KIPCO Clarifies UGB Purchase of Burgan Bank Shares

Responding to an article in the local press about UGB's potential purchase of Burgan Bank shares, KIPCO kindly set the record straight this morning with an announcement of its own on the KSE.  (Text below.  As always Arabic only).

KIPCO noted that:

1. While UGB had authority to buy up to 20% of BB, the Company was only intending to sell 13% of its BB shares.
2. No profit would be recognized on this transaction.  See below.
3. That it owns 96% of UGB.   

As regards point #2, this makes perfect sense.  No doubt UGB is buying shares at market.  Any profit at the parent only KIPCO level will be eliminated on the consolidation of UGB into KIPCO.'s financials  However, at the individual company level, UGB  has already recognized the profit on the sale of Tunis International Bank to Burgan in the earlier round of "musical assets".  The investment in Burgan is, as we noted earlier, part of recurring pattern of "astute business" of re-investing the proceeds of inter Group asset sales back into  Group companies.  "All in the Family" as they say.

The KSE and BSE might want to look over their respective  list of major shareholders in UGB and revise.  KSE here.  BSE here.   Perhaps, the music is a bit too up tempo to keep up with.

 

 [13:29:6]  ِ.

ايضاح من (مشاريع) بخصوص ما نشر فى احدى الصحف المحلية ‏
يعلن سوق الكويت للاوراق المالية بان شركة مشاريع الكويت القابضة (مشاريع)‏
تود ان توضح بخصوص ما نشر فى احدى الصحف اليومية حول بيع حصة بنسبة ‏
ِ20% من بنك برقان لمصلحة بنك الخليج المتحد ، تفيد الشركة ‏تنوي بيع نسبة ‏
مقدارها 13% من رأس مال بنك برقان الى بنك الخليج المتحد ، علما بان بنك ‏
الخليج المتحد قد حصل على موافقة بنك الكويت المركزي لتملك حصة تصل ‏
الى 20% من رأس مال بنك برقان .‏
كما تفيد الشركة بان بنك الخليج المتحد هي شركة تابعة مملوكة من قبل شركة ‏
مشاريع الكويت القابضة بإجمالي نسبة 96%، وبالتالي لن ينتج عن العملية ‏
المذكورة اي ربح او خسارة .‏

Aayan Leasing and Investment - Financial Stability Law is the Last Refuge

Muhammad Shabaan at AlQabas has an article in the 12 July issue with the headline:  "Aayan:  FSL the Last Refuge."  Which I suppose is perhaps an apt update of Samuel Johnson's April 1775 aphorism - at least in this case.

The article quotes financial sources that the Company is considering resorting to the FSL as it has been unable to reach agreement with its creditors.  Negotiations began over two years ago with the lead bank (KFH, I think), then morphed into multilateral negotiations.  No real progress has been made.  The Company has reportedly stopped servicing its debts.

Some lenders are planning to provision 50% of their outstandings - which is given as evidence that not much more progress is expected.  And which is it suggested will make progress more difficult. 

The article closes by noting that changes in the executive suite will be forthcoming.

It also repeats market talk that Aayan's 2009 financials submitted to the Central Bank some time ago (not specified how long) show a KD40 million loss.  And that the CBK and ALI have not yet been able to agree on the numbers.

If this is true and note that all we have is a market rumor, then ALI's 2009 FYE equity is probably around KD59 million.  That's derived in case you wonder from 3Q09's KD71 million plus and additional KD12 million in losses for 4Q09.

I'm going to go out on a limb here.  I suspect that's because CBK thinks the loss and any asset writedowns should be larger rather than smaller.  Though we did have one Islamic bank state earlier today that it had taken the option of increasing provisions to enhance its financial position.  Maybe the CBK is unlike the Central Bank of Bahrain not open to such moves.  (In case you're wondering, in a radical departure from most comments you read here, that comment is made with tongue firmly in cheek).

AlGosaibi v Maan AlSanea - Fortis Bank v Abu Dhabi Islamic Bank In Re Awal Bank

Asa Fitch over at The National has an interesting article on Fortis Bank's suit against ADIB for some US$40 million for ADIB's failure to honor its confirmation of an Awal Bank LC which was the basis for Fortis adding its own confirmation.  

