Venues for 2010 and 2011 Gulf Cup Football Championship Announced

Announcement here:  Yemen 2010 and Iraq 2011.

I think I will miss both though I suppose a loss might be easier to take in Yemen.  Wonder if there are qat vendors in the stands?  Both sites in Yemen are in the south of the country, if you're wondering.

Bank of Kuwait and Middle East To Switch To Islamic Banking

BKME will hold a shareholders' ordinary general meeting and extraordinary general meeting on 10 January to authorize the various steps, including revision of the bank's memorandum and articles of association, in connection with the bank's reversion* to an Islamic bank.

The bank intends to begin operating according to Shari'ah principles beginning in 2Q10.

AlQabas news item here.

(*Reversion in the theological sense.  BKME has always operated as a conventional bank).

Dubai - World's Longest Ambulance

Picture Copyright AlArabiyya

Here's the announcement from WAM dated today.

Here's one from AlArabiyya dated 21 May 2009.

No apparent reactions yet from Russia or Texas.

Novaar Capital Announces JV with Urals Polar

FT news report here.

Novaar's press release on the subject.

HRH Prince Saud Bin Mansour Bin Faisal Bin Saud Bin Abdulaziz Al Saud is the owner of Novaar.

Here's some background on Novaar:

1. An earlier article about its formation.  
2. And here's the registration information from the DIFC website.

Dubai Assumes Leadership Role in Tackling Global Financial Crisis

(The following article has been prepared according to press guidelines at "Gulf News" for reporting on the non-crisis in Dubai. Delay in publication resulted from the normal review process to ensure that the article did not contain any deviant or incorrect thoughts).

14 December 2009 – Dateline Dubai, United Arab Emirates

Under the patronage of the wise and benevolent leadership of the Emirate of Dubai, the Government of Dubai graciously hosted a meeting for international bankers still reeling from the effects of the global financial crisis. While the meeting was called in part to afford international bankers an opportunity to enjoy the much warmer climes of Dubai during this winter season, the meeting had a much more serious purpose.

As a leading global financial centre, Dubai and its progressive leadership are well aware of the responsibilities such an unrivaled status places on their capable shoulders. Therefore, Dubai World took the unprecedented step of advising its creditors at this meeting that it was willing to extend the repayment tenor of its obligations. This generous sacrifice is being made in view of the desperate need of international and local creditors for high quality earning assets, saddled as they are with poor underwriting decisions made outside the UAE. A Dubai World spokesman was reported to have said that while this step was perhaps inconvenient for Dubai World and its subsidiaries "the decision was sound and favours all parties in long term and not short term as Dubai World Group has strategic projects."

Not unexpectedly, creditor response was enthusiastic.

One unnamed European banker said, "GLOBAL crisis or not, Dubai has done it again. It has once again shown the world, beyond doubt, its ability and willingness not only to meet its obligations but any challenge to its unrivalled status as the most dynamic global financial and trading hub in the Gulf region."

Another grateful banker noted: 'Usually, each of the world's countries has an icon to be proud of. Dubai has many, such as Burj Dubai, Burj Al Arab, Dubai Mall, as well as Dubai International Airport and the Emirates Airlines which are seen as major drivers for tourism."

A local banker from Dubai commented: "People try to pelt stones or anything else within their reach at a fruit bearing tree. Then how it will be when we have seven fruit-bearing trees or more? It is natural that we are exposed to all these exaggerations, which are far from reality".

One US investment firm with a sizeable position in Nakheel sukuks said: "However, the markets might react, this is Dubai we are talking about. An emirate that has redefined the terms "vision" and "ambition" for the world, which has given it the tallest tower, the largest mall, the tallest hotel, the largest man-made harbour and, in-the-making, the world's largest airport, among a host of other marvels. It has a track-record second to none. Dubai is one of the foremost centres of world gold trade and has indeed been gaining in importance as the preferred global destination for tourism, entrepot, real estate and construction activity, especially over the past three decades."

A banker with a faint Scots burr in his voice remarked: "The Dubai dream lives on. If anything, this latest episode is a sign of Dubai's economic maturity, a clear conscience and commercial intent." In a culturally uncharacteristic bit of loqaciousness, he continued: "Dubai World's debts are small and some companies have been saddled with debts more heavier than tnose of the Dubai Group."

Finally, another banker from Dubai neatly summed up the consensus of attendees at the meeting: "And I want to tell those people who nag about Dubai and Abu Dhabi to shut up."

(Editor's note: All quotes are actual verbatim statements made by various parties and reported in the press, though attribution may vary from that in the original reports).

The Investment Dar Restructuring - Alternative Views on Success

Here are a couple of alternative views on the results of TID's approach to its creditors for agreement on the proposed restructuring.

The view is success at The National.

At Maktoob it's "close to success".

That leaves AA as Scrooge, though I may take a mid day nap so stay tuned.

The Investment Dar Restructuring - One Third of Creditors Refuse to Agree

TID announced today that it had gotten agreement of over two-thirds of its creditors to its rescheduling proposal.

Bader Al Ali, as official spokesman for the Creditors' Committee said:

“We are delighted to have achieved this important milestone and would like to thank all banks and investors for their strong support and commitment to this complex restructuring process. We are looking forward to working with the consenting banks and investors towards a final implementation and quick resolution of this matter.  In the meantime, we continue to encourage the small minority of banks and investors who have not yet expressed their support to do so as quickly as possible in order for them to be included in the final implementation phase.”

The full press release is here.

When did 33.3% become a small minority?

Clearly, TID has failed and is trying to put the best possible face on the situation.   Wonder if they're getting PR advice from someone in the UAE?

Also interestingly enough, the press release was issued after market closing hours.  It made it on Nasdaq Dubai but not the KSE.  

Bahraini Saudi Bank - New CEO

Abdisheikh not Sheikh.

Correction to earlier post and press release here.

The Investment Dar - More Bad News on the Restructuring

If yesterday's news in AlQabas wasn't distressing enough, here's another.

