GMFA Accounts September 09 - final

Transcription

Contents Management and Administration 3 Global MENA Financial Assets Limited 4 Chairman’s Report 5 Manager’s Report 8 Breakdown of Assets Portfolio 12 Underlying Portfolio Companies 14 Responsibility Statement 23 Independent Review Report to the Members of Global MENA Financial Assets Limited 24 Consolidated Statement of Assets and Liabilities (Unaudited) 25 Consolidated Statement of Operations (Unaudited) 26 Consolidated Statement of Changes in Net Assets (Unaudited) 27 Consolidated Statement of Cash Flows (Unaudited) 28 Consolidated Schedule of Investments (Unaudited) 29 Notes to the Consolidated Financial Statements (Unaudited) 32 2
GLOBAL MENA FINANCIAL ASSETS LIMITED
MANAGEMENT AND ADMINISTRATION
Directors
Richard Bernays (Chairman, retired 2 September 2009)
Hisham Alotaibi (Chairman, appointed 2 September 2009)
Maha Al-Ghunaim
Omar El-Quqa (resigned 27 August 2009)
Anne Ewing (appointed 2 September 2009)
John Hawkins (retired 2 September 2009)
Terence Allen
(appointed 21 April 2009, retired 2 September 2009)
Kishore Dash (appointed 8 July 2009)
Registered Office
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
Investment Manager
Global Capital Management Ltd.
c/o Walkers SPV Limited
Walker House
St. Mary Street
George Town
Grand Cayman KY1-9002
Administrator and Secretary
HSBC Securities Services (Guernsey) Limited
PO Box 208
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
Registrar
Capita Registrars (Guernsey) Limited
Longue Hougue House
St. Sampson
Guernsey GY2 4JN
Channel Islands
Custodian
HSBC Custody Services (Guernsey) Limited
PO Box 208
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY1 3NF
Channel Islands
Brokers and Financial Advisers
(until 2 September 2009)
J.P. Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
Legal advisers to the Company
(as to English law)
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
United Kingdom
(from 2 September 2009)
(as to English law)
Allen & Overy LLP
One Bishops Square
London E1 6AD
E1 6AD
United Kingdom
(as to Guernsey law)
Mourant du Feu & Jeune
First Floor, Dorey Court
Admiral Park
St. Peter Port
Guernsey GY1 6HJ
Channel Islands
(from 2 September 2009)
(as to Guernsey law)
Ogier
Ogier House
St Julian's Avenue
St Peter Port
Guernsey GY1 1WA
Channel Islands
Independent Auditor
KPMG Channel Islands Limited
P.O. Box 20
20 New Street
St. Peter Port
Guernsey GY1 4AN
Channel Islands
3
Global MENA Financial Assets Investment Manager Global Capital Management Limited (“GCM”) is the investment manager of Global MENA Financial Assets Ltd. GCM is the private equity fund management subsidiary of the Middle East’s leading regional investment bank, Global Investment House KSCC (“Global”). Global offers a comprehensive range of financial services with operations across the Gulf Cooperation Council (GCC), the wider MENA region and in other emerging markets. Investment Overview Global MENA Financial Assets Limited (“GMFA”) (together with its consolidated subsidiaries referred to as the “Company”) is a close‐ended investment company which was incorporated in Guernsey on 2 June 2008. The Company’s objective is to generate attractive absolute gains from investment in a diversified portfolio of financial sector assets focused on the Target MENA region (including Turkey). The Target MENA Region is defined by the Company as the Middle East and North Africa region comprising of the countries: Algeria, Bahrain, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey, United Arab Emirates, and Yemen (“Target MENA Region”). The Company’s investment strategy is to utilize the Investment Manager’s proven private equity approach to acquire and manage controlling and significant minority stakes in unlisted companies and stakes of any size, which include both controlling and non‐controlling stakes in listed companies in the financial services sector. The Investment Manager will seek to play an important role in shareholder value creation through active engagement with portfolio companies. The Company’s investment in non‐controlling stakes in listed companies will be limited to the higher of $100 million or 20% of the net asset value of the Company. GMFA will not restrict its investments to any specific sub‐sector within the financial services sector. GMFA will maintain at least an 80% exposure to the Target MENA Region, with a maximum of 20% of the Company’s net assets invested in emerging markets outside the Target MENA, in each case at the time of investment. There is no individual limit on investing in any particular country, although GMFA will not invest in companies or institutions based in Iran, Sudan and Syria. No more than 30% of the Company’s portfolio will be invested in any single company or institution (at the time of investment). Target MENA as defined by Global Capital Management: MENA Bloc excluding Iran, Sudan and Syria 4
Chairman’s Report During the first half of the 2009‐2010 financial year (H1FY10) Global MENA Financial Assets Limited’s (the “Company”) net asset value (NAV) fell by 12 per cent., from 121p to 107p. In US$ terms, NAV has marginally fallen by, from 174 c to 172c. The increase in the value of unlisted portfolio was offset by the fall in the listed portfolio. During this period the company’s share price has increased by 38% from 45p to 62p. During H1FY10 FTSE 100 moved up by 30%. As of 30 September 2009 GMFA’s shares traded at a 42 % discount to NAV. The Market In H1FY10 the capital markets of the members of the Gulf Cooperation Council (the GCC) have witnessed recovery. The major equity market indices in the GCC grew in the range of 14% per cent to 49% per cent, Saudi Arabia being the highest, in that period. According to the International Monetary Fund (IMF) real GDP in the GCC is expected to grow 5.2 per cent. in 2010 1 The price of oil, the primary driver of GCC economies, strengthened on the back of production cuts by Organization of the Petroleum Exporting Countries (OPEC), recovering to the level of US$81/bl as at October 2009. The estimated non oil‐sector growth for the GCC countries is 2% 2 in 2009. HUF
UH.
F
F
Liquidity in the credit markets has improved during the period. GCC Eurobonds spreads also continued to tighten and many benchmarks are now back to the pre‐Lehman levels. However, bank balance sheets and volatile oil prices still remain major risk factors for the region. The Company reported in its annual report in relation to the financial year ending on 31 March 2009 that the Board was considering ways of improving the share price and addressing the significant discount of the share price to NAV. The Board continues to examine all options available for reducing this discount, including the options of buying back shares into treasury and seeking a cessation of the listing of the Company's shares on the official list of the UK Financial Services Authority. The Portfolio As of 30 September 2009, the underlying investments of the Company comprised two listed companies and seven unlisted companies. In H1FY10 the aggregate market value of the listed equities fell from US$85.8m to US$73.6m. During the same period the aggregate fair value of the Company’s investments in the unlisted companies increased from US$107.4m to US$120.7m (including new acquisition during the period of US$4.1m). Global Capital Management Ltd. (the Investment Manager) has reported that the fundamentals of the portfolio companies are sound. Recent developments During H1FY10 the Company the following developments were made: •
As announced on 17 June 2009, the Company, through its wholly‐owned subsidiary Financial Assets Bahrain W.L.L. (FAB), acquired a minority holding in Twenty Third Project Management Company W.L.L. and consequently an indirect interest of 5 per cent. in Dar Al Tamleek Co. (also known as Saudi Housing Finance Company). The cash consideration for the acquisition was set off against a corresponding amount owning 1
HU
Source: Zawya Dow Jones news wire, 11 October 2009 Source: www.chinaview.cn 2009‐11‐01 U
2
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under Islamic money market instruments with Global Investment House K.S.C.C. (Global) and its subsidiaries. •
As announced on 17 July 2009, the Company entered into a Put Option Variation and Termination Agreement with Global. Under this agreement the Company agreed, inter alia, to cancel a put option in the Company's favour in return for the payment by Global of US$21.259 million. As this was a related party transaction, it needed approval of the independent shareholders of the Company (i.e. shareholders other than Global and its associates). This transaction was approved by a resolution of shareholders at an extraordinary general meeting of the Company held on 29 October 2009 with 81.69 per cent. of votes cast being in favour of the resolution. The Company has announced that it will distribute the sum received from Global by way of a special dividend of around 5 pence per share. •
As mentioned in the 2009 Annual Report the Company is at the final stage of making another investment representing a 20% stake. By virtue of it being a related party transaction it has been undergoing the regulatory procedures which started with an approval from the independent directors in November 2008. In compliance of these requirements an independent committee was formed to negotiate the price and oversee the process; a major international firm was engaged for valuation and sponsor’s role, a big four audit firm was engaged for financial due diligence and three major law firms were engaged to do the legal due diligence. The process will be concluded through independent shareholders’ approval. Islamic Money Market Instruments As at 30 September 2009, the Company’s assets included cash and murabahas of US$220.3 million. This comprised approximately US$164 million of cash deposited with “A” and above rated banks including HSBC, Citibank and Royal Bank of Canada and US$56 million of short term investments (Islamic deposits) under murabaha contracts with Global and two other Kuwaiti financial institutions. This balance was after providing for two of the murabahas. The murabaha with Global will be settled in full if the transaction mentioned above gets concluded. A committee comprising the independent directors of the company (Anne Ewing, Kishore Dash and myself) is working with the Investment Manager and the Company’s legal advisers, Allen & Overy LLP and local counsels in Kuwait, on the recovery and settlement of the outstanding Islamic money market instruments. The Company has kept shareholders updated throughout H1FY10 on the status of this settlement and recovery and will continue to do so. The Board During H1FY10 there have been significant changes to the composition of the Company's board. On 2 September 2009, the Company announced that Richard Bernays, John Hawkins and Terence Allen all retired at the Company's annual general meeting as independent non‐executive directors of the Company. The Company appointed Anne Ewing as an independent director on 2 September 2009 and me as the chairman and an independent director on 2 September 2009. Anne is a resident of Guernsey. Anne has previously held senior positions at KPMG Channel Islands Limited, Rothschild Asset Management (CI) Limited and Old Mutual International (Guernsey) Limited. Anne is a member of the Worshipful Company of International Bankers, is a Fellow of the Chartered Securities Institute and was elected a Fellow of the JCSA in January 2006. Anne holds a MSc in Corporate Governance and Administration from the University of Bournemouth. She is the chairperson of the Audit Committee and a member of the independent committee, responsible for all matters relating to related party transactions. 6
I was a minister of Ministry of Commerce and Industry of Kuwait between 1998 and 1999 and held several senior positions in Kuwait, including Director General of the Kuwait Stock Exchange, and Chairman of the Union of Arab Stock Exchanges and Securities Commission. I am currently a member of the Kuwait Supreme Petroleum Council, chairman of M/s. Contracting & Marine Services Co. (SAK) and a director of the Kuwait Stock Exchange. I hold a B.Sc. in Engineering from the University of Oklahoma. The board is now therefore composed of three independent directors (Anne Ewing, Kishore Dash and me) together with Maha Al‐Ghunaim. The main risks that the Company faces stem from slower than expected recovery of the regional economies. This may impact adversely the return of the company’s shareholder that it is going to generate and/or prolong the investment horizon. In other words, further slowdown in economies will result into delayed IPO for our portfolio companies, credit crunch and increase in credit defaults. The strong perception in the past, particularly before mid 2008, about low correlation between MENA economies and major world economies has proven wrong during the downturn of 2008‐2009. However, we draw comfort from the following facts: a) hydrocarbon price is strengthening; b) regional governments are taking proactive fiscal and monetary measures to support the MENA economies; and c) the a number of major MENA countries have favourable demographic profile. Hisham Al Otaibi Chairman 7
