Wealthy Saudis are seeking to restructure their businesses to ring fence assets in case authorities widen their declared crackdown on corruption, according to three people with knowledge of the matter.
Several family groups and businessmen who aren’t implicated in the crackdown are talking to local banks and international law firms about how to structure their companies to make it harder for the kingdom to confiscate or seize assets, the people said, asking not to be identified because the discussions are private.
One option could be to split assets between more than one holding company, one of the people said, though it’s not clear how successful these plans could be because the government is closely scrutinising business activity in the kingdom as part of the crackdown, he said. Talks are also tackling ways to protect overseas assets by moving them to offshore centres such as the Cayman Islands, he said.
The discussions reflect the fear among many wealthy Saudis that the unprecedented crackdown is set to widen. Dozens of officials, princes and billionaires, including Prince Al Waleed Bin Talal, the global investor whose Kingdom Holding Co. owns stakes in companies such as Citigroup Inc, have already been targeted.
Over his rise to power since his father’s accession to the throne in 2015, Prince Mohammad has emerged as the country’s predominant leader.
The crackdown “is clearly more about the centralisation of power,” Hasnain Malik, head of equity research at Exotix Capital, told Bloomberg TV on Tuesday. “You can argue with the merits of whether that is a long-term sustainable equilibrium, but if Saudi Arabia is to implement the fast decisions it needs to transform its economy I would argue that centralisation is at least necessary is not sufficient step,” he said.
The crackdown, however, is likely to reduce already sluggish private investment, hitting economic growth in 2018, according to economists. “Lower levels of corruption, if achieved, could encourage more investment, but the impact of this is only likely to materialise over the long run, not immediately,” said Ziad Daoud, a Dubai-based analyst with Bloomberg Economics.
Prince Mohammad is also overhauling the ties with some of the richest families, who for decades have benefited from close relations with the government by winning contracts and partnering with international firms seeking a foothold in the Arab world’s biggest economy.
Under the crown prince’s blueprint to prepare the economy for the post-oil era, foreign companies are likely to have a bigger role in implementing the plan’s objectives, said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“This could lead to greater moves to liberalise the business environment for foreign investors,” removing the need for a domestic partner, she said in a report.
The crackdown has prompted some Saudi billionaires and millionaires to sell investments in neighbouring Gulf countries and turning them into cash or liquid holdings overseas to avoid the risk of getting caught up in the sweep, people familiar with the matter said this month. Few, however, are trying to shift money out of Saudi Arabia amid fears of attracting unwanted attention from authorities, they said.
One senior Saudi official, who asked not to be named, said over the weekend suspects are being offered settlements to avoid trial. If they accept, talks are held with a special committee to work out the details. Authorities estimate they may be able to recover between $50 billion and $100 billion from settlement agreements, the official said.
Al Waleed’s $1 billion loan for Fransi stake is said on hold
Kingdom Holding Co.’s plan to raise about $1 billion in loans is on hold after its owner Prince Al Waleed Bin Talal was detained as part of the country’s anti-corruption drive, people familiar with the matter said.
The investment firm had been in talks with local and international lenders since October about the financing for the acquisition of Banque Saudi Fransi stake, the people said, asking not to be identified because the information is private.
Banks are now concerned about the uncertainty surrounding Kingdom Holding after Al Waleed was arrested earlier this month, they said.
Al Waleed is among princes, ministers and senior officials being held on orders from a recently-established anti-corruption committee headed by Crown Prince Mohammad Bin Salman. Al Waleed in September bought a 16.2 per cent stake in Saudi Fransi from Credit Agricole SA through Kingdom Holding. The French bank had struggled to find an international buyer for all of the 31 per cent it owned and sold to Al Waleed at a discount in a deal valued at about $1.54 billion.