Key points from the article:

1. Khatif Holding Company (I think this is the Kuwaiti PE/VC firm) has withdrawn from the Creditors' Committee.  As such, its resignation means it is not agreeing to the extension.
2. The Creditors' Co-Ordinating Committee ("CCC")  has yet to secure a sufficient level of acceptance to proceed with the initial steps of implementing the restructuring, e.g., transferring TID's assets to the holding companies.
3. As well, many of the existing creditor agreements are not final.  Others are pending and the  article says that the committee has "built great hopes on them".
4. Part of the problem is that in many cases there are funds or syndicated facilities.  In some cases the agents have asked for more time to get their shareholders or participants to agree.  In some cases it appears the agents themselves are not agreeable which complicates getting approval from the shareholders or participants.
5. As noted before, those who financed TID through wakala or murabaha transactions believe that they are not "lenders" but rather have a deposit or trust arrangement and therefore have ultimate priority of payment over lenders.  If that view is legally upheld, they might well secure 100% repayment.
   
6. Complicating matters is the fact that there are 149 separate creditor entities - banks, funds, individuals, wakala holders, murabaha - and each group has its own characteristics which require different methods of accommodation.
7. While creditors may agree to these first steps to implement the restructuring, there will be another decisive phase in February where they will have another option to refuse.
8. Finally, the following companies were identified as those who intend to pursue legal actions to secure repayment:  Khatif Holding Company, National Investment Company, Aref Investment Group, Al Masar Company (Kuwaiti Leasing Company?) , Noor Investments plus unnamed numerous others.

Apparently, the plan (at least according to AlQabas' sources) is to extend the time period two weeks and then if results are not obtained another two weeks.

TID seems to be in a very difficult position.  It's unclear how two weeks or four is going to be sufficient to overcome the various obstacles in path of securing creditor agreement.

If a significant enough group of creditors believe they have legal priority, it's going to be hard to get them into a restructuring where the creditors themselves estimate that TID cannot pay back 100% of principal.   If in fact these creditors do have a legal priority, they have absolutely no incentive to join.  The other creditors are left with the prospect of a bankruptcy - with the inevitable further loss of value in the remaining estate.  One solution might be to pay off this creditor group assuming it's not too large.  Then go forward with the remaining TID assets to maximize recovery.

Another would be to hope the government would lean on the recalcitrant creditors to force them to agree.  If it does this, it seems to me that the Kuwaiti Government would want to avoid taking any steps that could legally undermine the legal status of Islamic structures, e.g., interpreting wakala and murabaha transactions as equivalent to loans.  Kuwait is the second largest GCC market (by assets) for Islamic banking.

I wonder if TID will be the first case under the Financial Stability Law?

Faysal Private Bank Appoints Mark Koch as CEO

Reuters story here.

Previous posts here and here.

Pretty Nice Moves

Pretty moves up to Acting CEO at Gulf Finance House after Ahmed Fahour resigns after five months as CEO to take up a post with Australia Post.

In a completely unrelated story, Bahraini Saudi Bank announced that Mr. Khalid Shaheen, CEO, had been appointed an advisor to the board and Mr. Ahmed S. Shaikh, the COO of Al Salaam Bank Bahrain was appointed Acting CEO as well.

Esterad Bahrain Offers Convertible Bond

I thought that readers might find the transaction description of interest.  So here's the link.

The announcement provides a description of several of the requirements/features under Bahrain law:

1. Shareholder pre-emptive rights
2. Renunciation of those rights
3. Conversion mechanism (See comment below)
   

Regarding the conversion, you will notice it is at the option of the bondholder not the issuer.

And you will notice the strike price mechanism provides the buyer a bit of protection.  If the book price (and note that is not the same as the market price) goes below BD0.365 per share, the bondholder may convert at the book price.  Current trading range for the shares is around BD0.300 and the book value is close to the strike price.

S&P BICRA Ratings - Kuwait Downgraded from 4 to 5

Standard and Poor's analyzes the health of national banking sectors and then assigns them a rating from 1 (best) to 10 (worst).

Here's a recent ranking report from 2 October 2009.  A more recent report requires a subscription to S&P.

This week S&P downgraded Kuwait from 4 to 5.

When the Going Gets Tough, The Tough Shut Up Any Criticism

Rupert Bumfrey posted this gem about the new "style guide" at Dubai's "Gulf News" newspaper at his blog.

All the news that fits the government view is fit to print.

You can measure how bad a situation is by the attempt to control the press.

Though I suppose points should be given for upholding the sacred concept of lèse majesté.  They are often quite fragile I'm told.  A sad condition of those in power.

Abu Dhabi Islamic Bank Signs with Emcredit

Emcredit is the UAE's first government backed credit bureau founded in 2006.

Here's the official announcement that ADIB has signed up for Emcredit's services.

Some interesting footnotes to that story:

1. ADIB announced that it had signed up for Emcredit's services today.  (Small note it is 2009, three years after the founding of Emcredit).  
2. ADIB is the first Abu Dhabi bank to have signed up.
   

Let's file this news item in our "Лучше поздно чем никогда" file with the comment that when lending it's a good idea to use all credit tools at one's disposal. 

Otherwise, it's like having a building without fire alarms and sprinklers.  And one really doesn't have to wait for a fire to figure out that's not a particularly bright idea.  There is abundant pre-existing evidence.  Just coincidentally as there is with extensions of credit.

Global MENA Financial Assets Update

Some news on Global MENA Financial Assets ("GMFA") from the London Stock Exchange:

(1) GMFA's EGM has approved settling the debt with Global by taking shares in AlFajer.  60.3 million shares voted "yes".  6.6 million no.  The "Yes" votes were 90.2% of those voting.  However,  GMFA has 252 million shares so the "Yes" vote represents 23.9% of total shares. In any case GIH's obligation to GMFA is now extinguished in exchange for the AlFajer shares.  As per GMFA's notice to the LSE, the formal re-registration of the shares will take place in January.  Earlier post here.

(2) The Board of Directors of GMFA has informed the LSE that it intends to ask the shareholders to vote to delist.  The reason is essentially to get around the IFRS requirement that the quoted price of the shares be used to determine their value for financial statement reporting for shareholders preparing financial statements according to IFRS.  The justification is that the shares are thinly traded and are trading below market.

(3) An EGM is scheduled for 27 January to vote on this measure.

(4) GMFA has filed the necessary notice with the LSE to advise that Global Investment House's shares in GMFA have been transfered to Global MENA Macro Fund (as per the requirements of the restructuring agreement).

Earlier posts on GMFA and Global can be found by using the respective labels on Suq Al Mal's homepage.