The underlying transaction appears to one of those fairly common "Islamic" transactions - a loan disguised as a commodity purchase transaction carefully to  meet "Shari'ah compliant" banking "principles".  Yes, those quotations marks mean exactly what you think they do.

ADIB is asserting fraud in the inception by Mr. AlSanea as its defense against payment to Fortis.

Where have I heard that legal defense before?

And this is as good place as any to note that Mr. AlSanea denies any wrongdoing.

In any case, I'll post a bit more on this in a day or two once I regain my composure.  I can't stop laughing.

I thought the letters of credit that Ahli Bank Kuwait issued for TIBC were a howl.   ADIB's "letter of credit" is beyond that.  

As an extra bonus for your patience, I'll also post on BNPP Bahrain's suit against ADIB for some US$44.9 million involving letters of credit issued by TIBC that BNPP confirmed against ADIB's irrevocable undertaking.  

The Investment Dar - Restructuring Plan Does Not Incorporate New Central Bank Regulations - So What?

You've probably seen the articles (Gulf Daily News, AlWatan, and AlQabas) saying that TID, its creditors, Morgan Stanley and Credit Suisse met 6 July to discuss the draft restructuring plan and to discuss the fact that the plan does not incorporate the new Central Bank guidelines for investment companies.

Much is made of the fact that the Central Bank guidelines must be completely implemented by June 2012.

As you'll recall (and if you do not, look here and here), these impose certain rather strictly drafted ratios:

1. Leverage of 2:1 (Total Liabilities to Equity)
2. 10% Liquid Assets Ratio
3. A cap on foreign borrowing - 50% of total equity.

Frankly, this seems much ado about nothing.

Barring a miraculous recovery of asset values, there are two ways that TID can get in compliance with the ratios.

1. Its shareholders agree to fund a massive increase in capital.
2. Its creditors, particularly the foreign ones, forgive debt.  Other options would be defeasance.  Or equity conversions.

Hard to imagine rational investors throwing good money after bad (subscribing for new equity) for the sake of complying with some regulation.

Impossible to imagine creditors forgiving debt - especially the "Islamic" ones even in light of the clear guidance in 2:280.  

Defeasance would require sufficient assets in the "trust" to provide a comfort margin.  Given the quality of TID's "core assets", one would expect a very large margin.   That would leave other creditors high and dry.  As well, the hook into the Company by not defeasing provides at least additional theoretical source of repayment. 

Converting secured debt into equity doesn't seem like a particularly appealing prospect unless the conversion could be into an instrument that was called "equity" but was actually the equivalent of secured debt.

There's no real motive for a shareholder or creditor to take any of these actions.  Both realize that the Central Bank's options are limited.  It's not going to place TID into Administration (at least not beyond what the restructuring is already doing) for the sake of  enforcing a regulation.

More likely than not the Central Bank of Kuwait will have to give TID a special exemption from the new rules - an extension beyond the 30 June 2012 "deadline".   Just as it is likely to have to give Global such a pass.

The Investment Dar - National Investments Wins Appeal in Bahrain

 

Muhammad Al Itrabi at AlQabas reports that National Investments Company Kuwait has won an appeal in Bahrhain against TID relating to some KD30 million in debt.

The article notes that this judgment given before the Central Bank has made its final decision about allowing TID to enter the safe harbour of the Financial Stability Law potentially complicates implementation of TID's restructuring.  And opens the doors to other lenders taking action.

That may be a bit of a over reaction.

First, like American baseball, one gets three "goes" in the Bahrain (and other local court systems).  In Bahrain in particular, it's not over until the fat lady (the Court of Cassation) sings.   By the time the Court of Cassation renders its verdict it's highly likely that the CBK will have decided whether or not TID should enter the FSL.  

If the CBK rules against TID, then the implications are clear.  A massive legal scramble.  It's not likely that the CBK is going to unleash this sort of "trouble" on the already troubled Kuwaiti financial sector.  

If it rules in favor of TID, then it's going to be mighty difficult for any Kuwaiti Company to launch legal actions in a foreign jurisdiction.  It's also highly likely that the Courts of Bahrain will recognize the FSL protection.

