Sorouh fined for late results

[sharewadi]

Good.

Gulf News 12 August 2006:

Sorouh fined for delaying results By Stanley Carvalho, Staff Reporter Abu Dhabi: The UAE's market regulator yesterday announced it has imposed a fine of Dh100,000 on Sorouh Real Estate Company (SOROUH) for not disclosing its first-half results on time, a move that analysts say is a step in the right direction. Although companies have been warned and named in the past, this is the first time the market regulator has fined a listed company. "Sorouh Real Estate Company, listed in Abu Dhabi, has been fined Dh100,000. The fine has to be paid within a week, and the company should declare its results as soon as possible," the Emirates Securities & Commodities Authority (ESCA) said in a statement. "This is in accordance with Esca's law on disclosures and transparency (Articles 36 and 37)." Seven companies, two local and five foreign, had defaulted on disclosing their first-half results within the one-month grace period that ended on July 31, 2006. The period was extended until August 10 when all the companies furnished their results, except Sorouh. "It is the right move in the right direction. Such strict measures would send a strong message to all companies that any default in disclosures could attract severe penalties from the regulator," said Seif Fikri, head of EFG-Hermes Brokerage. "I think the fine is on the higher side. In some countries in the region, such defaults could lead to delisting or pushing the company to schedule ‘B' lists or so," he added. There was no comment from Sorouh but a board meeting is scheduled to take place shortly. On top of the agenda is whether to continue its contract with its audit firm PricewaterhouseCoopers, which refused to comment on rumours that although it had finalised the first-half results on time, Sorouh management rejected them. "Such stern action by the market watchdog not only alerts companies to comply with regulations and be transparent but also increases the confidence level of investors particularly at a time when market sentiment is low," said Nadi Bargouti, head of asset management, Amanah Capital. "There was no reason for Sorouh to delay its results even after the grace period. Such defaults are not good for the market, not good for foreign investors, too. We commend the move by Esca. It sends out a strong message to all," said Ziad Al Abbas, Capital Markets Adviser at National Bank of Abu Dhabi (NBAD). Reaction: Low trading volumes as share price falls Sorouh Real Estate shares traded down 0.29 per cent yesterday with the average price at Dh3.41. Volumes were low at 419,000 shares. Sorouh was established on June 26, 2005 with a capital of Dh 2.5 billion with the objective of developing world-class properties in its home market of Abu Dhabi. Last month, Sorouh began construction work at the site of its flagship project, Shams Abu Dhabi, for its 83-storey, 379-metre high Sky Tower, which will be the tallest building in the capital.

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[sharewadi]

Well, well, well. So the Gulf News had an opinion about this today...

Gulf News 14 Aug 2006:

Start as you mean to go on The UAE needs much tougher enforcement of market rules to improve transparency and investor confidence. There is often talk of information leaks and insider trading which the regulator needs to clamp down on. Only tough enforcement will improve transparency and attract increased foreign participation, which is necessary for greater stability, depth and liquidity of the markets. The decision of the Securities and Commodities Authority to slap a fine on Sorouh Real Estate for breach of market rules is at least a step in the right direction. Sorouh, which listed last year after a hugely successful IPO, failed to declare its first quarter results within the stipulated month and has been appropriately penalised. There have been several occasions in the past when UAE companies have failed to meet the deadline for declaring results. It occurred at the end of last year, when some 10 companies failed to comply and again after the end of the first quarter. Further delays by other companies should invite harsher action. Around the world, regulators act swiftly for such breach of listing rules Nasdaq reacted instantly to warn Apple Computers for delaying its detailed quarterly filing. Hopefully, this is the first of many such tough decisions that the regulator will take to enforce market discipline.

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[sharewadi]

So, apparently Sorouh (SOROUH) fired their auditor over disagreements about the accounts. The rumour is that Sorouh rejected the accounts that PricewaterhouseCoopers (PWC) prepared (on time). Is this correct (it's hard to imagine PWC missing a deadline)? And if yes, why were the accounts rejected? Business Breakfast Radio Eye is saying rumours are that there was a disagreement, will maybe find out more for tomorrow...

