RIYADH, (Reuters) – Saudi conglomerate Algosaibi on Monday said it would sue Dubai-based Mashreq bank in a New York court, alleging the lender of being “wilfully blind” to irregular deals that helped lead Algosaibi into default.
Saudi firms Ahmad Hamad Algosaibi and Bros Co (AHAB) and Saad Group are restructuring combined debt worth up to an estimated $22 billion in one of the biggest blows yet in the global financial crisis, that has left dozens of banks exposed and threatened to dampen Saudi’s economic recovery.
“These transactions have no legitimate commercial purpose,” AHAB’s legal counsel Eric Lewis told reporters in a conference call before filing the suit in the New York State Supreme Court. The suit follows Mashreq’s $150 million suit filed earlier this year against Algosaibi, in a tit-for-tat case that looks increasingly likely to see the biggest corporate default ever in the Middle East battled out in U.S. courts.
The planned suit comes as the Algosaibi group attempts to keep its creditors in line as it struggles to restructure its obligations. Suing Mashreq sends a signal to other banks on the challenges they might face if they step out of the restructuring talks and sue Algosaibi directly.
Mashreq bank, the third-biggest bank by market value in the United Arab Emirates, rejected Algosaibi’s claims.
“The charges are completely without merit, outrageous in the extreme and really nothing more than an attempt by Algosaibi (AHAB) to divert attention away from their own responsibility,” Mashreq said in an emailed statement.
A spokesman for Saad Group and its billionaire owner Maan al-Sanea did not respond to email or telephone queries. Saad, however, said in July that separate moves by a Cayman Islands court to freeze $9.2 billion of its assets was part of a “baseless” campaign against it by Algosaibi.
Mashreq’s case against Algosaibi’s individual partners alleged that Algosaibi guaranteed both a $150 million Algosaibi transaction and a $75 million transaction for The International Banking Corporation (TIBC), which is owned by Algosaibi.
SHOCKWAVES
Lewis said Mashreq made $12 million in profit through irregular short-term loans that were rolled over continuously as a means of financing the Money Exchange currency trading house owned by Saad.
“We have a good counter-claim which we would assert against Mashreq bank for aiding and abetting the fraud of Mr. Sanea by being wilfully blind to these transactions on which they were making excessive profit,” Lewis said.
“Any reasonable banker would know that you don’t finance $150 million of working capital by rolling (it) over every seven days and are paying 12-14 points above the base rate,” he said.
Algosaibi’s and Saad’s debt troubles and ensuing legal battles have sent shockwaves through Middle East finance, calling into question the region’s regulatory framework and legal practices.
AHAB has sued al-Sanea for fraud in a case involving allegations of $10 billion in loan irregularities.
Sanea is alleged to have siphoned off that $10 billion from the Algosaibi family owned group for his personal business, according to the earlier fraud suit.
Mashreq said it was suing AHAB over alleged irregularities which it did not specify. That case is expected to come before a New York judge later this week.