The Investment Dar - Latest on Restructuring

According to AlQabas, the Creditors' Committee held a meeting yesterday attended by representatives of those creditors who have agreed to the proposed restructuring plan as well as the Restructuring Officer ("RO").

Key points from the article are as follows:

1. First the article makes a point of describing the RO as representing the creditors.  AA:  In October TID announced it had hired Mike Grant as Chief Restructuring Officer to work as a consultant to assist the Company.  If he is now working for the lenders (but being paid by TID), then this is quite a significant development.  One I suspect reflects creditor concerns about existing management.
2. Discussions have been completed with a number of creditors about loans extended against pledges or assets.  These creditors have been informed that amounts due will be paid under the proposed restructuring plan and no single creditor will get separate funds as happened through last July.  AA: It's hard to imagine a secured creditor able to exit at  par or near par surrendering its collateral to take part in the restructuring.   And, if I am correct and there is no cram down of creditors, their participation cannot be forced.  So I'm not sure what to make of this. Perhaps these are creditors whose collateral does not cover their entire exposure.  In this case then the creditor's decision is predicated on his estimate of whether he'd be better "in" or "out" of the restructuring.  On the July reference, a key concern of creditors is that none are preferred over others, though a creditor has been known to make a "principled" exception when that preferred creditor is himself.  It's a very good idea for an obligor to treat all creditos alike as a matter of managing the creditor group to get a deal.
   
3. Investment Dar Bank Bahrain intends to appeal the judgment against it lifting the precautionary freeze of Investment Dar's assets.  AA:  If accurate, not good news for TID.  IDBB is a very substantial creditor.  If IDBB can tie up or get access to TID's assets, it can threaten implementation of the restructuring.  TID has significant assets outside Kuwait (though I don't think Kuwaiti law provides for a mechanism to force dissenting creditors to join a restructuring so creditors in Kuwait who refuse the restructuring could still sue there).  In Bahrain, TID is a major shareholder in IDBB itself as well as Bahrain Islamic Bank.  TID has major subsidiaries in Europe, Austin Martin and Grosvenor House Apartments.  So there are plenty of non Kuwaiti assets of significant size to attack.
   
4. The creditors discussed the criminal lawsuit against the Chairman of Commercial Bank of Kuwait and one of his assistants as well as other cases filed by TID with respect to its shareholding in Boubyan Bank.  AA:  You'll recall that in 4Q08, CBK and TID had entered into a "repo" agreement for the shares of Boubyan.  CBK's position is that TID defaulted and it was entitled to take ownership of  the shares on default.  TID's position is that the shares are still its property.  From CBK's vantage point, it would rather be a secured lender who took collateral (or the "Islamic" variant thereof) rather than join the restructuring.  In the first case, it recovers at least 100% of principal immediately.   National Bank of Kuwait no doubt remains interested in acquiring even more of BB.  In the latter case, CBK waits for several years with no assurance of full repayment.  And if one believes the earlier AlQabas article on the creditors' valuation of TID's estate, expectations are pretty much for an assured loss.  This is why this matter is of keen interest to the creditors.  Boubyan is a major asset in terms of value.   Getting it into TID's estate enhances their recovery.  Assuming the documentation was drafted tightly (and that is not necessarily certain), CBK should be on firm ground. 
   
5. With respect to TID's 2008 annual financials, the Central Bank of Kuwait has still not approved them.  The sticking point is that some notes and explanations are not yet acceptable to the Central Bank.  It was noted that the CB's approval was an extremely important matter for the creditors as it was a matter of confidence and a major "push" in implementing the deal.  That being said, creditors are apparently willing to move forward if the CB's approval is not obtained within a fairly limited time, then they will go ahead without it.   AA:  There isn't a consistent story on why the CB is refusing to approve the financials.  In its lawsuit reported on in an earlier post, the story was was that the CB objected to the "audit disclaimer".   Now it's that some notes and explanations are deficient.  In discussing this topic the article mentions "additional reserves and accounting entries"  --  perhaps a  hint at some or all of the issues.  My guess is that the CB does not believe the financials reflect the company's financial condition or position and will not release them until it does.  From the creditors' perspective  these historical financials are a matter of trust.  Loans are  settled by cash.   And repayment has to trump trust at this moment. By placing all the company's assets in dedicated liquidation vehicles and requiring that any asset disposition be approved by creditors, the issue of trust (or any lack thereof) is neatly settled.  One also presumes that the condition that future financials are subject to creditor approval would provide reasonable assurance of the integrity of financials going forward.  These of course will be very important in ensuring that the cash flow goes where it should: to repay the creditors.  Presumably, the financials of these liquidation vehicles will be subject to enhanced scrutiny by the creditors' committee as well as their approval.
   
6. There is a reference to 80% as the "final number" - presumably the creditors who have agreed.  
7. The Restructuring Officer is quoted as saying that TID is taking "rapid" actions to increase the value of major and prominent assets (for sale).  Austin Martin is cited as one example.
8. There is also a discussion about expense reduction from KD 14 million per annum to KD 6 million in 2009 with the goal of a further reduction to KD 4.6 million.  AA:  Since TID is essentially embarking on liquidation (or, if not a liquidation, shrinkage to a mere shadow of itself), expenses would naturally go down. Not much rationale for large bonuses - unless these are tied to the amount and speed of asset liquidations.
   
9. The meeting also discussed loans from TID to affiliated companies and the prospects for recovery.  AA:  A list of TID's affiliates in Kuwait suggests that 100% recovery may not be possible from these entities - either on an absolute or a present value basis.
10. Finally, the RO is quoted as saying that they had obtained confirmation from those organizations they had consulted with that the proposed plan is legal.  AA:  The KD64,000 question though is are the creditors who did not agree bound by the plan.  If not, how are the assets then pledged to only a segment of the creditors?