AlJoman - Why the Kuwait Stock Exchange Needs Strong Regulation

Earlier this month AlQabas published a lengthy summary of a recent report by AlJoman Center for Economic Consultancy.  Here's the full report from AlJoman's website.  

You'll notice that AlQ has reordered the topics.  We'll work with AlQ's order in this post.  

The article is a blistering attack on market manipulation and regulatory failures. 

1. Al Joman says that there are about 15 main "investment blocs" that each control from 2 to more than 10 companies that are active in the KSE.  According to its analysis only a very few of them engage in professional or responsible behavior. 
   
2. Three of the groups have fallen and AlJ expects at least one other to this year.
3. The first group mentioned is the Abraj Bloc (Abraj Holdings, Shabka Holdings, and International Leasing and Investment).
4. The second is the Ahlia Bloc (AlAhlia Holding Company and Gulf Invest).
5. The third the International Group Bloc (PetroGulf, Grand, Investors Bank, Usul, and International Investment Group.)
6.  It then turns to a discussion of large and unjustified losses to the shareholders of the companies comprising these groups - which it notes shake confidence in the KSE as well as harm its foreign reputation stating that they consider that removing these distressed companies from the list of traded companies (presumably an expulsion from the KSE) would be considered a positive step. even if only partially (meaning this step by itself is not sufficient).  And that it is possible to lighten the harm caused shareholders and the economy by  removing  these long notorious companies instead of having let them continue to exhausting shareholder money for a long time and in a clear open fashion visible to all.  Clear responsibility for this state of affairs is laid upon the management of the KSE.

I've sort of given away the plot here.  The original research report by Al Joman begins "innocently" enough with a discussion of  the decline in KSE trading in April compared to May.   After presenting some comparative statistics, AlJ begins to describe the reasons.  The first hint is the comment that negligent traders have discovered there are more paper companies and so have become more selective in trading.  Turning to its list of factors, the first item is the lessening of manufactured or imaginary trades or trades agreed beforehand.  Which have come to everyone's attention through increased complaints.  The impact of the new capital market law which criminalizes these wrong practices.  The second is exceptional "feverish"  trading in transport or logistic company  as shares as part of an organized propaganda and scheduled effort to to spread rumors.  Manipulated volumes and prices.

Not too far into the report and it's pretty clear that this is not your normal market analysis.

It only gets better.  Comments on those responsible for cheating numerous innocent traders.  Management from the companies themselves, media circulating lies - print, satellite television, internet sites (heavens an attack on bloggers!).   Than an absolutely blistering attack on the KSE.

Some discussion of the Commercial Bank of Kuwait 11 April Board meeting and the responsibility of directors under the title "Commissioning Not Entitling" (my loose translation).  Calling for independent investigations of board conduct at troubled companies to find out the real reasons for losses and the decline in asset values along with steps to recover funds if board members are guilty of wrongdoing.

The end of the article deals with a review of 2009 earnings predictions by 4 newspapers in Kuwait along with AlJoman's.  And some comments that so far (not all firms have reported results yet!) net income for the two year period 2008-2009 is approximately zero.

An interesting factoid - as of the date of AlJ's report only 25% of Kuwait's 333 companies had reported 1Q10 earnings.  One suspects the delay is not due to needing a lot of time to add up the profits.

Damas - Update on Enforceable Undertaking

From Nasdaq Dubai.

Damas International Limited (The Company) announced today that it is taking all reasonable steps to secure and recover the drawings amount owed to the Company by the Abdullah brothers.

The Company is working with the Abdulla brothers within the overall timeline, to recover the drawings amounts, as agreed in the Settlement Agreement and the Share Pledge Agreement (the "Agreements"). Given the complexity involved in transferring / selling the assets declared to the Company, it is taking more time to affect the recoveries as per the timeline mentioned in the previous announcement by the Company on 4 November  2009. The delay in payments does not constitute an event of default under the Agreements.   However, the amount of US$55 million to be paid by the Abdullah brothers to The Company on or before 30th April 2010 will be carried forward and settled in accordance with the terms and conditions of the Agreements. Active efforts are underway by the Company and the Abdulla brothers to repay the amounts either in cash or by transfer of assets.

The Company is constantly engaged with the Abdulla brothers to ensure expeditious realization from the sale of assets to settle their drawings. These efforts are on going and the Company will report to its shareholders and the market on a regular basis as to its efforts, and the effectiveness of its efforts in recovering all amounts due to the Company by the Abdullah brothers.

The Company, having clarified this matter and informed the market of the developments requests an immediate reinstatement of the trading on its shares.

 Some reactions.

1. Sounds like the recovery isn't going particularly well.  Old hands in the banking business will tell you it's not a good sign when the obligor can't make the first scheduled payment on a deal he's recently negotiated with you.  I have good reason to believe that this rule applies pretty much around the world - even in Dubai. 
2. The Brothers took cash and a "bit" of gold from Damas.  The company is unable to pay its lenders. 
3. When I read comments about transfers of assets (even with a new presumably alert and scrupulous board), I worry about the transfer of illiquid and potentially duff assets.  If the Brothers can't liquidate the assets, why should Damas presume that it can?  And if the debt is extinguished at transfer and not upon realization, why should Damas bear the liquidity risk (that the price they actually get will be much less than the transfer value) and the costs of carrying the asset until realization.
4. As noted above, the Brothers took cash and a "bit" of gold.  Their obligation is to return the company to the position before the "withdrawal".   The goal should be to avoid a BPPN "settlement" that lets the obligors skate away scot-free.

