CIMIC sale of BIC Construction ends costly Middle East foray

The building giant has sold its Middle East business for a nominal sum, after billions in writedowns and the arrests of executives.

The Middle East venture has proved costly for CIMIC.

CIMIC has sold its Middle East business for a nominal sum to a privately owned Dubai investor, bringing an end to a disastrous foray into the region involving billions of dollars of writedowns and anger among Gulf locals still chasing unpaid debts.

It follows an investigation by The Australian that revealed BICC’s Qatar division still owes more than $US1bn ($1.3bn) in debts, had offered to sell its Qatar unit for just 36c, while two executives working for the venture were arrested and put in jail as authorities sought an explanation over the fallout.

Australia’s largest construction company, formerly known as Leighton, said UAE-based investment company SALD would buy the entire BIC Construction joint venture, consisting of CIMIC’s 45 per cent stake and a 55 per cent holding owned by ex-Al Habtoor chairman Riad al-Sadik, for a nominal amount.

The BICC venture had grown increasingly anxious over the threat of its staff being thrown into jail and served with travel bans. Its decision a year ago to quit the Middle East was also triggered by a fall in activity due to easing oil prices, a property glut in Dubai and declining infrastructure spending after the 2022 World Cup in Doha concludes.

CIMIC said it had agreed to “contribute a certain amount of funds into BICC” as part of the deal, but has not changed its financial exposure previously outlined a year ago when it announced plans to abandon the region. BICC will pay workers’ entitlements covered by its joint venture as part of the sale, although that will cover little of its debt pile in Qatar that is mostly owed to sub-contractors and suppliers.

“The sale covers all of CIMIC’s investments in the Middle East. On completion, SALD will own all BICC’s businesses in the UAE, Qatar, Oman and Saudi Arabia,” CIMIC said.

“The sale is the final step of CIMIC’s decision, taken in January 2020, to exit the Middle East.”

It marks the end of a torrid 15-year move into the region as CIMIC was lured by huge contracts on offer in one of the world’s fastest-growing construction markets.

“The sale brings to a conclusion the company’s ill-fated foray into Middle East construction,” Bloomberg Intelligence analysts said.

CIMIC, controlled by Spanish-German shareholder Hochtief-ACS, paid off $1.48bn in debts for its Middle East business in the 2020 financial year, which is thought to have included outstanding loans with banks including HSBC and Standard Chart­ered. It made a $700m cash pledge a year ago to cover debts the Gulf venture owes to its lenders.

Former Leighton boss Wal King visited the Qatari capital of Doha in late 2005 when an office was set up with local partner Hawar Group.

Big-ticket contracts started to flow almost immediately. In 2006, Leighton Asia won a $545m contract to build the state-of-the-art Al Shaqab Equestrian Academy in Qatar as part of a push into the Middle East. It was also eyeing up lucrative work building stadiums for the soccer World Cup.

While winning new contracts seemed to come easily enough, ­securing payments and profits became much harder — particularly when the global financial crisis hit.

The BICC venture was faced with its own debtors refusing to pay for projects in Doha and Dubai, setting off a chase for outstanding debts that plagued CIMIC for years, including its own rollercoaster journey in Qatar.

BICC has chased several project developers for more than seven years to recover its own debts and has become wary of the uncertain legal situation over its ­liabilities in countries including the UAE and Qatar.

The engineering group — building major infrastructure projects in Australia including Melbourne’s troubled $6.7bn West Gate Tunnel — officially gained exposure to the Middle East in 2007 when Leighton merged its regional operations with Al-Habtoor Engineering.

Leighton at the time moved its international headquarters to Dubai from Kuala Lumpur to cash in on the region’s thriving building sector, which initially appeared to have dodged any major fallout from the GFC.

However, market conditions eventually started to unravel and the group has for years struggled to collect hundreds of millions of dollars of bad debts from other suppliers in the region, with court proceedings often drawn out and lacking regulatory enforcement.