As a result the bank has increased its liquidity, though it faces debt maturities of US$350 million in 2010, US$100 million in 2011 and US$175 million in 2012.

Recent changes in management are probably related to the change in strategy as well as strengthening of the management team.  The previous CEO was only in place five months before departing.  It's  probably worthy of comment that his successor though as Acting CEO,  Ted Pretty, was previously with Macquarie.  Here's his bio from his earlier appointment.