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Mon 25 Jan 2010 10:04 PM

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Kuwait's Global warns of Dubai debt risk

Bank's founder said debt crisis caused postional rethink, warns its effects may drag on.

Kuwait's Global warns of Dubai debt risk
GLOBAL WARNING: GIHs founder Maha al Ghunaim said that the Dubai debt crisis caused a rethink in the banks position and warned that the full effects of the crisis may drag on. (Getty Images)

Global Investment House has yet to gauge the full effect of the Dubai debt crisis, warning that it may have long lasting effects on the region's financial sector, the Kuwaiti bank's founder said.

Global took enough impairment charges and provisions to cover it against further investment loss or bad loans, said Maha al Ghunaim in an interview with Reuters, but warned that the effect of Dubai's debt crisis may drag on.

Ghunaim, also the bank's managing director, said: "I thought we had enough provisioning and then the Dubai crisis made us rethink our position. You don't know how deep this is going to go or how far it is going to go."

On Monday, the once high flying emirate of Dubai endured another blow after Standard & Poor's withdrew its rating on a unit of Dubai Holding, the major investment vehicle owned by the ruler of Dubai, citing a "materially weaker" cash position and a lack of information.

Ghunaim made her comments before the S&P statement was issued.

Once a regional powerhouse, Global is a major investment company that had overstretched itself just as the global economic crisis hit.

Earlier this month, Global's shareholders approved its $1.7 billion restructuring plan after the firm reached a deal with its roughly 50 creditors to reschedule debt.

Like many other Gulf Arab companies awash with cash in the heyday of a regional economic boom and high oil prices, Global went on an expansion spree from China to Tunisia as a way to diversify its revenue stream.

But Global learnt lessons from the economic fallout. The firm revamped its business model and is flexing its muscles once again for a fresh start where it will focus on investment banking, asset management and brokerage, Ghunaim said.

She said: "Our priorities have changed. Today our priorities are very much focused to repay our debt and deleveraging the company, that's number one."

Ghunaim added: "Obviously, Global today is not in the business of putting further cash into certain companies as it was years ago. That business model has changed."

As part of its new strategy, the firm will scale back investments, sell assets to get cash and increase its assets under management, she said. The firm is also focusing more on big economies such as Saudi Arabia.

Once named one of the world's 100 most powerful women by Forbes Magazine, Ghunaim said: "We are very much focused on Saudi Arabia ... to provide investment products that are extremely needed and can add value."

She added: "Geographically, we need to focus our attention, you can't be everywhere, anywhere."

Dubai shocked world markets on Nov. 25 when it requested a standstill on $26 billion worth of debt owed by state owned conglomerate Dubai World, a flagship of the emirate. Global has no direct exposure to Dubai's debt.

Ghunaim had said earlier this month that she was optimistic about the firm's growth prospects this year and sees a "huge improvement" in its full year 2009 earnings despite booking higher provisions in the fourth quarter.

Global saw a full year loss in 2008 of $898.5 million mainly due to impairment charges for investments and loans, compared with a profit of $318.7 million in 2007. (Reuters)

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