Recently some news has surfaced regarding the Securities House and their will to sell any of their assets at the right price. There was news also that the company wanted to sell its Abraaj Water plant, but the buyer and seller did not agree on a price. Yesterday, it was reported that the Securities House was negotiating selling Al Aman Investment.
There is a question that raises itself, why would a company sell their assets in such a time, when prices are repressed and multiples are low? They can wait a few years when the economy further recovers and the market’s appetite for mergers and acquisitions grows; leading to higher multiples, and a higher price. The only logical explanation for Securities House’s actions is that they are in desperate need for cash.
A look at the company’s financial statements tells us that they need KD 15 million annually for their Murabaha expense (interest expense). Their debt levels as of the end of 2008 are close to KD 190 million (65% of which is short-term). This amount declined by only KD 10 million in the first 9 months of 2009. So approximately KD 120 million needs to be refinanced every year. Such a sum might prove to be difficult to raise this year as financial institutions are still unwilling to lend.
The company has a cash balance of only KD 17 million as of Sept. 2009, and only 4% of their KD 250 million investments are liquid (quoted stocks, etc.). Their investments declined to KD 228 million as of Sept. 2009. Their treasury stock is only worth KD 10 million. In 2008, most of their cash was generated from the selling of their investment assets.
My question is: are we seeing another Investment Dar or Global scenario? Or are these indicators only false alarms and the company’s timing is just unfortunate? Time will tell.
(2 votes, average: 4.00 out of 5)
Loading ...Tags: Abraaj Water, Al Aman Investment, Default, Global Investment, Investment Companies, Investment Dar, Kuwait, Securities House
an interesting report
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off the subject, but you said:
“Murabaha expense (interest expense)”
Murabaha expense = capital invested + profit margin (cost plus)
there is an underlyaing trasaction (trade) that triggered this.
whereas
Interest = payment of the “rent” on the money.
so money makes money basically, without the need for actual economic trasaction (trade)
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Mickey Reply:
March 11th, 2010 at 10:33 am
Substance over form habibi.
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Bo6air Reply:
March 11th, 2010 at 11:54 am
of course, hence the transaction part..
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Fahad Reply:
March 17th, 2010 at 1:59 pm
Which is not substance and has nothing to do with the discussion.
Bo6air Reply:
March 20th, 2010 at 7:42 am
Fahad: how is it not of substance? sale trasaction versus pure money lending with a single variable.
and the whole replies, bar one, were on that subject
This is a basically a fixed interest product.
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Bo6air Reply:
March 12th, 2010 at 1:03 pm
even rent on real estate is a fixed interest product.. that doesn’t make it usuary, which is defined as rent on Cash. Cash has to work (be invested in something) to be able to produce a return
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I think we agree that anyone who lends money needs to be compensated (substance). We both know that these products, in practice, entail nothing more than money being paid into one account and then paid back – with a percentage added (form). Organised hypocrisy.
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Bo6air Reply:
March 13th, 2010 at 5:04 pm
i dont think i agree with the lending/compensation part.
If you know that for sure, then you have to prove it… a point has to be made into a fact by backing it with an evidence…..or it remains a claim
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Really? Will you lend me some money then?
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Bo6air Reply:
March 14th, 2010 at 12:03 am
i am not a lender. but if i was a trader and your financial situation is good enough, I would sell you what you wanted to buy and then get that payment in installment….
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Sal Reply:
March 14th, 2010 at 7:11 am
You would sell it for a profit?
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naturally, am a trader
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Sal Reply:
March 14th, 2010 at 1:39 pm
A trader benefiting from anothers misfortune?
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misfortune? did someone stick a gun to your head to buy? I don’t think so!
no one should live beyond their means
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But as a “trader” (financier) you are certainly making usurious “profit” (interest).
Again, this is about “form” versus (substance).
Otherwise, if I had the finance myself, I would go to the genuine trader (whose job it is just to trade goods, not to lend money) and he (or she, come on why not?) would make the genuine, smaller, and non-usurious profit.
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Every trader makes a profit.
it maybe only a form in your view. But it remains one where there is an actual transaction that took place. so you are paying directly for an asset that you wanted. in lending you are paying me because essentially I am renting you my money so to speak.
and if you delay my payment, I can’t charge you on that delay (compounding interest) as usry type loans do
dig deeper and you will see why they are different in substance
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No. The indisputable fact is that I don’t pay the _usurious_ profit if I don’t need to borrow the money.
The jiggery-pokery with the “actual transaction” is nothing more than organised hypocrisy – a marketing “trick” to re-baptise the forbidden fruit as something else. No other reason.
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let us define a trade versus a loan:
is there a clear contract of sale on a specific good? yes
is that profit clearly stated ahead of the contract? yes
and now the most imporatnt point:
Does my profit, which we both agreed to, change if you DELAY the payment? NO!
hence its a trade with agreed upon profits, made in agreed to time frame and in which if you were to break that time frame, all i can do is reschedule the installments and maye try to make you pay in bigger installments, but the agreed upon price will not change – even if you pay the whole thing earlier
compare that to a a Riba transaction:
there is no exchange of a good. So you are paying Rent on Cash
the ONLY VARIABLE being charged here is Time
So, if you delay my payment I will charge you more rent (more interest)
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Form, form, form. You are not a trader. You are a bank.
I don’t pay the extra profit to the bank if I don’t need to borrow the money, ergo this is a finance charge.
All that you have described is a type of loan and your profit is a type of interest. It makes no difference when it is paid or that it is agreed upfront or that there is is no time value element or whatever you consider evil or whatever else. If it quacks like a duck, it’s a duck.
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@ Mickey:
In any conventional loan it does make a difference. its all about the time value of money, hence when you close your loan earlier you pay less interest. not the case in a trade.
anyways,
I think we will never reach an agreement on this issue.
I see it as a trade and you see it as a loan
we made our point of views and its for both of us to learn more.
thank you
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Thanks,it’s good for me!
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