Binladin’s Debt Restructuring Is About to Get More Scrutiny

A debt restructuring proposal designed to prevent the collapse of construction giant Saudi Binladin Group may face more scrutiny from creditors.

The lenders that want a bigger say in the process have held discussions with Rothschild & Co. and may decide to appoint the investment bank in the coming weeks, the people said, declining to be named because of the sensitivity of the matter.

Talks are ongoing, and no final decisions have been made, the people said. Creditors may also choose to hire another adviser or none at all, they said.

While it’s not unusual for creditors to seek an independent counsel, they are acting almost a year after Binladin hired Houlihan Lokey Inc. as an adviser for what would be one of the Middle East’s biggest debt revamps. The plan is a response to what banks deem to be the lack of transparency that surrounds the process and an approach by Houlihan that they fear will result in a one-sided deal, according to the people.

Houlihan has warned that it would consider resorting to Saudi bankruptcy regulations to overcome any dissent among lenders, they said.

Binladin’s Debt Restructuring Is About to Get More Scrutiny

Houlihan said lenders aren’t coming under pressure.

“Absolutely no discussions have been had with creditors around use of available tools to implement the deal” as the firm is “working with the company and its stakeholders towards a comprehensive recapitalization,” said Arun Reddy, Houlihan’s managing director for the Middle East, Turkey and Africa.

Rothschild declined to comment.

A spokesperson for Binladin said in a statement that “positive discussions with creditors and lenders are advancing” as part of the company’s efforts “to comprehensively recapitalize its balance sheet” and improve operations.

“Ongoing engagement with our stakeholder community is expected as we advance the company towards substantial market opportunities,” the spokesperson said.

Construction Giant

Binladin has been playing a key role in building most of Saudi Arabia’s infrastructure since the modern Saudi kingdom was founded in 1932.

But it’s fallen on hard times in recent years, accumulating massive losses and debts as it found itself out of favor with the government in the aftermath of a crane accident in Mecca in 2015.

The company has since cut tens of thousands of jobs, overhauled top management and reduced salaries to bring down costs. Lower oil prices further curbed the Saudi government’s spending power, deepening Binladin’s troubles.

Binladin owes 32.9 billion riyals ($8.8 billion) to more than 50 banks, mostly Saudi and other Gulf lenders but also international heavyweights such as BNP Paribas SA, Deutsche Bank AG and Standard Chartered Plc, according to documents reviewed by Bloomberg.

A rare public glimpse into the finances of the Middle East’s biggest construction group paints a complex picture of a company that has received billions in dollars in state support but at the same time is owed large amounts of money from the government for work that’s already been carried out.

Although the company’s performance has started to stabilize before the pandemic, its net losses in 2017-2019 reached a cumulative 17.5 billion riyals, one of the documents showed.

Seeking Consensus

Houlihan is looking to secure support this month from banks and the Saudi Finance Ministry, in addition to setting up a call for all of the company’s lenders.

Binladin’s restructuring adviser has warned in its presentations that a liquidation of the company would have a “devastating impact” on Saudi Arabia’s construction sector and the company’s large workforce. It stated that suppliers, banks and the Saudi government -- which owns roughly a third of the company -- will all be hurt without creditors’ backing for the plan.

By hiring an independent adviser like Rothschild, lenders are angling for a better deal and would more likely speak with one voice when dealing with Binladin and its advisers, said the people. It would also ensure that they receive equal treatment and discourage different banks from striking separate deals with the company, they said.

Complicating the process, Binladin’s creditor group includes not only commercial banks that have extended roughly 200 different financing facilities, but also the Saudi government, trade creditors and various client liabilities.

Risks Abound

A Binladin bankruptcy would send shockwaves through the Gulf’s banking system and pose a serious setback to the kingdom’s ambitious economic reforms, which rely on major local companies to deliver its most ambitious projects.

Adding another layer of complexity is Binladin’s part in developing the holy cities of Mecca and Medina, a key source of revenue for the Saudi rulers as a destination for millions of pilgrims each year before the global pandemic.

Houlihan came onboard last year in an attempt to turn around the company and transform it into a national champion that can support the Saudi crown prince’s goals.

The U.S. investment bank has submitted a debt proposal to lenders that gives not only an overview of Binladin’s financial challenges but also charts a possible path forward, allowing the company to turn around its fortunes within seven years and eventually enabling creditors to recoup some of their money, according to the documents.

The revamp plan’s success also hinges on Binladin’s progress in securing payments for past work. It’s also counting on the company’s ability to benefit from Saudi Arabia’s plans to pump spending into various mega-projects.

©2021 Bloomberg L.P.

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