Saad Golden Belt Sukuk 1

Today the Delegate (agent) on the Sukuk, Citicorp posted an announcement on the Bahrain Stock Exchange.

Main points and my comments:

1. Vote to Dissolve (Acceleration) - So far only 13.62% of certificateholders have voted to dissolve the transaction.  This is remarkable given that until they trigger the repurchase obligation of Saad Trading and Contracting I believe they are in a worse position legally than Saad's direct creditors.  How is that?  Until the transaction is dissolved, the principal is not due.  Not  until the principal is due from Issuer (which is a shell company) can the purchase obligation of Saad be triggered.  Until then Saad is "past due" on the rent (interest).  This is the financial equivalent of staying in one's cabin after the Titanic has hit the iceberg.  The announcement does note that certificateholders have been forming groups.
2. Failure to Provide Rental Notes - Saad has not provided the promissory note for the upcoming rental payment.  As you'll recall from the earlier analysis of the transaction, Saad was supposed to provide promissory notes for each of the rental payments due (the "interest").  This mechanism was designed to have a simple straightforward document on which a lawsuit in Saudi Arabia could be based and thus avoid having to bring in all the transaction documents.   As discussed that in itself could pose a problem in a Saudi Court.  Since the "rental payments" were constructed without any reference to the economic value of the property, it could be even more troublesome.  Failure to provide the Notes is a Termination Event.  Let's see what the next action taken by the certificateholders is.
3. Failure to Provide Funds - Saad is not providing any funds and so the issuer may be unable to pay listing fees on the BSE in which case the Sukuk will be de-listed.  Both Citicorp (the Delegate) and Ohad (who are providing the Issuer corporate services) have not been paid.  In many deals like this where there is no real underlying business by the Issuer, the service providers make sure their fee is taken "off the top" from the issue proceeds.  In this case they contented themselves with a "promise to pay" from Saad.
4. Citicorp as Delegate - The address given by Citicorp is now "Restructuring Group" indicating that they have moved responsibility.  You might wonder why since other than their fees they have no money at risk.  In a situation like this, a certificateholder facing a loss (and here one has to assume it may be more of a head shaving than a haircut) might well start reviewing the conduct of the Delegate and Ohad to see if he can find any basis to sue them for "malpractice" in the discharge of their duties as a way of getting some money back on the investment.  Both have pockets to pick and probably with more cash than Saad.   There will also be scrutiny of the offering documents for failures by the placement agents.  My recollection is that these documents were very well crafted and the risks laid out very clearly.  As you'll note in the final point in its announcement, the Delegate is careful to note that certain powers have been retained by the Issuer - in effect carefully reminding readers of the limits of its legal responsibility and thus its exposure.