Commercial Bank of Kuwait - Another Board Resignation?

AlWatan reports that Mr. Abdul Rahman Al Ali, described as a reserve director for CBK (one to take the place of a sitting director in the event of that director's departure) has resigned to take up the position of CBK's board representative at Industrial Bank of Kuwait.  Supposedly Ali Moussa of Securities Group has resigned his seat on IBK's board and will join CBK's board as (initially) a reserve director.

The article ends by saying that there are many scenarios floating around - including that CBK's board will be reorganized or that one of the reserve directors will be appointed Chairman.

If you've been following the comments  on my posts on CBK, then you've seen some comments by readers with apparent better knowledge and appreciation of what's going on than I have.  If you haven't, then you should!

So tonight's invite is for Advocatus, H Al Essa to weigh in again.

This is getting more complicated than "Lost".  Though the nice thing about working in a family company is that there's a job for everyone.  And the family takes care of its own.

Dubai World Restructuring - Signing in Two Weeks

AlQabas carries an account of an interview by Shaykh Ahmad Bin Saeed Al Maktoum, Head of the  Supreme Committee for Fiscal Policy of the Emirate of Dubai with CNN Middle East Markets.

He's quoted as saying that the process has reached the final stages and he expects that the restructuring will be signed in a couple of weeks.

What's perhaps more important are his comments that Dubai learned from the financial crisis the necessity of focusing/concentrating on the sectors which constitute the core/backbone of its economy.  The article states that he did not mention the real estate sector.  He reportedly called on workers to revisit their plans confirming that the previous real estate boom will not return just at the revival in real estate will not begin again before some years.

On the rescheduling he said the proposal ( قُب.ل   Not sure what this means.  Cable?  Anyone out there with an idea please post.) is in its initial forms and we are putting the finishing touches on it. today  We're optimistic in getting all signatures with the hope this will be completed in the next two weeks.

About the complaints of local creditors about the interest rate they will get is unfair to them compared to what the Western creditors are getting, an unnamed Emirati official is quoted as saying:  "The offer of Dubai World is generous for all.  And we have made it clear that we do not want to harm any of our creditors.  The creditors in turn understand what we are doing.  And it's incumbent on them to thing about their long term presence (in Dubai)."

Zain - Turkcell Negotiations with Major Shareholder in Progress

AlQabas reports that an unnamed Bahraini Investment Bank is acting as a middleman between Turkcell and major shareholders.  Starting price talk is KD1.5 per share.  Last time I looked Zain was trading at KD1.3 per share.  If I'm reading the last our words correctly وعند اي سعر  major shareholders sound eager to sell.

The sale results from an urgent need for cash and constrained financing from Kuwaiti banks.

Dherar Khaled Al Rabah Resigns as Chairman of Commercial Bank of Kuwait to Accept Chairmanship at Subsidiary

In its 7 May edition AlWatan reports that Mr. AlRabah was elected as Chairman and Managing Director of Commercial Bank's 100% owned subsidiary, Al Tijari Investment Company.  Earlier today Advocatus, one of this blog's select group of readers and a frequent commenter, had posted a comment that Mr. AlRabah had resigned.

You'll recall that just about one month ago he was elected Chairman and MD at the bank in a stormy shareholders' meeting.  And if you don't, here's the link.  A bit more on that below.

The Kuwait Company Law does not permit an individual to be Chairman at more than one company so with today's election he had to make a choice.  Perhaps, not surprisingly, he has announced that he will be resigning from the Bank. 

Many critics out there, including AA, thought that CBK's shareholders' meeting in April - an admirable an attempt at great theater -  failed because miscasting of some of the leads just made the plot unbelievable.  

I have to say that this May production at AlTijari Investment Company is a bit thin also.  He's barely had time to warm the Bank Chairman's chair and he's jumping to a smaller and less significant subsidiary.

It's hard to avoid the conclusion that Dherar was a convenient stalking horse, a placeholder at the Bank until the desired candidate could be introduced.  In calmer times after the old Board was removed.

On a positive note, I think it's safe to say that all critics out there give both productions "two thumbs up - way up" for "Family Values". 

Perhaps, Advocatus and/or others will want to post some "literary" criticism of their own.

Dubai Court Appoints Expert in Mashreqbank Case Against Saad

According to Asa Fitch at The National, the Dubai Court hearing Masrheqbank's AED542 million (US$147.6 million) case has appointed an expert to study certain technical details.

Mashreqbank claims the expert's brief is to confirm outstanding amounts.

It's unclear how close the Court is to reaching a verdict.

Global Investment House - May 2008 GDR Issue

Like me you may have been intrigued by Abdul Munim's question at the shareholders' meeting about the owners of GIH's GDRs.  And you may be wondering a bit about the transaction.

Here's a link to the Prospectus.  

1. The shares were floated at KD0.995 each.  Each GDR equal to five shares and offered at US$18.75.
2. The shares currently trade around KD0.090 roughly a tenth of the offer price.  Book value is around KD0.133 per share.
3. GIH's 2008 audited financials say that KD5.3 million was deducted from the proceeds as GDR expenses (page 59).  That makes the fee roughly 1.9% of total proceeds a very good fee indeed considering that the banks actually underwrote the deal.  For underwriting details see page 143.  Note the numbers there are for GDRs.  So the number of GIH shares they underwrote is 5 times the number shown.

