Riyadh instructs banks to submit exposure details

08 September 2016

Banking regulator collating information for Finance Ministry

Saudi Arabia’s banking regulator has asked all the lenders in the country to submit details of their exposure to Saudi Binladin Group (SBG) and Saudi Oger, two of the biggest contractors in the kingdom, according to sources in the industry.

Saudi Arabian Monetary Agency (Sama) asked the banks last week to submit their reports, the sources said, asking not to be identified as the information is not public. Most banks have already complied with the request, they added.

Sama is collating information on behalf of the Finance Ministry, which will use the data to assess the amount in delayed government payments it should release to the contractors. The ministry aims to shore up the firms’ capital position, enabling them to pay overdue wages to employees and start servicing their loans, according to a Riyadh-based banker whose bank provided its exposure details to Sama last week.

The funds are not expected to be disbursed before the Eid holidays as most of the key decision-makers including Deputy Crown Prince Mohammed bin Salman al-Saud were away in China representing the kingdom at the G20 summit on 4-5 September. The banker said it will be at least a few weeks after the Eid break before the two companies will start receiving funds.

Cleaning up

“The government wants to clean up the house before it goes to international investors for its debut bond in a couple of months,’’ said a banking source. The government, which secured $10bn in loans from a group of international banks earlier this year, is expected to tap the debt market to raise up to $15bn through the sale of its first international bond later in 2016.

The Finance Ministry and Sama did not respond to requests for comment. 

A majority of the banks in Saudi Arabia are exposed to the two companies through construction finance. Lenders have a combined estimated exposure to Saudi Oger of about SR13bn ($3.45bn). National Commercial Bank (NCB) has outstanding loans of up to SR3.5bn, Samba about SR1.5bn and Sabb about SR1bn, a banking sources told MEED on 25 August.

The amount SBG owed to the banks is closer to SR25bn, according to the banker’s estimate.

Lenders in the kingdom are exposed to these companies according to the size of their balance sheets. However, joint-venture banks such as Sabb or Saudi Hollandi will have less of an exposure to SBG as the company’s megaprojects were mostly in the two holy cities of Mecca and Medina, where foreign banks are not allowed to take collaterals.

Banks have individually been pursuing Saudi Oger to recover the outstanding loans, but there is no formal creditors’ committee in place as yet as the company’s top officials are not available to discuss the matter, MEED reported earlier.

Both SBG and Saudi Oger have relied mainly on multibillion-dollar state contracting for business. However, a slump in oil prices from a mid-2014 peak of $115 a barrel to close to $50 a barrel currently has forced Opec’s biggest oil producer to run an austerity campaign, cut spending on projects and stop contractors’ payments worth tens of billions of dollars, creating severe cash-flow issues for the construction sector.

The government slowly started releasing backdated payments in February, after hundreds of thousands of construction workers were laid off across the sector – 70,000 alone at SBG. Those who are still employed have not received wages for months.

Harsh conditions

Saudi Oger owes about $800m in salaries alone. The cash it requires to pay the trade creditors, sub-contractors and services it loans are on top of that amount. The firm is at the heart of the labour problems in the kingdom and has reportedly abandoned thousands of workers from India, Pakistan, the Philippines and Bangladesh at camps without food or medical attention, forcing them to endure harsh living conditions during the hot summer.

Riyadh has attracted a lot of unwanted attention after reports of suffering workers were published by local and international media, followed by ministerial visits from India and Pakistan to negotiate the safe return of thousands of workers and payment of withheld wages.

Saudi Oger, which is owned by Lebanon’s Hariri family, could be taken over by private investors close to the kingdom’s ruling family in a deal that is understood to be supported by the government, MEED reported last month.

The government said it will pursue the contractor for its labour rights infringement through the kingdom’s judicial system and get the workers their dues.

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