Kuwait Stock Exchange Suspends Trading in 8 Additional Companies

If you've read other press accounts, you may be wondering why I am saying the KSE has suspended 8 companies when others say 22.  That's because 14 of the number have been suspended for some time now due to failure to provide earlier financial statements.  And those companies are indicated by ( موقوفة ) after their names in the official KSE announcement below.

The new companies include:

1. Global Investment House
2. The International Investor
3. Industrial and Financial Investments
4. KMEFIC
5. Aref Investment Group
6. Kuwait Finance and Investment Company (KFIC)
7. AlQurain Holding
8. Wethaq Takaful Insurance Company (Wethaq)

Seven of the above companies are from the investment company sector at the KSE.  Wethaq is from the insurance company sector.

What's surprising in the above list is the presence of GIH and KMEFIC.  KMEFIC is owned by the AlAhli United Bank Group.  Presumably, a lot of these companies will clear their financials in fairly short order.

[8:58:29]  ِ.وقف التداول باسهم شركات اعتبارا من اليوم ‏
يعلن سوق الكويت للاوراق المالية بانه تم وقف التداول باسهم (22) شركة ‏
وهى الشركات التالية:‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت) (موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
شركة الكويت والشرق الاوسط للاستثمار (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة مجموعة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
شركة بيت الاستثمار العالمي (جلوبل) ‏
الشركة الخليجية الدولية للاستثمار (غلف انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة القرين القابضة (قرين قابضة) ‏
شركة وثاق للتامين التكافلي (وثاق) ‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة مجموعة المستثمرون القابضة (المستثمرون)(موقوفة) ‏
شركة المشروعات الكبرى العقارية (جراند)(موقوفة) ‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للخدمات الطبية(عيادة ك) ‏
اعتبارا من اليوم الاحد الموافق 16-05-2010 ،وذلك لعدم تقديم البيانات ‏
المالية المرحلية للفترة المنتهية فى 31-03-2010 ،فى الموعد المحدد .‏

Dubai Holdings Commercial Operations Group - Still No Financials

Well, "bukra" is in the official slogan of the Holding Company so this isn't a surprise I suppose.

DHCOG announced today on the Nasdaq that it still didn't have its financials finalized.

"Dubai Holding Commercial Operations Group LLC (“DHCOG”) has further extended the publication date of its 2009 consolidated financial statements, due to the complexities of consolidating the financial results of its various operating businesses across multiple geographies. In accordance with the rules and regulations set forth by the listing authority at Nasdaq Dubai, the voluntary suspension of listing on the exchange of DHCOG’s Medium Term Notes remains in force until DHCOG issues its Audited 2009  Financial Statements and Annual Report on or before May 31, 2010".

Remind me, did DHCOG buy a lot of new foreign subsidiaries in 2009?

AlGosaibi v Maan AlSanea - AlGosaibi Attempts to Enlist Kuwaiti Banks Against Saad

AlQabas reports that AlGosaibi and its counsel (Saudi and American lawyers) met with Kuwaiti banks exposed to both AlGosaibi and the Saad Group to request that they unite their legal actions against Saad by forming an alliance whose goal would be the combining of their individual legal documents and other evidence, including any forged documents or documents suspected of being forged to strengthen the legal position of all creditors in recovering their money through the legal process.

At the beginning of the meeting the Kuwait banks reportedly indicated their intention not to co-operate with one party of the debtors.  

The representatives of AlGosaibi responded by:

1. Assuring of the start of a "new page" of co-operation between AlG and its creditors.  You'll recall earlier that AlQabas had carried a report that Kuwaiti creditors were frustrated with AlG's responses to their attempts at contact and negotiation.
2. That the Kuwaiti banks should have a permanent representative in the creditors committee in Riyadh and Dubai so that they would learn "in near proximity" (first hand) what was happening.
3. That 70% of the AlGosaibi Group's wealth had been designated to pay its debts.

The banks responded to the last point by noting they were not going to entertain any discounts on the debt from any party (either AlG or Saad).  And that they were on the verge of taking legal steps against Saad.  This is described in the last paragraph of the article as the filing of cases in Saudi by some and by others in the USA.

The article then notes that the Central Bank of Kuwait has instructed Kuwaiti financial institutions to provision 100% for AlG and Saad exposure by 31 December 2010.  Three banks have almost already achieved that level.  It being understood that some banks had relatively small exposures.  As for those with larger exposures it's expected that they will require until the end of the year.

Assuming the article is correct, what's interesting about this is the apparent attempt by AlGosaibi to enlist creditors in its campaign against Maan AlSanea and the Saad Group.  As you'll recall, AlG has accused Mr. AlSanea of forging certain documents to obtain loans in AlG's name but then using the funds for his own purposes.  And, as you'll recall, Mr. AlSanea vigorously denies these accusations.

AlG appears to be trying to bolster its accusations of wrongdoing by Mr. AlSanea  by enlisting third parties to join in its campaign.  By portraying itself as the innocent victim of wrongdoing,  AlG may hope to  deflect creditor anger and pressure (from itself) to Mr. AlSanea.  A tactic, that if successful, might also set the stage for a later justification for a discount on the debt.

