Riyadh: The Saudi Arabian government has ended talks aimed at saving construction giant Saudi Oger, which is now facing the prospect of a multi-billion-dollar debt restructuring to stave off collapse, according to sources aware of the matter.
Oger, owned by the family of former Lebanese Prime Minister Saad Hariri, was one of two mega-contractors charged with implementing the grand infrastructure and development plans of the kingdom, building everything from defence installations to schools and hospitals.
The fall in oil prices since mid-2014, and the consequent sharp state spending cuts, have weighed heavily on the kingdom’s construction industry but in particular Oger, given its size and reliance on government contracts.
The numbers are stark: the government owes Oger about 30 billion riyals ($8bn) for work it has completed, according to a Saudi-based source.
This huge backlog of payments has left Oger struggling to meet its obligations, including 15bn riyals of loans, billions of riyals owed to contractors and suppliers, and 2.5bn riyals to workers in back and severance pay.
A collapse of Oger could trigger a wave of defaults among its huge network of sub-contractors and suppliers, which are also Oger creditors.
Talks between the company and Saudi authorities to find a solution to Oger’s financial problems have been taking place this year.
The discussions had explored and then discarded a number of options, including the government buying into the company and the sale of real estate assets or a stake in Oger to Nesma, another Saudi construction firm, according to the sources.
One source said the last plan on the table had been for Oger to sell investments such as Oger Telecom – which owns majority stakes in Turk Telecom and South African operator Cell C – and a 20 per cent holding in Jordan’s Arab Bank, with Saudi state-linked entities likely buyers.
However, Oger was informed by the government it was ending all negotiations. No reason was given, but some sources said there was still belief among creditors the state was open to further negotiations.