June 11 (Bloomberg) -- Islamic bonds with a face value of $650 million sold by Saudi billionaire Maan al-Sanea’s Saad Group are priced for a default, according to ING Investment Management.

Saad Trading Contracting & Financial Services Co.’s debt securities, known as sukuk, are trading for 25 cents on the dollar compared with this year’s high of 79 cents on Feb. 26, data compiled by Bloomberg show. Saad Group on June 2 appointed BDO Capital Finance to advise the company on restructuring plans after the Saudi central bank last month froze bank accounts of al-Sanea and his family members.

“The restructuring that the group is presently going through and the lack of clarity strongly imply that the sukuk issue is in default,” Nish Popat, head of fixed income at ING in Dubai said in an interview. “The question here is the enforceability of the sukuk-holders against the group companies.” The next coupon payment on the bond is due in November, Popat said.

Al-Sanea was ranked in March as the world’s 62nd richest person by Forbes with a net worth of $7 billion. Standard & Poor’s on June 2 downgraded the Khobar-based company to default level while Moody’s Investors Service cut its rating by five levels to below investment grade.

The company has been selling assets to raise funds, including a 31 million-pound ($50 million) stake in 3i Infrastructure through a Citigroup Inc. placement yesterday. Two days earlier, Saad sold a 144 million-pound holding in Berkeley Group Holdings Plc, Britain’s biggest homebuilder by market value.

HSBC, Imagination

The company still has stakes in HSBC Holdings Plc, Imagination Technologies Group Plc and Petra Diamonds Ltd., according to data compiled by Bloomberg. Saad’s 2.97 percent stake in London-based HSBC, Europe’s biggest bank, was worth about 2.7 billion pounds at yesterday’s closing price. Saad is the biggest investor in Imagination Technologies, with a holding worth about 39 million pounds.

Saad Group and its Manama-based Awal Bank BSC unit are “confident” of a successful restructuring, the company said last week. Saad Group cited a “short-term liquidity squeeze” for its debt plan.

“We are continuing to make progress with the restructuring plan announced last week” and updates will be provided in “due course,” a London-based spokesman for the Saad Group said in an e-mailed statement. “We have no comment to make on individual transactions.”

Transparency

Saad Trading Contracting & Financial Services and the Cayman Islands-based Saad Investments Co. have $2.75 billion and $2.8 billion revolving credit facilities respectively, which are both close to fully withdrawn, according to Moody’s.

The company sold five-year sukuk in May 2007 to help finance investments and property purchases in London and Saudi Arabia. To adhere to Islam’s ban on the payment or receipt of interest, the sukuk were structured around land in Saudi Arabia that was leased to a special purpose vehicle, the Bahrain- domiciled Golden Belt 1 Sukuk Co., according to Moody’s Investors Service.

“This is one of the largest business groups in the region with very little information divulged from the company, regulators and the judiciary about its demise,” said Mohieddine Kronfol, managing director at Dubai-based Algebra Capital Ltd. “This raises several important issues, not least of which is transparency and how creditors will be treated.”

The market for Islamic bonds ballooned from almost nothing in 2002 to $90 billion last year as an economic boom, spurred by surging energy prices, increased borrowing in the Gulf and Asia. Defaults in the sukuk market have been rising as the global financial crisis squeezed credit for businesses in the Gulf region, which produces about 20 percent of the world’s oil.

Investment Dar Co., the owner of half of Aston Martin Lagonda Ltd., said May 12 it missed a payment on $100 million debt, becoming the first Persian Gulf company to default on Islamic bonds. Nakheel PJSC, the Dubai-owned developer building palm tree-shaped islands off the emirate’s coast, may restructure its $3.5 billion of Islamic bonds due in December, Standard & Poor’s said on April 30.

To contact the reporter on this story: Haris Anwar in Dubai on Hanwar2@bloomberg.net

Last Updated: June 11, 2009 09:02 EDT