Global Investment House is to ask shareholders to approve a US$433 million (Dh1.59 billion) debt for equity swap in the biggest such deal attempted in the Arabian Gulf since the beginning of the financial crisis.
If successful, the swap will lead to creditors taking control of as much as 70 per cent of the embattled Kuwaiti investment bank.
Shareholders are to be asked to allow a capital increase of 122.2m Kuwaiti dinars (Dh1.58bn) with the issuance of 1.2 billion new shares to creditors, in exchange for settlement of its debts. Global Investment House (GIH) will then write off 108.2m dinars of accumulated losses.
The issuance of new shares will give creditors 70 per cent control of GIH.
Creditors gaining control of companies that run aground is a rarity in the Gulf. The Investment Dar, a Kuwaiti investment company which owns half of the car maker Aston Martin, settled some of its debts through a similar debt-for-equity swap, which saw 10 per cent of its shares change hands last year.
GIH was once one of the biggest investment banks in the Gulf but it has twice been forced to renegotiate its debts since the financial crisis began five years ago.
The company has proposed an extraordinary general meeting on September 2 to approve the measure, in which creditors take a stake of up to 70 per cent in the bank, it said in a message to the Dubai Financial Market.
The bank will propose to waive bonuses for its directors and will also cancel the distribution of dividends for shareholders for last year.
The deal is an attempt to draw a line under $1.7bn of debt restructuring, which GIH has already been forced to renegotiate with its 53 lending banks.
With the burden of debts lifted from its balance sheet, the company stands a much better chance at returning to health, said Patrick Slater, a senior associate at Herbert Smith, a law firm.
"It's because they've come to the view that without getting all of this debt off their balance sheet they're not going to be able to reach a restructuring of a sensible tenor," he said. "They need to reinvigorate the company. They won't pay interest, they'll pay dividends - giving an additional standstill while their profits recover."
The bank's shareholders include Kuwait's government and Dubai Group, an arm of Dubai Holding, according to Zawya.
Previously, Kuwait's stock market regulator had said failure to write off losses by the end of next month would force Global to be delisted from the Kuwait Stock Exchange.
The company will also seek approval to delist from any exchange on which it is currently listed, with the exception of the Kuwait Stock Exchange. GIH's shares are also listed in London, Bahrain and Dubai. The bank's shares have been suspended since December.
It first restructured its debts after defaulting in late 2008 but, as a result of assumptions that proved too ambitious in the wake of the euro-zone debt crisis, it sought to renegotiate its debts again last year.