Saudi debt feud that trapped global banks ends after decade

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(Bloomberg) –

BNP Paribas SA and Citigroup Inc. are among the global banks that are finally on the verge of seeing some of their loans at least partially repaid after being caught in one of the biggest defaults of Saudi companies.

In the first major test of the kingdom’s new bankruptcy law, Ahmad Hamad Algosaibi & Brothers Co., which has grappled with legal battles and negotiations with creditors for more than $ 7.5 billion in debt since 2009 , saw his proposal to restructure the bonds ratified by a Saudi. tribunal, said Simon Charlton, director of restructuring for Algosaibi.

The order from the Commercial Court in Dammam, in Saudi Arabia’s eastern province, will allow the lifting of various asset freezes and allow the company to move forward with a plan to repay creditors of ‘about 26% of the value of their claims through a mix of cash, stocks and Saudi real estate.

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

AHAB’s default spilled over to some of the world’s largest banks and exposed poor lending practices at some of them, with loans often going to wealthy families and large conglomerates in the Middle East, often on the sole basis of their name and reputation.

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

Global conflict

Algosaibi, which had interests in construction, shipping and hospitality, engulfed itself in a global legal dispute with Maan al-Sanea, a Saudi tycoon who married the Algosaibi family and ran their affairs. financial. The bankruptcy law, which entered into force in 2018, enabled the AHAB to push through the agreement.

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

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

The plan foresees that AHAB will contribute 90% of its assets to the repayment of its debts, the rest being restructured in order to continue its activities.

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

The initial payments to creditors will come from around 4.5 billion riyals ($ 1.2 billion) in cash and shares held by the group and could be made before the end of the year, Charlton said. After that, he will look to sell one of his businesses and set up a real estate fund to manage around 2.5 billion riyals in assets.

(Updates with the names of other banks discussed in the sixth paragraph.)

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