Manager’s Report Dear Investors, After witnessing the deepest downturn in their history in financial year 2008‐09, MENA economies began to see some signs of recovery since the early part of 2009. Considering this unprecedented economic scenario, we were cautious while making investment decisions. In order to protect the capital of the Company, we placed more emphasis on strengthening the risk management system and enhancing corporate governance at portfolio companies. The portfolio companies achieved significant operating efficiencies through cost reduction and better asset liability management. During the first half of financial year 2008‐2009 (H1FY09 hereafter) the Company did not make any investment other than Dar Al Tamleek (‘DAT’) as mentioned in the Company’s 2009 annual report. However, the Company invested US$3.3 million in DAT under the second capital call, taking the total investment to US$7.4 million (the equity is 50% paid up until now). The remaining 50% is expected to be called in 2010. As mentioned in the 2009 annual report, the Company has also been evaluating an investment for acquisition from Global Investment House K.S.C.C. (Global). Since this is a related party transaction it requires approval of the independent shareholders’ of the Company. Accordingly the independent shareholders have been approached for their decision. We will update you about the outcome once the process is concluded. Macroeconomic Developments: The global crisis has affected the Gulf Co‐operation Council (GCC) mainly through the sharp fall in oil prices and the tightening of credit conditions. Despite the decline in oil revenues, most countries of the group are maintaining capital spending at a high level which in turn has softened the decline in GDP growth. The decoupling assumption at the early stage of the crisis changed conspicuously in 2008Q3, since which time the overall global economy has been in recession, and economic growth in emerging markets has slowed precipitously. However, the windfall of surpluses accumulated over last few years has served as a buffer to sustain domestic demand and maintain ongoing investment projects. The external current account surplus averaged over 21 percent of GDP during 2005–08, enabling these countries to accumulate US$1.2 trillion in foreign assets and reduce government external debt. The current account balance of the region is expected to swing lower and to a small deficit in certain countries (UAE, KSA), however government expenditures are stabilizing the decline until the private capital retrenchment subsides. With lower production, and increase demand in 2010, oil prices are expected to increase, which may help GCC countries in jump starting their economies after a slow down in 2009. The slowdown in non‐oil growth is being moderated by plans to maintain public expenditure, as well as by the easing of monetary policy. Capital Market and Financial Sector Developments: With third quarter 2009 earnings season well underway during November; investors paid close attention to corporate announcements and reshuffled their portfolios accordingly. On the back of a sharp decline in Kuwait market, it turned year to date negative. Among GCC markets, Saudi Arabia remains the best performer in terms of year to date, with the market gains around 30 percent while Bahrain remains the worst performer in terms of year to date change with a fall of around 15 percent. We expect that, going forward factors like oil prices and movements in international markets may continue to impact the direction of regional bourses and markets are likely to witness stock specific activities. 8
Source: Bloomberg In the quarter ended September 2009 the GCC banks (ex‐Bahrain) experienced 9% profit decline quarter on quarter over the corresponding quarter of 2008 and 13% decline on year to date basis. Bottom‐lines of Saudi and UAE banks were less impacted. In 2009 most GCC banks booked significant provisioning for non‐
performing assets. The level of provisioning is expected to be lower in the coming years as many institutions believe that excessive provisioning was made in 2008 and 2009 and some of these provisions may also be reversed as the markets improve. Source: Bloomberg GMFA Share Price performance The following chart shows performance of GMFA stock vis‐à‐vis its peer group since listing last year (The peer group comprises of other private equity funds listed on the London Market). The stock continues to be very illiquid. The Company has been trading at a significant discount to its NAV since the beginning of the year. It currently trades at around 40% discount to its NAV. The Board and Investment Manager have been exploring various options to manage the discount on the share price. 9
Update on Murabaha Contracts To monitor the recovery process, the Company established an independent committee of the Board (the "Murabaha Committee"), comprising of the independent directors of the Company. The Murabaha Committee was formed on the grounds that Global and the Investment Manager were conflicted and the committee since then has been enlarged to include new independent directors. The Committee has been under negotiation with the Kuwaiti companies to reschedule the debt. We have been and would continue to update the investors with any significant progress on this front. The Murabaha with Global would be set off against the acquisition which is underway and currently progressing for voting by the independent shareholders. Global has made significant progress with respect to its restructuring plan. It presented a comprehensive restructuring plan to its lending banks early this year. Following the approval by an overwhelming majority of the creditors of the proposed restructuring terms, Global held meetings with its bank creditors in Dubai and London on 19th and 20th October at which a timeline for completion of the restructuring was proposed. The lenders group has been delighted and encouraged by the significant progress to date made by Global. David Pepper from WestLB and Chair of the Banks' Steering Committee commented: "We are delighted and encouraged by the significant progress to date made by Global and its advisers, HSBC. Global has been highly professional and transparent throughout this process setting precedents for other restructurings in the region.” As at 30 September 2009, the Company’s assets included cash and murabahas of US$220.3 million. This comprised approximately US$164 million of cash deposited with “A” and above rated banks including HSBC, Citibank and Royal Bank of Canada and US$56 million of short term investments (Islamic deposits) under murabaha contracts with Global and two other Kuwaiti financial institutions. This balance was after providing for an impaired short term investment with one of the two other Kuwaiti financial institutions. Keeping a conservative stand, we continue to provide 50% for one of the Kuwaiti company and maintain 25% provision on Global Murabaha. The Company’s unlisted portfolio is valued every six months. The valuation in these accounts includes a discount of 40% to reflect the illiquidity of the shares of the unlisted portfolio. This is the same level of discount as was applied to the valuation on which the portfolio was acquired from Global and is considered to be very conservative. Lastly, based on your approval, the put option on Global for the unlisted portfolio that was acquired from Global at the time of formation of the Company has been terminated and settled for US$21.26 million. The Company retained these assets as the fundamentals of these companies are believed to be sound. The Company is in process of distributing this cash as a special dividend to its shareholders. We are currently reviewing a number of opportunities in the non‐bank financial services space and hope to create a growth portfolio utilizing the cash available to the Company. We expect 2010 to be a better year for 10
the economy compared to 2009 and financial services is expected to be one of the prime beneficiaries of the same. Sincerely, Rajiv Nakani, CFA Managing Partner Global Capital Management November 2009 11
Breakdown of Assets Portfolio
Company Name Listed portfolio 1 Bindar Trading & Investment 2 Jordan Trade Facilities Co. Unlisted Portfolio 3 Al‐Manar Financing & Leasing Co 4 Al Soor Financing & Leasing Co 5 Asian Finance Bank 6 BMI Bank 7 Gulf Takaful Insurance Description Country Credit & Finance Credit & Finance % Stake in the company Jordan Cost US $ Fair Value US $ % of NAV 69.6 % 47,108,5199 43,045,668 9.9% Jordan 87.3 % 44,361,542 30,507,176 7.0% Subtotal 91,470,061 73,552,844 17.0% 13.6 % 26,981,697 10,968,894 2.5% 12.4 % 30,837,597 17,950,588 4.1% 10.0 % 13,139,520 8,377,917 1.9% 10.0 % 43,949,116 Kuwait 18.2 % 14,546,569 7,267,320 1.7% Kuwait 2.5 % 19,207,610 24,690,322 5.7% 5.0% 4,117,358 4,117,358 1.0% Credit & Kuwait Finance Credit & Kuwait Finance Commercial Malaysia Banking Commercial Bahrain Banking Insurance 47,305,577 10.9% Corporate Banking Credit & Finance Cash and Equivalents Murabaha Receivables 56,295,463 Other Receivables 21,349,478 Total Net Asset Value 8 Industrial Bank of Kuwait 9 Dar Al Tamleek Saudi Arabia Subtotal 152,773,464 120,677,976 27.9% 163,973,792 433,179,627 12
Breakdown of Net Assets Breakdown of Total Equity 13
Underlying Portfolio Companies
Bindar Trading and Investment Country Jordan Industry Credit and Finance Acquisition cost US $ 47,108,519 Market Value US $ 43,045,668 Valuation Basis Quoted % Ownership 69.6% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Revenue 4.6 7.7 4.2 Operating Profit 2.9 4.1 1.8 Net Profit 1.9 1.4 0.9 Book Value 20.9 29.8 29.9 Total Assets 36.7 62.8 50.3 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective period end Bindar Trading and Investment (“BTIC”) is a consumer finance company operating in Jordan. Bindar was established in 2000 in the Kingdom of Jordan and was listed on the Amman Stock Exchange in 2004. BTIC’s main activities are car and real estate financing. Its primary area of activity is financing for purchase of vehicles, durable assets and real estate, and follows basic Islamic principles in its operations. BTIC’s capital was increased in October 2008 from JD 14 million (US$19.7 million) to JD 20 million (US$28.2 million) to allow the company to expand its financing and leasing activities, and to meet its productivity and growth plans. For the 9 months ended September 2009, BTIC’s operating revenues declined 28% from the same period last year. BTIC’s revenues decreased because of the general slowdown in the economy and management’s more conservative approach in processing new loans. BTIC’s net profit dropped 63% from the same period last year. The drop was mainly because of the increase in financing costs from an average interest rate of 8.75% to 9.25%. Profits have also been impacted by unrealized losses on the company’s investment portfolio. In November 2008, BTIC launched a car showroom in a prime location in Amman with a focus on selling used cars. Entering this segment is in line with BTIC’s plans for vertical integration and gives the company potential for further growth. With the market slowdown and the drop in demand for automobiles, BTIC has been selling around 10 cars per month. 14