As to details of ownership of the GDRs,  of course,  the Prospectus doesn't include this information for obvious reasons.  It was issued prior to the placement of the shares.

Nor for that matter does the info at the KSE answer the question.  Here in Arabic.  The English page doesn't have shareholder info for some reason.

As you'll see from the Arabic page, the GDRs are registered in the nominee names of BNY Nominees Ltd (7.092%)  and Bank of Mellon New York Nominees (11.429%).  So the identity of ultimate shareholders is not disclosed.  The GDR issue was for 306.7 million shares in rough numbers.  The 18.5% represents about 243 million.  So about 64 million shares not accounted for - presumably converted to regular shares?  Roughly about 4.9% of the total shares.

Islamic Finance - Still A Niche Business

An interesting article from Karen Remo-Listana at Emirates Business on Sukuk and Islamic finance.

Kuwait Stock Exchange - Enhanced Supervision 10 Companies Under Investigation

Copyright Fg2

If we believe the report from AlQabas, the KSE may have to replace the  above carving which I understand currently is right over the entrance to its Supervision Section.  

According to the article, the Supervision Department has its "eyes open wide today" as compared to earlier periods when apparently its eyes were a bit more shaded from the light.  One certainly hopes that the process of adjusting to the light was gradual.  Otherwise serious ocular damage may have been caused.

In any case in the transitional period to the full implementation of the new Capital Markets Law we're told that the KSE is watching daily trading, monitoring activities for negative behavior, and taking appropriate regulatory action until it hands over the control lever (or rudder if you prefer a Kuwaiti appropriate nautical analogy).  Frankly,  precisely the actions you'd expect a stock market regulator to be doing as the normal discharge of its duties -- unless of course you understood how business was (is?) done up North. 

More than 10 companies are reportedly under investigation.  Trading of Board members is being scrutinized.  Files have been referred to the public prosecutor for legal action.  And where legal action is not warranted, the KSE will be dealing with minor infractions at an upcoming meeting of its committee of adjudication.

The article ran with this accompanying picture.

It's not clear to me if this is a "before" or "after" picture with respect to enhanced vigorous monitoring by the KSE.  But from what I know it's highly likely it's an "after" picture.   Supporting that view, you'll notice that the chap is actually at his desk!   And even though this is just a picture, I'm sure like me you can sense the tension as he focuses intently on monitoring the market. 

For those not familiar with the fact, I'd note that as part of the preparation for the implementation of the new law, KSE regulators were sent for a crash training course in a certain well-regulated market in the West.  The position being assumed by the KSE regulator at his desk is known in technical terms as "doing an Alan"  or sometimes "a half Greenspan".

In a separate post, I'll review a recent report by AlJoman Centre for Economic Consultancy - that shows the crying need for regulation.

Global Investment House - Shareholders' Meeting Approves KD100 Million Capital Increase, Elects New Board and Deals with Shareholder Objections

AlQabas has an article on GIH's 4 May shareholders' meeting.  As well, GIH has posted a press release.  The AlQ article has a bit more detail, including an account of one shareholder's representative who raised several objections.

AlQ began by noting that Khaled AlWazzan was no longer on the Board.  If you don't recall, AlQ had reported his resignation last week which GIH denied.  This is AlQ's "I told you so" moment.  A tricky  issue. Technically, he did not resign.  He just did not stand for re-election.   Though I suppose one could argue that not standing for election was an effective resignation.  Point to AlQ for calling that Khaled was leaving the Board.  Also Shaykh Abdullah Jaabir Ahmad AlSabah, representative of the Public Institution for Social Security did not stand for re-election.   Nor was any Board member elected to represent Social Insurance.

  

The OGM and EGM agreed all the proposed agenda items. AlQ considers these the most significant:

1. No distribution of profits for 2009.
2. Annulment of the previous shareholder resolution to raise KD150 million in new capital (15 June 2009) and its replacement with a resolution to raise KD100 million at a price of KD0.105 per share.  (Book value is KD0.133 per share).  The extra five fils to cover issuance expenses.  The rights offering to be in a single tranche.
3. Grant the Board the power to delist from any stock market the company is listed on.  

Ms. AlGhunaim, the Chairwoman of the Board, said that there were no plans to delist from any market. Nor had the Board undertaken any study in this regard.  The resolution is a precautionary move so the Board will have the power.

She continued that the reduction in the capital raising by KD50 million was done so that small shareholders would be able to cover their allotment.  She expressed confidence that the strategic shareholders would participate.  She also commented that the company was in discussion with many parties about participating.  Apparently in response to a question, she said that one option was for banks - both creditors and non creditors - to participate.  This has been discussed earlier in connection with a debt for equity exchange - which would of course lessen the repayment burden on GIH.

Ms. Al-Ghunaim also noted that GIH was a great buy trading currently at levels not seen since its founding 11 years ago.  And that shareholders knew well what a great deal it was.  That the company enjoyed a great reputation, confidence, etc.  

Also it appears that some shareholders must have expressed concern about GIH closing some of its funds.  She noted these were closed either because they were no longer appropriate investments in the current environment.  Or that their specified terms had finished.  She assured that GIH was ready to pay any fund holder his money at any time and in any condition if that was in accordance with legal conditions.

