Aston Martin Owner Joins Middle East Asset SalesShaji Mathew
Aston Martin-owner Investment Dar Co. agreed to sell its bank asset in Bahrain, joining Middle Eastern companies seeking to restructure debt through asset sales as global markets rebound.
Investment Dar, which altered terms on about $5 billion of debt in 2011, plans to sell a $92 million stake in Bahrain Islamic Bank. The Kuwaiti company follows Dana Gas PJSC, which sold a $135 million stake in Hungarian refiner Mol Nyrt, and Dubai Insurance Group, which offloaded a $57 million stake in an Omani company. Borrowing costs for Middle Eastern companies tumbled in the past year as economic growth accelerated and state-linked businesses restructured and repaid debt.
“Markets around the world are doing better and if they have to sell assets to solve their problems, they will,” said Jassim Al-Saadoun, head of Kuwait-based Al-Shall Economic Consultants. “There’s some encouraging signs the world economy is recovering.”
The Dow Jones Industrial Average climbed to a record last week. About $10 trillion has been restored to U.S. equities in the past four years as retailers, banks and manufacturers led the recovery from the worst bear market since the 1930s. Dubai Financial Market General Index, the stock gauge in the Persian Gulf business hub, has surged 19 percent this year.
Borrowing costs for issuers in the six-nation GCC, which includes the United Arab Emirates, Qatar and Saudi Arabia, plunged as the countries pushed ahead with more than $1 trillion of investment programs and risk perceptions of Dubai eased with the restructuring of state-linked debt. The average of credit default swaps for the Middle East fell 41 basis points in the past year to 268 last week, according to data compiled by Bloomberg.
Investment Dar defaulted on a $100 million Islamic bond in 2009 after the global financial crisis crimped the ability of Kuwaiti companies to meet obligations. The restructuring is being implemented under Kuwait’s Financial Stability Law, enacted by the government in April 2009 to bolster financial institutions hurt by the credit crisis.
“Investment Dar has planned to repay debt over five years or so, and it has five or six major assets to sell in order to meet these obligations,” Al-Saadoun of Al-Shall said. “Unless they can sell these assets gradually and at a good price, they can’t meet other obligations.”
Aston Martin Stake
The Kuwaiti company was part of the group that bought Aston Martin, the maker of luxury sports cars featured in James Bond movies, for 503 million pounds in 2007. Aston Martin said in December it will sell a 37.5 percent stake to Investindustrial, giving the company the cash to invest in automotive resources to compete with Volkswagen AG’s Bentley and Fiat SpA’s Ferrari.
Investment Dar is not alone in the Middle East altering terms of debt or repaying loans ahead of maturity amid a rebound in economic growth. National Industries Group Holding of Kuwait said in August it would pay $475 million of Islamic bonds on maturity after proposing a four-year extension in July, while Kuwait Projects Co. last year repaid ahead of time a 32 million-dinar ($113 million) loan and extended tenure of a 40 million-dinar facility.
Dubai Group, which holds stakes in companies including Shuaa Capital PSC, EFG-Hermes Holding SAE and BankMuscat SAOG, is seeking to alter terms of $6 billion of debt. Dana Gas, which sold a stake in Hungary’s Mol, was forced to restructure its $1 billion Islamic bonds after payment delays in Egypt and Iraq.
Dubai World, one of the sheikhdom’s three main state-controlled holding companies, reached a deal in March 2011 on about $25 billion of liabilities after roiling global markets by seeking to delay payments. Dubai corporates’ credit quality may benefit from emerging markets’ growth prospects, strong oil prices and access to debt capital markets, Moody’s Investors Service said in a report today.
“There is appetite for some of Dubai’s assets and it can sell for better prices than it could do previously,” Tariq Qaqish, deputy head of asset management at Dubai-based Al Mal Capital PSC, said by phone. “Dubai World may also look at offloading some of its assets if prices have reached levels it finds acceptable.”
The average yield on Middle East debt fell 11 basis points this year to 3.71 percent on March 8, HSBC/NASDAQ Dubai Middle East Conventional US Dollar Bond Index show. The extra yield investors demand to hold Middle East bonds over U.S. Treasuries has dropped 16 basis points during the period to 410, according to JPMorgan Chase & Co.’s EMBIG Mideast Sovereign Spread.
The sales are “happening on a case-by-case basis,” Qaqish said. “Companies are trying their best to restructure their credit-lines. If they can’t do that, the next step is to dispose of the assets they have.”