x Abu Dhabi, UAETuesday 16 January 2018

GFH plans to raise $420m via asset sale

The Bahraini investment bank Gulf Finance House plans was heavily exposed to financial companies and property projects.

MANAMA // Gulf Finance House (GFH) of Bahrain plans to raise US$420 million (Dh1.54 billion) from asset sales as it cuts costs, lays off workers and reforms its business model to cope with painful losses last year, its acting chief executive says. The Islamic investment bank, which is heavily exposed to financial companies and property projects in the Middle East, announced a loss of $607m in the final three months of the year, due mainly to a reassessment of the value of its holdings.

"We're in a tougher part of the cycle and I think that we need to adjust accordingly," said Ted Pretty, the company's acting chief executive. "Our biggest priority is around the core business, balance sheet cost structure, revenue, all those things." Bahrain's investment houses, once thought to be shielded from financial turmoil by strict regulations and a relative absence of speculation, are beginning to show signs of the same kinds of stresses faced by companies in other parts of the Gulf.

Arcapita, another of Bahrain's largest investment houses, yesterday said it lost $191m in the final six months of last year, due mainly to the declining value of investments. "Whilst the return to profitable growth will take longer than expected, we continue to believe that once the environment improves, we will be well placed to use the quality and extent of our resources to benefit from the opportunities that arise," Arcapita said yesterday.

At GFH, the strategy now is to cut costs, sell assets and reduce debt. The company plans to reduce expenses by between 40 and 45 per cent by paring its workforce, outsourcing some work and consolidating its nine floors of office space in the Bahrain Financial Harbour project, which it helped develop, Mr Pretty said. GFH had more than 250 employees at the end of 2008 but now has just over 160, he said, adding that the company's "optimal size" was probably fewer than 100 people.

Reducing debt is another focus. After last year's losses, Mr Pretty oversaw the restructuring of a $300m Islamic loan that matured this month. The company paid off two thirds of the amount when it came due, refinancing the rest for an additional six months. Mr Pretty said GFH planned to pay back the remaining $100m through sales of its assets, which include stakes in Khaleeji Commercial Bank, Bayan Holding and Gulf Holding, a property firm that is developing projects in the Bahrain Financial Harbour.

"We successfully paid down $200m and we have a new facility for the $100m, which we intend to pay for with asset sales," he said. "We have good assets on the balance sheet and we have a realistic value on them now." The company's stakes in financial and property companies, as well as equity in projects it helped to finance and partially sold on to investors, were all on the block, Mr Pretty said. Gulf Finance House raised money for several multibillion-dollar property projects over the past several years, including immense Energy City projects in Qatar, India and Libya, as well as ventures in Jordan, Bahrain, Morocco, Tunisia and Algeria.

GFH has another $100m of debt it is seeking to restructure, half of which comes due next month and the other half next year. The company is said to be on the verge of announcing a deal in which it would pay off part of that loan and refinance the rest. As GFH works to right its financial ship, its problems - along with those at other local investment houses - have fuelled growing worry in Bahrain's tight-knit financial community about the health of the island country's financial services industry, which according to Central Bank data accounts for 27.6 per cent of its GDP.

Some bankers also privately worry that companies such as GFH will not be able to weather large write-downs without aggressive support from shareholders, and that if some of these companies falter they could give a bad name to the whole industry. Bahraini companies have also not been immune to a rash of downgrades by credit ratings agencies that have made financing more expensive. Several Bahraini companies, including GFH, have raised additional money from shareholders to help tide them over. Mr Pretty said GFH may raise even more funds, but only if it was able to find a cashed-up partner - possibly in Abu Dhabi or Saudi Arabia - to finance an expansion once the company rebuilt.