KUWAIT: The management of the Kuwait Stock Exchange halted trading yesterday for at least three days after the administrative court issued an unprecedented decision ordering the closure of the bourse in order to stem massive losses by investors.
The KSE will remain closed on Sunday and Monday while the court reviews a lawsuit filed by traders against the prime minister, commerce minister and bourse director general regarding failure to take measures to stop the slide in the index. Judge Najeeb Al-Majed issued the order to suspend trading immediately until the court can decide on the case. The court may extend the suspension or could reject the case.
The lawsuit was filed by lawyer Adel Abdulhadi on behalf of two investors, one of them lawyer Khaled Al-Awadhi, who claimed that the government has failed to take any measures to safeguard the interests of traders who incurred heavy losses in the past few weeks.
In explaining its decision, the court said that it found that the bourse management failed to take any measure to confront the global crisis which has created havoc in the investments of traders in the market. It also said that it is clear from the available documents that the index of the Kuwait Stock Exchange has dropped sharply recently to very low levels.Traders celebrated the decision to halt trading, some of them saying that the bourse should have been suspended long ago to stop the bleeding.
Some of them held the government responsible for the losses they incurred for refusing to halt trading. Last month, traders at the bourse demonstrated for four consecutive days to demand the suspension of trading but the government and the bourse administration rejected their calls.
Several MPs welcomed the decision to stop trading but Finance Minister Mustafa Al-Shamali described the measure as "very dangerous" but added that the government respects the court ruling. But Commerce and Industry Minister and Minister of State for National Assembly Ahmad Baqer said that the Cabinet would appeal the decision. Baqer told the press that the decision was hasty, adding that the KSE committee would convene November 16 to discuss this issue.
"The appeal to the court verdict is underway and the KSE meeting will be attended by officials from the audit bureau, the chamber of commerce and industry, the central bank, KSE as well as a number of market experts," said Baqer who deemed the decision an "unwise step."
The KSE has been in freefall the past few months. It has lost around 45 percent since June 24 when the index hit an all-time high of 15,654 points. Its capitalization has dropped more than KD 26 billion since June. The KSE dropped for the past six consecutive sessions and in October alone, it lost around 24 percent.
More than 40 of the 200 listed firms were trading lower than their nominal value of 100 fils, while the market leader, Zain telecom dropped below the KD 1 for the first time yesterday.The court decision came after the government has taken several measures to safeguard the national economy from the impact of the global financial turmoil.
The government has guaranteed deposits at national and foreign banks operating in Kuwait and pumped billions of dinars in the bourse and the financial system.The bourse has been reeling under the troubles of Gulf Bank, which incurred losses from derivatives deals and also from investment companies who are facing difficulties in repaying their debt estimated at KD 6 billion, half of it owed to foreign financial institutions.Separately, the Kuwaiti government plans to buy up assets at a discount from investment firms hit by the global financial crisis, the central bank said. Local media have reported billions in losses due to the crisis, which has forced the central bank to rescue the country's fourth largest lender.
Kuwait has already slashed interest rates, guaranteed all bank deposits, and allowed the Kuwait Investment Authority, its sovereign wealth fund, to pump cash into the bourse. The new plan would purchase stocks, land or real estate from investment firms at a discount and then issue them a promissory note enabling them to borrow from banks and then repurchase the assets at the same price within five years. The arrangement will allow investment firms to avoid selling assets into distressed markets at depressed prices, thus deepening their predicament, assets purchased by the new fund could be local or foreign assets. Investment firms have similar activities to those of investment banks in Kuwait. They are asset managers and underwriters. They manage mutual funds and portfolios on behalf of their clients and they can also establish other firms.
By B Izzak
© Kuwait Times 2008
