Mashreqbank v AlGosaibi – Analysis of FX Deals

This post is based on the affidavit (including appendices) submitted by Bruce R. Grace, Esq. of Baach Robinson & Lewis PLLC, who are the attorneys for Ahmad Hamad AlGosaibi & Brothers Company ("AHAB") in the above lawsuit. Attorney Grace submitted these documents to the Supreme Court of the State of New York on 5 February 2010. They were filed as Document #83. But since then for some reason there's been a change. Document #83 has been deleted and it and each of the exhibits contained have been filed as separate documents all dated 25 February. The specific document used as the basis for this post and referred to herein is Document #87-1. 

You can access electronic documents filings for this case at the Supreme Court of New York's website (http://iapps.courts.state.ny.us/webcivil/FCASMain). Search using Case Index #601650/2009. Follow the steps. You have to go through several pages. On the page labeled "WebCivil Supreme – Case Detail" go to the bottom of the page and click on the "Show EFiled Documents" button.

As usual, a caveat. As you read documents filed in the case, keep in mind that each side's lawyers are not disinterested partisans of truth. They are hired to represent their clients.

From the documents I've read it's clear that both parties agree that there was an FX transaction in the name of AHAB with Mashreqbank under which Mashreqbank was to pay US$150 million to AHAB's account at Bank of America on 28 April 2009 and AHAB was to pay SAR564.3 million to Mashreqbank value 5 May 2009. They also agree that Mashreq fulfilled its side of the contract but that AHAB did not.

As you'd expect both parties have different views about this latter fact. Here's how I would summarize their arguments. AHAB has two key contentions. First that they were the victim of a fraud perpetrated by Mr. AlSanea. And second that from the nature and pattern of the deals Mashreq should have known the deals themselves were questionable. Therefore, Mashreq is in some sense complicit. On its part, Mashreqbank has vigorously denied knowledge of any wrongdoing in the deals and asserts that it was acting in commercial good faith. The Bank also argues that the instructions it received appeared to come from duly authorized parties at AHAB. Simply put, there is a commercial deal which AHAB needs to honor. That's my take. But, I suggest you read the case documents themselves to get a complete picture of their positions.

Putting aside the issue of who is right and who is wrong, let's take a closer look at the FX deal which is the subject of this case.

The FX transaction is somewhat unusual as it is a "split value" deal. Normally FX deals have both parties making payments on the same day. If Bank A sells Bank B Sterling against the US Dollar, on the settlement date Bank A remits Sterling to Bank B's account. And on the same day Bank B remits the countervalue in US Dollars to Bank A's account. In a split value date deal, one party pays before the other. The party who pays first is taking risk that the second party might not pay. It is taking a credit risk that the second party may not pay its side of the transaction due to financial problems – being put under administration, entering bankruptcy, etc. Even in an FX transaction where settlement occurs on the same day, there is that credit risk. Herstatt Bank is an example. However, the longer the gap between the first party's payment and the second party's the more credit risk the first party is bearing. 

So what could be the reasons why parties would agree to a split value settlement mechanism?

Credit Risk Management

If one of the parties were concerned about the creditworthiness of the other, it could mitigate its risk by requiring the weaker party to pay first. After confirming receipt of funds and only then, the stronger party would remit its funds. This eliminates credit risk on the weaker party. The time between the two payments would be primarily a function of two things. First, the time it takes for the stronger party to confirm receipt of the funds from the weaker party. Second, how soon thereafter, the stronger party is operationally able to make its payment of the countervalue currency.

Given the currencies involved – the US Dollar and the Saudi Riyal- confirmation of receipt should be relatively easily. There are two widely available methods which provide quick and efficient information (as well as payment functionality) to banks around the world. The shared global "utility" called SWIFT. And proprietary systems offered by various major banks around the world – generally based on access via the Internet using PCs.  AHAB and Mashreq would have access to one or both of these.

