Sunday, November 15, 2009

Global Investment House Kuwait - Debt Restrucuting Update - GIH Offers Collateral

Having devoted some attention to The Investment Dar over the past few days, it's time to turn to Global Investment House, where the story appears better.
On 25 October GIH announced that its creditors have overwhelming approved the terms of a proposed debt restructuring.  And contrary to TID, where the creditor Co-ordinating Committee is largely invisible and silent, here at GIH that is not the case.  WestLB, the head of the Bank's Steering Committee, (and you'll recall I made a point of the significance of the  change in name of the creditors' committee at TID in a recent post) is front and center selling the deal.

There have been, however, two intriguing developments since then - or at least public reports of these events.  

The first was contained in GIH's 3Q09 earnings announcement:  "The size of total bank debt to be restructured is expected to be KD500 million (USD1.75 billion).   The outstanding bonds of KD89.5 million (USD312 million) are expected to be paid as per their scheduled  maturities."
There is always a tension in creditor groups between lenders and bond holders with the latter claiming that it is impossible to restructure their obligations and so they must be paid according to their existing maturities.  The images bondholders usually conjure up are scores of unsophisticated investors - widows and perhaps even orphans - who simply  just can't be persuaded to attend bondholder meetings and vote.  

Lenders push to have all obligations restructured as they don't want to see precious cash flow used to pay off another material creditor in full while they are waiting for their rescheduled debt to be paid.

GIH"s bonds represent roughly 15.2% of the outstanding debt obligations .  So this is not a trivial amount.  Maturities are as follows:  December 2009 KD 14.4 million (16.1%), April 2012 KD 40.9 million (45.6%) and November 2013 KD 34.3 million (38.3%). (If you're wondering why numbers differ from those in GIH's press release, I am using the amounts due after GIH Group holdings of the bonds are eliminated.  These appear to be KD 25.5 million.)

Just today GIH issued another press release (though there was a rumor at least one day earlier) that it had granted the bondholders collateral.

GIH states that it has "offered to the bondholders security on the same terms and basis as is being proposed to be offered to the banks and financial institutions currently in discussions with the Company for restructuring of the debt".

Since the bondholders are not restructuring their debt, the question is what is the quid pro quo for the collateral.  Is it to forestall their taking legal action?  As part of a bargain to keep them from accelerating repayment of their bonds? 

It seems the bank lenders may be acquiescing not only in the bondholders' exemption from the restructuring but are as well their sharing in the collateral. 

Of course without details of the negotiations it's hard to draw a firm conclusion.   However, it seems the bondholders have gotten quite a nice deal indeed.  One wonders if it extends to the GIH Group entities who are bond holders? Perhaps as much as KD 25.5 million as outlined above. 

It would be interesting to know who the holders of the bonds are particularly the 2008 issue which was raised around the time that it should have been apparent to GIH's management that things were getting difficult.   

From GIH's 3Q09 financials, it's clear that the Group itself stepped up for roughly KD 15.7 million of the issue.  That, of course. is based on the assumption that there were no prepayments of that debt.  The 3Q09 financials show no evidence of that.

And finally don't overlook the central message here - the price of the restructuring is collateral.  Not an uncommon requirement of creditors in a restructuring.  There will also be  covenants in the restructuring agreement designed to protect the lenders' interests by limiting what the borrower can do.  Depending on how onerous these are, GIH could find itself with limited room to conduct / expand its business.

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