New winding up petition against SAAD

Barclays Bank has issued a second winding up petition in the Cayman Islands Grand Court against one of the companies belonging to SAAD Group. In the new petition Barclays demanded on Wednesday 19 August 2009 the winding up of SAAD Investment Company (No.5).

Barclays, together with European banks Royal Bank of Scotland and CaLyon, has already petitioned the Cayman Grand Court to wind up SAAD Investment Company Limited in July over the company’s alleged breach of loan covenants and failure to meet interest payments in a US$2.8 billion syndicated loan facility. Barclays alone lent SICL US$200 million under the facility, but according to estimates SICL’s parent company SAAD Group has a total of approximately US$10bn in loans with international banks.

SAAD Investment Company (No.5) and SAAD Investments Company Limited are two of 39 SAAD Group companies that are subject to a freezing order by the Cayman Grand Court. The freezing order resulted from an unrelated law suit between two of the most powerful Saudi Arabian families and dynasties Ahmed Hamad Algosaibi and Brothers Company and Maan Al-Sanea, owner of SAAD Group.

AHAB claimed in a New York court that Mr Al-Sanea, who is married to an Algosaibi, defrauded the company and misappropriated $9.2bn of Algosaibi funds, when he was the head of the financial division of the AHAB group.

The alleged fraud was discovered when Mashreqbank, a Dubai-based bank, sued AHAB in a New York court saying that AHAB defaulted on US$150 million in a foreign exchange deal with the bank.

AHAB argued that Mr Al Sanea’s defrauded AHAB to fund his own struggling financial empire and blames the fraud for the deterioration of its own financial situation. AHAB last week met with 200 creditors in Dubai to discuss a refinancing of its debt, estimated to be between US$10 and US$20 billion. The New York Supreme Court is going to hear new evidence in the case this week.

According to the latest winding up petition Mr Maan Al Sanea and his wife Sana Abulaziz Algosaibi are named together with Omer El Mardi as the directors of SAAD Investment Company (No.5), a special purpose vehicle with the sole purpose of implementing a commercial agreement between SICL and Barclays in order to refinance SICL’s interest in certain private equity funds.

The petition explained that SAAD Investment Company (No.5) issued 100 Class A shares at $1 to SICL and 100 million Class B shares at $1 to Barclays. The private equity funds previously held by SICL were contributed to SIC (No.5) in return for the allotment of 100 million Class B shares to Barclays. As a result SIC (No.5) holds the interests in the underlying funds, while SICL acts as the investment manager.

The underlying commercial agreement is an accreting strike option, which provided SICL with a mechanism to borrow funds from Barclays to increase the level of investment by SIC (No.5) in the underlying private equity funds.

The US$100 million shares issued to Barclays in practice represent borrowed funds, which have to be repaid together with accrued financing charges upon maturity of the accreting strike option. SICL in turn would be able to pocket the increase in value of the invested funds under the agreement.

Barclays argues that the company’s purpose has been exhausted. Given the various law suits and freezing orders that have been levelled against SAAD Group and some of its subsidiaries, SICL is no longer able to function as SIC (No.5)’s investment manager, the filing said.

The filing stated in addition that Barclays has ‘lost all confidence in the probity of the Directors’ conduct of the company’s affairs’ and therefore petitioned the court to wind up SIC (No.5) and appoint Geoffrey Varga and Nicolas Matthews of Kinetic Partners as Joint Liquidators. The petition is scheduled to be heard on 18 September.