Kuwait stocks fall amid GIH gloom

Traders at the Kuwaiti stock market had another day of gloom on Thursday.

Kuwait stocks fell yesterday as concerns increased that Global Investment House (GIH), one of the country's largest financial institutions, may be facing financial difficulties. GIH's credit rating was downgraded by two major ratings agencies earlier this week, after the company failed to make a loan payment. Kuwait's financial sector has weakened in the past few months as declines in the property sector and the stock market, along with a funding shortage caused by the international financial crisis, have threatened the balance sheets of local banks and investment companies.

Kuwait's stock market slipped 2.1 per cent, closing at 8,623.60 yesterday. Shares of GIH fell 7.6 per cent to 305 Kuwaiti fils a share, the lowest since 2004. "Today, stock markets reflected nervousness. It's been very weak today," said MR Raghu, the head of research at Markaz, a Kuwait-based investment firm. "A major portion of that is definitely because of Global." According to the ratings agencies, GIH originally had until last night to make a payment on a US$200 million (Dh734m) loan, but has now extended its maturity until Monday.

GIH officials said earlier this week that the company would renegotiate the loan and that it would satisfy its obligations. Fitch Ratings dropped its rating on GIH to "C" on Monday, or one notch above default, after the company informed the agency that it had missed the payment. Standard and Poor's, another ratings agency, also lowered its credit rating on GIH to "SD/SD" or "selective default". Discussions between GIH and its creditors were scheduled to take place on Sunday, Standard and Poor's said.

Global said earlier this week that it had appointed the Commercial Bank of Kuwait to help it renegotiate the terms of its existing facilities. Fitch said GIH would have other debts to repay this month. The Kuwaiti government has promised to take steps to support the financial system, such as injecting money into the stock market and organising emergency funds for troubled investment companies, including GIH.

However, because nothing had been implemented, investors were beginning to worry that any help may not come until its too late, analysts said. "There has been concern over the timing of the [government] investment in the stock market. There has been a lot of concern over whether that money is going to really come," Mr Raghu said. "The sooner they find a solution, the better it is for the whole sector."

"The steep drop in the local and regional stock markets, together with the drying-up of international and, to an extent, the local interbank market, has caused severe problems for Kuwaiti investment companies. Given their huge assets, the authorities are keen to avert contagion from any possible defaults," Moody's Investor's Service said in a note earlier this week on the Kuwait banking sector. Moody's said that the actions the government had taken so far, including cutting the country's interest rates and lowering the reserve requirements at banks, had helped. "However, the underlying problems persist," it added.

Other stock markets in the Gulf also fell yesterday. The Abu Dhabi and Dubai exchanges were weighed down by bank stocks, with the Abu Dhabi Commercial Bank falling nearly 9 per cent and Emirates NBD falling 4 per cent. Bahrain fell, closing down 0.87 per cent, while Oman rose 0.97 per cent. Qatar was closed yesterday for National Day and Saudi Arabia's Tadawul was also closed for the weekend. [e-mail]