In terms of payments, same day payments for these currencies should be no problem.  The US system has been "wired" for some time.  Saudi Arabia has had an electronic interbank payment system - including same day payments - since 1997 SARIE (Saudi Arabian Riyal Interbank Express).  Payment instructions could be transmitted by SWIFT or a proprietary bank system.

Two conclusions. 

First, This can't be a credit motivated transaction since the stronger credit, Mashreq, is paying first.

Second, the gap between payments, seven days, is longer than what a credit driven transaction would require.  Three days is probably sufficient as this represents the  "worst case" in terms of operational timing.  That is, if  Mashreq were to remit US Dollars on a Wednesday,  because of later NY working hours, AHAB might not be able to confirm receipt until the next business day. Even if staff came in on Thursday to confirm receipt, a SAR payment couldn't be made until Saturday. 

The only thing that could lengthen the period would be seasonal holidays, e.g., Eid Al Fitr, Eid AlAdha, National Day, etc.  Were there any seasonal holidays during late April / early May 2009 that extended the time period?   No! 

So I think we can safely exclude credit concerns as a motive for a split value date deal in this case.

OPERATIONAL REQUIREMENTS – DISPARITY OF WORKING DAYS

The second reason for these transactions is ostensibly disparity of working days. That is, on the settlement date, New York is open for US Dollar payments but Riyadh (and the rest of Saudi) is closed for the weekend or a holiday. As noted above, Saudi Arabia's "weekend" is Thursday and Friday. 

In this transaction US Dollars settled on Tuesday 28 April 2009 with the SAR on Tuesday 5 May 2009. There were five Saudi working days from 28 April to 5 May: Tuesday 28 April, Wednesday 29 April, Saturday 2 May, Sunday 3 May and Monday 4 May. There were no "seasonal" holidays during this period. So it is hard to see that there is an operational reason for the seven day gap.

A key question though (at least in my mind) is whether even with a disparity of working days such a split value deal would be entertained. 

When I worked for financial firms in the ME managed according to "USA" practices, a split value deal (except one undertaken for credit reasons) was strictly forbidden.  And generally there was  no interest in the extra hassle involved with credit motivated split value deals.   Two reasons. First, such a transaction could be a way of providing a short term money market loan to a party. Such extensions of credit were required to take place under lines specifically designated for loans.  If a transaction does not appear as a loan, a bank might extend another loan well beyond its risk tolerance for that customer. Another reason was integrity of our financial statements and regulatory reporting. A loan should be reported as a loan not an FX transaction.

Now I recognize that contrary to the beliefs of some what a "USA-style" managed institution does is not necessary infallible behavior. So I checked with an old friend who is long experienced  in Treasury at the DGM/AGM level in both "Arab" and "European" style managed banks. He told me that none of the institutions he worked for ever would entertain such a transaction. The counterparty would simply be told  that the deal had to be done on a common working day for both currencies so that settlement of both sides of the transaction could take place on the same day. But perhaps our horizons are too narrow.  Maybe other institutions apply different rules.  Even if that is the case (and I'm not persuaded that routinely doing split value date deals makes good business sense), the fact is that 28 April was a valid business day in both the Kingdom and the USA. So there was no operational reason both sides could not have settled on the 28 April. 

My friend also commented that the 3.762 FX rate used in the transaction was "non reflective of the market price". In his banks and mine, it was strictly forbidden to book transactions at non market rates. The concern was that one was assisting someone in manipulating their financials.

RATIONALE FOR THE SPLIT VALUE TRANSACTIONS

So if we've eliminated these two justifications, what could be the rationale this transaction?

If we examine the pattern of transactions, we can perhaps gain an insight into their purpose and rationale. 