The Investment Dar - Apparent Failure to Secure Approval of Restructuring Proposal

If AlQabas' sources are right, TID and the Creditors'  Co-Ordinating Committee ("CCC")  have been unable to convince all creditors to accept the proposed restructuring agreement.  The deadline for agreement (already extended once) is 23 December.

According to the article, the CCC pulled out all the stops in an effort to persuade the creditors.  Appeals were made over the heads of the management of the creditor companies to their large shareholders and to various other parties in an attempt to get acceptance of the deal.  Visits and pressure continued through 22 December.

Apparently, the plan will be to try to go forward with the restructuring.  I had mentioned earlier that this is one tactic that can be used when less than 100% of the creditors sign up.  Those promoting the restructuring treat the recalcitrant creditors as having signed up and make payments to them according to the restructuring agreement.

This does not abrogate those creditors right to sue, but the hope is that the courts will consider the restructuring or that the debtor and agreeing creditors can tie up the rejectionists long enough so that they simply give up.

Earlier posts on The Investment Dar can be found by using the label "The Investment Dar" in the Label Section on SAM home page.

Manazel Restructuring - Gulf Bank

AlQabas reports that the bank involved in the restructuring is Kuwait's Gulf Bank.

Earlier post here.

By the way earlier I omitted mentioning that The Investment Dar owns 25% or so or Manazel.  Carrying value in 2007 was some KD 25 million.  A recovery in Manazel will be positive for TID, but isn't going to close the asset - liability gap identified in the creditors' assessment.

Faysal Private Bank Geneve CEO Resigns

Reuters reports that Marco Rochat has resigned.

Earlier post here.

Property Sector to Build on Past Mistakes (UAE)

Picture Copyright The National Newspaper Abu Dhabi

This probably consists of piling on, but I just couldn't resist quoting this headline from The National Newspaper in Abu Dhabi. 

And this absolutely delightful quote:

“A large number of brokers have left and the same with developers. There’s been a lot of correction. Going forward, you’ll have a much maturer market. People are now aware of the risks.”

Usually, it's considered better form to be aware of the risks before the project heads south.  But as those rich visitors from up North say, "Лучше поздно чем никогда".

Adeem Investments Kuwait - Still Hard at Work

Still hard at work improving the website in order to "better serve you".

Since at least 18 November.

It's quite a task apparently.  But well worth the wait, I'm sure.

S&P Nicholas Hardy on Islamic Banking

Here's the S&P podcast link.

Manazel Signs Restructuring Agreement KD43.66 Million (US$152.8 Million)

Manazel announced on the KSE today that one of its subsidiaries Manazel Construction Company had signed a rescheduling with a local bank for KD43.66 million (US$ 152.8 million).  This represents 80% of the debt of the consolidated group.   As of 30 September, Manzel had approximately KD138 million in assets, KD62 million of shareholders' equity, KD 11 million of minority interest and KD 65 million of liabilities.

Here's the KSE announcement:

12:11:10]  ِ.شركة مملوكة ل(منازل) توقع اتفاقية وكالة في الاستثمار لاعادة جدولة ديونها
يعلن سوق الكويت للاوراق المالية انه قد ورد الية الان من شركة منازل ‏
القابضة (منازل) كتاب يفيد بان شركة منازل للتعمير وهي احدى الشركات ‏
المملوكة بنسبة 100% قد وقعت اتفاقية وكالة في الاستثمار لإعادة جدولة ‏
ديونها بمبلغ 43.660.000 د.ك مع احدى البنوك المحلية لمدة خمس سنوات
وهو ما يعادل 80% من اجمالي ديون شركة منازل القابضة .‏

Safat Global Holding Kuwait

If you've been following the investment companies up in Kuwait (and who hasn't?), this name is familiar to you.  Last August the old board was removed and a new board elected by the shareholders.

On 30 September the new Chairman, Badr AlYahya, gave an interview to AlQabas in which he basically said that there was no substance to the company - no offices, no employees, no financial records, and perhaps no assets.

Safat also has been on the list of companies suspended from trading on the KSE due to failure to publish financials.  Both it and Shabka Holding  have not published any financial reports for 2009.  Both share the dubious distinction of being the only two firms also suspended for failure to pay their KSE listing fees.  (And for those who are keeping score, we're down to seven on the suspended list).

AlQabas published an interview with the Deputy Chairman, Ahmad S AlMutairi, in which he said that the company was preparing a formal legal complaint to the Public Prosecutor against the members of the former board of directors and companies they represented for an investigation in the cause for the disappearance of KD 6 million (US$21 million) in real estate assets.  AlMutairi noted the assets were in the audited 2007 financials but were not in the 2008.  (The 31 December 2008 financials about which there is currently some dispute show total assets of just short of KD 10 million).

He also said that the old Board had asked the MOIC to call for a shareholders general meeting and that they were ready to co-operate with the old board to recover the rights of the shareholders.

It's also expected that the meeting (which if I recall properly is scheduled for February) will vote on changing the auditors  and reducing the board to 3 members.

DIFC Guide to Issuing Sukuk

From the DIFC press release.

"The Dubai International Financial Centre Authority today announced the release of the “DIFC Sukuk Guide” - a comprehensive introduction to various sukuk structures, as well as legal and regulatory information on issuing sukuk from the DIFC and listing sukuk on NASDAQ Dubai."

Prepared by Clifford Chance, Amanie Consulting, the DFSA and the DIFC,  "The guide provides detailed descriptions of more than 10 sukuk structures, information on the history and current status of sukuk globally, an overview regarding the issuing and listing of sukuk in or from DIFC, and regulatory licensing in the district."

Here's the link to download a copy.

Warba Bank - Delay in Founding General Meeting to February 2010 - Rationale and Consequences

AlQabas reports that the KIA has decided to postpone the founding general meeting of Warba until February 2010 for a variety of reasons.

1. First, apparently all the requirements for the general meeting and agenda are not yet decided or completed.   The most important of these include the final announcement of the establishment of the bank though a decision of the founding shareholders, appointment of the board of directors, appointment of (financial) auditors as well as Shari'ah supervision committee, delegation of authority to the board to issue fractional shares resulting from the allotment of shares.
   
