First Saudi Arabian-linked banks join al-Gosaibi debt settlement plan

Two Saudi Arabian-linked banks have become the first lenders with ties to the kingdom to sign a debt settlement plan with Ahmad Hamad al-Gosaibi and Brothers (AHAB), the company’s chief executive said, opening the way for the conglomerate to try to push through a multibillion-dollar deal with creditors.

Since AHAB defaulted on about SAR22bn ($5.9bn) of debt in 2009, Saudi banks and those with links to the kingdom have refused to join other creditors in a debt settlement deal, arguing the terms on offer were not satisfactory.

But in the last few weeks, Bahrain-based Gulf International Bank (GIB), 97 per cent owned by Saudi Arabia’s Public Investment Fund, and Alawwal Bank, Saudi Arabia’s oldest lender and 40 per cent owned by Royal Bank of Scotland, have signed the deal with AHAB, sources familiar with the process said.

Senior Saudi Arabian officials are keen to get a debt dispute related to AHAB and fellow conglomerate Saad Group resolved as the kingdom embarks on a huge overhaul of its economy that hinges upon attracting foreign investment.

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“We hope that more Saudi Arabian banks will join the settlement in the coming weeks, but as we have reached the threshold under the bankruptcy law we are prepared to seek a deal through that route, if necessary,” said Simon Charlton, AHAB’s chief restructuring officer and acting chief executive.

Alawwal Bank declined to comment, while GIB did not respond to a request for comment.

Eleven banks majority owned by Saudi Arabian shareholders have exposure to AHAB, of the total of 94 creditor institutions.

The settlement means AHAB now has 70 per cent of creditors in support of the deal, representing more than 50 per cent of the debt.

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Under the new bankruptcy law, approved by the cabinet earlier this year, companies can push through a debt restructuring deal if creditors representing at least two-thirds in number and 50 per cent in value support a deal.

“AHAB is confident that, if it needs to, it can use the bankruptcy legislation and, if it does, it would be the first company to do so,” said Eyad Reda, managing partner at Eyad Reda Law Firm in Riyadh and senior counsel to AHAB.

Both GIB and Alawwal Bank sold their exposure after signing the deal. Reuters was not able to confirm the buyer of the debt, but hedge funds and other traders specialising in distressed debt have shown an increased interest in the debt of AHAB and Saad in recent months.

More than SAR1.5bn of AHAB’s debt has traded in the past month, with sources attributing that to anticipation of a breakthrough in the row.

The value of AHAB’s debt has risen from around 12 cents on the dollar at the start of last year to 19 to 20 cents now.