Deal Proposed to Resolve Middle East Corporate Default

Saudi Arabia’s Algosaibi family has proposed a settlement to creditors on estimated debts of 21bn to 24bn Saudi riyals (US$5.6bn-US$6.4bn) in an effort to resolve the region’s worst corporate default of the financial crisis.

Around 60 out of 85 lenders, including Standard Chartered and Dubai-based Mashreq, accepted an invitation to attend a meeting in Dubai at which a restructuring proposal was presented by Ahmad Hamad Algosaibi & Brothers (Ahab).

The claims asserted by banks against the company, totaling billions of dollars, arise out of liabilities incurred through a fraud perpetrated by Maan Al Sanea who headed Ahab’s money exchange division. The fraud left Ahab facing around US$6bn in direct liabilities to banks and other financial institutions, which have triggered more than 70 lawsuits in at least 10 countries over the past five years.

“The proposal we outlined today is a serious and genuine offer to maximize the recoveries for Ahab’s creditors and end a five year battle and the resulting stalemate in which we find ourselves today,” said Simon Charlton, Ahab’s acting chief executive (CEO). “The only alternative to this process is long, costly, uncertain, and in no one’s best interest.”

Under the proposed deal, Ahab would make an upfront payment equal to some 10% of creditors’ claims as a sign of good faith and its commitment to the process. Additionally, the proposal includes recoveries from third parties, with the goal of a total recovery for creditors of 40%-60% of claimed amounts.

These recoveries would come from Ahab’s civil lawsuits against Al Sanea and entities controlled by him in the Cayman Islands and Saudi Arabia, and claims against two banks – SABB and SAMBA (formerly the Saudi British Bank and the Saudi American Bank respectively) – for the value of two substantial share portfolios once owned by Ahab and seized unilaterally by the banks in a move Ahab asserts violated legal orders and the laws of Saudi Arabia. AHAB will guarantee a minimum recovery of 20 cents on the dollar, secured by the company’s extensive real estate portfolio.

Charlton told creditors that the most likely alternative to a consensual settlement with Ahab would consist of banks competing with each other to obtain individual enforcement orders in Saudi Arabia – proceedings likely to incur massive legal costs, years of litigation, and significant uncertainty. The process would be further complicated due to the Royal Order that prohibits any sale or transfer of Ahab assets for the protection of all creditors. Ahab’s proposal creates a framework for a settlement whereby Ahab and its creditors would jointly approach the Royal Court to receive equal treatment in compliance with Sharia law.

The meeting also featured Ahab’s chief financial officer (CFO), Ben Jones, who described Ahab as a company in severe distress following the discovery of the Al Sanea fraud. Ahab has lost all of its businesses outside Saudi Arabia, has no access to credit markets, and faces wary counterparties that are uncertain of Ahab’s future.

Jones said that Ahab has taken serious steps to restructure its business, including hiring a team of professional senior executives, working to drastically reorganise the business and cut costs. Both he and Charlton emphasized the Algosaibi family’s strong desire for a global resolution after five years of litigation.

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