Bahrain-based The International Banking Corp (TIBC) has defaulted on some of its debt since the beginning of May, despite the fact that TIBC holds a large portfolio, mainly made up of shares listed in Saudi Arabia, valued at more than US$400mn on December 31, 2008, according to Standard & Poor’s.
The rating agency has lowered its long- and short-term counterparty credit ratings on TIBC to selective default, meaning payments may not be made on some financial obligations, from BBB-/A-3.
TIBC is fully owned by the Algosaibi Group. Due to this and the close cooperation with the Algosaibi Group, S&P has concluded that backing from the group in times of difficulty would be extremely strong and classified TIBC as a core entity of the Algosaibi Group. The Algosaibi Group formalised this commitment through a letter of comfort to TIBC and offered support through capital injections available on several occasions. Nevertheless, most recently, the Algosaibi Group has not provided the support that S&P had expected.
“The rating action follows TIBC's decision not to fulfil its obligations toward some of its bank creditors,” says Standard & Poor's credit analyst Emmanuel Volland in a statement. “We understand from conversations with the CEO of TIBC and with employees of the Algosaibi Group that there is a high likelihood that the Algosaibi Group will implement a group-wide debt restructuring that will include TIBC.”
"The Algosaibi Group considers these strategic decisions to be aggressive defensive protection measures," continues Volland. "We see them as a conscious decision not to honour debt payments according to initial terms and conditions while still being able to do so."
TIBC is a small wholesale bank registered in Bahrain with total assets of US$3.8bn at the end of 2008. The Algosaibi Group, based in Saudi Arabia's eastern province, is active in financial services, bottling and distribution, can manufacturing, real estate investment, hotels, shipping, and contracting.
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