Saudi Arabia’s Samba Financial Group has taken Saudi Oger to court, torpedoing efforts by the latter to negotiate a standstill agreement on at least SAR13bn ($3.5bn) of debt, which could have major repercussions for the stability of the Saudi financial sector and the wider economy, media sources reported.
Saudi Oger, a construction company owned by the family of Lebanese Prime Minister Saad El Hariri, has been seeking a so-called standstill agreement with its creditors to avoid legal action while it negotiates an extension of loans’ maturity and recovers amounts due from the government.
Saudi Oger ran into financial difficulties when the Saudi government, following the drop in oil prices over the past couple of years, failed to make good on an estimated SAR30bn in back payments on delivered construction works.
Being one of the few contractors capable of undertaking large-scale infrastructure projects for Saudi government entities, Saudi Oger and other key industry players received partial payments on amounts due by the Saudi finance ministry in November and it is said that the remaining backlog is to be cleared within December.
Samba’s rejection of Saudi Oger’s request for a standstill agreement hinders the company’s efforts to peacefully restructure its debt load, putting pressure on it to dispose of assets.
A consortium of Jordanian investors led by Arab Bank Group chairman Sabih al-Masri is bidding $1.12bn to purchase a 20% stake owned by Saudi Oger in Arab Bank by mid-January 2017.
Should neither the Saudi government make good on further payments to contractors nor the Arab Bank stake sale go through by late January, the failure of Saudi Oger – with bank loans that exceed the third-quarter profits of all Saudi banks combined as well as backward and forward chains of hundreds of suppliers, contractors and customers and tens of thousands of employees – could pose a systemic risk both to the Saudi financial system and to a lesser extend to the economy at large.
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