Saudi banks are missing in bid to end Al Gosaibi debt saga

The ghost of Banquo put in an appearance at the Dubai International Financial Centre on Tuesday.

The dinner guests – Al Gosaibi executives and family members, 90-odd international creditors, a small army of advisers and minders – were assembled and ready to get stuck into the substantial fare on the table.

It was an offer to settle, at much improved terms, the bitter six-year dispute that has laid low one of Saudi Arabia’s most prestigious business dynasties.

But the seat marked “Saudi creditors” remained spookily empty. Banks from the kingdom – who are owed about a third of the US$6 billion that Al Gosaibi creditors claim from the family – stayed away from the proceedings, despite a formal invitation.

The Saudi absence hung heavily over the proceedings. The international creditors – including major international banks such as BNP Paribas and Standard Chartered, as well as regional lenders such as Abu Dhabi Commercial Bank and Mashreq Bank – heard details of the new offer from the family.

The family would repay about 28 cents on the dollar on their debt, guaranteed by shares and real estate assets that the Al Gosaibi family has retained over six years of litigation. The non-Saudi banks seemed to recognise that this was the best the family could do, without voting for corporate euthanasia and leaving themselves without a livelihood.

The 11 Saudi-held banks who were not at the meeting have, until now, taken a different tack. Rather than negotiate, they have sought to regain their money via legal actions in the kingdom.

They have mostly won legal claims against Al Gosaibi; and some have sought to have those rulings enforced by a judge in Al Khobar, the family’s hometown. Hitherto, the judge has declined to let them carve up Al Gosaibi assets.

Why the Saudis have adopted this aggressive approach goes to the heart of the whole scandal, and also shows why it is an important test case for the whole Saudi financial system.

As the kingdom prepares to open up to foreign involvement in its financial markets this month, the banks’ attitude shows why foreign investors will continue to be wary of doing business there.

The Saudi banks believe they have some kind of preferential right to get their money back in full from the Al Gosaibis, when the rest of the global financial community is prepared to give the family some leeway.

Whether or not they believe the Al Gosaibis have been the victims of some gigantic fraud, the international banks are prepared to draw a line under the affair and get back what they can from the whole sorry mess. Maan Al Sanea, the Al Gosaibis’ erstwhile partner, has denied all the charges of fraud laid against him.

The Saudis have so far shown no such signs of rationality unlike the international banks. Their status as local institutions, they say, gives them the right to pursue the matter to the bitter end, no matter how much it will cost in legal and other fees, and in terms of Saudi Arabia’s business reputation. This is a zero-sum game. If the Saudis regain their money in full, everybody else loses, the international creditors as well as the Al Gosaibi family.

Al Gosaibi lawyers in Saudi Arabia further argue that they are backed by Sharia law, which stresses equity and fair treatment of all parties in a commercial dispute.

There is some sign that at least some of the Saudi creditors, recognising the new dynamic in the kingdom, are willing to be a bit more flexible.

Informal and without prejudice talks have taken place between Al Gosaibi representatives and executives of the Saudi banks.

How long can the 11 Saudi banks maintain their stonewalling of the peace process? That depends on the attitude of the Al Khobar judge, who might be persuaded by the argument that equity, and Sharia, demand that they take part in the settlement.

Saudi Arabia’s financial system has been haunted by the Al Gosaibi affair for six years. It would be unfortunate if the pain was prolonged by the kingdom’s own financial institutions.

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