Arcapita's district cooling investment in jeopardy

Arcapita, the Bahrain-based Islamic investment bank currently in Chapter 11 bankrupcty, filed a motion (pdf) that would allow a $1.9 million murabaha financing, with a profit rate of 15%, into District Cooling.  District Cooling is a joint venture with Dalkia Utilities Company that provides district cooling and other services to three developments in Bahrain and Abu Dhabi. 

The financing would be bridge financing while Arcapita and District Cooling renegotiate a concession agreement with Abu Dhabi’s Tourism Development & Investment Company (TDIC) to reduce capital needs by lowering the number of cooling plants at Saadiyat Island from three to two, as well as to pay for diesel fuel and rent for the temporary plants currently in operation on Saadiyat Island, as well as to continue construction required under the concession agreement. 

Arcapita stated in a filing with the Bankruptcy Court that it believes it is in the “ordinary course of business” to fund District Cooling and that it can do so without Court approval, but in response to objections from creditors it is asking for court approval to “support candor” in its disclosure of the transfer of capital to entities not included in the bankruptcy process.

Without the additional bridge financing, Arcapita believes it could lose its entire investment in District Cooling, a minority interest they estimate is valued at $20 million, which includes a guarantee made by Arcapita of a $10 million performance bond from Standard Chartered Bank, Arcapita’s secured creditor. 

Arcapita foresees a “public relations nightmare” that could inhibit its ability to conclude a reorganization plan if it is not allowed to support District Cooling.  It estimates that absent additional funding, Paragon ABD Cooling, the entity providing cooling and other services to Saadiyat Island, will run out of money in late September. 

District Cooling is currently negotiating with Dalkia and TDIC to modify the concession agreement, as well as negotiating with third-party and present investors and Dalkia to provide an exit for ABD that would preserve the value other two subsidiaries of District Cooling, one of which is currently operating at the Bahrain Bay development and another at Al Areen, both in Bahrain.  Arcapita has requested a court hearing on the motion to allow for the murabaha, but the date has not yet been scheduled.