Local Challenges, Expert Solutions: Ensuring Borrower Compliance in KSA

Case Details

Buyer/Borrower location: Kingdom of Saudi Arabia (KSA)

Buyer/borrower type: Private corporate

Transaction/Loan amount: EUR4.5 million

Payment terms: 5-year repayment period

Sector: Manufacturing

Background

A European bank had provided an ECA-backed buyer credit facility to a Saudi corporate to cover the purchase of equipment from a German exporter.

Following drawdown, the bank was required to verify the borrower’s amended legal status and ensure conditions precedent were satisfied. This process was fundamental in maintaining regulatory compliance and identifying potentials risks associated with changes in the borrower’s corporate structure.

Challenges

The bank faced several challenges in fulfilling its monitoring requirements:

1. Lack of Local Representation
   Without an office or team on the ground in Saudi Arabia, the bank’s ability to conduct direct due diligence on the borrower’s evolving legal status was limited.
2. Legal Entity Changes
   The borrower’s corporate structure had changed, requiring validation to confirm that the legal transition adhered to local laws and was accurately reflected in the shareholder agreement.
3. Regulatory Compliance & Financial Reporting
   To meet banking regulations, the bank was required to obtain the borrower’s latest Annual Report & Accounts in English. This process can be difficult if the borrower is uncooperative post-drawdown, as financial statements are not always readily available in English.

Solution

By leveraging our local trade and legal experts, fluent in Arabic and familiar with Saudi corporate regulations, we provided on-the-ground support to the bank with:

1. Validation of Legal Changes
   Our team confirmed that the borrower’s legal transition complied with KSA regulations and verified that the entity named in the loan agreement remained valid.
2. Document Acquisition & Translation
   We successfully obtained the latest Annual Report & Accounts, ensuring they were translated into English where necessary.
3. Regulatory Assurance
   Our involvement enabled the bank to satisfy banking compliance requirements, thereby avoiding any potential breaches or penalties.

Key Takeaways

1. Importance of Local Expertise
   Having on-the-ground presence and knowledge of local jurisdictions ensures efficient due diligence, especially in complex legal and regulatory environments.
2. Proactive Compliance Mitigates Risk
   Addressing legal and reporting requirements early prevents future complications and ensures adherence to banking regulations.
3. Bridging the Communication Gap
   Language barriers and corporate transparency challenges can be overcome with experienced local support.