Global Investment House announced that it has entered into formal restructuring agreements with all of its financiers, bringing to a close a period of considerable uncertainty initiated by the credit crunch in the final quarter of 2008. Global has entered into new three year amortising facilities with each of its 53 lending banks, thus ending the events of default that arose in December 2008.
In response to changing market conditions, Global undertook a full strategic review of its business model prior to finalising the terms of its restructuring with its creditors. This review concluded that Global should concentrate on its profitable, lower risk, capital light, fee based core business and to exit over time, as market conditions allow, from its more volatile and capital intensive Principal Investment Business.
Going forward Global’s core business will comprise asset management, investment banking and brokerage. Substantially all of its investments that comprise the Principal Investment Business have been transferred into the newly created Global Macro Fund, incorporated in Bahrain, and a Kuwait domiciled SPV real estate holdco ("Real Estate Holdco"). Both the Global Macro Fund and Real Estate Holdco will be wholly owned by Global. Therefore, the performance of the principal investment and real estate portfolio will continue to impact Global’s financial results. The assets in these businesses will be disposed of in an orderly manner, taking into account market conditions and with a view to maximizing value. The proceeds will be initially used to pay down debt.
Whilst not immune to the credit crunch, Global’s core asset management business has continued to perform well in challenging market conditions. For the nine months ended 30 September 2009, Global reported KD25.9 million of fee, interest and dividend operating income. Its asset management and brokerage businesses generated KD12.2 million of profit. The asset management business remained resilient during this period and as at 30 September 2009, Global had USD 6.6 billion assets under management.
Global also continues to reduce its operating cost base. As announced previously, personnel expenses for the first nine months of the year were 49% lower than the comparable period of 2008. On 15 June 2009, Global obtained approval for the issuance of 1.5 billion shares at KD0.110 per share, to be issued at a time deemed appropriate by the Board. The Board have no intention to do so at the current time but will continue to monitor market conditions and the progress of Global’s cash generation initiatives in meeting its objectives under the debt servicing and repayment schedules and in financing growth in the core businesses.
The key terms of the restructuring include: New multi-currency conventional, Islamic and bilateral facilities totalling USD1.73bn which will be utilised to discharge the existing facilities and are largely based on the terms of Global's existing syndicated facilities. The facilities will be amortised over three years primarily using the proceeds from the sell down of assets in the Global Macro Fund. Initial facility pricing of a relevant benchmark plus 150 bps stepping up by 1% each year. Repayments of debt will be applied on a pro rata basis against the debt owed to Global's creditors (including the bondholders) who will share in the proceeds of such repayments and any enforcement on the terms set out in an intercreditor agreement. The obligations under the new facilities will be secured by Global (or its relevant subsidiaries) granting security over the units in the Global Macro Fund, shares in Real Estate Holdco and certain of its subsidiaries, property held directly/indirectly by Real Estate Holdco and accounts holding the proceeds from the realisation of assets in the Global Macro Fund (and certain of Global's other income streams), in each case, in favour of the financiers (including the bondholders) on a pari passu basis. Other than the grant of security referred to above, the terms of the three bond issues of KD115 million (USD0.40bn) by Global remain unchanged.
Maha Al-Ghunaim, Chairperson of Global commented: “Today represents a significant milestone for Global and is the culmination of intensive and constructive discussions with our creditors throughout this process. We are delighted to have achieved this successful outcome and by the overwhelming support creditors have shown Global throughout this process. We are extremely grateful for the professional advice and commitment we received throughout the process from our debt restructuring advisors: HSBC. “It is a testament to Global’s business and business model that Global has been able to continue to service interest on all of its obligations throughout this challenging period We are very proud that we have been able to protect and safeguard the interests of all Global’s stakeholders, including clients, shareholders and creditors in these unprecedented market conditions.
“We look forward to putting this episode behind us and focussing our efforts on developing the fee-generating lines of our core business, namely the asset management, investment banking and brokerage pillars of the Company. “I am confident that Global will now be able to emerge as a stronger, well capitalised business, able to serve its clients and win new business even more effectively.”
David Pepper from WestLB and Chair of the Banks’ Steering Committee, added: “We are delighted by this successful outcome today and are highly appreciative of the tremendous efforts Global and its advisers, HSBC have demonstrated throughout this process. Global’s professionalism and transparency throughout this process have been highly commendable and has set precedents for other restructurings in the region.
“Global is a leading asset management and investment banking enterprise. Global has also been helped by maintaining a robust cash flow throughout the year. Although its principle investment portfolio was hit, its other businesses enabled it to continue paying interest. Unlike many other Kuwaiti investment companies, it has benefitted from a recurring fee income from its asset management, investment banking and broking businesses. All of them have held up well throughout the restructuring process. The recurring fee income as well as proceeds from a well managed asset disposal programme have provided the cash to enable Global to meet interest and other similar costs.
“We wish the management of Global success in focussing their efforts on driving forward the core business lines of the Company and reconfirming its leadership position in the region.”