State-owned Abu Dhabi Airports has called on almost three billion dirham ($816.82 million) worth of guarantees issued by local banks on behalf of contractors working on an airport expansion project already delayed by several years after a year of funding disputes, sources said.
The move, which could further delay the project, comes ahead of expectations of a global recovery in travel demand after the coronavirus pandemic.
It could pressure balance sheets of banks already heavily exposed to the construction sector in the United Arab Emirates, sluggish for years amid a slowdown in infrastructure and property projects.
Abu Dhabi Airports signed in 2012 a $2.9 billion contract with a joint venture of contractors comprising Arabtec Holding, which filed for liquidation in January, Athens-based Consolidated Contractors Company and Turkey’s TAV Insaat.
The Midfield Terminal project was due for completion in 2017 but has faced delays. It was 97.6 percent completed in 2019, Abu Dhabi Airport’s CEO Bryan Thompson said at the time. The opening date has been pushed back to 2021, according to an HSBC report.
The company last week called on guarantees issued by United Arab Emirates lenders Mashreq Bank, Abu Dhabi Commercial Bank and First Abu Dhabi Bank on behalf of the construction joint venture, said three sources familiar with the situation, declining to be named as the matter is not public.
The request came after a year of funding disputes between the airport operator and joint venture partners over who should foot the bill towards a testing phase to determine the terminal’s readiness, said two of the sources, adding the amount required is a few billion dirhams.
Abu Dhabi Airports and First Abu Dhabi Bank did not immediately respond to comment requests. Abu Dhabi Commercial Bank and Mashreqbank declined to comment.
None of the contractors responded to requests for comment.
Some banks have expressed discontent over Abu Dhabi Airports’ request, and recovering funds from Arabtec – which went into administration last year – could be problematic, the sources said.
The deadline for banks to honor the calls on the guarantees is Thursday, one of them said.
The Midfield Terminal, planned to increase the airport’s passenger handling capacity to 45 million a year, was designed to complement the growth of Abu Dhabi’s Etihad Airways as it competed with neighboring global carriers Emirates and Qatar Airways.
State-owned Etihad has since restructured, sold some of its fleet, and announced plans to become a smaller airline.