Hard to see this being anything but a minor annoyance.  And it might just prompt the CBK to speed up its decision.

Dubai World Restructuring: Hard Slog to the Finish Line

Business Maktoob reports that Dubai World will meet with its creditors 22 July to make another presentation on the terms of the proposed restructuring.  And that subsequent workshops will be held in Hong Kong, London and Dubai to allow banks to pose questions on the restructuring to DW's expert advisors.

It's pretty clear that the sales process is still continuing.  

And from the number of "commercials" DW is either taking no chances on the outcome of the creditors' vote.  Or perhaps more likely has been encountering some resistance to the deal.  I say that because the 22 July meeting is at least three weeks behind the original schedule.  If smooth sailing were expected, the presentation would have taken place already.  And the creditors' deadline for a response would be running.   It's not. 

While ultimately a deal will be done (as the alternative is unthinkable), if a sufficient number of banks balk, there might be some improvement in terms.

GCC Oil Fims Accused in Kickback Scheme

You may have seen articles like this one recently.

I don't know about you, but AA is doubly shocked.

  

Shocked at allegations of corruption, though at least I suppose I can rest easy knowing that there is nothing untoward going on with oil exports from the GCC states.  No special deals, no personal discounts or the like.

In one sense this is old news, the US Department of Justice issued a press release last year July on the case in which CCI entered into a plea bargain with the DOJ.   The allegation is for fairly widespread activity: 200 payments in 30 countries from around the globe not just the GCC.

I'd of course hasten to add that while CCI has admitted wrongdoing as far as I know no representative from any of the name countries has admitted guilt.  Nor have any such parties be judicially determined to have taken a bribe.  

As the DOJ notes in its press release (link above): 

"An indictment is merely an accusation and the defendant is presumed innocent until and unless proven guilty at trial beyond a reasonable doubt."

The recent resurfacing of this story has to do with the extradition to the United States of a foreign national former employee of CCI who is accused of participating in the scheme.

Bahrain Islamic Bank - Trouble on the Horizon?

Today an apparently rather "pleased" as well as "satisfied" BIsB announced that:

BisB has taken the option of enhancing its financial position, by increasing its provisions mainly due its investment portfolio, rather than announcing profits for its mid–year results.

AA:  Should the reader interpret this to mean that contrary to IFRS, AAOIFI "FAS" allow a reporting entity full discretion to take provisions even when they are not really needed?  Perhaps, merely as "a precautionary step against any market changes, and in line with the Bank's conservative policy in this regard."  No deterioration in the portfolio here.  Move along.  It's pretty much in line with 2009 when the Bank appropriated "precautionary provisions" as "a conseqeunce to the International Financial and Economic condition".

By the way if you're wondering BIsB "has registered non-cash losses to the tune of BD 5.7 million for the first half of the current year."  In 1Q10 it had a small profit of BD1.2 million. 2Q10 Financials here.

We also learned that:

The Board of Directors agreed to increase the paid-up capital of the Bank by up to 75 % by issuing new shares with at its nominal share price issue of 100 Fils per share.

And that:

Mr. Khalid Abdulla Al-Bassam went on to confirm the Bank’s strong financial position and its satisfactory liquidity status and reiterated that the Bank needs the new injection of cash to finance the growth requirements in its business activities.

AA:  Apparently a rather sudden decision on an expansion strategy.  You'll recall that no capital increase was presented at the 16 March 2010 Annual General Meeting for 2009.   Perhaps like AA you're  also wondering where BIsB is going to grow by 75% particularly in this market.  Though perhaps a part of the capital increase will go to cover the BD35 million deduction from regulatory capital for the "excess amount over maximum permitted large exposure limit".  That and 2009's BD20 million loss were the primary cause of the approximate halving of the CAR.  (Note 16 2009 Audited Financials).

It's also a bit surprising that a successful institution like BIsB is offering its shares at par BD0.100 - when it trades at BD0.159 per share and its book value per share is BD0.183.  Though I suppose one might note that roughly a year ago the Bank traded for BD0.264.  And that its order book is one-sided with more than 100,000 shares on "offer" - roughly 14 x the last traded volume.  Market data here.

