RLPC-Saudi loan restructuring to hit Gulf borrowing

The debt restructurings of privately-owned Saudi groups Saad and Algosaibi could curtail international lending to Saudi Arabia and the Middle East, banking sources said on Monday.

The Saudi problems come after similar issues in Kuwait, and companies in the Gulf region may now face problems refinancing syndicated or bilateral loans, bankers say, as fears spread they are facing structural debt problems.

"We wait to see the ramifications on Saudi and wider GCC private sector entities but clearly there will be a reluctance by international banks to support them in the immediate future," a Middle Eastern loan specialist said.

The troubled Saad and Algosaibi groups are restructuring debt of around $10 billion dollars, according to press reports that includes loans of around $6.3 billion, according to TRLPC data.

Saad's restructuring talks follow similar issues with other privately-owned Gulf investment firms. Kuwait's Global Investment House and Investment Dar are talking to creditors after defaulting on their debt.

International banks cut lending to the region last August when the Gulf's real estate and equity markets slumped and lending to the Middle East showed a 75 percent drop at the half year to $13.5 billion, according to TRLPC data.

But the banks already have billions of exposure on their books to Gulf companies and regional banks through syndicated and bilateral loans that will need to be refinanced.

This problem is said to be especially acute in Saudi Arabia, where the private sector plays a greater role in the economy than other GCC countries, another banker said.

Although privately-run companies are ostensibly separate from governments, the opaque and interconnected nature of private investment companies often extends into Gulf ruling families and the government, several bankers say.

Many are suffering after using debt to buy equity stakes that were then releveraged, leaving two loans sitting on top of one piece of equity, a second Middle Eastern loan specialist said, which creates problems for debt repayment.

Many of these "margin loans" are now underwater after heavy falls in the equity markets, he added.

"Lots of family-run entities or investment companies that bought equity stakes and also borrowed at the holding company level are running into problems ... This is a challenging time for people that put debt into those companies," he said.

Top sovereign Gulf or even Saudi borrowers are not expected to be affected by the Saudi debt restructuring. Abu Dhabi's IPIC for example signed a successful $5 billion loan on Sunday after raising more than $6 billion from the market.

"Sovereign and quasi-sovereign Gulf borrowers will not be impacted - even Saudi sovereign entities such as Saudi Aramco, SABIC etc," the Middle Eastern specialist said.

Saudi borrowing typically consists of large internationally-syndicated loans to state-owned entities to finance ambitious government-led projects.

Borrowing by Saudi companies peaked in 2007 at $37 billion, according to TRLPC data, but fell to $17.4 billion in 2008 and only $60.5 million has been recorded in 2009 so far.

Looking ahead, Saudi companies have $5 billion of loans maturing in 2009, $3.6 billion in 2010, $7.5 billion in 2011 and $12.2 in 2012, which include three syndicated loans to the troubled Saad and Algosaibi groups, TRLPC data shows.

Saad Group has a $2.815 billion loan that matures in August 2010 and a $2.75 billion loan 2007 that matures in June 2012. Ahmad Hamad Algosaibi & Bros Co has a $700 million loan that matures in May 2010.

The outlook for lending to the Gulf will depend on the outcome of investigations into The International Banking Corporation, a Bahrain-based bank owned by the Algosaibi group.

"A lot on the book appears to be less real than everyone might have assumed," a source familiar with the situation said.

TIBC took a $200 million loan in September 2006 via ING, RZB, Standard Bank and WestLB, due to mature in September. (Reuters)

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