ONE MORNING TOWARDS the end of May, creditors from around the world gathered in a Bahraini hotel with representatives of the central bank and TIBC, a local lender believed to be in default on some of its debt. Was this the day the world’s banking industry lost patience with the Middle East?
Inside the hotel, confusion reigned. To some of the creditors it seemed the Central Bank of Bahrain and TIBC gave hardly any assurances and scant idea why the bank had missed payments. It was four hours of frustration and anger. For many, it made matters worse that they had flown in to work on a Sunday, their day off.
Word in the market was that Deutsche Bank threatened to block Bahraini banks’ access to its foreign exchange platform. To have had this added to TIBC’s problems could have been a disaster for an economy whose oil reserves were depleted and whose population’s hopes were pinned on its troubled status as an offshore financial centre. Deutsche Bank declined to comment when contacted by Euromoney. Its foreign exchange platform continued to do business with Bahraini banks. But reports from Reuters and Bloomberg said the German lender had also filed a lawsuit against TIBC in New York, alleging that TIBC failed to honour its side of a foreign exchange transaction.
On May 12 Standard & Poor’s said it understood, from conversations with TIBC’s chief executive and Al Gosaibi employees, that the bank’s missed payments were ahead of a likely group-wide restructuring at Ahmed Hamad Al Gosaibi and Brothers (Ahab), the family business that owned and backed TIBC. S&P said the payments could be honoured. But according to the ratings agency, the Al Gosaibi group considered TIBC’s default to be "aggressive defensive protection measures" – part of a defensive strategy. The Al Gosaibi group and TIBC did not comment on this when asked.
How could this happen? The Al Gosaibis were supposed to be one of the richest families in Saudi Arabia, a kingdom reputed to be full of fantastically rich families. The veneer of invincibility some of the globe’s biggest banks had attached to family-owned Gulf corporates was already beginning to crack.
It was not long before things got worse. Reuters reported that the Saad group, another private Saudi conglomerate, had announced a debt restructuring. Standard & Poor’s downgraded the group to default status. Citing Saad’s management, the agency said Saad was entering into a standstill agreement with its creditors, thereby suspending its debt payments.
Then Bahrain’s central bank announced that it had been told by the management of Awal Bank, a Saad entity, that Awal was seeking to renegotiate debt with its creditors. Ratings agency Capital Intelligence reiterated this and downgraded the Bahraini bank to default status before withdrawing coverage.
A family dispute
Saad initially said the cause of its restructuring was "the failure of companies owned by a prominent family business and the unexpected and unprecedented regional reaction to that failure", according to Reuters.
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Maan Al Sanea: the dominant personality behind Saad |
Both the Saad and Al Gosaibi groups are based in Saudi Arabia’s Eastern Province. Maan Al Sanea, chairman of Saad, is related to the Al Gosaibis through various marriage links, and the assumption in the market was that the prominent family business Saad had referred to was the Al Gosaibi group.
A further development came in July, when a law firm acting for the Al Gosaibis filed a suit in New York in which Al Sanea was referred to as a senior executive of the Money Exchange, part of the Al Gosaibis’ financial services division.
The Al Gosaibis’ suit claimed the directors and principals of Ahab only became aware of a $150 million foreign exchange transaction after Dubai-based Mashreq Bank sued the Al Gosaibis in New York in late May for not honouring their side of this deal. The foreign exchange transaction referred to by Mashreq was one in a series that had been occurring since 2005, according to the lawsuit. Similar transactions between Mashreq and the Money Exchange totalled $4.7 billion in the first four months of this year alone, the lawsuit said.
The Al Gosaibis’ lawyers alleged that Al Sanea "organized a massive fraud in which he entered into transactions largely through the Money Exchange and purportedly in Ahab’s name with third parties including, allegedly, Mashreq".
The lawsuit also said: "Al Sanea obtained loans frequently using forged or falsified documents and then diverted the funds received to his own use. Inter alia, he wrote cheques drawn on Ahab accounts in favour of companies under his control. Ahab presently estimates that Al Sanea misappropriated approximately $10 billion as a result of his frauds." These allegations are vehemently denied by Al Sanea’s connections.
At the end of August Saad said: "The claims filed in New York have yet to be served formally against Maan Al Sanea/Saad/Awal, which is odd and [this] indicates they are more part of a media campaign than a proper legal strategy. However, if we are served, we will of course respond confident in both the actual facts and the judicial process."
According to Saad: "Although Mr Al Sanea has long had personal relations with the partners of Ahab, neither Maan Al Sanea, nor any related business entity, is a partner or has any ownership interest whatsoever in Ahab or in any of its related entities, nor do they have any business ties except on an arm’s-length commercial basis. Likewise, Ahab has no interest in the Saad Group company or in any business owned or controlled by Maan Al Sanea.
"Although Mr Al Sanea was at one time named as a managing director of Ahmad Hamad Al Gosaibi and Brothers Co (Ahab) he has not acted in such capacity for many years, is not involved in the operations of Ahab in any way, nor is he chairman of The International Banking Corporation [TIBC]."