There would appear be more here than meets the eye at first glance.

1. Clearly, BIsB - which is well known for its focus on the real estate sector (not only for lending but also for  proprietary investment  in construction and development companies -- has some issues with its portfolio.    
2. It needs provisions.
3. It needs additional capital.  Hence the Rights Offering at par.
4. That being said, Moody's ratings on the Bank remain the same as they did in March 2010 a respectable Baa1..
   

Ownership and the "Joy" of Maintenance Fees

The National points up one of the issues of the strata or condominium form of ownership of real property.

One is at the mercy of one's neighbors.  If they fail to pay the maintenance fee, the upkeep of the building suffers from cosmetic to more substantial matters.    The market value of one's apartment or villa then declines. 

Mr Aldendorff said: “How many owners have disappeared or are just not paying? And how viable is it to put a property on the market in an economy where nobody is buying? The legal process is so lengthy, we won’t be able to immediately recover the money.”

There's an even more serious question.  Who in their right mind is going to buy into a property - even in a good market - where there are substantial arrears?   Unless perhaps one is the buying the last defaulter's unit.

If there are projects with a 75% maintenance default rate, they are going to be hard pressed to recover.  And the 25% who do pay aren't going to be able to shoulder the defaulters' share - at least not without serious economic consequences.   One also expects that banks would (if they are alert, perhaps a questionable assumption) be highly concerned about deterioration in the physical condition of  their collateral on top of general market price levels.

There is a bright side.

As one of my local friends said:  "It's all part of the "Vision".  When the existing properties get run down enough, they'll have to be knocked down and new ones erected.  And there will be another boom."  At least perhaps from the demolition.

Limitless Limits Its Exposure: Pulls Out of Haute Development Malaysia

On 8 July Bandar Raya Developments Berhad announced that its subsidiary had entered into a conditional sales agreement with Limitless to buy its 60% stake in Haute Property SDN.  Haute was set up with UEM  (who own 40%) to develop luxury homes in Johor State.

Ardent will pay Limitless:

1. RM1.0 (roughly US$0.31) for Limitless' 60% stake in Haute.  (The company's unaudited financials show negative shareholders' funds).
2. RM 75 million (US$22.9 million) to reimburse Limitless for partial payment of development rights.  The amount will be converted to US$ at the FX rate at time of payment RM3.27 = US$1.00.  While the RM/US$ rate is currently RM3.196, this will not represent a loss to Limitless as it should get back the exact amount of US$ it paid.
3. RM1 million representing full and final compensation to Limitless for the RM10 million it advanced Haute for operating and development expenses.

The project is still in the development stage.  It's expected that there will be revisions to the development plan.

For those interested in a trip back to the original Limitless announcement, here is the link.

This move allows Limitless to exit the project with minimal losses and eliminates potential cash calls.  And no doubt not the last step by the various companies in Dubai Inc to reduce foreign projects to concentrate now limited resources at "home".

BTW anyone out there able to cite a single instance of such a comprehensive announcement on a GCC exchange?

DIFC Investments Downgraded with Outlook Negative

8 July 2010 - Approximately US$1.25 billion in debt affected

Moody's Investors Service has today downgraded to B3 from B2 the senior unsecured issuer and debt ratings of DIFC Investments LLC ("DIFCI" or "the Group") and Dubai Sukuk Centre Ltd. At the same time, Moody's has converted DIFCI's B3 issuer rating into a B3 corporate family rating (CFR) and assigned a probability of default rating (PDR) of B3, in line with the rating agency's practice for corporate issuers with non-investment-grade ratings. The outlook on all ratings is negative.

Moody's says that DIFCI's downgrade to B3 reflects the Group's highly leveraged financial profile, its expected heavy reliance on asset disposals in the coming 12-24 months in order to build sufficient liquidity to meet maturing debt obligations, and its continued negative free cash flow generation. While recognising management's intention to refocus the business, reduce costs and dispose of non-core assets, Moody's points out the risk that these measures may be insufficient to ensure that the Group has available funds to meet its maturing financial obligations as they become due over the next two to three years. The downgrade to B3 also factors in the negative impact that challenging conditions in the Dubai real estate market continue to have on DIFCI's financial profile. In 2009, the company recorded significant impairments in its real estate portfolio, which, combined with write-downs in its broader asset portfolio, contributed to a full-year loss from continuing operations of USD480 million. 

