RIYADH: 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 (Dh6.01 billion, $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 that 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 restructuring.
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.