Strategic Considerations: Creditors of Saudi Arabia’s Ahmad Hamad Algosaibi and Brothers will vote on the company’s proposed restructuring deal on 8 September. The process is the first major test case for Saudi Arabia’s financial restructuring procedure, introduced as part of the country’s 2018 bankruptcy law reforms. Under the proposed deal, approved creditors will secure a recovery in the region of 26%, including roughly SAR 4.7bn in early cash distribution alongside SAR 2.55bn in real estate assets.
- September vote will be milestone in 12-year debt default saga
- TIBC claims settled in June, leaving the Bahrain-based bank as AHAB’s largest creditor
- Recoveries under proposal far exceed liquidation recoveries, says CRO
The Saudi Arabian court overseeing the Ahmad Hamad Algosaibi and Brothers (AHAB) financial restructuring procedure (FRP) has set dates for both the company’s owners and its approved creditors to vote on a restructuring proposal submitted last week, according to a creditor update sent today (12 July). AHAB’s owners will vote on 28 August and approved creditors will vote on 8 September.
As stipulated by Article 77 of Saudi Arabia’s 2018 Bankruptcy Law, the next step will be for AHAB to publish the voting dates on the Bankruptcy Commission website. A notice and copy of the restructuring proposal will then be sent to all approved creditors, according to the creditor update. Creditors voting by proxy must submit their voting intentions one week before the 8 September vote.
Asked for comment on AHAB’s progress toward achieving a financial restructuring, Simon Charlton, chief restructuring officer and acting chief executive officer, said: “It has taken over 12 years to get to this point and this has only now been possible because of the new Saudi Arabian bankruptcy law, so credit to the authorities for bringing in this new law.”
“We are now witnessing probably the first major test of this new law with a large international component. How the court has dealt with the proposal quickly is encouraging, and we now will be reaching out to all approved creditors seeking their support in the vote on 8 September,” he said.
As previously reported, under the restructuring proposal, filed with Dammam Commercial Court on 6 July, approved creditors will receive SAR 7.25bn (USD 1.93bn at today’s exchange rate) in settlement assets, resulting in a roughly 26% recovery for approved creditors. Approved claims in the FRP total SAR 27.5bn (USD 7.3bn). Some SAR 5.24bn (USD 1.4bn) of settlement assets would be contributed by the company, while roughly SAR 2bn (USD 533m) would be provided by the company’s owners.
If the proposal is passed, AHAB will begin to sell its portfolio of publicly listed shares, worth roughly SAR 3.4bn to SAR 3.5bn (USD 907m to USD 933m), as reported. Tallying this with AHAB’s cash and accumulated share portfolio dividends, a cash contribution made by the company’s owners, and cash raised through the sale of an operating asset, some SAR 4.7bn (USD 1.25bn) of early cash distributions will be available for approved creditors.
The remainder of creditors’ recoveries will be provided by real estate assets worth roughly SAR 2.55bn (USD 680m), to be provided by both the company and AHAB’s owners. These real estate assets will be placed into a real estate fund with tradable units and granted to approved creditors.
Beyond the imminent recoveries foreseen under the FRP proposal, AHAB has some SAR 26bn (USD 6.93bn) in as-yet unsettled inter-estate claims against various other entities, as reported. These include claims against Saad Trading, Maan Al-Sanea and Saad Hospital in Saudi Arabia. Any sums recouped under these contingent recoveries will also be distributed to approved creditors.
“We continue to work with fiduciaries of other estates involved in the [alleged] fraud [committed against AHAB], and hope that, as inter-estate claims are settled, distributions will flow to all creditors,” said Charlton.
In-administration Bahraini bank The International Banking Corporation (TIBC) — which was part of the alleged fraud that led to AHAB’s default in 2009 — is AHAB’s largest single creditor and holds some 24% of the total accepted claims, a source with direct knowledge previously told this news service. TIBC’s SAR 6.7bn (USD 1.79bn) claim is the result of a settlement agreement reached in June, which resolved TIBC’s roughly SAR 12bn (USD 3.2bn) inter-estate claim against AHAB and AHAB’s roughly SAR 4.5bn (USD 1.2bn) inter-estate claim against TIBC.
TIBC’s external administrator did not reply to a request for comment.
A creditor committee, holding roughly 37% of claims, already approved the restructuring proposal prior to its submission to the court. The committee comprises HSBC, Banque Saudi Fransi, Riyad Bank, TIBC, Gulf Bank and Gulf International Bank (GIB), as reported. However, Gulf Bank and GIB have sold their positions and now represent the interests of hedge fund Davidson Kempner on the committee.
The FRP process
Under Saudi Arabia’s FRP process, a company is placed under the supervision of a court-appointed trustee and a moratorium on enforcement is imposed. After claims are adjudicated by the trustee, a restructuring proposal is submitted to the court and put to a vote. The restructuring proposal requires approval from two-thirds by value of each creditor class in order to pass.
If any classes do not approve the restructuring plan, the proposal can still pass if at least one class approves and more than 50% by value of all voting creditors vote in favor of the deal. If the vote fails, the company proceeds to liquidation.
In the case of AHAB, the main creditor class is of general unsecured bank creditors, however, there are some other classes, such as trade finance-type non-bank creditors, as reported. Given the possibility for a cross-class cram-down if any class does not accede to the deal, the existence of multiple creditor classes could smooth the deal’s path through the vote, as reported.
“It may be said that the sign of a reasonable deal is one where no side is happy. What we believe though is that the proposal delivers a return to creditors that far exceeds what would be possible in a hostile liquidation proceeding, giving far greater returns much earlier,” said Charlton.
“A liquidation could see claims grow substantially, with the unwinding of the TIBC [settlement] deal and multiple claims from employees and other parties, together with collapsing asset values in a fire sale, all compounded by greater risk and loss through the time value of delayed returns,” he said.
Charlton noted that the FRP proposal allows AHAB to restructure its business, preserving employment and “the livelihoods of many people” in line with the objectives of the Saudi Arabia’s 2018 bankruptcy law.
AHAB is advised by financial advisor Deloitte, law firm Lipman Karas in London, and law firm Vinson & Elkins’ local partner firm Looaye M Al-Akkas in Saudi Arabia. The creditor committee is advised by financial advisor PwC and law firm DLA Piper. TIBC was placed into administration by the Central Bank of Bahrain in 2009, which appointed law firm Trowers & Hamlins as external administrator and AlixPartners as financial advisor.
by David Orbay-Graves