The international fallout from the problems facing Saudi Arabia's Saad and Al Gosaibi groups spreads.
Turmoil deepens at Saudi firms
The international fallout from the problems facing Saudi Arabia's Saad and Al Gosaibi groups spread on Thursday as Oman's biggest bank disclosed its exposure to both companies and Al Gosaibi said it had found evidence of "financial irregularities" in its financial services arm. Bank Muscat said it had exposure of about 49 million rials (Dh467m) to the Saudi companies in addition to a further 17m rials through its affiliate, BMO Bank of Bahrain, after the Omani bank's shares lost 6.2 per cent on Thursday.
Meanwhile, Al Gosaibi said on thursday it had undertaken an audit of its businesses as it worked to restructure its debt and had found "strong evidence that there have been substantial financial irregularities within the financial services arm". The company would not provide further details on the audit, but said it was in contact with government authorities and creditors and was keeping them up to date on the inquiry. The group also said it would appoint steering committees to represent the interests of creditors to whom the overall group, called Ahmad Hamad Algosaibi and Brothers, and Algosaibi Trading Services, a subsidiary, owed money.
The turmoil at Al Gosaibi and Saad illustrate how loan defaults, freezes in credit markets and declines in the Gulf's stock markets have spread to two of the region's largest family conglomerates, both of which have large footprints in business operations and banks' loan books. Both companies are in negotiations to restructure debt, and Saad has been busy selling off prized assets to raise money and get back on solid financial ground.
Despite these moves, however, Islamic bonds issued by Saad Group traded at "default level" yesterday on concern that it may not be able to repay outstanding debt while it continued to sell off assets. The sale of a large part of Saad Group's stake in 3i Infrastructure on Wednesday followed an earlier sale of a stake in Berkeley Group Holdings, Britain's biggest home builder by market value. "We often see really vicious sell-offs when these kinds of things happen," said Sean Daykin, the head of investment funds at EIS Asset Management, the asset management arm of Emirates NBD. "When these sell-offs happen, stocks will underperform, investors mop them up for valuation purposes and eventually an equilibrum sets in."
Saad Group, an empire chaired by the Saudi billionaire Maan al Sanea once valued at US$30 billion (Dh110.11bn), had its accounts in Saudi Arabia frozen by the kingdom's central bank last month, which triggered further warnings from other Gulf central banks about lenders' exposure to the company as it moves to restructure its debt. Al Gosaibi, which owns a majority stake in The International Banking Corporation, based in Bahrain, was also recently revealed to be in talks with creditors about a restructuring.
Bank Muscat said it was "confident the concerned governments and regulators would take proactive steps to ensure an orderly settlement of obligations". It added it was too early to say whether it would be forced to set aside money in preparation for losses from its exposure. "Though these groups are in default on some of their obligations, we take comfort in the fact that the groups' operating companies are profit-making and based on the last published financials, have strong balance sheets," the group said in its statement to the Muscat stock exchange.
A Saad Group spokesman based in London said it was "continuing to make progress with the debt restructuring plan announced last week". The UAE Central Bank has also ordered banks to halt loans to Mr al Sanea and three private Saudi trading groups. Saad Group's outstanding sukuk, or Islamic bonds, were yielding about 25 cents in the dollar this week, down from highs of 79 cents in February. Saad is the second-largest shareholder in HSBC Holdings, after Barclays. Its 3 per cent stake in HSBC is worth about £2.7bn (Dh16.23bn), based on Wednesday's closing price. It also owns stakes in Imagination Technologies Group, Petra Diamonds and the Samba Financial Group.