Saudi Arabia’s multibillion corporate collapse: Al-Gosaibi exec on his role in 8-year saga

Simon Charlton
Updated 02 July 2017
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Saudi Arabia’s multibillion corporate collapse: Al-Gosaibi exec on his role in 8-year saga

The collapse of the Saudi Arabia-based Al-Gosaibi business in 2009 was a seismic event in the financial world, and in Middle East business history.
As much as $20 billion was put at risk as a result of the collapse of two banks in Bahrain, which in turn sparked the financial downfall of the 70-year-old business, based in Alkhobar, and the Saad Group empire, run by Maan Al-Sanea, an entrepreneur who married into the Al-Gosaibi family.
The debacle was one of the biggest collapses of the global financial crisis, and it prompted a fierce war of words between the Al-Gosaibi family and Al-Sanea, waged in courtrooms and boardrooms across three continents. Eight years on, there is still no final resolution to the bitter disputes that have raged amid allegations of fraud, forgery and theft.
More than 100 banks — in Saudi Arabia, the wider Arabian Gulf region and the rest of the world — are still owed billions of dollars in unpaid loans to what they thought was a respected and creditworthy business dynasty, the Al-Gosaibis, and a hotshot financier, Al-Sanea.
Simon Charlton has lived every moment of those eight years, first as a corporate finance expert at the global accounting firm Deloitte, brought in to sort out the mess; then as acting chief executive and chief restructuring officer of Ahmad Hamad Al-Gosaibi & Bros. (AHAB), the partnership that owned the businesses and was practically bankrupted by the collapse.
The 51-year-old Englishman recently reflected on the past eight years. “It’s been a long, tough time. I was a father when it happened. Now I’ve got four grandchildren,” he said, assessing the large chunk of his life that has been taken up by the affair.
He has lived in the region since he was a child, the son of a British Royal Air Force officer who served in Oman. As a young executive, Charlton worked for Deloitte on the 1990s collapse of Bank of Credit and Commerce International (BCCI), the part-UAE-owned bank, which until the Al-Gosaibi downfall had the dubious honor of being the biggest financial scandal affecting the region.
“I thought I’d never see anything like that again but I soon realized after Deloitte was called in that the numbers were even bigger, twice the size,” Charlton recalled.
“My job was to find out what had gone on and I quickly saw that billions of dollars had been borrowed in the family name and had disappeared. In the first couple of months, we got a pretty good idea of the amounts borrowed and the status of those loans. It was obvious that if all those liabilities were left to the family, there was no way they could repay,” he said.
The Al-Gosaibi family faced legal action by creditors to recover the missing cash from the family assets. Family members had their assets frozen, and a travel ban was imposed to stop them leaving Saudi Arabia. These restrictions are still in place today.
The blame, Charlton decided in consultation with an army of lawyers and consultants, lay with Al-Sanea. They alleged that he had siphoned off billions of dollars into ghost companies that amounted to a gigantic Ponzi scheme and that he had forged the signatures of family members to do so.
Al-Sanea has consistently denied these allegations and has fought legal actions in Saudi Arabia, London, New York and the Cayman Islands, where his Saad Group was registered. Some of those are still ongoing today. (Email requests for comment in the preparation of this article to Al-Sanea family members and legal representatives went unanswered.)
Charlton immediate task in 2009 was to try to reassure his clients, the Al-Gosaibi family. “The family had no idea who they could trust. It was shock, panic, fear. They didn’t see it at first as being bust, they just didn’t understand what was happening,” Charlton said.
It was an unprecedented event in Saudi business history, where the practice of “name lending” — approving bank loans on the strength of a family’s reputation rather than its credit rating — was long established.
The situation was complicated by the lack of a bankruptcy code that could have smoothed the liquidation and repayment process. A law is currently being prepared, which leans heavily on the lessons learned from the Al-Gosaibi case over the past eight years.
