Goldman Sachs bought Commerzbank’s claim in Saudi’s biggest debt saga

Goldman Sachs has bought a claim against The International Bank Corporation (TIBC), a Bahraini bank whose default 10 years ago triggered the biggest financial crisis in Saudi Arabia, three sources familiar with the matter said.

The U.S. investment bank bought $100m of TIBC debt from Germany’s Commerzbank at the end of last year, two of the sources said, reflecting Goldman’s increased interest in Saudi Arabia.

Although it snubbed a Saudi investment conference last year following the disappearance of journalist Jamal Khashoggi, Goldman Sachs has since won a slew of mandates in the kingdom, including a lead role in Saudi Aramco’s debut international bond.

TIBC raised money in international markets, transferring the funds to now defaulted Saudi conglomerate Ahmad Hamad Algosaibi and Brothers (AHAB), in what a Cayman Islands court last year called one of the largest Ponzi schemes in history.

After TIBC defaulted on a foreign exchange deal with Deutsche Bank in 2009, AHAB – which denies knowledge of the scheme – collapsed, along with another Saudi conglomerate Saad, leaving an estimated $22bn in unpaid debts.

TIBC, administered by Bahrain’s Central Bank, has a claim of around $3bn against AHAB, a TIBC spokesman said, while more than 60 banks that have lent money to TIBC remain unpaid.

The sources said Goldman bought TIBC’s debt after rulings in various jurisdictions appeared to strengthen the position of the Bahraini bank against AHAB.

However, if AHAB’s application for a financial restructuring under the kingdom’s bankruptcy law is successful next week, Goldman’s claim may turn out to be worth less than it anticipated.

Goldman Sachs and Commerzbank declined to comment on the transaction.

LIQUIDATION

Last week, a Saudi court created in 2016 to look into AHAB’s affairs, the Joint Directorate of Enforcement at the General Court in Al Khobar (JDEK), suspended TIBC’s claims against AHAB until the bankruptcy petition was resolved, AHAB’s chief restructuring officer, Simon Charlton, said.

TIBC obtained an enforcement order of around $1.6bn against AHAB from JDEK last year.

The TIBC spokesman acknowledged the suspension but said he believed the enforcement order was still valid.

Meanwhile, Austria’s Raiffeisen Bank and HSBC – two of AHAB’s creditors – last month launched an application for the liquidation of AHAB under the kingdom’s bankruptcy law, said the sources.

AHAB has opposed the petition as it would like to reach a settlement with creditors under the financial restructuring process, Charlton said.

Raffeisen Bank declined to comment while HSBC did not respond to a request for comment.

The Dammam commercial court is expected to rule on the liquidation request next week.