Saudi Arabia’s Algosaibi Offers New $5.9 Billion Debt Deal

Ahmad Hamad Algosaibi & Brothers Co. is offering to guarantee banks at least a 20 percent payment on $5.9 billion of debt as it seeks to end a dispute with creditors after the Middle East’s largest default.

The Saudi Arabian company proposed to pay 10 cents on the dollar using cash from a share portfolio and will pledge its real estate assets to guarantee payment of an additional 10 cents in five years, according to a presentation made by chief restructuring officer Simon Charlton at a meeting today in Dubai. Depending on asset recovery and litigation, it will also pay up to an additional 30 cents, with gains above that level shared between the company and creditors.

Algosaibi and billionaire Maan al-Sanea’s Saad Group defaulted on at least $15.7 billion in 2009 as the global economic crisis froze credit markets and asset prices slumped. The two family holding companies, related by marital ties, have been locked in legal disputes ever since. Today’s offer is less favorable than one rejected by lenders in December 2009.

“The alternatives to a consensual agreement and approach to the Saudi Arabian authorities is most likely years of litigation and uncertainty through enforcement courts, dealing with the Royal Order freezing assets and then the appointment of a liquidator to sell assets at depressed fire sale values,” Charlton said in an interview today.

Any proposal is subject to Saudi Arabia lifting a freeze on the company’s assets in the kingdom, he said.

Asset Recovery

The company is counting on asset recovery through lawsuits and litigation to make creditor payments after the first 20 cents, according to the presentation. Algosaibi has claims for $600 million to $1.4 billion of assets held by courts in the Cayman Islands, while in Saudi Arabia the company has started cases against Samba Financial Group and SABB to recover shares worth a combined 3 billion riyals ($800 million) seized in August 2010 to cover loans. Spokesmen for Samba and SABB weren’t immediately available to comment.

Algosaibi has also started three cases against al-Sanea alleging fraud worth a total of 15.8 billion riyals, according to the presentation. Al-Sanea denies all Algosaibi’s allegations.

“There are real substantive assets in play here that can increase the return to creditors,” Charlton said. “If we are successful in just one third of the claims brought, the return will rise to 40 cents on the dollar and at a 55 percent success rate the return rises to 60 cents.”

Saudi Banks

Lenders filed about 22 billion riyals of claims for unpaid loans in countries including the U.S., U.K. and Saudi Arabia, according to estimates by Algosaibi, which operates in industries from construction to finance.

More than 60 out of 85 creditors, including Standard Chartered Plc, JPMorgan Chase & Co. and U.S. hedge fund Fortress Investment Group LLC, attended today’s meeting. Saudi Arabian banks, which hold about one third of the total debt, rejected an invitation to attend. Some banks in the Kingdom have seized Algosaibi assets, while others are taking legal action as they seek to recover debts.

“We believe that their attempts to obtain final judgements and then enforce those judgements will fail and at that point we hope that they will join these discussions,” Charlton said.

Bank Recovery

Units of Algosaibi and Saad borrowed from lenders to finance investment and expansion into real estate. One-third of the debt is owed to Saudi Arabian banks including Al Rajhi Bank and Saudi Investment Bank, another third to Middle Eastern lenders and the remainder was borrowed from global banks.

The December 2009 offer included a pledge of 3 billion riyals in securities and a further 3 billion riyals in securities, property and cash over five years based on assets worth about 10 billion riyals, according to documents filed in a Cayman Islands court in November 2010 and shown by Charlton to Bloomberg News in March. Today’s offer is less favorable because asset values have declined, he said.

The company hired Charlton, former head of forensic services in the Middle East for Deloitte LLP, and Ben Jones, also from Deloitte, as chief financial officer last June.

“The family is genuine in its desire to settle with its creditors in as fair and expedient manner as is possible,” Charlton said. “This proposal is a genuine one and one, which we believe is likely to lead to the highest return to creditors.”

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