Charts & Numbers

Investopedia.com defines insolvency as the company status when its liabilities value exceeds its assets value. In other words, it is the status at which it becomes impossible for the company to satisfy its debt obligations. In my previous post, Globals Desolution, I explained the dire seriousness that Global Investment House (Global) is facing this time I will use numbers to emphasize my point.

Global’s 30^th of September 2008 Balance Sheet has shown the following figures in Table 1.

 global_table1

From Table 1, items 3, 6, and 7 account for 59% of Global’s assets. These assets include about KD 250 millions of unquoted equities. I find it very tricky to evaluate a company with unquoted equities, since these assets can be evaluated differently. The management of the company can choose either to use the last transaction price, which can be manipulated, or they can use the book value of the company. There is no straight or clear way for pricing these assets. I would strongly argue that Global and The Investment Dar are having difficulty with debtors because of the unquoted securities.

Those three items total to KD 922 million, of which KD 250 million are unquoted. The remaining is KD 672 million worth of quoted equities. These equities are separated between Investment at Fair value, Investment Available for sale and Investment in Associates.

For Global to secure its liabilities today, it has to show good assets for collateral. Out of the KD 1.5 billion assets Global only owns KD 100 million in Properties and KD 146 million in Cash, the rest of the Balance Sheet is mainly securities.

What sort of securities does Global own?

This question is very important, why? Because knowing, what Global owns, can simply tell us whether Global will be able to satisfy its obligations or not. Global unfortunately owns nothing but subsidiaries, associates, and sisters companies. These companies that Global owns are going nowhere but owning back within the same circuit. In Chart 1, you may clearly see the loop of Global ownerships. Does any of these companies seem desirable for investment? I do not think so. Today, investors, for instance, are not willing to buy 20% Company A, which owns 30 % Company B that owns 15% Company C, and Company C of course owns back 20% in Company A and B.

Let’s now play with Global’s numbers. The Kuwaiti Stock Exchange (KSE) has lost around 40% of its value from September to present. Global had KD 473 millions in quoted securities. Let’s assume it lost as much as the market, although it lost considerably more than that, their assets would be reduced by KD 189.2 million.

Global also had Investment in Associates, they did not fare better than Global, thus they should be reduced by another KD 113.9 million. Global also has the Financial Assets Held for Trading, which contains quoted international and GCC securities. These equities should have lost at least 50%, to add another KD 50 million. If we sum up the assumed losses from quoted securities they will total to KD 353 million.

Now let’s add to it the KD 250 million of unquoted securities, which are unwanted and illiquid, the total will be KD 603 million. If we go back to Table 1 and look at item 12, it shows Other Assets of KD 134 millions, these assets include Global’s KD 85 millions finance to their Future Sale Service. The portfolio of Future Sales has resulted in severe losses to the company.

The financed equities have all come back to Global’s books, such as Abraj Holding and others. I would assume it had lost KD 25-30 million, at least. Global’s Total Assets should be reduced by KD 630 million to total KD 907 million.

Finally, it will not be easy to liquidate the assumed KD 907 million of Global’s assets. The liquidation process will also have its own discount. Without the liquidation discount Global’s Balance Sheet is barely balanced. We have seen the effect of the liquidation discount, when Global sold its stake in Bank of Bahrain and Kuwait (BBK). Global had to book a loss of KD 18 million to liquidate its position, ie. a 30% discount.