Investors in distressed debt smell blood in Gulf

Financially vulnerable Gulf companies are facing a new headache as hedge funds and other investors in distressed debt acquire the loan books of big lenders at knock-down prices.

Such investors are changing the equation for companies entering restructuring talks because they tend to be more opportunistic and aggressive than banks.

Lenders in the Gulf have so far been content to push out repayment deadlines to allow asset values to recover - in theory allowing businesses to return to health and for them to collect money owed.

But European banks aiming to raise capital buffers in anticipation of Greece's sovereign default and regional banks looking to minimise the cost of covering bad debts have sold loan books at significant writedowns to distressed-debt specialists.

What had been a traditional feature of developed markets was quickly coming home to roost in the region, said Jahangir Aka, the senior executive officer at SEI Investments, a financial services firm specialising in asset management.

"It's not the Middle East's problem, but it's becoming the Middle East's problem as these banks start pulling back."

Distressed-debt investors have been blamed for Arcapita's failure to reach a US$1.1 billion (Dh4.04bn) debt agreement, which led to the bank filing for bankruptcy protection in the United States last week.

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