In his affidavit Exhibit 1, page 20 paragraph #21 Attorney Grace states that between February 2005 and 5 May 2009, Mashreq and AHAB engaged in over "100 purported 'split value foreign exchange transactions' substantially identical to the transaction pleaded by Mashreq in the Complaint. Between January 2008 and 1 May 2009 alone, 52 split value foreign exchange transactions were carried out between Mashreq and the Money Exchange, totaling US$4.7 billion." 

He then goes on to describe that the transactions involved a payment of US Dollars by Mashreq to AlGosaibi's US Dollar account at Bank of America New York with AHAB to pay SAR to Mashreq at National Commercial Bank 3 to 12 days later. The FX rates used in these transactions were not at the prevailing spot FX rate. The SAR is fixed to the US Dollar at 3.75 SAR = $1.00. Interbank trading takes place in a narrow range around that rate. Before the settlement date, AHAB and Mashreq would engage in an offsetting deal to roll the existing deal forward. He also noted that in every deal Mashreq made a profit. AHAB never did.

Here's an outline of how this scenario might work. First, there is the original deal. Let's use the deal settling 5 May for SAR as the "Original Deal" (though to be clear that deal was actually the rollover of an earlier deal). That deal involved US Dollars against SAR with Mashreq paying US$150 million value 28 April with AHAB to pay SAR564.3 million on 5 May. If we presume AHAB doesn't have any money or wants to use its money for something else, how does it settle the payment due on 5 May to Mashreq?

Let's treat this as two separate deals. First a deal to cover the SAR payment due on 5 May (a "Closeout Deal"). And then a second deal to re-open the position in US Dollars (a "Rollover Deal").

In the Closeout Deal AHAB buys SAR from Mashreq against its (AHAB's) payment of US Dollars to Mashreq with settlement of both for value 5 May at the Spot Rate of 3.75. That takes care of the obligation to pay SAR from the Original Deal, except for Mashreq's profit SAR0.9 million which AHAB has to fund from its own resources. (The "profit" arises from the difference in SAR betweens US$150 million at SAR 3.75 = US$1.00 and SAR 3.762).

But now it needs US$150 million to pay for the SAR value 5 May under the Closeout Deal. Where does it get the US Dollars, if it doesn't already have them? From the Rollover Deal. Let's assume the Rollover Deal has the same terms as the Original Deal except the value dates are different. So, AHAB would buy US Dollars from Mashreq value 5 May against a payment of SAR to Mashreq value 12 May. This deal re-introduces the split value date.

While the Affidavit it sounds as though the Closeout Deal and the Rollover Deal were combined into a single deal, the Exhibits contain a copy of AHAB's confirmation for the Original Deal (itself a Rollover of an earlier deal). That confirm shows that there must have been two separate deals as outlined above. AHAB and Mashreq could agree to net the two deals' payments. And thus AHAB would owe Mashreq SAR0.9 million.   AHAB's obligation to pay Mashreq US$150 million (Closeout Deal) would be "offset" by Mashreq's obligation to pay US $150 million to AHAB (Rollover Deal).

Putting this information in tabular form might make the explanation clearer. The table below summarizes the cash flows by value date that would have occurred from a rollover of the transaction maturing 5 May. But note: no such rollover occurred: no Closeout Deal and no Rollover Deal. And since AHAB didn't settle the SAR payment on 5 May, Mashreq is pursuing them in Court.

Transaction	US$ 28 April	US$ 5 May	SAR 5 May	SAR 12 May
Original Deal FX Rate = 3.762	+$150MM		-SAR564.3MM
Closeout Deal FX Rate = 3.75	$0	-$150MM	+SAR562.5MM
Rollover Deal FX Rate = 3.762	$0	+$150MM		-SAR564.3MM
TOTAL CASHFLOW TO AHAB	+$150MM	US$0	-SAR1.8MM	-SAR564.3MM

As you can see from above the Closeout Deal and the Rollover Deal effectively push forward AHAB's payment of the SAR564.3 million to settle the original inflow of US$150 million. The only payment that does occur is the profit payment to Mashreq on 5 May. On each settlement date in the future (assuming the deal would be continued to be rolled forward), AHAB would pay Mashreq its profit. That explains why Mashreq always was making a "profit" on each deal.

