Tuesday, August 10, 2010

Gulf Finance House Secures Extension of US$100 Million West LB Facility

GFH announced on the BSE today that it had secured an extension of the US$100 million "stub" remaining from the US$300 million West LB syndicated murabaha.

The "new" facility is for a tenor of two years with a further one year extension at GFH's request.  The "profit rate" (interest rate) is reportedly lower.

This helps GFH avoid an immediate crisis as the full US$100 million was due this month.

An interesting question, if the banks have refinanced GFH because it could not pay and have reduced the interest rate, do Paragraphs 58 and 59 of IAS #39 require that the lenders book a provision?  See here for an earlier discussion of the requirements of IAS #39.

2 comments:

Abdulla said...

I remember meeting with some GCC bank mgmt teams in the midst of the crisis and finding that they managed to avoid hefty provisioning by restructuring the terms of their NPLs (reducing rates, adjusting tenor, etc).

Loans weren't provided for post-restructuring, even if they had been non-performing for 90+ days at that point! Might be technically allowable under IFRS, but blatantly against the spirit of accurate representation if you ask me.

Keep up the good work man, I enjoy reading your blog.

Abu 'Arqala said...

Abdulla

Thanks your kind words.

One can separate the really "clever" managers from the "ordinary" ones in cosmetic debt reschedulings by one simple metric. Did they charge a hefty refinancing fee?

That way one can make it look like one is making a profit!