Tuesday, March 2, 2010

Gulf Finance House - Confirmed: US$100 Million Loan Revised Repayment Agreed

A follow-up to my earlier post.

GFH issued a press release today that it had agreed a repayment schedule on its US$100 million Wakala facility due 3 March 2010.  

US$20 million will be paid this month and 4 equal installments of US$20 million every six months thereafter.  As I commented before, GFH must be really strapped for cash as this is a rather small amount for the first payment.  I was expecting something more in the US$30 million to US$40 million range.  

What's interesting is that the LMC syndicate has agreed to much less favorable terms than the  West LB syndicate:
  1. West LB received two-thirds of the amount due it on the original maturity date.  The LMC syndicate only 20%.
  2. West LB extended the remaining US$100mm for six months.  LMC extended the remaining US$80 million for two years - with an average life of one year.
  3. Not hard to tell which financial institutions are looking out for its shareholders.

Some comments on the press release:
  1. I don't see this announcement at the Bahrain Stock Exchange, the Kuwait Stock Exchange, the Dubai Financial Market or the London Stock Exchange.   This is information material to the trading of shares. Of course, the regional three banks in the facility may not have finalized their answer until after the markets were closed - though it's hard to imagine them working past London's close. But there was a press report on this in the press yesterday - at that point an unconfirmed rumor - which contained information which by any criteria would be material to an investor.  A responsible company would have made sure an announcement was at the stock exchanges bright and early this morning - either to confirm the press report (negotiations concluded successfully) or to state that negotiations were still in process. 
  2. To call this a new facility strains credulity.  This is a rescheduling of an obligation that GFH was unable to pay. It is an attempt to make something out of a "busted play".
  3. This is less a demonstration of faith "in GFH’s business model and the strategy that the Bank’s management team are following" than it is lenders restructuring a loan that the borrower cannot repay on its due date.  
  4. Selling assets one has suddenly "discovered" are non core, firing staff and other cost cutting measures are not a strategy.  They are tactics designed to deal with the failure of one's strategy.
  5. Talk of GFH"s business model is misplaced.  At this point, GFH is in search of a viable business model.  Its old model is precisely why it cannot pay its debts on time.  When it demonstrates that its plans for the future are more than words on a page, it can speak of its "business model".
  6. The date on its press release needs to be amended.  This is like the previous "magical date" press release from 4Q09.
  7. GFH has yet to update its website for the first downgrade by S&P. 

1 comment:

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