Mashreqbank v AlGosaibi - Mashreqbank's Consolidation Motion Accepted

The NY Supreme Court accepted Mashreq's motion to consolidate its two cases against AlGosaibi (the partnership) and the individual AlGosaibi heirs.  Decision was made on 10 May and posted on the NY Supreme Court's website today as Document #128.  If you'll look at earlier posts, there are details on how to access the NYSC's website.

As you'll recall, having the two cases separate had posed a legal problem for Mashreq as outlined in this earlier post.  The cases in question are 601650/2009 (against the partnership) and 602717/2009 (against the individual heirs/partners).

AlGosaibi v Maan AlSanea - Allegations of Forgery - Evidence Inconclusive?

Here's an article from the Gulf Daily News in which a forsenic expert is quoted as saying that it is not possible to determine if Sulayman AlGosaibi's signatures were forged or not.

There are a couple of interesting things about this report.

In  the NY Supreme Court Case (601650/2009), as part of a forum non conveniens argument, the attorney for Maan AlSanea submitted a  sworn statement by one of AlGosaibi's lawyers, Andrew John Ford, given in connection with the suit of British Arab Commercial Bank and others against AlGosaibi.  This is Document 107-2 (Exhibit 25), which you can access by going to the Supreme Court of New York's website, and undertaking an Index Search using the above case number (601650/2009)

Here's paragraph #13 of the Ford statement.

"AHAB says that this borrowing was obtained by the forgery of the signatures of the chairman of AHAB by or at the direction of Mr AI Sanea on hundreds of banking documents. It has submitted many of the  banking documents to forensic examination by Dr Audrey Giles, head of the Giles Document Laboratory  and formerly head of the Questioned Documents Section of the Metropolitan Police Forensic Science Laboratory. Dr Giles' work has been hampered by the lack of original documents (many of which were  removed from the Money Exchange by Mr AI Sanea and which he has refused to return). Nevertheless she  has so far concluded that there is evidence that the signatures on at least 286 banking documents are not  genuine. On some documents, signatures have been applied by colour photocopying or by an inkjet printer and then traced over with a porous-tip pen; on others, the signatures are identical matches of those on  other documents and therefore highly unlikely to be genuine. In some cases the signatures were applied to  documents at a time when it would have been physically impossible for the purported author to have  signed because of incapacitating illness."

It's unclear if

1. Based on additional work, Dr.  Giles has changed her earlier findings.  
2. Or this refers solely to this particular batch of documents cited in the Gulf Daily News article.

Presumably, more information will be forthcoming.

Gulf Finance House - No Sale of Khaleeji Commercial Bank

In announcements on the Bahrain Stock Exchange, GFH officially replied to the two AlQabas press reports referred to in my earlier post.

The first concerns GFH's plan to sell Khaleeji Commercial Bank. 

Here GFH states that it is in the process of  amending its capital management program and that this involves increasing its stake in KHCB.  And that it will advise the KSE when this process is complete -- completion of studies and receipt of necessary approvals.

It should be noted that this press release was in response to a letter sent today (13 May) by the BSE.

The second concerns the "reply" to GFH's auditors on the "going concern" assumption.

GFH disavows the AlQ statement noting it is the opinion of the newspaper.

Kuwait Stock Exchange Warns 74 Companies of Potential Suspension

You may read elsewhere today the KSE issued warnings to 88 companies that if they don't provide their 31 March 2010 financials to the KSE by 8:30 AM on 16 May (Sunday), they will be suspended from trading.  

Let's look a bit closer as this is less "scary" than it would seem from the headline..

1. Since 14 companies are already suspended for failure to provide earlier financials, the warning theoretically could result in the suspension of an additional 74.  Hence, my use of the number 74 in this post. 
2. Many of these companies will likely provide financials in time - particularly those companies that have scheduled board meetings to discuss their financials.  This is just the warning stage.  
3. In fact if you read the remainder of the KSE announcements today, you'll notice that day 51 board meetings are scheduled to take place today to discuss financials and 6 on Saturday.

As per the announcement, the "cohort" is divided into two groups:

1. Those that haven't provided their financials and have NOT set a date for a Board meeting to discuss their financials.  This group comprises some 34 companies of whom 14 are already suspended for failure to provide earlier financials.  Suspended companies have  (موقوفة)  (= suspended) after their names.
2. Those that haven't provided financials but HAVE set a date for a Board meeting to discuss.

Normally, I'd provide the names in English but 88 is a rather long list.  And, many of these are likely to provide financials by the deadline.   Let's see what happens on Sunday.

