The press is full of speculation that GFH is negotiating with West LB over an extension of all or part of its US$300 million loan which is due for payment 10 February.
The company had not previously commented on the rumors in the market and so this morning the Bahrain Stock Exchange temporarily suspended trading.
GFH issued a rather anodyne press release today which provides the following information:
"In reference to a recent news article, GFH would like to confirm that it is having discussions with West LB (the syndicate manager) in London in relation to the terms of its syndicated facility. GFH further confirms that it will immediately announce the results of such discussions in line with the disclosure requirements of the Central Bank of Bahrain and Bahrain Stock Exchange. The total amount of the facilities, the terms of which are under discussion, amount to $300 million due on February 10, 2010.”
At this point while all details are not available, it's a pretty safe guess that GFH is not negotiating with West LB over whether it will make full repayment via check or wire transfer. And there would be little need for a covenant waiver (motivated by a ratings downgrade) if payment is going to be made within 8 days.
The press release is also yet another example of "disclosure" by a "Shari'ah-compliant" financing institution.
I guess when you're Shari'ah compliant you adhere to a different but much higher standard of rules.
Reminds me of another "Islamic" bank that capitalized just six and one-half years of pre-operating expenses when it opened which were used to give those who "incurred" these "expenses" some $10.2 million in equity (9.2% of the shares) in the Bank. I asked an accountant at the firm that audits them what accounting principle justifies the capitalization of six and one-half years pre-operating expenses. He responded it was "Islamic" not conventional accounting and since he only audited conventional banks, he couldn't really answer my question. The Bank also paid cash US$12 million in fees to consultants and others in connection with the raising of the equity. Since only US$101 million was actually raised from third parties, the cost of raising the equity was just short of 12%. Of course, one would have to compensate someone for raising equity in an "Islamic" bank since that was quite a "hard" thing to do when the funds were being raised. If on the other hand, there was great excitement in the GCC about stocks and the markets were booming, then it might seem exorbitant. As they say, "God knows".
I guess when you're Shari'ah compliant you adhere to a different but much higher standard of rules.
Reminds me of another "Islamic" bank that capitalized just six and one-half years of pre-operating expenses when it opened which were used to give those who "incurred" these "expenses" some $10.2 million in equity (9.2% of the shares) in the Bank. I asked an accountant at the firm that audits them what accounting principle justifies the capitalization of six and one-half years pre-operating expenses. He responded it was "Islamic" not conventional accounting and since he only audited conventional banks, he couldn't really answer my question. The Bank also paid cash US$12 million in fees to consultants and others in connection with the raising of the equity. Since only US$101 million was actually raised from third parties, the cost of raising the equity was just short of 12%. Of course, one would have to compensate someone for raising equity in an "Islamic" bank since that was quite a "hard" thing to do when the funds were being raised. If on the other hand, there was great excitement in the GCC about stocks and the markets were booming, then it might seem exorbitant. As they say, "God knows".
And for those of you tracking the performance of Deutsche Bank's investment in GFH which they purchased at US$0.38 per share. The closing price of GFH is US$0.29. With over 105 million shares, that translates into a paper loss of roughly US$9.5 million.
That assume of course, that DB is "still holding". They might have sold.
Some speculation. If I saw a rescheduling coming and had a chance to get out, I would. The shares offer a convenient way out without creating any messy footprints. Convert debt to shares, then sell the shares. There is sufficient volume in the Kuwaiti market that one could do this quite easily over say a couple of weeks. If there is a loss, it appears in one's financials as a trading loss not an impairment or provision on a loan. One might face an ethical dilemna if one's clients were in the credit. Whose portion do you self first? The clients? Yours? Pro-rata? As noted above, this is one option a creditor might take in a deteriorating credit. There is no reason to suspect that Deutsche Bank is engaged in this sort of behavior, which by the way would be perfectly legal.
That assume of course, that DB is "still holding". They might have sold.
Some speculation. If I saw a rescheduling coming and had a chance to get out, I would. The shares offer a convenient way out without creating any messy footprints. Convert debt to shares, then sell the shares. There is sufficient volume in the Kuwaiti market that one could do this quite easily over say a couple of weeks. If there is a loss, it appears in one's financials as a trading loss not an impairment or provision on a loan. One might face an ethical dilemna if one's clients were in the credit. Whose portion do you self first? The clients? Yours? Pro-rata? As noted above, this is one option a creditor might take in a deteriorating credit. There is no reason to suspect that Deutsche Bank is engaged in this sort of behavior, which by the way would be perfectly legal.
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