Oman’s listed engineering, procurement, and construction (EPC) contractor Al Hassan Engineering Co said its cash position “continues to remain precarious” as it faces payment delays, awaits the settlement of disputed claims, and faces the liquidation of its Dubai subsidiary after its Abu Dhabi unit’s closure during 2018.
However, the EPC contractor expects to return to profitability for the first time in seven years in 2019.
Despite an operational cash profit of $2.6m (OMR1m) in 2018, work-winning remains a key hurdle for the contractor in 2019, which is contending with the “non-availability of bank guarantees” in light of its “weak financial position”.
Al Hassan Engineering Co, which completed six projects in 2018 and has three ongoing developments in its portfolio, said its order intake is currently low, and its financial challenges have resulted in “missed opportunities in a high-potential market”.
Al Hassan Engineering Co posted a loss of $20.7m (OMR8m) in 2018 – a healthy step for the firm considering its losses of $128.5m (OMR49.5m) in 2017. The 2018 loss came after the company made a $10.4m (OMR4m) provision related to revenue impairment and accounted for a $7.8m (OMR3m) loss “arising from discontinuing UAE operations”.
ABU DHABI SUBSIDIARY LIQUIDATION
Subsidiary Al Hassan Engineering Abu Dhabi filed for liquidation in 2018, and is currently awaiting court approval for the shutdown. The contractor said fellow subsidiary Al Hassan Engineering Co Dubai “is also expected to file for liquidation in 2019”, adding that this would have no impact on its Oman operations.
Disputes were a significant concern for the Omani EPC contractor in 2018, which said in a missive to Muscat Securities Market that its “major challenge” during the year was “to maintain progress on projects, despite severe liquidity constraints”.
Al Hassan Engineering Co received $80.5m (OMR31m) from clients in 2018, which it used to “make critical payments, support ongoing projects, and manage overdue liabilities”.
In its statement to the Muscat bourse, the contractor added: “The cash position of the company continues to remain precarious, risking the execution of ongoing projects as per plans. Efforts are ongoing to resolve existing variations and claims to improve cash position of the company.”
AL HASSAN ENGINEERING CO’S PROJECTS
In 2018, Al Hassan Engineering Co completed the Lekhwair Fahud pipeline, Ghaba North Redevelopment, Zauliyah Gas Plant, and Rabab Harweel power plant (RHPP) and heat recovery steam generator schemes for Petroleum Development Oman.
For RHPP, Al Hassan Engineering Co was granted project-specific temporary funding of $5m (OMR2m), of which the outstanding $4m (OMR1.6m) was repaid by the contractor in February 2019.
The EPC contractor’s ongoing projects include the Liwa Plastics, Haima West, and Salalah Liquefied Petroleum Gas (LPG) projects. The Liwa Plastics project is 65% complete, and is due to complete in Q4 2019. Al Hassan Engineering Co has completed seven million man-hours without loss-time injuries (LTI) on the project.
PDO’s Haima West project, which Al Hassan Engineering Co was awarded in February 2018, has noted 14% progress. Major equipment for the scheme is to be delivered by Q4 2019, and construction is to be completed by Q2 2020.
Al Hassan Engineering Co’s Salalah LPG project, which Petrofac awarded to the contractor in March 2018, is 16% complete, and is due to finish in Q4 2019.
The EPC contractor said it completed 2018’s six projects “after continuous and strenuous efforts while balancing conflicting objectives of lenders, vendors, and clients”.
AL HASSAN ENGINEERING CO’S CLAIMS
As of December 2017, the EPC contractor had approximately $39m (OMR15m) outstanding claims and variations included in its revenue. The provision of $10.4m was made in 2018 towards variation revenue recognised before December 2017, and the remaining amount is currently awaited by the contractor.
“Negotiations have been length and protracted with clients to settle the claims, many of which are expected to conclude by Q2 2019,” the company said in its financial statement.
Al Hassan Engineering Co is also facing 25 legal cases filed by suppliers awaiting overdue payments from the contractor. The total value of these claims is $ (OMR1.3m), and the Omani contractor said it continues “to defend or negotiate as appropriate”.
EMPLOYMENT, IN-COUNTRY VALUE, AND 2019 OUTLOOK
Despite its financial challenges, Al Hassan Engineering Co is contributing to Oman’s in-country value (ICV) and Omanisation programmes, which aim to boost the sultanate’s local economies of products and people. The contractor said talent retention “has been difficult due to the company’s financial constraints”, but 407 nationals, making up 20% of Al Hassan Engineering Co’s total workforce, continue to be employed by the firm.
The EPC contractor’s ICV content for its ongoing projects is valued at $16-21m (OMR6-8m).
Looking ahead, the EPC contractor has carry-forward orders worth $132.4m (OMR51m) from its three ongoing projects, and the company said “the outlook for 2019 is encouraging”.