[8:4:17]  ِ.ايضاح بخصوص الشركات التي لم تقدم البيانات المالية في الموعد المحدد
يعلن سوق الكويت للأوراق المالية واستنادا الى قرار لجنة السوق بجلستها
رقم 97/4، والذي يلزم كافة الشركات والصناديق المدرجة في السوق بتقديم
البيانات المالية المرحلية في موعد أقصاه 45 يوما من تاريخ انتهاء الفترة،
فان الشركات التي لم تقدم البيانات المالية المرحلية للربع الاول المنتهي ‏
في 31-03-2010 كما يلي :‏
ِ1-شركات لم تقدم بياناتها المالية ولم تحدد موعد اجتماع مجلس الادارة و
عددها (34) شركة على النحو التالي: ‏
الشركة الاهلية القابضة (اهلية) (موقوفة) ‏
شركة المستثمر الدولي (مستثمر د) ‏
شركة بيت الاوراق المالية (البيت)(موقوفة) ‏
شركة الاستثمارات الصناعية (ا صناعية) ‏
الشركة الدولية للتمويل (د للتمويل ) ‏
شركة الكويت والشرق الاوسط للاستثمار المالي (كميفك) ‏
شركة المجموعة الدولية للاستثمار (المجموعة د) (موقوفة) ‏
شركة عارف الاستثمارية (عارف) ‏
شركة الدار للاستثمار (الدار) (موقوفة) ‏
شركة الامان للاستثمار (الامان) ‏
شركة اعيان للاجارة والاستثمار (اعيان) (موقوفة) ‏
شركة بيان للاستثمار (بيان) ‏
شركة بيت الاستثمار العالمي (جلوبل) ‏
الشركة الخليجية الدولية للاستثمار(غلفت انفست) (موقوفة) ‏
الشركة الكويتية للتمويل والاستثمار (كفيك) ‏
الشركة الدولية للاجارة والاستثمار (د للاجارة) (موقوفة)‏
شركة تمويل الاسكان (اسكان) ‏
شركة المدار للتمويل والاستثمار (مدار) ‏
شركة الصفاة للاستثمار (الصفاة) ‏
شركة القرين القابضة (قرين قابضة) ‏
شركة المدينة للتمويل والاستثمار (المدينة للتمويل) ‏
شركة نور للاستثمار المالي (نور) ‏
الشركة الكويتية البحرينية للصيرفة الدولية (صيرفة) ‏
الشركة الكويتية الصينية الاستثمارية (الصينية) ‏
شركة المسار للاجارة والاستثمار (المسار) ‏
شركة وثاق للتامين التكافلي (وثاق)‏
شركة لؤلؤة الكويت العقارية (لؤلؤة) (موقوفة)‏
شركة مجموعة المستثمرون القابضة (المستثمرون)(موقوفة) ‏
شركة المشروعات الكبرى العقارية (جراند)(موقوفة) ‏
شركة الصفاة العالمية القابضة (صفاة عالمي) (موقوفة)‏
الشركة الوطنية للميادين (ميادين) ‏
شركة فيلا مودا لايف ستايل(فيلا مودا) (موقوفة)‏
شركة الشبكة القابضة (الشبكة )(موقوفة)‏
الشركة الكويتية للخدمات الطبية (عيادة ك) ‏
ِ2- شركات لم تقدم البيانات المالية وحددت موعد اجتماع مجلس الادارة وعددها ‏
ِ(54) شركة على النحو التالي: ‏
الشركة الوطنية العقارية (وطنية) ‏
الشركة الكويتية العقارية القابضة (العقارية) ‏
شركة الامتيازات الخليجية القابضة (امتيازات) ‏
شركة ايفا للفنادق والمنتجعات (ايفا فنادق) ‏
شركة الارجان العالمية العقارية (ارجان) ‏
شركة الانظمة الالية (الانظمة) ‏
شركة مركز سلطان للمواد الغذائية (م سلطان) ‏
شركة هيومن سوفت القابضة (هيومن سوفت) ‏
شركة طيران الجزيرة (الجزيرة) ‏
شركة مجمعات الاسواق التجارية الكويتية (اسواق) ‏
شركة اكتتاب القابضة (اكتتاب) ‏
شركة كويت انفست القابضة (كوين انفست) ‏
الشركة  الدولية للمنتجعات (منتجعات) ‏
شركة حيات للاتصالات (حيات كوم) ‏
الشركة الكويتية للاغذية (اغذية) ‏
شركة المعدات القابضة (المعدات)‏
الشركة العالمية للمدن العقارية (المدن ) ‏
الشركة العربية العقارية (ع عقارية) ‏
شركة داماك الكويتية القابضة (داماك كويت) ‏
شركة الاتصالات المتنقلة (زين) ‏
الشركة الكويتية السورية القابضة (السورية) ‏
شركة فلكس ريزورتس للمنتجعات والعقارات (فلكس) ‏
شركة الصفاة للطاقة القابضة (صفاة طاقة) ‏
بنك الاثمار (الاثمار) ‏
الشركة الاولى لتسويق الوقود (اولى وقود) ‏
شركة عيادة الميدان لخدمات طب الاسنان (الميدان) ‏
الشركة الكويتية للمسالخ (مسالخ ك) ‏
شركة المجموعة المتحدة للصناعات الغذائية (الغذائية) ‏
شركة الخطوط الوطنية الكويتية (خطوط وطنية) ‏
شركة النخيل للانتاج الزراعي (النخيل) ‏
شركة مجموعة الخصوصية القابضة (الخصوصية) ‏
شركة التمدين العقارية (تمدين ع) ‏
الشركة الكويتية لصناعة مواد التغليف (التغليف) ‏
شركة الديرة القابضة (الديرة) ‏
شركو مجموعة السلام القابضة (السلام) ‏
شركة جيزان القابضة (جيزان) ‏
شركة صكوك القابضة (صكوك) ‏
شركة نفائس القابضة (نفائس) ‏
شركة مبرد للنقل(مبرد) ‏
شركة ابيار للتطوير العقاري (ابيار) ‏
شركة مشاعر القابضة (مشاعر) ‏
شركة الصفاة تك القابضة(صافتك) ‏
شركة الشامل الدولية القابضة (الشامل) ‏
شركة المعادن والصناعات التحويلية (معادن) ‏
شركة صفوان للتجارة والمقاولات (صفوان) ‏
شركة الصناعات الهندسية الثقيلة وبناء السفن (السفن) ‏
شركة اعيان العقارية (اعيان ع) ‏
شركة مشرف للتجارة والمقاولات (مشرف) ‏
شركة المقاولات والخدمات البحرية (بحرية) ‏
شركة المخازن العمومية (اجيليتي) ‏
شركة منا القابضة (منا قابضة) ‏
شركة هيتس تيلكوم القابضة (هيتس تيلكوم)‏
شركة المجموعة المشتركة للمقاولات (مشتركة) ‏
شركة مجموعة عربي القابضة(عربي قابضة) ‏
وعليه فانه سوف يتم ايقاف اسهم تلك الشركات عن التداول فى حال عدم تقديم ‏
البيانات المالية المذكورة فى الموعد النهائي المحدد فى الساعة 8:30 من صباح
يوم الاحد الموافق 16-05-2010 .‏

