MMG seeks up to $240m in claims to survive

11/11/2014 14:53 AST

Saudi Arabian construction firm Mohammad Al-Mojil Group (MMG) aims to collect between SR700 and SR900 million ($187-$240 million) in claims from other firms as part of a recovery plan to save the 60-year-old company, executives said.

The firm is a victim of the volatility of the Saudi construction industry, showing how cost pressures and stiff competition can threaten companies despite the massive sums being ploughed into building contracts by the government. It over-extended itself during a boom, then was hit by a slump that followed a plunge of oil prices six years ago.

MMG's shares have not traded on the Saudi bourse since July 2012, when they were suspended by the regulator after breaching rules relating to accumulated losses.

The company said in September this year that its accumulated losses as of Aug. 31 stood at SR2.689 billion ($716.4 million), equivalent to 215 per cent of its paid-up capital. Saudi shares are suspended once losses pass 75 per cent of capital.

"By collecting all outstanding due claims and settlements, the anticipated amounts still wouldn't be enough to cover the balance sheet, but it would be considered enough to allow ourselves to pay obligations to our employees' end-of-service benefits, service overheads, and operating expenses," Terry Smith, MMG's chief operating officer, told Reuters.

The company, which was once a major oil and gas contractor, has worked on huge projects for state oil giant Saudi Aramco.

Smith and MMG's chief executive William Milligan said MMG was looking to obtain between SR300 and SR500 million ($80-$133 million) from South Korea's SK Engineering and Construction in compensation for engineering changes at the King Abdullah Petroleum Studies & Research Center project for Saudi Aramco.

"The SR500 million would allow MMG to build a better, reliable financial restructuring model and allow the current shareholders to view solid income," Smith said.

Contacted by Reuters in Seoul, an SK official said his company had made all payments agreed under the contract. SK has asked for documents and other materials that would illustrate the claim, which was first made in 2012, but MMG has yet to provide them, the official said.

Reuters