RIYADH Nov 30 Saudi Arabia's Al Ittefaq Steel
Products is hopeful its lenders will see underlying strength in
its business during talks to restructure debt worth 6.2 billion
riyals ($1.6 billion), its chief executive told Reuters.
The attitude of creditors could set the tone for others in
the construction industry with similar difficulties as they
grapple with a slump in global steel prices, a flood of cheap
Chinese imports and a reduction in government-funded
infrastructure projects since oil prices slumped.
"We're obviously hopeful the banks will take a more lenient
view, given this is really a systemic issue," CEO Sharjeel
Azhar, a former HSBC banker, said in an interview.
Al Ittefaq, the largest private sector steel producer in
Saudi Arabia and a subsidiary of Al Tuwairqi Holding, is
undergoing its second debt renegotiation in the last seven years
after the initial slump in steel prices left it unable to
service loans used to fund expansion.
Since then, Chinese producers, which account for about half
of worldwide supply, have flooded export markets.
Azhar has been CEO of Al Ittefaq since 2012, when he was put
in charge at the behest of shareholders after leading
negotiations for the firm on the last restructuring. The
original debt deal had been due to run until 2017.
Azhar said the conversations which had taken place so far
with banks seemed to take the very poor market conditions into
account, and recognised the underlying business was robust.
"If the financiers support the industry, I think things will
be fine, but if somebody takes a very hard-line view then you'll
start seeing things trip up," he said.
Azhar said it could be another one or two years before the
steel industry gets back on its feet.
Saudi Basic Industries Corp (SABIC) said in
October it would spin off its struggling steel unit, Hadeed,
having booked a 725 million riyal loss on its metals business in
the first quarter.
The wider construction industry is having a similarly
difficult time. Saudi Oger, one of the largest contractors in
the kingdom, is facing the prospect of a multi-billion-dollar
Azhar said many of Al Ittefaq's clients are requiring longer
credit periods to allow them to meet payments but the company
has not seen any defaults.
The Saudi government attempted to help local industry by
lifting an export ban in April on cement and steel.
Azhar said his company had not yet begun exporting as he was
awaiting clarity on a number of points on the policy change,
without going into detail.
Support could also come from raising import duties on steel.
A senior United Arab Emirates official said earlier this month
the Gulf countries were studying a proposal which would hike the
A rise in global steel prices is what would most benefit
producers such as Al Ittefaq, according to Azhar, who believed
only Chinese firms could initiate this as they account for so
much of global supply.
"As demand has fallen, it's not so much the import volumes
that are impacting us but it's the price levels
internationally," he said. "The possibility of a low price
entering your market is sometimes more threatening than actual
volumes coming into your market."
In the meantime Al Ittefaq is working on a restructuring
plan with a group of creditors and Azhar hopes to secure an
agreement at some point next year.
In total, the company has 18 creditors which are
predominantly Saudi banks but which also include HSBC, Standard
Chartered and Bank ABC, according to Azhar.
It has been in talks with a group which holds upwards of 60
percent of its total debt and which has been put in charge of
negotiating a settlement. The group consists of Saudi British
Bank, Arab National Bank, Banque Saudi Fransi, National
Commercial Bank, Riyad Bank and Samba Financial Group.
($1 = 3.7503 riyals)
(Editing by Elaine Hardcastle)