Saudi Conglomerate’s $7.5 Billion Default Is Finally Settled

(Bloomberg) --

BNP Paribas SA and Citigroup Inc. are among global banks that are finally set to see some of their loans be at least partially repaid after getting caught up in one of Saudi Arabia’s biggest corporate defaults.

In the first major test for the kingdom’s new bankruptcy law, Ahmad Hamad Algosaibi & Brothers Co., which has been locked in legal battles and negotiations with creditors over $7.5 billion of debt since 2009, had its proposal to restructure the obligations ratified by a Saudi court, Simon Charlton, Algosaibi’s chief restructuring officer said. 

The order from the commercial court in Dammam, in Saudi Arabia’s Eastern Province, will allow various asset freezes to be lifted and let the company go ahead with a plan to repay creditors about 26% of their claim values through a mixture of cash, shares and Saudi real estate.

The long-running debt saga surrounding AHAB, as the company is known, has stained the kingdom’s reputation while it attempted to encourage more foreign investment to help finance a plan to diversify the economy. The court in 2020 approved claims from more than 100 local and international banks, hedge funds and other creditors.

AHAB’s default rippled through some of the largest global banks and exposed poor lending practices among some of them, with loans often being made to wealthy families and large Middle East conglomerates often based on their name and reputation alone. 

Lenders including JPMorgan Chase & Co., HSBC Holdings Plc, Morgan Stanley and Barclays Plc all had exposure to AHAB. Since its default, many banks have sold off their exposure to the company to hedge funds.

Global Dispute

Algosaibi, which had interests from construction, shipping and hospitality, became engulfed in a global court dispute with Maan al-Sanea, a Saudi tycoon who married into the Algosaibi family and managed its finance business. The bankruptcy law, which came into force in 2018, has been instrumental in allowing AHAB to push through the agreement.

Passing the bankruptcy law “had the greatest impact that made this end possible and which led to the settlement of all the company’s debts,” Samah Algosaibi, a board member of the company, said in a statement to Bloomberg.

Previous attempts at securing a restructuring deal had been blocked by some creditors, preventing any agreement from moving forward even with the majority of creditors on board. In the end the company secured agreement to its debt plan from 98% of its creditors by value. 

The plan involves AHAB contributing 90% of its assets to paying off debts, with the rest restructured in order to carry on operating.

“I have worked on a number of restructurings and investigations around the world over 30 years and this one has been one of the hardest and most complex to solve,” Charlton, who was previously a restructuring specialist at Deloitte, said.

Initial payments to creditors will come from around 4.5 billion riyals ($1.2 billion) of cash and equities owned by the group and could be made before the end of the year, Charlton said. After that, it will look to sell one of its businesses and create a real estate fund to manage about 2.5 billion riyals of assets. 

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