Tuesday, June 29, 2010

Gulf Finance House - In Final Stages of Restructuring US$100mm West LB Syndicate

There are press reports (Gulf Daily News and Reuters) quoting Ted Pretty, CEO, of GFH that they are in the final stages of refinancing the "stub" US$100mm from the earlier US$300 mm West LB led-syndicate.  As you recall, they repaid US$200 mm of the loan on maturity in February and then rescheduled the remaining US$100 mm for payment this August.

Whether this reflected the lenders' desire to keep GFH on a very short leash, irrational exuberance on the part of GFH's management regarding the potential for sale of its highly marketable and valuable "non core" assets, or some other serious delusion on the part of GFH or its creditors wasn't clear at the time.  And is still not clear.

What was clear at the time is that barring a miracle, GFH was not going to be able to make the payment.

This time a more sensible two to three year rescheduling is apparently being contemplated.  According to the GDN article, GFH and its creditors are in documentation.  If this is correct, then the deal terms are set.

What will be interesting to see is the impact on pricing.  The six month extension resulted in a five-fold or so increase in pricing.

Also what is clear from all of this is that GFH's rather low stock of credibility has been depleted even more.  

The Company really doesn't do itself any favors by making unrealistic pronouncements (US$420 mm in asset sales) or reversing course as with the on again off again sale of its interests in Khaleej Commercial Bank.  

Adding to its problems, if S&P holds true to its earlier position, GFH is in line for a downgrade.  A particularly unwelcome development as it seeks to rebuild its market position.  Particularly with clients.

On a positive note, this more sensible rescheduling does offer substantial relief to demands on its cash flow.  As well as a third chance to move forward. And also looking forward probably no American baseball rules here.

It also  will also give the folks at GFH another opportunity to use their demonstrated talents for writing press releases.  I can see how this successful rescheduling might just demonstrate yet again (as if another demonstration were needed) the confidence of GFH's lenders and the market in its proven business model, leading position as the premier GCC Islamic Investment Bank, as well as its promising future. Smaller minds may just see it as lenders accepting the inevitable if they want to maximize their recovery.  But then these are minds without the "vision thing".

I'll also be looking tomorrow morning for the announcements on the BSE, KSE, and other exchanges regarding this material development.

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