“The other problem was that there was no center. It began in Bahrain, spread to Saudi Arabia and then went all over the world — Geneva, the Cayman Islands, New York and London. So there was a problem about finding a regulator that would take (the) main responsibility,” Charlton said.
“We took the view early on that we had to try and negotiate a settlement. It was the honorable thing to do. The family always said they want to return the money, as far as they are able,” he added.
But it was a tortuous process, made even more complicated by the attitude of the Saudi creditors who were owed about one-third of the total debts. They declined all invitations to get involved in the negotiations regarding a settlement, preferring litigation, and have still not been involved in any of the series of creditor meetings that have taken place over the last eight years.
The Saudi authorities, conscious of the potential damage the affair could do the Kingdom’s reputation in international financial markets, early on appointed the so-called “King’s Committee” — a body of senior policymakers and financial officials — to find a resolution, and by 2012 it had reached a decision: The two parties were ordered to find a solution, but there was no possibility of a bailout from public money. It was, to all intents and purposes, a family affair.
“We tried to negotiate with the Saudi banks. The disputes committee of the Saudi Arabia Monetary (Agency) began to issue judgments in favor of international banks as well as Saudis, so it was obvious there was no favor in any one direction. The biggest challenge was, and remains, how to get all the banks around the table,” Charlton said.
By the end of 2014, a new approach to the whole affair was beginning to materialize. The oil price decline that year prompted some serious reassessment of the Kingdom’s financial status; Saudi Arabia wanted to raise debt in the international capital markets but found its ability to do so impaired by the fact that billions of dollars in debt had been effectively reneged.
It also marked the beginning of the process of transforming and modernizing Saudi business that was to culminate in the Vision 2030 plan to diversify the economy away from oil dependency. The country needed international banks on side for this crucial plan.
A year ago, the authorities set up a special enforcement tribunal in Alkhobar to force through a settlement of the outstanding loans “because these debts can harm the reputation of the local economy and relations with local and foreign banks,” according to an official announcement.
“In some ways, AHAB was a ‘petri dish’ for how Saudi Arabia should deal with a bankruptcy and insolvency. The Enforcement Law came in in 2014, and I’m not saying that our situation was directly responsible for that, but AHAB/Saad was part of the process of evolution of this kind of legislation,” Charlton said.
“I got the feeling the authorities were learning as they went along, how to work through a restructuring process, and we were the testing ground. There is a draft insolvency law being considered, and I’m sure that AHAB was on people’s minds as they considered how to do that in practice. So now there is enforcement law, arbitration law and soon there will be an insolvency law. That’s progress,” he added. The practice of “name lending” has been greatly reduced too.
Simultaneously, Charlton and other advisers had been conducting negotiations with AHAB’s own international creditors, and by last summer was able to announce a deal with creditors over $6 billion of debts.
Under the terms of that deal — which is still being finalized — creditors will get a guaranteed 25 cents on the dollar, which could rise to more than 50 cents if legal action against Al-Sanea is successful in recovering further assets, mainly in the Cayman Islands. There, the biggest legal case in the islands’ history is considering the fate of about $1 billion of assets.
Charlton is keen to point out that the Al-Gosaibi family has done its best to stand by contractual agreements. “Throughout the whole process, we have continued to meet our liabilities toward our employees, the tax authorities and suppliers. The only people who have not been paid are the banks, and we’re hopeful of reaching a final agreement with those.”
The alternative to a deal is a fire sale of assets, the closure of businesses and big job losses at Al-Gosaibi companies, he said. “Just recently we reached a significant threshold on our settlement terms. Some 61 claimants representing 74 percent of all claims have signed up,” he added. None of those are Saudi banks, however.
Meanwhile, the Al-Sanea side of the affair has been struggling to meet its commitments, which run into billions of dollars but which have not been definitively quantified.
Earlier this year, the Alkhobar authorities announced via media notices that they were hiring professional advisers to enforce judgments against Al-Sanea and the Saad Group, in a move that could be the start of a liquidation process of his remaining assets. Representatives of Al-Sanea did not respond to requests for comment on this matter.
