The region’s construction sector is facing a cash flow crisis due to payment delays from clients amid slumping oil prices.

The price of crude has fallen more than 50 per cent since August last year, denting government revenues in key GCC markets. At the start of this year the lower than expected revenues stalled the award of contracts on new projects, but as the year has progressed payments on existing contracts have been delayed, causing cash flow problems for contractors.

In October, the Finance Ministry in Saudi Arabia – the region’s largest projects market – said that it was closing its national accounts one month earlier in mid-November. The move followed a ministry directive to freeze all project awards for the rest of the year.

Construction companies have started to raise funds to mitigate the impact of laggard payments. Consolidated Contractors Company (CCC) has raised $350m from three UAE banks. The Athens-based contractor, which has a presence in every Arab country, raised the three-year general corporate loan from a club of Union National Bank, First Gulf Bank and Mashreq, according to two sources close to the deal.

The company has raised funds as it expects payment delays from to worsen, says one of the sources.

CCC, which has operations across the oil and gas and construction sectors, is already in talks with more banks to raise additional funds as it looks to beef up its cash buffer. “It all depends on our clients,” says Samer Khoury, CCC’s president of engineering and construction. ”If we feel payments will be delayed further, we will get more loans.”

CCC is not the only contractor working for clients that have been slow to pay. Commenting on its third quarter losses of $268m, Dubai-listed Drake & Scull International (DSI) also highlighted problems with delayed payments and cashflow. “The current challenging macro-economic environment; characterised by weaker oil prices, a slowdown in the construction sector and a more competitive landscape has caused developers and clients to defer payments and delay projects across DSI’s major markets.”

DSI says it plans to dispose of assets to help improve its financial position. “The company is also taking a number of measures to boost working capital, reduce debt levels and improve the capital structure by selling non-core assets to generate cash and improve liquidity.”

As the cash flow crisis deepens there are concerns that some contractors will be unable to meet their financial obligations.

Contractors are adept at passing on the impact of delayed payments to the supply chain, but after being saddled with unpaid bills following 2008 global financial crisis suppliers are now less forgiving when it comes to delivering materials and equipment in lieu of payment. “Suppliers still have debts from the previous crash sitting on their books, so they will not be able to take the kind of hit they took in 2009,” says an international contractor working across the region.

Payroll commitments are even more difficult to defer than suppliers’ bills, and some major contractors have struggled to pay their workforce on time over since the summer. “It is not a case of wages not being paid, but they have been delayed,” says a source at a major contracting company based in Dubai. “The company has not gone under, but it does tell you how tight cash flow is at the moment.”