 More bad news for the Emirate.   And a commentary on market conditions. 

The Curious Case of UAE Banks

Roula Khalaf at the Financial Times:

What’s going on at the banks in the United Arab Emirates? It is an open secret that the deterioration in their asset quality is worse than suggested by the size of problem loans, which credit rating agency Moody’s puts at 4.9 per cent of total loans at the end of last year.

Some accounting magic keeps the amount of reported troubled credits lower than actual.  Renegotiation of troubled credits another way that numbers are managed.   More distress on the way in terms of the full knock-on effects of the crisis.  

But fundamental support for the banking system posited.

No doubt.  

But weakness in the banks will lead to lower loan growth.  Those loans granted will have stricter terms.  And thus there will be an economic price to pay.

UAE Credit Cards Among World's Costliest

As reported in The National:

A survey of more than 170 cards offered by 40 banks operating in the UAE shows the average annual interest rate is 33.9 per cent, more than double the average rate in the US and almost twice the average rate available in the UK.

Two percent over the average rate last year.  Apparently, First Gulf Bank, Mashreqbank, and DubaiFirst offer platinum cards with APRs of 40%.  Wonder what they offer their less preferred customers?

But I guess somebody's got to pay for the Dubai World provisions not to mention AlGosaibi, Saad and perhaps Dubai Holdings.

بسم الله الرحمان الرحيم

 صدق الله العظيم

All in the Family: KIPCO, Burgan, and United Gulf Bank

As you'll recall in late June, United Gulf Bank (90.7% owned by KIPCO) announced that it was selling Tunis International Bank to Burgan Bank Kuwait (55.47% owned by KIPCO and affiliates) for US$725 million.  This being part of a larger strategy by Burgan Bank to develop its international banking franchise by buying the international banking franchise of UGB.  

Prior notable steps in that process were the May 2009 successful transfer of UGB's shares in Algeria Gulf Bank and Baghdad Bank to Burgan Bank.  As per the press release, "Mr Masaud Hyatt' MD said:

“The transfer of the commercial banks has provided excellent return to our shareholders and will allow UGB to focus on its investment banking & asset management business.”

That transfer was preceded by the transfer of ownership of UGB's shares in Jordan Kuwait Bank to UGB in July 2008.  

“By transferring our investment in JKB to Burgan Bank, UGB has realized the hidden value of the asset and, by reinvesting the proceeds into Burgan Bank, UGB is acquiring a premier investment grade listed asset which will provide growth and value to our shareholders. As one of the region’s leading investment banks, it is astute business for UGB to re-invest in a business that we have helped to build.”

And, perhaps, even more "astute business" to recognize a profit on such a re-investment which some uncharitable souls out there (but definitely NOT Abu Arqala) might characterize as selling to oneself!

Today, UGB announced on the Bahrain Stock Exchange that it had secured the approval of the Central Bank of Kuwait to buy up to 20% of the shares of Burgan Bank  (over the next three months).

Do I perhaps sense another example of  "astute business"?

I'd close this post by noting that many in the West today lament the decline of the traditional family.   The adverse impact on society from the loss of family values. This is so keen a concern that in one country at least one political party has had great electoral success portraying itself as the defender of family values.  And, as some would have it, F.D. as well. 

As we now look to the The Midlde East, particularly the KIPCO Family, it's understandable that we might feel more keenly our sense of loss and perhaps frankly some envy. Here is a region and culture well known for strong family solidarity.  A place where families play an important role in the lives of individuals and society in aggregate.  My family, your family, The Family.

Gulf Finance House - S&P Ratings: The "Fix" Was In?

A second look at the recent ratings action.   

Was there a bit more here than met the eye at first glance?

Let's go back to S&P's happier ratings announcement of 3 March when it upgraded GFH to CCC-.  Like all things happiness is relative.  When you're SD, an upgrade to CCC- is an improvement.

Here's what S&P had to say in its Outlook.