Jordan Trade Facilities Company Country Jordan Industry Credit and Finance Acquisition Cost US $ 44,361,542 Market Value US $ 30,507,176 Valuation Basis Quoted % Ownership 87.3% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Revenue 5.0 6.6 3.9 Operating Profit 3.2 4.4 1.7 Net Profit 2.6 1.7 1.5 Book Value 25.3 26.5 26.3 Total Assets 41.1 49.8 43.3 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective period end Jordan Trade Facilities Company (JTFC) was established in 1983 as a public company in the Kingdom of Jordan and was listed on the Amman Stock Exchange in 2001. JTFC was one of the first companies to enter the consumer finance business in Jordan and provides financing for vehicles and durable assets. JTFC has recently broadened its activity scope to include trading intermediary services, financial leasing and services, in addition to land acquisition in order to build housing units for the purposes of selling them directly or through lease financing. For the 9 months ended in September 2009, JTFC’s operating revenue declined 19% from the same period last year. The company’s revenue decreased because of the general slowdown in the economy and management’s more conservative approach in processing new loans. JTFC’s net profit dropped by 58% compared to the same period last year. The drop was mainly because of the increase in financing costs and unrealized losses on the company’s investment portfolio. In August 09, JTFC opened its 6th branch in Amman. JTFC has been focusing on providing facilities to SME’s, in an attempt to grow its loan portfolio at a time of market slowdown and decline in demand for retail financing. In addition, the company has been working on improving efficiency and cutting costs. 15
Al Manar Financing and Leasing Co Country Kuwait Industry Credit and Finance ‐ Islamic Acquisition Cost US $ 26,981,697 Fair Value US $ 10,968,894 Valuation Basis Price to Book Value % Ownership 13.6% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Revenue 34.3 44.5 24.7 Operating 6.4 5.4 (6.7) Profit/(Loss) Net Profit/(Loss) 13.2 11.7 (10.5) Book Value 135.7 135.8 123 Total Assets 408.3 428.06 328.7 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective period end Al Manar Financing and Leasing Co (“Al Manar”) is an Islamic financial institution established in November 2003. Al Manar provides Islamic Shariah compliant financial products and services in relation to consumer, real estate and fleet financing. Al Manar has 6 operating branches in Kuwait and is expecting to open an additional branch this year. In addition, Al Manar owns a 10% stake in a finance house in Qatar with a 5 year management agreement. Al Manar currently has over 12,000 customers with a lending portfolio of US$ 356 million as of December 2008, thereby increasing its market share to 9.7% from 8% in 2006. Al Manar recorded a loss of US$ 10.5m for the 3 quarters ended 30 September 2009 on account of the increase in provisions taken in the period and lack of financing from local & regional banks. The company managed to record US$ 25m worth of sales despite the market liquidity crunch, yet its receivables portfolio witnessed a 28% shrink in size due to the Company’s positive monthly cash flows of approximately US$14m. Given the current market conditions, Al Manar has conservatively increased its allowance for doubtful debts to US$ 9.5m from US$ 3.6m in December 2008 for the full 12 months. Going forward, the company is looking to expand its services in Kuwait and replicate its international model to other branches in the region. 16
Al Soor Financing and Leasing Co Country Kuwait Industry Credit and Finance Acquisition Cost US $ 30,837,597 Fair Value US $ 17,950,588 Valuation Basis Price to Book Value % Ownership 12.4% Key Financials (US $ m) Mar 2008 Mar 2009 Sep 2009 Revenue 45.1 48.1 18.5 Operating Profit 30.2 31.3 12.5 Net Profit 24.4 11.0 5.7 Book Value 231.6 208.6 217.6 Total Assets 425.6 436.2 380.2 Source: Company’s Financial Statements, Quarterly numbers are unaudited Note: March year end. March 2007 results are for the period between July 2005 to March 2007. Exchange rate as of respective year end Al– Soor Financing and Leasing Co (“Al Soor”) is a Kuwaiti shareholding company, incorporated in July 2005 and currently operates in Kuwait. The company was incorporated with a capital of US$110m. However, post the acquisition of Al‐Mulla’s financing arm the capital was increased to US$183m. Al‐Soor operates in the financing industry, offering a range of services in consumer finance, trade finance and supplementary home improvement finance. For the six months ended in September 2009, Al‐Soor’s revenues dropped 18.8% from the corresponding period last year. Al Soor profit for the same period was 52% lower than September 2008 due to a conservative increase in provisions which reflects the impact of the current recession. Total assets as of September 2009 stood at US$ 380m, out of which net loan receivables were US$ 279m, constituting 73% of Al Soor’s total assets. For the twelve months ended March 2009, Al Soor's net Interest income saw growth of 15% versus the same period last year. The growth in interest income was primarily driven from Al Soor’s retail portfolio, which increased by 33% year on year. Net profit dropped to US$ 11.02m which was 55% lower than last year, primarily due to exceptionally higher provisions this year. A sharp jump in provisioning was seen in the last quarter ended March 2009. The total provision was increased from US$ 6.2m to USD20m, given Al Soor’s conservative approach. 17
Asian Finance Bank Country Malaysia Industry Commercial Banking ‐ Islamic Acquisition Cost US $ 13,139,520 Fair Value US $ 8,377,917 Valuation Basis Price to Book Value % Ownership 10% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Revenue 8.3 15.9 14.6 Operating (1.6) (5.9) 9.5 Profit/(Loss) Net Profit/(Loss) (1.1) (4.5) 0.9 Book Value 103.9 93.45 97.0 Total Assets 375.9 526.2 409.5 Source: Company’s Financial Statements Note: December year end, 2006 results are for the 13 months ending December 2006 Exchange rate as of respective period end Asian Finance Bank (“AFB”) commenced operations in 2007 in Kuala Lumpur, Malaysia. AFB is one of the three foreign Islamic banks that have been granted a license by the Central Bank of Malaysia to undertake Islamic banking business. AFB offers Shariah compliant products covering consumer, commercial (including small & medium enterprise and trade finance), corporate, treasury and investment banking. For the 9 months ended in September 2009, AFB’s registered an increase in their business. The increase was primarily attributable to the increase in the bank’s fee income. Performance has started to turn around for AFB, with the bank breaking even on a cumulative basis for the first half of 2009 and recording profit of US$ 0.92m for the 9 months ending September 2009. For its first full year of operation ending December 2008, Asian Finance Bank (AFB) posted a loss of US$ 4.5 million. Despite an increase in funded income, the major shortfall in profits was due to lower than expected fee income. AFB is planning to double the size of its loan portfolio from RM 250m (US$ 72m) currently to about RM 500m (USD 144m) and plans to expand locally and regionally to selective places like Brunei, Singapore and Korea within the next five years. Bank Negara Malaysia (BNM) has raised concern over AFB’s shrinking capital, and has required AFB to comply with BNM’s minimum requirement of RM 300 million (US$ 86m) in shareholders’ funds. AFB has proposed to increase its capital via a rights issue, raising a total of RM 177.51m (US$ 50m) and has provided a 5 year strategy for BNM. 18
BMI Bank Country Bahrain Industry Commercial Banking Acquisition Cost US $ 43,949,116 Fair Value US $ 47,305,576 Valuation Basis Price to Book Value % Ownership 10% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Revenue 80.6 101.9 66.5 Net 13.0 (7.9) (12.3) Profit/(Loss) Book Value 102.6 341.0 330.8 Total Assets 1,358.4 2,161.0 1,450.6 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective period end BMI Bank (previously Bank Muscat International) (“BMI”) was established in 2005 in the Kingdom of Bahrain. BMI operates under licenses issued by the Bahrain Monetary Agency and is engaged in commercial banking activities through its eight branches in Bahrain and a branch in the Qatar Financial Centre in the State of Qatar. BMI currently offers a wide range of unique financial solutions through retail banking including SME banking, corporate banking, private banking, global trade services, international business development, financial institutions and correspondent banking, Islamic financial services and treasury services. BMI recorded revenue of US$ 11.2 million for the nine months ended September 2009, and a net loss of US$ 12.3 million. The net loss was primarily due to the BMI’s heavy provision levels considered to be prudent in these environment. BMI is currently focusing on: ‐Building scale in Bahrain and other presence markets ‐Accelerating growth in the retail commercial and SME segments ‐Maintaining a cautious approach on lending and keeping a tight control credit on criteria In 2008, as a consequence of the global financial crisis, BMI prudently raised provisions for impaired assets of US$ 20.7m, resulting in a reported loss of US$ 7.9m for the year 2008, against a profit of US$ 13m in 2007. The impaired provisions primarily included a provision for the bank's exposure towards a loan to Landsbanki in Iceland. However, on the operating level, BMI’s revenues grew by 26% to US$ 101.9m, mainly from an increase in net interest income. Total assets grew by 60% to US$ 2,161m as compared to US$1,358 m in 2007, while deposits grew by 42% to US$ 1,533m as compared to US$ 1,076m in 2007. 19
Gulf Takaful Insurance Company Country Kuwait Industry Insurance ‐ Islamic Acquisition Cost US $ 14,546,569 Fair Value US $ 7,267,320 Valuation Basis Price to Book Value % Ownership 18.2% Key Financials (US $ m) Dec 2007 Dec 2008 Sep 2009 Net Profit 5.62 (8.3) (3.9) Book Value 67.7 57.8 51.9 Total Assets 68.5 59.0 53.04 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective year end Gulf Takaful Insurance Company (“GTIC”) was established in 2004 in Kuwait. GTIC provides a wide range of Shariah compliant insurance services, including life, motor, property and general accident insurance, re‐
insurance products and insurance appraisals. GTIC has the largest medical provider’s network in Kuwait, which includes over 74 hospitals, clinics, pharmacies and labs. For 2008 and 2009, GTIC witnessed impairment losses from activities due to declines in the fair value of certain investments from their original costs, mainly of securities at US$ 2.98m in 2009 and US$ 4.7m in 2008. The Company also placed a Murabaha investment with a financial institution, which in turn faced difficulties in 2008 announcing their inability to pay the amount, thus causing additional losses of US$ 6.8m. Asset base reduced by 10% from US$ 59m in December 2008 to US$ 53m in September 2009, focused on investments, namely US$ 12.6m Murabaha and investment deposits, US$ 29.4m unquoted shares and funds (local and foreign), and US$ 2.5m real estate. GTIC is does not have any bank borrowings, fully financing its assets and operations with Equity. 20
Industrial Bank of Kuwait Country Kuwait Industry Corporate Banking Acquisition Cost US $ 19,201,609 Fair Value US $ 24,690,322 Valuation Basis Price to Book Value 2.5% % Ownership Key Financials (US $ m) Dec 2006 Dec 2007 Dec 2008 Revenue 88.1 113.0 111.7 Operating Profit 43.3 67.6 38.5 Net Profit 66.7 86.6 34.2 Book Value 662.5 785.3 716.0 Total Assets 1,720.0 2,095.5 2,073.6 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective year end The Industrial Bank of Kuwait (“IBK”) was established in 1973 at the initiative of the Government of Kuwait for the purpose of supporting industrial projects in Kuwait. IBK provides medium and long term financing for the establishment, expansion and modernization of the industrial sector in Kuwait. IBK’s rating was upgraded by Fitch Ratings Long‐term Issuer Default rating 'A+' with a Stable Outlook, reflecting the extremely high probability of support from the government of Kuwait, in case of need. The Government of Kuwait owns 49% of IBK giving a boost to the lending profile of IBK as well as its stability. In 2008, industrial and commercial loans by IBK increased 27% and 12%, respectively, over the previous year. Given the current market difficulties, the bank increased its provisions for the year by 47%. Overall, IBK achieved a net profit of US$34.2m in 2008. Although, IBK’s operating performance was in line with the previous year, IBK’s profits were lower in 2008 due to revaluation losses on IBK’s investment portfolio. Since its inception, IBK has provided industrial loan commitments to 846 projects until the end of 2008. In 2008, IBK extended loans for 36 projects with a total value of US$200m across various industries in comparison to loans for 30 projects with a total of US $ 183 m in 2007. Oil extraction and related services accounted for the highest proportion, at 21.67% of the new loan commitments made by IBK during the year.
