Saudi Arabia: Value of AlSanea Group Debt Surges 67% to 200%

Beatrice and Benedict Discuss the Value Surge

1 February Thompson Reuters reported that following recent reported efforts by the KSA Government to “step up its efforts” to resolve the Ahmad Hamad Al Gosaibi/Maan al Sanea USD 22 billion or so debt dispute: 

“In a sign that some creditors are now more optimistic there will be a positive outcome to the debt dispute, Saad Group’s debt has been trading up at 3 to 5 cents on the dollar in recent weeks, compared to 1 to 3 cents previously, bankers say.”

In percentage terms that's quite a movement.  Not so much in absolute amounts.

AA would guess that these now more optimistic creditors are the same ones who made the original loans to AlAwal and TIBC.  Or would have if they had had the chance. 

For some of those earlier “great moments” in banking you can refer to the posts right here on SAM, e.g., AlAhli Bank Kuwait letters of credit, Mashreq Bank’s split value FX deals, and many more.  Here. Or here.  Name lending combined with what some might rightly consider unsound banking practices.  Talk about compounding errors!

Those less charitable than AA might also make a comment about the extent of the “step up” by the KSA Government of its efforts.  After all, it’s only been a scant 8 years 10 months. 

No surprise that when there’s good news, there’s always some naysayer like AA who refuses to acknowledge it or see the upside potential.  Saudi investment banking fee riches is yet another example. 

“But some investors remain skeptical. A hedge fund trader who had been considering buying Saudi debt described the attempts by Saad’s advisers to resolve the issue with creditors as a “dog and pony show” and said “very little” work had been done to reach a settlement since November." 

Note that the anonymous hedge fund trader quoted above would be purchasing the paper at a deep discount.  Unlike the original lenders who have been well and truly skinned, he could still make a profit even if final settlement were at a 8% recovery level.  Yet, he still doesn’t find it attractive. 

Why is that?

As AHAB/AlSanea and REDEC have well demonstrated, generally KSA prefers (in the technical legal sense of a preference) domestic over foreign lenders. SAMA take good care of their banks. Foreign banks not so much. 

If that weren’t enough, the Saudi courts and legal system generate “uncertain” outcomes (euphemism of this post).  Hapless foreign creditors are more likely to get “shaken down” than to get a “fair shake”.  Or is that shaykh?  To be fair KSA is not alone in the region.  One need  look no further than Dana Gas in the UAE.