RPT-Saad debt tussle, family row sour investors

(Repeats, without changes, to additional subscribers)

By Douwe Miedema

LONDON, July 17 (Reuters) - A legal fight between two Saudi Arabian families is a further setback for investors having to tackle a multi-billion dollar debt restructuring with the country's financial laws, that are up for reform.

The tussle -- erupting before a New York court on Friday -- pitches the country's indebted family conglomerate Ahmad Hamad Algosaibi and Bros (AHAB) against billionaire Maan al Sanea, the owner of the Saad Group [ID:nN17474332].

Like AHAB, Saad is restructuring a hefty debt pile, and the two have soured investors by providing scant information, and by the complex structure of the two companies.

"What is scaring international lenders is (that) it's very murky. There's zero information flow," one restructuring banker at a global investment bank said.

"Literally (with) any phone call into the company (you'll hear) we can't comment," the banker said.

Algosaibi sued Al-Sanea for fraud in a case involving allegations of $10 billion in loan irregularities, court documents showed, in response to an earlier complaint filed against AHAB by Dubai-based bank Mashreq MASB.DU.

Saudi firms sometimes file lawsuits abroad because there is no consistent application of law, and verdicts in its domestic courts vary widely. The courts are based on an austere interpretation of Islam and overseen by clerics.

"Rulings between courts often differ sometimes to the point that it embarrasses the government which wants to overhaul the legislation," said a western diplomat in Riyadh. King Abdullah has tried to reform the legal system as part of plans to open up the country for investment. He removed two hardline clerics in a cabinet reshuffle in February, among them the president of the supreme court.

Banking sources have told Reuters that the debt restructurings could curtail international lending to Saudi Arabia and the Middle East, as fears spread companies there are facing structural debt problems.

ECONOMY BOOMS

Fund managers say the Saudi stock market is one of the hottest markets in the Middle East as the government is rolling out a $400 billion investment programme to upgrade infrastructure for its young and swiftly-growing population.

"The family dispute in question does not pose either a systemic risk for the banking sector nor any short or long term macroeconomic risk for the country," Said John Sfakianakis, a Riyadh-based economist.

"The reported lawsuit should not lead observers to exaggerated conclusions," he said.

Yet the deal is complicated further because Al Sanea is married to a daughter of the Algosaibi family, and investors fear there are links between the groups they are unaware of.

"They are related through marriage and it appears there are lots of relationships (between the companies). Obviously, we have zero insight in it. It's not public and none of the creditors have any insight," the banker said.

But a spokesman for Saad in London denied there were any business ties between the two groups.

"Although Mr. Al-Sanea has long had personal relations with the partners of AHAB, neither Maan Al-Sanea nor any related business entity is a partner or has any ownership interest whatsoever in AHAB or in any of its related entities," the group said in an emailed statement.

"Nor do they have any business ties except on an arms-length commercial basis. Likewise, AHAB has no interest in Saad Group company or in any business owned or controlled by Maan Al-Sanea," the group also said.

Gulf bankers have boasted often and loudly about how conservative lending practices and wariness of complicated structured products led them to avoid incurring any direct losses last year from the U.S. subprime crisis.

But the Saudi fiasco has underscored the need for better rules and exposed a lack of cooperation and a common regulatory framework within the six-state Gulf Cooperation Council.

One of the problems in the Gulf is the lack of transparency. No regulator or research house has fixed a definitive price tag on the Saudi fiasco yet, leaving investors to speculate based on dated lending data or hearsay.

Banks are reluctant to share borrower information and there is a lack of any major credit bureau in the region that would help lenders assess liabilities.

The two regulators placed in the harshest light are the Saudi Arabian Monetary Authority and the Central Bank of Bahrain. The CBB has said little and SAMA nothing about the scope of the crisis or measures taken to contain it. (Additional reporting by Ulf Laessing in Riyadh and Thomas Atkins in Dubai; Editing by Rupert Winchester )