UK urged to resolve Saudi dispute
London, November 26, 2009
British banks have urged the UK to try to fix a debt restructuring dispute in Saudi Arabia that has left overseas banks potentially exposed to billions of dollars of losses, according to a letter seen by Reuters.
The dispute involves up to $22 billion of debt at Saad Group and a second Saudi firm, Algosaibi. The two groups are involved in a complex legal dispute and regulators and bankers are grappling to resolve the issue.
'We would ask you to send a message that it is still possible for Saudi Arabia to step back from the brink of what is becoming a very serious blow to its reputation for fair dealing, by working constructively with all banks to find an early resolution,' the British Bankers' Association (BBA) said in a letter.
The letter was dated November 20 and sent to Mervyn Davies, Britain's minister of trade, investment and business, by Thomas Harris, chairman of the BBA Trade Policy Committee.
The BBA has confirmed it sent a letter to Davies. The group represents over 200 banks operating in Britain on a range of UK and international issues.
'These two groups were heavily indebted to international banks, including a good number from the region, with a total exposure estimated to be of the order of $20-22 billion,' the BBA letter said.
'The Saudi authorities have refused repeated requests by international banks to help. The Saudi authorities maintain that this is a private family feud,' Harris said in the letter.
'This is doing enormous damage to the reputation of Saudi Arabia as a whole,' he added.
Saudi Arabia's central bank governor said in September that Saad Group had struck an agreement with Saudi creditors to repay syndicated and bilateral loans, but did not offer details about the deal. Bankers have told Reuters that international creditors have been left out in the cold.
The BBA's letter noted reports that over 100 banks are involved in the dispute.
'International bank creditors were excluded from this settlement. Not surprisingly, foreign banks feel strongly that Saudi creditors were preferred by this procedure,' it said.
'The banks are not asking for a bailout; they simply want the Saudi authorities to recognise the problem, perhaps by setting up a broadly based group with the domestic and international banks to provide full access to all relevant information and with a remit to consider what an overall solution might look like and how it might be achieved.'
Harris said without a swift resolution there is likely to be an increase in litigation, adverse media attention and damage to Saudi businesses obtaining credit overseas.
'What appears to have started as a family dispute is now bringing the whole business sector and Saudi system of corporate governance into disrepute,' the letter said.
UK trade minister Davies is the former head of London-based bank Standard Chartered. A spokeswoman for his department said she would not comment on private correspondence.
'We can confirm that Lord Davies is to visit Saudi Arabia and will be supporting the interests of British business as he does during all overseas visits. He is a powerful advocate for the benefits of international trade and speaks out against protectionism,' she added.
A spokesman for Saad Group in London declined to comment. – Reuters