A Saudi conglomerate whose billionaire chairman is under the kingdom's banking authorities' spotlight had its credit rating withdrawn Tuesday, shortly after the rating had been slashed to junk status by a leading debt rating firm. The announcement by Moody's Investors Service came after 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.
Just days earlier, Saudi Arabia's central bank, without explanation, had ordered local financial institutions to freeze al-Sanea's accounts and those of five of his relatives, including wife and children. Al-Sanea, who holds an almost 3 percent stake in HSBC, is listed by Forbes as the world's 62nd richest man.
In a statement Tuesday night, Moody's said it had withdrawn all ratings for Saad Group and its related entities "because Moody's believes it lacks adequate information to maintain the ratings." The agency had said earlier in the day that it had downgraded ratings for two major Saad Group companies, knocking them down several notches from investment grade Baa1 to B1, or junk status.
The agency cited the Saudi Arabian Monetary Authority's May 31 order to freeze al-Sanea's accounts, saying 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 ratings action, and Saad Group's debt restructuring push, 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.
Saad Group has declined to comment on the move by the central bank. But the company, in the first indication since the order that it faced debt issues, said it was planning an orderly restructuring of its companies' debts. It did not specify the amount, but said it was completing arrangements with a European bank to coordinate the effort.
"Recent external events have caused a liquidity crisis locally, regionally, and internationally. 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," the company said.
"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 said the 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. But some media reports had linked the freezing of al-Sanea's accounts to a possible connection between the billionaire and Ahmad Hamad Algosaibi and Brothers Company, another prominent Saudi conglomerate that owns Bahrain-based The International Banking Co. TIBC recently defaulted on some of its debt and some reports said al-Sanea was the bank's chairman.
A Saad spokesman in London said while al-Sanea was once a managing director at Algosaibi, he is not TIBC's chairman.
Saad Group has extensive interests in real estate, banking, education and health care, both in Saudi Arabia and abroad.
The central bank's move appeared to reflect concerns about broader spillover in a country that has so far weathered the brunt of the global crisis. 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 earlier rating action affected 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 STCFSC and SICL's revolving credit facilities of $1.75 billion and $2.8 billion were close to fully drawn and "this is likely to further accentuate liquidity pressures within the group."
The withdrawal affected STCFSC, SICL, Saad Group Limited and Golden Belt 1 Sukuk Company, a Bahrain-registered entity tasked with issuing sukuk, or Islamic bonds, on behalf of STCFSC.
Moody's said Saad Group Limited had total assets of $30.6 billion at the end of 2008.
