Al-Rajhi hit by Enron collapse

23 November 2001

A financial institution identified as Al-Rajhi of Saudi Arabia is facing major potential losses due to the collapse of the US' Enron Corporation, according to creditor lists released by the energy company. The institution, thought to be Al-Rajhi Banking & Investment Corporation, has an unsecured claim of $101.3 million against a subsidiary of Enron, which is filing a voluntary petition for Chapter 11 restructuring with US bankruptcy authorities. The claim is the largest against Enron Metals & CommodityCorporationand the fourth largest unsecured claim against any Enron company, according to the lists. Al-Rajhi has not commented.

'Chapter 11 is a way to restore your business and restructure your debt. What happens next depends on the restructuring,' says a spokesman from legal firm Weil, Gotshal & Mangesof the US, which is acting for Enron. 'Some organisations pay their claims in full, some don't. It's too early to make predictions now but Enron is a company with lots of asset value.' Under the Chapter 11 filing, which was granted first day orders on 3 December, Enron's financial and operational stability were guaranteed through the payment of employee wages and the approval to use the first $250 million of debtor-in-possession (DIP) funds. The company is in negotiations to secure more DIP financing.

Al-Rajhi's claim on Enron represents about 0.75 per cent of the bank's total assets of $13,337 million. The potential losses have not yet had an impact on Al-Rajhi's stock. The company's share price fell 4.1 per cent between 28 November and 4 December, reflecting low investor confidence in the economy in general due to the poor oil prices. 'Even if it loses $100 million, that will have no effect on Al-Rajhi,' says Mazen Hassouneh, general manager of Riyadh-based Rana Investment Company. 'Al-Rajhi has very good provisions and a cheaper source of funds than any other Saudi bank.'

Enron grew to become one of the world's largest energy companies in the late 1990s. By 2000, it had assets of more than $33,000 million, with 21,000 employees, 51 operating power plants, offices in more than 30 countries and turnover of more than $100,000 million. Its share price fell to $0.87 in early December from a high of about $90 a share in 2000.

Enron has been in retreat from the Middle East since the start of the year. The last project that it bid on in the region was the Saudi Petrochemical Company (Sadaf)independent power plant (IPP), which was won by the US' CMS Energy. In May it withdrew as midstream partner in the Dolphin project, which aims to convey gas from Qatar to the UAE. Enron's only active concern in the Middle East is a small IPP in Gaza, which is due to come on stream in January and is not in danger from the bankruptcy (See Power & Water). The relatively low level of Enron investment in the region has prevented the incremental damage to business seen elsewhere as a result of the company's collapse.

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