Based on the above. 

1. These FX transactions were the equivalent of short term loans. 
2. The persistent "profit" on the deals was in effect the interest payment on the loan. 
3. The transaction FX rate of 3.762 compared to the 3.75 fixed parity results in an implied borrowing rate of 8.32% per annum. That rate might seem high. The day before the 28 April value date one month Libor was trading at roughly 43 basis points. That means the margin over Libor was roughly 7.9%. But remember that at that time spreads were still elevated due to subprime crisis, the failure of Lehman, etc. So there is some rationale to the credit spread here. 
4. Also as is hopefully clear, the Rollover Deals did not result in AHAB getting more money from Mashreq. Rather the Rollovers merely extended the maturity of the loan. So despite the US$4.7 billion volume of transactions mentioned, AHAB only received  (borrowed) US$150 million from Mashreq. 
5. Mashreq's dealers must have known that they were extending loans. Whether its management did is not determinable from the documents I've seen. 
6. In terms of justification for the transaction, it's hard to imagine that anyone with a knowledge of AHAB's business could consider these transactions were commercially necessary to fund the needs of the Money Exchange business. The volumes are too large relative to the Exchange's business.  Since the amounts were rolled forward, there was only one net cash inflow to AHAB. 
7. Nor would these transactions likely to be financially motivated "hedges", particularly, since the US$/SAR FX rate is fixed (and has been so for many many years) and since the Saudi Government has ample financial resources to maintain the "peg".

What’s Behind GFH’s Treasury Share Transactions?

You Should Have

A shareholder's relationship with the board of a company in which he or she has invested in is similar in several ways to the relationship of a younger sibling with an elder brother. 

This isn’t the first time I’ve posted on this topic.

Earlier posts here and here have focused on quantifying the costs to shareholders. 

Today I want to step back and offer some hopefully informed speculation on what might be going on. 

See if you agree

Treasury Share Transaction Basics – Not an Income Statement Event

To provide a framework for this post, some basics on Treasury Share transactions.

Under generally accepted accounting principles, gains or losses on Treasury Share transactions are reflected directly in shareholders’ equity in the Consolidated Statement of Changes in Owners’ Equity.  

That is, they do not appear in the Income Statement.  

And because of this some shareholders might miss them!

However, when a firm engages in these transactions, there is an economic gain or loss to shareholders, particularly because most of the time these are cash transactions. 

Thus, it's proper to consider them as "income" or "loss" as I will in this post. 

And it's important for shareholders to be aware of them as these transactions affect the value of their firm.

History of GFH Treasury Share Transactions

As the chart below demonstrates, it’s only since 2017 that GFH has become very active in Treasury Share transactions. 

Both the volume and value of transactions has increased dramatically during this period as have FYE holdings, shown here in USD terms (EOP Value) and as a percent of total issued shares (% TIS).

GFH Treasury Share Transactions
Millions of US Dollars
FYE	Buy	Sell	Cancel	EOP Value	% TIS
R2014	$0	$0	$0	$1	0.11%
2015	$5	$2	$0	$4	1.09%
2016	$7	$11	$0	$0	0.10%
2017	$83	$25	$0	$58	2.89%
2018	$161	$134	$0	$85	6.94%
2019	$215	$177	$51	$73	8.05%

How did GFH fare on these transactions?

Over the period FY 2017 through FY 2019, GFH has incurred losses on Treasury Share transactions totaling USD 58 million. 

1. USD 3 million in FY 2017
2. USD 27 million in FY 2018 and 
3. USD 28 million in FY 2019.

Beyond that in FY 2019 GFH canceled Treasury Shares that it had purchased for USD 51 million.

In FY 2019, it acquired USD 32 million in Treasury Shares for a “share incentive scheme”. No economic gain or loss but a use of GFH shareholders' funds.