Gulf News 27 August 2006:

Sorouh to unveil results shortly with new auditor By Stanley Carvalho, Staff Reporter Abu Dhabi: Sorouh Real Estate (SOROUH) yesterday announced it appointed a new auditor and would announce first-half results soon. Earlier this month, the UAE's market regulator imposed a Dh100,000 fine on Sorouh for failure to disclose first-half results on time. A company spokesman told Gulf News Sorouh's first-half results would be announced shortly. "They will be announced very soon," he said without giving a time frame. Sorouh, which is listed on the Abu Dhabi exchange, said earlier that at the top of its agenda for the general assembly was whether to continue its contract with audit firm PricewaterhouseCoopers. PricewaterhouseCoopers, meanwhile, refused to comment on a rumour that even though it had finalised the first-half results on time, the Sorouh management rejected it. Deloitte and Touche were appointed the new auditor at the second general assembly of shareholders last evening. "A majority of shareholders approved the recommendation and welcomed the appointment of Deloitte and Touche as the new external auditor," said Saeed Al Ghafli, chairman of Sorouh. "We have been open about our projects and commercial activities to promote them. We have communicated the progress in implementing our projects to our stakeholders. We will continue to do so and I am sure that the appointment of a new auditor will help to enhance the company's reputation," Al Ghafli said in a statement. "Sorouh has accomplished a great deal in the short span of time since its launch last year. The company has succeeded in its initial goal of launching significant projects in the UAE's capital," Al Ghafli said. "Our launch project Shams Abu Dhabi, which consists of the Gate District, the Sky Tower and the Golf Gardens, are our most prestigious projects under way now in Abu Dhabi," he said. "The Sky Tower will be the tallest building in the country when completed," he said. Construction Last month, the company announced it began construction of the 379-metre Shams Abu Dhabi, which will have 83 storeys. Sorouh, in co-operation with several real estate development companies in Abu Dhabi, recently established a real estate investment company to participate in projects outside the UAE, Al Ghafli said. Sorouh was established on June 26, 2005 with a capital of Dh2.5 billion and the objective of developing world-class properties in its home market of Abu Dhabi.

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[sharewadi]

Ok, so now Sorouh (SOROUH) and PriceWaterhouseCoopers (PWC) are blaming each other. This information must have been in the markets for a while. Share price didn't go anywhere yesterday or today. Big sell-off and drop was over a month ago around 24 July 2006. The Gulf News print version had a very entertaining list of "he said, no he said" sort of comments which aren't in the online article. A shame really, the Sorouh comments read rather like the baby throwing his toys out of the pram. After Enron and the demise of Arthur Anderson, I get the sense that accounting firms are more cautious these days. The way Sorouh was bleating, it sounds like they hadn't heard of the whole Enron fiasco. So good luck to Deliotte and Touche (their new accountants). We'll await the 2Q 2006 accounts with interest.

Gulf News 31 August 2006:

Sorouh denies PwC's malpractice charges By Ahmad Ameen and Stanley Carvalho, Staff Reporters Abu Dhabi: Audit firm PriceWaterhouseCoopers (PwC) has accused Sorouh Real Estate (SOROUH) management of trying to falsify its financial statements in contravention of international accounting standards. According to a report submitted by PwC to Sorouh's general assembly last week, the real estate company failed to furnish its auditors with the necessary explanations. But Sorouh in a letter to the Abu Dhabi Securities Market yesterday denied all accusations of the audit firm saying that it has abided by their requirements and kept auditors informed of all developments. "The management requested our report on its financial statements to be without any reservations while we did not receive all the information and explanations that we needed as an auditor to verify the revenues and profits and data of the financial reports prepared by the company," PwC stated in its report obtained by Gulf News. There was failure on the part of the Sorouh management to provide information and resolve the controversial accounting issues in the appropriate time before the deadline set by authorities for the disclosure of first-quarter results, the report said. "Suspicious revenues were reported during 2006 first quarter of Dh246.7 million with the company's management failing to provide us with the related sub-leasing contracts and, accordingly, we failed to reveal our opinion on the report of first-quarter results, which has been submitted by the company to the stocks authority on May 22." In its response, Sorouh said first-quarter results were submitted without any reservations from the audit firm by that time. PwC also said Sorouh falsely accounted for Dh2.2 billion worth of revenues during the first and second quarters whereas these amounts are related to sub-leasing contracts that commence on October 26. Sorouh said these contracts were signed before June 30 and the audit firm never requested any explanation in this regard. Other allegations by PwC include failure to comply with international accounting standards and delay in providing required data and information on time as well as the lack of authorisation of several board members who have signed leasing contracts. Sorouh insists its contractual obligation with the firm has been under consideration since August 2 and the company did not intentionally withhold any crucial information as the audit firm was constantly consulted and informed. On August 26, Sorouh announced the appointment of Deloitte and Touche as its new auditor and said it would announce first-half results shortly. Sorouh's share price has been stable over the past 10 days with investors awaiting first-half results. Its shares closed yesterday at Dh3.36 before ADSM publicised the reports.

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[sharewadi]

Here's the Khaleej Times version (not sure what an uditor is though - maybe it was meant to be an udditor ?). The KT paints a pretty negative picture of Surouh also.

