Sunday, July 11, 2010

Aayan Leasing and Investment - Financial Stability Law is the Last Refuge


Muhammad Shabaan at AlQabas has an article in the 12 July issue with the headline:  "Aayan:  FSL the Last Refuge."  Which I suppose is perhaps an apt update of Samuel Johnson's April 1775 aphorism - at least in this case.

The article quotes financial sources that the Company is considering resorting to the FSL as it has been unable to reach agreement with its creditors.  Negotiations began over two years ago with the lead bank (KFH, I think), then morphed into multilateral negotiations.  No real progress has been made.  The Company has reportedly stopped servicing its debts.

Some lenders are planning to provision 50% of their outstandings - which is given as evidence that not much more progress is expected.  And which is it suggested will make progress more difficult. 

The article closes by noting that changes in the executive suite will be forthcoming.

It also repeats market talk that Aayan's 2009 financials submitted to the Central Bank some time ago (not specified how long) show a KD40 million loss.  And that the CBK and ALI have not yet been able to agree on the numbers.

If this is true and note that all we have is a market rumor, then ALI's 2009 FYE equity is probably around KD59 million.  That's derived in case you wonder from 3Q09's KD71 million plus and additional KD12 million in losses for 4Q09.

I'm going to go out on a limb here.  I suspect that's because CBK thinks the loss and any asset writedowns should be larger rather than smaller.  Though we did have one Islamic bank state earlier today that it had taken the option of increasing provisions to enhance its financial position.  Maybe the CBK is unlike the Central Bank of Bahrain not open to such moves.  (In case you're wondering, in a radical departure from most comments you read here, that comment is made with tongue firmly in cheek).

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