Banks see more payment delays to contractors

26 May 2016

Contractors need cash flow support

Contractors are asking banks for more cash flow support as GCC construction markets slow, according to John Iossifidis, head of corporate and investment banking at Dubai’s Mashreq bank, speaking at the MEED Construction Leadership Summit in Dubai on 25 May.

Iossifidis said sentiment will rebound as oil prices stabilise and budgets adjust to $50-$70 a barrel crude.

Contractors are also adjusting to more difficult times.

“We are seeing three things clearly in construction: firstly that there are fewer projects,” says Iossifidis. “Secondly that payments are delayed, and thirdly that some of our largest clients are asking for support with cash flow management. They will get paid as these are government projects, but later.”

Some project owners are using unorthodox methods to push out payments.

“We have payment delays built into our forecast,” says Iossifidis. “When the work is complete and the job is certified, it is then payable. The client is not doing this certification, so we have to support contractors through that.”

The cost of borrowing is also rising, as base rates such as the US Federal Reserve rate are set to go up. Loan-to-deposit ratios in the GCC are nearing regulatory limits, while governments continue to raise funds, crowding out the private sector.

However, the consensus is that good projects and reliable clients will continue to attract finance.

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