• Home
• /
• Local business

Default in Kuwait Spurs Worry

DUBAI - Top Kuwaiti investment bank Global Investment House said it defaulted on most of its $3 billion in debt obligations, raising concerns that other Arab Gulf financial firms may follow as the world financial crisis is spreading to the region.

“Global confirms that as a consequence of a capital repayment default in the second half of December... the company is in default on the majority of its financial indebtedness,” the lender said on Thursday, according to Zawya Dow Jones.

Global Investment, which is listed on the Kuwait stock exchange and has global depositary receipts listed at the London Stock Exchange, is the biggest indigenous investment bank in the Gulf by market value and manages one of the region’s largest funds.

The bank has been in talks to refinance its 830 million Kuwaiti dinar ($2.93 billion) debt after two rating firms downgraded the company, citing a risk of default.

“Global’s statement today is further evidence that its problems haven’t gone away and the situation remains pretty dire,” said Robert Thursfield of Fitch Ratings, which for Global has a “C” long-term issuer default rating on rating watch negative.

The development comes amid continuing speculation over the health of Kuwait’s financial sector and how it will be affected by the global financial crisis after the country’s fourth-largest lender, Gulf Bank, had to be rescued by the government in November amid the emergence of significant trading losses.

The Kuwait Stock Exchange All-Share Index has dropped 21.6 per cent in the past two months, according to Zawya.com data, as investors’ confidence is being eroded.

“Kuwait has significant financial resources and the capacity to cushion some of the impact of the global crisis, but the main issue is now an issue of confidence,” National Bank of Kuwait Chief Economist Randa Azar said.

Concerns are also rising over the health of financial institutions and companies in the other oil-rich states of the Arabian Gulf as global economic turmoil is beginning to bite the region.

“There could be more Gulf companies defaulting as the global economy goes through a recession in 2009, but important lessons can be drawn from these experiences, including greater corporate governance in the years to come,” SABB Chief Economist John Sfakianakis said.

Mr. Sfakianakis said companies in the six states of the Gulf Cooperation Council, of which Kuwait is a member, were facing credit limitations because of a crunch in the general banking system, but “defaults won’t be as wide as those in the US and Europe.”