GL: UAE Central Bank Ups Saad/Algosaibi Provisions
The United Arab Emirates central bank has instructed banks and financial institutions with exposure to Saad Group and Ahmad Hamad Algosaibi & Bros. to increase provisions against bad debts to 80 per cent from 50 per cent. The circular was signed by the central bank governor according to media reports on Monday. The provisions must be booked by year end the circular added. Banks were also reminded to take 100 per cent provisions against The International Banking Corporation and Awal Bank
Analysis
It is difficult to gauge whether the instruction by the UAE central bank signals any change in outlook for the debt laden Saudi firms but the move coincides with other developments regionally.
On Sunday a Kuwait newspaper said Saad Group was offering lenders 20 cents in the dollar against outstanding obligations with indications that some Kuwaiti lenders would accept between 30 and 40 cents. The move by Saad Group is not new. At the end of last year the conglomerate did a deal with Saudi based lenders repaying around $2.6 billion , a decision which irritated many international banks. Recently analysts in Saudi Arabia have suggested that Algosaibi is under pressure from within the Kingdom to strike a deal with lenders irrespective of the outcome of current fractious legal proceedings between the two companies.
The judgment earlier this month by the Cayman Islands Court of Appeal was considered to be largely negative for Maan Al Sanea, chairman of Saad Group. However the news has been tempered by the fact that litigation could take months and possibly years to resolve because of the unprecedented complexity in the case and the propensity of both parties for obfuscation.
Yet, hedge funds specializing in distressed debt seem to be leaning favorably towards recovery of debts in Saad Trading and the Golden Belt Sukuk. Earlier this month trading in the secondary market was 23/26 cents and 21/24 cents respectively and the most liquid of the structures quoted. Conversely TIBC and Awal were trading at 12/15 cents and 18/21 cents respectively.
