Clifford Chance

Saudi upstream loans and guarantees

1 October 2011

A question we are frequently asked is whether Saudi Arabian companies can lawfully provide upstream loans and guarantees.

Banks providing a corporate financing to a group of companies might well, for example, require that the subsidiary entities accede to the finance documents as guarantors. The question almost invariably arises in the case of leveraged acquisition financings where target group companies are required to accede as guarantors where possible, post-acquisition. In other contexts, group-wide cash pooling/treasury arrangements may require upstream loans to be made by subsidiaries or require outright cash sweeps.

The issue has proved to be a controversial one, with different law firms in the market taking different positions as to the answer. The debate turns on the correct construction of Article 8 of the Saudi Arabian Companies Law.

The aim of this briefing note to is set out the competing views and to consider some practical methods for avoiding the potential restrictions.

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