Saudi Arabia: International bankers outraged at rumored secret Algosaibi - al Saad bailout

A rumored secret bailout that took place days ago in Saudi Arabia has International bankers up in arms. No official details have been released, but it is said that the government-frozen assets of troubled Saudi financial groups Algosaibi and Saad (Al Sanea) have been used to pay off their debts to local creditors, at the expense of foreign firms now left with billions of dollars of unsecured debt.
 
International financial firms were shocked by this development. Several bankers noted that such a bailout would require collusion at the highest levels of the Saudi government, and must therefore also involve the approval of the royal family.
 
A business analyst that specializes in the region noted that foreign firms doing business with Saudi Arabia have always accepted certain inequitable restrictions required for doing business in the Kingdom because of the belief that these were balanced by an unspoken guarantee by the government to secure their investments. "Everyone was convinced that the [Royal family] would never allow a high-ranking local to renege on its obligations. Now there is every appearance that the royal family has actually assisted two local firms to do just that".
 
The biggest financial scandal in the Gulf region started about four months ago, when doubts surfaced regarding the ability of Saudi conglomerate Algosaibi and rival al Saad Group to repay debts to regional and international banks. The collective debt owed to some 90 firms is estimated at US $20-22 billion in syndicated loans. As banks moved franticly to secure or even recall their loans, a legal battle broke out between the two Saudi groups, as Algosaibi accused Saad Group owner Maan al-Sanea of stealing $10 billion from them.
 
While the ongoing legal battle has stalled settlement prospects in general, foreign lenders have expressed serious concerns over rumors and unconfirmed reports that the two groups are negotiating one-sided settlements with Saudi banks, with the blessing of Saudi authorities. “We are worried that the firms [Algosaibi and al Saad] are focusing on paying off local debts only,” a Zurich-based banker said. “After paying local debts in full they may or may not pay the foreign creditors.” These concerns are strengthened by rumors that the two firms repatriated billions of dollars from abroad to be sheltered in Saudi Arabia on the eve of the crisis, and continued to do so after it broke out with the apparent connivance of highly placed Saudi persons. Well-connected executives say that each of the two groups has its own set of powerful backers within the Saudi hierarchy and royal family.
International bankers have been increasingly open in their criticism and in their warnings of the repercussions that unequal treatment would have on their dealings with Saudi Arabia and with businesses owned by members of the Saudi Royal Family. Jean-Christophe Durand, chief executive of French bank BNP Paribas in the Gulf region, summed up both the concern and the potential backlash when he said that all bankers were eyeing how local authorities react to the fallout at Saad and Algosaibi, and added diplomatically that: "There will be an impact on the appetite of the banking sector to lend in Saudi Arabia". Other bankers are gearing up for a long legal and media battle, in which they will seek to expose complete details of the often murky dealings involving the two groups and their Saudi backers.
 
Bankers are also troubled by the lack of transparency and communication on the part of Saudi authorities, which has left them in the dark over the past weeks. Rumors of the bailout have received no official response, and bankers noted that they were reduced to scanning the reported ownership ratio on the Saudi stock market in order to attempt to verify or refute the bailout reports.
 
However, some financial executives dealing with Saudi Arabia retain a positive attitude, noting that the Saudi system has always been secretive, and will resolve the problem of debts to foreign lenders in a satisfactory manner. Reasons given for this expected outcome range from considerations of honor and keeping face, especially with a Saudi delegation headed to the upcoming G20 meeting in Pittsburgh, to purely economic calculations of the cost that a loss of confidence by the international banking system will have for the Kingdom and for the GCC.