Long-stalled talks on one of the Middle East's largest debt restructurings are due to resume in Dubai on Wednesday, though those involved in the process are cautioning any agreement to pay out even a small amount of the cash owed to creditors may prove a challenge given the size of the debt involved and the limited assets available for fund repayments.

At the centre of the restructuring talks is Saudi Arabian conglomerate Ahmad Hamad Algosaibi & Brothers (AHAB), whose failure in 2009 left debts estimated at more than $7 billion.

Long-running disputes involving AHAB and Saad Group, a separate Saudi business empire led by Maan Al-Sanea, who married into the Algosaibi family more than 30 years ago, over who was to blame for the collapse of their respective conglomerates left dozens of banks nursing billions of dollars of bad loans and shook a kingdom unaccustomed to public spats over money.

Figures at the time of the initial collapse put the combined total of AHAB and Saad debt at above $20 billion, though no definitive number has ever come out.

"For both of these groups it was a significant event that has changed the way they are perceived, locally, regionally and globally," said John Sfanianakis, chief investment strategist at Saudi investment firm Masic.

While there was a failed attempt at a debt restructuring between AHAB and its creditors in 2010, much of the action over the last five years has been in the courtroom, with a myriad of lawsuits in multiple jurisdictions involving different combinations of AHAB, Sanea and his Saad Group, and their creditors.

The result, according to Simon Charlton, the former partner at accountants Deloitte who was brought in as AHAB's chief executive in June 2013, is an expensive stalemate.

"Neither creditor banks nor AHAB benefit from this situation so we will outline a proposal that we believe is the best way forward for all parties," Charlton said of Wednesday's meeting, declining to give details on what the proposal will consist of.

However, the hurdles to reaching an agreement are many, said some of those involved in the restructuring.

SIGNIFICANT CONTRIBUTION

A key issue is the state of AHAB's business and where any cash will come from, with some bankers estimating any deal is likely to lead to creditors getting back a fraction of their claims - perhaps as little as single-digit cents on the dollar.

Charlton said the main Algosaibi family are "prepared to contribute significantly" to reach a solution, but added that all of AHAB's assets outside the kingdom are gone and those inside Saudi are frozen by a Royal Order put in place in the wake of the 2009 problems.

The company also lost one of its best revenue streams when PepsiCo in January terminated a bottling licence due to AHAB's inability to invest money in the business.

While three sources in the kingdom confirmed AHAB was paid a fee to help ensure a smooth transfer of bottling operations to new licensee Al Jomaih Group, they said it was a much smaller figure than the 3 billion riyals ($800 million) reported in the Saudi press. Charlton wouldn't comment on the proceedings.

Therefore, those watching the situation expect much of any AHAB repayment plan to creditors to likely rely on possible cash recouped from litigation against Sanea.

In court cases since 2009, AHAB has argued that Sanea, who helped manage and invest the Algosaibi family's wealth in the years prior to their financial troubles, owed AHAB compensation for misleading advice and fraudulent actions - charges Sanea and his lawyers have consistently denied.

Saad Group could not be reached for comment.

Determining what, if any, compensation AHAB is due from Sanea and Saad Group will take a considerable amount of time, given the usual lengthy duration of such legal disputes, which led some of the sources to speculate that AHAB will ask creditors for leeway, as part of a restructuring agreement, to allow court cases to be resolved.

The second Saudi source said AHAB civil proceedings in the kingdom weren't due to begin for at least "a few months", while the third said a trial in the Cayman Islands against Sanea had been scheduled to start in the first half of 2016.

NO INTEREST

Opposition to a deal between AHAB and creditors has already emerged, with the Saudi banks exposed to AHAB refusing to attend the May 7 meeting.

In an April 3 letter seen by Reuters which was sent to AHAB on behalf of local creditors by the Saudi affiliate of law firm Latham & Watkins, Saudi banks said they had "no interest" in attending the meeting and demanded "immediate and full repayment of their claims", reserving "all their rights to take appropriate actions to enforce against such claims."

This, according to one Saudi banker involved in the process, means going to the courts to claim AHAB assets.

"The banks have reached the end of the line with AHAB," he said, speaking on condition of anonymity.

A step-change in attitude follows the successful enforcement towards the end of 2013 of a claim by Samba Financial Group against AHAB, in which a Saudi court authorised the bank to seize collateral over an unpaid debt for the first time.

Most banks had previously been reluctant to pursue collateral claims, given the opaque nature of Saudi bankruptcy law. This is despite 27 local and foreign lenders having enforcement judgements granted by courts in the kingdom giving them the authority to take AHAB assets, sources said.

For all creditors holding enforcement judgements, deciding whether to join a negotiated deal is a big move, as a condition likely to be included by AHAB would be to forfeit all legal claims against it, said a restructuring lawyer.

Yet much of AHAB's argument on Wednesday will be appealing to creditors that any consensual deal which results in cash being returned is better than a fire sale of assets which will be worth much less.

"The alternative is a continuation of the status quo - a stalemate that inevitably will see banks competing with each other for a limited pool of frozen assets, uncertain outcomes and an escalation of legal bills for all," Charlton said.  - Reuters