Saudi Arabia construction market has dropped by 80 per cent, says Al Khodari chief

Al Khodari last week posted a net loss of 43.3 million Saudi riyals (Dh42.1m) for the second quarter of 2016.

The construction of the King Abdullah Financial District, north of Riyadh, in Saudi Arabia. Faisal Al Nasser / Reuters

The chief executive of Saudi Arabia’s only publicly traded builder has estimated that the construction market in the kingdom has shrunk by as much as 80 per cent.

Fawwaz Al Khodari, the head of Al Khodari & Sons, also revealed the contractor has avoided bidding on some government projects because of payment delay concerns.

“The construction market has slowed down immensely,” he said. “While we do not have definite numbers as statistics are sometimes contradicting, from the client base that we have been working with in the past, we believe, and are confident when we say, that construction has slowed down by at least 80 per cent,” he said.

Al Khodari last week posted a net loss of 43.3 million Saudi riyals (Dh42.1m) for the second quarter of this year, compared to a profit of 34.9m riyals in the same period last year.

This was largely because of a 37 per cent fall in revenue to Dh252.5m riyals, which Mr Al Khodari blamed on the lack of new contract awards in the kingdom, although he added that it had wilfully not bid for some government-related contracts because of payment delay concerns.

“We’ve taken some bold moves that may cost us in the immediate term, but in the med­ium to long term we believe they will reap us a lot of benefits and will free a lot of our resources to embark on the good opportunities that we see in some other sectors right now.”

Saudi Arabia’s government halted payments to contractors and the award of new contracts in the third quarter of last year while it formulated its new Vis­ion 2030 economic diversification plan.

He said the government has prioritised its payments into four tranches, with government employees’ salaries in the first tranche and contractors in the fourth, meaning they are last in line to be paid. He added that Al Khodari was in a better position than many rivals, as it has a street cleaning and maintenance arm (providing 30 to 40 per cent of its revenue) that is receiving payment.

Until 2014, almost all of Al Khodari’s work was carried out for government clients, but it has since diversified, setting a target of securing at least 35 per cent of its work from private sector clients.

It is now targeting the indus­trial, petrochemicals and oil and gas markets with Aramco as one target customer.

“Many contractors have either reduced their appetite, or perhaps they have changed their business lines or they have just had challenges that have put them out of competition,” he said. “This means that contractors are fairly scarce in a number of sectors now, and as gloomy as the market looks, in some sectors it has become an opportunity.”

He said that the firm is also gearing up for more involvement in the housing and leisure sectors, which are set for huge expansion following publication of the kingdom’s Vision 2030 plan, but argued that none of these were likely to emerge this year.

Ghada Jendoubi, an analyst with the equity research company Alpha Mena, said that Al Khodari’s poor financial results “were expected” given Saudi Arabia’s fiscal deficit (which equates to 13 per cent of GDP this year) and its decision to cut investment in infrastructure.

“Al Khodari is definitely going towards [its] worst year, especially in such difficult market conditions,” she said. “We keep our negative opinion on Al Khodari and the construction sector in the Mena region as a whole.”

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