IBK has declared a dividend of 20% or KWD 2 per share for the financial year ended December 2008. 21
Dar Al Tamleek Company Country Saudi Arabia Industry Mortgage Financing Acquisition Cost US $ 4,117,358 Valuation Basis Cost % Ownership 5.0% (US $ m) Revenue Operating Profit/(Loss) Net Profit/(Loss) Book Value Total Assets Key Financials Dec 2008 Aug 2009 0.004 2.6 (4.9) (1.4) (3.6) 63.1 63.9 (2.4) 60.7 69.3 Source: Company’s Financial Statements Note: December year end Exchange rate as of respective year end Dar Al Tamleek Company (“DATC”) received their commercial registration in July 2008 and the management designated the year to refine strategy, organization, and business activities thus reflecting no revenues. DATC started its business operations in November 2008. For the year of 2009, through August, DATC had achieved revenues of US$ 2.6 Million. In August 2009, the long‐term receivables of DATC accounted for 83% of total assets. The receivables of DATC are all business related and collectible with no bad debt provisions thus of good quality. The asset base of DATC is primarily supported by equity at this point of time. In October 2009, GMFA participated in the second capital call of the Company and by paying US$ 3,342,247 for the 25% second call on its 5% indirect holding. The total acquisition cost of DATC post the second capital call was USD 7,459,605 and the shares are 50% paid up. The shares of DATC are expected to be fully paid up by 2011. DATC is still in the first operating year for its business and expected to report better numbers in 2010. 22 GLOBAL MENA FINANCIAL ASSETS LIMITED
Responsibility Statement
We confirm that to the best of our knowledge:
(a)
The Interim Consolidated Financial Statements have been prepared in conformity with accounting
principles generally accepted in the United States of America;
(b)
The Management Discussion & Analysis includes a fair review of the information required by DTR
4.2.7R (indication of important events during the first six months and description of principal risks
and uncertainties for the remaining six months of the year); and
(c)
The Interim Consolidated Financial Statements include a fair review of the information required by
DTR 4.2.8R (disclosure of related party transactions and changes therein).
Signed on behalf of the Board of Directors on 23 November 2009.
Hisham Alotaibi
Director
Anne Ewing
Director
23
Independent Review Report to the Members of Global MENA Financial Assets Limited
Introduction
We have been engaged by Global MENA Financial Assets Limited (the “Company”) to review the Interim
Unaudited Consolidated Financial Statements included in the Interim Report for the six month period ended
30 September 2009 which comprises the Unaudited Consolidated Statement of Assets and Liabilities, the
Unaudited Consolidated Statement of Operations, the Unaudited Consolidated Statement of Changes in Net
Assets, the Unaudited Consolidated Statement of Cash flows, the Unaudited Consolidated Schedule of
Investments and the related explanatory notes. We have read the other information contained in the Interim
Report and considered whether it contains any apparent misstatements or material inconsistencies with the
information in the Interim Unaudited Consolidated Financial Statements.
This report is made solely to the Company in accordance with the terms of our engagement letter dated 11
November 2009 to assist the Company in meeting the requirements of the Disclosure and Transparency
Rules (“the DTR”) of the UK’s Financial Services Authority (“the UK FSA”). Our review has been undertaken
so that we might state to the Company those matters we are required to state to it in this report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company for our review work, for this report, or for the conclusions we have reached.
Directors' responsibilities
The Interim Report is the responsibility of, and has been approved by, the Directors. The Directors are
responsible for preparing the Interim Report in accordance with the DTR of the UK FSA.
As disclosed in Note 2, the Interim Uaudited Consolidated Financial Statements of the Company are prepared
in conformity with accounting principles generally accepted in the United States of America and applicable
law.
Our responsibility
Our responsibility is to express to the Company a conclusion on the Interim Unaudited Consolidated Financial
Statements included in the Interim Report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and
Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity
issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that might be identified in an audit.
Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the Interim Unaudited
Consolidated Financial Statements in the Interim Report for the six month period to 30 September 2009 are
not prepared, in all material respects, in conformity with accounting principles generally accepted in the United
States of America and the DTR of the UK FSA.
KPMG Channel Islands Limited
Chartered Accountants
Guernsey
23 November 2009
24
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
as at 30 September 2009
30 September
2009
US$
31 March
2009
US$
194,230,820
163,796,664
177,128
56,295,463
21,349,478
214,512,266
122,242,492
22,843,447
81,311,154
1,321,045
66,448
435,849,553
442,296,852
43,630
2,247,251
379,045
175,164
2,175,596
858,685
2,669,926
3,209,445
Net Assets
433,179,627
439,087,407
Net Assets consist of :
Ordinary shares (no par value, authorised to issue unlimited
number of shares, 252,040,002 issued and outstanding
as at 30 September and 31 March 2009)
10
Accumulated deficit
Net unrealised depreciation of investments
Net unrealised appreciation of forward foreign currency contracts
Net unrealised foreign currency depreciation
497,623,330
(13,728,343)
(50,012,706)
(702,654)
497,623,330
(31,212,035)
(25,613,903)
Total Liabilities and Shareholders' Equity
433,179,627
439,087,407
Net Asset Value per Share (in US Dollar)
1.72
1.74
Net Asset Value per Share (in Sterling)
1.07
1.21
Notes
Assets
Investments at fair value (cost US$244,243,525,
31 March 2009: US$240,126,170)
Cash and cash equivalents
Foreign currency cash
Murabaha and wakala receivables
Dividend receivable
Other receivables
4
5
6
7
8
Total Assets
Liabilities and Shareholders' Equity
Liabilities
Directors' fees payable
Management fees payable
Other payables
3
3
9
Total Liabilities
(1,709,985)
The interim consolidated financial statements on pages 25 to 43 were approved by the Board of Directors on
23 November 2009.
Hisham Alotaibi
Director
Anne Ewing
Director
The accompanying notes form an integral part of the financial statements.
