Global Investment House - Shareholders Approve Restructuring Plan Collateral

GIH announced that at yesterday's ordinary general meeting of shareholders, the shareholders approved:

1. The transfer of US$1.4 billion equivalent of equity investments from GIH to Global Macro Fund (based in Bahrain).
2. The transfer of US$295 million equivalent of real estate assets in Kuwait  from GIH to Mushaa Islamic Real Estate Company Kuwait.
3. The pledge of these assets to GIH's creditors as part of the restructuring.

You'll recall that the Kuwait Stock Exchange had required that GIH obtain shareholder approval before it would allow the transfer of the company's holdings on the KSE to Global Macro Fund.

The use of holding companies for these assets accomplishes several things for the creditors.

Here are what I think are the key ones:

1. Provides control over the assets and the proceeds of  sales.  They are isolated in separate legal entities which will have their own independent financial statements.  Monitoring of each KD of cash flow will be quite easy.
2. Facilitates perfection of the security interest.
3. Facilitates transfer of ownership in default.  If there is a default, the ownership of the holding company can be transferred to the creditors.  That saves re-registering each individual security in the name of the lenders.  This is not only legally efficient but also cost efficient.
4. Enhances asset sale possibilities.  In addition to selling individual assets, each holding company could be sold in toto.
   

One other bit of news in the press release that caught my eye was the comment that:  "There is no security offered over Global Investment House KSCC, its core businesses and related assets, namely; the Asset Management, Investment Banking and Brokerage businesses."  I'm aware that GIH has a good track record in Asset Managment and Brokerage.  Frankly, I'm not aware of their Investment Banking franchise. 

These businesses do not have any significant amount of assets to pledge as they are primarily people based service industries.  Any real assets in these lines of business are owned by  the clients.

That being said, conceptually it is possible (at least in some jurisdictions) to pledge revenue streams.  Earlier I had read a comment in AlQabas to imply that this was being done.   The press release has settled that issue. 

GIH is now poised to go forward with its restructuring.  Assuming it is successful in realizing its assets,  it will emerge from this ordeal a much slimmer institution focused (at least initially) on intellectual  services rather than principal investments.  That is, it will make money by providing professional services to its clients rather than from its own proprietary investments.