It also obtained OGM approval to use 140 million of Treasury Shares for an acquisition or acquisitions, subject to CBB approval.

That’s a quite a lot of expensive Treasury Share transactions –none of which appear in GFH’s Income Statement.

Let’s take a closer look to try and understand what is going on and why.

2019 Treasury Share Cancellation

After having acquired 207,547,170 shares of its own stock for USD 51 million, the Bank with the approval of shareholders and its regulator canceled these shares of stock.

Instead of canceling them, the Bank could have retained these shares or sold them back to the market and obtained cash. Perhaps, not USD 51 million in cash but likely a substantial portion of that amount.

Why then would it cancel the shares?

There is a theory that share buybacks and subsequent cancellation of the shares can improve both the book value and market value of a stock because reducing the number of shares increases earnings per share (EPS).

This assumes that the cost of acquiring the shares, including future earnings on those foregone assets, is less than the value created by cancelling them.

Disclosure:

AA doesn’t believe this theory. 

Increasing the price of an individual share does not increase the value of the firm. 

If a company wanted to increase the price of a share, it could simply do a reverse stock split. Number of shares reduced, EPS increaased, no large amount of cash spent. 

Buying and then cancelling shares may in fact decrease the value if the purchase of the shares removes cash or other assets that the firm needs to increase its value or maintain its ongoing earnings stream.

There is in AA’s view one possible exception. When a company has cash but no compelling investment opportunities, then a share buyback may make sense if tax laws favor capital gains over ordinary income.

Absent that, these transactions tend to amount to spending real assets to achieve an accounting gain. 

But let’s assume the theory does work.

After all as Madame Arqala could tell you, AA is not always right.

The quantum of shares extinguished needs to be significant to have a significant effect.

GFH extinguished roughly 5.6% of its existing shares.

It’s hard to see this having a material effect on the per share price.

According to AA’s rough calculations and assuming this theory has validity, the price of a GFH share would have increased USD 0.01 in 2019 assuming a P/E of 10x.

But there’s more that makes this transaction baffling.

Having extinguished the shares, GFH proceeded to issue bonus shares equal to the number of the shares it cancelled. 

In effect undoing whatever value enhancement the cancellation may have had.

The cost of this apparently pointless exercise? One that had no apparent positive impact on its shares, save for an accounting “gain” of USD 4 million? 

In case you’re wondering that gain was also refected directly in equity.

A mere USD 51 million in cash in exchange for USD 4 million in non cash “income”.

What are some comparable amounts?

It’s roughly 45% of FY 2018 reported net income attributable to GFH shareholders! 

Or 64% of that in FY 2019.

What would motivate GFH to do this?

AA believes that GFH wanted to make “room” to buy more Treasury Shares because the Central Bank limits the number of Treasury Shares GFH is allowed to hold.

To do this GFH would have to find a "way" to remove the Treasury Shares from its balance sheet.

That means a sale or cancellation.

It almost certain that GFH couldn’t find a buyer for a block sale or block sales in “off market” transactions because there just wasn’t appetite given GFH’s condition and prospects.

That would mean GFH would have to sell those shares “in the market” almost certainly lowering the price of GFH stock.

Thus offsetting the effect of GFH’s purchases and undoing all its previous "good" work. The stock has been in slow decline for some time now.

So cancellation was the one remaining option if GFH wanted to continue Treasury Share purchases to "support" its share price.

I can’t think of another good reason for this bizarre economic transaction.

Keep that thought in mind as we take a look at GFH’s Treasury Share purchases and sales.

Treasury Share Purchase and Sales

Why would a bank be buying and selling its shares?

There are several reasons.

Market Making

One reason is to provide liquidity to the market so that shareholders can buy and sell their shares without causing temporary demand/supply imbalances that move the price dramatically.

