S&P downgrades Bahrain's GFH

Standard & Poor's has downgraded the credit rating of Bahrain's Gulf Finance House to one of its lowest grades despite the company reaching a resolution with creditors on a $300m Islamic loan.

Standard & Poor's has downgraded the credit rating of Bahrain's Gulf Finance House (GFH) to one of its lowest grades despite the company reaching a resolution with creditors on a US$300 million (Dh1.1bn) Islamic loan. GFH brokered a deal with a syndicate of 32 banks on Wednesday under which it paid $200m of the loan on schedule, while refinancing the remaining $100m. The deal gave the Islamic investment company six months to repay the remainder.

The news appeared to be positive for the company, which is undergoing cost-cutting and realignment after booking losses of $124.4m in the first nine months of last year. GFH's agreement with the banks was cheered by investors, and its shares rose by 1.8 per cent on Wednesday, and as much as 3.3 per cent yesterday. But the ratings agency downgraded the company to "selective default" because of how it viewed the restructuring.

"Under our criteria, we consider GFH's maturity extension to be a 'distressed exchange' and therefore tantamount to a default, because the new maturity represents a change to the facility's originally scheduled payment terms," Emmanuel Volland, an S&P analyst, said in the company statement. "We understand that GFH intends to soon restructure a second $100m facility by agreeing to another partial maturity extension with facility members," the S&P statement continued. "The ratings would consequently remain at [selective default] pending completion or another resolution of the restructuring."

S&P's selective default rating applies to companies that have defaulted on some, but not all, of their financial obligations. It is one level above the agency's lowest full-default rating. The downgrade and restructurings come as a raft of companies in the region, including Global Investment House and Investment Dar in Kuwait, as well as the government-owned Dubai World, seek to restructure their debts. Global Investment House in December reached a restructuring agreement on $1.7bn of debt and Investment Dar is close to finalising an agreement to restructure $3.5bn.

Dubai World is in negotiations with creditors over a proposed $22bn restructuring, by far the largest in the region. The restructuring at GFH is proceeding amid numerous challenges, including financial losses, ratings downgrades and a $125m court case recently filed in Bahrain against the company chairman Esam Janahi over a large energy project in Qatar in which an Abu Dhabi company has invested.

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