Azmeel Contracting, a leading contractor in Saudi Arabia, has now received approval from its creditors for its restructuring plan under the Saudi Financial Restructuring Procedure (FRP), said Hisham Ashour, the company’s Chief Restructuring Officer.

The documents for the restructuring are yet to be finalised, but a deal has now been agreed, Ashour added.

The company has some SAR 7.7bn (USD 2.05bn) worth of liabilities, of which SAR 5.5bn came from its bank lenders and SAR 2.1bn from its trade creditors, said Ashour. Around SAR 2bn of liabilities were unfunded, and the remaining share came from employees, he added.

As part of the deal, 92% of its liabilities will be converted into a perpetual sukuk, with the remaining 8% into covenant heavy debt, said Ashour.

Such a structure will be essential for allowing the business to acquire new projects, of which 80% of the business recovery is dependent, he said. In addition, perpetual debt allows for the prospect of secondary trading for lenders looking to exit their positions, something which is often difficult in Saudi Arabia.

Distressed NPL trading in Saudi Arabia requires approval from the Saudi Central Bank, which has before made it difficult, Ashour said. But with the optionality creditors have been given with the perpetual sukuk, this should make secondary trading much easier, he added.

“We have seen lots of interest from banks to explore this opportunity. Having the optionality [to trade] was very important for them,” he said.

The restructuring went through an in-court process, and the establishment of Saudi’s new insolvency legislation in 2019 was essential for helping the deal get over the line, he said.

“The new Saudi legislation was one of the key reasons for this working. Had we have gone down the liquidation route, recoveries would have only been between 3-5%. The legislation allowed equity holders to organise themselves without creditors enforcing,” he said.

Hisham Ashour had joined the company 12 months ago as Chief Restructuring Officer, and Managing Director of Haykala Advisors & Mergers, with a duty of care to both the company and the creditors. Latham & Watkins were also advising a group of bank lenders, said Ashour.

Deloitte and King & Spalding were advising company-side as financial and legal adviser respectively, said Ashour.

The main Saudi banks on the deal were Arab National Bank, Banque Saudi Fransi, Al-Rajhi Bank, Saudi British Bank, Bank AlJazira, Alinma Bank, Bank Albilad, Emirates NBD, Gulf International Bank and Saudi Investment Bank, said Ashour.

Azmeel ran into issues in 2018 due to changes in market dynamics, delayed payments from project owners and increased costs, said Ashour.

At the peak of the company’s performance, it had revenues of around SAR 5bn-SAR 6bn per annum, with a SAR 20bn project backlog and an EBITDA of around SAR 500m, he added. Azmeel has many prominent clients, such as Saudi Arabian Oil Company (Saudi Aramco) and Saudi Basic Industries Corporation (SABIC).

by Alex Dooler