Investment Dar in debt standstill

The Investment Dar (TID), the Kuwaiti firm that owns half of Aston Martin, yesterday said it had reached a standstill agreement with creditors as part of a debt restructuring following the firm's default on a US$100 million (Dh367.3m) Islamic bond in May. The standstill, reached after months of negotiations with creditors and shareholders, calls for a freeze of claims on the company's assets as it works out a new plan to repay debts.

TID is one of a number of Kuwaiti financial firms that thrived during the economic boom. It bought 50 per cent of Aston Martin, the luxury English car maker responsible for many of James Bond's rides, in 2007. Like many financial firms in Kuwait, TID relied heavily on short-term funding and ran short of cash when that source dried up as the financial crisis worsened. A co-ordinating committee is overseeing the restructuring process at TID, and a chief restructuring officer is to be appointed as a condition of the standstill agreement. TID has also formulated a claims process through which banks and investors are to declare the "size and nature of their claim" against the company, according to a press release.

"The standstill agreement represents good progress in the company's restructuring process," said Adnan al Musallam, TID's chairman and chief executive. "TID's board of directors and the management remain wholly committed to the standstill agreement and to working constructively with the co-ordinating committee towards a consensual restructuring plan." Global Investment House, another of Kuwait's large investment firms, has faced similar difficulties and is going through a debt restructuring of its own.

Kuwaiti lenders, meanwhile, have been some of the hardest-hit in the region, with combined profits at listed banks down 73 per cent in the second quarter compared with the same period last year. TID's default in May was among the first in the Gulf during the crisis although it was preceded by Global's failure to make a payment on a $200m bank loan last December. TID's default was also the first in the Gulf on an Islamic bond, or sukuk.

The trouble at Global and TID resulted in rapid credit-rating downgrades, reflecting the increased risk of owning debt tied to the companies. Ratings were withdrawn entirely when the firms went into default on the majority of their loans late last year and this year. The defaults came partly as a result of cross-default provisions that stipulate that if a company fails to make payments on one loan, other loans can be considered in default and creditors can demand immediate repayment.

Recent progress at TID and Global, both of which have entered partnerships with international banks to rework their debts, are likely to be positive for local lenders exposed to the firms, said Robert Thursfield, an analyst at Fitch Ratings in Dubai. "It is in the interest of the banking sector for this to be resolved," he said, while noting that much of the money owed by Global and TID was due to international banks, not local ones.

The TID and Global Investment House defaults have been a thorn in the side of Gulf banks as they also wrangle with a rise in delinquencies on everything from consumer loans to commercial borrowings, severely affecting their bottom lines. Problems at two large Saudi conglomerates, Ahmad Hamad Al Gosaibi and Brothers and the Saad Group, have also rattled banks. The groups, both of which are undergoing debt restructurings, are estimated to owe more than $10 billion to Gulf banks.

But the news of progress at TID and other troubled firms has been eagerly awaited by investors, helping push financial company stocks higher across the region. Abu Dhabi Commercial Bank is up 26.5 per cent in the past month, while Emirates NBD, the UAE's largest bank, has risen 17.6 per cent and Union National Bank in Abu Dhabi has gained 30.8 per cent. Samba Financial Group, Saudi Arabia's largest lender, has gained about 20 per cent in just two days of trading since the end of Ramadan.

And Kuwait's Aref Investment Group yesterday saw its shares rise by 5.8 per cent following the announcement of an agreement to reschedule $461m of its debt. "The market will welcome any progress with companies that are facing financial difficulties," said Ali Khan, a director at Arqaam Capital in Dubai. "The market is happy that we are seeing the beginning of the removal of the overhang [of defaults and restructurings], and buyers are coming."