Business | Banking
Family dispute derails Gulf lending
Flurry of litigation between embattled saudi firms hits liquidity across region.
- Bloomberg
- Published: 22:16 September 18, 2009
- Image Credit: AP
- Cranes rise above a site where residential high-rises are being built on government land sold to a Saudi firm. Gulf firms have been forced to scrap name-lending in the wake of the Saad Group and the Algosaibi Group going bust.
Dubai/Al Khobar: Ma'an Al Sanea, one of Saudi Arabia's richest men, operates his corporate empire barricaded behind a four-foot high concrete wall, painted in bright red stripes.
A second, higher wall is topped with barbed wire, a reminder of the terrorist attack on his company's nearby residential compound five years ago that killed 22 people.
Now Al Sanea is under a different kind of siege, this time from the family he married into and helped make him wealthy. In a region where business disputes are routinely settled in private, the family feud between the two most prominent names in the Saudi oil city of Al Khobar - Algosaibi and Al Sanea - has erupted into public and curbed lending across the Gulf.
Eighty banks, including BNP Paribas SA and Citigroup, are owed at least $15.7 billion (Dh57.6 billion), sparking a flurry of litigation. The battle has increased pressure for more transparency among the region's family-run firms and less reliance on name lending, or borrowing based on reputation.
"With Ma'an Al Sanea or the Algosaibi family, the perception was that they would never go bust or never default," Yazan Abdeen, a Dubai fund manager at ING Investment Management, said.
"Facts are showing that this can happen. The banks in Saudi, Kuwait and the UAE will get a hit, and this will make the banks alter their own lending models. It's like a 'black swan' event, something no one saw coming."
Al Khobar, an oil-rich seaside city in the Arabian Gulf, 250 miles east of Riyadh, is the centre of a legal and financial struggle that has seen some of the Algosaibis accuse Al Sanea, ranked 62nd on this year's Forbes magazine list of richest people, in court filings of siphoning off $10 billion in assets while he was running a money-management business for them.
The Saudi Arabian central bank ordered a freeze of Al Sanea's accounts, bankers familiar with the instructions said on May 31. The Algosaibis then used a Cayman Islands court order to try to freeze $9.2 billion of his assets, court documents show.
"All of the allegations made are wholly without foundation," Al Sanea's company, the Saad Group, said on Thursday in an e-mailed statement.
"While maintaining an absolute focus on its own restructuring, the Saad Group will respond appropriately and in a timely fashion to the erroneous claims made against it. However, this will be through a proper judicial process and not through the media."
The Algosaibis declined to comment for this story, James Courtovich, a Washington-based spokesman for the family, said.
Al Sanea, born in Kuwait, married a daughter of one of the three founding brothers of Ahmad Hamad Algosaibi & Brothers Company, a trading company whose holdings include bottling, construction, shipping and financial services.
He joined the Algosaibi family business and started Saad Group, which began building sewage and storm-water systems in Jeddah in western Saudi Arabia. He later expanded into real estate, health care and banking, including taking a stake in HSBC Holdings Plc, Europe's largest bank.
"It does not serve to begin with small dreams," Al Sanea, 54, said in an interview with London's Telegraph newspaper in July 2007. On its website, Saad Group lists "family values" as a cornerstone of its business.
Today the two families dominate the landscape of Al Khobar, a city of about 165,000 people. The Algosaibi family operates a hotel, a shopping mall and the Pepsi plant in the centre of the city. Al Sanea's corporate headquarters, a hospital and a residential village, the Oasis, the scene of the 2004 Al Qaida attack, occupy another portion of the city.
"The washing of dirty linen in public is very unusual," said Michael Field, the author of The Merchants, a book of the Gulf's major trading families.
The Saudi economy will contract one per cent this year as the debt problems of family-run businesses dissuade banks from lending to the entire private sector, Riyadh-based Jadwa Investment Company said in a July 28 report.
Another analysis this week by Credit Suisse Group AG said the Saad-Algosaibi conflict will keep lending "muted" throughout the region.
The dispute has been largely left off local Saudi newspaper front pages. Mohammad Al Waeel, editor-in-chief of Al Yaum newspaper, based in Dammam, an Eastern Province city bordering Al Khobar, called the issue "a family matter."
Al Sanea announced plans in 2007 to borrow $5 billion to finance expansion into real estate and investments in Saudi Arabia and elsewhere.
His best-known purchase, a 3.1 per cent stake in London-based HSBC, lost about 40 per cent in two years. Another company, UK homebuilder Berkeley Group Holdings Plc, lost about 40 per cent of its value in the same period.
"The stakes he acquired in financial institutions in 2007, where he borrowed money to pay for, not only went down in value but was pledged to borrow more money for other investments that got negatively impacted by the global recession," John Sfakianakis, chief economist at Riyadh-based Banque Saudi Fransi, said.
"He borrowed money from everyone."
While Al Sanea is negotiating to restructure his debts with the banks, his dispute with Algosaibi is playing out in court.
According to the 31-page complaint filed in July in New York State Supreme Court by the Algosaibi group, Al Sanea used "falsified documents" to appropriate $10 billion through the Money Exchange, a financial arm of the Algosaibi family that handled remittances.
In court papers, the Algosaibis allege Al Sanea ran Money Exchange and used "highly unusual" foreign-exchange transactions with third parties.
Meanwhile, a group of Saudi Arabian and some foreign banks has reached an agreement to refinance part of the Saad Group's debt, two people familiar with the situation said on Thursday. They declined to identify the banks.
The Saad Group was not available for comment.
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