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Sun 14 Jun 2009 08:17 PM

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Trustee seeks clarity from Saudi's Saad on $650m sukuk

Citicorp Trustee Co. confirms request to Saad for funds to secure against liabilities.

Trustee seeks clarity from Saudi's Saad on $650m sukuk
MORE DEMANDS: Further demands now being placed on billionaire chairman of Saad Group, Maan Al-Sanea. (Getty Images)

The trustee of a $650 million Islamic bond, or sukuk, issued by Saudi's Saad group said on Sunday it had requested clarity from the troubled group over the bond's status.Citicorp Trustee Company Ltd said in a note to holders of the Golden Belt 1 Sukuk Company, a special purpose vehicle registered in Bahrain, that it had requested Saad to provide it with funds to secure against liabilities.

Saad Group is undergoing debt restructuring after it said last month it ran into unspecified difficulties and parts of it were downgraded to junk status by Moody's.

The sukuk, the next coupon payment for which is due in November, last traded at 51.75 cents to the dollar, according to ThomsonReuters data, a heavy discount as investors priced in greater risk.

Saad has sold off parts of its international investments, including a stake in UK construction company Berkeley Group. Its billionaire chairman Maan Al-Sanea, whose bank accounts have been frozen by the Saudi Monetary Agency (SAMA), owns a stake in HSBC.

Analysts at Bahrain-based SICO Investment Bank said on Sunday they saw little chance for those who have entered into unsecured lending to Saad Group to recover their funds from the proceeds of those sales.

"We believe that most of the recovery from the offshore liquid assets could be used for paying back secured loans leaving unsecured exposures at a higher risk," they said.

The legal form of sukuk structures in the Gulf Arab region is being tested by insolvencies for the first time.

Moody's said in a report last month that, typically, ownership rights on assets underlying sukuks to comply with Islamic law are not transferred to sukuk owners, also questioning whether they will be able to recover their investments in the event of defaults.  (Reuters)

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observer 10 years ago

It raises the question what other liabilities out there could impact other major financial players in the market? Are we looking at a crisis of confidence in the other banks & FI's exposed to Saad Group as well as the Algosabi Group? The lack of transparency in the local markets could mean the crisis could have swept over the investors by the time that they realise that they are exposed to the Saad group. The depth of the debt could undermine many institutions across the region.