Is anyone surprised by Arcapita’s Chapter 11 filing?

Posted on March 20, 2012


Gulf corporations continue to suffer from the after-affects of leveraged growth.

Arcapita Bank Headquarters, Bahrain

The Arcapita headquarters in Manama, Bahrain (Photo credit: Wikipedia)

In a grim reminder that many Gulf corporations are not out of the woods yet, Arcapita, the high-flying Bahraini investment firm, filed for Chapter 11 in the United States on Sunday.

Why are we not surprised?

Arcapita has stakes in a number of companies across the world. From Aspen Aerogels in the US to Compagnie Européenne de Prestations Logistique in France, the company is invested in numerous entities, according to Zawya’s Corporate Monitor.

Zawya blogger Blake Goud, who is also a researcher and journalist in the Islamic finance field, says Arcapita’s portfolio comprises mainly pre-financial crisis investments. The firm had USD 1.1 billion in a syndicated Murabaha financing coming due at the end of the month, and reported only USD 19 million in cash as of September 30, 2011, despite many asset sales earlier in 2011.

“The real question for creditors is whether the extend-and-pretend will succeed,” writes Goud. “If they extend the Murabaha they are hoping that Arcapita’s holdings can be sold for prices high enough to repay the company-level debt and return enough cash to Arcapita’s coffers to repay the Murabaha, so long as it is not turned into a fire sale. The situation is complicated by distressed debt funds owning between 15% and 25% of the Murabaha by my best estimates, with the remainder split between around 60% original syndicate members and 20% who likely invested directly in the syndicated Murabaha in 2007.”

Although Arcapita’s USD 1.1 billion debt troubles are far less complex than, for example, the Saad Group and Ahmad Hamad Algosaibi & Brothers debt debacle of USD 22 billion, they highlight that Gulf corporations continue to suffer from the after-affects of the global financial crisis and leveraged growth.

— Yazad Darasha

More intelligence on Arcapita’s Chapter 11 (