Lengthy court process includes the establishment of the first Islamic bankruptcy loan
A US court is expected on June 11 to confirm the restructuring plan of Bahrain-based Arcapita , the company said, making it the first Gulf company to file for bankruptcy protection under Chapter 11 rules.
Like most investment companies in the region, Arcapita was hit by the financial crisis as it struggled to exit its investments and its fee income from raising fresh funds in the Gulf Arab region collapsed.
The investment house filed for bankruptcy protection in March 2012 under pressure from hedge funds ahead of the maturity of a $1.1 billion sharia-compliant loan - an unprecedented move in a region where most debt workouts have involved consensual talks that ended in long maturity extensions.
Having worked through the legal process, which included securing the first Islamic bankruptcy loan, a US court approved the disclosure statement for its amended Chapter 11 reorganisation plan, paving the way for creditors to vote on the restructuring in early May, an Arcapita statement said.
The plan, it said, has already garnered the support of the unsecured creditor committee and an ad hoc group of key Arcapita creditors.
Under the plan, originally submitted in February and amended on April 16, the bank's portfolio of assets will be transferred into two offshore holding units and sold off in the future to help pay off its debts.
Arcapita would continue in existence as a wholly-owned subsidiary of the new holding company, but would effectively wind down operations and "not seek out new investors or investments", according to the Feb. 8 filing.
Under the proposal, some secured creditors could expect to recoup most of their money, while creditors in the $1.1 billion loan are projected to recover 64 percent of their cash.
Others could receive far less. Central Bank of Bahrain has a projected recovery of just 6.3 percent.
Arcapita's creditors include Barclays, CIMB , Royal Bank of Scotland, Standard Bank , Standard Chartered and the Central Bank of Bahrain - its largest creditor with $255.1 million owed.