The negative outlook reflects our opinion of GFH's very weak liquidity position from a rating standpoint, because it still faces challenges to meet debt repayments coming due in the very near term. It also reflects the uncertainty we perceive regarding the ability of the institution to implement its plan for improving its liquidity position and boosting its revenues.  Failure to meet any of the upcoming existing or restructured payments would lead us to lower the ratings to 'D' (default).   In addition, we would consider as another distressed restructuring any transactions by GFH to reschedule or restructure its debt, including unrated obligations, such that lenders receive less than the original value. This would result in a lowering of the ratings to 'SD', assuming GFH continues to honor its other obligations.

At this point, GFH has not defaulted.  The US$100mm rescheduled West LB stub is not  yet due.   It's due in August.  There has been no public statement that the payment cannot or will not be made.  Technically it has not re-rescheduled the already rescheduled US$100 million.   There are discussions but not yet finalized. 

Recall that under IFRS a reduction in interest rate in a rescheduling constitutes an impairment.  The US$100 million West LB "stub" is currently at a 5% margin for a six month transaction.  The renewed three-year facility is reportedly at a lower rate.

How to avoid what appears to be an inevitable "D" or  "SD" rating?

The US$100 million August payment is in a convenient ratings "limbo".

What if S&P were to issue an interim "limbo" rating now?  Perhaps unfortunately a bit lower than the current rating but still out of the dreaded "default" category?  A rating mutually agreed beforehand.

And then what if GFH were to terminate S&P's ratings engagement immediately?

Problem neatly solved.

And then again perhaps just a series of innocent events, though if one holds that view,  one  has to explain why S&P didn't wait the relatively short time until August to issue an updated rating based on an actual "event".

You be the judge.  AA has already made up his mind.

DHCOG Secures Two Month Extension on US$555 Million Loan

This morning DHCOG reported on Nasdaq Dubai:

Dubai Holding Commercial Operations Group LLC (DHCOG) confirms that all parties have agreed to extend the existing Revolving Credit Facility (RCF) of $555 million under commercial terms for an additional 2 months. 

 The extension is required to facilitate the finalization of the documentation to renew the facility .

BP - The Right Place Part II

Still thinking of that investment in BP?

Here's an interesting article from the Financial Times evidencing a curious concern with the firm's health.  If everything is "fine and dandy", why worry about asset sales, joint ventures, and the like? 

The request underlines how closely the Obama administration is watching BP’s every move and its interest in ensuring the company remains a going concern in the wake of the oil rig explosion that killed 11 people and continues to spew thousands of barrels of oil into the Gulf of Mexico every day.

"Going concern" indeed.  

Perhaps as in "Going, going, gone.  Sold American".

Gulf Finance House - Press Release on S&P Downgrade

Pass the smelling salts!

There it was today an announcement on the BSE.  None so far on the DFM or on the KSE - but it's still early in the day only 08:12 EDT here.  And Dubai and Kuwait are a lot further from GFH's HQ in Manama than the BSE.  

Oh, wait, I see.  

GFH is responding to a letter from the BSE asking about the downgrade. 

According to the press release, GFH's Board decided last week to terminate the ratings relationship but to allow Executive Management the discretion as to when to terminate.  

The press release clarifies:

"In the meantime the Executive management would like to focus on the recovery plan and the restructuring then will decide to implement the withdrawal".

Since GFH seems to have decided to implement the withdrawal on or before  the day the rating was released, less charitable souls than AA might infer some lack of communication within the firm about critical events.  

Perhaps, certain information is shared on a "need to know" basis.  As with the shareholders?  A key issue may be in the determination of "need".  

As always AA stands ready to provide a public service.  

Here's the link to the Central Bank of Bahrain's Capital Markets Regulation "Disclosure Standards".   The appropriate "chapter and verse" is Article 32 "Ongoing Obligations Immediate Disclosure".    It does quite a nice job of defining "need to know". And the timing of "letting them know".

Blue City Blues

A poignantly haunting tune of betrayed love though word has it the beloved was little more than a remarkable fiction of the imagination.

Other than a deserted construction site and a rather neat website (with no construction pictures), isn't all the value in the Tranche A bonds?

