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Mohamed Osman, the long-serving general manager of the United Arab Emirates’ family-owned oil group Fal Oil, has left the company at a time when gaining creditor confidence is crucial to sealing a debt restructuring deal.
Mr Osman, who has worked with the company for decades, had his employment contract terminated earlier this month, people familiar with the matter say. Fal, one of the largest independent oil traders in the Middle East, is expected to announce the new appointment imminently.
Mr Osman could not be reached for comment.
Fal’s debt woes came to the fore last year as the company sued the government-owned power and water utility of Sharjah for $735m in what it claimed were unpaid bills. The balance left it struggling to repay its own creditors, which include local and international lenders, bankers say.
Progress in the court case has been slow but independent experts appointed by the Sharjah court are expected to present their views in September, people familiar with the legal process say. The court has appointed Ernst & Young for the process.
Sharjah’s electricity and water authority, Sewa, has argued that it was billed incorrectly and countersued Fal and Al Liya, another company owned by the al-Sari family that control Fal. The counter case is also ongoing.
While the court cases trundle on, Fal’s debt restructuring process is moving slowly forward. The company, which was founded in 1969 and has grown into an international oil trading and bunkering business with 45 tankers, has asked creditors for around $650m as revolving working capital.
Although some banks have supported the idea, others have been less willing to provide more credit to the struggling business. The company is said to have settled privately with one of its creditors.
And adding to the financial stresses, in January the company was slapped with US sanctions for conducting business with Iran’s energy sector.
Hillary Clinton, the US secretary of state, said in a statement that Fal had provided more than $70m in refined petroleum to Iran in multiple shipments in late 2010. Individual deliveries were worth more than the $1m threshold acceptable under US law, according to the statement.
The sanctions barred Fal from receiving US export licences, US Export-Import Bank financing and loans of more than $10m from US financial institutions.
The company is said to be taking the sanctions extremely seriously. Although the restrictions may make new credit negotiations tougher, Fal has not relied on US institutions for credit in the past. The company has tended to work with local banks, and with international banks including Standard Chartered.
Although Fal’s case is unusual because it has aired its grievances with the government in court, it is not the only company to have complained of unpaid bills in the UAE. Companies ranging from construction contractors to architecture practices and defence companies have complained of outstanding balances as the financial crisis stalled government spending.
However, non-payment issues between local parties in particular are often settled behind closed doors.
Fal and its shareholders have been forced to sell assets to help pay off bank creditors. The al-Sari family also heads Gulf General Investments Co., which, defaulted on debt after real estate prices slumped in the emirate, affecting its ability to pay back creditors.
GGICO, as it is known, completed a debt-restructuring plan this month with 25 of its lenders, extending the payment schedule by seven years.
Fal’s case resonates even further as it relates to the supply of electricity to Sharjah, one of the UAE’s poorer emirates. In recent summers, Sharjah and the northern emirates have suffered blackouts because of electricity shortfalls, leaving residents to struggle with temperatures of 45 degrees and above.
Fal, which started its business in Sharjah, has moved its offices to neighbouring Dubai. It also has offices in Singapore and the UK.