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10 years since default, Saudi AHAB to restructure $22bn in a repayment scheme to creditors

Saudi AHAB is getting ready to end a decade-long dispute with creditors

A Cayman Islands court ruled the collapse of family owned Saudi conglomerate AHAB in 2009, was the result of a $6 billion fraud from within The International Bank Corporation (TIBC), a defaulted Bahraini bank which has nearly $3 billion in claims against AHAB, welcomed the court's decision Simon Charlton, AHAB's Acting CEO in 2014, outlined a proposal in which AHAB would make an upfront payment equal to approximately 10% of creditors' claims

10 years, $22bn, $0 paid out to a long list of creditors against AHAB (Ahmad Hamad Algosaibi and Brothers) and Saad Group, another Saudi conglomerate.

That’s about to change.

Saudi issues ruling to restructure

A Saudi commercial court has accepted a filing by conglomerate AHAB to have its decade-long dispute with creditors resolved under the kingdom's new bankruptcy law, and rejected a demand to liquidate the company filed by HSBC HSBA.L and Raiffeisen Bank RBIV.VI, sources familiar with the matter told Reuters, as reported by Zawya.

Saudi is implementing a new law for handling insolvency disputes towards presenting an image of country that is investor-friendly to business.

“Following an appeal, the Dammam Commercial Court earlier this week reconsidered its previous rejection of AHAB's filing for a financial restructuring procedure and approved it,” the sources said.

AHAB earlier this year applied for a "protective settlement procedure" under the law, but it got rejected and the court is now expected to appoint a bankruptcy trustee who will collect and assess creditors' claims.

Saudi businessman Mohammed Algosaibi poses outside the High Court in London 2011

How did it all start?

A Cayman Islands court ruled the collapse of family owned Saudi conglomerate AHAB in 2009, was the result of a $6 billion fraud from within, with the judge labeling the scheme a "cauldron of corruption", reported Business Insider (BI).

”Partners at family firm AHAB brought claims against Maan Al Sanea, who married into the family and managed its financial empire. Al Sanea was accused of committing fraud which crippled the company,” said BI.

Maan al-Sanea, the owner of Saudi business Saad Group

“AHAB said he forged documents to borrow billions of dollars of unauthorised debt and transferred much of it to accounts in the Cayman Islands. The Saudi company also made claims against Al Sanea's liquidators in an attempt to reclaim the wealth. While the judge found that Al Sanea had indeed falsified accounts and committed fraud to enrich himself, he ruled that he had done so with full knowledge of the AHAB partners who were the "primary architects" of the scheme.”

Proposal to settle in 2014

Ahmad Hamad Algosaibi & Brothers 'AHAB' outlined a comprehensive settlement proposal to a group of banks and other financial institutions with claims against AHAB. The claims asserted by banks, totalling billions of dollars, arise out of liabilities incurred through a massive fraud perpetrated by Al Sanea when he was head of the Money Exchange division of AHAB, through which more than $300bn had passed through. Liabilities to banks and other financial institutions spawned more than 70 lawsuits in at least 10 countries. Simon Charlton, AHAB's Acting CEO at the time, outlined a proposal in which AHAB would make an upfront payment equal to approximately 10% of creditors' claims as a sign of good faith. Additionally, the proposal includes recoveries from third parties, with the goal of a total recovery for creditors of 40-60% of claimed amounts.

Relief for one claimant 

The International Bank Corporation (TIBC), a defaulted Bahraini bank which has nearly $3 billion in claims against AHAB, welcomed the court's decision to accept financial restructuring, saying this would provide clarity going forward, Reuters reports.

"The appointed independent trustee may recognise the cost implications of continued legal challenges against TIBC's claims … and review our claims objectively," a TIBC spokesman told Reuters.

TIBC, now administered by Bahrain's central bank, raised money in international markets, transferring the funds to AHAB.

Reuters reported that Goldman Sachs has bought a claim against (TIBC), “whose default 10 years ago triggered the biggest financial crisis in Saudi Arabia,” three sources familiar with the matter said.

The U.S. investment bank bought $100 million of TIBC debt from Germany’s Commerzbank at the end of last year, two of the sources said, reflecting Goldman’s increased interest in Saudi.

“After TIBC defaulted on a foreign exchange deal with Deutsche Bank in 2009, AHAB – which denies knowledge of the scheme – collapsed, along with another Saudi conglomerate Saad, leaving an estimated $22 billion in unpaid debts,” Reuters said.

“TIBC has a claim of around $3 billion against AHAB, a TIBC spokesman said, while more than 60 banks that have lent money to TIBC remain unpaid.”

TIBC obtained an enforcement order of around $1.6 billion against AHAB from the Joint Directorate of Enforcement at the General Court in Al Khobar (JDEK) last year.