25
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
For the six months ended 30 September 2009
6 month period to month period to
30 September 2009September 2008
US$
US$
Notes
Operating Income
Dividend income
Interest income
Total Operating Income
1,223,325
1,528,327
2,751,652
2,482,731
2,482,731
492,699
173,569
2,153
122,298
1,046,067
4,358,157
58,186
54,885
6,308,014
223,661
420,213
35,419
2,127,883
821,294
1,430,290
9,560
40,230
36,720
5,145,270
(3,556,362)
(2,662,539)
4
21,259,000
(198,310)
(20,636)
21,040,054
(146,697)
222,873
76,176
4
(24,398,803)
1,007,331
(23,391,472)
18,633,692
140,537
(120,228)
18,654,001
Total Net Realised and Unrealised Gain
from Investments and Foreign Currency
(2,351,418)
18,730,177
Decrease in Net Assets Resulting from Operations
(5,907,780)
16,067,638
Operating Expenses
Administrator fees
Audit fees
Commission fees
Directors fees and expenses
Legal and professional fees
Management fees
Organisation costs
Performance fees
Safe custody
Stamp duty
Miscellaneous expenses
Total Operating Expenses
3
3
3
Net Operating Loss
Realised and Unrealised Gain/(loss) from
Investments and Foreign Currency
Net realised gain/(loss) from:
- Investments
- Forward foreign currency contracts
- Other foreign currency
Net (decrease)/increase in unrealised
depreciation/appreciation on:
Investments
Forward foreign currency contracts
Other foreign currency
Net Operating Loss per Share (annualised):
Basic & Diluted
(0.01)
(0.05)
Decrease in Net Assets resulting from
operations per Share (annualised):
Basic & Diluted
(0.02)
0.31
Weighted Average Number of Shares Outstanding:
Basic & Diluted
10
252,040,002
252,040,002
26
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
1 April 2009 to
30 September 2009
Notes
US$
Operations:
Net operating loss
Net realised appreciation of investments
Net realised forward foreign currency loss
Net realised other foreign currency (loss)/gain
Net unrealised (depreciation)/appreciation of investments
Net unrealised appreciation of forward foreign currency contracts
Net unrealised appreciation/(depreciation) of other foreign currency
2 June 2008 to
30 September 2008
US$
(3,556,362)
21,259,000
(198,310)
(20,636)
(24,398,803)
1,007,331
(2,662,539)
(146,697)
222,873
18,633,692
140,537
(120,228)
(5,907,780)
16,067,638
-
500,000,000
(2,376,670)
-
497,623,330
(5,907,780)
513,690,968
Net Assets at beginning of period
439,087,407
-
Net Assets at end of period
433,179,627
513,690,968
Net Asset value per share (in US Dollar)
1.72
2.04
Net Asset value per share (in Sterling)
1.07
1.15
252,040,002
252,040,002
Net (Decrease)/Increase in Net Assets resulting from Operations
Capital Share Transactions:
Issuance of capital
Stock issuance costs
Net increase in net assets resulting from capital share
transactions
10
Total (Decrease)/Increase in Net Assets
Shares issued and outstanding at end of period
27
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
1 April 2009 to
30 September 2009
US$
2 June 2008 to
30 September 2008
US$
(5,907,780)
16,067,638
(2,479,901)
(21,259,000)
24,398,803
1,321,045
(24,030)
24,716,973
120,228
(18,633,692)
(1,362,917)
-
298,718
(131,534)
71,655
(479,640)
(4,117,357)
5,710,455
(234,528,293)
16,407,952
(232,626,581)
-
8,949,303
497,623,330
506,572,633
16,407,952
273,946,052
145,085,939
2,479,901
163,973,792
(120,228)
273,825,824
Operating Activities
Net (decrease)/ increase in net assets resulting from operations
Adjustment to reconcile net increase in net assets resulting from
operations to net cash and cash equivalents (used in)/generated
from operating activities:
Other foreign exchange movement
Net realised gain on investments
Net unrealised depreciation of investments
Decrease in dividend receivables
Increase in other receivables
Decrease in murabaha receivables
Movement in impairment of murabaha receivables
Decrease in directors' fees payable
Increase in management fees payable
(Decrease)/increase in other payables
Purchase of investments
Net cash and cash equivalents (used in)/generated from
operating activities
Financing Activities
Loan proceeds
Net proceeds from shares issued
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Foreign exchange movements
Cash and cash equivalents at end of period
28
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
As at 30 September 2009, the fair value of the total portfolio was US$194,230,820. This was made up of 9 portfolio equities consisting of:
GEOGRAPHIC DIVERSIFICATION
Investment
Type
Country
Shares
% Stake
in the
Company
Listed Investments
Bindar Trading & Investments Company
Jordan Trade Facilities Company
Total Listed Investments
Common shares
Common shares
Jordan
Jordan
13,916,134
14,399,387
Unlisted Investments
Al Manar Leasing and Financing Company
Al Soor Financing and Leasing Company
Asian Finance Bank
BMI Bank
Dar Al Tamleek
Gulf Takaful Insurance Company
Industrial Bank of Kuwait
Total Unlisted Investments
Common shares
Common shares
Common shares
Common shares
Common shares
Common shares
Common shares
Kuwait
Kuwait
Malaysia
Bahrain
Saudi Arabia
Kuwait
Kuwait
42,074,100
61,930,000
35,502,001
5,847,482
5,000,000
27,544,000
49,496
Investment name
Total Investments
Cost
US$
Fair
Value
US$
% of Net
Asset
Value
69.6%
87.3%
47,108,519
44,361,542
91,470,061
43,045,668
30,507,176
73,552,844
9.9%
7.0%
17%
13.6%
12.4%
10.0%
10.0%
5.0%
18.2%
2.5%
26,981,697
30,837,597
13,139,520
43,949,116
4,117,358
14,546,569
19,201,609
152,773,466
10,968,894
17,950,588
8,377,917
47,305,577
4,117,358
7,267,320
24,690,322
120,677,976
2.5%
4.2%
1.9%
10.9%
1.0%
1.7%
5.7%
28%
244,243,527
194,230,820
45%
29
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED)
as at 31 March 2009
As at 31 March 2009, the fair value of the total portfolio was US$214,512,266. This was made up of 8 portfolio equities and 1 derivative consisting of:
GEOGRAPHIC DIVERSIFICATION
Investment
Type
Country
Shares
% Stake
in the
Company
Listed Investments
Total Listed Investments
Common shares
Common shares
Jordan
Jordan
13,916,134
14,399,387
Al Manar Leasing and Financing Company
Al Soor Financing and Leasing Company
Asian Finance Bank
BMI Bank
Total Unlisted Investments
Common shares
Common shares
Common shares
Common shares
Common shares
Common shares
Kuwait
Kuwait
Malaysia
Bahrain
Kuwait
Kuwait
42,074,100
61,930,000
35,502,001
5,847,482
27,544,000
49,496
Put Option
Kuwait
-
Investment name
Derivatives
Global Put Option Agreement (Nominal Value US$152,952,424)
Total Derivatives
Total investments
Cost
US$
Fair
Value
US$
% of Net
Asset
Value
69.6%
87.3%
47,108,519
44,361,542
91,470,061
45,175,876
40,647,528
85,823,404
10.3%
9.3%
20%
13.6%
12.4%
10.0%
10.0%
18.2%
2.5%
26,981,697
30,837,597
13,139,520
43,949,116
14,546,569
19,201,610
148,656,109
20,525,359
11,385,518
5,968,195
37,179,471
12,520,430
19,850,889
107,429,862
4.7%
2.6%
1.4%
8.5%
2.9%
4.5%
24%
-
21,259,000
21,259,000
5%
5%
240,126,170
214,512,266
49%
30
CONSOLIDATED SCHEDULE OF INVESTMENTS (UNAUDITED) (continued)
INDUSTRY DIVERSIFICATION
Listed Investments
Bindar Trading & Investments Company ("BTIC") (Fair value of US$43,045,668, 9.94% of Net Assets)
Jordan
BTIC was established in 2000 in the Kingdom of Jordan and is listed on the Amman Stock Exchange. BTIC's main
activity is car and real estate financing based on Islamic Shariah principles.
Jordan Trade Facilities Company ("JTFC") (Fair value of US$30,507,176, 7.04% of Net Assets)
Jordan
JTFC was established in 1983 as a public shareholding company in the Kingdom of Jordan and has been listed on the
Amman Stock Exchange since 2001. JTFC provides vehicles, durable assets, real estate and other productive assets
financing.
Al Manar Financing & Leasing Company ("Al Manar") (Fair value of US$10,968,894, 2.53% of Net Assets)
Kuwait
Al Manar was incorporated in 2003 in Kuwait. Al Manar provides Islamic Shariah-compliant financial products and
services in relation to consumer, real estate and fleet financing.
Al Soor Financing & Leasing Company ("Al-Soor") (Fair value of US$17,950,588, 4.15% of Net Assets)
Kuwait
Al Soor was established in 2005 as a closed Kuwaiti shareholding company and is regulated by the Central Bank of
Kuwait. Al-Soor provides consumer, trade and real estate finance services.
Asian Finance Bank ("AFB") (Fair value of US$8,377,917, 1.93% of Net Assets)
Malaysia
AFB was established in 2005 in Kuala Lumpur, Malaysia. AFB is one of the three foreign Islamic banks that has been
granted a license by the Central Bank of Malaysia to undertake Islamic banking business. AFB offers Islamic Shariahcompliant products covering consumer, commercial (including small and medium enterprise (SME) and trade finance),
corporate, treasury and investment banking.
BMI Bank ("BMI") (Fair value of US$47,305,577, 10.92% of Net Assets)
Bahrain
BMI was established in 2005 in the Kingdom of Bahrain. BMI operates under license issued by the Bahrain Monetary
Agency (now called Central Bank of Bahrain) and is engaged in commercial banking activities through its four branches
in Bahrain. BMI provides retail, corporate and Islamic banking services.
Dar Al Tamleek ("DAT") (Fair value of US$4,117,358, 0.95% of Net Assets)
Saudi Arabia
Dar Al Tamleek was established in 2008 in the Kingdom of Saudi Arabia. It is a specialized home finance Shariah
compliant company with a SAR1.0bn authorized capital, engaged in mortgage financing as well as lease services.
Gulf Takaful Insurance Company ("GTIC") (Fair value of US$7,267,320, 1.68% of Net Assets)
Kuwait
GTIC was established in 2004 in Kuwait. GTIC provides Shariah-compliant insurance services, including Islamiccompliant life and non-life insurance and reinsurance services.
Industrial Bank of Kuwait ("IBK") (Fair value of US$24,690,322, 5.70% of Net Assets)
Kuwait
IBK was established in 1973 in Kuwait at the initiative of the Government of Kuwait for the purposes of supporting
industrial projects in Kuwait. IBK provides medium and long-term financing for the establishment, expansion and
modernisation of the industrial sector in Kuwait.
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Organisation
Global MENA Financial Assets Limited (the "Company") together with its consolidated subsidiaries Financial
Assets MENA WLL and Financial Assets Bahrain WLL (the "Subsidiaries") collectively, referred to as the "Group"
is a closed-ended investment company which was incorporated in Guernsey on 2 June 2008.
The Company invests in the Middle East and North African ("MENA") regions either directly or by using its whollyowned investment vehicles based in Bahrain: Financial Assets MENA WLL and Financial Assets Bahrain WLL
(the "Subsidiaries"). Collectively, the Company and its Subsidiaries are known as the "Group".
The Groups's and Company's investment objective is to generate attractive absolute gains from investment in a
diversified portfolio of financial sector assets focused on the MENA region (including Turkey). The revenues of all
MENA region financial sector assets eligible for investment by the Company will be predominantly derived from
such region. The Company's investment strategy is to utilise Global Capital Management Ltd. (the "Investment
Manager") proven private equity approach to acquire and manage controlling and significant minority stakes in
unlisted companies and stakes of any size, in listed companies in the financial services sector. Total investment
by the Company in the non-controlling stakes in listed companies is limited to the higher of US$100 million or 20
per cent. of the net asset value of the Company (in each case at the time of the investment). The Investment
Manager seeks to play an important role in shareholder value creation through active engagement with portfolio
companies.
