Abu Dhabi's largest private companies are facing increasing pressure to restructure debts and raise new financing as construction work has slowed and payments are delayed.
Al Jaber Group, one of the emirate's oldest family companies, with 50,000 employees and assets of more than US$5 billion (Dh18.4bn), revealed yesterday it had begun negotiations with lenders to restructure debts.
"Due to the widespread liquidity crises it has found it difficult to raise the appropriate finance to secure additional work and maintain its expansion in the region," the company said.
It did not disclose the amount of debt it aimed to restructure, but according to data from Bloomberg, Al Jaber is facing at least Dh3bn of loans maturing over the next four years. The company has a project pipeline worth more than Dh16bn.
"The group has the full support of its relationship banks and discussions are expected to be concluded in the new year," the company said.
The announced debt restructuring is the first to come from an Abu Dhabi family company and is a sign of the challenging environment the private sector is facing after the global financial crisis and regional economic downturn.
"Some of the very respected private companies are under pressure. We have to be realistic about the fact that the economy is contracting. It will have its knock-on effects right across the spectrum," said Terence Allen, the managing director of Allied Investment Partners, an investment bank in Abu Dhabi.
At the heart of the issue is the difficult borrowing environment. While companies owned by or related to the Abu Dhabi Government have been borrowing at increasing rates, private-sector companies have been encountering greater difficulty in obtaining financing.
Data from the UAE Central Bank show that loans, advances and overdrafts to the private sector decreased 3 per cent to Dh588.8bn between December last year and September this year. Of that total, the business and industrial sector experienced the sharpest decrease, a drop of 6.67 per cent to Dh331.5bn.
Public-sector lending ballooned, the data show, with loans to government organisations increasing 8.4 per cent to Dh99.5bn and loans to government-related entities increasing 4.05 per cent to Dh93.57bn.
Martin Kohlhase, a corporate finance analyst at Moody's Investors Service, said private companies had more trouble raising debt because they were closely held and not accustomed to scrutiny.
"Purely private players have largely stayed under the radar so far," he said. "Them being successful in going to market goes hand in hand with them opening their books, being more transparent and elaborating to investors what their strategy is." The low level of private-sector lending could also thwart private companies' ability to refinance cheaply, he said.
Mr Allen said the situation had echoes of Abu Dhabi in the 1990s, when several private contracting companies went out of business because of slow payments for large-scale projects.
Al Jaber Group, founded in 1970 by Obaid Khaleefa Jaber al Murri, focused initially on the construction business as the country began a building boom.
The company became involved in the industrial sector and bought assets including the Shangri-La hotels in Abu Dhabi and Dubai.
Today, the group is involved in some of the capital's largest projects, including Masdar City, a carbon-neutral development taking shape on the outskirts of the capital, and Saadiyat Island, an immense project undertaken by the Tourism Development and Investment Company.
The Masdar City building schedule has been pushed back and the budget slashed by several billion dollars in recent months as a new master plan is formulated.
The property sector in Abu Dhabi has slowed significantly since 2008, and an estimated 60 per cent of the housing projects launched at the peak are likely to be cut back, according to the consultancy Jones Lang LaSalle.
As a result, banks were still "very cautious" about lending to companies with property exposure, said Dr Monica Malik, the chief economist at EFG-Hermes.
The fallout from the Dubai World restructuring has also made international markets more reluctant to lend to the UAE than to the wider region, Dr Malik said.
"There has been some activity on debt capital markets, but Dubai's debt challenges are reflected in the pricing of the debt," she said.
Analysts have said these pressures are leading family-owned conglomerates to consider public stock offerings and other financing mechanisms such as private placements, in which investors lend money directly to a company.