Euroweek
Bahrain’s GFH set for three year pushback
Issue: 1161 - 2 July 2010
Bahrain’s Gulf Finance House, which shocked lenders early this year by seeking to defer $100m of bank debt for six months, is set to get a further extension of three years, chief executive Ted Pretty has told EuroWeek. He also revealed that GFH might launch a rights issue in the next six months.
GFH approached its banks in January just weeks before its $300m syndicated loan was set to mature. Highly exposed to the Gulf’s struggling property and infrastructure sectors and having made a $730m loss in 2009, it said it could not repay all the debt and asked for $100m to be pushed back for six months, in which time it would look to sell assets.
But asset prices in the region failed to pick up and GFH has struggled to sell its properties and investments. It thus approached its 32-strong syndicate, led by WestLB, in April for another extension.
Pretty says that the debt, due in August, will be extended for two years as an amortising line. But there will be a one year extension option - likely to be at the borrower’s, rather the lenders’, behest - effectively making it a three year facility. “I’m very confident that we will extend this out for another couple of years, and this will get done within a short period,” he said. “The banks in the syndicate are sympathetic. We’re close, if not finalised, with all the terms.”
The $100m loan, which is unsecured, pays a margin of 500bp (a sharp rise from the 105bp the $300n loan paid). Pretty said it will likely pay less once the extension is signed. But lenders will benefit by getting some security, although he would not disclose what shape it would take.
If the extension is signed - bankers close to the talks said it was not a “done deal” but agreed it would probably go ahead - it will mark the final chapter in GFH’s attempts to restructure its balance sheet and extend its maturities.
Back to shareholders
The company has also been cutting costs and changing its business model in the last six months, focusing less on property and more on core Islamic banking. As such, Pretty hopes by the end of the year to be able to approach shareholders.
“I hope, by the fourth quarter of 2010 or first quarter of 2011, to go back to the market and be able to articulate to shareholders what our growth strategy is in more detail,” he said. “Depending on how global markets are, maybe we’ll look at equity raising.
“We can go to the market and say: ‘Listen, here’s our new model. We now have the right team and the right people and this is how we’re going to grow.’ We can raise money on the back of that.”
He emphasised that the proceeds of any rights issue would be used for investment, not paying down debt.
GFH, the most liquid stock in the Gulf Cooperation Council, completed a $300m rights issue as recently as October. It also raised $100m around the same time by placing a convertible bond with Deutsche Bank, most of which has been converted.
GFH told its bank syndicate early this year that it would look to sell $420m of assets by the end of 2010. The biggest chunk of that would have come from a sale of its 37% stake in Bahrain’s Khaleeji Commercial Bank. But that could now be kept, partly because liquidity in the region is still lacking but also because of GFH’s changing business strategy. “We’ve been asked if we’re a seller,” said Pretty. “The answer is: ‘Anyone’s a seller if the price is good.’ But at this stage we’re happy to hold.
“If someone comes and gives us a knockout price, then we’ll look at selling it. But we’re not going to sell it cheap. I’ve told lenders that. It’s not in anybody’s interests for that to happen.”
He said GFH would demand a premium for the stake - the largest single one in Khaleeji and which would give any buyer control of the institution. “If we sold 37%, we’d want a premium for control,” he said. “That’s the bottom line.
“I don’t look at the share price of Khaleeji as a benchmark. You have to look at its book value. You’d easily get to $170m [by that measure].”
Other assets previously lined up for sale could also be held on to indefinitely. “We anticipated that the market would allow us to sell down assets,” said Pretty. “But, frankly, asset prices have continued to fall. Liquidity is not there in the market.”
Aside from the $100m syndicated loan, GFH’s debt includes an $80m amortising wakala facility, which matures in 2012; and a June 2012 sukuk, $133m of which is outstanding.