Creditors of Saudi construction company Azmeel approve $2 billion debt restructuring

  • Restructuring to clear the balance sheet, facilitating tenders
  • Azmeel in cash crisis since 2019 amid government payment delays
  • Membership fell from 35,000 to 2,000 in 2017-2018
  • Perpetual sukuk will be issued in the second quarter, giving lenders a way out

DUBAI, Feb 4 (Reuters) – Creditors of Saudi Arabia’s Azmeel Contracting Co, one of the kingdom’s five biggest builders, have approved a 7.73 billion riyal ($2.06 billion) debt restructuring. dollars), mainly through the issuance of Islamic perpetual bonds, its head of restructuring said on Friday.

The construction sector in Saudi Arabia has faced a myriad of problems in recent years, with many companies falling victim to government payment delays, rising costs and fluctuating oil prices impacting state-supported infrastructure projects.

About 88% of Azmeel’s creditors, including 90% of banks and 75% of commercial creditors, voted in favor of the restructuring plan, which will give them the option to sell their exposure in the secondary market if they choose to do so. , Hisham Ashour, chief restructuring officer of Azmeel and managing director of Haykala Investment Managers, told Reuters.

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In October 2019, Azmeel was one of the first Saudi companies to file for formal bankruptcy under a law that took effect in 2018, as part of wider Saudi plans to attract foreign investment.

Azmeel’s cash crunch came to a head in 2019 when customers, some government-related entities and some from the private sector, made late payments, Ashour said.

This led to an accumulation of debts that reached 7.73 billion riyals, including unpaid or overdue salaries and unpaid suppliers, and an equity shortfall of 2 billion riyals. The company’s workforce has grown from around 35,000 in 2017-2018 to around 2,000.

“The idea of ​​a contracting company having tens of thousands of employees is no longer feasible,” Ashour said.

“The company will likely consider a model where it keeps project management and technical capabilities in-house and outsources and outsources as much as it can.”

“STRICT COMMITMENTS”

The debt includes 5.4 billion riyals of bank debt – of which 2 billion riyals are unfunded bank guarantees, 2.1 billion riyals of trade receivables and 230 million riyals of employee and government contributions.

It will be restructured by issuing 7 billion riyals in perpetual sukuk, or approximately 92% of total liabilities, with the remaining 8% representing approximately 8% “residual debt” – secured by Azmeel assets such as equipment and real estate.

“He will have strict covenants to ensure the company meets the terms of the restructuring plan,” Ashour said.

The sukuk, for which a profit rate has yet to be determined, are expected early in the second quarter, Ashour said. Azmeel is in talks with Saudi lenders to arrange the deal.

The company plans to repay the sukuk over 11 years, including a one-year grace period. About half of the planned sukuk will have personal guarantees.

“A cash sweep mechanism allows excess cash to be used for prepayment,” Ashour said, meaning any potential upside in the business could speed up the schedule.

The restructuring attracts banks because it gives them an exit option while cleaning up the company’s balance sheet, allowing it to bid on new projects with a healthier credit rating.

The most exposed creditors are Arab National Bank, Alrajhi Bank, Banque Saudi Fransi, Saudi British Bank, Bank AlJazira, Saudi National Bank, Bank Albilad, Gulf International Bank and Emirates NBD, Ashour said.

King & Spalding advised Azmeel and Latham & Watkins advised creditors on the restructuring.

“It will save jobs and increase the recovery of economic assets for banks and shareholders. It’s a win-win,” Ashour said.

($1 = 3.7516 riyals)

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Reporting by Yousef Saba; Editing by Susan Fenton

Our standards: The Thomson Reuters Trust Principles.

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