DUBAI – Destitute Kuwaiti investment firms consider resorting to debt-for-equity swaps and principal reductions to cut their debt load as they continue to struggle with high levels of leverage and depressed real estate and stock valuations. Eager to avoid expensive write-downs on their books, creditor banks have generally accommodated the investment houses' requests to delay principal and interest payments, hoping in a quick turnaround for the sector. “Creditors... were hoping for asset values to recover enough to get repaid fully,” noted Khalid Howladar, senior credit officer at Moody's Investor Service. “Given that prices have still not really recovered, an increase in debt-for-equity swaps and principal reductions may now be more likely.” A $433 million debt-for-equity swap to be discussed in a Sept. 2 meeting by shareholders of Global Investment House, a Kuwaiti investment firm undergoing its second restructuring in three years, is expected to pique the interest of bankers and issuers alike. “This move is very, very rare in the region. If they manage to do it, people are going to look at these kind of deals more closely,” said an origination banker. “Extend & pretend. This was the model applied with Global Investment House in 2009 when the company restructured the first time,” said Ahmad Alanani, senior executive officer with Exotix. “They have finally realized that a reduction in the debt load was the only way for them to survive as a going concern.” Some point out that abundant liquidity in the Gulf could allow distressed firms to find alternative sources of funding. “Local banks have been very supportive,” noted the origination banker. Another Kuwaiti investment company, National Industries Group, is a case in point. The company decided last week to drop a four-year extension request on the repayment of its maturing sukuk, after securing a three-year syndicated murabaha facility locally. “At the end of the day, it very much depends on the name,” said a source close to the transaction. “But you can't prioritize shareholders over bondholders. What are they going to get in return?” Other alternatives, seen in the larger Dubai restructurings, include maintaining principal balances on the outstanding debt, while reducing coupon payments to below market prices. “Depending on the underlying business this may just further delay recognition of the problem or possibly provide time for recovery,” Howladar noted. “I believe we are going to see more and more principal reductions and debt-for-equity swaps in private sector restructurings,” said Alanani, “and that in my view is a positive.” – SG/AgenciesHit hard by the financial crisis of 2008, most of Kuwait's investment firms have traditionally resorted to maturity extensions to avoid default. “Maturity extension has been the modus operandi across the GCC and Kuwait is no different,” said Ahmad Alanani, senior executive officer with Exotix in Dubai.While maturity extensions have allowed many Kuwaiti companies the extra breathing room they needed to stay in business, they have done nothing to reduce the excessive leverage these firms had accumulated during the boom years of their asset-buying spree.