2. Second, the delay to February 2010 will mean that WB will not have a full 12 month fiscal year in 2010.  Therefore, that it will not be eligible to be listed on the KSE until 2012. since  a new listee must have at least one profitable fiscal year. During this almost two year period, it's expected  that the stock market will recover and the price of the shares will trade at an appropriate level.  Not being listed will also mean that the shares cannot be easily traded, thus, forcing Kuwaiti citizens to hold on to their allocated shares.
   
3. Third, the additional period will allow the new management time to establish the bank -- it will take several long months just to properly set up  the internal organization of the bank.  And as well to  establish a solid track record in line with a boost from the anticipated improvement in the economy the economy.

Agility Announces Loss of SubContract for US Military

Agility informed the Kuwait Stock Market this morning that Dyn Corp International had informed it that it was canceling Agility's subcontract given its indictment on another US Government contract.

KSE announcement here.

[8:47:46]  ايضاح من (اجيليتي) بشأن عقد البرنامج اللوجستي لتطوير الحياة المدنية ‏
يعلن سوق الكويت للاوراق المالية ان شركة المخازن العمومية (اجيليتي) افادت
بان احدى شركاتها التابعة بنسبة 100% وهي شركة اجيليتي للخدمات الحكومية
والدفاع تفيد بانه قد تم وقفها من قبل شركة داينكورب انترناشونال كمقاول من ‏
الباطن لعقد البرنامج اللوجستي لتطوير الحياة المدنية ، والذي كانت الشركة ‏
قد اعلنت عنه في يونيو 2007 ، وتفيد شركة اجيليتي للخدمات الحكومية والدفاع ‏
بانها تؤمن بان هذا الاجراء الذي اتخذتة شركة داينكورب يعد انتهاكا لشروط ‏
العقد بين الطرفين وتقوم الشركة حاليا بالبحث في الخيارات القانونية المتاحة ‏
لها في هذا الشأن.‏

A bit more detail here in an article in the Abu Dhabi newspaper, The National.

Woman First in Abu Dhabi Chamber of Commerce and Industry Elections

Mabruka ya Fatima!

Details here.

Administrative Consolidation in Dubai Government?

Лучше поздно чем никогда

The GulfNews reports.

Dubai World - Off To A Running Start

Unclear which direction though at least per this article.

Ahead of the meeting, expectations fell for a quick resolution due to a Dubai email advising banks not to expect much from the event, and Dubai World moved to characterise the meeting as an "expectation management exercise".

"We got less out of it than we hoped for," said a representative of a European bank.

Perhaps from the unnamed European banker's comment above the expectation management exercise may have been successful after all.

A Well Regulated Militia Being Necessary to the Security of a Free State ...

Or "The Iranians Are Coming, The Iranians Are Coming"

You may pick your favorite slogan.

Details outlined in this court case in Bahrain.

Dubai World's Press Release on Today's Meeting with Creditors

Original text here.

Dec 21, 2009 - 09:04 -

Dubai, 21 Dec. 2009 (WAM) - Dubai World has announced that it today held a meeting in Dubai with its creditor banks involved in the restructuring of the Group's debt. The purpose of the meeting was to provide an update to the banks on the development of the Group's restructuring plans as it seeks to reach a standstill agreement with financial creditors.

Also in attendance were Dubai World's appointed advisers Deloitte, Rothschild and Clifford Chance.

As was confirmed in its statement of December 14th, Dubai World will continue to work with financial creditors to seek a standstill in an orderly way. As long as a standstill is successfully implemented, Dubai World has assurances that the Government of Dubai, through the DFSF, will provide financial support to cover working capital and interest expenses to ensure the continuity of key projects.

Dubai World is committed to working closely with the banks' appointed Coordinating Committee to work towards a consensual solution for the benefit of all lending banks, trade creditors and other stakeholders affected by the restructuring.

International Investment Group Kuwait - Court Case Loss = KD2.7 Million Loss

International Investment Group Kuwait ("IIG") (KSE #215) announced this morning that the Court of Appeals (or more properly for Kuwait Court of Cassation) had ruled against it  on 17 December.  The Court ordered IIG to pay KD3.2 million plus legal interest at 7% from 23 February 2009 (roughly US$11.8 million including about US$0.6 million in interest).  IIG states that as a result it will recognize KD2.7 million (US$9.9 million)  in losses for the final quarter of 2009.

At 30 September 2009, IIG had published losses of KD8.1 million (US$28.4 million).  Total assets were KD135 million (US$473 million) and shareholders' equity KD56.3 million (US$197.1 million).

KSE press release below.   There is also one at the Bahrain Stock Exchange. 

[9:23:5]  ِ.(المجموعه د) تحقق خساره 2.6 مليون د.ك نتيجة صدور حكم ضد الشركة
يعلن سوق الكويت للأوراق الماليه ان شركة المجموعه الدوليه للاستثمار ‏
ِ(المجموعه د) أفادت بأن محكمة التمييز أصدرت حكم بتاريخ 17-12-2009 ‏
في الطعن بالتمييز رقم 990/09 تجاري /4 المرفوع من الشركة ضد أحد الاشخاص
و الذى جرى منطوقه كالتالي :‏
حكمة المحكمه أولا : بقبول الطعن شكلا و في الموضوع بتمييز الحكم المطعون
فيه و ألزمت المطعون ضده المصروفات و مبلغ عشرين د.ك مقابل اتعاب محاماة.‏
ثانيا : و في موضوع الاستئناف رقم 1671 لسنة 2009 تجاري بإلغاء الحكم
المستأنف و القضاء مجددا بإلزام المستأنف ضدها بأن تؤدي للمستأنف عن نفسه
و بصفته مبلغ 3.247.780 د.ك و فوائدة القانونيه بواقع 7% سنويا من تاريخ
رفع الدعوى الحاصل في 23-02-2009 حتى تمام السداد و ألزمتها بالمصروفات
عن الدرجتين و مبلغ ألف دينار فعليه للمحاماة.‏
و تفيد الشركة بأن أثر هذا الحكم على البيانات الماليه للشركة حتى تاريخه
خساره بمبلغ 2.687.495 د.ك سوف يتم ادراجه في بيان الدخل للربع ‏
الأخير من عام 2009 .‏
و عليه سوف تعاد الشركة للتداول بعد عشر دقائق من نزول الاعلان .‏

This court case was one brought by Mr. Hussayn Ali AlKharafi and his son Ahmad against IIG.  This case is not related to the earlier case by the World Islamic Charitable Organization. Nor to the one involving Kuwait Finance House. 

