Al Gosaibis’ peace plan: will the banks go for it?

Peace offering to be made by Ahmad Hamed Al Gosaibi Brothers on May 7 to creditors owed almost US$6 billion.

May 7 promises to be an interesting day in Dubai. The Al Gosaibi family partnership, Ahmad Hamed Al Gosaibi and Brothers (Ahab), has chosen that date as the occasion to make its latest peace offering to a group of about 80 banks that are owed nearly US$6 billion as a result of one of the biggest financial scandals ever to hit Saudi Arabia. Will the banks go for it?

Some essential background is required. In 2009, the Ahab business found itself unable to repay its creditors because, it alleged, it had been the victim of a gigantic fraud perpetrated against it by Maan Al Sanea, a financier and businessman who had married into the Al Gosaibi family.

Mr Al Sanea, it must be stressed, has consistently denied those allegations, and fought Ahab legal actions in several jurisdictions to defend himself against the claims.

Court cases have been dragging on between the two for years. Until those are settled, it is impossible and inappropriate to assign culpability in the saga.

The May 7 meeting is related only indirectly to the actions between Ahab and Mr Al Sanea. Since 2009, Ahab has been unable to meet its creditors’ demands for repayment. Most have taken some kind of legal action against Ahab in the hope of retrieving their cash.

A document drawn up by the company shows a list of banking institutions that reads like a who’s who of international finance, with names such as Standard Chartered, BNP Paribas and Calyon prominently featured, along with virtually every bank in the Arabian Gulf.

(Incidentally, Deutsche Bank, which figures on the list as the claimant in a London court case against Ahab for some $21.75 million, wants it to be known that it no longer has any outstanding claim against Ahab, contrary to reports.)

Ahab’s situation is made difficult by the fact that the Saudi Arabian government imposed an asset freeze on the family business early on in the saga. Its tactic has been to prioritise the Saudi claims for settlement, then the Gulf creditors’ claims and finally those of the international banks.

Ahab has assets in the kingdom and elsewhere, which it says are between 4.2bn (Dh4.1bn) and 5.2bn riyals, but under the terms of the freeze it cannot liquidate them to pay Saudi creditors. Ahab is challenging in the Saudi courts actions by some creditors that grabbed assets to cover debts.

Ahab has made attempts to settle with non-Saudi creditors before. In 2010, also in Dubai, it offered creditors some 20 cents on each dollar of debt, plus the proceeds of any successful action against Mr Al Sanea, subject to a ceiling of about $4bn. The creditors rejected that as inadequate.

What has changed since then? Ahab has brought in Simon Charlton, previously working for Deloitte on behalf of Ahab, as chief restructuring officer. Mr Charlton has expressed his desire to reach a global settlement and to get Ahab back to business. That is a positive.

The Saudi economy, on which Ahab depends, has improved, and banking finances (severely shaken by the crisis in 2009) have recovered. That, too, is a good thing.

But Mr Charlton has also said that the new terms will not be as good as the previous ones. If there is a final “take it or leave it” offer on May 7, there appears to be little incentive for many of the creditors to go for it. Some have written off the debt already; others have locked themselves into global legal actions against Ahab, and will probably persist with these just on principle.

The creditors who assemble in Dubai will have many questions about the detail of any offer made to them. One issue on which they will certainly seek clarification is the status of the Pepsi bottling plant in Ahab’s home city of Al Khobar.

If, as Saudi press reports suggest, a deal has been done to sell the business for some 3bn riyals, that is a useful contribution to the repayment pot. Ahab, however, insists no such deal has been done.

Ahab and its advisers can expect a tough time next month. After five years of legal and financial warfare, positions are entrenched on both sides.

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