DUBAI: Saudi-listed Emaar the Economic City (Emaar EC), the principal master developer behind King Abdullah Economic City (KAEC), has taken a significant step in fortifying its financial foundations by approving an ambitious capital optimisation plan valued at approximately 8.7 billion Saudi riyals ($2.32 billion).
Central to this strategy is a proposed reduction of capital by 49.7 per cent, a reflection of the company’s intent to address accumulated losses while enhancing its overall financial and operational stability.
The meticulous development of this plan over the past two years underscores Emaar EC’s commitment to reassessing and realigning its financial strategies in the face of evolving market dynamics.
A salient feature of this optimisation blueprint is the comprehensive restructuring of SAR 3.8 billion in bank debt facilities.
Streamlining debt repayments
The restructuring aims to convert existing bilateral credit lines from leading financial institutions, such as Alinma Bank, Saudi Awwal Bank, Banque Saudi Fransi, and Saudi National Bank, into a new syndicated Shariah-compliant facility.
The move not only seeks to streamline debt repayments but also aligns them strategically with the company’s investment aspirations and liquidity requirements.
Another critical facet of the plan involves the conversion of SAR 4 billion of debt into equity, a portion of which includes SAR 2.9 billion previously sourced from the Ministry of Finance, which has recently been transferred to the Public Investment Fund (PIF), along with an additional SAR 1.1 billion in shareholder loans from the same fund.
The approach is anticipated to significantly de-leverage Emaar EC’s balance sheet, thereby reducing interest expenses and reinforcing its equity base. Such a robust equity transformation is expected to foster investor confidence and improve the company’s market positioning.
Moreover, the introduction of a new convertible shareholder facility amounting to SAR 1 billion from PIF further illustrates the strategic intent behind the optimisation plan.
New funding avenues
The facility is poised to reinforce the company’s liquidity stance, enabling Emaar EC to secure necessary funding for essential growth initiatives in both the short and medium term. The injection of this capital is critical for the company’s sustained progress, particularly in the fast-evolving economic landscape of Saudi Arabia.
Nevertheless, a fundamental aspect of this restructuring initiative is the planned capital decrease aimed at offsetting accumulated losses. Proposed to reduce capital from SAR 11.33 billion to SAR 5.70 billion, this substantial adjustment is intended to stabilise Emaar EC’s financial position and lay the groundwork for a more resilient balance sheet.
It is important to note that this capital decrease, while significant, is expected to have no adverse impact on the company’s operational capabilities, reinforcing Emaar EC’s trajectory towards recovery and growth.
The amalgamation of these strategies is poised to bolster Emaar EC’s partnerships with key stakeholders, notably the Public Investment Fund and various commercial lenders, thus establishing a robust collaborative framework for future endeavors.
The effectiveness of the plan hinges not only on the restructuring of existing facilities and the introduction of new funding avenues but also on securing regulatory and shareholder approvals for the debt conversion and capital decrease proposals.
