Monday, March 29, 2010

Why was this blog started?

The international business world has become transfixed by a dispute between two of Saudi Arabia’s richest families: al-Sanea and al-Gosaibi. The sums of money involved amount to billions. Claims and counter claims in the media mean that this has quickly become not just a legal dispute, but a very public family feud.

This blog, the Ta’if information center, has been started to provide factual information - and to collect news stories - about a dispute that has spilled over into acrimony and has threatened the reputation of family businesses within Saudi Arabia as a whole. The website will be regularly updated and interested parties are encouraged to email news and information.

HISTORY OF THE DISPUTE

The first indication that there might be financial problems in the offing was on May 12, 2009 when ratings agency, Standard & Poors, cut The International Banking Corporation (TIBC), a Bahrain-based bank owned by the Algosaibi group, to selective default. Also in May, the Kingdom of Saudi Arabia (KSA)’s central bank, the Saudi Arabian Monetary Agency, ordered a freeze on the accounts of al-Sanea and al-Gosaibi and ratings agencies downgraded and then withdrew ratings for AHAB and al Sanea’s Saad Group.


Saad Group stated that it was confronted by a “short-term liquidity squeeze” linked to the global credit crunch. The group said debt restructuring was under way. One of the factors contributing to the group’s cash flow problems was the “failure of companies owned by a prominent Saudi family business and the unexpected and unprecedented regional reaction to that failure.” The prominent Saudi family business referred to was AHAB, and the failing companies included The International Banking Co. (TIBC). According to the Saad group statement: “Although Mr. Al-Sanea was at one time named as a managing director of AHAB, he has not acted in such capacity for many years and is not involved in the operations of AHAB in any way.”

The start of legal proceedings occurred when one of the United Arab Emirates largest privately-owned banks, Dubai- based Mashreqbank, registering a lawsuit in New York July 2009 against the Al Gosaibi family conglomerate, AHAB, for $225m, it claimed was owed to the bank. Mashreq’s law suits named AHAB; TIBC, the Bahreini bank owned by AHAB; and 20 members of the Al Gosaibi family asserting that the partners “were in fact the guarantors of the debts and obligations” of the company, and thus should be held liable for the defaults.

After this dramatic event, AHAB in turn countersued Mashreq and started proceedings against Maan al Sanea, alleging he had been part of a $10bn fraud.

Legal action has since been initiated by various interested parties in London, the UAE, the Cayman Islands and the Kingdom of Saudi Arabia (KSA). Sources close to Al Sanea have rejected the authority of foreign jurisdictions over the dispute and state he wishes to settle the dispute in KSA.

Exacerbated by the previous collapse of Lehman Brothers and the consequent international banking crisis, a domino effect has occurred in the Middle East, Europe and the USA of banks initiating litigation to protect their exposure to AHAB and Saad debt and is ongoing.


Readers familiar with KSA will know of Ta’if: a pleasant town high in the hills, overlooking the hot dusty plain towards Jeddah, where it is possible to take a cool, dispassionate view of proceedings below. Ta’if is the seat of the KSA government during the hot summer months in the nation’s capital, Riyadh.