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Sun 22 Jul 2012 05:44 PM

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Kuwait's NIG asks for $475m sukuk extension

National Industries Group Holding asks creditors for four-year grace as maturity looms

Kuwait's NIG asks for $475m sukuk extension
The sukuk is listed on the London Stock Exchange.

National Industries Group Holding (NIG), a Kuwaiti investment firm controlled by one of the country's biggest family conglomerates, has asked creditors for a four-year extension on a $475m Islamic bond, or sukuk, maturing next month.

The request from NIG, part of the Kharafi Group, is the latest debt issue to surface in the Kuwaiti investment sector, which was hard hit by the 2008 global financial crisis.

Firms who borrowed cheap short-term cash in the boom years to fund an asset-buying spree, both locally and overseas, found they could not refinance the debt once borrowing costs rose. Offloading assets at deflated values in a stagnant private equity market has proven difficult.

"(NIG's) debt profile has always been skewed towards short-term debt, leaving it vulnerable to refinancing risk," Ahmad Alanani, a senior executive at investment bank Exotix, said on Sunday.

"It is the classic asset to liability mismatch that plagues many companies in the region."

Several Kuwaiti investment firms have faced debt problems, including Investment Dar, co-owner of luxury carmarker Aston Martin, International Investment Group and International Leasing and Investment Co.

Global Investment House is currently in the midst of its second restructuring in three years, having said in September that it needed to renegotiate a $1.7bn debt plan agreed in 2009.

The Kharafi Group, which owns NIG, is one of the biggest family conglomerates in Kuwait with interests in real estate, retail and financial services. It is thought to control, through various entities, around a quarter of telecom operator Zain.

In a statement to the London Stock Exchange where the sukuk is listed, NIG said it will repay 30 percent of the $475m total on the August 16 due date but requested an extension on the remainder of the sukuk up to 2016.

Under the revised structure, which sukukholders have until August 9 to agree to, NIG will repay 25 percent of the principal amount at the end of each of the four years; akin to an amortising structure, rather than a bullet repayment - in which the borrowed sum is paid back at the end of the term.

The profit rate will also be amended from a floating rate of three-month Libor plus 105 basis points to a fixed rate of 450 basis points - much higher than the 151.59 bps paid out at the last coupon payment in May.

Creditors who agree to the restructuring by August 6 will receive a variable early consent fee. Citigroup is acting as solicitation agent, along with local firm Watani Investment Co.

"Reading between the lines, they wouldn't have come to market with this offer if they hadn't already surveyed their key lenders and felt that they had a good chance of getting a majority of them to consent," said Alanani.

The 30 percent initial payment and the early consent fees will be financed by a KD100m ($354.4m) three-year sharia-compliant loan that will be arranged before the sukuk is originally due to mature, the statement said.

The facility, being arranged by Warba Bank, was rated as credit positive by Moody's in May as it would help to address short-term liquidity issues, including the sukuk repayment. NIG had around 85 million dinars of cash on its balance sheet at the end of March, according to Moody's.

"It was a foregone conclusion that the company didn't have sufficient resources to repay the sukuk in full and on time," Alanani said. "But the timing was a bit of a surprise given they had recently raised some debt financing through local banks and it was assumed the proceeds were to be used to repay the sukuk."

NIG's sukuk was bid at a cash price of 99.4 cents on the dollar on Friday, to yield just under 11.9 percent, according to Thomson Reuters data. The sukuk has rarely traded in the last couple of years.

Shares in NIG ended nearly 2 percent lower on Sunday, taking year-to-date losses to 22.3 percent. By comparison, the Kuwait bourse, is up 0.5 percent on the year.

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