Progress on two debt restructurings in Kuwait has been delayed by at least another month as the local courts fail to take any decisions on how to deal with debts at both International Leasing and Investment Company (ILIC) and The Investment Dar (TID).

ILIC creditors

  • ABC Islamic (Bahrain)
  • Dubai Bank (UAE)
  • Raiffeisen Bank (Austria)
  • Islamic Bank of Asia (Singapore)
  • Banque BIA (France)
  • Boubyan Bank (Kuwait)
  • Gulf International Bank (Bahrain)
  • Doha Bank (Qatar)
  • British Arab Commercial Bank (UK)
  • Emirates NBD (UAE)
  • BMI Bank (Bahrain) 
  • Blom Bank (Lebanon)
  • Arab Islamic Bank (Palestinian Territories)

ILIC=International Leasing & Investment Company. Source: MEED

The continued delays in agreeing debt restructuring deals is making creditors increasingly nervous about their ability to get money back from other distressed Kuwaiti companies, which could number up to 12 investment companies alone.

“There are at least 10-12 investment companies that are in negotiations with creditors, and more real estate companies,” says one banker in Kuwait. “International investors are worrying now that they don’t have any real recourse to get their money back because the courts take so long.”

International investors are worrying now that they don’t have any real recourse to get their money back

Kuwait-based banker

Creditors for both ILIC and TID have been informed that the Kuwait courts will not make a decision on how to proceed with their cases until early May at the earliest. Any payments back to creditors are still several months away, even on an optimistic scenario.

The Kuwait courts rejected a bankruptcy filing by ILIC’s creditors in January and an appeal hearing filed by the banks against the ruling took place on 10 April. The court said at the end of that hearing that it was deferring judgement until 8 May.

The Investment Dar Coordinating Committee

  • Jordan Islamic Bank
  • ABC Islamic
  • Lloyds TSB (UK)
  • Al-Rajhi Bank (Saudi Arabia)
  • Islamic Development Bank (Saudi Arabia)
  • Bank of Bahrain & Kuwait (Bahrain)

Source: MEED

“Kuwaiti courts are reluctant to initiate bankruptcy claims in respect of Kuwaiti borrowers due to an unwritten diktat from the government not to pursue involuntary liquidation of Kuwaiti entities,” says a source close to ILIC.

ILIC has two outstanding loans, which total $120m, split between 13 banks. Bankers say the company has made no attempts to propose a restructuring plan and has no feasible business plan going forward.

In contrast, TID has agreed a restructuring plan for around $1.5bn of debt with creditors, but the central bank has yet to give its approval, meaning it cannot move ahead with the proposal. In the court hearing to approve a restructuring plan for TID on 7 April, a decision was delayed until 5 May because the Central Bank of Kuwait failed to give its consent to the plan. Sources close to TID say the central bank’s failure to consent to the plan came as a last minute surprise.

The coordinating committee representing the creditors held meetings with the central bank in late March to go through the details of the restructuring plan. “We had meetings with the central bank in late March to discuss the proposals, there was then some follow up questions that were answered,” says a banker involved in the meetings. “The central bank then surprised everyone by sending a note to the court saying simply that the proposal doesn’t address their concerns. But it gave no detail on what those concerns were.”

The coordinating committee is now trying to arrange further meetings with the central bank to address their concerns. “We are concerned that the more this are held up, the more likely it is that banks will launch individual actions to try and seize assets and that will be a disaster for creditors at the back of the queue,” says another banker.

A source at TID says, “We believe the judge agrees that TID with this plan in place is much better than TID without the restructuring plan. We just hope the central bank agrees to this soon.”

In both cases, creditors worry that the longer they go on without an agreement involving all the parties, the more likely it is that individual creditors will launch legal action to claim assets. That will create a situation where the first creditors to get a successful claim through the courts will be able to claim the most valuable assets to settle their claims. The last creditors could be left with nothing.

Both ILIC and TID have been under financial stress for a long time. ILIC has not filed financial statements with the central bank since the 30 September 2008 filing, while TID has not filed statements since the full year accounts for 2008.

The Central Bank of Kuwait and ILIC could not be reached for comment.