GFH have engaged SICO to make a market in GFH shares on the DFM and BSE. Until recently the KSE did not allow market making.

What does a market maker do?

The canonical answer is that a market maker supplies liquidity to the market, filling in transient gaps on the demand side (purchases) or supply side (sales) as needed.

How does that role help the market in a company’s shares to run smoothly?

Buyers or sellers can conduct their transactions without having to conduct transactions at prices significantly different from the “fair” value of the shares.

Two simple examples.

Shareholder Abdullah wants to sell his shares on the BSE but there are not any or not enough interested buyers close to his desired price to fill out the buy side of his ticket.

The market maker steps in to supply the missing demand at what the market maker believes is a fair price.

Brother Abdullah can sells his shares to the market maker without having to reduce his price dramatically, conduct his sales over a prolonged period, or not sell all the shares he wants.  

The market maker now owns the shares.  He either holds them in "inventory" so he has sufficient shares to fulfill his responsibility on the sell side.  Or if he has "too many" shares he gradually sells shares into the market to reduce to the appropriate level.

On the other hand, suppose Brother Jassim in the UAE wants to buy GFH shares at the DFM but no one is selling in the amount he wants to buy. The market maker steps in to save the day, selling from his (the market maker's) inventory of GFH stock.

The market maker of course keeps a sharp eye on price trend in the stock and generally holds no more "inventory" than he needs to in order to fulfill his role.  The last thing he wants to do is hold shares that lose value.

If, by a happy circumstance as appears to be the case here, the stock issuer bears the risk of price declines, then the market maker may take a more relaxed approach to inventory valuation.

Over time one would expect that the market maker to earn an appropriate profit or break even.

If market making results in continued large losses, then this is a sign that the “problem” with the particular stock is not liquidity but rather fundamental value. Or a system wide lack of liquidity in the market. That would be noticeable across more than one stock though. Or the market maker is an idiot.

Two years seems to be more than an adequate time frame to make the call on GFH shares. 

It’s not liquidity. 

It’s lack of demand, fueled no doubt by investors’ ratings of the stock.  

SICO is a professional shop. It acts as market maker in the BSE and DFM for other shares and seems to be doing quite well.

Because it's not one of the two latter cases, then what's happening is that GFH is trying to support its share price.

A completely different goal. 

And one that perhaps should not be called “market making” so much as “share support”.

If shares continue to decline, then it seems that all that is being accomplished is delaying the inevitable and spending shareholder money on a futile quest.

Let’s look at some “performance” data.

During FY 2019, GFH sold Treasury Shares with a cost of USD 177 million for USD 150 million.

That works out to a gross margin of roughly negative 15%. That is, for every USD 1 GFH “invested” via a TS purchase, it received USD 0.85 on sale.

During FY 2018, GFH sold USD 134 million for USD 106 million, a gross margin of negative 21%. For each USD 1 invested, GFH received USD 0.79.

This doesn’t look like “market making” it looks like an attempt at price support as do the dramatic increases in the volumes of transactions.

Less charitable folks that AA might say given the volumes of transactions and losses involved it looks like market manipulation.

As noted in an earlier post, during 4Q18 GFH was responsible for almost 40% of the trades on the three markets in which it is listed (Bahrain, Kuwait, and DFM). To be clear that’s GFH Treasury Share transactions as a percent of total trading on all three markets. Not that GFH was trading in the KSE.

That, as you know, is a critical time of year, when firms and funds prepare their annual audited financials. A time of year when auditors get serious about the numbers they are asked to audit.

What other reasons might a company buy back its shares?

Opportunistic Investments

The market is underpricing a company’s shares. The company can buy them “cheap” and then later sell them “dear”.

 

Given the secular decline in GFH’s share price over years and its weak condition and prospects, this doesn’t seem to be a likely scenario.

Rather it seems that GFH is buying “cheap” and then selling “cheaper”.

