RIYADH May 7 Long-stalled talks on one of the
Middle East's largest debt restructurings are due to resume in
Dubai on Wednesday, though those involved in the process are
cautioning any agreement to pay out even a small amount of the
cash owed to creditors may prove a challenge given the size of
the debt involved and the limited assets available for fund
At the centre of the restructuring talks is Saudi Arabian
conglomerate Ahmad Hamad Algosaibi & Brothers (AHAB), whose
failure in 2009 left debts estimated at more than $7 billion.
Long-running disputes involving AHAB and Saad Group, a
separate Saudi business empire led by Maan al-Sanea, who married
into the Algosaibi family more than 30 years ago, over who was
to blame for the collapse of their respective conglomerates left
dozens of banks nursing billions of dollars of bad loans and
shook a conservative kingdom unaccustomed to public spats over
Figures at the time of the initial collapse put the combined
total of AHAB and Saad debt at above $20 billion, though no
definitive number has ever come out.
"For both of these groups it was a significant event that
has changed the way they are perceived, locally, regionally and
globally," said John Sfanianakis, chief investment strategist at
Saudi investment firm MASIC.
While there was a failed attempt at a debt restructuring
between AHAB and its creditors in 2010, much of the action over
the last five years has been in the courtroom, with a myriad of
lawsuits in multiple jurisdictions involving different
combinations of AHAB, Sanea and his Saad Group, and their
The result, according to Simon Charlton, the former partner
at accountants Deloitte who was brought in as AHAB's chief
executive in June 2013, is an expensive stalemate.
"Neither creditor banks nor AHAB benefit from this situation
so we will outline a proposal that we believe is the best way
forward for all parties," Charlton said of Wednesday's meeting,
declining to give details on what the proposal will consist of.
However, the hurdles to reaching an agreement are many, said
some of those involved in the restructuring.
A key issue is the state of AHAB's business and where any
cash will come from, with some bankers estimating any deal is
likely to lead to creditors getting back a fraction of their
claims - perhaps as little as single-digit cents on the dollar.
Charlton said the main Algosaibi family are "prepared to
contribute significantly" to reach a solution, but added that
all of AHAB's assets outside the kingdom are gone and those
inside Saudi are frozen by a Royal Order put in place in the
wake of the 2009 problems.
The company also lost one of its best revenue streams when
PepsiCo in January terminated a bottling licence due to
AHAB's inability to invest money in the business.
While three sources in the kingdom confirmed AHAB was paid a
fee to help ensure a smooth transfer of bottling operations to
new licensee Al Jomaih Group, they said it was a much smaller
figure than the 3 billion riyals ($800 million) reported in the
Saudi press. Charlton wouldn't comment on the proceedings.
Therefore, those watching the situation expect much of any
AHAB repayment plan to creditors to likely rely on possible cash
recouped from litigation against Sanea.
In court cases since 2009, AHAB has argued that Sanea, who
helped manage and invest the Algosaibi family's wealth in the
years prior to their financial troubles, owed AHAB compensation
for misleading advice and fraudulent actions - charges Sanea and
his lawyers have consistently denied.
Saad Group could not be reached for comment.
Determining what, if any, compensation AHAB is due from
Sanea and Saad Group will take a considerable amount of time,
given the usual lengthy duration of such legal disputes, which
led some of the sources to speculate that AHAB will ask
creditors for leeway, as part of a restructuring agreement, to
allow court cases to be resolved.
The second Saudi source said AHAB civil proceedings in the
kingdom weren't due to begin for at least "a few months", while
the third said a trial in the Cayman Islands against Sanea had
been scheduled to start in the first half of 2016.
Opposition to a deal between AHAB and creditors has already
emerged, with the Saudi banks exposed to AHAB refusing to attend
the May 7 meeting.
In an April 3 letter seen by Reuters which was sent to AHAB
on behalf of local creditors by the Saudi affiliate of law firm
Latham & Watkins, Saudi banks said they had "no interest" in
attending the meeting and demanded "immediate and full repayment
of their claims", reserving "all their rights to take
appropriate actions to enforce against such claims."
This, according to one Saudi banker involved in the process,
means going to the courts to claim AHAB assets.
"The banks have reached the end of the line with AHAB," he
said, speaking on condition of anonymity.
A step-change in attitude follows the successful enforcement
towards the end of 2013 of a claim by Samba Financial Group
against AHAB, in which a Saudi court authorised the
bank to seize collateral over an unpaid debt for the first time.
Most banks had previously been reluctant to pursue
collateral claims, given the opaque nature of Saudi bankruptcy
law. This is despite 27 local and foreign lenders having
enforcement judgements granted by courts in the kingdom giving
them the authority to take AHAB assets, sources said.
For all creditors holding enforcement judgements, deciding
whether to join a negotiated deal is a big move, as a condition
likely to be included by AHAB would be to forfeit all legal
claims against it, said a restructuring lawyer.
Yet much of AHAB's argument on Wednesday will be appealing
to creditors that any consensual deal which results in cash
being returned is better than a fire sale of assets which will
be worth much less.
"The alternative is a continuation of the status quo - a
stalemate that inevitably will see banks competing with each
other for a limited pool of frozen assets, uncertain outcomes
and an escalation of legal bills for all," Charlton said.
($1 = 3.7505 Saudi Riyals)
(Editing by David Holmes and Alexander Smith)