On 18 July 2008 (date of "Admission"), the Company completed an Initial Public Offering ("IPO") of ordinary
shares, which were admitted to listing on the Official List of the UK Financial Services Authority and to trading on
the main market of the London Stock Exchange plc under the ticker symbol "GMFA". The ordinary shares of the
Company are owned 29.99 per cent. by Global Investment House K.S.C.C. ("Global"), with the balance of 70.01
per cent. being held by other shareholders, including a number of investors who invested at the time of the IPO.
The Company is an authorised closed-ended investment scheme pursuant to the Protection of Investors
(Bailiwick of Guernsey) Law, 1987 (as amended).
The Company's fiscal year end is 31 March.
2. Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”).
The Company's financial statements are presented in US dollars, the Company's presentation and functional
currency, and rounded to the nearest dollar.
(b) Use of Estimates in Preparation of the Accounts
The preparation of the accounts in conformity with US GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the accounts, and revenue and expenses during the period reported. Actual results could
differ from those estimates.
(c) Valuation of Investments
The investments of the Group are carried at fair value per Accounting Standards Codification (ASC) Topic 820-10
"Fair Value Measurements and Disclosures" (previously referred to as SFAS 157 "Fair Value Measurements").
The fair value is defined as the price that the Company would receive upon selling a security in an orderly
transaction to an independent buyer in the principal or most advantageous market of the security.
ASC Topic 820-10 establishes a three-level hierarchy to maximise the use of observable market data and
minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure
purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or
liability, including assumptions about risk, for example, the risk inherent in particular valuation technique used to
measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or
liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs are
inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in
pricing the asset or liability developed based on the best information available in the circumstances.
32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
2. Summary of Significant Accounting Policies (continued)
(c) Valuation of Investments (continued)
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the
Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1
securities. Since valuations are based on quoted prices that are readily and regularly available in an active
market, valuation of these securities does not entail a significant degree of judgment.
Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly.
Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market
participants use to make valuation decisions, including assumptions about risk. Inputs may include price
information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial
instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the
fair value measurement. However, the determination of what constitutes “observable” requires significant
judgment by the Company’s Directors (the “Management”). Management considers observable data to be that
market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and
provided by independent sources that are actively involved in the relevant market. The categorisation of a
financial instrument within the hierarchy is based upon the pricing transparency of the instrument and does not
necessarily correspond to Management’s perceived risk of that instrument.
Fair value is a market-based measure considered from the perspective of a market participant rather than an
entity-specific measure. Therefore, even when market assumptions are not readily available, Management’s own
assumptions are set to reflect those that market participants would use in pricing the asset or liability at the
measurement date. Management uses prices and inputs that are current as of the measurement date, including
periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be
reduced for many securities. This condition could cause a security to be reclassified to a lower level within the fair
value hierarchy.
The Company's investments are valued as follows:
●
Listed investments: investments in securities traded in the MENA stock markets are stated at the last
reported bid price on the day of valuation.
●
Unlisted investments: for securities of companies that are not publicly traded, the Investment Manager
prepares an analysis consisting of traditional valuation methodologies to estimate the enterprise value of the
portfolio company issuing the securities. The methodologies consist of valuation estimates based on:
valuation of comparable public companies, recent sales of comparable companies, discounting the
forecasted cash flows of the portfolio company, the liquidation or collateral value of the portfolio company's
assets, third party valuations of the portfolio, third party sale offers, potential strategic buyer analysis, price-tobook ratios of comparable companies, discount for the unmarketability of illiquid assets and the value of
recent investments in the equity securities of the portfolio company.
Unlisted investments existing in the portfolio at balance sheet date have been valued using the price-to-book
ratio of similar companies trading in recognised stock exchanges. These values have been adjusted by an
unmarketability discount approved by the Audit Committee.
●
Derivatives: the values of derivatives are based on fair value information from the derivative counterparty as
adjusted for non-performance risk, if any, including a quantitative and/or qualitative evaluation of both our
credit risk and our counterparty’s credit risk. The value is corroborated by the estimated net present value of
the future cash flows using relevant market forward interest rate yield curves in effect at the end of the period
as adjusted for non-performance risk, if any.
Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly
from the values that would have been used had a ready market for the securities existed, and the differences
could be material. Additionally, changes in the market environment and other events that may occur over the
life of the investments may cause the gains or losses ultimately realised on these investments to be different
than the valuations currently assigned.
33
(c) Valuation of Investments (continued)
If the derivatives have appreciated in value the fair value will be carried as an investment in the Consolidated
Statement of Assets and Liabilities. If the derivatives have depreciated in value, the fair value will be
recorded as a liability in the Consolidated Statement of Assets and Liabilities. The changes in the fair value
are included in the unrealised appreciation (depreciation) in the Consolidated Statement of Operations.
●
Murabahas and wakalas: These instruments are carried at their fair value. Considering the delay and
uncertainty in payment for certain murabahas and wakala, provision is made for impairment losses based on
the Directors' estimate of the inherent probable losses in the murabahas and wakala instruments. The level of
provision has been determined based on estimates that consider management’s judgment and the Middle
East financial services industry practice for these types of instruments.
(d) Investment Transactions and Related Investment Income
Investment transactions are accounted for on a trade date basis. Realised gains and losses on investments are
based on the specific identification method. Interest is recorded on the accrual basis to the extent that the
amounts are collectible. Dividend income is recognised on the ex-dividend date for common equity securities.
(e) Cash and Cash Equivalents
Cash and cash equivalents are defined as cash, bank balances with banks and financial institutions, and short
term investment funds with original maturity of three months or less. Cash equivalents consist of time deposits
with a number of U.S. and non-U.S. commercial banks and money market fund investments. Foreign cash
represents amounts held by the Company in currencies other than US dollar. Cash equivalents are carried at
cost which approximates fair value.
(f) Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are translated at the rates of exchange prevailing at the
date of the financial statements. Transactions in foreign currencies are translated at the rates of exchange
prevailing at the time of the transaction. Exchange gains or losses are included in the Consolidated Statement of
Operations under net realised gain (loss) and unrealised appreciation (depreciation) on foreign currency.
(g) Consolidation
Under the investment company rules and regulations pursuant to the American Institute of Certified Public
Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies, investment management
companies are precluded from consolidating any entity other than another investment company. An exception to
this general principle occurs if the investment company has an investment in an operating company that provides
services to the investment company. The Company invests either directly or by using its wholly owned investment
vehicles based in Bahrain; Financial Assets MENA WLL and Financial Assets Bahrain WLL (the "Subsidiaries").
The consolidated accounts of the Company include the accounts of the Subsidiaries, as described in Note 1. All
intercompany accounts have been eliminated on consolidation.
Investments in other investment companies or funds are recorded as investments in the accompanying
consolidated financial statements and are not consolidated.
(h) Taxation
The Company is registered for taxation purposes in Guernsey where it pays an annual exempt status fee of £600
under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as amended). The Company is not
subject to withholding tax on investment income nor capital gains tax on realised and unrealised gains on
investments held in Jordan, Bahrain, Kuwait and Malaysia.
(i) Recent Accounting Pronouncements
ASC 820-10-65 “Fair Value Measurements and Disclosures
ASC 820-10-65 “Fair Value Measurements and Disclosures — Transition and Open Effective Date Information”
(previously referred to as FASB Staff Positions FAS 157-4, “ Determining Fair Value When the Volume and Level
of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly”) provides additional guidance for estimating fair value in accordance with ASC 820-10 “Fair Value
Measurements and Disclosures” (previously referred to as SFAS No. 157) when the volume and level of activity
for the asset or liability have decreased significantly. ASC 820-10-65 also provides guidance on identifying
circumstances that indicate a transaction is not orderly. The provisions of ASC 820-10-65 are effective for the
Company’s interim period ending on 30 September 2009. Effective 1 April 2009, the Company adopted ASC 82010-65 and the adoption did not have a material impact on the Company’s consolidated results of operations, cash
flows or financial position.
34
(i) Recent Accounting Pronouncements (continued)
ASC 320 "Investments - Debt and Equity Securities"
ASC 320 "Investments - Debt and Equity Securities" (previously referred to as "FSP FAS 115-2 and FAS 124-2,
Recognition and Presentation of Other-Than-Temporary Impairments" (FSP FAS 115-2 and FAS 124-2) provides
new guidance on the recognition and presentation of other-than-temporary impairments (OTTI) for available for
sale and held to maturity fixed maturities (equities are excluded). An impaired security is not recognized as an
impairment if management does not intend to sell the impaired security and it is more likely than not it will not be
required to sell the security before the recovery of its amortized cost basis. If management concludes a security is
other-than-temporarily impaired, the FSP requires that the difference between the fair value and the amortized
cost of the security be presented as an OTTI charge in the consolidated statements of operations, with an offset
for any noncredit-related loss component of the OTTI charge to be recognized in other comprehensive income.
Accordingly, only the credit loss component of the OTTI amount will have an impact on the Company’s results of
operations. The FSP also requires extensive new interim and annual disclosure for both fixed maturities
fixed maturities and equities to provide further disaggregated information as well as information about how the
credit loss component of the OTTI charge was determined and requiring a roll forward of such amount for each
reporting period.
ASC 825 Financial Instruments
ASC 825 Financial instruments (previously referred to as FSP FAS 107-1 and APB 28-1 "Interim Disclosures
about Fair Value of Financial Instruments") now extends the additional disclosure requirements for financial
instruments under ASC 825 to the interim financial statements and it amends ASC 270 "Interim Reporting"
(previously referred to as APB Opinion 28 "Interim Financial Reporting") to require those disclosures in
summarized financial information at interim reporting periods.
ASC 855-10 “Subsequent events”
In May 2009, the FASB issued ASC 855-10 “Subsequent events” (previously referred to as SFAS No. 165,
“Subsequent Events” (“SFAS 165”)), which provides guidance to establish general standards of accounting for
and disclosures of events that occur after the balance sheet date but before financial statements are issued or are
available to be issued. ASC 855-10 also requires entities to disclose the date through which subsequent events
were evaluated as well as the rationale for why that date was selected. ASC 855-10 is effective for interim and
annual periods ending after 15 June 2009. Effective April 1, 2009, the Company adopted ASC 855-10 which only
requires additional disclosures and the adoption did not have any impact on its consolidated financial position,
results of operations or cash flows. The Company evaluated all events or transactions that occurred after 30
September 2009 up through 23 November 2009. Apart from the subsequent events disclosed in Note 13, the
Company is not aware of any events or transactions that would require recognition or disclosure in the
consolidated financial statements.
