DUBAI: Foreign investors are still keen to invest in the Middle East, despite a debt implosion at two Saudi firms that may cost lenders as much as $22 billion, executives at a Reuters summit said on Monday.
The debt debacle at Saudi conglomerates Ahmad Hamad Algosaibi & Bros and Saad Group is the biggest financial scandal to hit the Middle East, leaving foreign and local banks facing massive debt exposure.
The family-owned firms, linked by marriage, are embroiled in a legal battle to recover $9.2. billion which Algosaibi alleges Saad’s owner, Maan Al-Sanae, defrauded from it.
Executives at the Reuters Middle East Investment Summit said the issue should result in more due diligence by companies keen to deal with family-owned firms — which make up a big merchant class in the Gulf — but it would not deter investment flows.
Investor appetite for Gulf bond issues seems to bear this out with, most recently, a $1 billion Islamic bond issue by Abu Dhabi’s Tourism Development & Investment Co. (TIDC) being seven times oversubscribed.
“There is a huge amount of capital interested in the Middle East (and) there is clearly a demand for Middle Eastern issuance,” said Simon Cooper, chief executive of HSBC Middle East.
Cooper added the Saudi debt troubles had “clearly hurt” it but speculated investors would look past that.
“Investors will look beyond short-term bumps in the road to long-term opportunities.”
The debt troubles come as the Gulf faces criticism over a lack of transparency and amid investors concern about judicial recourse in the world’s biggest oil exporting region. “This is the wake-up call,” said Howard Handy, chief economist at Samba Financial Group in Riyadh. “It is an issue of transparency, of how lenders do business.”
Despite the end of a six-year, oil-fueled boom, the Gulf region has managed to avoid the recession faced by many countries in the wake of the global financial crisis.
Governments have ramped up spending sharply, including on infrastructure projects in healthcare and education, to spur growth, and the oil price has doubled since its December low.
The lesson, executives said, was to know who you are dealing with. “There is no substitute for diligence,” Mustafa Abdel Wadood, managing director of Abraaj Capital. “But you can get incidents anywhere — no matter what diligence you do there will be cases where you get caught out.”