A representative of a Canadian shareholder then launched into a series of formal objections.  I suspect that Kuwaiti company law has a procedure similar to other GCC states.  Under these provisions a shareholder must formally record any objections to the conduct of the company's business.  Once these are formally recorded in the minutes of the shareholders' meeting, they legally exist and the shareholder may then seek to take further action.   As you'd expect, when a company has a difficult year or when it has gone through a corporate "transition" like a difficult restructuring, shareholders are more likely to voice objections and criticize management than when times are good. 

Here are the points that he reportedly raised:

1. The annual report he got was missing three pages which contained important information.
2. There was a lack of disclosure about the subscribers for the GDR issue considering the fact that they own 35% of the total capital of GIH.  This doesn't appear to have been addressed but perhaps the answer is so as not to embarrass shareholders who paid KD0.995 per share and saw 90% of their purchase price vanish.
3. GIH does not but should have an Investment Committee to find profitable business opportunities and generate returns for its shareholders and to pay off the debt.
4. GIH should pay dividends for 2009 from reserves as it is allowed to under Kuwaiti law.
5. In the rescheduling exercise, the management was more focused on protecting the rights of creditors than the shareholders.
6. The 5% fee for the expenses associated with the Rights Offering will be a burden on the shareholders.

The Board answered these objections as follows:

1. The missing 3 pages were an oversight.  The full report was sent to shareholders and available on the KSE website.
2. The Investment Committee functions are contained within other already existing committees.
3. Re dividends, the Company needs to pay 30% of principal this year and so has to focus its efforts on successfully repaying its debt.  A reason why it is increasing capital KD100 million - which also will serve to help increase revenue.
4. The Rights Offering fees are justified given that leading local firms and world class names like Deutsche Bank and HSBC will be involved.  AA:  I'd note that the fees for the GDR were about 1.9%.  The proposed fees for the previous approved but not executed KD150 million RO were 10%.   5% is probably a very good price considering that the sale is going to be a tough one. 
5. There were some comments meant to reassure shareholders about GIH, including one on the rescheduling that it won "Most Innovative Deal 2009".  This statement like the one about the shares being a great deal because the price is the lowest in 11 years is a great example of making lemonade from lemons.
6. At the end of the article you'll see some comments about assets under management.  There's a typo.  It should be KD1.7 billion. Not million.  AA:  GIH has a very good franchise in asset management.  And as pointed out by GIH's Board, an endeavor that does not require a large amount of capital.

Another notable shareholder question was why GIH hadn't taken provisions against the US$250 million deposit with National Bank of Umm AlQaiwain (AlQaywayn in AA's transcription).   Because GIH's legal advisors recommended against it.   I'm guessing perhaps even more importantly because GIH didn't want to reduce its KD162.8 million in capital.  That would probably trip covenant triggers under the restructuring, hurt GIH's capital adequacy ratio, and make the Rights Offering more difficult.

As it is, GIH has reduced the RO by KD50 million.  I think less out of a concern for small shareholders being able to cover their allotments than to reduce the amount so that the issue is more likely to be successful.  Raising KD90 million or KD100 million against a KD100 million RO will look a lot better than raising the same amounts against a KD150 million RO.

Any RO is going to be a tough slog.  GIH has been trading below par since 15 April and has been trending downwards.  It closed 5 May at KD0.090.  It is therefore unlikely that small shareholders will have any interest in buying new shares for more than they can buy "old" shares in the market.  So the Board will have to schedule the RO to a more propitious time.

At the end of the shareholders' discussion, it's common for the Chair of the meeting, presumably Ms. Al-Ghunaim in this case, to say something on the order of "We've addressed shareholder objections and questions".

I'm guessing this happened and prompted the representative of the Canadian shareholder to pipe up again with a comment that if these clarifications were given in foreign countries, large amounts of money would have to be paid.  Apparently, frustrated, Ms. Al-Ghunaim is reported to have said "O Abdul Munim, O Abdul Munim, let us finish..."  As the AlQ article reports, enough shareholders clapped to show support for her attempt to silence Abdul Munim.  I'm taking from this comment that he probably was quite vocal in the meeting - more than is apparent from the article.  AlQ ends its article by saying that Ms. Al-Ghunaim did not finish her sentence.  Unclear if Abdul Munim did as well.

As to the new Board, here are the names:

• Mrs. Maha Al Ghunaim representing herself
• Mr. Marzook  Al-Kharafi representing Al Kharafi Group
• Mr. Alan H. Smith representing Al Bareeq Holding Company
• Dr. Hj Mohammed Amin Abdullah representing Berlian Corporation (Brunei)
• Mr. Bambang Sugeng Bin Kajairi representing Reem Investment Company (Abu Dhabi)
• Mr. Ali Al-Wazzan representing Jassem Al-Wazan Sons Group of Companies
• Mr. Hamad Tareq Al-Homaizi representing himself
• Ofoq Arabian Real Estate Company (substitute)

Generally, when directors are said to be representing this or that company or person, you can infer that these entities are significant shareholders.   However, the KSE does not show any of any of these.  The mandatory reporting threshold is over 5%.  On the subject of shareholders, you'll notice about 18.5% held by BNY Nominees Ltd and Bank of New York Nominees.  These are the GDRs.

