Ahmad Hamad Algosaibi & Brothers Co. plans to make a new offer on $7.2 billion of debt to creditors including BNP Paribas SA (BNP) and Standard Chartered Plc as it seeks to bounce back from the Middle East’s biggest corporate default.
The Saudi Arabian company, which runs a bottling plant for PepsiCo Inc. (PEP:US) products in the kingdom and has interests ranging from finance to shipping, will propose the new deal “in the coming months,” said Chief Executive Officer Simon Charlton. Creditors rejected a proposal from Algosaibi four years ago.
“The group wants to get back to focusing on business and gain access to credit markets,” Charlton, who is also Algosaibi’s chief restructuring officer, said in an interview in Dubai on June 27. “Our goal is to be able to reach a fair and reasonable solution with all banks, including foreign banks.”
Algosaibi and billionaire Maan al-Sanea's Saad Group defaulted on at least $15.7 billion of loans in 2009, roiling new lending in Saudi Arabia, the Arab world’s biggest economy, and forcing banks to set aside provisions to cover losses. Units of Algosaibi and Saad, which are linked by family relations, borrowed from more than 80 regional and international banks to finance expansion into real estate and investments in the kingdom and elsewhere.
The company hired Charlton, former head of forensic services in the Middle East for Deloitte LLP, and Ben Jones, also from Deloitte, as chief financial officer last month.
The new debt proposal will include some upfront payments and those spread over a longer time, Charlton said, declining to give further details. Algosaibi has started talks with Saudi Arabian banks and some other creditors, he said.
“Algosaibi believes that all parties need to be flexible and realistic and we are not wedded to any particular solution,” said Charlton. “We are dealing with Saudi banks as a matter of priority as the royal order directs.”
Terms of the revised deal are likely to be less favorable than the initial offer, Charlton said. “We’re not in the same position as we were,” he said. “There have been four years of wasteful litigation and the assets have declined in value because the company has not been able to maximize the value of them given these issues and the asset freeze in Saudi Arabia.”
Algosaibi’s liabilities have dropped to about 27 billion riyals ($7.2 billion) from 34 billion riyals in 2009 because claims from creditors to The International Banking Corp. in Bahrain are no longer included, said Charlton. One-third of the liabilities are owed to Saudi Arabian banks, including Al Rajhi Bank (RJHI) and Saudi Investment Bank (SIBC), another third to Middle Eastern lenders and the remainder to global banks, he said.
“At this point, given the losses made, any recovery would likely be well received by the banks,” said Khalid Howladar, a senior credit officer at Moody’s Investors Service. “Most banks in the GCC have fully provided for the exposure and indeed many have already written off the losses.”
A spokeswoman for BNP Paribas, who asked not to be identified, declined to comment, as did a spokesman for Standard Chartered who also asked not to be identified.
The restructuring attempt comes amid a recovery in the kingdom’s banking industry, which is benefiting from government plans to invest more than $500 billion developing infrastructure and industry to boost job creation. Lending to private businesses grew almost 17 percent in the year to May, the fastest pace in more than four years, according to data from the Saudi Arabian Monetary Agency, the kingdom’s central bank.
Lending to private businesses contracted in December of that year, SAMA data show. The kingdom’s economy expanded 0.1 percent in 2009, the slowest pace in 10 years, before recovering to as high as 7.1 percent two years later, according to the central bank data. The non-performing loan ratio at Saudi banks peaked at 4.1 percent in 2009 and fell to 2.4 percent last year, the lowest level for three years, according to Moody’s.
Charlton said Algosaibi plans to borrow from local and international banks once the restructuring is resolved.
“After more than four years of complete radio silence, the company is starting to make the right noises,” said Ahmad Alanani, the Dubai-based director for the Middle East at Exotix Ltd. “The devil, however, is in the details.”
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