DSI moves closer to Saudi project debt deal

Dubai-based contractor DSI, which has worked on some of the emirate’s largest construction projects, is in the process of restructuring its debts. (Reuters)
Updated 09 January 2018

DSI moves closer to Saudi project debt deal

LONDON: Drake & Scull International aims to complete the 1 billion dirhams ($272 million) refinancing of its Saudi project debt within three months.

The Dubai-based contractor said on Monday that it had completed the restructuring of its corporate general bank debt in the UAE and has secured new credit lines and working capital facilities for its projects. Now the focus will turn to Saudi Arabia.

The contractor hit payment problems after a period of rampant acquisition-driven expansion, especially in Saudi Arabia where the construction sector suffered from the 2014 collapse of the oil price.

Back at home in the UAE, DSI said it had secured the support of all of its creditors after reaching an agreement with nine regional banks to refinance about 566 million dirhams of corporate debt.

That represents more than half of its total corporate general debt which stood at 1.07 billion dirhams at the end of the third quarter last year, the contractor said in a stock exchange filing on Monday.

The tenor and the maturity of the restructured debt have been “extended and re-termed on average for 3 years,” DSI said. 

At the same time, the company secured new credit lines with the banks to help deliver ongoing projects in the UAE.

DSI said that the remainder of its general debt, comprising a 440 million dirhams sukuk will mature in November 2019. 

It aims to begin talks with those sukuk holders in the second half of the fiscal year.

The contractor said it had total bank debt of 2.92 billion dirhams at the end of September 2017 – about two thirds of which is project debt.

“Our main objective is to drive a consensual restructuring plan with all our creditors across the region to rebalance our capital structure to be more efficient and conducive for our business plan and future prospects,” said Rabih Abou Diwan, investor relations director at DSI.

“The completion of our debt restructuring in the UAE will enable us to accelerate projects performance and delivery in Dubai and Abu Dhabi.

In August DSI ended a near three-year major order drought in Saudi Arabia when it was picked to help build a wastewater plant that will also generate biogas in the Eastern Province.

Saudi Arabia is emerging from a severe slowdown in the construction sector with builders expected to emerge as beneficiaries of increased government infrastructure spending in 2018.

Last month the Kingdom’s announced a record budget — with infrastructure spending surging more than 90 percent.

The budget represented a dramatic turnaround for a sector that has been hit by massive losses and job cuts as the collapse of the oil price brought some big projects to a halt and major contractors to the brink of insolvency.

Al-Rajhi Capital Research said in a note that sectors including cement, real estate, construction and building materials would stand to benefit from any increase in capital spending.

Easy credit poses tough challenge for Russian economy minister

Updated 18 August 2019

Easy credit poses tough challenge for Russian economy minister

  • Measures being prepared to help indebted citizens; situation might blow up in 2021

MOSCOW: New machines popping up in Russian shopping centers seem innocuous enough — users insert their passport and receive a small loan in a matter of minutes.

But the devices, which dispense credit in Saint Petersburg malls at a sky-high annual rate of 365 percent, are another sign of a credit boom that has authorities worried.

Russians, who have seen their purchasing power decline in recent years, are borrowing more and more to buy goods or simply to make ends meet.

The level of loans has grown so much in the last 18 months that the economy minister warned it could contribute to another recession.

But it’s a sensitive topic. Limiting credit would deprive households of financing that is sometimes vital, and could hobble already stagnant growth.

The Russian economy was badly hit in 2014 by falling oil prices and Western sanctions over Moscow’s role in Ukraine, and it has yet to fully recover.

“Tightening lending conditions could immediately damage growth,” Natalia Orlova, chief economist at Alfa Bank, told AFP.

“Continuing retail loan growth is currently the main supporting factor,” she noted.

But “the situation could blow up in 2021,” Economy Minister Maxim Oreshkin warned in a recent interview with the Ekho Moskvy radio station.

He said measures were being prepared to help indebted Russians.

According to Oreshkin, consumer credit’s share of household debt increased by 25 percent last year and now represents 1.8 trillion rubles, around $27.5 billion.

For a third of indebted households, he said, credit reimbursement eats up 60 percent of their monthly income, pushing many to take out new loans to repay old ones.

Orlova said other countries in the region, for example in Eastern Europe, had even higher levels of overall consumer debt as a percentage of national output or GDP.

But Russian debt is “not spread equally, it is mainly held by lower income classes,” which are less likely to repay, she said.

The situation has led to friction between the government and the central bank, with ministers like Oreshkin criticizing it for not doing enough to restrict loans.

Meanwhile, economic growth slowed sharply early this year following recoveries in 2017 and 2018, with an increase of just 0.7 percent in the first half of 2019 from the same period a year earlier.

That was far from the 4.0 percent annual target set by President Vladimir Putin — a difficult objective while the country is subject to Western sanctions.

With 19 million people living below the poverty line, Russia is in dire need of development.

“The problem is that people don’t have money,” Andrei Kolesnikov of the Carnegie Center in Moscow wrote recently.

“This is why we can physically feel the trepidation of the financial and economic authorities,” he added. Kolesnikov described the government’s economic policy as something that “essentially boils down to collecting additional cash from the population and spending it on goals indicated by the state.”

At the beginning of his fourth presidential term in 2018, Putin unveiled ambitious “national projects.”

The cost of those projects — which fall into 12 categories that range from health to infrastructure — is estimated at $400 billion by 2024, of which $115 billion is to come from private investment.