Investors kept in the dark over Al-Gosaibi, Saad defaults

Published: June 24, 2009

Creditors in the Saad and AHAB trading companies, two of the largest industrial groups in Saudi Arabia, have been left confused and annoyed by the lack of information surrounding the defaults of companies belonging to the group.

Problems began in May when The International Banking Corporation, a Bahrain-based bank owned by the Ahmad Hamad Al-Gosaibi Group & Brothers (AHAB), was declared in default of its debt in May by Standard & Poor’s. The rating agency criticized the bank’s “conscious decision not to honour debt payments according to initial terms and conditions while still being able to do so".

The default was a nasty surprise for investors, considering the strong reputation of the AHAB group, which was set up in the 1940s and now has several billion dollars worth of investment throughout the Gulf and in Western markets. The group’s reputation has meant it has been able to borrow around US$3bn in debt over the past few years.

But worse was to come when the AHAB group itself defaulted on around US$1bn in debt in late May. It may also default on a US$700mn loan due in November, which was arranged in 2007 by BNP Paribas and WestLB.

In June, the Saudi Arabian Monetary Agency (SAMA) froze several accounts connected to the group.

Meanwhile, another conglomerate with family ties to the AHAB group, the US$30bn Saad group, has also defaulted on its debt and has its accounts frozen. The company’s Bahrain-based bank, Awal Bank, announced a debt restructuring in June, and Moody’s downgraded the rating of the Saad group six notches from investment grade to junk.

Saad released a statement in June saying it had appointed law firm Lawrence Graham and BDO Capital Finance to work on a restructuring of debt. It also said, cryptically, that it was “committed to resolving private family disputes”.

Both Saad and AHAB say their problems are unconnected, but the two have family ties: Maan al-Sanea, the owner of Saad, is married to the niece of the former chairman of AHAB, Sulaiman Al-Gosaibi, who died in February 2009.

Investors and analysts complain they have been given minimal information by both the companies and SAMA over the circumstances surrounding the defaults. Neither company has any information on the defaults on their websites.

Saad has at least sent a letter to creditors calling for meetings in June. It also asked “all interested journalists to contact it for comment in advance of publication”, though when emeafinance contacted it, it said it had no further comments.

This lack of transparency could impact investor perception of other companies in the country. “The operating environment is a lot less stable and predictable than we thought it was, and that has implications for credit stability”, says Philipp Lotter, senior vice-president at Moody’s.

Saudi, Kuwaiti and Bahraini and Omani banks are likely to have the biggest exposures to the group, say analysts. Bank Muscat has said it has a US$171mn exposure to the bank, though the Central Bank governor of Oman, Hamood Sangour al-Zhajali, told reporters: “It could be one of the least exposed banks in the region, probably.”

Saad recently sold its US$50mn stake in 3i Infrastructure on June 10, in a stock sale managed by Citigroup. It also raised an estimated US$183mn through a sale of its 16mn shares in the Berkeley Group, the UK-based luxury house maker, in a sale also managed by Citigroup.