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$40bn OUTSTANDING BILLS

Saudi Arabia 'mulls bond-like tools to pay contractors'

RIYADH, May 21, 2016

Saudi Arabia is considering using IOUs (I-owe-you) model to pay outstanding bills with contractors and conserve cash, said a report, citing key sources.

As payment from the state, contractors would receive bond-like instruments which they could hold until maturity or sell on to banks, the people said, asking not to be identified because the information is private, reported Bloomberg.

Companies have received some payments in cash and the rest could come in the "I-owe-you" notes, the sources said, adding that no decisions have been made on the measures.

Saudi Arabia has slowed payments to contractors and suppliers, tapped foreign reserves and borrowed from local and international banks in response to the decline in crude oil, which accounts for the bulk of its revenue, stated the report.

The Saudi government owes approximately $40 billion to the country’s contractors, estimated Jaap Meijer, managing director of research at Dubai-based Arqaam.

Companies such as the Saudi Binladin Group are cutting thousands of jobs amid a slowdown in the construction industry, according to media reports.

“This would make sense and would help contractors get back on track,” Meijer said of the possible move. “Banks, however, would be more interested if it were a floating rate,” he added.

Saudi Arabia used a similar policy of repaying contractors in the 1990s, said Raza Agha, chief economist for the Middle East and Africa at VTB Capital.

“This time, Saudi Arabia’s cash flow has been impacted by the fall in oil prices, but weak public financial management may also be to blame,” he added.




Tags: Saudi Arabia | bond | contractors |

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