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| (telegraph.co.uk) Kuwait's biggest investment bank defaults debts amid credit crunch. |
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(Sukuk.net - The Peninsula) Global Investment House, Kuwait's biggest investment bank, defaulted on most of its debt in the first of several expected casualties among financial companies due to the a credit crunch, just months after Kuwait rescued one of its biggest banks.
The news is a further blow to the wealthy oil producer, which is trying to restore confidence among investors after it rescued its fourth-largest lender, Gulf Bank, hit by huge derivative losses, and guaranteed deposits at all banks.
Kuwait's central bank has warned that several investment and holding firms, which make up more than half of the country's listed firms and offer typical investment banking services, might get hit by the global credit crunch.
"The company is in default on the majority of its financial indebtedness," Global said in a statement to the London Stock Exchange, where it has a listing for Global Depository Receipts (GDR). Global shares fell 7 percent, dragging the Kuwait stock market, which dived 38 percent in 2008, down.
The bank said, without elaborating, that it would continue to service all its interest and coupon payments "on a timely basis". It has appointed HSBC to hold talks with creditors.
At end-September, Global had total liabilities of 806.7 million Kuwaiti dinars ($2.85 billion).
A Global source said the firm hoped to sign a standstill agreement with all creditors within two days to reschedule debt. Global, which is heavily invested through mutual funds in many international markets, said last month it needed loans worth $1 billion to replace foreign debt.
Naser al Nafisi, General Manager at the Al-Joman Center for Economic Consultancy, which put the total debt for all Kuwaiti investment firms at about 8 billion dinars in December, expected up to 30 listed Kuwaiti companies to go bankrupt due to the crisis.
"We've criticised companies like Global for expanding too fast for a long time when they were booming. They use too much short-term debt. A growth of 10-15 percent (annually) is acceptable, but not 50 percent," he said.
A banking source told Reuters that Global, which operates officially as an investment firm, had been unable to get new loans from local banks.
"There are no talks with local banks anymore," a source at a major bank said. Companies like Global Investment House, which had considered in its heydays buying a fund manager in New York or a Swiss bank, had rapidly expanded in the past few past, driven by Kuwait's oil-fired economy. In the summer, it said it had expanded in the region.
Its major Islamic rival, Investment Dar, which bought british luxury car maker Aston Martin last year and until recently wanted to open banks in London and Dubai, shocked investors with news last month it needed, like Global, loans up to $1bn.
Nafisi said the main problem was Kuwait's lax regulation requiring listed companies to disclose only the bare minimum such as net profit to the stock market, allowing them to cover up huge problems until the last minute.
Global and Dar had both reported double-digit percentage net profit increases in the third quarter without mentioning a rise in debt levels until several weeks later.
"We need better regulation," said Nafisi, adding that all investment or holding firms needed only a license as an investment firm despite offering typical investment banking services such as underwriting issues or corporate finance.
He said mergers among ailing investment firms would only compound problems, not solve them. "This adds no value," he said.
Source: Sukuk.net
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