March 6, 2012 1:18 pm

Fal Oil may be facing threat of legal action from one of its creditors

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Fal Oil, the Sharjah-based oil supplier, faces the threat of legal action from a creditor as it seeks to restructure AED 4bn (USD 1.09bn) in liabilities and arrange a new injection of working capital, a source with knowledge of the situation and two creditors told dealReporter.

The dissenting lender is Abu Dhabi Commercial Bank (ADCB), according to the two creditors.

Although not heavily exposed to Fal, ADCB is not confident of the company’s chances of recovery, one creditor claimed. As a result the bank may feel it has little to lose in resorting to court action to pursue what it is owed and that it would be better placed to recover the debt if it wins a favourable verdict, he said. A court action has been filed and the first hearing has taken place, the same creditor believed.

However the second creditor and the source with knowledge of the situation said they were unaware of any legal proceedings underway. Both were aware of at least one dissenting creditor threatening to resort to the courts, but they speculated that this legal threat was just a negotiating tactic.

A source close to Fal also said he did not know of any legal proceedings.

The second creditor said ADCB had approached numerous restructurings in the same way. He said he believed the Abu Dhabi bank unlikely to pursue any court action, and said that it would eventually come onboard with the ongoing negotiations.

Spokespeople for ADCB and Fal Oil declined to comment.

Meanwhile Fal has circulated a term sheet on a debt standstill agreement and the injection of USD 750m of working capital, the source close to Fal said. The company is targeting a deadline of 6 March for agreement of the standstill and a drawdown of working capital, but this date is likely to slip, the same source added.

Fal’s debt repayment schedule has been hindered by a dispute with the Sharjah Electricity & Water Authority (SEWA) over payments. Fal launched a lawsuit against SEWA in March 2011, claiming unpaid bills of up to USD 735m, as reported.

A Sharjah court announced on 20 February that it would appoint accountancy experts to carry out an independent study of Fal’s lawsuit against SEWA at a hearing on 28 February, the source close to Fal said.

Fal’s case against SEWA is fairly clear cut, but a resolution in favour of the oil company is far from certain, according to a creditor to Investment Group Private Ltd (IGPL), Fal’s parent company.

“SEWA is only going to be able to able to pay its dues if [the federal government in] Abu Dhabi bails them out, and I don’t see that happening any time soon. It’s also very difficult to see the court ruling against SEWA, essentially ruling against the government,” the same creditor said.

KPMG is advising Fal on the restructuring of its debts, as reported.

Standard Chartered is leading the creditor committee, according the source close to Fal. The committee also includes Emirates NBD, Union National Bank, Commercial Bank of Dubai, First Gulf Bank, Barclays, Mashreqbank, Samba and National Bank of Abu Dhabi, as reported.

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