By Neeraj Gangal
Global professional services firm says failed developers will hurt banks.
A majority of the Gulf Arab banks will restructure their debt as the region’s real-estate slump hurts economies, Alvarez & Marsal LLC, the firm that is restructuring Lehman Brothers Holdings Inc said on Thursday.
“There will be debt restructuring in the region, involving the majority of the banks,” Sankar Krishnan, managing director for the firm’s Middle East unit, said in an interview in Dubai, according to Bloomberg.
“There are developers that are going to fail and banks will end up holding a lot of half-finished projects. Banks in the region are not sophisticated enough to deal with this situation.”
Standard & Poor's said early this week that it is lowering its ratings on Emirates Bank International, National Bank of Dubai, and Mashreqbank to 'A-/A-2' from 'A/A-1'. The agency’s long-term rating on Dubai Islamic Bank meanwhile has been cut to 'BBB+' from 'A-' but with the A2-short-term rating affirmed.
The agency said the negative outlooks on all of these banks reflect the deteriorating operating environment in Dubai and the impact it expects this to have on the banks' financial profiles.
Companies in the region have for the first time hired global restructuring firms, Krishan said, according to the newswire, adding that Alvarez & Marsal has had “discussions with several banks” on advisory mandates. Banks “have reached a point where people are openly talking about restructuring.”
Alvarez & Marsal is in the process of moving its real- estate experts to the region, Krishan said, according to Bloomberg.
“There are certain family owned businesses that are in trouble,” Krishan said. “Any business which is heavily consumer-oriented is going through a tough period.”
Kuwait’s Global Investment House is waiting to finalise a rescheduling of its loans after submitting updated proposals to its creditors in June through its international financial advisor HSBC. The bank defaulted on most of its debt in January due to the global credit crunch.