Kuwait's IIG may sell, break up or seek investor

After defaulting on a US$200 million Islamic bond, International Investment Group (IIG), a troubled Kuwaiti financial concern, is considering what its next step should be.

IIG is the third major investment company in Kuwait to default on debt. Daniel Acker / Bloomberg

International Investment Group (IIG), a troubled Kuwaiti financial concern, announced it was considering selling assets, finding a new investor or breaking up the company after defaulting last year on a US$200 million (Dh734.6m) Islamic bond.

IIG is the third major investment company in Kuwait to default on debt - the others being The Investment Dar in 2009 and Global Investment House (GIH) in 2008. Kuwait's finance companies were some of the hardest-hit in the region by the global financial crisis as share prices plummeted and banks became reluctant to refinance borrowings.

IIG hired the consultancy KPMG to come up with restructuring options after the default last April. In a disclosure posted on the NASDAQ Dubai website yesterday, KPMG said it recommended a range of options for IIG's restructuring that included doing nothing, selling assets, finding new investors or breaking up the company.

"The composition and viability of any of these options is dependent on the ability of the group's affiliates to generate sufficient cash flow to meet the requirements of any one of these plans," KPMG said in a summary of its report.

After its default last April, IIG announced in July it could not pay $152.5m to holders of its $200m Islamic bond, or sukuk, who demanded immediate repayment. In September, the company's shareholders voted to reduce its capital by 55.8 per cent to 20.2m Kuwaiti dinars (Dh262.6m) to cover losses. IIG, which is listed on the Kuwait Stock Exchange, had accumulated losses of $142.9m at the end of 2009.

In its report yesterday, KPMG revealed IIG had 67m dinars of total debt at the end of 2009, including the $200m sukuk and about $37m of borrowings from banks and finance companies.

A big activity for IIG has been using those borrowings to finance large loans and pump investment capital into companies it owns - 37.5m dinars of it at the end of 2009, according to the KPMG report. Receiving profits from that financing and investing "is currently IIG's only source of cash generation", KPMG said. Yet most of IIG's cash injections into subsidiaries through loans "have been rolled over several times already due to the inability of the group companies to generate sufficient cash flows to repay the amounts due".

In some cases, IIG has accepted assets from subsidiaries in lieu of cash payments. It took 27 per cent of a plot of land in Egypt from the Kuwaiti-listed Grand Real Estate Projects as a substitute for repayment of financial obligations, KPMG said.

IIG's management has identified assets that could be sold to raise funds and repay borrowings, but the report added that the company "has provided most of its major investment assets as collateral against its borrowings".

IIG's assets include Gulf Petroleum Investment, a Kuwaiti oil services company, Ajal Holding, a Kuwaiti consumer finance company, and Osoul Investment, a financial firm listed on the Kuwait Stock Exchange.

It is unclear which of KPMG's options IIG will choose.

What happened after the default - a timeline:

April 2010

IIG fails to make a regular profit payment on its US$200 million (Dh734.6m) Islamic bond, or sukuk, that it issued in 2007. The company appoints KPMG to review its business and present options for a financial restructuring.

July 2010

IIG says it cannot pay $152.5m to holders of the sukuk who demanded immediate repayment after the default in April.

September 2010

IIG shareholders vote to reduce the company's capital by 55.8 per cent to 20.2m Kuwaiti dinars (Dh262.6m) to help to cover losses.

January 2011

KPMG releases its report on IIG, revealing it had $237m of total debt at the end of 2009, including the $200m sukuk and about $37m of borrowings from banks and finance companies.