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23 Mar 2016

Nicolas Parasie, WSJ

Oil’s Decline Takes Toll on Saudi Conglomerate

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Saudi Binladin Group (SBG) struggles with massive debt as government cuts funding for megaprojects. 

An executive at one of SBG’s subsidiaries said the parent company hadn’t provided any funding to the unit for more than six months, triggering a funding crunch that has stalled longer-term plans. Regional and international bankers say the group is sitting on more than $30 billion in debt...[and] has already defaulted on an unspecified number of debt repayments...[because] the Saudi government has failed to make payments on time for completed or ongoing construction work...SBG accounts for about 70% of Saudi government construction contracts by value according to some industry estimates, making it the construction group most vulnerable to a slowdown in spending.

The group decided last year to eliminate 15,000 jobs out of a workforce of approximately 200,000...The failure to pay some of its employees has stirred labor tensions in the kingdom where large demonstrations are rare. Hundreds of SBG workers took to the streets at the end of February to demand unpaid wages...After police intervened, and following meetings with company representatives, the protesters obtained a guarantee they would receive their unpaid wages and also the chance to leave the country or switch employer...“Saudi Binladin Group has failed to pay their workers for months,” said Khaled Abalkhail, a spokesman for the labor ministry. “They have been sanctioned according to regulations.” 

In the absence of Western-style bankruptcy courts in Saudi Arabia, bankers warn that any sort of restructuring proceedings at SBG would be lengthy and complicated. A financial adviser familiar with the SBG situation said, “There will have to be a political solution"...[others] close to the group say it is unlikely SBG will ever be allowed to go under...“It’s too big to fail,” said a creditor at a Persian Gulf bank company who is close to SBG. “It’s an integral part of the Saudi system so they will find a solution,” the person said.