Advisors celebrate approval of Azmeel’s financial restructuring plan

25 February 2022 3 min. read

Saudi Arabia's Azmeel Contracting & Construction Corporation has received court approval for its proposed 7.73 billion riyal ($2.06 billion) financial restructuring plan, closing a restructuring process that kicked off around two years ago.

Established in 1991, Azmeel Contracting & Construction Corporation has over the past three decades grown into one of the kingdom's five biggest builders, mainly helping clients in the government and semi-governmental sector (oil and gas, industrials, infrastructure, residential and commercial sectors) with construction projects, repair and maintenance.

In October 2019, Azmeel entered formal bankruptcy proceedings when clients and some public and private entities made late payments, leading to debt that reached 7.73 billion riyals and an equity deficit of 2 billion riyals.

Advisors celebrate approval of Azmeel’s financial restructuring plan

In response, Azmeel appointed Deloitte as its restructuring advisor tasked with preparing a business plan and a restructuring proposal compliant with the requirements of the financial restructuring procedure of Saudi Arabia’s bankruptcy law. King & Spalding was flown in to oversee the legal side of the financial restructuring.

Fast forward to the 4th of February 2022, and a major milestone was celebrated when the creditors of Azmeel approved the proposed restructuring plan of the debt pile – mainly through an issuance of perpetual Islamic bonds. The creditor group consisted of more than 10 banks including some of the largest in the kingdom along with 2,700 other creditors.

The restructuring was undertaken under the supervision of a court-appointed bankruptcy trustee, and under the laws and regulations of the nascent KSA Bankruptcy Law. On the 13th of February, court approval was received.

The masterplan

Azmeel will be restructured through the issuance of 7 billion riyals in perpetual sukuk, about 92% of the total liabilities, in what is the first time perpetual sukuk have been used for a Saudi restructuring. The remaining roughly 8% of debt will be secured against Azmeel assets like equipment and real estate.

The construction group envisions repaying the sukuk over 11 years, including a one-year grace period. About half of the planned sukuk will have personal guarantees.

According to Karim Labban, a partner at Deloitte and Turnaround & Restructuring Leader for the Middle East, the deal marks a “flagship transaction” for the sector. “This landmark transaction represents a milestone within the Saudi restructuring landscape, given the use of hybrid restructuring solutions including perpetual sukuks to recapitalise Azmeel’s balance sheet while offering an attractive recovery plan to creditors.”

“It is anticipated to set a precedent on how restructuring solutions are addressed under the KSA Bankruptcy Law,” he added.

King & Spalding’s team was led by partners Nabil Issa, Michael Rainey and Zaid Hadir Al-Farisi, and supported by Mohammed Al Ammar, Jonathan Jordan, Asal Saghari, and Turki Radain.

Commenting on the firm’s involvement and the outcome, Rainey said: “This is a landmark transaction when it comes to financial restructurings in Saudi Arabia. The country only implemented major new insolvency laws in 2018 so there was very little in the way of precedent for a restructuring so large and complex.”

“Ultimately, we are exceptionally pleased that Azmeel will be able to clean up its balance sheet and start bidding for new projects as the country continues to invest in its Vision 2030 initiative.”