After a debt-fuelled foray into private equity and property before the financial crash of 2008 led to a costly restructuring, many Kuwaiti investment firms are starting to recover and focus on their original core businesses.
Among them is a car leasing firm, A’ayan, that recently wrapped up a long and complicated debt restructuring and is going back to what it did best.
Using a number of financial instruments not seen in Kuwait before, such as Islamic debt to equity swaps, A’ayan signed an agreement in May 2011 to restructure 205 million dinars (Dh2.67 billion)of debt and completed deals on the remaining 145m dinars last December. The debt repayments are scheduled to end in 2016 and until then, A’ayan will remain focused on leasing cars and avoiding the temptation of buying land or other investments, said Mansour Al Mubarak, the firm’s chief executive.
“I would say that we have saved A’ayan from going in one direction, which is south,” said Mr Al Mubarak. “We have stopped that and are taking it north again. We are getting a lot of trust from the new shareholders, we are meeting our obligations and preparing to meet future obligations. We are focusing on car leasing and trying to shrink the real estate business. In private equity, we are shrinking the business and making it more productive.”
Mr Al Mansour said that as a result of the restructuring the firm’s creditors have received a 50 per cent stake in the firm. Shares of A’ayan, which dropped 55 per cent in 2008, have gained 14.9 per cent this year amid an economic renaissance that the IMF estimates will see the country’s GDP grow 2.6 per cent this year from 0.8 per cent last year.
While the value of assets for investment firms all over the Arabian Gulf plummeted and were unable to raise new debt in 2008, Kuwait had an unusually large concentration of such highly leveraged firms, and banks had big lending exposure to them. And even though A’ayan was nearly sunk by the financial tsunami, its debt was not the biggest that needed restructuring among almost 100 companies in a similar situation.
Global Investment House, a Kuwaiti investment bank, reorganized US$1.73bn of debt in 2009 and Investment Dar, which owns half of Aston Martin, has renegotiated $5bn in loans. Many of these firms, like A’ayan, became involved in the real estate market, buying large tracts of Kuwaiti real estate and sometimes developing them, an activity that they are no longer in a rush to get into. A’ayan even turned its real estate business into a separate firm, as a listed company.
“There was tremendous growth in investment companies leading up to the financial crisis and a number of their investments into illiquid assets, for example real estate or private equity stakes, would have been financed through short term bank debt,” said Saul Thomas, a senior manager at HSBC Kuwait’s global and commercial banking division.
“There was therefore the classic mismatch of short-term debt financing long-term illiquid assets. When the financial crisis hit and banks started seeking repayment, a number of these investment companies ran into liquidity problems and a number of them have entered restructurings as a result.”
A’ayan, which also has businesses in Qatar, Iraq and Turkey, is focusing on Kuwait, where the leasing businesses is booming and where the Gulf state has one of the highest car per capita car usage in the region, Mr Al Mubarak said. He pointed out that many families in Kuwait now like to have at least one rented car in their vehicle portfolio.
“Attitudes have changed,” he said. “People like to rent because they don’t need to maintain. After one or two years, you can change and you have value-added services.”
mkassem@thenational.ae
Follow us on Twitter @Ind_Insights