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

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

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

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

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

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

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

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

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

Representative Henry Burns

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

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

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

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

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

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

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

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

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

KFH's CEO Vows Support For Aref Investment

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

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

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

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

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

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

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

New UAE Corporate Governance Code - Effective 30 April 2010

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


Arabic language - which is the governing text.

English language - for convenience.

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

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

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

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

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

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

Лучше поздно чем никогда: Dubai Makes Emcredit Official Credit Agnecy

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

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

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

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

The Investment Dar - Analysis of 2008 Financials - Auditors' Report

Earlier today TID released its 2008 financials on NasdaqDubai (in connection with TID's Sukuk).  Apparently, it's not yet had the opportunity to release them on its website.  Nor do they appear yet on the KSE website, but then again it does take quite a bit of work to accomplish a task like this.

Let's start with the audit report - which should be the careful investor's first stop in reading any financial report.

There are a couple of new bits of news here - previously not reported:

1. A change in auditors - or at least one of them.  PwC has exited.
2. A report of a material violation of Central Bank of Kuwait exposure limits in (you guessed it) a related party transaction.

First the change of auditors. While KPMG is still engaged, Deloitte now appears in place of PricewaterhouseCoopers.  (By Kuwait regulations a Kuwaiti company must engage two auditing firms).  No reason given why PwC left.  Unclear whether they excused themselves or were excused.  I'm guessing the former for both risk management reasons (not just here but related to other troubled auditing clients) as well perhaps disagreements over the application of some accounting principles. I'm sure that all of these are theoretically in line with the letter of IFRS,  though I suspect they may have been a bit aggressive for PwC's taste.  Having said that I'd acknowledge that I tend to be a bit "high church" on this topic so I may be projecting my own feelings onto PwC.  See the comments section for some discussion of the shuffling of local partners among PwC, E&Y, and Deloitte.  There may be other factors in play here than the ones I mentioned above.

Second, as noted earlier, the auditors have disclaimed an opinion.  That is, they did not express an opinion on the financials.  Their position is based on (a) uncertainty about ability to agree the restructuring and (b) the fate of the Boubyan Bank shares.  If there's an adverse judgment against TID on the latter it could lead to an approximate KD67 million or so loss - a major impact on its KD201 million in shareholders' equity.

On the former - the restructuring - TID's auditors state:  "We have not been able to obtain sufficient, reliable audit evidence to determine whether the Group will be able to reach an agreement to restructure its debt obligations."

What's particularly interesting is they are making this statement not as of 31 December 2008 but as of 13 April 2010 the date they signed their audit report.  A date after the FSL Court had granted  at least initial protection under the FSL to the company.

No doubt, the auditors are being careful.  They can't be 100% sure and so prudence would dictate such an approach. A completely rational response not only given the situation (a restructuring) but also the company's reputation.  

Finally, there is a bit of new news in the last paragraph in the section on legal and other regulatory requirements where the auditors note that they have not become aware of any material violations except relating to Murabaha and Wakala placements with a related party, "which exceeds the credit concentration limit stipulated by the Central Bank of Kuwait" as disclosed in Note 7.   Apparently, not a sufficiently important item to be mentioned in TID's earlier announcement on the KSE of its 2008 summary financial results, where it mentioned the two reasons for the auditors' disclaimer of an opinion.  Sitting here it seems to me that a material violation of a CBK regulation would be a bit of material information that an investor would want to know to enable him to make an informed decision.  

As an aside I'd note there is also an apparent similar issue for The Investment Dar Bank Bahrain which seems to have placed KD253 million with TID as disclosed in Note 16.  While TIDBB's website is no longer password protected, it has no content (though to be fair it has some really nice pictures) so it's a bit difficult to see what percentage this amount represents of its capital.

I'll go out on a limb here and guess well over 25%.

TID's report (Note 2 page 9) informs that TIDBB's auditors have modified  their earlier 2008 audit report to include an "emphasis of matter" item that if TIDBB can't recover the placements with TID it might not be able to continue as a going concern.  Not having seen the original audit report for TIDBB, it's unclear why this sort of eminently reasonable comment wasn't made before, particularly given the rather large "bet" TIDBB had placed on TID.

Comments on the body of the financials will follow.

GCC Refuses to Revive Free Trade Agreement Talks With EU

AlQabas reports that the GCC has rejected recent European attempts to revive the trade talks.  The key issue is the right of states to impose export duties.  And the key focus is the petrochemical industry where the GCC have a cost advantage - not only in terms of low feedstock costs but also newer technology.

The GCC has rejected the latest European proposals stating that while both sides recognize the right to impose export duties, the GCC wants that right constrained by WTO regulations and agreements.

Free trade negotiations have been going on for some 20 years and were suspended late 2008 over this issue.

The GCC did sign a free trade agreement with the much smaller four member European Free Trade  Association (Iceland, Liechtenstein, Norway and Switzerland)  in 2009.

Burgan Bank Second Round Rights Offer a Success

Burgan announced on the KSE today that its shareholders had subscribed for roughly 89% of the 360 million shares not taken up in the first round of its Rights Offer.  The remaining 38,266,812 shares are now being offered to the general public during the period 2 May through 9 May.

