Saudi Saad Group restructures debt

CAIRO — A Saudi conglomerate whose billionaire chairman is under the spotlight by the kingdom’s banking authorities had its credit rating knocked down several notches to junk status by a leading debt rating firm on Tuesday.

The announcement by Moody’s Investors Service came as Saad Group, headed by major HSBC stakeholder Maan al-Sanea, said it was planning an “orderly restructuring” of some of its companies’ debt, citing liquidity issues linked to the global economic meltdown.

The two statements came days after Saudi Arabia’s central bank ordered local financial institutions to freeze al-Sanea’s accounts and those of five of his relatives, including wife and children. Al-Sanea is listed by Forbes as the world’s 62nd richest man.

“Recent external events have caused a liquidity crisis locally, regionally, and internationally,” Saad Group said in a statement. “More recent events, specifically affecting the Bahraini banking sector, have led to a short-term liquidity squeeze affecting Saad Group companies in the Middle East.”

“We are continuously striving to mitigate the effects of this limited squeeze, and are also planning for an orderly restructuring of the debt of affected companies in cooperation with our counterparties and international advisers,” the company said.

Saad Group has extensive interests in real estate, banking, education and health care, both in Saudi Arabia and abroad. Al-Sanea holds a roughly 3 percent stake in HSBC.

The company did not disclose the amount of debt to be restructured, but said it was completing arrangements with a European bank to coordinate the effort. It did not identify the bank.

The disclosure offered another indication that some of the oil-rich kingdom’s privately held conglomerates, which are shrouded in secrecy and are largely family owned, may be struggling more seriously than many had believed.

Saudi officials have repeatedly said the country is not facing liquidity issues tied to the global meltdown, but concerns have been raised about the kingdom’s exposure to foreign banks and equity markets hammered by the current crisis.

Moody’s said its decision to downgrade ratings for two major Saad Group companies several steps from investment grade Baa1 to B1, or junk status, followed reports that al-Sanea’s accounts had been frozen, effective May 31. The order also included credit lines and credit cards.

“Moody’s notes that the events of the past few days have resulted in heightened risk of default at entities of the Saad Group, if they face increased contagion from disputes originating from the shareholder,” the agency said in a statement.

The agency lowered the ratings for Saad Trading Contracting & Financial Services Company, Saad Investments Company Limited and Saad Group Limited, which is set to become the parent company for the subsidiaries.

It said the downgrade “will constitute an event of default under STCFSC’s $2.75 billion and SICL’s $2.8 billion revolving credit facilities, which are both close to fully drawn. This is thus likely to further accentuate liquidity pressures within the group.”

The ratings were placed on review for further downgrade, Moody’s said.

In its latest statement, Saad said the current situation it confronts stems from the “confluence of, among other things, the failure of companies owned by a prominent Saudi family business and the unexpected and unprecedented regional reaction to that failure,” as well as tightening credit markets.

The statement did not name the company.

Saad Group has declined to comment on the freezing of the accounts. Some media reports had linked the move to a possible connection between Al-Sanea and Ahmad Hamad Algosaibi and Brothers Company, another prominent Saudi conglomerate that owns Bahrain-based The International Banking Co. TIBC recently defaulted on its debt and some reports said al-Sanea was the bank’s chairman.

A Saad spokesman in London denied that link, saying that while al-Sanea was once a managing director at Algosaibi, he is not TIBC’s chairman.

Moody’s said Saad Group Limited had total assets of $30.6 billion at the end of 2008.