Thursday, July 15, 2010

The Investment Dar - No Decision from Central Bank

It's been roughly four months since TID received the preliminary approval of the Special FSL Court to begin the process for the Company to seek protection under the FSL.  Under the law, the Central Bank of Kuwait has four months to review a proposed  restructuring plan, the financial condition of an applicant and make a determination as to whether it believes there is a reasonable chance that the a company will be able to meet its restructured obligations.  Earlier post on details of FSL here.

At this point the Central Bank of Kuwait has not issued its final conclusive decision.  

Mohammed Al Itribi at AlQabas reports TID held a consultative meeting yesterday (14 July)  with the Creditors Co-Ordinating Committee to advise them of the lack of a decision by the CBK. 

The article notes that this can mean that (a) the CBK is about to issue a negative decision or  (b) as allowed under Article 19 of the FSL ask for additional time no to exceed another four months.   The FSL allows only a single four month extension.

I still think it's unlikely the CBK is going to reject TID's restructuring given the negative fallout on Kuwait.  Perhaps, they're looking to find a way to approve.  And that ties into the E&Y report.   

The  KD64,000 question is precisely what it said.   Did it support the restructuring plan?

If not or if the CBK is uneasy,  then a possible alternative would be to change terms of the plan - extend the tenor or re-profile payments to push any perceived problem out far enough so that the possibility of repayment is increased.  The promise of CBK approval for changes in the Plan could be a powerful incentive for banks to go along and agree - as this will provide some closure to the TID file.   Even if it's only a temporary pushing of the problem to the future.

The article also notes that some alternatives were discussed if the CBK's decision is negative.

The central issue with alternatives is ways to prevent dissident creditors' lawsuits from threatening the viability of the restructuring plan.   One would expect that dissident creditors would seek Court orders  forbidding the disposal of assets by TID during the course of their legal action.   That cuts off cash flow for repayments under the restructuring.  If the dissident creditor wins, assets could be lost - though no more than the creditor's claim (including legal interest, costs, etc).  

One strategy is to just tough it out delaying court decisions as much as possible. Seeking court permission to sell assets and place the  amount at dispute (but not the entire proceeds) in escrow pending the court's decision - allowing the remainder of the proceeds to make payments under the restructuring. 

Or trying to substitute less desirable assets.  Here take my shares in TIDBank and let me have the Bahrain Islamic Bank shares. 

Following the tough it out strategy requires  the co-operation of the  agreeing creditors to go forward.  And strong discipline in their ranks.  It also depends in the final analysis on the amount of the dissident creditors' exposure and their ability to bring suit in various jurisdictions.     

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