Nor it seems the one involving the Islamic Development Bank.  As a side note, in the IDB case, IIG advised it was in negotiations with the IDB regarding the legal interest applied by the court  to secure a waiver of  "a part of the interest" "due to conflict with Shari'ah principles".  It is unclear to me what the results of the negotiations were.  And how one determines which part of the interest is halal and which is not.

Mr. AlKharafi's charge is that IIG didn't sell a portfolio of stocks in line with his instructions and that therefore IIG is liable.  IIG contended (and presumably still does) that the legal document given by Mr. AlKharafi was merely a proxy or authorization to sell and not an instruction.

Note 25 to the 2008 financials discusses court cases as of that date.

More on IIG to follow.

Warba Bank Kuwait - Update

AlQabas reports that there is great excitement in the Islamic banking community in Kuwait and an apparent rush to the doors of Warba to secure positions, ascribed to the belief that given the KIA ownership stake the bank will have a favored position compared to other banks.

As a keen student of Islamic and other banking, AA personally thinks that many see a position in the new bank as a way to step up the career ladder. 

As one old teacher of AA's once put it:  "It's pretty much an undisputed scientific fact that the most sensitive human organ is the pocketbook".  I don't think he meant that as a complimentary statement though.

Dubai World Restructuring: No Restructuring Proposal Offered No Standstill Requested

Apparently, as per Reuters Dubai World did not formally request a standstill or offer any proposals on the restructuring today.

The latter is not surprising.

What's unclear is precisely what happened at the meeting.

Under best practice, Dubai World would have 

1. Introduced its internal team and external advisors with the goal of conveying a sense of competence and willingness to do business with its creditors in a transparent professional fashion.   
2. And, as is often appropriate (and seems to be the case here), introduce the new senior managers to confirm to the assembly that the ritual sacrifice of old management has been made.
   
3. Outlined its financial position: group structure, overall and subsidiary quantum of debt, debt maturities, asset values, cashflow as a way of framing future discussion over the restructuring.   (If DW and its subsidiaries still don't have an idea of what deal they are seeking at least in broad terms, that is not good.)
4. Requested the standstill.
5. Asked for the formation of a steering committee.
   

A real danger in a case like this is opening the floor for bright ideas.

This is the time for DW to recall that the bright folks who made the loans to them are by and large represented in the august body of creditors that will now decide their fate.  A realization that is perhaps a "la gota fria" moment.

Dubai World Debt Restructuring: Dubai World Statement

Something I missed but worth noting, a statement from Dubai World about Dubai Government support from 14 December.

HE Al Mansouri Denies Erroneous News Reports

As reported by the official news agency of the United Arab Emirates, HE Sultan AlManouri has denied earlier erroneous news reports, which apparently do not include the one that AA quoted earlier today.

"Minister of Economy Sultan Al Mansouri affirmed today that Dubai's debts issue has a local specialty and is being handled by the competent government agencies on contrary to what a foreign news agency has quoted him today saying that ''Dubai, whose debts are matured in 2010, could receive more assistance either from the federal government or emirate of Abu Dhabi."

''A massive media campaign is being waged against the UAE with the aim of distorting facts and misleading the public opinion about the economic reality in the country, the minister said astonishingly.

''This campaign will not touch the economic reputation of the UAE and its vibrant national economy which has proven its merit in handling and managing diverse global economic challenges and changes,''he stressed.

And he noted:

''The UAE is always keen to deal with all situations and circumstances with high transparency and scientifically and well-studied method based on accurate analysis using international state-of-the-art standards to ensure delivery of best aspired results,''he concluded.

AA for one stands corrected, but only mildly astonished.

Dubai World's "Small Debts"

HE Sultan AlMansouri sets the record straight for all the chicken littles out there:

"Dubai World's debts are small and some companies have been saddled with debts more heavier than those of the Dubai group, UAE Minister of Economy Sultan Al Mansouri affirmed today."

And to think I was worried.

Central Bank of UAE - November Banking Statistics

CB UAE has released November Banking Indicators - summary statistics.

Two differences from October:

1. AED 3 billion decline in personal loans. (A 1.4% decrease)
   
2. AED 3 billion increase in specific provisions. (A 10.3% increase).
   

Other metrics, including capital funds, have increased or held steady.  

Capital funds (=capital plus reserves but not including current year profit) increased to AED 217.9 billion from AED 211.7 billion.

The Investment Dar - Extension of Time for Creditor Approval

AlQabas quotes an unnamed financial source that he expects that the Creditors' Co-Ordinating Committee will announce an extension of the deadline for creditors to agree to the restructuring proposal.  At least two weeks perhaps more.

The extension is being justified as needed to complete certain legal requirements and comply with requests from creditors.

Here's my take on the story behind the story:

1. The comment about the completion of certain legal requirements and creditor requests may indicate that some creditors may have imposed conditions on their agreement requiring some changes to the deal, though I think this is just the story to provide cover for an extension without admitting failure in securing creditor agreement.
2. Clearly not all creditors have agreed.  As outlined before, 100% of creditors are required to close the deal.  In an earlier post  on 6 December press accounts, I noted that at that point it seemed that only 66% of creditors (by amount) had agreed. Investment Dar Bank Bahrain at 27%  had not but was expected to agree "soon".  One would think that its agreement would have been trumpeted as a way of building momentum to sweep up the other creditors.  Since this hasn't been announced, it's a safe bet that it hasn't happened.  Though looking at Dubai's PR campaign you might well object that there is a completely plausible alternative explanation.  After all, TID is still running a rather boastful account of its 2007 earnings on its website, which seems (at least to AA) as a bit out of place given its current situation.
   
3. What's telling is the reference in the article to persuading creditors to join who are determined on pursuing their rights through court cases.  An ongoing court case or two could derail implementation of the restructuring as creditors rush to protect themselves.
4. It's now been approximately two weeks since TID submitted its 2008 financials to the Central Bank for approval.  It will be very interesting to see how long before they are released.
   

If the AlQabas story is accurate, this is not good news for TID.

You can access previous posts on The Investment Dar by using the label section on the right side of the Suq Al Mal homepage.

Saudi Capital Markets Authority Announces Corporate Governance Seminar For February

The Saudi CMA has announced it is organizing a corporate governance seminar in co-operation with the Swedish Chamber of Commerce.  The meeting will be held in Riyadh February 9.  Press details here.

