Thursday 24 December 2009

The Investment Dar - More Bad News on the Restructuring

If yesterday's news in AlQabas wasn't distressing enough, here's another.

Key points from the article:
  1. Khatif Holding Company (I think this is the Kuwaiti PE/VC firm) has withdrawn from the Creditors' Committee.  As such, its resignation means it is not agreeing to the extension.
  2. The Creditors' Co-Ordinating Committee ("CCC")  has yet to secure a sufficient level of acceptance to proceed with the initial steps of implementing the restructuring, e.g., transferring TID's assets to the holding companies.
  3. As well, many of the existing creditor agreements are not final.  Others are pending and the  article says that the committee has "built great hopes on them".
  4. Part of the problem is that in many cases there are funds or syndicated facilities.  In some cases the agents have asked for more time to get their shareholders or participants to agree.  In some cases it appears the agents themselves are not agreeable which complicates getting approval from the shareholders or participants.
  5. As noted before, those who financed TID through wakala or murabaha transactions believe that they are not "lenders" but rather have a deposit or trust arrangement and therefore have ultimate priority of payment over lenders.  If that view is legally upheld, they might well secure 100% repayment.
  6. Complicating matters is the fact that there are 149 separate creditor entities - banks, funds, individuals, wakala holders, murabaha - and each group has its own characteristics which require different methods of accommodation.
  7. While creditors may agree to these first steps to implement the restructuring, there will be another decisive phase in February where they will have another option to refuse.
  8. Finally, the following companies were identified as those who intend to pursue legal actions to secure repayment:  Khatif Holding Company, National Investment Company, Aref Investment Group, Al Masar Company (Kuwaiti Leasing Company?) , Noor Investments plus unnamed numerous others.
Apparently, the plan (at least according to AlQabas' sources) is to extend the time period two weeks and then if results are not obtained another two weeks.

TID seems to be in a very difficult position.  It's unclear how two weeks or four is going to be sufficient to overcome the various obstacles in path of securing creditor agreement.

If a significant enough group of creditors believe they have legal priority, it's going to be hard to get them into a restructuring where the creditors themselves estimate that TID cannot pay back 100% of principal.   If in fact these creditors do have a legal priority, they have absolutely no incentive to join.  The other creditors are left with the prospect of a bankruptcy - with the inevitable further loss of value in the remaining estate.  One solution might be to pay off this creditor group assuming it's not too large.  Then go forward with the remaining TID assets to maximize recovery.

Another would be to hope the government would lean on the recalcitrant creditors to force them to agree.  If it does this, it seems to me that the Kuwaiti Government would want to avoid taking any steps that could legally undermine the legal status of Islamic structures, e.g., interpreting wakala and murabaha transactions as equivalent to loans.  Kuwait is the second largest GCC market (by assets) for Islamic banking.

I wonder if TID will be the first case under the Financial Stability Law?

No comments: