October 11, 1991

Short-order cookery, dreams of love. Warm and bustling.

The nation's largest retailers said yesterday that their September sales were even weaker than expected, heightening concern that consumer spending would not pick up in time to prevent a third disappointing Christmas in a row. Merchandise sales at Sears slipped, while those at J. C. Penney were essentially flat. Even K Mart's discount stores, which generally turned in robust sales during the recession, showed a decline last month.

In the first legal test of the term-restriction efforts now gaining momentum in the West, the California Supreme Court today upheld a sweeping voter-initiated measure that limits state legislators' terms in office and drastically slashes their operating budget. On a vote of 6 to 1, the court held that the measure, the Political Reform Act of 1990, which amended the California Constitution and is popularly known as Proposition 140, did not unduly violate the right of voters under the Federal Constitution to elect the candidate of their choice, or the right of legislators to continue running for office.

The bidding for the troubled Executive Life Insurance Company of California heated up yesterday, as two new bids were announced. That brought the total number of announced bidders to four. At least two more bidders are expected to submit offers by the deadline today at 4 P.M., Pacific time, set by the California Department of Insurance, which took over Executive Life in April amid its mounting losses in junk bonds.

Kuwait announced today that it would borrow $5 billion as a first phase of a loan program to pay for rebuilding the war-ravaged country. The planned five-year borrowing would be the largest single loan to a country in history, surpassing the $4.5 billion recently borrowed by Saudi Arabia. Kuwait's Ministry of Finance has appointed J. P. Morgan & Company to coordinate the formation of a group of banks worldwide to act as lead managers in arranging the loan. Plans call for the group to begin later this month to line up other lending banks, which will probably number in the hundreds. "Early indications from banks in Japan, Europe and North America have been very encouraging," said John T. Hompe, a London-based Morgan spokesman. Analysts do not anticipate that Kuwait will have any difficulty borrowing the money and noted that the world's financial community had been expecting the Kuwaitis to seek a large loan. "Despite significant demands for capital from other parts of the world like Eastern Europe and Latin America, this is a productive type of lending which is likely to be well received by the international banking community," said Keith Brown, an analyst at Morgan Stanley & Company, the investment bank. Bankers said they had heard that the annual interest rate Kuwait would have to pay would be half a percentage point above the London interbank offered rate. Based on the current rate, Kuwait would have to pay about 6 percent. Saudi Arabia had to pay three-eighths of a point above the London rate, which is often used as a benchmark for loans. One thing that surprised some analysts was that the $5 billion loan will be unsecured. Kuwait is not using its oil or vast foreign investments as collateral. Had it done so, it could have had a lower rate. But bankers said Kuwait had still done fairly well. Kuwait plans to use the money for rebuilding its oil industry, ports, water-desalting plants, roads and telecommunications and power systems, among other things. Kuwaiti officials have estimated that it would cost about $20 billion to repair the damage inflicted during the seven-month occupation by the Iraqis and the war to remove them. The United Nations, which is maintaining an embargo against Iraq, is seeking to force the Iraqis to pay reparations for the fighting, but Baghdad has not yet agreed to do so. In July, Kuwait said Sheik Jaber al-Ahmed al-Sabah, the country's ruler, had authorized the Government to borrow up to 10 billion Kuwaiti dinars, or $34.7 billion, on world financial markets. But analysts do not expect the Government to borrow anything near that amount. Some who have had contact with Kuwaiti officials said the Government did not know how much it might have to borrow ultimately since it was still unsure of how long reconstruction would take and the final cost. But the J. P. Morgan statement made it sound as if Kuwait envisions having to borrow more, since the $5 billion was described as part of its borrowing program. Restoring Extensive Damage The amount of additional borrowing will obviously depend on how fast Kuwait can repair its oilfields. Kuwait's production is rising, but given the extensive damage to the fields, it looks as if it will be a while before production and export revenues return to normal. Analysts estimate that Kuwaiti production in the fourth quarter will average 400,000 to 450,000 barrels a day, or about a quarter of the prewar level. Kuwait has indicated that its target is for production to reach 950,000 barrels a day by mid-1992, including its 150,000-barrels-a-day share from the Neutral Zone, the fields shared with Saudi Arabia. But Mehdi Varzi, an analyst at Kleinwort Benson Securities Ltd., says this target is overly optimistic. He says 750,000 barrels is more likely. While Kuwait is believed to have liquidated some short-term assets, it has not sold any large portions of its foreign investments, whose total value is believed to be $100 billion. Kuwait's Overseas Investments Kuwait owns America's Santa Fe International and is believed to own sizable stakes in big European corporations like Britain's Midland Bank and British Petroleum; Germany's Daimler-Benz, Hoechst and Metallgesellschaft, and Spain's Ebro Agricolas and Torras Papel. It is also believed to own billions of dollars' worth of American and European real estate. "They haven't sold off much," said Andrew Cunningham, associate editor of the Middle East Economic Survey, a Cyprus-based newsletter. J. P. Morgan said lead managers of the syndicated loan would be chosen from the banks with which Kuwait has had a relationship. Analysts said some banks in that circle are Citicorp, Germany's Deutsche Bank, Japan's Dai-ichi Kangyo Bank and the Industrial Bank of Japan, and France's Banque Nationale de Parisei.