Qatar

The exposure of the largest banks in the oil-rich Gulf to two of Saudi Arabia’s most prominent companies struggling with financial difficulties is significant but manageable, Standard & Poor’s said yesterday.

The ratings agency reviewed 30 commercial banks it rates in the six countries of the Gulf Cooperation Council - Saudi Arabia, Kuwait, Qatar, the United Arab Emirates, Bahrain and Oman - to gauge their exposure to Saad Group, which is owned by Maan al-Sanea, a Saudi billionaire, and entities owned by the Algosaibi family.

The banks surveyed by S&P represent about two-thirds of the total assets of GCC banks, said Emmanuel Volland, an analyst at the ratings agency. S&P did not reveal the scale of the exposure of the banks reviewed.

Both Saad Group and the Algosaibi group, which was one of the most respected merchant groups in Saudi Arabia, have announced they are restructuring their debt and they are estimated to owe about $20bn to dozens of international and regional banks.

HSBC has estimated that the exposure of Saudi banks alone is between $4bn and $7bn. S&P said the GCC banks’ exposure varied significantly, from zero exposure to more than 20 per cent of “a few banks’ adjusted total equity”.

The difficulty is assessing how much banks may have to write off and the picture has been complicated by a lack of transparency and allegations made in a US lawsuit filed by Ahmad Hamad Algosaibi & Brothers Company.

The suit accuses Mr Sanea of “massive fraud” alleged to involve as much as $10bn.

Saad has said that it has not been served with a New York lawsuit, but will respond “vigorously” if it is. Saad said yesterday that the group had still not been served with the writ.

Mr Sanea - who bought about a 3 per cent stake in HSBC two years ago - and members of the Algosaibi family have had their accounts frozen by the Saudi central bank for unspecified reasons. Mr Sanea married into the family and used to work for the Algosaibis.

Saad has said that, while Mr Sanea was at one time named as a managing director of AHAB, he has not acted in such a capacity for many years, nor is he involved in the operations of AHAB.

At least four banks have also taken legal action against the Saudi companies over debts owed them, including Mashreqbank in the UAE. Such action could hinder the two companies’ attempts to restructure their debt with the cooperation of creditors.

“There are high uncertainties on the final losses they will face on their exposure,” Mr Volland said. “If one assumes they will lose 100 per cent of the exposure then the impact will be very significant for some institutions, while if you assume losses of about 20 to 30 per cent, the impact is obviously much more limited.

“The situation has become more complicated . . some banks thought things would be fixed quickly but now it appears that it could be a more lengthy process.” (Financial Times)