Kuwait’s The Investment Dar (TID) is to push ahead with a $3.7bn debt restructuring after a judgement by the Kuwait Court of Appeal that will place the company under the Financial Stability Law and protect it from creditor claims.

After meetings with creditors on 14 and 15 June, the restructuring plan is understood to have the broad support of both sides.

The debt plan set out for TID by the court will start on 30 June. It will involve financial institutions being repaid over the six years following the start of the plan and an interest rate of 5 per cent a year applying to their loans starting from 31 December 2008. Other smaller creditors will be repaid over either a six-month or 12-month period.

Although many creditors are understood to support the plan announced by the court, some have voiced concerns about the lack of oversight they will have over the management of the company. In response, TID has said a coordinating committee of creditors will continue to have regular meetings with the company’s management. But the company will not offer creditors blocking rights over management decisions, or any seats on the board of non-executive directors, which featured in previous plans discussed by the creditors and TID.

Despite continued reservations about the corporate governance aspects of the plan, creditors say accepting it is the only choice on offer after several attempts at agreeing a restructuring plan have failed.

“Accepting this proposal is really the only offer on the table,” says one creditor, who attended the meetings. “The lenders cannot do anything, but sit back and watch.”

“The judgement really puts the management in control of running the company for the sole purpose of paying off the creditors. There is not much room for interference from anyone else,” says a second creditor.

A source close to TID says the courts restructuring plan allows the Central Bank of Kuwait to monitor TID and the implementation of the restructuring plan. He adds that the court is concerned greater creditor rights to block management decisions could end up in the company defaulting if creditors block the sale of assets in the hope of a better valuation at a later date.

The restructuring plan
Individual claims 58 6 months
Non-financial institutions 236 12 months
Financial institutions 3,386* 6 years
*=interest rate of 5 per cent a year. Source: MEED

TID’s chairman, Adnan ak-Musallah said in a statement the plan is the “best possible outcome for all of TID’s stakeholders”. “We look forward to continuing to work closely with all relevant parties to ensure effective and efficient implementation of the agreed plan,” the statement added.

It remains unclear if any of the creditors will seek a further clarification of the judgement to settle the issue of how much oversight creditors should be granted.

Other restructuring deals in Kuwait are making difficult progress. Several banks holding debt in International Leasing & Investment Company (ILIC) have sold out their loan in the secondary market because of fear that the restructuring process will remain a long and protracted affair.

At least two banks out the company’s 13 strong lender group across two syndicates with a total of $120m outstanding, have sold off their debts to the company at a rate of around 10 cents on the dollar.

“Accepting such deep losses shows that there is very little hope of this making any progress,” says one banker involved in the ILIC restructuring.

The ILIC debt is understood to have been bought by a hedge fund hoping to ride out the restructuring to its conclusion, or sell the debt on in the secondary market for a profit. One banker in Kuwait says hedge funds have already started offering debt in ILIC for around 20 cents on the dollar.

Several investment companies were forced into restructuring their debts as a result of the impact of the financial crisis. TID’s problems started in May 2009 when it missed a payment on a $100m sukuk.

Select aspects of the plan

  • Asset sales will be used only for the restructuring
  • No dividends can be paid until debt is repaid
  • The Investment Dar cannot incur new debt, make acquisitions, enter a joint venture, or make new investments until plan is finished
  • Central Bank of Kuwait will monitor implementation

Source: MEED