Saudi credit crisis

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The two groups are believed to have some $10 billion in debt overall, including $6.3 billion in loans.

Two leading Saudi conglomerates are at the centre of a credit crisis, possibly amounting to $10 billion in debt to be restructured.

What has been going on in Saudi?

Two major Saudi conglomerates - the Saad Group and Ahmad Hamad Algosaibi & Bros Co (AHAB) have both run into unspecified financial difficulties, forcing them to restructure as much as $10 billion in debt, including around $6.3 billion in loans.

The two situations are not supposed to be connected, but that has not stopped rumours of family disputes between the two from surfacing. Maan al-Sanea billionaire chairman of Saad has had his personal accounts frozen, while AHAB is investigating "substantial irregularities" in the financial services unit of it's Bahrain-based The International Banking Corp.

Which financial organizations are going to be most affected?

It's hard to tell, as no one is giving details at the moment. Some international reports have said that BNP Paribas and Citigroup have the largest individual exposure to the situation, at $522.5m and $515m respectively. There apparently may be over 100, and as many as 150 financial institutions affected worldwide, with a more than a few in the UAE, where exposure has been estimated at $3bn. Some commentators have suggested that UAE banks didn't carry out proper due diligence to understand their full aggregate exposure to the two groups.

What happens next?

Saad has put forward Credit Suisse as an adviser to its bank lenders, according to sources, and will begin negotiating with dozens of lenders in the region and across the world.

The group has also been cutting back its stake in UK property developer Berkeley Group Holdings, and UK chip designer Imagination Technologies. AHAB meanwhile has asked for a 90 day grace period from creditors to investigate the situation.

The UAE banks that are exposed to the situation are not expected to take any loan-loss provisions immediately, as they are waiting for the UAE Central Bank, which is expected to advise on next steps once it has reviewed exposure reports submitted by the banks.

So what are the longer term implications?

Ratings agency Moody's says it will change the way it assesses some privately held companies in the region. Philipp Lotter, senior vice president at Moody's, told Reuters: "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. It will affect the way we assess certain companies operating in this environment."

There's also speculation that the fall out could impact international lending to the Gulf region in general, with one specialist claiming that international banks would be reluctant to support the region in future. That reluctance is unlikely to hit top level sovereign and quasi-sovereign borrowers however, with Abu Dhabi's IPIC just recently signing a $5 billion loan after raising more than $6 billion from the market.

And are there any solutions on the table?

Details are scarce, but Sultan Bin Nasser Al Suweidi, governor of the Saudi central bank has warned that companies' accounts cannot stay frozen and that a solution needs to be found, warning: "This problem, if it stays unresolved, will throw doubt onto all family businesses across all GCC countries."

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