Major Saudi contractor defaults on $2b of debt

Defaults are largely the result of problems getting paid by the Ministry of Interior

One of Saudi Arabia’s major contractors defaulted on almost $2 billion after a falling out among its owners and delays in payments from the government, according to people with knowledge of the matter.

The Saudi unit of Cyprusbased Joannou & Paraskevaides Group defaulted on about 7 billion riyals (Dh6.9 billion or $1.9 billion) in bank loans about two months ago, said anonymous sources. The defaults are largely the result of problems getting paid by the Ministry of Interior, they said.

Lenders, which include Arab National Bank, Alawwal Bank, Banque Saudi Fransi, Emirates NBD, Saudi British Bank and Samba Financial Group, don’t expect to recover much of the money, they said.

Faced with a budget deficit that ballooned to $100 billion in 2015, Saudi Arabia suddenly halted payments to government contractors. The move wreaked havoc among local construction firms as many projects stopped, leaving them unable to pay employees. Saudi Oger Ltd., once one of country’s top contractors, collapsed as a result.

J&P’s Saudi unit has been struggling since then and has also been impacted by a dispute between the parent company’s shareholders, which distracted management attention from the issues in the kingdom.

As a result of that dispute, the parent company is being liquidated by Alvarez & Marsal in Cyprus. The liquidation does not directly impact the Saudi unit’s operations.

The Finance Ministry says it honours payments that fulfil all of the government’s requirements. A committee to deal with contractor payments has been set up and most disputes have been resolved, Finance Minister Mohammad Al Jadaan said last month. In May, many companies were said to have complained about delays.