Gulf Finance House - Not to Sell Khaleeji Commercial Bank Stake?

AlQabas quoting Reuters quotes Ted Pretty, Group CEO at GFH, that GFH is not considering selling its  37% stake in KHCB, but rather increasing it.  Apparently, as part of planned foray into retail and commercial banking in Bahrain and the region.

Since GFH desperately needs to sell assets and since KHCB is likely the most attractive of what it has to offer for sale, it's hard to understand the business rationale here.

Obviously, there's more to this story that just this news item.  Was GFH successful in selling some other assets?  Has an old or new shareholder suddenly agreed to invest capital?  Was GFH unable to find a buyer for its interest?  Perhaps, a 37% stake isn't sufficiently attractive to a potential investor in KHCB who may want to ensure control over management?

Damas - Al Manara Jewellery Files AED114.7 Million Lawsuit Re JV

Damas announced this lawsuit on NasdaqDubai earlier today.

Damas International Limited (the Company) stated today, that it received a legal notice from Al Manara Jewellery on 10 May 2010, notifying the Company and one of its subsidiaries Damas Jewellery LLC, of a claim filed before the Abu Dhabi Courts for AED 114.7 million in relation to one of the joint venture business that the subsidiary had participated in Abu Dhabi, UAE.

The civil suit filed by the JV partner claims compensation of an apparent breach of the joint participation agreement that the subsidiary of Damas had signed when establishing the venture. The Company firmly believes the case to be without merit and intends to vigorously defend its interests related to this civil action.

There is a mention on pages 46 and 75 of "Al Manara" in Damas' 2008/2009 financials in reference to a 49% owned JV.  

Probably an issue of failing to meet a cash call - no doubt motivated by its current cash position.

Shaykh Sultan Bin Khalifa - Let's Make A Deal?

A very interesting post over at Rupert Bumfrey's blog.

Here's another link to the story at Moscow Times.

And an earlier one to the Times of London.

Let's see if more emerges.  Right now the story is a bit hard to swallow.

As far as I can tell this is still on the level of an accusation by one party in a rather bitter dispute with another.

A Barbarous Law is Not a Just Law

There is a lot of talk but relatively little action by so-called "Muslims" and "Islamic" countries to uphold Islam.

Legally circumcised?  A five year old child?

What sort of an animal would do this to anyone?  What sort of father would do this to his daughter?

What sort of doctor would perform such a mutilation?

What hospital would allow such barbarity within its walls?

What sort of judge or judicial system would look upon this with other than horror?

This sort of thing goes on in the lowest forms of civilization - brutal unthinking unenlightened backward tribes where the jahiliyya still reigns.

And the upshot is that the wife is going to be prosecuted for calling this كلب  out?

Gulf Finance House - Comments on 1Q10 Financials

GFH has posted its 1Q10 financial on its website.  That has to be a record.

Let's take a quick look.

Going Concern/Matter of Emphasis

Here's what KPMG had to say in its Review Report.

"Without qualifying our conclusion, we draw attention to note 1 in the interim financial information which discusses material uncertainties relating to the Group's liquidity position and regulatory capital adequacy, which, may cast doubt about the appropriateness of the going concern assumption used in the preparation of the interim financial information."

And here's the relevant portion of note 1.

"As at 31 March 2010, the Group's had accumulated losses of US$ 440.173 million and, as of that date, its current contractual obligations exceed its liquid assets.  As a result, the ability of the Group to meet its obligations when due depends on its ability to achieve a timely disposal of assets.  Further, the regulatory capital adequacy ratio of the Group as at 31 March 2010 stood at 13.97%, which restricts the Group's ability to absorb further losses or undertake additional exposures.  These factors indicates the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern."

