x Abu Dhabi, UAEWednesday 17 January 2018

Mashreqbank admits lending to Saudi groups

The bank, which is owned by billionaire Abdul Aziz al Ghurair, said it was working with clients based in Saudi who were "facing problems".

Mashreqbank became the first UAE bank to admit to lending exposure to the Saudi family trading groups at the centre of an international credit default crisis. The bank, which is owned by billionaire Abdul Aziz al Ghurair, said it was working with clients based in Saudi who were "facing problems", and had taken legal action to protect its interests. "Mashreq is aware of a number of problems faced by Saudi-based clients and has taken legal action to protect its interests when appropriate and is actively working with such clients, their advisers, regulators and other banks in an effort to resolve the matter," the bank said in an e-mailed statement.

The turmoil at the Al Gosaibi and Saad groups, two of the region's largest family-run conglomerates, has spread throughout the Gulf as banks have moved to limit exposure to both companies after their accounts were frozen in Saudi Arabia last month. Earlier this week, the UAE Central Bank warned that lenders across the region could be owed money by the two conglomerates. It said it planned to publish information about banks lending to the two as soon as they moved to restructure their debt.

It also told local banks to offset any exposure they had to both groups against available assets, and warned lenders against extending new credit to them. John Iossifidis, the head of international banking at Mashreq, yesterday told Zawya Dow Jones that it was in talks with Saad Group and Ahmad Hamad Al Gosaibi and Brothers (AHAB) about their liabilities. "These defaults have jolted investors. Their confidence has been shattered just as the overall economic sentiment is starting to change," said one UAE banker. Other UAE lenders have so far declined to comment on their exposure to the Saudi groups, referring to client confidentiality. Emirates NBD, the country's largest bank by assets, has also declined to comment.

Until Mashreqbank's disclosure yesterday, Bank Muscat was the only regional bank to reveal its lending to the Saudi groups. It told the Muscat bourse that it had an exposure of about 49 million Omani rials (Dh467.1m) to the Saudi companies and a further 17m rials through its affiliate, BMO Bank of Bahrain. The bank's stock price dropped 6.2 per cent after the disclosure. Yesterday, Bloomberg reported that Bank Dhofar, Oman's third-largest bank by market value, loaned about 4 million rials ($10 million) to Algosaibi Group. Bank Dhofar "will not disclose any information" about loans to Algosaibi Group, the company said today in an e-mailed response to questions. "Clients have a right for their privacy to be respected," it was quoted as saying by Bloomberg.

The financial turmoil surrounding the two Saudi families has spread through international markets since TIBC, the Bahrain-based banking unit of AHAB, defaulted on part of its debt payments in May. That was followed by Saad's disclosure that it was seeking to restructure its debt after having its accounts frozen by the Saudi central bank. Moody's Investor Service and Standard & Poor's subsequently downgraded their ratings of the group to "default" level and later withdrew their ratings. Last week, AHAB said it was investigating "irregularities" in its financial arm. The group is also in discussions with creditors about restructuring.

Now there is concern that the next payment of a $700 million-loan facility arranged by BNP Paribas SA and Germany's WestLB AG in May 2007 may not be met, Middle East Economic Digest reported earlier this month. The payment is due in November. uharnischfeger@thenational.ae