Investors give GFH their vote of confidence

Investment bank's losses reduced by about 80 per cent

DUBAI // Reducing costs and renegotiating debt is a bitter pill for any company to swallow. But such unpleasant medicine seems to have worked for the investment bank Gulf Finance House (GFH), which has managed to reduce its losses by about 80 per cent. The lender, which at one point last year had run out of cash to pay its debts, posted first-quarter earnings on Sunday after the market closed.

It said net loss for the period had shrunk to US$7.5 million (Dh27.5m), from a net loss of $37.7m for the first three months of last year. The achievement is more pronounced when compared with the final quarter of last year, when the company reported a net loss of $607m, including provisions and a $32m operating loss. The company has attributed its relative success to drastic restructuring, which saw it cut operating costs by 45 per cent in the first quarter.

"The result … shows that management has taken the necessary steps to reposition for a return to profitability in the near term," Esam Janahi, the chairman of GFH, said in the earnings report posted on the Dubai Financial Market (DFM) website. Investors certainly appreciated the new managerial policies. GFH stocks, which are listed on three regional exchanges, rose sharply yesterday. It was the top gainer on the DFM and Bahrain's bourse, rising 8.9 to 74.8 fils and 7.9 per cent to 20.5 US cents, respectively. And on the Kuwait Stock Exchange it was the third biggest gainer, up 9.6 per cent to 57 Kuwaiti fils.

"It was good turnaround by GFH and investors have wasted no time in pricing in the good news," said Ali Khan, a director at Arqaam Capital in Dubai. Mr Khan said the stock had hit its lowest for several years before yesterday's rises. GFH is in the middle of a sweeping reorganisation under Ted Pretty, its acting chief executive. In March, the company reached an agreement with creditors to delay the repayment of a $100m Islamic loan. It has also reached an agreement with a syndicate of 32 banks on a separate $300m loan under which it has agreed to pay off $200m, while delaying the repayment of the rest for six months.

The company is also looking to raise $250m from sales of assets. [e-mail]