Two troubled Saudi conglomerates owe local banks US$5 billion (Dh18bn), Standard Chartered bank estimated on Wednesday. The problems at Saad Group and Ahmad Hamad Al Gosaibi and Brothers, which have defaulted on loans and are undergoing sweeping debt restructurings, have shaken the region's banking system and been the cause of much speculation as to what the full extent to which the region's institutions were exposured to them.
Banks have set aside money at a rapid clip this year to deal with a rise in defaults on loans. Together, publicly listed banks across the Gulf booked over $3bn in provisions for bad loans in the first half of the year, in part due to exposures to the Saudi groups. Wednesday's $5bn estimate of Saad and Al Gosaibi's debts to Saudi banks came as part of a Standard Chartered report on Saudi Arabia's banking system. The bank said that while it could not rule out further trouble at other large businesses in the country, the Saudi banking system was generally stable and could withstand defaults on loans made to both family groups.
"There has been limited disclosure from the banks to date; as such, actual levels of exposure and expected losses at the individual bank level are guesswork," said the report, which was written by the Standard Chartered analyst Victor Lohle. "In our opinion, most banks should be able to absorb their exposure to the Saad and Al Gosaibi groups." HSBC estimated in July that the kindom's lenders were owed between $4 and $7bn by the groups, and banks worldwide were owed $15.7bn.
And Standard & Poor's said last month that a sampling of 30 GCC-based banks it rated, revealed exposures of about $9.6bn, which it called "significant but manageable". The ratings agency said then it was premature to assess the level of ultimate losses that creditors would face. The firms owe at least $7.4bn to local and international banks in the form of syndicated loans, according to documents circulating among bankers. The exposure of Saudi lenders to the groups does not represent a significant threat to the country's banking system according to Standard Chartered.
"It appears that in the worst case, the Saudi banks should be able to withstand their exposure to Saad and Al Gosaibi," the report said. @Email:afitch@thenational.ae
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Name: Enhance Fitness
Year started: 2018
Based: UAE
Employees: 200
Amount raised: $3m
Investors: Global Ventures and angel investors
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Company profile
Company: Verity
Date started: May 2021
Founders: Kamal Al-Samarrai, Dina Shoman and Omar Al Sharif
Based: Dubai
Sector: FinTech
Size: four team members
Stage: Intially bootstrapped but recently closed its first pre-seed round of $800,000
Investors: Wamda, VentureSouq, Beyond Capital and regional angel investors
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