Saudi Binladin Group to Lay Off 50,000 as Low Oil Prices Bite

Source: Wall Street Journal

Jeddah-based company to cut a quarter of its workforce, mostly construction-site workers from Asia

Saudi Binladin Group will lay off 50,000 people, according to a person briefed on the plans, as the construction giant attempts to turn around a business hammered by low oil prices.

The scale of the downsizing means the Jeddah-based conglomerate will cut about a quarter of its workforce. The people who were laid off, mostly construction-site workers from Asia, have been paid their outstanding salary and dues, according to the person familiar with the situation.

“The people laid off are not thrown in the street without pay,” this person said. “The Saudi Binladin group is extremely careful in honoring its commitments.”

A spokesman for SBG said the employees who were dismissed would receive full compensation and other entitlements.

“Adjusting the size of our manpower is a normal routine especially whenever projects are completed or near completion,” said a spokesman for SBG. “Most of the released jobs had initially been recruited for contracted projects with specific time frame and deliverables,” he added.

In the oil-rich nation’s boom years, Saudi Binladin flourished as one of the government’s preferred builders, tasked with multibillion-dollar projects, such as in the holy cities of Mecca and Medina. But as governments across the oil-rich Persian Gulf, including Saudi Arabia, have slashed spending on large-scale projects to plug their growing budget deficits caused by the drop in crude prices.

Creditors and advisers to SBG have said that one of the main reasons behind the company’s financial woes stem from the Saudi government’s failure to pay for completed or ongoing construction work. SBG in recent years has completed work on multiple multi-billion-dollar government projects, including hospitals, universities, highways and the extension of the holy mosque in Mecca.

“There are many projects where payments haven’t happened or where there has been a delay in paying the laborers,” said the person familiar with knowledge of the SBG plans. “Some of these projects are coming to an end or running slow, so as a company you adjust and reduce the fixed costs among other things,” the person said.

The Saudi ministry of labor wasn’t immediately available to comment.

Besides reducing the head count by a quarter, the company will also look at streamlining its operations and boosting its efficiency, the person said, declining to be more specific. Most recently, SBG recruited a Morgan Stanley banker as its new chief financial officer, as well as an executive from Kuwait contractor Kharafi National to join its management.

The job cuts, which were first reported by Saudi media, coincided with riots in Mecca during the weekend. Pictures and footage circulating on social media, which couldn’t be independently verified, showed angry protesters setting buses on fire. A spokesman for the Mecca Civil Defense confirmed they had to extinguish fire in seven buses and that an investigation was under way. He declined to say whether the protesters belonged to the Binladin Group.

Demonstrations in Saudi Arabia are rare. But the group’s financial trouble has sparked previous bouts of labor unrest. In February, hundreds of Binladin workers took the streets to demand unpaid wages.

Saudi Binladin was founded 85 years ago by the father of the late al Qaeda leader Osama bin Laden. The company enjoyed close ties with the Saudi leadership, but those relations have been strained after a crane collapsed on the holy mosque in Mecca, killing over a hundred pilgrims. The firm was then barred from taking on new projects.