GCC Monetary Union: Imminent Meeting to Form Gulf Monetary Council

AlRiyadh newspaper quotes Dr. Nasir Al'Uqud, Assistant Deputy Secretary General for Economic Co-Operation of the GCC as saying that the Governors of the Central Banks of Bahrain, Kuwait, Qatar and Saudi Arabia will meet in the coming weeks to form the Gulf Monetary Council ("GMC") as a first step in the creation of a unified currency for the GCC and a GCC Central Bank.

Oman and UAE are not participating in either the common currency program or the GCC Central Bank.  Apparently the UAE was miffed that the CB will be headquartered in Riyadh as opposed to Abu Dhabi.  It announced this May that it was not participating.  Oman had advised its withdrawal back in 2006 (or early 2007?).

The GMC is charged with taking all the steps necessary to establish monetary union, including the timing thereof and the issue date of the new common currency.    the specifics of the unified currency and its issue date as well as setting up the basic infrastructure.  Associated with the common currency will be the development of plans to co-ordinate GCC economies  and set up related units to implement and monitor that process.

The original plan was to issue the unified currency in 2010, but the GMC will have the right to determine the timing.   The article notes that unnamed Gulf officials expect it to take several years for the currency to be issued.

Hope remains that Oman and the UAE can be persuaded to join at a later time.

Dubai World Restructuring - Options

The National (Abu Dhabi) has an article titled Full Repayment Is Option For Dubai that has left me scratching my head.

Here are three quotes along with some comments in blue italics.

1. “They made clear there were a number of options the Government of Dubai saw as feasible and desirable for Dubai World and repayment in full was one of them,” said a person at the talks who declined to be identified because the meetings were private.  AA:  That means the Government of Dubai sees other "feasible and desirable" options.  Would one of those be refusal to pay anything?  A haircut on principal?  Conversion of the debt into season passes at Wild Wadi?   
   
2. Full repayment would be the preferred option for the creditors, represented by the British banks RBS, Standard Chartered, Lloyds and HSBC, with the regional banks Abu Dhabi Commercial Bank and Emirates NBD representing the Gulf.  AA:  Great minds think alike.  That was AA's strategy as well when he was active in the underwriting and funding of debt.  In fact, getting back one's principal (plus interest) was a key business principle in the debt markets - at least at that time.     
   
3.  “We will have to see what timescale they [Dubai] are looking at as a feasible repayment period,” one banker who asked to remain anonymous said yesterday. “If they can come up with a plan to repay over a period of, say, five years, with a commitment to maintain interest payments over that period, we would have to consider that.”  AA:  Does this mean that if the proposed repayment were over six years, these banks would refuse to consider it?  And precisely what would they do in such a case?  Ask the BBA to write a letter to Lord Davies  so he would have a word with Shaykh Khalifa?  When AA was involved in debt restructurings, we generally began by constructing a reasonably based cashflow for the debtor.  After applying some margin of safety, we could pretty much determine the required repayment tenor.  Working the other way around by positing a repayment tenor without reference to reality is a bit riskier.
   

First Dig Your Camel Out

3-0!

A Gem of an Investment: Damas

One of this blog's select group of readers raised a question about Damas and provided a link to an article in The National newspaper from Abu Dhabi.  I promised to put a few thoughts together in a post and belatedly am making good on that promise.

First, a bit of background to set the stage.

1. In Summer 2008 Damas offered 270.6 million shares of which 233.9 million were new shares.  36.7 were sold by Amwal al Khaleej Commerical Investment Company (Saudi Arabia)  as per the Final Offering Circular ("FOC").  As per page 72 of the FOC, the three Abdulla Brothers (Tawfique, Tamjid and Tawhid) would own more than 51% of the Company after the Offer.
   
2. Fees and expenses on the transaction were reported as US$10.4 as  (page 19 FOC).
3. In July 2008, Damas listed on the DIFX, now NasdaqDubai.
4. In December 2008, the Company changed its fiscal year from 31 December to 31 March with the following justification:  "The Board of Directors of the Company vide their resolution dated 22 December, 2008 has changed its Financial Year End from 31 December, 2008 to 31 March, 2009 due to the following reasons.
   i) Since the market conditions were very much volatile, the first part of 2009 would give the Company, some time to see how expansions could be made effectively in the later part of the calendar year.
   ii) All the Auditors were extremely busy at the end of the calendar year and feel pressurised to deliver and that it would be a better option to choose a lean period for audit reviews and for consolidation of more than 75 Group companies."    
5. On 12 October 2009, Damas announced the resignation of Mr. Tawhid as Managing Director and CEO "due to his disclosure to the Board of what is understood to be unauthorized transactions conducted by him.  The full extent of these transactions has not been ascertained at this time but the Company’s initial estimate is that these transactions could amount to approximately USD 165 million."
6.  On 15 October 2009,  the Board of Damas announced "the appointment of PricewaterhouseCoopers (PWC) as an independent auditor to examine the unauthorized transactions conducted by the former CEO and Managing Director Tawhid Abdulla."
7. On 4 November 2009,  the Company announced a Settlement Agreement with the three Abdulla Brothers to repay US$165 million over the following 18 months in three installments of US$55million due within each of the three six-month periods comprising that longer period.  Certain real estate was pledged as were 350 million shares of Damas to be taken in the event that the Settlement Agreement was not honored.

Now to more recent details.

On 16 December 2009, Damas published its September 2009 interim financials.

The following five notes particularly caught my eye:

(1) Note 6:  Provision Against Consignment and Receivables Exposure

"Included in unimpaired receivables (note 9) are debts amounting to AED 53 million (31 March 2009: AED 47 million) due from particular consignment debtors and AED 32 million (31 March 2009: AED 54 million) due from certain high net worth customers who are familiar and acquainted with certain Directors."  AA:  It would be interesting to know who these "high net worth" customers are who apparently forgot their credit cards or chequebooks at the time of  purchase.

(2) Note 11 Related Party Transactions

"The Executive Directors have provided personal guarantees amounting to AED 150 million (31 March 2009: AED 150 million) in respect of risks associated with unfixed gold lying with certain parties, dues from particular consignment debtors and certain high net worth and important customers (note 6)."  AA: I wonder if these "important customers" are among those who haven't settled their purchase payments yet.

