DUBAI (Reuters) – Saudi Arabia has accelerated action to resolve a $ 22 billion debt dispute that is seen by investors as a litmus test of Crown Prince Mohammed bin Salman’s commitment to reform, according to three sources familiar with the matter.
Legal battles over the debts left by the Saad group and Ahmad Hamad al-Gosaibi & Bros. Co (AHAB) have been going on for almost a decade since the collapse of the two family conglomerates in 2009. From Switzerland to the Cayman Islands, the two groups argued. which of them is to blame for the collapse.
AHAB’s case has progressed steadily since 2009, as the company made a settlement offer that has the backing of around two-thirds of investors, but there has been much less movement on Saad group debts.
Saudi authorities expressed their impatience in October, when Saad group owner Maan al-Sanea was arrested for unpaid debt. This has boosted the al-Sanea family’s efforts to try to resolve the debt dispute, the sources said.
The Saad Group took its first big step forward in engaging with creditors last year by hiring a financial advisory firm, Reemas Group, to come up with a settlement proposal covering $ 4 billion in debt.
In another sign of momentum, a three-judge tribunal set up in 2016 to deal with financial claims against AHAB and the Saad Group approved creditors’ claims of around 11.5 billion riyals ($ 3 billion) against AHAB and appointed liquidators to deal with the unwinding of The Saad Group’s Business Empire, one of the sources said.
Such measures could be vital for the government to win over investors and secure foreign funds for privatization projects under Vision 2030, the plan unveiled by Prince Mohammed in April 2016 to transform Saudi Arabia and reduce its dependence. petroleum.
“This is a more than $ 20 billion problem for Saudi Arabia and unless it is well managed it will create a long term problem for some foreign investors,” said one. people familiar with the matter.
MOUNTAIN OF DEBT
Between them, AHAB and Saad Group owe money to more than 100 international banks, including HSBC, BNP Paribas and Citigroup. The Saad group is also indebted to subcontractors, including the German Siemens AG and thousands of employees.
The AHAB said al-Sanea, who married the al-Gosaibi family more than 30 years ago, defrauded him billions of dollars after he was made responsible for his financial activities. He strongly denies any wrongdoing.
Saudi Arabia has no insolvency rules although a bankruptcy law awaits King Salman’s signature.
AHAB declined to comment for this article, citing the court handling his case.
Saudi Arabia’s Royal Court referred a request for comment to the government Center for International Communication, which did not respond. The Justice Department also did not respond to a request for comment.
Al-Sanea’s detention was not directly linked to the arrests of dozens of senior officials and businessmen in a corruption crackdown in early November, but the dispute revolves around similar concerns from investors about Corruption.
He remains in detention while the last people detained since early November at the Ritz-Carlton hotel in Riyadh, which served as an interrogation center, have been released or moved elsewhere.
Al-Sanea was sentenced to five years in prison in absentia in Bahrain for notably breaking the rules of the central bank. The sentence was suspended pending an appeal. Al-Sanea has previously denied any wrongdoing and said the charges were politically motivated.
A sign that some creditors are now more optimistic about the positive outcome of the debt dispute, the debt of the Saad group has traded at 3 to 5 cents to the dollar in recent weeks, against 1 to 3 cents previously, according to the reports. bankers. .
But some investors remain skeptical. A hedge fund trader who was considering buying Saudi debt described Saad’s advisers’ attempts to resolve the issue with creditors as a “show of dogs and ponies” and said “very little” work had been done. been made to reach a settlement since November.
Two other sources said Reemas hoped to move forward in the coming weeks with a proposal to creditors receptive to his plans. Reemas Group did not respond to a request for comment.
The star asset of the al-Sanea family’s business empire was the Saad Specialist Hospital in the coastal town of Khobar, one of the country’s top cancer treatment facilities.
It ceased its activities in November, riddled with debt and unable to pay salaries or subcontractors, said sources familiar with the matter.
What is happening in the hospital is being watched closely by foreign investors as it could set the tone for a government plan to attract foreign investment in the health sector.
A committee set up by order of the Royal Court is considering options, including setting up a private company to operate the hospital under the direction of the health ministry, two of the sources said.
The Department of Health did not respond to a request for comment.
One issue to be resolved is the salaries owed to around 5,000 former employees, dating back to May 2016. It is not known how many former employees, if any, will have jobs when the hospital reopens, possibly in February.
“There are thousands of people affected and a lot of people have families. It is difficult for people to live their lives without this money (salary), ”said Talaat Habib, a British pediatrician who worked at the hospital.
Siemens owes money for a contract to maintain the hospital’s high-tech medical equipment, two sources familiar with the matter said. Siemens declined to comment.
Additional reporting by Reem Shamseddine in Khobar, Saeed Azhar in Dubai and Stephen Kalin in Riyadh, editing by Timothy Heritage