Mashreq bank is owed more than US$400 million (Dh1.47 billion) by the troubled Saudi conglomerate Ahmad Hamad Al Gosaibi and Brothers (AHAB), according to a letter the bank sent demanding repayment. The revelation marks the first time full details about a UAE bank's exposure to Al Gosaibi have been made public.
The Dubai-based lender included the letter, written on May 20, as an exhibit in a New York court case against the Al Gosaibi group, a family-owned firm that has defaulted on its financial obligations and is in the middle of a sweeping debt restructuring. Mashreq confirmed its $400m exposure to AHAB in a statement yesterday, saying the figure included a combination of $225m in currency swaps, loans in which multiple banks took part and direct loans to the group.
"Mashreq's total exposure to AHAB and related parties is approximately $400m, which includes the $225m in foreign exchange transactions on which AHAB defaulted in violation of its agreements with Mashreq and for which Mashreq filed claims against AHAB in New York" a bank spokesman said. The scale of the exposure was "manageable relative to our size and strength", he added. Mashreq is alleging in its New York court case that AHAB defaulted on a pair of currency swap agreements in April and May that were collectively worth $225m, and submitted the letter to show it had alerted AHAB to that fact. The case is being heard in New York because the transactions were routed through banks there.
Many banks have resisted quantifying their exposure to Al Gosaibi and the Saad Group, another struggling Saudi family-owned conglomerate. Analysts have been watching keenly for clues on how indebted the AHAB and Saad groups are to banks in the region. While they do not see the defaults at the two conglomerates as a threat to the Gulf's banking system, they expect further declines in profits for banks as they set aside cash to deal with soured loans.
Already during the second quarter of this year, listed banks in the UAE collectively reported a 27 per cent decline in profits compared with the same period last year. They also registered a sharp rise in provisioning against expected loan defaults. Banks booked more than $1.3bn in provisions in the first half of the year. Mashreq, which is listed on the Dubai Financial Market, reported about $87m in provisions during the first half of the year. Its second-quarter profits fell to Dh455m from Dh707m last year.
In addition to its exposures to AHAB, Mashreq is owed money by the Saad Group, according to a document circulating among bankers. Its total exposure to the Saad Group is $160m in syndicated loans. Saad's billionaire founder, Maan al Sanea, has been accused by AHAB of fraud involving about $10bn. afitch@thenational.ae