Saudi families square up over $20bn 'fraud'

Saudi families square up over $20bn 'fraud'

A Saudi billionaire with stakes in some of Britain's biggest companies is at the centre of a multi-billion-dollar fraud that threatens to send financial shock-waves around the world, a New York judge will hear this week

By Louise Armitstead
Published: 9:41PM BST 22 Aug 2009

Maan Al Sanea, the boss of the Saad Group, which owns 2.9pc of HSBC and a stake in Berkeley Group, is accused of embezzling $9.2bn (£5.6bn) from one of Saudi Arabia's most powerful families, the Algosaibis, as part of a complicated and increasingly bitter legal row between the two dynasties.

The Algosaibis, who are being sued in New York by a Dubai bank for the alleged non-payment of $150m, have filed as their defence claims that the missing money is a result of Mr Al Sanea using their name to do transactions without their knowledge.

They allege that it is one example of how Mr Al Sanea, who formerly headed a financial division of their empire, borrowed the money over many years using the Algosaibis' name without their knowledge or permission.

Mr Al Sanea, who is married to an Algosaibi and used to head one of the family's business divisions, denies all the allegations. He claims he is being used as a scapegoat for a wider financial malaise in Ahmed Hamad Algosaibi and Brothers Company (AHAB), the flagship part of Algosabi's powerful business empire.

This weekend a spokesperson for Saad told The Sunday Telegraph: "AHAB's involvement of Saad in court next week represents a continuation of the baseless, yet public, campaign it has chosen to wage. Saad will respond fully to all of these claims through the proper judicial process and definitively demonstrate their lack of any foundation."

The case is a rare public rift in the normally tight family and financial relations in the Middle East. But it will be watched around the world since Mr Al Sanea, a Kuwaiti-born former fighter pilot, presides over a powerful and complex global empire in propery and finanace which could be unwound if the court case goes against him.

Forensic accountants estimate that Mr Al Sanea has at least another $10bn of loans with international banks, including Barclays, JP Morgan, Deutsche Bank and Commerzbank, which he used to buy both business and personal assets.

The Algosaibi group, which also is also thought to have large lending arrangements with international banks, is one of the Gulf's most respected family conglomerates which controls the country's Pepsi bottling plants among other industrial assets. The Saad Group, which had been rated by both Moody's and Standard and Poor's, also has vast international reach and had assets of $30.6bn by the end of 2008. However, as a result of the onslaught of the credit crisis, both the Saad Group and parts of the Algosaibi empire are undergoing substantial restructuring of their corporate debts.

On Tuesday, the Supreme Court of New York will hear arguments from both sides over the $150m default that led to the discovery of the alleged fraud. Court documents, seen by The Sunday Telegraph, show that the case is being brought by Mashreqbank, a Dubai-based bank, which claims AHAB owes it $150m as a result of a foreign exchange contract. Mashreqbank says AHAB defaulted on the payment earlier this year. AHAB argues it "was not aware of the transaction" until it received legal notice from Mashreqbank.

In the documents, AHAB said: "Upon investigation, AHAB learned that its former employee, Maan Al Sanea, organised a fraud in which he entered into certain transactions, such as the one alleged in the complaint, in order to engineer the receipt of funds into accounts in the name of AHAB which he then diverted to his own use. The transactions arranged by Al Sanea were entirely for his own benefit."

As a result, AHAB has added Mr Al Sanea as a "third party plaintiff" in next week's case effectively claiming that any liability to Mashreqbank is Saad's not theirs. The court documents accuse Mr Al Sanea of "massive fraud" and allege that he "misappropriated approximately $10bn (£6bn) as a result of his frauds".

Insiders say the feud has its roots in problems that emerged at the same time in Bahrain's banking sector. In May, Bahrain-based The International Banking Corporation (TIBC), which is owned by AHAB, defaulted. Mr Al Sanea also owns a Bahrain-based bank, Awal, and there was market speculation that he may have been involved in TIBC. The relevance of the Bahrain banks in the feud is not clear.

This weekend Saad told The Sunday Telegraph that Mr Al Sanea has had nothing to do with the Al Gosaibi business dealings since 2006 when he quit as head of their Money Exchange unit. Saad said: "Although Mr Al Sanea has long had personal relations with the partners of AHAB, neither Maan Al Sanea nor any related business entity is a partner or has any ownership interest whatsoever in AHAB or in any of its related entities, nor do they have any business ties except on an arms length commercial basis."

Mashreqbank is expected to argue that its quarrel is with AHAB, not Mr Al Sanea.
After Mashreqbank first claimed for the $150m in May, AHAB filed complaints in Saudi Arabia and the Cayman Islands where many of Mr Al Sanea's companies are based.
The Saudi central bank ordered Mr Al Sanea's personal and family bank accounts to be frozen while a Cayman Islands court ordered a worldwide freeze of his assets worth $9.2bn.
The impact of the feud began to be felt in Britain in June when shares in Berkeley were rocked when Saad suddenly sold half its stake, sending shares in the UK housebuilder plunging to their lowest level since last autumn. Saad was seen as a long-term core investor and partner for Berkeley, and formerly held just under 38m shares, equivalent to 29pc of the total equity. Saad is now thought to own around 2pc of Berkeley. Also in June Saad sold 4pc of its stake in 3i Infrastructure.

At the time Saad said that it was carrying out a debt restructuring because of a "short-term liquidity squeeze" relating to some of its banking assets in the Middle East.

Then Moody's and Standard and Poor's, the ratings agencies, withdrew their coverage of Saad, saying that they lacked adequate information to maintain the ratings.

Saad said: "We are continuing to make progress with the restructuring plan announced last week and will update you further in due course."

The problems at the Algosaibi and Saad groupshave sent tremors through the Gulf's tight-knit banking community which prides itself on honour and faultless high standards.
The highly contentious spat between these two power-bases is said to have almost paralysed lending to the private sector.

Together the conglomerates could owe a raft of Saudi and international banks as much as $20bn, analysts estimate.

Both companies' debt restructuring talks have been complicated by the allegations of foul play. Experts warn the legal proceedings - which look set to get more complicated - could now take many years to work through and resolve.

Saad Group's investments
3i Infrastructure: 3pc
Petra Diamonds Ltd: 44pc
Imagination Tech Group plc: 7.5pc
Accsys Technologies plc: 10pc
Westide Corp Ltd: 18.5pc
Reneuron Group: 10.7pc
Uruguay Mineral Exploration: 10.2pc
Intelligent Environments Group: 4.25pc
Eatonfield Group Plc: 29.8pc
Chromex Mining plc: 3.8pc
Undisclosed: [estimated]
HSBC: c.2.9pc
Berkeley Group: c.2pc

[Source: Bloomberg]

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6074549/Saudi-families-square-up-over-20bn-fraud.html