Saad woes cloud region - Moody's

SAAD WOES: Conglomerate, part owned by Maan Al Sanea, now in the throes of restructuring. (Getty Images).

Gulf Arab companies suffered a reputational blow on Monday when ratings agency Moody's said surprise problems at Saudi Arabia's Saad Group will affect the way it assesses privately held firms across the region.

Saad's woes have rattled a $30 billion empire built by billionaire Maan al-Sanea, and represent one of the biggest defaults to hit the Gulf Arab region since the onset of the financial crisis.

"The operating environment here in the region is a lot less stable and predictable than we thought it was, and that has implications for credit stability," Philipp Lotter, senior vice president at Moody's, told Reuters.

"It will affect the way we assess certain companies operating in this environment."

Lotter's comments illustrate how Saad's problems and those of the Ahmad Hamad Al Gosaibi Group & Brothers (AHAB) have damaged confidence in a region already plagued with poor transparency, and how shockwaves from the situation could spread.

Saad Group said last week it would restructure its debt after it ran into unspecified difficulties, and the Saudi central bank froze the accounts of its billionaire chairman, Maan al-Sanea.

AHAB and Saad have left investors guessing about the magnitude and the origins of their respective crises, which they insist are not connected.

Bankers say any direct fallout from Saad and AHAB - which is also restructuring an unspecified amount of debt - will hit Saudi Arabia and Kuwait most because of commercial ties, and affect Bahrain due to its banking connections to the groups.

Dubai, with its status as the region's financial hub, will likely be spared.

"We have not heard of any company or banks with exposure to Saad from here. If at all, it would be minor because of the location of Saad which has operations in Saudi, Bahrain and Kuwait," said a banker at the National Bank of Abu Dhabi.

Questions still plague both Saad and AHAB, with neither company saying what caused them to default. Nor have authorities such as the Saudi Arabian Monetary Authority (SAMA) shed any light.

"As long as the authorities in Saudi Arabia don't come out with some kind of statement as to why this was done, we'll be kept guessing," said one market participant. "The rapid paralysis of a company literally within a couple of days comes as a complete surprise."

In a late-night statement on Sunday, Saad Group signalled the possibility that family tensions between AHAB and Saad could have aggravated the problem, saying that "family disputes were in the process of being solved"

"Official parties are backing efforts to reach a solution as soon as possible ... to overcome this dispute, which would lead to greater economic stability," Saad said.

The first signs of stress emerged in May when ratings agency Standard & Poor's downgraded Bahrain's The International Banking Corporation (TIBC), which is the AHAB-owned house bank. Tension then spread to Bahrain's Awal Bank, which is the house bank for Saad Group and is also seeking to restructure.

In the process, the Saudi central bank froze the accounts of Saad Group's billionaire chairman Maan al-Sanea and some of those connected to owners of AHAB.

Finally, Moody's last week downgraded its ratings on Saad by six notches to junk, and then one day later withdrew its ratings altogether, saying it lacked enough information about the group to continue.

Likewise, Standard & Poor's last week cut its ratings to default status and then withdrew coverage due to a lack of information from management.

Saad said late on Sunday that it had appointed business law firm Lawrence Graham to work with BDO Capital Finance, whose appointment was announced last week to restructure its obligations and those at Awal Bank.

A Saad spokesman declined to comment and an AHAB spokesman was not immediately available to comment for this report. (Reuters)

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READERS' COMMENTS

SAAD, but true
Posted by Geriant, Dubai, UAE on Wednesday 10 June 2009 at 11:44 UAE time

The opaque way private firms in the region do their reporting, not to mention some owned by government figures and their families, means there is precious little to go on in terms of information.

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