Saturday, September 25, 2010

Gulf Finance House - Ted Pretty Sees Pretty Good Times Coming


Al Watan has an interview with GFH"s Group CEO Ted Pretty.  They noted that he was a bit more optimistic with them than with the Western media he had met with.  Perhaps, things have improved.  Perhaps, it's a bit of market segmentation.

Here are the main points. My comments are in italics and contained within parentheses.
  1. GFH faces difficulties but will regain health at the beginning of 2011.
  2. In the past we bit off more than we could chew.
  3. The current strategy is to focus on existing investments and projects, complete these and realize value. (AA:  More on strategy later this is not the complete picture).
  4. GFH took action early and is starting to see the benefits.  Our 1H10 loss is smaller than 2009's.  Because of its wise actions, the bank is well positioned for profitability and growth in 2011.
  5. GFH's 2010 priorities are:  restoring its operating model, reestablishing sources of income, cost control and rescheduling debt.
  6. Going forward business activities will comprise as well raising financing, providing consulting services, managing assets, and the development of private capital (private equity), particularly in forming Islamic financial institutions.  He then noted that GFH had raised some US$2.5 billion in capital for a variety of firms:  First Energy Bank, Khaleej Commercial Bank, Bank Q Invest, First Leasing Bank, Asian Finance House, Arab Finance House and others.
  7. He said that new capital is not required for and  will not be used to repay debts.   There's no need because the WestLB syndicate and LMC syndicate have been rescheduled.  (AA:  No doubt wishing to reassure investors.  The proceeds of the 2009 new capital were used to repay debt).
He also commented that fear was depressing economic and market activity.  However, he noted that several countries had proven that they were able to restart their economies without being dependent on recovery of the US economy.  And called for SWFs to do more to support and develop economic activity in the region noting that the average investor had a predilection to invest in Europe or the USA.

If you believe his pitch, this would be an excellent time to buy GFH shares.  They're selling below par.  Way below par.  US$0.125 on the BSE versus a par value of US$0.33.  The upside potential is unlimited as they say.

And since GFH has yet to publish its Basel II Pillar 3 disclosures as of 30 June 2010 as mandated by the Central Bank of Bahrain, many of you may be forgiven for assuming this means the bank has no risks to report - which, if true, could be a very positive "buy" signal.

2 comments:

Anonymous said...

Thankyou for posting this. It seems that Ted Pretty and GFH has some opportuniy to focus on the future now instead of debt.
I would prefer less of a property focus and more of a capital markets focus.

Abu 'Arqala said...

Anonymous

Thanks your post.

Yes, but rescheduling the debt may turn out to have been the easy "bit".

The key task for GFH is restoring its credibility.

To that end it has to generate sufficient revenues to return to profitability.

If the process is prolonged, the current very big black cloud over its name isn't going to go away. In fact, it will get even bigger.

The presence of the current cloud makes certain forms of revenue generation very difficult - e.g., selling product to customers. It's not like they're the only dukkan in the suq.

It also discourages clients. Why on earth would anyone engage GFH to provide advice? Why would any client trust GFH's ability to raise debt or equity capital for them? Isn't the issuer going to wonder if prospective investors in such a capital raising exercise aren't going to be put off by GFH's track record? Its investments in duff ventures.

Why would anyone except the most optimistic sort invest additional capital in GFH - when it has a slate of unfinished projects from the boom years? When the times were booming, GFH couldn't finish projects. Now that times are lean, why should they be expected to do better?

And in order to grow its businesses GFH will need to raise capital.

On top of all this, if this weren't enough, is the fact that markets are depressed. Investors are licking their wounds and sitting on their wallets.

So the road ahead is very very difficult. Made even more difficult by GFH's less than sterling ethical record.