Comments on Financials

I've already made some comments.  So rather than repeat them here, I'd invite you to first take a look here and then follow below - where the comments elaborate on that earlier post.

Capital and Liquidity

KPMG had a similar "matter of emphasis" in the company's 31 December 2009 audited financials at which time it should be noted that GFH's CAR was 12.91%.  So, clearly, some improvement on that score.

Unfortunately, as is pretty common practice, there is no note in the interims on CAR.  And note 41 in GFH's audited FYE 2009 financials does not provide a lot of detail on the components of risk weighted assets ("RWA").  One particular issue is understanding why at 2009 they are almost twice total assets as per the balance sheet.  Also the determination of Tier 1 capital isn't clear.  It's shown as US$381.5 million as compared to nominal capital of US$433 million.  Deductions for subsidiaries?

What we know is that CAR was 13.97% as of 31 March 2010.  If we assume that we can use the changes in equity since then to compute a new regulatory capital, then we come up with roughly US$392 million. Which gives RWA of US$2.8 billion.  Or some 2.15X nominal assets.  More detail would be very useful in sorting this out.   I suspect that's not going to be forthcoming.

Also as I commented earlier, it's hard to understand why any rational investor would be converting the Deutsche Bank murabaha into equity given GFH's situation and the market price of its share.  It occurs to me that this could be a convenient device for capital infusions.  There is no need to call an OGM to issue additional shares and the holder can decide when and how much capital to "contribute".  Perhaps just enough to keep the CAR out of the CBB's "red zone" and to avoid tripping covenants.  At this point, only about US$28.3 million remains.  And as I hope you'll recall (who says optimism is dead) from one of my much earlier posts, the DB transaction was issued at a discount.

As to liquidity as I pointed out in my earlier post, GFH's 31 March 2010 cash of US$21.5 million gives scant margin to cover operating expenses and interest, much less the US$100 million in principal due in August and the US$20 million in principal due in September for the debts rescheduled earlier this year.   Note that roughly US$140 million of "Placements" are blocked to support potential contributions by GFH to fund projects.  So a first glance at the balance sheet might suggest a more robust liquidity position than actually exists.

Asset sales are likely therefore to be critical over the next 12 to 18 months.  GFH is unlikely to develop sufficient cash flow from operations to repay US$120 million this year and pay roughly an additional US$30 million to US$45 million in operating expenses.  And I am low balling those expenses.

But what is even more perplexing is note 7 where we learn that  during the first three months of 2010 GFH has bought back US$15 million of its sukuk maturing in 2011.   Given the near term demands on cash, it boggles the mind to think that they would be using precious limited liquidity for such a purchase.  Even if it is at a discount.  Also when one looks at the relative cost of GFH's debt, this debt is the cheapest by far.  The US$100 million is Libor plus 5%.  The LMC rescheduled facility an eye popping 8% flat.  While the 2011 sukuk is at Libor plus 1.75%.  Perhaps, GFH is helping a friend exit?  I have a similar  question on the rational reason why a company in GFH's position would purchase US$35 million in Treasury Shares during 2009.   And one cannot help but wonder did GFH's lenders not impose any conditions on prepayment or purchase of debt?  Could they have missed so obvious a covenant, especially since GFH has shown a penchant for buying this particular debt back?

Balance Sheet

Other than the comments above regarding the 2011 sukuk and the "Placements", some additional points.

1. No movement on the US$85 million Investment Banking Services Receivable.  You'll recall that GFH wrote down roughly half of this in 2009.
2. Other assets Financing Projects is up a US$1.5 million.  Seems small to be additional funding.  Is this interest?  And if so, it would be very interesting to know how much of this amount is accrued unpaid interest.  As I noted earlier, it's unlikely that FP are going to be a source of cash in the near term.
3. Investors' Funds declined by US$50 million though I only see US$29 million in the Cashflow statement. 

Income Statement

1. Roughly US$5 million of investment banking income was from related parties.  The comparative figure for 1Q09 was US$46.5 million.  With related party business a firm can enjoy dramatic savings on marketing costs.  Sometimes even on underwriting and due diligence.  Well, at least initially.
2. As I noted in my earlier post, cash is going to pay GFH's running bills and its debt repayment.  So far cash generated as a percentage of income is relatively low.  Of course, this is early going.  But then the US$120 million in debt maturities is "early" as well.

All in all GFH is in a tough spot.  Let's hope that management's apparent optimism isn't misplaced.

Gulf Finance House Responds on Auditors' Matter of Emphasis on "Going Concern"

Update:  GFH denies issuing this statement.  Let's see if AlQ replies.

According to AlQabas GFH has issued a statement on its auditors' matter of emphasis on management's assumption of GFH as a going concern.

GFH's well reasoned argument is reported to consist of the following:

1. This sort of thing is a part of internationally accepted auditing principles.  Unspoken apparently is the idea that auditors are always doing this sort of thing - making a mountain out of a mole hill because of some silly "principle".
2. 1Q10 results demonstrate clear improvement.  
3. And the results are really "distinguished"  ( نتيجة مميزة )  given the difficult times.
4. The improvement reflects the hard work of executive management who have reorganized operations without the need for additional provisions.

