Lack of asset sales seen a worry at Bahrain's GFH

* GFH promised asset sales to repay debt

* No sales have materialized

* CEO edges away from sale of Khaleeji Commercial Bank stake

By Frederik Richter and Martin de Sa'Pinto

MANAMA/ZURICH, May 17 (Reuters) - The lack of assets sales that were promised to lenders by cash-strapped Gulf Finance House GFHB.BH (GFHK.KW) (GFH) in return for rolling over loans raises fresh concerns about the investment house, analysts said. GFH has been badly hit by a regional property crunch and in February narrowly escaped default when it struck an eleventh-hour deal with lenders to roll over by six months one third of a $300 million loan.

Besides cost cuts and a diversification of revenues, it also promised lenders it would sell down assets, including its 37 percent stake in Bahrain's Khaleeji Commercial Bank KHCB.BH, which analysts see as its most attractive asset.

But Chief Executive Ted Pretty told Reuters last week GFH may increase its stake in Khaleeji. [ID:nLDE64A1FK] "I don't think they can afford (to keep that stake), they need to sell to repay the debt. I don't see any other source of funding," said an analyst who did not wish to be named.

Besides its Khaleeji stake, GFH mostly owns illiquid land and real estate projects in the Middle East and Asia .

GFH had $5.4 million in cash left at the end of the first quarter, and it has inserted the equivalent of a going concern clause into its financial reporting as its obligations exceeded its liquid assets at that date.

"As a result, the ability of the Group to meet its obligations when due depends on its ability to achieve a timely disposal of assets," it said.

GFH's outstanding $200 million Islamic bond, or sukuk, that matures in 2012 was last quoted as trading at a bid price of 51.88, giving a yield-to-maturity of over 32 percent, according to Thomson Reuters data.

U-TURNS

"This company has seen a lot of u-turns recently, because of the many pressures they're under," said a second analyst who also declined to be named.

GFH raised about $300 million in a rights issue in November, which it said it would use to pay back the loan maturing in February, but was subsequently able to pay back only $200 million.

The analyst said GFH would try to hold onto the Khaleeji stake as long as its funding positions allows it to, as the investment house plans to transform itself into a commercial bank k with more stable income sources.

Khaleeji is currently expanding its retail business, and its deposits and interbank lending is seen as an attractive prey for GFH, whose Chairman Esam Janahi controls an additional 10 percent of Khaleeji, according to Thomson Reuters data.

But analysts and bankers familiar with the Central Bank of Bahrain (CBB) said the regulator would not allow GFH to take over a local retail or commercial bank as it seeks to protect that sector from the property-focused investment houses.

Analysts at SICO Investment Bank also did not rule out further asset write-downs during 2010 in a February research note, partially due to receivables from investment banking services worth $85 million held by GFH.

According to the note, $40 million were past due 180 days, raising the question whether GFH can recover this money.

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(Editing by Editing by David Cowell)