The Investment Dar downgraded to 'D' from 'SD' by Capital Intelligence

The latest rating action follows TID's recent default on an $100m sukuk, which matures in 2010.

Capital Intelligence downgraded TID to 'SD' in February 2009 from 'BB' with a negative outlook following the default on one of its obligations. TID states that the recent default on the sukuk was made in order to bring the sukuk investors to the same level as other creditors and debt holders and as part of the overall debt restructuring of the firm.

TID, one of the most high profile investment firms in Kuwait and the region, has faced difficult times over the last nine months as the global financial crisis, and the resulting tightening in credit funding markets, placed huge liquidity pressure on the firm. Specifically, TID had an over-reliance on short-term funding which subsequently dried up.

In addition, the firm's financial flexibility diminished significantly due to the deteriorating equity, investment and real estate markets both domestically and internationally.

Investors in the $100m sukuk will form part of the circa $3.45bn debt restructuring plan TID is currently negotiating with creditors and investors. If the restructuring can be agreed, part of the plan will include disposal of certain assets within TID's portfolio. TID's significant portfolio of assets includes Bahrain Islamic Bank, Boubyan Bank and Aston Martin of the UK.

Assuming TID can successfully restructure its debt, its business model will likely change dramatically going forward. Instead of managing a portfolio containing a considerable number of small investments (it currently has around 150 holdings with some valued as low as KD3m), TID intends to trim the number of its holdings which will make it much easier to manage and monitor investment exposures.

Many challenges remain for TID in agreeing and completing the debt restructuring. Credit and capital markets throughout the region remain tight and appetite for risk continues to be low. Capital Intelligence will continue to monitor progress in TID's negotiations with creditors and debt holders.