I glad that GFH has taken the time to set the record straight.  

After hearing these powerful arguments, I'm sure many of you will have a hard time taking the auditors'  apparent "box-ticking" quibble about lack of liquidity or weak capital adequacy seriously.  I know I don't.

In any case, in the interest of fairness, I'll be looking for additional commentary from GFH tomorrow on this topic - though I don't know how much piling on of logical firepower GFH's poor auditors are going to be able to withstand.

Commercial Bank of Kuwait - New Board Leadership & Commentary on 1Q10 Results

Two articles in AlQabas for 12 May.

1. On the Board:  Badr AlAhmad as Chairman and Ali Al Awadhi as Vice Chairman.
2. On 1Q10 earnings and strategy.

Frankly, both of these stories are hard to believe.

In the first we're told about the election of Badr and Ali with a side note that Mr. Ali AlMoussa (You'll remember him as the hero in the corporate governance charade at  CBK's April OGM) wasn't able to join the Board because the "authorities" (the MOIC and the KSE) are cracking down on standby directors requiring that they hold qualifying shares.  And Brother Ali hadn't bought his.  You'll recall he'd been mooted to take Dherar Al Rabah's place as Chairman.  Wonder if Ali owns any KIB shares?  Dr. Mahdi AlJazzaf, another director, also had to resign. given "other commitments" which necessitated his resignation.  It's unclear if these pre-dated his election.  Or recently developed.  Some how I'm guessing the latter.    It seems that directors' flu is not only quite virulent but also highly contagious.

Anyways to make an unbelievable story short, with AlJazzaf's resignation, another reserve director's no doubt reluctant excuse not to serve (Abdul Rahman Al Ali), and Ali Al Moussa's slip of the mind about buying qualifying shares, it seems the Board has decided to have an OGM for shareholders to elect a new Board.  Shareholders will be asked to submit candidates whose names will be submitted to the Central Bank for approval.  Then the OGM will vote.  

I hope your credulity isn't strained yet, because we haven't yet come to the "tafsir" on the 1Q10 financials.  And there is still some very heavy lifting to be done in the "Believe It or Not" Department.

First some comparative data.  1Q10 Operating Profit was KD22 million versus KD25 a year ago.  In 1Q10, CBK decided to take all Operating Profit to its reserves for loans and investments.  This led to a KD1.4 million loss versus a net profit of KD3.3 million in 1Q09.  CBK's CAR is now 19% versus 18.22% at 31 December 2009.  Expenses are down due to a rigorous expense control program - some 10% from 1Q09.

Explaining the decision, the article (which I suspect is based on a press release) states that this heavy provisioning was done to strengthen the bank's financial condition.  Here one is reminded of Jamie Dimon at JP Morgan Chase and his famous fixation on the "Fortress Balance Sheet".  

All well and good, but it seems to me that it is highly unlikely that a bank would deliberately incur a loss to strengthen its balance sheet since by incurring a loss it was depleting capital.   And preserving capital is a great way to have a strong balance sheet.  Rather I suspect that the Central Bank leaned on CBK to provision a certain amount to deal with known problems.  

Other tidbits from the report are that CBK has hired an international consulting firm to help it with its strategy.  A presentation to the Board elected this month is expected shortly.  Since CBK is likely to have a new board as outlined above, I'm not sure if this makes a whole lot of sense.  Note:  I'm not referring to the strategy but to its presentation.  More on the strategy in the next paragraph.

While the strategy isn't yet finalized, it seems that will be built on a focus on Kuwait.

Kuwaiti banks face a real strategic conundrum.  The Kuwaiti market is relatively small with not much scope for expansion of really productive business - which explains why there is a lot of speculation and  a plethora of bone-headed business ventures.  Some would say that the construction of the Kuwaiti economy actually forces businessmen into this sort of activity because other areas are closed to them.  And no doubt there is a lot of truth to this.  Also there are too many banks fighting over this limited pie. - which leads to all sorts of silly competition.  Another real problem is that what pass for acceptable business practices in Kuwait make the practice of prudent banking difficult.

Perhaps, a kindly paternal figure can help sort out this mess.  Or at least hire better script writers.

Hopefully, some of our readers will comment to expand the story and correct any errors in this post.

National Bank of Kuwait - Dabdoub Did Not Resign

AlQabas has an article in which the Chairman of NBK, Muhammad Abdul Rahman Al-Bahar, denies that Ibrahim Dabdoub has resigned from the bank.

And here's one from AlWatan in which Abu Shukri himself denies the report.  AlW says that resignation supposedly occurred in an exchange of emaisl.

This is a strange story and I'm guessing there's more here than meets the eye.  

The typical Kuwaiti investor pattern of making a small fortune by destroying an even larger one?

Perhaps one of our Kuwaiti readers will comment.

BTW when you see Abu Shukri resign that will be a sign to very very carefully re-evaluate your holdings of NBK shares.   His shoes are going to be very hard to fill.

Kuwait 1Q10 Earnings - CBK KD1.4 Million Loss and Burgan KD1.8 Million Profit

Press releases below.

