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| Beatrice and Benedict Discuss the Value Surge |
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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.
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