Monday, October 4, 2010

AlGosaibi v Maan AlSanea - Secondary Sales and the Fix


Here's an interesting article from AlQabas which reports that some international lenders have sold a part of their debts to the two troubled family groups to hedge funds and distressed debt funds at between 20 and 40 cents on the dollar.

The motive of the selling banks is given as concern that collection of any amounts will take a long time given the complicated affairs of the companies as well as lawsuits from every side.   Or as the Arabic has it more poetically  دعاوى قضائية من كل حدب وصوب .  Even if there is a settlement between the two groups and their creditors.

This raises an intriguing question.  Why are the buyers buying?  Particularly in such a distressed scenario as this where the amounts are so very very large.  And at prices up to 40 cents????

There are a few possibilities here:
  1. Al Qabas' informed banking sources may not be so well informed.  
  2. The funds have lost their minds.  
  3. Or they know (or think they do) something that the wider creditor group doesn't.  One answer would be that there's some sort of "fix" going on to settle the debts.   
The only thing mitigating against this last explanation is the price range.  In a case like this secondary prices should be in the teens, if that. 

So why is presumably "smart" money paying more?

Without knowing the volumes, the identities of the buyers (which may show whether the money is inherently smart or not), and if the buying is focused on particular loans, it's hard to say.
But if the upper bound to the price given is right, I'm betting it's irrational exuberance.

1 comment:

Anonymous said...

who is buying