Gulf Finance House - S&P Downgrades GFH Terminates Ratings Services

5 July S&P downgraded GFH to CC.   This should come as no surprise as they had said that if GFH needed to restructure again they would do so.

More importantly, GFH requested that S&P no longer rate them.  S&P has complied.  It's website  shows NR for the rating. To add insult to injury - but not without cause - S&P expressed a negative view at this ratings action. 

GFH's termination of the ratings relationship is more telling than the rating action itself.   It is clear  that  they do not see near term potential for an upgrade.

Asa Fitch over at The National observes:

The move may mark a reversal for what has been one of the region’s most remarkable turnaround stories during the financial crisis. Since being brought in last year, Ted Pretty, GFH’s Australian chief executive, has aggressively marked down the company’s assets, restructured debts and announced plans to sell stakes in property projects and banking subsidiaries to raise cash. Under Mr Pretty, GFH posted $728m of losses for last year and revealed plans to raise $250m this year from asset sales.

In my view the story of any "turnaround" at GFH was largely a work of fiction.  And remarkable only because some believed it.

1. The cold hard fact is that debts are repaid by cold hard cash.  Not "pretty" words or unrealistic scenarios.   GFH's recovery, if any, will come when it is able to generate sufficient cash to service its debt and pay operating expenses.  
2. On that score it does not have a functioning business model and there has been no real cash generation from operations for over a year now.  It's also unclear whether the new model - at this point only an undeveloped plot - is any more viable.
3. That leaves asset realisations, largely sales to repay debt.   But make no mistake asset sales - particularly at the levels required in this particular case - do not build businesses.  They dismantle them.  Few if any companies have shrunk their way to greatness. Not more than a few months ago, GFH told quite a "fish" story of US$420 million in asset sales.  And often as happens in such stories the "big one" got away.  That reflects not only the state of the markets as well the quality of the assets on offer.  
4. As a case in point, you may also remember the "remarkable story" of GFH's US$262 million asset "sale" of its interests in Bahrain Financial Harbour Company to Emar Bahrain.  A sale which garnered only US$40 million in cash.  The remainder of the sale proceeds were land in the neighborhood of the BFH which will be "sold later" or so the story goes.  Interesting to speculate whether the land was owned by BFHC or perhaps by a local royal personage. 
5. A close scrutiny of other assets reveals the majority of the Company's liquidity is pledged for stalled projects.  Perhaps, itself less than a happy indication of GFH's ability to sell the project related "assets".   Besides the blocked liquidity,  there is the real danger that GFH will have to recognize some rather substantial losses when and if it extricates itself from these projects.  Not a cash drain, but something that would definitely cripple its balance sheet.  Possibly cause a breach of its Sukuk covenant to maintain a minimum US$400 million in equity and, thus,  a potential acceleration of  US$138 million.  Drive its Capital Adequacy Ratio below 12%.
6. Liabilities are in little better shape.  GFH's talent for rescheduling also appears to be another work of "remarkable" fiction.  The US$100 million stub on the US$300 million West LB syndicate was "rescheduled" for the lengthy period of six months.  Either because GFH's creditors wanted to keep it on a short leash.  Or because someone believed in an asset sales story which in light of asset quality and market conditions may make Dotcom irrational exuberance look like sober thinking.  Last February it was clear that barring a miracle there was no way that GFH was going to be able to make that payment.  Yet, quite a different story was spun.  And one has to really wonder about the use of precious liquidity to buy treasury shares and buyback portions of the Sukuk whose maturity is in terms of GFH's life span the equivalent of a decade away.

Credibility is a very key asset at any time for a financial institution.  During a restructuring it is even more so.  A cardinal rule of the restructuring process is for the debtor to never promise more than it can deliver as its credibility with creditors, shareholders, regulators and other market participants is eroded.

At some point even the most credulous audience will see through repeated tale tales and yarns.  When that day comes the debtor is in a much worse position that if it had stuck to reality. 

As always, we'll be up bright and early to read GFH's disclosure of this piece of  material information to its shareholders and other market parties via its website and announcements on the various exchanges it is listed on.  Based on past performance, I'm sure we won't be disappointed.