x Abu Dhabi, UAEFriday 21 July 2017

Al Jaber in final stages of $4.5bn debt talks

Al Jaber Group, the Abu Dhabi conglomerate, is in the final stages of talks with creditors about restructuring around US$4.5 billion of liabilities.

Al Jaber, one of the biggest contractors in Abu Dhabi, has been trying to renegotiate bank and other liabilities for nearly two years. Pawan Singh / The National
Al Jaber, one of the biggest contractors in Abu Dhabi, has been trying to renegotiate bank and other liabilities for nearly two years. Pawan Singh / The National

Al Jaber Group, the Abu Dhabi conglomerate, is in the final stages of talks with creditors about restructuring up to US$4.5 billion (Dh16.5bn) of liabilities.

According to people close to the discussions, speaking on condition of anonymity because the talks were confidential, the company could be ready to present a term sheet to about 20 creditors by the end of this month.

Al Jaber, one of the biggest contractors in the emirate, has been trying to renegotiate bank and other liabilities for nearly two years. The talks have been complicated by the different kinds of financial liabilities owed by the company.

One of the sources said that there was about Dh7bn to Dh7.5bn of "funded" debt liabilities in the form of bank loans or overdrafts. There was also up to Dh8bn in the form of performance bonds and guarantees, "unfunded debt", but which is also regarded as a financial liability and included in the restructuring talks.

These figures, for a total of around $4.5bn, are higher than previous estimates of the amounts involved in the Al Jaber restructuring that had been reported to be in the region of $2bn for funded debt with no previous estimate given for unfunded liabilities.

A spokesman for the company declined to comment on the negotiations or the extent of its liabilities. However, it is believed that Al Jaber has made progress in talks with creditors, which include National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, HSBC, Royal Bank of Scotland and Union National Bank.

The source said: "The process has been made more complicated by the different types of liabilities. We've had to do a lot of work to get clarity. But we've made progress and could be in a position to offer a term sheet to creditors by the end of this month." He stressed, however, that there was no fixed deadline for the negotiations.

Al Jaber's assets declined in value during the global financial crisis, which hit the property and construction sectors hard, and then the company encountered difficulties meeting repayments to creditors. It has traditionally derived much of its business from contracts with government and state-related firms to build infrastructure and other big projects.

Performance bonds and guarantees are a type of insurance taken out to ensure satisfactory completion of a project.

Zafar Nazim, a senior credit analyst focusing on Middle East debt at JPMorgan, said: "Typically these people ask banks to provide performance guarantees to customers like governments or government-related companies. The banks in turn get themselves covered by getting counter-guarantees from the contractor, in this case Al Jaber."

Mr Nazim is not involved specifically in the Al Jaber situation.

The source close to the talks said: "We see performance bonds as a debt exposure. The contract counter-party can redeem the bond given by the bank, therefore making it a liability for the company."

Al Jaber said recently it had total assets of Dh18bn, which covers the total debt exposure.

The company is soon expected to complete the sale of its defence business Al Jaber Land Systems, which designs and manufactures vehicles and vehicle systems for use by the UAE armed forces.

A formal announcement of a deal to sell 60 per cent of the unit to Tawazun, the Abu Dhabi defence group, is expected at the imminent Idex conference in the capital.

The source said that the deal with Tawazun was not part of the restructuring process: "Any cash generated will go to Al Jaber, so it will be positive for the restructuring. But the deal with Tawazun was not driven by the restructuring process." The value of the deal to Al Jaber has not been announced.

Al Jaber employs 60,000 people, mainly in the Middle East.

fkane@thenational.ae

Clarification: In an earlier version of this story, The National stated that Al Jaber's debt talks concerned $6 billion of liabilities. The correct figure is $4.5 billion. This story has been amended to reflect this.