Currency for Acquisitions

A company buys its shares in order to use as “currency” in an acquisition. You’ll recall that GFH obtained shareholder approval to use up to 140 million of Treasury Shares for acquisitions, subject to CBB approval

This doesn't seem a realistic scenario..

Why?

It’s hard to imagine that potential sellers of assets to GFH on an “arms length” basis have a substantially different view than the market about the worth of any shares to be proferred. 

However, this method can work in special cases.

A seller who knows that his “fine” assets are worth less than the asking price, may well sell his overpriced assets for overpriced stock as long as he achieves his goal of getting a certain value for those assets, avoiding a loss, declaring a profit, etc..

Having been around the proverbial IB block multiple times, AA has seen more than a few valuation miracles.

Ones where buyer and seller agree values divorced from reality to mutually assist one another in achieving each other's goals.

You may be familiar with some “round-trip” asset sales in the GCC where the same assets passed between two parties at increasing prices over the years with such sales justified by offsetting changes in the buyer’s and seller’s “strategies” that promote a transaction. 

U wants a pan MENA network of banks and then it doesn’t. 

B wants to sell its network and then it wants to buy it back.

AA’s smarter brother has even seen one where a considerable “gift” was given to a debtor in a rescheduling. 

Instead of taking 70% of the debtor’s equity as all reasonable models determined, a compassionate creditor took only 30%. 

Thankfully, AA’s brother was not asked to “fix” his model to show that valuation.

AA’s “Call” - GFH’s Treasury Share Transactions are Designed to Support the Price of Its Shares

There seems to be no reasonable business rationale for the amounts spent by GFH on Treasury Share transactions – the USD 51 million in share cancellation and the USD 58 million losses on Treasury Share sales.

Nor any compelling reason why GFH would suddenly find the need to buy USD 32 million in Treasury Shares for a “share incentive scheme” in a single year.

The proposal to use 140 million Treasury Shares for an acquisition also seems a bit far fetched at least for one on a true arms-length basis.

It seems to AA that GFH is using the latter two transactions to provide rationale for acquiring more Treasury Shares.

The goal certainly seems to be to prop up the price.

The question is for whose benefit?

Well, if a shareholder borrowed funds to buy GFH shares and pledged the shares to a lender, it would be mighty inconvenient for that shareholder if the price of GFH shares declined. 

The shareholder might have to provide additional cash to top up the collateral or reduce the loan principal.  In extremis, he might have to sell shares at a loss to reduce or repay the loan. 

Neither very appealing.

Declines in the value of unpledged shares can also be mighty inconvenient if one has to mark them to market. 

One’s performance record is tarnished, hampering new business generation.

One’s own shareholders might ask embarrassing questions.

A truly uncomfortable position particularly if the shareholders are VIPs or, as they’re sometimes known locally, VISs.

This may also explain why GFH declared a cash dividend for FY 2018 despite the fact that it had no real cash income that year. See post here.

Dividends help defray interest on a loan.

Dividends also provide a return on one’s investment. Just the thing one might need if the stock price is trading down instead of up.

One would expect that expenditures of this amount would be taken for an important shareholder.

Who might that be?

The 7,464 Abdullahs with holdings less than 1% each in GFH- some 62% of all shares-- probably don’t have the “wasta” or the “weight” to command such largesse.

That leaves just 15 other shareholders.

14 of whom own 20% of the shares and appear not to be related to one another. 

Leaving just 1 shareholder with 10% who no doubt by mere coincidence became a shareholder one year before the Treasury Share transactions began in earnest.

Is there incontrovertible proof this is the case and that GFH is trying to prop up its share price?

No. 

Just a pattern of behaviour that AA assesses is the most likely explanation for GFH’s actions.

It may well be the case that GFH’s Board has heard of problems among the Abdullahs who hold its shares and is trying to mitigate their troubles.

Or is undertaking these transactions for solid business reasons that AA isn't clever enough to discern.

As we say in the region “ الله أعلم “