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November 26, 2012 9:22 pm

The Investment Dar debt deliberations include claim reclassification

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This article is provided to FT.com readers by dealReporter—a news service focused on providing insightful intelligence on event driven situations to investors. www.dealreporter.com

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Kuwait’s The Investment Dar (TID) is still in negotiations with some creditors in its B-claim group about repayment and there are discussions on whether those creditors should be re-categorised as C-claim debt, a source familiar with the situation and a creditor told dealReporter.

One B-claim creditor bought the debt a year ago and is trying to come to a separate deal regarding the payment that was due to the B-claim group in June, the source said. C-claim creditors reject this, he said.

The creditor said there were three financial institutions that had bought B-claim debt totalling about KWD 20m (USD 70.8m), which he believed were trying to negotiate a separate deal.

The B-claim group originally comprised of non-financial institutions was due to be paid out at KWD 65m on 30 June. TID missed the deadline and had been negotiating with the group to repay partly in cash and partly in kind. The original Kuwaiti creditors in the B-claim group have now all been repaid, the first source said.

There was a handful of B-claim debt sales last year in the range of 60-80 cents to institutional investors and trading houses, a second source familiar with the situation said. “Those [B-claim] buyers may have done well, if they bought at 70 and claimed back a few months later at 100. That’s not a bad deal,” he said.

In turn, creditors in the C-claim group have suggested that a B-claim member be reclassified as a financial institution and moved into the C-claim group, the first source said. That creditor bought the B-claim debt at around 65-75 cents on the dollar compared to C-claim debt, which has a current price significantly lower at around 20-25 cents, he said.

A tranche of C-claim debt was sold in mid-2012 for 15-17 cents, the second source said. Buyers of the debt include hedge funds, he noted.

However, the creditor said that C-claim creditors were not seeking to have the B-claim debt reclassified, but had asked the company whether this was going to happen. “We don’t want to see it treated as C-debt. We want to know if they are going to move it to C-debt or keep it in B, and settle it now before [the C-claim payment] due date,” he said.

Each creditor holds a court-ordered notarised undertaking stating the amount owed to them and any reclassification of the debt would require those pari passu repayment amounts to be altered, the creditor said.

From the company’s perspective, reclassifying the debt would give TID more time to make the repayment, the creditor said. It would also move the B-claim creditor into a category of debt which will receive a profit payment under the company’s restructuring plan, he noted. A- and B-claim creditors were not eligible for interest payments, he noted.

A company source declined to comment on any B-claim negotiations or debt reclassifications.

The first group of creditors, the A-claim creditors comprised of individuals, was repaid KWD 17m in October 2011. The C-claim group of financial institutional creditors, which hold around KWD 870m of the debt, are due to receive their first payment of KWD 50m in June 2013 under TID’s court-endorsed, 8.5 year restructuring plan. Implementation of the KWD 955m plan began in June 2011 when TID was admitted under Kuwait’s Financial Stability Law that offers the company protection against creditor litigation.

The company did not provide any information at an all-lender meeting in Dubai on 13 November on how TID plans to make the C-claim payment, the creditor and the company source said.

The company source declined to comment on the repayment and asset sales, noting that information is commercially sensitive. He described TID’s restructuring plan as a payment schedule over a fixed time that “envisages payments coming from the realisation of assets.”

The creditor speculated that the company might not be able to meet the KWD 50m payment in cash and might have to offer assets. However, creditors and management have a different view on asset valuations and creditors have asked for an independent adviser to value TID’s holdings, the creditor said. The company has declined the request, citing cost, he said.

TID refuted in a statement on 13 November press reports that said it is approaching buyers to sell its stake in Aston Martin Lagonda. The first source noted that the stake was bought for close to GBP 500m and was likely to be the last asset to be sold as the company would want to get as close to the original price as possible. He said the asset disposal plan was on track.

The company is in negotiations with Bahrain’s General Organisation for Social Insurance and National Bank of Bahrain about acquiring shares in Bahrain Islamic Bank (BIB), according to a BIB statement issued on 22 November. Any deal would be subject to due diligence and regulatory and board approvals, the statement said.

At the creditor meeting Houlihan Lokey was introduced as a new adviser to TID, replacing Aaronite Partners. “They have come in on the same terms. It’s an advisory mandate, they are not a CRO [chief restructuring officer],” the company source said.

A separate TID statement on 13 November on the creditor meeting noted that “Houlihan Lokey gave a short presentation on the negative effects of the global financial crisis on private equity transactions and reviewed the challenging dynamics in a number of GCC markets.”

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