Saudi Arabia’s Algosaibi Calls Meet on $5.9 Billion Default

Mar 31, 2014 10:45 am ET

(Updates with loan data in 12th paragraph.)

March 31 (Bloomberg) -- Ahmad Hamad Algosaibi & Brothers Co. invited creditors including BNP Paribas SA and Standard Chartered Plc to discuss claims on $5.9 billion of debt as it seeks to recover from the Middle East’s biggest default.

The Saudi Arabian company, with interests ranging from construction to finance, will “outline proposals aimed at achieving a comprehensive settlement” with more than 70 creditors at a May 7 meeting in Dubai, according to a copy of an invitation sent to banks yesterday and seen by Bloomberg News. The company didn’t give further details on the proposed terms.

Banks rejected an original debt restructuring proposal from Algosaibi four years ago. Algosaibi and billionaire Maan al- Sanea’s Saad Group defaulted on at least $15.7 billion in 2009 as the global economic crisis froze credit markets and asset prices slumped. The two family holding companies, related by marital ties, have been locked in legal disputes ever since.

Lenders have filed about 22 billion riyals ($5.9 billion) of claims for unpaid loans in courts in countries including the U.S., U.K. and Saudi Arabia, according to AHAB estimates.

Algosaibi hired Simon Charlton, former head of forensic services in the Middle East for Deloitte LLP, as chief restructuring officer and Ben Jones, also from Deloitte, as chief financial officer last June to restructure its operations.

“The Algosaibi partners have given us a clear mandate to restructure the business and reach a comprehensive settlement with those parties asserting certain claims” against the company, Jones said in the letter to banks.

Revised Proposal

Units of Algosaibi and Saad borrowed from more than 80 regional and international banks to finance expansion into real estate and investments in the kingdom and elsewhere in the region. One-third of the debt is owed to Saudi Arabian banks including Al Rajhi Bank and Saudi Investment Bank, another third to Middle Eastern lenders and the remainder to global banks, Charlton said in an interview in Dubai on March 25.

Terms of the revised deal to be offered to banks in May are likely to be less favorable than those rejected by lenders in December 2009 because the value of the company’s “operating assets has fallen significantly as all non-Saudi assets have been foreclosed on or seized by potential creditors,” Charlton said. “Assets at a most optimistic valuation would meet only a proportion of the claims” made against the company, he said.

Algosaibi’s Offer

Algosaibi’s 2009 offer to banks included a pledge of 3 billion riyals in securities and a further 3 billion riyals in securities, property and cash over five years based on assets worth about 10 billion riyals, according to documents filed in a Cayman Islands court in November 2010 and shown by Charlton to Bloomberg News.

The company’s current assets, including a share portfolio and land bank, are worth between 4.2 billion riyals and 5.2 billion riyals, Charlton said.

Algosaibi’s restructuring attempt comes amid a recovery in the Saudi banking industry, which is benefiting from government plans to invest more than $500 billion developing infrastructure and industry to boost job creation. Economic growth in the Kingdom is forecast to be 4.4 percent in 2014, up from 3.6 percent last year, according to data compiled by Bloomberg.

The kingdom’s economy expanded 0.1 percent in 2009, the slowest pace in 10 years, before recovering to as high as 7.1 percent two years later, according to the central bank data. The non-performing loan ratio at Saudi banks peaked at 4.1 percent in 2009 and fell to 2.4 percent in 2012, the lowest level for three years, according to Moody’s Investors Service.

PepsiCo Inc.

Algosaibi has commenced claims against Samba Financial Group and Saudi Arabia British Bank to recover shares worth a combined 3 billion riyals seized in August 2010 to cover their loans, Charlton said, arguing the seizure contravened a freeze on its assets issued by the Saudi government in 2009. Spokesmen for Samba and SABB declined to comment.

PepsiCo Inc. terminated Algosaibi’s 60-year old bottling agreement with the fizzy drinks maker in the kingdom in January after the company wasn’t able to invest more in the operations, Charlton said. The business was one of AHAB’s biggest income generators, he said.

Algosaibi “and its individual partners are firmly committed to finding a final and lasting solution to the situation which has befallen them and which has had a severe impact on AHAB’s businesses and assets,” the company said in its letter to banks.

--With assistance from Deema Almashabi in Riyadh.