So, the long tortuous process appears to be entering endgame. If it is resolved on the current terms, the Al-Gosaibi family will have to hand over its share portfolio, worth around SR2 billion, and real estate estimated at around SR3.5 billion. They will be left with some operating businesses — some joint ventures, small-scale manufacturing, a hotel and a mall in Alkhobar — and personal assets like their homes.
When the final calculations are done, the big winners will be the professional advisers — lawyers, bankers, accountants, investigators and lobbyists — who have been involved in the deal since the beginning, and who have been clocking up enormous fees all along. “I would not be surprised if the total fees come to more than $500 million, even as much as $1 billion, by the end of it,” Charlton said.
And what does he do after that? Some of the participants in the affair are believed to be writing their own accounts of the saga, and there is even talk of a Hollywood movie being prepared.
Charlton is unlikely to take the show business route. “If we get the deal done, I’d like to help the family rebuild. And maybe advise other families who find themselves in trouble,” he said.


‘Naked Diplomat’ author Tom Fletcher bares all on life as UK ambassador to Lebanon

Updated 26 May 2018
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‘Naked Diplomat’ author Tom Fletcher bares all on life as UK ambassador to Lebanon

Tom Fletcher might be best described as “the anti-diplomat.” Not in the sense that he sees no value in diplomacy, but in his steadfast refusal to live up to the stereotype expected of the ambassadorial profession.
While British ambassador in Beirut, he tweeted his way to acceptance by his hosts with an informal style and social accessibility that was in distinct contrast to the stuffy image of the traditional diplomatic circuit.
He told the BBC that there was not a single Ferrero Rocher in the embassy building — referring to the chocolates jokingly associated with the job after a 1990s TV commercial — and his “Dear Lebanon” farewell blog in 2015 after four years in the job boosted his broad international online appeal.
Now, Fletcher is running a portfolio of careers in the space where business, technology and public policy intersect. He is a visiting professor at New York University in Abu Dhabi, specializing in international relations, and is also involved with the Emirates Diplomatic Academy, the “ambassadors’ finishing school” in the UAE capital.
The former envoy is also chairman of the international board of the UK’s Creative Industries Federation and a member of the United Nations’ Global Tech Panel, as well as continuing a career as a successful author. His book “The Naked Diplomat” explored the interactions between governments, technology and big business, and became an international bestseller.
His experience and Internet renown make him a star attraction on the international forums circuit. He was on a panel in Dubai recently to discuss the findings of the 10th Arab Youth Survey, and afterwards went into some detail on the findings of the poll, which showed — alarmingly for some — that the US was waning in popularity in the region under President Trump and that Russia was increasingly regarded as a friend for young people in the Middle East.
Fletcher told Arab News that there was some reason to be worried about those findings, but also cause for optimism. “We have seen a striking fall in reputation among young people in the region since the US elections. But it was also worth noting the wider admiration for the American people as a whole, which looks quite resilient.
“The Russia results were interesting, because Russia has not always been a stabilizing force in the region. On Trump, they are further confirmation that the election of the leader of the free world created a vacuum. But the lights will eventually come back on in the shining city on a hill,” he said.
The survey seemed also to reveal a generational split in the Arab world, with many youngsters demonstrably not sharing their elders’ view of the US president. “I think that the region has access to the same information as the rest of us, and can take from it a pretty clear assessment of Donald Trump’s reliability. There are clearly some areas of alignment with some countries, such as the rejection of the Iran deal. But the survey shows that people across the region also hear the Trump administration’s wider messaging on the Middle East,” Fletcher said.
The Iranian situation was clearly on his mind, but he said there were alternatives to an escalating confrontation between the US and the Gulf states on the one hand, and the regime in Tehran on the other. “Wherever you stand on the Iran deal, its violation is a concern for regional security. The issue we have to ask ourselves is ‘what is the alternative for restraining Iran’s nuclear potential?’ Personally, I haven’t seen a better answer to that than the existing Iran agreement.
