Monday, January 31, 2011

Spirit Real Estate Co. Dispirited - Goes Belly Up

You had to have been living under a rock during the March-May 2010 period not to have heard of, nor seen ads for, Spirit Real Estate.

It took the world by surprise; a company with an IPO open to all nationalities, not just Kuwaiti's (for the less-financially inclined, IPO is Initial Public Offering, and that is the first selling of shares to the general public by a company at its par value [i.e. technically the cheapest price for the stock]).

The media influence was phenomenal; Linda was talking about it on the breakfast show, the papers ran several ads calling upon investors, street signs etc. the works. They went all out with media exposure.

It was also being audited by KPMG, one of the big four audit firms of the world. What could go wrong?

Sadly, everything turned out to be a bunch of bull-manure.

They were promising a 15% cash dividend on the first year of investment. It is now January 2011, I foolishly joined in May 2010, and the company lacks the proper funding to go through. I believe they overstreched their budget in terms of marketing.

At first I thought it must have been a scam; the website was rarely ever updated, the emails never responded and the telephones never picked up.

Fortunately, they are offering everyone their money back.

However, being the financially savvy person I pretend to be, I have to wonder, what about my cash dividends? I gave up the money I put into this scheme, and my opportunity cost could have been an investment elsewhere, but lets look at the risk-free rate of return, what banks would have offered, meagre as it may be, it was still an income.

I am also inclined to consider, what if they put all the money they collected as paid-in capital into an interest bearing account, or invested it through banks in the short-term, and kept the interest for themselves? Imagine, lets say for arguments sake that 1,000 people paid 500KD each to be shareholders; thats 500,000KD. According to the Commercial Bank of Kuwait, this amount would have netted them KD5,547.946 as a deposit in the Bank, risk free.

Whatever the case may be, they are offering all investors their money back:

They are situated in the Free Trade Zone, sharing an office with the Commercial Markets Complex.

Call them up at 22251856, show up with your civil ID, and reclaim your investment.

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