Bahrain-based Gulf Finance House Raised to ‘CCC-/C’; outlook negative
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Standard & Poor’s Ratings Services today said it raised its long- and short-term counterparty credit ratings on Bahrain-based Gulf Finance House G.S.C. (GFH) to ‘CCC-/C’ from ‘SD/SD’ (selective default). The outlook is negative. “The rating action follows GFH’s completion of the partial extension of maturity of a $100m facility,” said Standard & Poor’s credit analyst Goeksenin Karagoez.

The first tranche of this facility was a $50m payment due March 3, 2010, with the remainder due on March 3, 2011. We understand that GFH has obtained consent for the partial extension from all lenders of the facility, which is set to be repaid in five installments over the next two years. Under our criteria, we consider GFH’s maturity extension to be a “distressed exchange” and therefore tantamount to a default because the new maturity represents a change to the facility’s originally scheduled payment terms.

“We subsequently reassessed GFH’s creditworthiness by analyzing, among other things, GFH’s new liability structure, cash flow projections, and its overall business model and strategy and on this basis, we raised the ratings on GFH to ‘CCC-/C’. While the partial maturity extension of two facilities has somewhat reduced the immediate and severe stress on GFH’s liquidity situation, it remains in our view very weak and will likely constrain the ratings,” said Mr. Karagoez.

With total assets of $1.6bn on Dec. 31, 2009, GFH is an Islamic wholesale investment institution based in the Kingdom of Bahrain (A/Stable/A-1). “The negative outlook reflects our opinion of GFH’s very weak liquidity position from a rating standpoint, because it still faces challenges to meet debt repayments coming due in the very near term,” said Mr. Karagoez.

It also reflects the uncertainty we perceive regarding the ability of the institution to implement its plan for improving its liquidity position and boosting its revenues. Failure to meet any of the upcoming existing or restructured payments would lead us to lower the ratings to ‘D’ (default). In addition, we would consider as another distressed restructuring any transactions by GFH to reschedule or restructure its debt, including unrated obligations, such that lenders receive less than the original value. This would result in a lowering of the ratings to ‘SD’, assuming GFH continues to honor its other obligations.

We would raise the ratings if GFH is successful in raising alternative sources of liquidity to alleviate the currently difficult liquidity situation. To fully alleviate liquidity pressure and therefore further improve its creditworthiness, however, we believe that GFH would need longer-term funding sources and new business activity because its debt structure is short-term and operating cash flow is minimal.

In rating ease of description as very important, we are essentially asserting a belief in quantitative knowledge – a belief that most of the key questions in our world sooner or later demand answers to ‘by how much?’ rather than merely to ‘in which direction?’John Tuley

Regards
ZULKIFLI HASAN
DURHAM, UK

Madrid, Spain