(3) Note 12 Directors' Current Account

"The above balances relate to Mr.Tawfique Abdulla, Mr. Tamjid Abdulla and Mr. Tawhid Abdulla. Against the balance above there are loans due to these directors amounting to a total of AED 150 million which are subordinated to bank facilities.

Subsequent to the period end, the management has entered in to a Settlement Agreement with the concerned directors wherein they have undertaken to repay an amount of US$55 million within 6 months; an aggregate of US$110 million within 12 months; and an aggregate of US$165 million within 18 months; and, should there be any balance in excess of the US$165 million as a result of any findings arising from an ongoing independent investigation or otherwise, any such excess amounts in cash and/or unencumbered assets within 24 months. All payments are to be made in cash and/or unencumbered assets.

As part of the Settlement Agreement, the concerned directors have produced a list of assets that are potentially available for liquidation to be converted by them into cash and/or to be contributed to the Group as unencumbered assets to meet their obligations under the Settlement Agreement. Such assets consist principally of real estate investments in the Middle East and North Africa (including a number of residential and commercial buildings and units in the United Arab Emirates) and an investment in a shopping mall in Turkey.

As part of the Settlement Agreement, the concerned directors have pledged 350 million of their shares in the Company that would be transferred in whole or in part back to the Company in the event the terms of the Settlement Agreement are breached. These shares had a market value of AED 275 million as at 25 November 2009.

As at the date of authorisation of this financial statement, the process of independent valuation of the assets available for liquidation is still under process. An independent investigation is also ongoing into transactions undertaken by the former CEO and Managing Director of the Company. This investigation is being overseen by a subcommittee of the Board.

Subsequent to the period end due to increase in the price of gold and additional transactions the amount due from the directors was AED 635 million as at 25 November 2009 (net of loans due to directors amounting to AED 150 million)."  AA: There are several more interesting details in this note in the comparative table of outstandings and their movements, including the use of a company deposit to secure a related party's loan.  Presumably, one of the unauthorized transactions.  Or at least one hopes so.

(4) Note 13:

"* A subsidiary of the Company had provided a loan amounting to AED 294 million (USD 80 million) to Dubai Ventures Group Limited (“Dubai Ventures”) at a rate of interest of 6% p.a. which was due to be repaid in August 2009. On 18 August 2009 an investment agreement was signed with Dubai Ventures, wherein Dubai Ventures confirmed that all monies previously provided to it under the loan facility were held by it as money provided for investment purposes and would be transferred into a investment account over which Dubai Ventures would have discretionary management powers. Subsequently when the Group requested information as to the nature and value of the investments held in the investment management account they were informed that the account held shares in Damas International Limited with a value of only AED 73.5 million and that no other assets were available to the Company. Although discretion had been given to Dubai Ventures in respect of investment choice, the Board of Directors of Damas International Limited had not authorised Dubai Ventures to invest in shares of the Company. The Board intends to dispute Dubai Ventures actions in this regard and will seek to recover the full amount due under the original loan facility agreement.  For reasons of prudence a provision has been made amounting to AED 312 million against the total loan amount including accrued interest."

(5) Note 17 Going Concern

"The increasing spot price for gold has resulted in a decline in sales and an increase in margin calls from financial institutions from whom the Group obtains gold loans. These factors combined with the amounts withdrawn by a director (note 12) have resulted in a significant decline in the liquidity of the Company. It has also resulted in the Group defaulting on certain of their facilities subsequent to the period end and a number of financial institutions reassessing their facilities with the Group.

Discussions are currently ongoing with banks regarding renewal/restructuring of facilities and securing sustained funding to carry on its operations. As part of this process the Group has signed an agreement with certain institutions that may result in certain diamond inventory being sold at a loss in future as an additional cost of finance. Additional funding is required to ensure that the Company can continue its operations and meet its financial obligations as they fall due.

Whilst the results of the negotiations with the banks cannot be determined at this time, the Board of Directors has elected to prepare these financial statements on a going concern basis as they are optimistic that agreement will ultimately be reached with the banks."

Now to some commentary.

How did this happen?  

It appears from the timing that the conversion of the loan to Dubai Ventures happened during the tenure of the previous Managing Director/CEO.  Earlier I had raised a question as to what a jewelry company was doing making a commercial loan to another entity and whether this was ultra vires.  A glance at Damas' Articles of Association show that the answer to the latter question is a resounding no. 

Basically Article 1.4 (b) allows the company to anything that's not illegal.  As well, Article 15.3 would seem to permit the delegation of authority to engage in such transactions to the MD/CEO by the Board.

Of course, there is still the valid question of why this company got into the loan business, when it appears to have been in financial distress from unfavorable developments in its core business.  This loan was disclosed in Damas' 2008 fiscal financials issued in July 2009.  So the Board  cannot disavow knowledge, though its knowledge may have been post facto after the loan was granted.   It would be interesting to know the Board discussion that took place on this issue.

As indicated in Note 13, when the loan was not repaid, presumably because Dubai Ventures could not, it was converted to an investment account.  Not an untypical strategy to prevent the recognition of an impairment or a loss.  The AED64,000 question here is whether the MD/CEO undertook this decision on his own or the Board was involved.

What is also intriguing is whether Dubai Ventures inability to pay is evidence of a wider pattern of cash shortages or other financial distress within Dubai Inc.

What about the Settlement Agreement?

As is probably obvious from previous posts, AA has a particular fancy for settling obligations in cash.   As per Note 12 it seems that settlement can be made in "cash and/or unencumbered assets".   Since Damas is not a real estate investor (or at least AA hopes they're not), it would seem that settlement should be in cash.  Any real estate should be sold and the proceeds given to the company with the Abdulla Brothers bearing the conversion risk, not the Company.   

Also I'd note that Article 2.15 of the Company's Articles states:  "The Company may not take a lien over any of the shares."  Presumably legal work has been undertaken by clever counsel to make the pledge by the three Abdulla Brothers legally effective.

Bottom Line

When investing in a family company make sure you've got adequate control  at the Board over the family members' management of the company and signature authorities (enhanced requirements for Board approval is one technique), robust corporate governance actually implemented, and of course detailed disclosure of company affairs. 

The Deep View: Emerging Markets

The Financial Times's recurring column "The Short View" ran an article last Thursday on emerging markets, noting the stellar performance of emerging markets as well as some of the smaller "developed" markets.