Amendments to the Impairment Guidance
ASC Topic 352-40 "Beneficial Interest in Securitized Financial Assets" (previously referred to as FASB Staff
Position (FSP) EITF 99-20-1, "Amendments to the Impairment Guidance EITF Issue No. 99-20") was amended to
be more consistent with the impairment model in the ASC 320-10-35-31 "Investment-Debt and Equity Securities,"
(previously referred to as FASB Statement 115, "Accounting for Certain Investments in Debt and Equity
Securities") by aligning its impairment guidance more closely with ASC Topic 320-10-35-31. This amendment is
effective for interim and annual reporting periods ending after 15 December 2008. Retrospective application to a
prior interim or annual reporting period is prohibited.
3. Significant agreements and related parties
Significant agreements
a) Administrator
HSBC Securities Services (Guernsey) Limited (the "Administrator"), performs administrative duties for which it is
remunerated at a rate based on the Net Asset Value of the Company at the end of each quarter, of 0.22 per cent.
per annum of the Net Asset Value up to £125 million, 0.20 per cent. per annum of the next £125 million, 0.175 per
cent. per annum of the next £250 million and 0.15 per cent. per annum thereafter.
The Administrator fees expensed for the period amounted to US$492,699 (30 September 2008: US$223,661).
The amount outstanding at 30 September 2009 is US$241,922 (31 March 2009:US$257,122) (see Note 9).
35
3. Significant agreements and related parties (continued)
b) Custodian
HSBC Custody Services (Guernsey) Limited (the "Custodian") is entitled to receive a fee which will be agreed in
writing from time to time between the Company and the Custodian. The fees are based on transaction volumes
and are comparable to market rates. In addition to this fee, the Custodian is to be reimbursed for reasonable out
of pocket expenses incurred for the benefit of the Company.
The Custodian fees expensed for the period amounted to US$ 58,186 (30 September 2008: US$9,560). The
amount outstanding at 30 September 2009 were US$ 40,067 (31 March 2009:US$46,420).
Related parties
c) Manager
The Investment Manager is entitled to a management fee, payable quarterly in arrears, at an annual rate of two
per cent. of the Net Asset Value of the Company. The Investment Manager is a wholly owned subsidiary of
Global and hence related party of the Company.
In addition, the Investment Manager is entitled to a performance fee in each performance period provided the
performance hurdle is met. The first performance period began on Admission and ended on 31 March 2009 and
each subsequent performance period is a period of six months.
The total performance fee will be equal to 20 per cent. of the amount by which the adjusted Net Asset Value per
Share at the close of business on the last day of the performance period exceeds the performance hurdle
multiplied by the time weighted average of the total number of shares in issue since the commencement of the
performance period. The performance hurdle is met if the adjusted Net Asset Value per Share at the end of the
relevant performance period is an amount equal to 108 per cent^0.5. (pro rated in the case of the first
performance period) of the adjusted Net Asset Value per Share at the start of the performance period (or, in the
case of the first performance period, the Offer Price per Share). There were no performance fees paid for the
period ended 30 September 2009.
The investment management agreement between the Company and the Investment Manager is for an initial fixed
term of five years and terminable by either party giving to the other not less than 24 months' written notice and
may be terminated by either party immediately in the events of a continuing material breach of the agreement, or
certain insolvency event affecting the other party.
The management fees expensed for the period amounted to US$4,358,157 (30 September 2008: US$2,127,883).
The management fees outstanding at 30 September 2009 were US$2,247,251 (31 March 2009: US$2,175,596).
d) Directors' Remuneration
Each Director is entitled to a fee of US$50,000 per annum (US$75,000 per annum for the Chairman) with an
additional US$10,000 payable to the chairman of the audit committee and an additional US$5,000 to each
member of the audit committee. Maha Al-Ghunaim who is a related party of the Company due to her position of
Chairperson and Managing Director of Global and Omar El-Quqa have waived their entitlement to receive
directors' fees.
The Directors fees expensed for the period amounted to US$66,566 (30 September 2008: US$35,419). The
amount outstanding at 30 September 2009 is US$43,630 (31 March 2009: US$175,164).
In addition to the Directors fees, the Board approved remuneration for the additional services and responsibilities
undertaken by the Independent Directors in respect of their position on the Independent Committee. As at the 31
March year end, the amounts approved were US$75,000 for Richard Bernays and US$50,000 for John Hawkins
and were one-off payments. Remuneration for the Independent Committee will be subject to review dependent on
the terms and level of work involved.
e) Global Investment House
Global is a related party, whereby the initial portfolio of the Company was transferred from Global to the
Company for consideration of US$ 238.8 million, pursuant to a Sale and Purchase Agreement dated 15 July
2008, in exchange for the 29.99 per cent. in the Company and the remainder was settled in cash. The initial
portfolio was transferred to the Company through an intra-group loan facility extended by Global, which was
repaid in December 2008. The initial portfolio was subsequently transferred to the Company's Subsidiary,
Financial Assets Bahrain WLL through the intra-group loan facility.
Murabaha and wakala receivables held by the Group were arranged by Global, and certain Murabaha contracts
are due from Global. Further details are disclosed in Note 7.
36
4. Investments
The levels of fair value inputs used to measure the Company's investments are characterised in accordance with
the fair value hierarchy established by ASC Topic 820-10. Where inputs for an asset or liability fall in more than
one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that
is significant to that investment’s fair value measurement. The Company uses judgement and considers factors
specific to the investment in determining the significance of an input to a fair value measurement. The three levels
of the fair value hierarchy and investments that fall into each of the levels are described below:
●
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities. The Company uses Level 1 inputs for investments in publicly traded
unrestricted securities. Such investments are valued at the closing bid price on the measurement date.
●
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability
either directly or indirectly. Where some unlisted equities are traded in the secondary market, the latest prices
of the trades registered in those markets have been used.
●
Level 3: unobservable inputs that cannot be corroborated by observable market data. The Company uses
Level 3 inputs for measuring the fair value of all of its unlisted investments and derivatives. See Note 2(c) for
the investment valuation policies used to determine the fair value of these investments.
The following fair value hierarchy table sets forth the investment portfolio of the Company by level as of 30
September 2009:
Investment Portfolio at Fair Value as of 30 September 2009
Name of investment
Listed equities
Unlisted equities
Al Manar Financing & Leasing Company
Al-Soor Financing & Leasing Company
Asian Finance Bank
BMI Bank
Dar Al Tamleek SPV
Level 1
US$
Level 2
US$
Level 3
US$
Total
US$
43,045,668
30,507,176
-
-
43,045,668
30,507,176
73,552,844
-
10,968,894
17,950,588
8,377,917
47,305,577
4,117,358
7,267,320
24,690,322
120,677,976
10,968,894
17,950,588
8,377,917
47,305,577
4,117,358
7,267,320
24,690,322
194,230,820
The following table sets forth a summary of changes in the fair value of unlisted equities measured using Level 3
inputs during the period ended 30 September 2009:
Name of investment
Asian Finance Bank
BMI Bank
Dar Al Tamleek SPV
Global Put Option Agreement
Balance
at
Transfers
into
31 March 2009
US$
11,385,518
5,968,195
37,179,471
19,850,889
21,259,000
95,643,073
Level 3
US$
20,525,359
4,117,358
12,520,430
37,163,147
Unrealised
Appreciation
(Depreciation)1
US$
(9,556,465)
6,565,070
2,409,722
10,126,106
(5,253,110)
4,839,433
(21,259,000)
(12,128,244)
Balance
30 September
2009
US$
10,968,894
17,950,588
8,377,917
47,305,577
4,117,358
7,267,320
24,690,322
120,677,976
37
4. Investments (continued)
Name of investment
Listed equities
Unlisted equities
Asian Finance Bank
BMI Bank
Derivatives
Investment Portfolio at Fair Value as of 31 March 2009
Level 1
Level 2
Level 3
Total
US$
US$
US$
US$
45,175,876
40,647,528
-
-
45,175,876
40,647,528
85,823,404
20,525,359
12,520,430
33,045,789
11,385,518
5,968,195
37,179,471
19,850,889
21,259,000
95,643,073
20,525,359
11,385,518
5,968,195
37,179,471
12,520,430
19,850,889
The following table sets forth a summary of changes in the fair value of unlisted equities measured
inputs during the period ended 31 March 2009:
Balance
Unrealised
at
Appreciation
(Depreciation)1
Name of investment
2 June 2008
US$
US$
30,837,597
(19,452,079)
Asian Finance Bank
13,139,520
(7,171,325)
BMI Bank
43,949,116
(6,769,645)
19,201,610
649,279
21,259,000
107,127,843
(11,484,770)
21,259,000
214,512,266
using Level 3
Balance
31 March
2009
US$
11,385,518
5,968,195
37,179,471
19,850,889
21,259,000
95,643,073
1
Represents amounts included in total unrealised appreciation (depreciation) from investments in the statement
of operations attributable to the change in unrealised appreciation (depreciation) related to assets classified as
Level 3 that are still held at 30 September 2009.
Derivatives
The Company used currency derivative financial instruments to manage currency risk. The Company has policies
and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial instruments for speculative purposes. All
derivative financial instruments are generally recorded at fair value with changes in value reflected in the
Consolidated Statement of Operations within the net decrease/increase in the unrealised
depreciation/appreciation on investments. Fair value of currency derivatives is based on the estimated net present
value of the future cash flows using the exchange rate in effect at the balance sheet date. However, there were
no open currency derivative contracts held by the Company at the balance sheet date.
When the Company acquired the initial investment portfolio (the “Portfolio”) from Global in July 2008, it entered
into a put option agreement dated 15 July 2008 with Global (the “Counterparty”), pursuant to which the
Counterparty granted the Company a put option over all of the unlisted investments comprised in the Portfolio.
Put options contracts grant the buyer, the right, but not the obligation, to sell, within a limited period, a financial
instrument, including a flow of related income, at a contracted price that can also be settled in cash, based on the
differential between specific indexes.
