• Saudi Arabia’s AH al-Gosaibi Group reveals enhanced terms for its creditors
  • Steering committee says new terms will increase recovery of the SR22bn-24bn ($5.9bn-$6.4bn) of debt
  • A creditors’ meeting will take place in Dubai on 2 June

Saudi Arabia’s AH al-Gosaibi Group is preparing to offer improved terms to its creditors on approximately SR22bn-24bn ($5.9bn-$6.4bn) of debt.

The troubled company released a statement on 18 May, following negotiations with the steering committee.

AH al-Gosaibi will present the enhanced settlement proposal, which is still to be finalised, to its creditors at a meeting in Dubai on 2 June 2015.

The steering committee, made up of five major creditors, hopes the enhanced terms are an improvement on the May 2014 proposal, which offered a potential return of 40-60 cents on the dollar.

“These provisions of the June 2015 Proposal create an improved framework for Claimants, offering both an increase on minimum recoveries and a higher probability of material recoveries,” it said in the statement.

The new terms will include:

  • A higher minimum pay-out. Under the previous proposal, claimants would have received an initial cash payment of 10 per cent of their claims.
  • Claimants are to share the entire value of AH al-Gosaibi’s securities portfolio. AH al-Ghosaibi previously intended to fund lower pay-outs by selling part of the portfolio.
  • Other assets will be used to ensure the minimum pay-outs, including the company’s real estate and operational assets.
  • The full value of AH al-Gosaibi’s real estate assets will be at risk until claimants have received their minimum pay-outs. Claimants will retain a proportional interest to their claims as recoveries continue.
  • A change in the way funds recovered in lawsuits will be distributed between AH al-Gosaibi and the claimants.

The proposal aims to end the ongoing stalemate between AH al-Gosaibi and the financial institutions, which date back to 2009 when the group first defaulted on its debts.

A total of 90 out of 109 identified claimants, representing approximately 60 per cent of overall debt, are formally involved in the settlement process, or have informed AH al-Gosaibi that they will participate.

However, the remaining creditors, a number of Saudi banks, boycotted the last meeting in May 2014, preferring to pursue their claims independently.

The claims under negotiation are liabilities related to a dispute with Saad Group, headed by Maan al-Sanea who is related to the Al-Gosaibi family by marriage.

Al-Sanea was in charge of the Bahrain-based International Banking Corporation (TIBC) bank, which allegedly issued fraudulent loans to secure funding from international banks. TIBC was owned by AH al-Gosaibi.

Al-Sanea has always rejected claims of alleged wrongdoing.

Since 2009, the Al-Gosaibi family and Al-Sanea have been embroiled in legal disputes over who is responsible for the debt, as well as how al-Gosaibi can chase recoveries of assets from Al-Sanea to repay the outstanding debts. In the meantime, Al-Sanea and some senior members of the Al-Gosaibi family have been barred from leaving Saudi Arabia.

The Saudi Royal Court froze AH al-Ghosaibi’s assets in response to the dispute. A debt settlement will only be possible if a united front of creditors can persuade the Royal Court to unfreeze the assets.

Background: The AH al-Gosaibi debt default

AH al-Gosaibi and the Saad Group defaulted on at least $15.7bn of debt in 2009 leaving banks across the Gulf, Europe and US exposed.

One of the biggest corporate defaults in the Middle East to date, there are approximately 109 claimants chasing repayment.

The defaults were partly triggered by the onset of the financial crisis in the Gulf in 2009, which led to lenders calling in their loans.

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