Gosaibi-Saad saga shows that global finance has a long memory

A meeting between senior Saudi Arabian business people and potential investors last autumn had been going very well, the Saudis believed. There was an obvious appetite from foreign financiers to get involved in the momentous economic transformation planned for the Kingdom under the Vision 2030 strategy.
But, according to one source familiar with the details of the meeting, which was taking place outside the Kingdom, the accord evaporated when the names Al-Gosaibi and Saad Group came up in conversation.
Foreign bankers reminded their Saudi visitors that there were still billions of dollars in loans outstanding from one of the biggest financial collapses ever to hit the Middle East, and that this experience had soured their attitude to the Kingdom, despite the prospect of big business from the economic revolution under way.
The Saudis could be forgiven for letting the detail slip their minds. After all, the events the foreign financiers were referring to had happened in 2009, and after an initial explosion of news headlines and litigation in various courts around the world, the actual liabilities were either written off by Saudi and regional banks, or sold to distressed debt specialists, or tied up in an apparently endless series of multilateral talks between debtors and creditors.
But the global financial community has a long memory, and does not take kindly to multibillion-dollar losses. When the Al-Gosaibi and Saad trading empires were unable to meet their liabilities in 2009, it had cost bankers billions of dollars in unpaid loans and hundreds of millions more in legal, forensic and recovery fees.
The foreign banks made it very clear to the Saudi delegation at the meeting in 2017 that the Al-Gosaibi-Saad affair had to be put to rest, and that their level of future investment in the Kingdom would depend on how quickly that was achieved.

 

The interests of Saudi Arabia and the international financial system were aligned in seeking to resolve the region’s biggest debt restructuring story.

Frank Kane

Back in Saudi Arabia, policymakers got up to speed quickly on the events of the past nine years. They discovered that one side of the scandal, the Al-Gosaibi business family, had been doing its best to strike a deal that would repay creditors as much as possible of its SR22 billion outstanding liabilities, while keeping the conglomerate operating and employing.
The other side, the Saad Group under financial entrepreneur Maan Al-Sanea, had reached an initial standstill agreement with Saudi creditors in the year or so after the scandal broke, but since then had shown no sign of engaging in any serious talks about repayment with regional banks, and had completely overlooked the foreign lenders.
In the growing anti-corruption atmosphere of last October, but before the high-profile measures taken in Riyadh, the result was swift and decisive action. Charges were issued against Saad executives, and — according to the official Twitter site of the prosecuting authorities in Alkhobar, home to both parties’ businesseses — against an official in the local administration there.
There was more. The legal authorities in Alkhobar appointed members of a body that came to be known as the Etqaan Alliance, after the name of one of its member firms. Comprised of lawyers, auditors and real estate professionals, the job of the alliance was to conduct a systematic liquidation of the assets of the Saad Group.
Property, financial investments and operating businesses were to be sold for the best available price in order to repay some of the Saad debts, conservatively estimated at SR20 billion but possibly much more.
The jewel in the Saad crown is the Saad Specialist Hospital in Alkhobar, a state-of-the-art medical facility that before the crisis had been a profitable and well-patronized institution. The group financial problems led to serious staffing issues at the hospital, with doctors, nurses and other staff complaining that they and not been paid for months and patient appointments canceled or delayed.
According to sources, NMC, the Abu Dhabi-based medical group which has a listing on the London Stock Exchange, is in talks with Saad and with the Kingdom’s health authorities to take over the management of the hospital. One suggestion is that, if NMC gets it up and running profitably again, the proceeds will be injected into a fund that will be used to part-repay Saad creditors.
Most of the vast fortune accumulated by Al-Sanea in the boom years before 2009 has been dissipated, much of it in the global financial crisis that shook the world that year. What is left, when liquidated, will go to pay off some, but not all of the debts he built up.
It is virtually the endgame in a saga. The final act will come later this year in the Cayman Islands, where a court will decide ownership of $2.5 billion of assets once held by Al-Sanea but now contested between the liquidators and the Al-Gosaibis.
It could all have been decided a lot earlier, if Al-Sanea had played ball with the financial system. 
As it is, the Saudi authorities were reminded of the affair by big global banks just as a new wind of anti-corruption change was blowing through the Kingdom. The interests of Saudi Arabia and the financial system were aligned, with serious consequences for Al-Sanea.

• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai