Saudi contractor Al Khodari to reduce reliance on public sector work

The amount of new work won by the company fell to 1.5 billion Saudi riyals from 2.9bn riyals in 2014 while it cut 8,000 jobs last year.

Conditions in Saudi Arabia have worsened for its construction sector as the government stopped awarding new contracts in late 2015. Waseem Obaidi / Bloomberg

The Saudi Arabian contractor Abdullah A M Al Khodari & Sons (Al Khodari), whose value of government contracts fell by almost half last year, is targeting more private-sector work and deals in the GCC and Africa after cutting 8,000 jobs last year.

The amount of new work won by the company fell to 1.5 billion Saudi riyals (Dh1.47bn) from 2.9bn riyals in 2014.

"We are going through volatility, as is any other business," Kailash Sadangi, the chief financial officer, told The National after revealing the company's new strategy to investors at the Saudi Arabia Equity Forum in Riyadh on Tuesday. "It is not just contractors," he said.

“We have a clear strategy in place to counter what is happening in the marketplace. We are one of the preferred contractors [in Saudi Arabia], we have a peak contractor classification and we have a lot of competitive strengths.”

The company had 19,000 staff at the start of 2015, but this fell to 11,000 by the end of the year. About 5,000 to 6,000 workers were laid off when projects came to an end and the remaining 2,000 to 3,000 were cut through a “lean” programme that involved stripping costs out of the business, including at head-office level, Mr Sadangi said. About 45 million riyals worth of costs were stripped out, the company said.

He said that the benefit of its diversification strategy were already paying off. Al Khodari had earned 95 per cent of its revenue from government work. But Mr Sadangi said that this ratio had fallen to 72 per cent public and 28 per cent private sector by last year, after picking up a 637.5m riyal contract from the Saudi Arabian Mining Company, Ma’aden, for work at the US$9bn Waad Al Shamal phosphate complex in the north of the country.

Within Saudi Arabia, the company is targeting other private-sector giants for work, such as Aramco, and is targeting consortia and joint ventures looking to deliver new metro and public transport projects.

It is also trying to move into complementary areas such as alter­native energy, facilities management and building cap­ability to take part in the construction of PPP or IWPP projects, and looking to link with developers that are planning to work with the housing ministry to deliver much-needed new homes under a 250bn riyal housing programme announced by the late King Abdullah in 2013.

“Then we are also venturing into some new markets on a selective basis,” Mr Sadangi said. “[These are] mainly GCC and some African countries like Egypt and other places where we find good opportunities.”

Conditions in Saudi Arabia have worsened for its construction sector as the government stopped awarding new contracts in late 2015 and cut spending allocated to transport and infrastructure in its 2016 budget by 63 per cent to 23bn riyals.

Chris Seymour, the Middle East head of markets at the building consultancy Arcadis, said that “liquidity is predictably tight” in Saudi Arabia after more than 12 months of low oil prices. He said this offered opportunities for contractors looking to gain a foothold into the kingdom, which is still the GCC’s biggest construction market.

“Alternative funding sources are an active area of development where contractors [who] can also bring funding to the table are prioritised.”

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