GFH recovery may be stalled as downgrade announced by S&P

Concerns lender may not be able to repay $100m loan

Standard and Poor's (S&P), the global credit ratings agency, has cast fresh doubt on a financial rebirth at Bahrain's Global Finance House (GFH) by downgrading the company and questioning its ability to make a loan payment of US$100 million (Dh367.3m). S&P lowered GFH's long-term credit rating late on Monday to "CC" on concern that it did not have enough cash to handle the $100m loan due next month. A "CC" rating implies a high likelihood of default on obligations, according to S&P's criteria.

"The downgrade reflects our expectation that GFH is likely to restructure its debt soon because of its weakening liquidity and revenue generation," said Goeksenin Karagoez, an S&P credit analyst. "In our view, difficult operating conditions are hampering management's efforts to improve GFH's business and financial profile." The move may mark a reversal for what has been one of the region's most remarkable turnaround stories during the financial crisis. Since being brought in last year, Ted Pretty, GFH's Australian chief executive, has aggressively marked down the company's assets, restructured debts and announced plans to sell stakes in property projects and banking subsidiaries to raise cash. Under Mr Pretty, GFH posted $728m of losses for last year and revealed plans to raise $250m this year from asset sales.

GFH reached a deal in May with Emar Bahrain, a government-owned developer, to sell its 50 per cent stake in the Bahrain Financial Harbour project for $40m in cash, plus several plots of land in the project that would later be sold to raise more money. Mr Pretty also oversaw an 11th-hour restructuring of a $300m loan that came due in February. The new terms reportedly called for GFH to pay $200m immediately, with the remaining $100m due in six months.

The successful restructuring led S&P in March to upgrade GFH to "CCC-" from "selective default". Since then, though, continued weakness in markets and negative investor sentiment have made raising money from asset sales difficult and put GFH and other regional investment companies that have debts coming due in a tough spot. GFH is said to be negotiating with bankers for a further delay in repayment of the $100m due next month.

A GFH spokeswoman could not be reached for comment. "GFH reportedly paid only $200m when the facility became due in February 2010, when the lending group agreed to extend the maturity of the remaining $100m for six months," S&P said. "We understand that GFH has started discussions with the lending group to extend the maturity of the $100m a second time. "In our opinion, any improvement in GFH's liquidity is unlikely as long as the equity and real estate markets continue to reduce the fair value and liquidity of GFH's key investments."

GFH shares, which are listed on the Bahrain Stock Exchange, last traded on Thursday, when they declined by 7.7 per cent. Many investment companies in the Gulf, including Global Investment House and The Investment Dar in Kuwait, have had similar difficulties in the past year and have moved to restructure debts. [e-mail]