The debt restructurings of privately-owned Saudi groups Saad and Algosaibi could curtail international lending to Saudi Arabia and the Middle East, said banking sources yesterday.
The Saudi problems come after similar issues in Kuwait, and companies in the Gulf may now face problems refinancing syndicated or bilateral loans, said bankers, as fears spread they are facing structural debt problems.
"We wait to see the ramifications on Saudi and wider GCC private sector entities but clearly there will be a reluctance by international banks to support them in the immediate future," said a Middle Eastern loan analyst.
The troubled Saad and Algosaibi groups are restructuring debt of about $10 billion (Dh36.7bn), according to press reports that includes loans of about $6.3bn, according to TRLPC data.
Saad's restructuring talks follow similar issues with other privately-owned Gulf investment firms. Kuwait's Global Investment House and Investment Dar are talking to creditors after defaulting on their debt.
International banks cut lending to the region last August when the Gulf's real estate and equity markets slumped and lending to the Middle East showed a 75 per cent drop at the half year to $13.5bnn, according to TRLPC data.
But the banks already have billions of exposure on their books to Gulf companies and regional banks through syndicated and bilateral loans that will need to be refinanced. This problem is said to be especially acute in Saudi Arabia, where the private sector plays a greater role in the economy than other GCC countries, said another banker.
Although privately-run companies are ostensibly separate from governments, the opaque and interconnected nature of private investment companies often extends into Gulf ruling families and the government, said several bankers.
Many are suffering after using debt to buy equity stakes that were then releveraged, leaving two loans sitting on top of one piece of equity, said a second Middle Eastern loan specialist, which creates problems for debt repayment.
Many of these "margin loans" are now underwater after heavy falls in the equity markets, he added.
"Lots of family-run entities or investment companies that bought equity stakes and also borrowed at the holding company level are running into problems... This is a challenging time for people that put debt into those companies," he said. "Sovereign and quasi-sovereign Gulf borrowers will not be impacted – even Saudi sovereign entities such as Saudi Aramco, Sabic, etc", said the Middle Eastern specialist.
Saudi borrowing typically consists of large internationally-syndicated loans to state-owned entities to finance ambitious government-led projects.companies have $5bn of loans maturing in 2009, $3.6bn in 2010, $7.5bn in 2011 and $12.2bn in 2012, which include three syndicated loans to the troubled Saad and Algosaibi groups, shows TRLPC data.
Saad Group has a $2.815bn loan that matures in August 2010 and a $2.75bn loan 2007 that matures in June 2012. Ahmad Hamad Algosaibi has a $700 million loan that matures in May 2010.
Arab bank rejects any impact
Arab Bank said loans given to Saad and Algosaibi groups should not affect the financial position of the bank as they are backed by guarantees. The bank extended the long-term loans because Saad and Algosaibi have more than $40 billion (Dh146.8bn) in asset, it said.
Arab Bank is the third-largest creditor on a list of banks that lent at least $6.3bn to the two troubled Saudi groups.
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