Islamic bank Gulf Finance House seeks better times

Gulf Finance House is in the midst of overhauling its business model to generate steady sources of cash and ensure that its profits are less dependent on fee income from deals, said Hisham Alrayes, thShow more

MANAMA // Gulf Finance House is eyeing acquisitions and restarting stalled projects in Bahrain in an effort to turn around its fortunes.

The Islamic investment bank had been one of Bahrain's biggest deal makers before the financial crisis, but it was humbled by the collapse in the property market and dwindling investment banking business.

It reached an agreement with sukuk holders last week to push back repayment on US$110 million (Dh404m) of Islamic bonds for six years.

The deal postpones a debt repayment that had been due next month. The bank is in the midst of overhauling its business model to generate steady sources of cash and ensure that its profits are less dependent on fee income from deals, said Hisham Alrayes, the bank's acting chief executive.

"We're planning to reshape Gulf Finance House as a group with diversified income," he said. "During this year we're trying to increase our stakes in some of our subsidiaries, and at the same time, to make, hopefully, one acquisition."

The bank had not yet settled on an acquisition target, Mr Alrayes said.

The switch from debt restructuring and asset sales to seeking acquisition targets is a turnaround for the group, which has shed most of its employees. Staffing has fallen from a peak of 300 before the financial crisis to 55 now.

The bank's auditors at KPMG wrote last year that the bank's future depended on its ability to achieve asset sales.

However, Gulf Finance House now plans to retain several companies alongside its disposals of property and land.

The bank considers its majority shareholding in Khaleeji Commercial Bank to be among core assets that it will use to generate steady income, alongside stakes in the cement producer Cemena and Bahrain Aluminium Extrusion Company (Balexco).

The bank is also planning to restart the Villamar project, a mixed retail and residential complex of three tower blocks on Bahrain's waterfront that has been stalled for years as the credit crisis sapped cheap financing.

"We want to ensure that whatever projects we start we do complete … rather than early exits at a lower value," Mr Alrayes said. Gulf Finance House had been left with responsibility for many projects, such as an energy cities in Qatar, at an earlier stage than anticipated after the financial crisis hit.

Mr Alrayes added that he expected construction works on the $450m project to resume in the third quarter of this year, after the appointment of Mace Property Management to conduct an appraisal. Last week's rescheduling announcement was proof that creditors had faith in the bank's plans, said Mr Alrayes.

"I wouldn't say that was a very easy process that we went through, and they wanted comfort in terms of our business plans," he said. "But we've gained their confidence at the end of the day."

The restructuring may have bought the bank time to put a new strategy in place, but it still faces higher coupon payments, said Gus Chehayeb, the regional head of credit research at Exotix, a specialist investor in illiquid debt.

"This is just giving them more breathing room and allowing them to implement their business strategy to generate cash flow in the future," he said.

The bank generated net profit of $1m during the first quarter of this year, a decline of 91.5 per cent compared with the year-earlier quarter.

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