Bahrain TIBC ratings nosedive after default on bank debt

Capital Intelligence, the international credit rating agency, has downgraded the foreign currency long and short-term ratings for The International Banking Corporation (TIBC) in Bahrain to ‘D’ (default) from ‘BBB’ and ‘A3’ long-term and short-term respectively. The rating action follows TIBC’s default on its financial obligations to other banks including syndicated debt. The financial strength rating is also lowered to ‘D’.
With total assets of USD 3.79 bln at end 2008 TICB is a relatively small wholesale bank established in 2003 focusing on corporate lending, documentary credits and investments. The bank is wholly owned by Ahmad Hamad Algosaibi and Brothers Co., a large privately owned company with diversified business activities in Saudi Arabia. CI understands from the management of TIBC that the parent Algosaibi Group had recently been experiencing liquidity problems exacerbated by the global financial turmoil. This rendered the Algosaibi Group unable to service its debt culminating in the implementation of a group-wide (including TIBC) debt restructuring.
While TIBC’s dependence on short-term wholesale funding exposed it to a significant level of refinancing risk this was partly mitigated by a moderate pool of liquid assets principally in the form of quoted Saudi bank equities. Even though the listed investment portfolio provided TIBC with a source of liquidity, management opted for the non-payment of bank debt. This reflects the decision made at the parent level aimed at restructuring debt across the Algosaibi Group. Management informs CI that discussions are underway with TIBC’s legal counsel aimed at establishing negotiations with bank creditors and syndication members over the coming days with a view to restructuring TIBC’s short and medium term debt totalling USD 2.2 bln.