Bahrain's Gulf Finance House in debt talks

Gulf Finance House (GFH) has been trying to raise cash, sources said, in case it has to repay $300m in debt it is trying to refinance before it falls due next week.

GFH said on Tuesday that it had met German bank WestLB, a lead arranger for the loan maturing February 10, to discuss terms, but sources familiar with the bank said it had also approached private investors in recent days to raise loans, pledging real estate and other assets as collateral.

Bahrain's bourse suspended GFH's shares as it awaited more information from the firm, while on the Kuwaiti bourse, where trade continued, its shares fell 4.7 per cent.

Investors have been concerned about GFH's need for short-term funding since Standard & Poor's sounded the alarm with a credit ratings downgrade last month, following another downgrade in November.

"Everyone knows they have to raise cash, the question is what price can they get from their assets," said a source familiar with GFH.

Like other Bahraini off-shore investment houses, GFH has been badly hit by the end to the real estate boom in the region, led by the bubble bursting in Dubai late in 2008.

Bahrain's off-shore investment houses depend on arranging financing for real estate projects and private equity deals.

GFH's acting Chief Executive Ted Pretty, who took over in December after the surprise resignation of Ahmed Fahour, downplayed concerns about the $300m loan.

"We are comfortable about that," he told Reuters in a phone interview at the weekend. Pretty did not say if the bank would repay or refinance the loan.

Pretty said a $50m tranche of a separate sukuk, or Islamic bond, expiring in July 2012 was "in negotiation".

CASH CALL

Goeksenin Karagoez, credit analyst at Standard & Poor's, said the bank needed to raise around $100-$130m in short-term funding.

"Net current assets are around $200m, but valuing the bank's short-term investments is difficult in current market conditions. S&P applied some haircuts when valuing these assets in the November assessment," Karagoez said.

A source at one of the arrangers said GFH had approached it to roll over or extend the arranger's portion of $300m in financing, but that it had made no decision as yet and was monitoring the situation at GFH very closely.

Analysts said the bank likely needed to sell assets to raise any needed funds.

GFH held more than $500m in investments at the end of the third quarter, including, according to analysts, its 37 per cent stake in Bahraini retail bank Khaleeji Commercial Bank.

"Khaleeji Commercial is their prime asset, the only one that is still profitable," said a Dubai-based banking analyst who declined to be named.

GFH posted profit until 2008 mainly by earning fees on money raised from investors for large real estate projects, a market which has since collapsed.

It has posted losses over the last four quarters and raised $300m in a rights issue in October to shore up its balance sheet. The bank in December wrote off a $300m Dubai property project.

"A pickup in economic activity would benefit GFH, but in the current environment it is very difficult to realise a sale of their assets at acceptable prices," said S&P's Karagoez.