[13:34:9]  ِ.الاكتتاب في اسههم زيادة بنك برقان
يعلن سوق الكويت للأوراق المالية عطفا على اعلانه السابق ‏
بتاريخ 13-4-2010 بشأن الاكتتاب في زيادة رأس مال بنك
برقان فان البنك افاده بما يلي:‏
فقد تم الاكتتاب خلال الفترة من 13-4-2010 وحتى 27-4-2010‏
بعدد 321.733.188 سهم ومن ثم فقد تم طرح فائض الاسهم البالغ
عددها 38.266.812 سهم للاكتتاب العام الذي تقرر له الفترة
من 2-5-2010 الى 15-6-2010 وقد تم تغطية الاكتتاب في كامل
الاسهم المطروحة للاكتتاب عملا بنص القانون.‏

The Investment Dar - 2008 Financials Released

TID Global Sukuk  released TID's 2008 financials on NasdaqDubai this morning.  I haven't seen them yet on TID's website, but as we all know it can be such a bother transcribing all those numbers and then posting them. A burden made even more difficult by the nature of the numbers to report - a loss.

Once I've taken a look I'll post a comment if anything catches my eye.

DIFC Investments Reports US$562.1 Million Loss

The National carries an article today about DIFC Investments loss.  

Beyond the details, this is another sign that the economic distress in the Emirate is not limited to Nakheel and Dubai World. 

Rather the impact from the crisis is broad.  With new funding constrained, the Emirate  is now in a very difficult position.  It simply cannot devote all of its limited cash to triage. - salvaging those bits with the most commercial promise. Substantial funds have to be devoted to paying Nahkeel's creditors to prevent a complete implosion of the economy.  And to be clear, I'm not focused so much on banks and other financial creditors as much as on trade creditors and investors/purchasers in the projects.

International City Dubai

Sewage floods a road in the Russia and England area of International City yesterday.  

Paulo Vecina / The National

That is a heck of a lot of sewage.  It is hard to avoid drawing the conclusion that a few corners were cut in building the project.

Perhaps, our resident civil engineer/construction expert The Real Nick can weigh in.

AlAbraj Holding "Small" Shareholders Call for Emergency Ordinary General Meeting

PLEASE NOTE THIS POST IS ABOUT A KUWAITI COMPANY, NOT THE UAE COMPANY ABRAAJ.

Both AlWatan and AlQabas report that small shareholders in excess of the 10% required under Kuwaiti Commercial Law have banded together and engaged a law firm to raise a complaint against the Ministry of Commerce and Industry and the Kuwait Stock Exchange for failure to discharge their supervisory duties with respect to AHC and to lodge the formal demand that the MOCI call an emergency ordinary general meeting of shareholders.  The meeting would be designed to protect the rights of the small shareholders in the company, including the right to elect a new board.

You'll recall the Boubyan Bank is pursuing a legal case to have AHC declared bankrupt.  

Also AHC is currently suspended from trading on the KSE for failure to provide its financials  for 31 October 2009 and 31 January 2010 within the required time.

The AlQ article is longer and has some more details, including that the Boubyan debt was incurred to purchase a majority stake in International Leasing and Investment.    According to the KSE, AHC  currently owns some 39.28% of ILI.

With respect to AHC itself small shareholders own 58.5% of the company and large shareholders some 41.5%.

Kuwait International Bank - Dr Mahmoud Abu Al Uyyun as General Manager

AlQabas reports that KIB has secured Central Bank of Kuwait approval to appoint Mahmoud Abu AlAyyan as General Manager.

Mahmoud is a long serving banker of Egyptian origin.  He was Deputy to Egypt's Director at the IMF, Deputy Governor of the Central Bank of Egypt, Governor and Chairman of the Board of the Central Bank of Egypt.  He's also been an economic and financial advisor at the Kuwait Fund for Arab Economic Development.  The AlQ article details his other banking experience.

A pair of safe hands to implement the new strategy.

Dubai Holdings Commercial Operations Group - Voluntary Suspension of MTN Listing on Nasdaq Dubai

DHOC announced that it was voluntarily suspending its listing due to failure to provide 31 December 2009 financials within the mandated time frame.  It expects to report by 16 May as reported earlier.

NasdaqDubai also announced that it had suspended IIG for failure to provide its 2009 financials as well as the continuing suspension of the following (already suspended) for failure to provide 31 December 2009 financials:

1. TID Sukuk
2. Nakheel 2
3. Nakheel 3

Idiocy Knows No Borders: Virginia Attorney General Cracks Down on Pornographic State Seal

 

Fully Clothed and Wholesome Seal Shown Above

The Commonwealth of Virginia's fearless and crusading Attorney General, Ken Cuccinelli, has struck a decisive blow for decency and morality in the Commonwealth.  Not since John Ashcroft has a public servant taken so needed a step.

Seems that the Great Seal of the Commonwealth was pornographic.  It was almost as big a moral threat as those two hijabless members of the Majlis AlUmma in Kuwait.  And while not perhaps rising to the same level as the manifest danger of provocative manikins in the malls of Bahrain that were according to the wise solons in the Bahrain lower chamber leading the callow youth of the nation (males) astray, it was nonetheless a major danger to society.

Note:  Since this is a family site, I have refrained from posting the previous pornographic logo.  Those overcome with prurience can find it at the link above. Shame on you!

While it's hard not to applaud this step, one thing is troubling me.  The figure depicted in the Great Seal is the Roman pagan goddess Victus. Can the war on Christmas have started early this year? Is Brother Ken a foot solider in this endeavor?