“Of course, the Iran deal in itself isn’t sufficient in reacting to Iran’s wider regional role, not least in Syria. But I worry that it is the hard-liners in Tel Aviv and Tehran who seem keenest to end the agreement,” he said.
A lot of his time in Beirut was spent dealing with the regional fallout from the Syrian crisis, which started just as he began the ambassador’s job. Surely, seven years on and with no solution in sight, that represents a failure of traditional diplomacy?
Fletcher’s response was, well, diplomatic. “Not all has failed. Huge effort has gone into keeping Lebanon relatively stable, despite the scale of the Syria crisis just across the border. Diplomacy has failed on Syria and on Palestine/Israel. But George Mitchell (the American politician credited with helping bring about an end to the Northern Ireland conflict in the 1990s) said that making peace was 700 days of failure and one of success. We have no choice but to keep trying, and to work harder than those who want to see diplomacy continue to stumble,” he said.
Fletcher’s work in the Gulf has enabled him to take a broad overview of developments in the region, and there is no more intriguing situation than in Saudi Arabia, which is going through a rapid transformation of the economy and society under the Vision 2030 strategy. “I think there has been a shift in international opinion on Vision 2030 over the last year. Initially many were curious, and conscious of the obstacles.
“But there is now a growing realization of how important a reform agenda is, especially if it succeeds in creating more opportunity for young people, including women. We all should hope it succeeds — I think it can, but will need maximum involvement of citizens themselves in shaping an open approach,” he said.
Fletcher also has a clear view of the kind of socioeconomic order that will emerge from the transformational policies of regional leaders.
“The Gulf has clearly realized that there is a need to move away from oil dependency well before the oil runs out. The answer has to lie in a knowledge economy. I’m heartened by the kinds of issues that my students at NYU AD want to work on and pioneer. And by the government focus on themes like wellbeing and education reform.
“Twenty-first century skills will need to be at the heart of the school curriculum, with learners encouraged to be curious, to seek out sources of knowledge and wonder, and to learn teamworking and innovation. This is happening increasingly in the larger cities, but there is still work to be done to mainstream knowledge, skills and character in education systems,” he said.
With the power of Big Data coming under scrutiny as never before in cases such as the controversy over Facebook’s role in the political process in the US and elsewhere, Fletcher’s work for the UN is more relevant than ever, and he believes there is a big role for the Gulf states to play in that debate.
“The Middle East needs to ensure it is better represented in the international architecture. It needs to be a key part of the debate about security and liberty online — the UAE Artificial Intelligence Minister (Omar Bin Sultan Al-Olama) is a great example of this. And it needs to help get everyone on to a free Internet,” he said.
Before entering the diplomatic service, Fletcher was an adviser on foreign policy to three British prime ministers, which gives him a unique perspective on the big current issue in the UK — the increasingly bitter process of leaving the EU, or Brexit.
The search for new trading partners has seen a succession of British ministers visiting the Gulf region in a bid to clinch new business. Fletcher does not share the view of some that the UK is destined for insularity and isolation in the post-Brexit world.
“The UK is going through a complex process, but it is always at its best when it has a worldview formed from having actually viewed the world. When it is open minded, outward looking. When it stands for more liberty — rights, trade, thought.
“The creative industries are already showing the way. And the royal wedding was a brilliant reminder of what the UK can be — diverse, modern, self-aware, creative. We all badly needed that reminder,” he said.
Fletcher was the youngest person ever to get a major ambassadorial post, and seems well set to pursue a handsomely paid career in virtually any sector, from international policy-making, to domestic UK politics or the private sector.
But he still regards himself as a diplomat with a creative twist. “I still write diplomat on the landing cards in planes.” And there is a second book in the works, he revealed: “I’ve just finished a murder novel, featuring an ambassador detective,” he said.
It is doubtful there will be a Ferrero Rocher mentioned in the book.