Restructuring of Bond Debt in Kuwait

Kuwaiti companies being issuers of bonds that are due for redemption are presently under duress given that the local securities and real estate markets have turned sour due to the global financial crisis. Such issuers having difficulty making interest and/or principal payments are increasingly considering restructuring their bond debt to avoid calling in a default. There has been an increasing trend amongst Kuwaiti companies to re-negotiate their debt obligations with existing creditors to provide them with greater confidence evidencing their ability to repay their obligations. This process is carried out pursuant to an overall restructuring of the entire debt of the company. In Kuwait, most of the debt is being restructured since companies are unable to pay off their debt obligations on time. By adopting a debt restructuring plan, such companies can avoid a default situation on the existing debt. Debt generally comprises of bilateral facilities, syndicated facilities, bonds or sukuk (Islamic bonds). Where debt includes bonds and companies are not able to fulfill their debt obligation arising there under, the bonds are being restructured pursuant to and under an overall restructuring so as to place bondholders at par with other creditors. This enables bondholders to avail of the same security package being offered to other creditors under the restructuring. In this article, we will address such bond restructurings in the context of overall restructurings in Kuwait. Need for bond restructuring Issuers of bond instruments issued under the Kuwait Commercial Companies Law No. 15 of 1960 (the "Companies Law") unable to make periodic distribution of amounts due on the designated due dates are compelled to announce default in light of the global economic slow down. Failure to redeem the bonds on the mandated due date will generally result in an event of default pursuant to the terms and conditions of the bonds. The matter will then be referred to the Ministry of Commerce and Industry in Kuwait ("MOCI") which will in turn refer the matter to the Central Bank of Kuwait ("CBK"). The CBK can either assist in restructuring the terms of the bonds or demand payment plus penalties. While the process at this point is not too clear, in our experience, CBK may in its discretion even push for litigation. Given the uncertainties involved with the outcome of court proceedings, a private restructuring emerges to be a practicable alternative from the perspective...

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