Indeed the indices of some of these markets have increased dramatically.

There are some other considerations that might be relevant to investors.

Let's drill a bit deeper.

How is the local index constructed and is it dominated by one or a few companies? 

In other words is there enough diversification available in that market to deal with idiosyncratic risk?  Or does one need investments in other markets?  Very key questions for those whose philosophy is informed by the CAPM, the efficient markets theory, etc. 

The Dow Jones average is composed of some 30 stocks.  United Technologies has the largest share in that index with some 6.5%.  By contrast in Norway's OBX, Statoil accounts for a whopping 25.98%, Telenor 10.84%, and DnB Nor 9.64%.  Just three shares account for 46.5% of the index.

Another is what is the liquidity of the market?  Sometimes even the most inveterate punter wants to cash in his winnings.

If I'm not mistaken daily trading on the Ukrainian Stock Exchange maxes out at US$60 million.  Closer to "home" one could look at the monthly reports issued by the Bahrain Stock Exchange and learn that many stocks do not trade.  And that trades are often in small amounts.  For the month of November, BBK had the largest BD volume of shares traded at just short of BD 11 million (roughly US$29 million) - that was roughly 50% of the entire month's trading.

Other market factors that affect investors are:

1. Free float
2. Structure of market infrastructure, e.g., does one broker control the market as (at least) used to be the case in one GCC state
3. Balance of institutional versus retail investors in the market
4. Market practice - is insider trading a national sport?
   

And Now for Something Completely Different: Basel Fawlty?

Friday's Financial Times Lex Column had a comment under the title "Basel was faulty" which as you might guess coming in an "English" context reminded me of a long ago television series.

Is Basel II to blame for the financial crisis?

If there's no stop sign at the corner, do I just speed on through the intersection without looking for other traffic?

And, if I get hit, do I blame the lack of a stop sign or my own imprudence?

And perhaps equally as important, if I am the constable at the intersection, do I defer my own independent judgment to the traffic control signs that are present or not present?

And if there is an accident, do I blame the chap who did or didn't put up a sign?

Of course Basel II wasn't perfect.   Basel I wasn't either.  Regulators need to engage their brains in applying regulations.

There was a time when regulators would call their charges to admonish them, to warn them from  engaging in certain behavior when they saw something dangerous or stupid. 

Long ago, the last real central banker the USA had, crushed speculation in the silver market by telephoning the CEO's of major US banks and telling them to stop financing speculation in the precious metals market.  He also then rang up the commodities exchange to "suggest" that they change their margin rules.  The combination of margin call and no access to additional financing deflated the silver bubble quite nicely.  All done without an explicit rule.  And some would argue with a bit of ultra vires in regard to the change of the margin rule.

Dubai World Standstill

There's an interesting article in today's Gulf News "Bankers Expect "Standstill" Nod".

"Bankers expect Dubai World to make a formal request for a "standstill" on its $26-billion (Dh95.4-billion) debt at Monday's creditor meeting, but it could be more than a month before banks agree, bankers said yesterday."

As I read the law, all Nakheel and Limitless need to do to get an effective legal standstill in the UAE is to nip round to the special DIFC Court and persuade the judge to give them one as part of a company voluntary rescheduling proposal.  There is no requirement for any bank agreement to the standstill.  There is of course one to the voluntary rescheduling program - more than 75%.

And as I argued in my earlier post, it is likely that many jurisdictions will accept the DIFC proceedings as taking place under a reasonable regime and law.  Therefore, it's also likely that they will agree to hold enforcement in their own jurisdictions pending the resolution of the case in Dubai.

So this article is puzzling.  In effect the banks don't have to agree for a standstill to become effective.  Since they don't appear to have a  choice in the matter, what sense does it make to talk of the law as giving them an "incentive"?

I'd also note that in applying the DIFC bankruptcy law to these companies, the Government of Dubai has  in effect given itself the right to impose a standstill.  Though to be fair, the law includes important protections for lenders and represents an improvement over local law.

KFH Lawsuit Against Commercial Bank of Kuwait - Re Bank Boubyan Shares

AlQabas has an article on the above topic today.

Kuwait Finance House ("KFH") has filed suit to keep Commercial Bank of Kuwait ("CBK") from disposing of shares in Boubyan Bank that it acquired because of a failed "repo" agreement with The Investment Dar ("TID").

KFH which has KD 44 million of exposure to TID apparently is arguing that CBK should not be allowed to sell the shares but rather that these should be placed at the disposal of TID's creditors.  As I understand it (and note that caveat), KFH is arguing that CBK is just another creditor of  TID and should share the collateral with other lenders.  The amount involved is significant.  At the last closing price, some US$387.5 million.  If you'll recall the estimate of assets versus liabilities, the creditors believed there was likely to be a shortfall in TID's repayment.  So including these shares in  TID's "estate" would improve the overall payback rate roughly 9 to 10%.

In any case, as per the article, the High Court has transferred the case to the Experts Department.

Some background:

1. Boubyan Bank ("BB")  was formed in 2004 as an Islamic Bank.  
2. In December 2008 TID sold CBK its BB shares (19.16% of BB) with an option to repurchase.  In effect what appears to be a form of "repo".
3. Around this time NBK received approval from Kuwait Central Bank to purchase up to 40%  of BB.  NBK is interested in BB in order to expand its franchise into Islamic banking.  For those who don't know, NBK is the premier non Shari'ah bank in Kuwait and a very strong contender for that position throughout the Arab world.
4. In May 2009 CBK announced that TID had failed to buy back the shares within the agreed time frame. And therefore it was taking control of the shares.
5. June 14 NBK announced it had agreed to buy the shares from CBK. The price  was roughly $420 million.
   
6. On 16 June responding to a motion from TID,  the Kuwaiti Court stopped the sale pending determination of ownership.
   
7. In July/August 2009, KIA auctioned its 19.8% share in BB.  National Bank of Kuwait  won 13.2% and Securities Group 6.6%.  NBK previously held 14.3% or so.  After the auction, it held 27.5% of BB and was the largest shareholder. 
   
8. NBK acquired Securities Group's shares plus some additional shares.   It is now the largest single shareholder in BB with some 40%.   And at the limit of shares it may own without further approval from the Central Bank of Kuwait.