(Bloomberg) -- Saudi Arabia’s Samba Financial Group rejected a proposed payment freeze by construction firm Saudi Oger, blocking negotiations between the company and lenders over 13 billion riyals ($3.47 billion) of debt.
The Riyadh-based bank has started legal action to secure repayment of the debt after rejecting a so-called standstill agreement, the people said, asking not to be identified as the information is private. The accord would have prevented creditors from taking legal action against the company while it negotiated terms. Saudi Oger had been seeking to extend the maturity of the loan while it tried to recover delayed government payments, they said.
Saudi Arabia halted payments to contractors after the oil slump pressured the government’s finances, creating financial problems for the country’s largest construction firms. The construction company, owned by Lebanese Prime Minister-Designate Saad Hariri’s family, had been seeking to sell a 20 percent stake in Jordan’s Arab Bank to Saudi Arabia’s Fawaz Al Hokair Group, people with knowledge of the matter said last month.
The family has also begun talks to sell a stake in its Dubai-based telecommunications provider after missing a payment on a $4.75 billion loan, people with knowledge of the matter said in October. Hariri said that month that he “hopes” the company will survive.
Spokesmen for Samba and Oger didn’t respond to requests to comment.
Saudi Arabia said last month that it will settle all delayed payments to private businesses by the end of the year as it concludes a review of government projects. Thousands of low-paid foreign laborers employed by construction companies like Saudi Oger and the Saudi BinLadin Group were left stranded in labor camps after the government stopped project payments. Nearly 16,000 from India and Pakistan were abandoned, their governments said in August.
“The cash injection has helped so many contractors, except Saudi Oger,” Mazen Al-Sudairi, group head of sell-side research at Alistithmar Capital, said in an interview with Bloomberg Markets Middle East Tuesday. “We estimate that six Saudi banks have issues with Saudi Oger.”
The payment announcement followed the kingdom’s $17.5 billion bond sale in October, the largest from an emerging-market nation. The bond sale sparked a rally in Saudi stocks on optimism proceeds would help alleviate strain on the slowing economy.