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As Abu Dhabi’s Al Jaber looks for a year’s extension on its thumping Dh6 billion of debt, Kipp takes a closer look at the situation.
December 21, 2010 4:56 by Eva Fernandes
“Abu Dhabi’s Al Jaber Group Said To Ask for Year Delay on $1.6 Billion Debt” reads a Bloomsberg article published this week. It had Kipp reeling; we found ourselves wondering whether it was Groundhog Day. Wasn’t it around this time a year ago that the whole Dubai-World-defaulting-on-its-debt-payments happened? Fortunately, though, Al Jaber’s obligations are a lot less severe than the $25 billion of debt that Dubai World temporarily ducked. But we hope the reports are not just the tip of the iceberg for similar companies.
The news was a shock to a market that had previously considered Al Jaber among the strongest private sector companies, explains the National. On the 20th it was announced that Al Jaber Group had asked about 30 lenders if it could delay payments on Dh6 billion of debt by a year. According to data compiled by Bloomberg, BNP Paribas, First Gulf Bank, National Bank of Abu Dhabi and Mashreqbank PSC are among the creditors that have lent money to Al Jaber. In an emailed statement the company said Al Jaber “found it difficult to raise the appropriate finance to secure additional work and maintain its expansion in the region” because of the credit crisis.
Al Jaber Group is a privately owned group that boasts of a workforce of 50,000. Established in 1970, the group has over 30 large subsidiary companies making it the largest private sector group in the UAE and the second largest in the GCC. With its focus on construction, engineering, transportation and logistics the group is responsible for the construction of some of the UAE’s key landmarks including the Mina el Salam hotel at Madinat Jumeriah and the Kempinski at the Mall of The Emirates. In addition to their operations in the Emirates, Al Jaber has entered joint ventures with several other companies including Deutsche Babcock AG, to form Deutsche Babcock Al Jaber (DEBAJ) W.L.L, a power station technology and environmental engineering service company.
To help restructure its Dh6 billion debt, Al Jaber has hired financial advisors KPMG. The company will probably find a way through this mess, as it has an ace up its sleeve – an asset base worth Dh18 billion (that valuation from its website). That kind of asset value suggests that the problem is connected more to cash flow and availability of credit than it is long term viability. Even though some companies seem to have no trouble with credit, others – such as Al Jaber – seem to struggle.
And speaking of credit, the recent developments cast an uncertain light on the nature of lending for UAE banks, apparently, with most trying to determine if new provisions are needed. Jaap Meijer, a financial analyst at Alembic HC Securities, told The National that if restructurings at Dubai World and Dubai Holding were used as a model, banks “might see 10 to 15 per cent provisioning on their exposure, if they reduce the interest rates and extend maturities.”
Just a week back Al Jaber Group was celebrating after it was awarded the Dh204 million infrastructure contract for the Bawabat Al Sharq community project on Ban Yas City in Abu Dhabi. That’s what makes the debt news so unsettling – not the level of debt, which the market can manage, but the possibility that we could be only round the corner from similar revelations from companies we think are safe.