Model for debt restructuring in Kuwait

13 June 2011

The Investment Dar’s restructuring plan offers a way forward for other Kuwaiti firms facing debt problems

It has been a long time coming, but Kuwait’s The Investment Dar (TID) has finally got a debt restructuring plan in place after first defaulting on a $100m sukuk (Islamic bond) in early 2009.

It has taken two years to finally get this far. TID is the first company to come under the Financial Stability Law, which will protect it from creditors while it tries to work its way out of its debt problems.

The deal, imposed on it by the local courts, has a lot of positive sides to it. Everyone will get repaid in full within six years, the company is prohibited from taking on more debt and its performance will be monitored by the central bank. It is not perfect and many creditors would like the ability to have greater oversight of TID’s management.

The restructuring shows progress can be made, but a helping hand from the government is needed

What it does do though is offer a possibility for other court-lead restructuring plans. That should help encourage creditors that the Kuwaiti authorities are actively seeking to bring the debt problems that have arisen in the country’s investment firms to a conclusion.

So far, that has not been the case. In some situations, banks have decided they are better just selling off debt in defaulting Kuwaiti companies at deep losses than wait for a restructuring deal to be reached. They worry there will be little corporate or political momentum to bring the debt restructurings to a conclusion.

The TID restructuring plan shows that progress can be made, although a helping hand from the government is often needed. Now the door to the protection of the Financial Stability Law is open, others companies should seek its shelter from their creditors.

It has been several years since the debt problems at Kuwaiti companies first emerged. The continued failure to make significant progress on solving them is still weighing on the Kuwaiti economy and should be overcome as quickly as possible.

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