Sep. 22--A rumored secret bailout that took place days ago in Saudi Arabia has International bankers up in arms. No official details have been released, but it is said that the government-frozen assets of troubled Saudi financial groups Algosaibi and Saad (Al Sanea) have been used to pay off their debts to local creditors, at the expense of foreign firms now left with billions of dollars of unsecured debt.

International financial firms were shocked by this development. Several bankers noted that such a bailout would require collusion at the highest levels of the Saudi government, and must therefore also involve the approval of the royal family.

A business analyst that specializes in the region noted that foreign firms doing business with Saudi Arabia have always accepted certain inequitable restrictions required for doing business in the Kingdom because of the belief that these were balanced by an unspoken guarantee by the government to secure their investments. "Everyone was convinced that the [Royal family] would never allow a high-ranking local to renege on its obligations. Now there is every appearance that the royal family has actually assisted two local firms to do just that".

The biggest financial scandal in the Gulf region started about four months ago, when doubts surfaced regarding the ability of Saudi conglomerate Algosaibi and rival al Saad Group to repay debts to regional and international banks. The collective debt owed to some 90 firms is estimated at US $20-22 billion in syndicated loans. As banks moved franticly to secure or even recall their loans, a legal battle broke out between the two Saudi groups, as Algosaibi accused Saad Group owner Maan al-Sanea of stealing $10 billion from them.

While the ongoing legal battle has stalled settlement prospects in general, foreign lenders have expressed serious concerns over rumors and unconfirmed reports that the two groups are negotiating one-sided settlements with Saudi banks, with the blessing of Saudi authorities. "We are worried that the firms [Algosaibi and al Saad] are focusing on paying off local debts only," a Zurich-based banker said. "After paying local debts in full they may or may not pay the foreign creditors." These concerns are strengthened by rumors that the two firms repatriated billions of dollars from abroad to be sheltered in Saudi Arabia on the eve of the crisis, and continued to do so after it broke out with the apparent connivance of highly placed Saudi persons.