The Investment Dar - FSL Court Waiting for Central Bank of Kuwait Input

AlWatan reports that the Central Bank is expected to give its comments on TID's restructuring plan (though no time frame is discussed in the article).  Once the CBK gives its input and assuming it supports the plan, TID expect that the FSL Court will quickly  issue the final order to implement the plan.

Not a lot of  new "news" in this article.  The real issue here is how long the CBK will take for its review of the plan.  Hopefully, less time than it took to get TID's 2008 financials approved - which by the way have yet to make it on to TID's website.

Drill, Baby, Drill

CAUSE #1  - Simple Minded Politics

CAUSE #2 - Simple Minded Regulation

By 2003, U.S. regulators decided remote-controlled safeguards needed more study. A report commissioned by the Minerals Management Service said "acoustic systems are not recommended because they tend to be very costly." 

An acoustic trigger costs about $500,000, industry officials said. The Deepwater Horizon had a replacement cost of about $560 million, and BP says it is spending $6 million a day to battle the oil spill. On Wednesday, crews set fire to part of the oil spill in an attempt to limit environmental damage.

That's right an acoustic trigger would have cost BP US$500,000!  Not only did BP not install one, it apparently didn't buy any oil spill insurance.  Perhaps two very strong arguments why one shouldn't rely on the "free market" to provide protection.

EFFECT

Hissa Hilal - New Book of Poetry on Divorce and Women's Rights

According to The National Ms. Hilal's new book. Divorce and Kholu’ Poetry: A Reading of the Status of Women in Tribal Society, Nabati Poetry as a Witness, is stirring up a controversy over whether women had more rights in the 1950's than now.

“Ms Hilal wants to show that women have always had the right to voice their opinions about who they wanted to marry,” he said. “It is an important book for the new generation to read.”

Whether one agrees or disagrees with the central thesis in her book, the important point is to get people thinking about the rights of women.

And perhaps then they'll remember women like  نسيبة بنت كعب  Nusaybah Bint Ka'ab and ask what might have happened if at Uhud she decided that "mixing" with men folk was haram.  

Kuwait International Bank - Board Resignations for Legal Reasons

Today both AlWatan and AlQabas carry a KUNA news report attributed to Shayh Muhammad AlJarrah AlSabah from 29 April.  He explained that the resignations of Fahad Al Ibrahim and Sanaa  Al Juma from the Board of KIB were purely for legal reasons.

He noted that within one month of election Board members must deposit their entire "qualifying shares" with an accredited bank.  The amount required is the lesser of 1% of the total number of shares of the firm or KD7,500 - whichever is less.

Neither Al Ibrahim nor Al Juma managed to do this and so "voluntarily and out of respect for the law" they resigned.  Shaykh Muhammad will be calling upon the "reserve directors" to serve in their place.

This is quite a remarkable story.  And I'm not sure what to make of it.  It's sort of like the old Ripley's "Believe It or Not".

1. Did they buy the shares but the maid knocked the "post it" note  "Deposit shares before 27 April" off the talaja and they missed the deadline?
2. Did the two newly minted directors not know of this requirement?  In which case one might ask about KIB's selection procedures for candidates.  And its post election counseling of newly elected directors.
3. Did the two directors know but just forgot?  Again might this suggest slightly more stringent selection criteria? 
4. Did the two directors know but after sitting in on their first board meeting, decide that even such a modest purchase was an unwise investment? 
5. Did they want to purchase the shares but like many Kuwaitis find they are tapped out with the local bank to finance another purchase?  Perhaps, the Majlis Al Umma's unceasing efforts to relieve the personal loan burden of Kuwaiti citizens have received yet another compelling reason to go forward.

And think of the embarrassment that this notice must be causing the two directors.  I think that officially it should have been said that they wanted to spend more time with their families.  As we all know or should, one's family is quite important in Kuwait.  And then of course there's The Family which some say may be even more important in some cases.  I'm sure there's a family or a Family involved here.

Damas Lenders Extend Standstill Two Months

Damas announced on NasdaqDubai late this afternoon that a majority of its lenders had agreed to extend the standstill two months to give the company time to complete its rescheduling proposal.

29 Apr 2010 - 17:48:58

Damas International Limited (the Company) announces today that the Company has signed an extension to the standstill agreement signed with a majority of its bank lenders.

The standstill agreement which was due to expire on 30^th of April 2010, has been extended for a period of two months in order to allow the Company to finalize its restructuring plan.

The Company is pleased to announce that a majority of its bank lenders have approved the extension which proves once again the confidence of the Company's bank lenders in the strength of the underlying business model of Damas, a Company spokesman stated.

I'm not sure that a standstill is really effective if only a majority of lenders have signed.  All it will take to start a panic is if one lender break ranks.

I'm also not sure that extending the standstill proves anything except the banks feel it is the best way to maximize their recovery.    As noted earlier, the UAE has fairly low scores among the GCC for recoveries in insolvency.  And judging by the last minute timing, it seems that sentiment built "slowly" to a positive response to the company's request.

Boubyan Bank - 1Q 2010 KD1.6 Million Profit

Boubyan disclosed its 1Q10 results on the KSE today (press release below).  KD1.6 million in income versus a KD11/7 million loss om 1Q09.

