Two of Oman’s biggest builders plan to restructure in a bid to cut costs as losses mount.
Galfar Engineering & Contracting, one of the sultanate’s biggest private sector employers, appointed the German management consultancy Roland Berger to oversee its restructuring as well as a financial adviser to help rearrange bank debts, and is in talks with Oman Arab Bank with a view to raising convertible bonds.
According to its chairman, Salim Al Araimi, Galfar’s board is “deeply concerned with its declining performance over the last few years, which has largely arisen from unprecedented delays in closing out projects and delays in payment of receivables from clients, mainly governmental entities.
“These factors are well known but not resolved, and Galfar and all other contractors are affected by long outstanding receivables,” he said.
The firm’s accounts for 2015 show a loss of 28.5 million Omani rials (Dh270.9m), compared with a profit of 1.2m rials a year earlier. The loss was largely due to 31.9m rials of provisions made against outstanding debts – the biggest proportion of which is owed by government clients for work on the Muscat Expressway and Central Corridor road projects. Revenues dropped by 8 per cent to 326m rials.
Galfar said that its reorganisation would include cutting overheads, improving productivity, better talent and liquidity management and improved site execution and productivity. It expects its programme to take at least 12 to 18 months to complete, but for initial benefits to feed through by the second quarter of this year.
Meanwhile, its competitor Al Hassan Engineering is also embarking on a restructuring after declaring a 471 per cent increase in annual losses to 8.2m rials (2014: 1.4m rial loss). This is despite increasing turnover by 34 per cent to 102.3m rials.
The company appointed Shawqi Sajwani as its new chief executive last month – its fourth such appointment in two years. He followed on from the former KBR director Steve Scott, who was in the post for less than a year, and from Mohamed Al Haj Bakour, who lasted just three months before quitting in April 2014.
Al Hassan also had to make provisions against 5.13m rials that had previously been recognised as revenue, but said it was pursuing claims and hoped to get all contract variations approved by the end of this year.
It blamed changes to the scope of a contract to build a gas plant at Zauliyah for the state oil firm Petroleum Development Oman and an unnamed project in Sohar for its losses. It said its restructuring plan would include a management restructure, reorganisation of its bank debt and the addition of more equity. It also hopes to raise 3.2m rials from the sale of a non-core site.
Oman’s government has been hit hard by declining oil prices. The sultanate has one of the highest cost bases of GCC states, and last week its debt was downgraded by two notches by the ratings agency Moody’s to A3 from A1.
Moody’s said that even with the 2016 budget tightening taken into account, Oman still faced a fiscal deficit equivalent to 17 per cent of GDP this year, narrowing only to about 13 per cent by 2018.
As a result, the government’s debt is forecast to rise to 35 per cent of GDP by 2018, up from just 5 per cent in 2014.
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