I'm guessing loan loss provisions are responsible.

CBK's press release first, then Burgan's.  For those who don't read Arabic, 1Q09 is on the left and 1Q10 on the right.  The first line is net income.    In CBK's the brackets mean they had a loss - KD1,414,000. The second earnings per share. Then total current assets.  Then total assets.  Then current liabilities.  Then total liabilities.  And finally shareholders' equity.  

Then there's a sentence that tells when the Central Bank of Kuwait "approved" the bank's financial report.  In both cases 11 May.  So fairly prompt disclosure by the bank thereafter.

The last bit is disclosure on related party transactions. First revenue and then expenses.

[13:39:17]  بلغت (خسارة) (تجاري) (1.4) مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة البنك التجاري الكويتي
ِ(تجاري) قد اعتمد البيانات المالية المرحلية للبنك للفترات المنتهية ‏
في 31-03-2010 وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند      ال3 أشهر المنتهية في 31-03-10    ال3 أشهر المنتهية في 31-03-09‏
الربح (الخسارة) (د.ك)            (1.414.000)                 3.139.000‏
ربحية السهم(فلس كويتي)           (1.1)                                2.6‏
اجمالي الموجودات المتداولة     2.888.791.000            3.323.149.000‏
اجمالي الموجودات           3.652.804.000              4.038.104.000‏
اجمالي المطلوبات المتداولة    3.185.980.000             3.543.040.000‏
اجمالي المطلوبات            3.210.609.000                3.586.829.000‏
اجمالي حقوق المساهمين       442.195.000              451.275.000‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الاحد الموافق 11-05-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 737 الف د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ (20)الف د.ك .‏

[14:20:44]  بلغ ربح (برقان) 1.8 مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة بنك برقان (برقان)‏
قداعتمد البيانات المالية المرحلية للبنك للفترات المنتهية  في 31-03-2010 ،
وفقا لما يلي:‏
ِ1) الفترات الحالية:‏
البند      ال3 أشهر المنتهية في 31-03-10    ال3 أشهر المنتهية في 31-03-09‏
الربح(د.ك)                 1.874.000                      10.988.000‏
ربحية السهم(فلس كويتي)       1.9                                10.9‏
اجمالي الموجودات المتداولة     2.743.779.000            3.017.318.000‏
اجمالي الموجودات           4.139.624.000              4.303.350.000‏
اجمالي المطلوبات المتداولة    3.522.748.000             3.557.177.000‏
اجمالي المطلوبات            3.692.878.000                3.895.370.000‏
اجمالي حقوق المساهمين       446.746.000              407.980.000‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الثلاثاء الموافق 11-05-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 2.074.000 د.ك
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 850.000 د.ك .‏

 

Dubai Holding Debt Restructuring

Asa Fitch over at The National has an article about Dubai Holding which has left me scratching my head.

If I'm not mistaken, in the last day or so, I read a statement by HE AlSuwaidi or maybe HE AlTayer that there would be no additional mega debt reschedulings.

And I definitely recall Shaykhk Ahmed Bin Saeed Al Maktoum saying around mid April that Dubai Holding doesn't have any problems.  Apparently not a single one.  And that's quite an enviable position to be in for a company at any time, but especially in the current environment.

So you can imagine my surprise when I read in both the Financial Times and The National that indeed Dubai World (Oops, that should be Dubai Holding) had engaged advisors to study the financial condition of its two key subsidiaries.

"The accounting companies are being asked to evaluate the subsidiaries’ financial health and make recommendations that could include pushing for lower interest rates and delaying debt repayments."

Either or both of these would fit my bankers' definition of a restructuring.  And would as I've noted before fit that of IFRS as well. 

Gulf Finance House - 1Q10 Results Continuing "Transparency"

In GFH's announcement of 1Q10 results, Mr. Essam Janahi, Chairman, stated:

"The Board has taken a very prudent approach in declaring this result and is committed to continuing transparency in the way we do business."

This wouldn't be the first time that Mr. Janahi has publicly recognized the virtues of transparency.  Nor do I suspect it will be the last.  And if you were reading my post of yesterday carefully, you will notice that I highlighted this continuing commitment to transparency.  Or as we like call it here on SAM  كلام شريف

A noble goal.  One which of course an Islamic bank would have no trouble keeping.

I believe that GFH will be announcing tomorrow one small matter - almost too trivial to mention.  Oh, well, let me mention this since I've already typed this much of the post.

Seems that GFH's accountants added a matter of emphasis to their review report noting that while they did not qualify their opinion they called attention to Note 1 which discusses the lack of fundamental certainty about management basing preparation of the 1Q10 financials on the assumption that GFH is a going concern.  The auditors cited concerns about liquidity and the adequacy of the company's capital.

Now, I am sure that many of you out there are probably saying that I am being overly harsh.  This is not the sort of thing that need be disclosed in the press release.  After all, the company releases its financials and a seasoned investor will go first to the auditors' report.  So disclosure is made.  Indeed.

But, it seems when getting ready to send in its 1Q10  financials to the BSE, GFH inadvertently forgot to  include page 1 with the auditors' report.  As you might expect from the time it took to update GFH's ratings page on its website,  they haven't yet gotten around to loading the financials on the website yet.  All that's there is a copy of the newspaper ad.