The terms of this put option with the Counterparty allowed the Company to transfer all of the unlisted investments
contained in the Portfolio back to Counterparty at the price paid by the Company on the initial transfer of that
Portfolio at admission to the official listing of the London Stock Exchange. The option was exercisable once only
within 30 days following the first anniversary of the date of Admission (the “Exercise period”) and lapses one year
and thirty days following Admission.
38
Global Put Option Agreement (continued)
The Independent Directors concluded that exercising the put option would not be in the Company’s best interest.
As a result, the Independent Directors began negotiations with the Counterparty, on the basis of the net
diminution in the value of the unlisted investments, to settle the contract. On 17 July 2009 the Company reached
an agreement (the “Global Put Option Agreement”) and accepted an offer requiring the Counterparty to make a
net single payment of US$21.259 million for the release from the option. The termination of the Put Option
Agreement was approved by the Company's shareholders on 29 October 2009.
The Company has recorded US$21.259 million receivable from Global Investment House K.S.C.C in settlement
of the Put Option, (this has been disclosed in Note 8). The amount was received in full on 5 November 2009.
5. Cash and cash equivalents
30 September 2009
US$
31 March 2009
US$
7,064,544
24,000,000
49,980,090
50,001,033
26,507,512
157,553,179
30,000,000
30,000,000
6,243,543
6,243,543
92,242,492
92,242,492
Total cash and cash equivalents
163,796,722
122,242,492
Bank overdraft
Net Cash and cash equivalents
(58)
163,796,664
122,242,492
30 September 2009
US$
71,030
106,098
177,128
31 March 2009
US$
19,912,674
2,824,675
106,098
22,843,447
Short term deposits
Citibank Kuwait Deposit 0.325% 26/10/2009
Qatar National Bank
Royal Bank of Canada
HSBC Fixed Deposit 0.12% 26/10/2009
Other cash
HSBC Securities Services Gsy - Cash & Trading Account
Other cash accounts
6. Foreign currency cash
Citibank (KWD Nil)
HSBC Jordan (JOD 50,272)
Standard Chartered (BHD 40,000)
7. Murabaha and wakala receivables
The Group entered into the following murabaha and wakala contracts. A murabaha is an Islamic financing
structure, where an intermediary buys an asset with free and clear title to it. The intermediary and prospective
buyer then agree upon a sale price (including an agreed profit for the intermediary) that can be made through a
series of instalments, or as a lump sum payment. A wakala is a type of an agency contract in which the
intermediary buys an asset through a broking agent and all communication and dealings with the buyer are done
through a broking agent.
These instruments were initially recorded at cost and profit accrued in accordance with the individual contract
terms. However, where repayment defaults have occurred, no further profit has been accrued and the contracts
have been valued at their recoverable amount.
39
7. Murabaha and wakala receivables (continued)
The table below shows the value of these contracts, as well as the sums recorded in the balance sheet of the
accounts at 30 September 2009:
30 September 2009
US$
Murabaha contracts with Global:
(i) Global Investment House
Less impairment for credit losses
Murabaha contracts with other companies:
(iv) Jordanian murabaha (JOD Nil)
34,000,002
(8,500,000)
25,500,002
31 March 2009
US$
47,765,800
(8,500,000)
39,265,800
-
1,477,735
Total murabaha contracts
25,500,002
40,743,535
Wakala contracts with other companies:
(ii) Kuwaiti wakala (KWD 3,753,402)
13,097,678
23,168,553
35,395,566
(17,697,783)
17,697,783
34,798,131
(17,399,065)
17,399,066
30,795,461
40,567,619
56,295,463
81,311,154
(iii) Kuwaiti wakala (KWD 10,143,307)
Less impairment for credit losses
Total wakala contracts
(i) Murabaha contracts with Global:
As at the balance sheet date, a total of US$34 million was outstanding under certain Islamic financing contracts
with Global and its subsidiaries (the "Global Financing Contracts"). The Company resolved to impair the Global
Investment House murabaha by 25 per cent. or US$8.5million. This 25 per cent. was based on the principal
amount outstanding of US$34.0 million on 9 June 2009 as the Company received US$9.6million of the
outstanding amount and US$4.1million in asset acquisition. Further the Company is in negotiations with Global to
acquire additional assets for the remaining balance. Further disclosure is provided in the subsequent event note
in Note 13.
Wakala contracts with other companies:
As at the balance sheet date, a further US$48.5 million was outstanding under wakala contracts held with two
Kuwaiti companies.
(ii) In respect of the first Kuwaiti wakala, the total principal amount of the contract was US$34.8 million (KD 10.2
million) (plus profit). This contract matured on 14 January 2009 at which time the Kuwaiti company was unable to
meet its payment obligations. The Company agreed a rescheduling package of four instalment payments with the
Kuwaiti entity for the repayment of the outstanding amount owed and the Kuwaiti entity made the first and second
payments reducing the company's exposure to US$12.7 million (plus profit). However, an instalment payable to
the Company on 30 September in the sum of US$6.9million (KD 2 million) has been delayed until 28 February
2010. The Kuwaiti entity anticipates making a further instalment payable to the Company on 30 November 2009
as scheduled. At the balance sheet date, the wakala receivable was US$13,097,678.
(iii) In respect of the second Kuwaiti murabaha, the total principal amount of the contract was US$35.4 million (KD
10.2 million) (plus profit). This contract matured on 12 January 2009 at which time the Kuwaiti company was
unable to meet its payment obligations. The Investment Manager has, up to the date of signing these
consolidated financial statements, recovered US$760,898 (KD 220,467) from the company, but US$35.3 million
(KD 10.1 million) (plus profit) remains outstanding. At 30 September 2009, the wakala receivable was
US$35,395,566.
The Company has resolved to impair the second Kuwaiti murabaha by 50 per cent. or US$17.7 million. The
Independent Committee is currently in negotiations with the Kuwaiti Company to agree a rescheduling package
for the repayment of the murabaha. Provision for impairment losses is based on the Directors' estimate of the
inherent probable losses in the murabahas and wakala instruments. The level of provision has been determined
based on estimates that consider management’s judgment and the Middle East financial services industry
practice for these types of instruments.
40
8. Other receivables
Interest receivable
Prepaid expenses
Receivable from Global Investment House K.S.C.C.*
30 September 2009
US$
31 March 2009
US$
7,198
83,280
21,259,000
40,506
25,942
-
21,349,478
66,448
*Consideration for the termination of the Put option Agreement (See Note 4 for further details)
9. Other payables
Administration fees
Audit fees
Professional fees
Other accrued expenses
30 September 2009
US$
241,922
92,070
4,986
40,067
379,045
31 March 2009
US$
257,122
110,000
438,301
53,262
858,685
10. Shareholders' Equity
Called up share capital
Shares issued at beginning and end of period
Issued during the period
Redeemed during the period
Shares issued and outstanding at close of period
Shares issued at beginning of period
Issued during the period
Shares issued and outstanding at close of period
30 September 2009
Number of shares
Share Capital
US$
252,040,002
497,623,330
252,040,002
497,623,330
31 March 2009
Number of shares
Share Capital
US$
252,040,002
500,000,000
-
(2,376,670)
252,040,002
497,623,330
Subject to the articles of incorporation of the Company each shareholder is entitled to one vote for each share
held and the right to receive dividends according to the amounts paid up on the shares held.
The share issuance costs have been netted against the proceeds from the IPO of US$500 million.
11. Capital Commitments
On 17 June 2009, the Company, through its wholly-owned subsidiary Financial Assets Bahrain W.L.L., acquired a
minority holding in Twenty Third Project Management Company W.L.L. and consequently an indirect interest of 5
per cent. in Dar Al Tamleek Co. (also known as Saudi Housing Finance Company). In October 2009, the
Company further invested US$3.3 million in Dar Al Tamleek under the second capital call, taking the total
investment to US$7.4 million (the equity is 50% paid up until now). The remaining 50% is expected to be called in
2010.
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. Consolidated Financial Highlights
Per Share Data (1)
Net asset value at beginning of period
Net operating loss
Net realised gain on investments
Net appreciation on investments
Net depreciation on derivatives
Net increase in net assets resulting from operations
Issuance of ordinary shares
Net asset value at end of period
1 April 2009 to
30 September 2009
2 June 2008 to
30 September 2008
US$1.74
US$(0.01)
US$0.08
US$(0.10)
US$0.00
US$1.71
-
US$(0.01)
US$0.07
US$0.06
US$1.98
US$1.71
US$2.04
Ratios/Supplemental Data
Per share market value at end of period
£0.62
£1.01
Shares outstanding at end of period
252,040,002
252,040,002
Weighted average number of shares
252,040,002
252,040,002
Net assets at end of period
US$433,179,627
US$513,690,968
Average net assets (2)
US$451,764,883
US$523,723,206
Total Return (3)
(12.95%)
3.23%
Ratio of operating expenses to average net assets (4)
1.40%
4.02%
Ratio of net operating loss to average net assets (4)
(0.79%)
(3.24%)
(1) Basic weighted average per Share data
(2) Average net assets calculated using the weekly valuations plus the 30 September 2009 Hard NAV.
(3) Total return (which is calculated as the net increase in net assets resulting from operations divided by
the shares issued) excluding stock issuance costs and commissions payable on purchases of
(4) Ratios based on reporting periods of less than twelve months are annualised. One time organisation
costs are not included in the annualised operating expenses.
42
13. Subsequent events
The Company remains in negotiations with Global regarding the possible acquisition of a further asset, which is
intended to further reduce the amount owed by Global and its subsidiaries to the Group under the Global
Financing Contracts. The Company will inform shareholders, on behalf of the Group, in respect of any material
developments with respect to the possible acquisition of this asset, but there can be no certainty that agreement
can be reached to acquire this asset
As announced on 17 July 2009, the Company entered into a Put Option Variation and Termination Agreement
with Global. Under this agreement the Company agreed, inter alia, to cancel a put option in the Company's
favour in return for the payment by Global of US$21.259 million. As this was a related party transaction, it needed
approval of the independent shareholders of the Company (i.e. shareholders other than Global and its
associates). This transaction was approved by a resolution of shareholders at an extraordinary general meeting of
the Company held on 29 October 2009. The Company has announced that it will distribute the sum received from
Global by way of a special dividend of around 5 pence per share.
43

GMFA Accounts September 09 - final

Transcription

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