(Corrects July 13 entry to say “some of whose partners’ accounts were frozen” instead of “whose accounts were frozen”)
Nov 5 (Reuters) - A sukuk default by Kuwait’s Investment Dar and debt restructuring at Saudi conglomerates have shaken confidence in the $1 trillion Islamic finance industry, fanning debate about investors’ protection and investors’ rights.
Billed as safer than traditional banking due to requirements for assets to underpin deals, Islamic bond holders worry they may not have any more legal safeguards than conventional counterparts in case of default, or perhaps even less, partly due to the untested nature of the process.
Debt restructurings at Saudi conglomerates Saad Group [SAADG.UL] and Algosaibi have put about $9.6 billion of investments at risk at 30 Gulf banks alone, and the fate of Dubai government-owned property firm Nakheel’s $3.5 billion Islamic bonds, which mature in December, is being closely watched.
Here is a timeline of developments since late last year.
Oct 16: Texas-based energy company East Cameron Gas, which had issued $166 million in sukuk in 2006, files for bankrupcty. A year later, the case to decide bondholders’ rights was still before a U.S. court.
Dec 14: Kuwait’s Investment Dar TIDK.KW Islamic investment firm shocks markets, saying it is considering selling up to 20 percent of luxury British carmaker Aston Martin, and may borrow up to $1 billion to refinance debt. [ID:nLE424729]
Dec 21: Kuwait’s biggest investment bank, Global Investment House GLOB.KW, downgraded by two ratings agencies a week earlier for allegedly failing to meet debt obligations, appoints HSBC as an adviser with foreign lenders. [ID:nLL438445]
Jan 8: Global Investment House defaults on most of its debt. At end-September, it had short-term borrowings of 389.8 million dinars ($1.38 billion), its website said. Total liabilities stood at 806.7 million dinars. [ID:nL8123879]
May 12: Investment Dar, Global Investment House’s main Islamic rival, defaults on a $100 million sukuk registered in Bahrain and in the United States. The group is the first Islamic Gulf company, and the second leading investment firm in oil-rich Kuwait, to announce a default on debt repayment. [ID:nLC281536]
June 2: Privately-held $30 billion Saudi company Saad Group [SAADG.UL] says it plans to restructure the debt of its units hurt by a liquidity squeeze brought on by the financial crisis. Ratings agency Moody’s cuts its ratings on the group to junk status. [ID:nN0167288]
June 3: Credit agencies slash ratings for Saudi conglomerate Saad Group to default status or withdraw coverage altogether, saying Saad has ceased to pay creditors. [ID:nL3334708]
June 16: Saudi-based Ahmad Hamad Algosaibi & Bros Co (AHAB) says it is about to start talks with creditors, after reports it and Saad Group are seeking to restructure $10 billion in debt. [ID:nLG841566]
July 8: Malaysia central bank governor says no systemic risks have arisen in the global Islamic finance industry from problems related to Saudi Saad group’s debt restructuring. [ID:nKLA008319]
July 13: Saudi Arabia creates special panel in connection with the restructuring of heavily indebted AHAB, some of whose partners’ accounts were frozen by the central bank in June, days after it froze personal accounts of Saad head Maan Al-Sanea. [ID:nLD554720]
July 14: Saad’s sukuk investors mull setting up committee to represent them at creditor meetings. It’s common practice for bondholders wanting to defend their positions ahead of a debt restructuring. [ID:nLE513044]
July 17: Saudi Arabia’s indebted family conglomerate Algosaibi files a lawsuit in New York alleging $10 billion in loan irregularities involving billionaire Maan al-Sanea, the head of the Saad Group, the Financial Times reports. [ID:nLH567272]
July 23: UAE central bank directs banks to take provisions of 50 to 75 percent of their exposure to Saad and Algosaibi over two years, to reflect probable defaults or losses. [ID:nLN214179] -- Abu Dhabi Islamic Bank ADIB.AD declines to comment on Saad, the day after a newpaper reports it has $67 million Saad exposure due to a 2007 loan. [ID:nLN186787]
Aug 1: Cayman Islands court freezes $9.2 billion of Saad assets, including equity stakes outside the Gulf. [ID:nLV613802]
Aug 11: Moody’s says its ratings on Islamic banks are stable due to ample liquidity, high profit margins and conservative lending; but that sector growth is hampered by a lack of products to absorb abundant liquidity. [ID:nLB643725]
Sept 6: Abu Dhabi Commercial Bank ADCB.AD, the United Arab Emirates’ third largest lender by assets, files a $30 million debt claim against a Saad Group unit [SAADG.UL]. [ID:nL6328632]
Sept 7: Malaysian rating agency MARC downgrades 100 million ringgit worth of Boon Koon Group Bhd’s Islamic paper and notes, removes ratings from MARCWatch. The reconditioning company’s weakened position stems from challenging industry conditions. [ID:nKLR490635]
Sept 23: Abu Dhabi Commercial Bank (ADCB) has more than $600 million in exposure to the two Saudi, debt-laden conglomerates, for which it will have to book additional provisions, the lender says. [ID:nLN486412]
Sept 28: Saudi Arabia’s central bank governor says Saad Group has struck an agreement with Saudi creditors to repay syndicated and bilateral loans. [ID:nLS268341]
Sept 30: MARC downgrades investment holdings company Oilcorp Berhad’s (Oilcorp) 70 million ringgit Murabahah and other notes in expectation of an imminent default by Oilcorp. [ID:nKLR501095]
Source: Reuters ((Click on [ID:nISLAMIC] for more Islamic finance stories and ISLAMIC for a speed guide)) (Compiled by Gillian Murdoch; Editing by Kim Coghill)