GFH negotiates reprieve on debt

Gulf Finance House has resolved its last outstanding obligation after running out of cash to service loans last year.

The Bahrain Financial Harbour in Manama is the heart of the country's banking sector. Financial services account for 27 per cent of economic activity in Bahrain.
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Gulf Finance House (GFH) has reached an agreement with creditors to delay the repayment of a US$100 million (Dh367.3m) Islamic loan, the last large chunk of debt that the struggling Bahraini investment company has sought to postpone. GFH, which is undergoing a sweeping reorganisation under Ted Pretty, its acting chief executive, will repay a fifth of the loan this month, the company said. The remaining $80m will be repaid in $20m blocks every six months for two years, retiring all of the debt by mid-2012. Under the original loan terms, $50m was to be repaid this month, with the remaining $50m repaid next year. In recent years, GFH has launched multibillion-dollar industrial projects in Qatar and Libya, as well as large property projects in Bahrain, Jordan, Morocco, Tunisia, Algeria and Kazakhstan.

The company ran out of cash to service loans last year after banks restrained financing activities and investors retreated in the global downturn. The changed economic circumstances have prompted GFH to cut costs, raise cash and restructure debts. In his short tenure, Mr Pretty has reduced the company's workforce by nearly 100, put many of its assets up for sale and reached agreements with banks to stretch out and eventually repay borrowings. As part of efforts to settle debts, he recently said he aimed to raise $250m from sales of the company's assets, which in addition to its property holdings include stakes in Khaleeji Commercial Bank and First Energy Bank in Bahrain. Last month, Mr Pretty forged an agreement with a syndicate of 32 banks on a separate $300m loan under which GFH agreed to pay off $200m, while delaying the repayment of the rest for six months. The remaining $100m, along with the $20m instalments on the $100m loan that was rescheduled yesterday, will probably be repaid with cash raised from asset sales. By cutting costs and retiring debt, Mr Pretty aims to return GFH to a solid foundation from which it can return to growth. But the process has not come without its downsides, which have included negative press and a downgrade of the company's credit ratings by Standard & Poor's to "selective default" after the $300m loan was renegotiated. The process mimics those going on across the Gulf in which financial companies, still beset by a shortage of financing from banks and investors, are being forced to restructure their businesses and reduce debt. In the most prominent example yet of a wholesale rethinking of once-successful business models, Dubai World, the government-owned group, is restructuring $26bn of debt and making a careful evaluation of which of its property subsidiaries' projects will ­proceed. While financial turmoil in the early days of the global downturn was concentrated in Kuwait and Dubai, where property prices are estimated to have fallen by half, problems at companies in Bahrain have proliferated more recently. In addition to the well-publicised problems at Global Finance House, which posted $607m in losses for the final three months of last year, several other banks and investment companies have announced losses for last year, including Ithmaar Bank, an Islamic lender that said this week it lost $235m for the period. Kamal Ahmed, the chief operating officer of Bahrain's Economic Development Board, a government organisation that promotes the country as a destination for investment, said yesterday the government was watching closely as companies responded to challenges presented by the financial crisis to ensure the health of Bahrain's financial services sector, which accounted for about 27 per cent of economic activity there.

"The Central Bank of Bahrain is monitoring what's happening and co-operating with institutions to make sure they're on the right track," Mr Ahmed said.