Sources say there is added pressure on Abu Dhabi conglomerate to secure new debt deal to save it from collapse
Al Jaber Group missed a March repayment on its $4.5 billion restructuring, three sources aware of the matter told Reuters on Tuesday, adding pressure on the Abu Dhabi-based conglomerate to quickly secure a new debt deal to save it from collapse.
The family-owned group, best known as a contractor but with interests in a host of other sectors, has struggled after borrowing extensively at the end of the last decade to expand only to be caught out by a local economic slowdown.
The debt restructuring, sealed in 2014, failed to resolve its problems and the company and its creditors face another round of negotiations which, if unsuccessful, would not only mark the end of the company but also unleash trouble for thousands of suppliers, subcontractors and customers.
A spokesman for Al Jaber declined to comment.
The payment missed at the end of March covered both the company's debt and the interest due on it, according to three sources with knowledge of the matter, who spoke on condition of anonymity as the information isn't public.
Two of the sources said Al Jaber had requested a halt to repayments so that new terms could be negotiated, adding the company had promised to put a new debt proposal to creditors at a meeting scheduled for the end of April.
Al Jaber began speaking to creditors last year about refinancing the restructured debt to take advantage of cheap liquidity in the United Arab Emirates banking system. However, since then market conditions have deteriorated and the missed March payment ends the chances of the company securing this.
The sources noted the importance of the upcoming negotiations as the last chance to save the company from collapse. Such a scenario would send shockwaves through the local economy as banks would be forced to set aside significant cash for soured loans, suppliers and subcontractors would go unpaid and projects which Al Jaber and its companies are working on would stall until new contractors are appointed.
Stymieing the process though is the lack of clear and effective rules governing insolvency in the UAE: the last restructuring deal took three-and-a-half years to conclude.
The two sources said any new deal for Al Jaber would likely have to be structured to give the company breathing space from its debt repayments and offer incentives for management to improve the performance of the businesses.
However, they said creditors would probably demand a number of concessions in return, noting potential options included asset sales, the family pumping new cash into the group and swapping some of the debt for an equity stake in Al Jaber.
The latter could prove unpalatable though. While debt-for-equity swaps are common in the West, Gulf businesses - especially family-owned ones - are loathed to cede any control and there have only ever been a couple of examples of this in the region.
The debt is mostly held by local and international banks, although some hedge funds and other non-bank financial institutions are said to be among the creditor group.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.