Khaleej Times 31 August 2006:

Delayed results : Surouh, ex uditor play blame game DUBAI — The auditors report disclosed to Abu Dhabi Securities Market (ADSM) yesterday by PriceWaterhouseCoopers (PWC), the former auditor of Sorouh Properties (SOROUH), blamed the Surouh's management for the delay in filing the company's financial results with ADSM where the stock is listed. Earlier this month, Emirates Securities and Commodities Authorities (ESCA) imposed a fine of Dh100,000 on Surouh for failure to announce its results before the deadline set by the market watchdog. Subsequently, Surouh appointed Deloitte and Touche as its new auditor. In its report, PWC states that the company's management failed to answer some of its queries on its first and second quarter income statements. The auditor said that in a meeting with the company's chairman and other directors, it raised some doubts about the first quarter income statements. PWC in its statement said that the company management did not provide the details of the subcontracts worth Dh2.8 billion in the second quarter and that resulted in the delay in filing the results. The auditor also said that the accounting practices of the company were not in compliance with international accounting standards. According to the auditor, the financial statements lacked details on subcontracts, there have been several changes in lease contracts that caused confusion in the financial statement. According to the auditor, the company was not clear about the lease contracts. While the land has been leased for four years and the lease extendable up to seven years, the company claimed that it has leased the land for 106 years with the option to buy the leased land. The auditor said that the company failed to provide requisite information and they could not solve the problem in time to submit the quarterly report prior to the deadline. The auditor also pointed out that the directors of Surouh have no power of attorney to sign any leased subcontract on behalf of the land developers. The value of these contracts totalled Dh45 million. The auditor said such acts are in violation of article 2- 6 Articles of Association of the Company, which makes it mandatory on companies to seek the approval of the shareholders. Clarifying the company's position on the auditor's report Surouh said in a statement that they provided all information to the external auditor on initial contracts during the first quarter. The company further clarified that all contracts signed in the second quarter amounted to Dh2.2 billion, not Dh2.8 billion as mentioned by the auditor as some of the contracts have been cancelled. While asserting that the income statements of the company were based on those contracts signed prior to June 30, the management said that the auditors never asked for any additional information on the income statements. While insisting that the auditor had access to all documents relating to all subcontracts, the company said the auditors were aware of all details about lease contracts and their periods.

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[sharewadi]

Pass the buck time...

There's one point made which is interesting (well, more than that if you're a Surouh shareholder). PWC audited accounts for 2006Q1 and said they were ok. Now they're saying there's a problem? Why did they approve them in the first place then?

Gulf News 01 Sep 2006:

Sorouh dispute highlights loopholes By Ahmad Ameen, Staff Reporter Abu Dhabi: The debate surrounding Sorouh Real Estate Company's (SOROUH) dispute with its audit firm has raised a number of questions, including the need to improve standards of financial reporting and monitoring, analysts and officials said yesterday. Price-WaterhouseCoopers' (PwC) accusations that Sorouh's first quarter financial statements included irregularities implies the audit firm's responsibility for falsely reporting the validity of these statements to the authorities. However, the authority entitled to investigate the issue is the Ministry of Economy, not the market regulator, Emirates Securities and Commodities Authority (ESCA). "According to the prevailing laws, the Ministry of Economy (MoE) is the authority entitled to investigate such case," commented an Esca official. "Though it can be expected that such functions will be shifted to the authority, as soon as the new companies law is issued. "Esca still lacks both the legal basis and the qualified cadres to assume such a role, though the authority has been constantly developing itself, yet the legal and technical aspects necessary for fulfilling its complete supervision and control over the stock markets' activities are still to be attained." On its part, "The Abu Dhabi Securities Market is aware that this is a large publicly-listed company, and we were always keen to strictly apply our disclosure and transparency codes, and that was what we did as soon as we received the Sorouh memo," said an ADSM official. "As far as Sorouh's second quarter results are concerned there can be nothing said at this point, as these have yet to be disclosed, though the remarks made by PwC can present a challenge for the company's new auditing firm, Deloitte and Touche. However, the first quarter results have been already reported and approved by the external auditors, which makes them liable for its contents, even if they claim the contrary afterwards, as their report represents a legal document of testimony, and there were no notices or explanations referring to any reservations they had by the time of disclosure," said a financial analyst. There was no official from PwC available yesterday to comment on the issue. An official from Deloitte and Touche said the firm cannot comment on the issue. The issue is critical as it highlights that there are still legal vacuums to be addressed, given the continuous growth of the local stock markets, and that the companies law should consider that such issues may arise, analysts said. "The Companies Department of MoE is the concerned authority, in addition to an auditors association. However, the shareholders have also the right to sue the auditor, and in Sorouh's case they practiced their right by not renewing the contract with PwC," said Ziad Al Dabbas, financial analyst at the National Bank of Abu Dhabi.

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