[9:57:0]  بلغ ربح (بنك بوبيان) 1.6 مليون د.ك لل3 أشهر المنتهية في31-03-2010‏
يعلن سوق الكويت للأوراق المالية أن مجلس ادارة بنك بوبيان (بنك بوبيان)‏
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)                 1.620.000                        (11.721.000)‏
ربحية السهم(فلس كويتي)       1.04                                  (8.42)‏
اجمالي الموجودات المتداولة     926.426.596            816.152.664‏
اجمالي الموجودات           1.132.288.218              906.293.972‏
اجمالي المطلوبات المتداولة    894.313.613           773.480.853‏
اجمالي المطلوبات            917.581.930            779.565.379‏
اجمالي حقوق المساهمين       212.745.760          124.376.425‏
علما بأن بنك الكويت المركزي قد وافق على هذه البيانات المالية بتاريخ ‏
اليوم الخميس الموافق 29-04-2010.‏
بلغ اجمالى الايرادات من التعاملات مع الاطراف ذات الصلة مبلغ 1.016.111د.ك ‏
بلغ اجمالي المصروفات من التعاملات مع الاطراف ذات الصلة مبلغ 197.024 د.ك .‏
و عليه سوف تعاد الشركة للتداول بعد عشر دقائق من نزول الاعلان .‏

Tabreed Announces "Postponement" of Extraordinary General Meeting Due to Lack of Quorum

Tabreed announced on the Dubai Stock Exchange that its recent attempt 28 April (the second one) to hold an EGM failed due to a lack of a quorum.  Next meeting will be held 5 May.

Third time lucky?

Dubai Holdings Commercial Operations Group - Delay in Financials

From today's Nasdaq Dubai.

29 Apr 2010 - 09:34:26

Dubai Holding Commercial Operations Group LLC (“DHCOG”) has extended the publication date for its 2009 consolidated financial statements by two weeks until 16 May 2010 as DHCOG has extensively realigned its operating businesses, undertaken a conservative revaluation of its real estate portfolio, and has conducted a thorough impairment testing exercise across all its projects.

These steps have resulted in a slight delay in completing the consolidation process of its financial statements.

The expressions "conservative revaluation of its real estate portfolio" and "thorough impairment testing exercise across all its projects" are unlikely to be accompanied by bumper earnings for 2009.

The Investment Dar - Creditors Press for Movement on Asset Sales

AlQabas has a report on the meeting in Dubai between TID and the Creditors' Co-ordinating Committee this Tuesday.

Here are the key points from the article.

The first topic discussed was the sale of Boubyan Bank shares where the desire is to get the best possible price.  Mike Grant, the Chief Restructuring Officer, is reported to have briefed on a meeting with National Bank of Kuwait in which they evidenced continuing interest in purchasing the shares assuming that TID and Commercial Bank can come to an agreement.  NBK is said to want to purchase at the market price.  The article then mentions that the price should be no less than KD0.600 per share.  BB has been trading at around KD0.540 to KD0.560 the past few days.  So I suppose that's not an unreasonable price. The article notes that the BB shares are outside the asset realization program under TID's restructuring so that they are not pressed to sell them.  NBK is awaiting a formal written response on the potential sale, including the proposed sales price.

The second topic has to do with the sale of assets that are subject to the restructuring.  Nothing has been done until now because of the previous legal cases which frustrated the closing of the restructuring.  Now with TID's entrance under protection from the Financial Stability Law, it's expected apparently that up to eight more months may pass before the restructuring will be finalized.  Since TID has to pay 5% of the principal amount during the first year, the lenders are encouraging the company to develop a clear asset sales plan so that it will be ready to spring into action when legal formalities are completed.  One target is to have foreign assets ready as the expectation is that these will be able to be sold quicker than Kuwaiti assets.

The Company has written expressing its commitment to move forward, but has apparently noted that there might be circumstances outside its control - a decision by the FSL Court or the Central Bank.  No doubt, this message sent more than one shiver down the creditors' spines.  And probably revived some of the previous concerns about management - the sort that motivated creditors to ask the Central  Bank to put a monitor into TID.  TID's letter in this regard has been forwarded to the Creditors' Co-Ordinating Committee's lawyers for study.

Golden Belt Sukuk #1 - Vote for Dissolution But Delegate to Take No Action

Citicorp as Delegate for the above transaction posted a notice on the BSE today that at least 25% of certificateholders had voted to dissolve the trust.  That in effect represents a sufficient vote to accelerate the maturity of the sukuk.  That means the issuer is obligated to pay.  As a shell company with no assets, the issuer will not be able to pay.  

At that point, Saad's purchase obligation will be triggered and the debt will become a direct unsecured liability of Saad.  

However, as pointed out in my earlier post, the certificateholders have no legal access to any real assets.  The land being "rented" in this transaction remains legally registered in Mr. Al Sanea's name.  So in effect they hold an unsecured obligation.  That means they will join the ranks of other Saad unsecured creditors - a large group both in terms of numbers of creditors and amount of debt.  That will enable them to take legal action against Saad.

So no guarantee of repayment.

One wrinkle, despite the vote, the Delegate does not have to take any action until it has been indemnified to its satisfaction.  Citicorp advises in the notice that it is not so indemnified.

I suspect the issue is certficateholder agreement to defray the not inconsiderable legal expenses associated with Citicorp taking action.  The issue is one of simple maths for the investors.  Will their ultimate recovery net of legal costs be positive?