We'll see tomorrow whether the disclosure of the matter of emphasis is in response to a letter from one of the exchanges.  Or whether GFH belatedly realized the small oversight and is releasing the info unprompted.

However, rather than leave on a negative note, I'll close with this quote from Group CEO, Ted Pretty:

“GFH is a flagship institution in Bahrain and the Islamic financial sector and we are committed to working hard to set a better example as a model participant. Islamic finance has excellent growth prospects and GFH is well placed to take advantage of this growth.”

 The commitment to set a better example as the flag bearer of Islamic finance is admirable.

Commercial Bank of Kuwait - Ali Moussa to the Board Next the Chairmanship?

CBK announced on the KSE today that the Board had accepted the resignation of Mr. AlRabah, the Chairman, and had called up the reserve director, Mr. Ali AlMoussa.  

Suspect he's got a bright future at CBK.

[10:12:59]  ِ.استقالة رئيس مجلس ادارة البنك التجاري الكويتي
يعلن سوق الكويت للأوراق المالية بأن البنك التجاري الكويتي افاده
بأن مجلس الادارة اعتمد استقالة السيد ضرار الرباح رئيس مجلس الادارة
وقرر استدعاء العضو الاحتياطي الاول السيد / علي موسى الموسى.‏

Gulf Finance House - 1Q10 US$7.5 Million Loss

GFH has posted press releases on 1Q10.   English language here.   Arabic here.

And summary financials here.

Hard to do an in-depth analysis based on a one page "newspaper" announcement.

Nonetheless, some preliminary comments.

GFH's liability restructuring defused an imminent threat, but only "just". Of the US$180 million restructured, US$120 million comes due this year. US$100 million in August and US$20 million one month later.

Barring an asset sale miracle, it's probably likely that these amounts - or substantially all of them  - are going to have  rescheduled.

But that's really only a small part of GFH's problems.  The central issue for GFH still remains whether its  "proven business model" can generate sufficient cash to pay the light bills.   Debt repayments can be stretched out, but if you can't make the operating expenses it's very difficult to continue in business.

Based on 1Q10 numbers, it's hard to be optimistic.

A very quick and admittedly crude estimate is that GFH has a quarterly minimum cashburn rate of  somewhere around US$ 12 million to US$15 million before other cash drains, e.g.,  customer deposit withdrawals, repayment of interbank deposits, project funding, etc.   GFH's ending "cash" at 31 March 2009 was US$21.5 million.

While it's early in the hoped for turnaround, so far cash income generation is still lagging.  In 1Q10, cash operating income was roughly one-third of the declared US$18.5 million in accrual income.  Less than 50% of the minimum estimated cash burn.  Only a "timely" sale of Investment Securities (US$21.l2 million) saved the cash position which was US$21.3 million at 31 March 2010 as per the Cashflow statement.

Apropos of Ted Pretty's comment about new products, one has to ask what products customers are going to be comfortable buying from it.  Will they be willing to give GFH money today for products to be delivered in the future?  Would the Central Bank be wise to approve GFH selling such products?  If not, then the deals have to be spot - customer cash against an existing asset.  That will require a lot of volume to generate significant profit.  Can GFH move US$100 to US$200 million in product?  What sort of margins can it generate on such sales in this environment?  And with its own name a bit tarnished?

So it appears that asset conversion not income is the key in the near term - probably the rest of 2010 and perhaps the early part of 2011.  

So let's take a look at some of the sources and uses of cash.

1. Placements - Shown as US$156.7 million with Cash of US$5.4 million.  Looks like comfortable  liquidity.  But roughly $140 million of these are pledged for projects so liquidity is weaker than  it  appears. That pledge was disclosed in Fiscal 2009 financials.  And you get a hint here in the 1Q10 Cashflow statement - where only US$16 million of Placements are considered "cash".  Without the 2009 note, you wouldn't know if that's due to tenor or because they're pledged.   
2. Investment Banking Receivable - No change since 31 Dec 2009.  This bears watching for timing and probability of collection.  GFH had written roughly half of the IBR off during 2009.
3. Other Assets -  Recall that roughly US$188.3 million of this is project costs funded.  So return of principal is dependent on sale of the projects.  Assuming the best regarding ultimate value, probably not a likely near term event.  This category also ties back to the Placements.  If GFH can extract itself from future obligations to fund, then US$140 million or some portion of Placements could become liquid.  But might that risk the US$188.3 million already invested and carried here? 
4. Investors' Funds are down roughly US$50 million.  The Cashflow appears to only account for US$29 million.  Hopefully the notes will explain.  The question here is whether customers are withdrawing funds - which could add another cash drain burden.

In this context it's hard for me to understand the continuing conversion of the murabaha.  I really don't see an economic rationale.  One thing that does occur to me is that this is a device to provide equity to the company - with amounts and timing of contributions at will.  Perhaps to avoid triggering covenants in debt agreements.  Once converted the shares could be sold back into the market - taking a loss on the conversion but still perhaps a price to be paid for keeping the company operating.  If anyone out there has a thought on this topic, I'd be very interested.