In case you missed the Moody’s downgrade of Saad on Tuesday morning, here are some selected highlights. Emphasis ours:
Moody’s Investors Service has downgraded the ratings of Saad Trading Contracting & Financial Services Company (STCFSC), Saad Investments Company Limited (SICL) and Saad Group Limited (SGL) to B1 from Baa1. Moody’s has placed the ratings on review for further downgrade.
The rating action follows public reports that the Saudi Arabia Monetary Authority (SAMA) may have ordered that the accounts belonging to Saad’s majority owner and Chairman be frozen.
No reason has yet been given for this action, and the disclosure relating to this development has been limited. 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.
Moody’s notes that its downgrade to non-investment grade will constitute an event of default under STCFSC’s USD 2.75 billion and SICL’s USD 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.
Indeed!
In a statement released on Monday evening the Saudi conglomerate, which is controlled by billionaire businessman Maan Al-Sanea, said it was planning an orderly restructuring of some its debts as the result of a “liquidity squeeze”:
“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.”
In support of this effort, we have appointed as advisers a top four accounting firm and a leading international firm of financial advisers. We are also concluding arrangements with a leading European bank to coordinate relationships with our international, regional, and domestic counterparties to assure pari passu treatment.
It also provided some detail on what triggered the squeeze:
(a) the failure of companies owned by a prominent Saudi family business and the unexpected and unprecedented regional reaction to that failure, including some action by counterparties that is under review by our advisers,
(b) a sudden reduction in the availability of credit from all our regional counterparties, first in response to the worldwide credit crunch and then caused by the subsequent failure of other local companies,
(c) considerable payments by Group companies against facilities that, in the past, would have been rolled over or increased.
We take the Saudi family business is the powerful Ahmad Hamad Algosaibi & Brothers Company, which shocked the financial community in the middle east when one of its wholly owned subsidiaries — Bahrain-based The International Banking Corporation – defaulted on its debt last month. And note, Mr al-Sanea is married to a sister of a senior member of the Algosaibi family.
Writing in Tuesday’s FT, Andrew England says the revelations about the two companies have raised questions about the state of some Gulf family businesses and whether they had become over-extended during the oil boom and were now struggling to meet their obligations.
All of which provides an interesting counterpoint, to Monday’s call from Merrill Lynch to buy Saudi Arabia and Dubai:
Emerging markets are up 33% this year and inflows into EM remain strong. By contrast Gulf equity markets are up just 1.2% YTD and inflows are non-existent. We see the region as a compelling trading buy for investors looking for laggards.
Related link:
Sa(a)d investments – FT Alphaville