Saad Group downgraded by Moody's

The Saudi-based Saad Group, which has interests in sectors ranging from banking to civil engineering to health care, has been downgraded by the financial ratings agency Moody's to non-investment grade after the company said it would make an "orderly restructure" of its debt because of a short-term liquidity squeeze. Moody's said there was a heightened risk that Saad Group-related companies would default "if they face increased contagion from disputes originating from the shareholder".

The downgrade comes after reports at the weekend that the Saudi Arabia Monetary Authority froze accounts belonging to the Saudi billionaire Maan al Sanea, who set up Saad in the 1980s and who is one of Saudi Arabia's most prominent businessmen. Mr al Sanea is also one of the largest shareholders in HSBC and Samba Financial Group. The Saad Group, in its first public admission of financial difficulties, said in a statement yesterday that "recent events, specifically affecting the Bahraini banking sector, have led to a short-term liquidity squeeze affecting Saad Group companies in the Middle East."

Saad had appointed international advisers to restructure the debt and is "concluding arrangements" with a leading European bank, it said. It did not name the bank. Moody's downgraded Saad Group-related companies to "B1" from "Baa1". The ratings agency said Saad could face further downgrades over the short term if recovery values within the group prove to be lower than anticipated. According to Moody's, the downgrade to non-investment grade triggers a default under the terms of the group's credit facilities. Saad Trading Contracting and Financial Services and Saad Investments have revolving credit facilities of US$2.75 billion (Dh10.09bn) and $2.8bn respectively, which are both close to fully withdrawn, Moody's said.

The success of the restructuring also depends on the exact exposure of Mr al Sanea. In the past year, the Saad Group has doubled its property exposure to $8.4bn. Ten days ago, Standard & Poor's placed the group on negative outlook. It said the low liquidity of the group's property holdings, the high concentration of investments in the financial sector and the active use of debt to expand its asset base had adversely affected the liquidity of its portfolio.

Last year, the group increased its asset base to $30.6bn from $28.8bn in 2007, despite reporting a net loss of about $4.4bn on financial investments.