Aayan Leasing and Investment - Restructuring Proposal

AlQabas quotes an informed source that Aayan's restructuring proposal contemplates a two year delay before starting assets sales.  During the interim Aayan will use its working capital to make  debt service payments.  No doubt with no or minimal principal payments during this period.  The goal is to allow time for markets to recover so that a higher value can be obtained for Aayan's investments which are primarily on the Kuwait and Saudi stock exchanges.  The company is reportedly planning a meeting with its bankers in the "coming days" to try to persuade the holdouts to agree to the proposal and get a "final read" on their position towards implementing the plan.

The last major loan was April 2008, when HSBC and Standard Chartered arranged a US$175 million murabaha facility.  13 participants in all.  Other than the two arrangers, Bank of Bahrain and Kuwait, Doha Bank, First Gulf Bank, KFH Malaysia, Emirates International Bank, Arab Investment Company, Asia Islamic Bank, and Nour Islamic Bank.  Plus some other "international" banks.

Initially Aayan's proposal appears a sensible approach.  But the decision to wait or fire sale  assets depends on the quality of the assets and whether there is a reasonable expectation they will recover.  Aayan's creditors have that information not AA.

Interestingly, Aayan's 30 September 2009 financials show KD 570 million in assets and KD 115 million in shareholders' equity (including some KD 44 million in minority interests).  As such, it would appear that creditors might be reluctant to wait for an asset rebound.  However,  among its assets, Aayan has KD 122 million of "Islamic Financing Receivables".  A few placements with other companies in constrained circumstances (e.g. Global or The Investment Dar) and these assets might be a lot less liquid than their contractual maturities would suggest.  And perhaps subject to less than full recovery.  

A bit of background on Aayan's default.  In 4Q08, Aayan defaulted on KD 51.6 million in murabaha payables and then suspended payment on the rest.  Total murabaha at 31 December 08 were roughly KD 400 million.   3 banks with exposure of KD 136 million agreed to assist with a debt restructuring.    Later Aayan got extensions of maturities to April and June 2009 from all but one creditor - a local money market fund who Aayan owe some KD 32 million.  It's been in discussions with creditors since then to come up with a deal.  At one point, it announced it had hired Tijari Finance (an affiliate of Commercial Bank of Kuwait) to assist it with the process.

Earlier posts on Aayan can be found using the label "Aayan" on the SAM home page.

Link to the KSE page on the company here.