March 5, 2013
Valuation Process Flawed and Inaccurate, Displays Bias Against Middle East Investors and Financial Institutions
The Private Office of His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud and Kingdom Holding Company announce that they have ended their long-standing relationship with the Forbes Billionaires List. The relationship was severed in a letter from His Royal Highness, Chairman of Kingdom Holding Company, to Mr. Steve Forbes the Chairman and Editor-in-Chief of Forbes, requesting that the Prince be removed from the list and informing Forbes that KHC officials would no longer work with the Forbes valuation teams.
Prince Alwaleed has taken this step as he felt he could no longer participate in a process which resulted in the use of incorrect data and seemed designed to disadvantage Middle Eastern investors and institutions.
Over the past six years, Kingdom Holding Company officials, working with the Forbes teams, have uncovered what appear to be intentional biases and inconsistencies in the Forbes valuation process including, especially this year:
• A sudden refusal after six years to accept share values as listed by the Tadawul – Saudi Arabia’s fully regulated, 21st century, high-tech stock exchange that services the largest economy in the Middle East and is a member of the World Federation of Exchanges.
• A completely unsupported and biased allegation based on rumors that stock manipulation “is the national sport” in Saudi Arabia because “there are no casinos.”
• The application of differing standards of proof for different individuals and organizations resulting in an arbitrary and confusing set of standards that seems demonstrably biased against the Middle East. For example, the valuations of other emerging markets such as the Mexican stock exchange are accepted while those of the Tadawul are not.
• Unexplained and purely arbitrary discounts applied to holdings not backed up by brokerage statements when pre-IPO investments such as those in Twitter and China’s 360Buy would not appear on any brokerage statement, and after impressing on Forbes that KHC’s investments are covered by confidentiality agreements.
Shadi Sanbar, CFO of Kingdom Holding explained, “We have worked very openly with the Forbes team over the years and have on multiple occasions pointed out problems with their methodology that need correction. However, after several years of our efforts to correct mistakes falling on deaf ears, we have decided that Forbes has no intention of improving the accuracy of their valuation of our holdings and we have made the decision to move on. KHC puts a premium on tracking the true value of our investments and it is contrary to both our practice and nature to assist in the publication of financial information we know to be false and inaccurate.”
Kingdom Holding Company will continue to work with the Bloomberg Billionaires valuation teams, which HRH Prince Alwaleed Bin Talal considers to use a more accurate method of calculating financial holdings.
The Private Office of HRH Prince Alwaleed Bin Talal has retained counsel and reserves its rights in law and at equity.
Bloomberg Billionaires List March 2013
His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud and Kingdom Holding Company officials would like to stress that their disagreement with Forbes is over the fairness and objectivity of the valuation process and affirmation of respected Saudi financial institutions, not placement levels on a list.
To that end, Mr. Shadi Sanbar, CFO Kingdom Holding Company would offer the following additional context to points covered in the press release:
1. Lack of consistency
A key issue is using the fair market value of Kingdom Holding Company shares traded on the Saudi stock exchange – the Tadawul. For the past 6 years, Forbes has accepted the fair market value of KHC shares determined by open market trading in the Tadawul, as they should have since the Tadawul is a fully regulated Bourse with credibility in the financial community and whose valuations have been used by banks for reporting and compliance purposes for many years.
For unsatisfactorily explained reasons, the Tadawul’s share values for KHC were not accepted by Forbes in 2013, apparently based on rumors from unidentified sources that stock manipulation is a “national sport” in Saudi Arabia. While this is insulting to the regulating bodies that oversee the Tadawul, our issue is that it now sets up a different set of standards for Prince Alwaleed that need not be in place.
2. Lack of comparability between Kingdom Holding Company in 2007 when it went public and today in 2013
Another fundamental issue with the Forbes process is the inexplicable refusal by Forbes to acknowledge that Kingdom Holding Company is a very different company today than when it went public in 2007. While Market Cap is nearly the same, the make-up and value of the assets is very different. This can be seen by studying the financial statements of the company.
3. Accuracy, transparency and timeliness in reporting of financial results
An implication in the accompanying Forbes article is that KHC is less than transparent in its financial reporting and that even our auditors were suspicious. Nothing could be further from the truth. In fact, the Tadawul and the Capital Markets Authority that oversees it apply more stringent standards on public reporting than companies reporting in the West. KHC is required to file auditor’s reviews complete with disclosures for all four quarters within fifteen working days from the end of the quarter. Full year reports are required to be filed within forty-five days. KHC has never missed a deadline and our reports are publicly available.
4. Change of Auditor Firms
Another suggestion made in Forbes reporting was that KHC changed auditor firms to Price Waterhouse after Ernst and Young had questions about the value of KHC holdings. Not true. Corporate Governance experts in the aftermath of Enron recommend changing auditor firms with regularity and Saudi Arabia requires public companies to change auditors every three years. The switch to Price Waterhouse was part of this mandated switch. There were no disputes with Ernst and Young who would have been required to disclose them if they existed.
5. Mr. Forbes acknowledgement of our concerns
Mr. Forbes has acknowledged our concerns with the Forbes process, most recently in a letter to me (Shadi) dated February 25, 2013 in which he pledged Forbes would strive for accuracy.
We were obviously disappointed with the result.