08 October 2014, Global Connections

Helping drive major projects in Oman

Using a range of trading facilities with HSBC has helped Al Fairuz further strengthen its supplier relationships and mitigate the risks of cashflow mismatch.

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When Al Fairuz Trading & Contracting Company was looking at ways to strengthen its standing with international suppliers, as well as manage its cash flow when faced with delayed payments, the company’s Relationship Manager at HSBC was able to provide a sustainable and internationally focused solution.

Alongside many countries in the MENA region, Oman is planning significant investment in major infrastructure projects in the coming years and the Al Fairuz Trading & Contracting Company intends to play a major role in this development.

Established in 1972, the company is an importer of trucks and construction equipment for major infrastructure projects such as roads, bridges, dams, airports, railway networks and sewage and water systems.

With some USD150bn of major construction and infrastructure projects planned as part of the Oman 2020 Vision[1], demand for equipment should be high and help Al Fairuz continue to grow its turnover from a 2014 projection of USD100m.

One major infrastructure project is the 306km Oman section[2] of the pan-Gulf railway line, which will involve investment of some USD15.5bn[2]. Significant work is also planned for roads, airports, seaports, water and housing, while Oman’s largest single megaproject – the Special Economic Zone at Duqm – has a budgeted investment of USD20bn[3].

“Projects like the Oman railway are very good news for us but we remain vulnerable to fluctuations in government spending,” explains Group CFO Mr Vaidya.

Though the plunge in oil prices is a concern for the Oman economy and its investment climate, Mr.Vaidya is confident that the impact will be negligible on their business, as Oman policy makers are taking steps in the right direction to diversify their income by increasing their share of non-oil revenue, opening the economy to private investment, promoting joint ventures with foreign partners, and refining business regulations.

“The steps being taken by the government will leave room for the private sector to take part in the financing of big investment projects and help our business to achieve strong and sustainable growth in the long run,” he said.

Given the nature of the business, Al Fairuz’s network of international suppliers is growing. The strong supplier relationships that the company enjoys were improved even further when Al Fairuz recently started using trading facilities with HSBC, including letters of credit (LCs).

“When I open an LC with HSBC to pay for equipment that we’re importing my suppliers are very happy because it is a truly international bank with a global reputation,” says Mr Vaidya.

“They appreciate that we are working with HSBC and have established a relationship with one of the world’s biggest banks.”

HSBC also plays a key role in helping managing the risks associated with the business.

The high value of the trucks and equipment that Al Fairuz imports from Italy, Japan and the UK, and its dependence on major infrastructure projects going ahead means that Mr Vaidya has to grow stock very cautiously.

“I plan my purchases very carefully so that we do not get ahead of demand,” says Mr Vaidya.

“We also have a very strong relationship with our suppliers so that if we need to urgently meet market demand, they will react quickly to support us.”

HSBC provides the company with an invoice discounting facility, which is invaluable when it comes to managing the delayed payment challenges that can arise on major infrastructures projects.

“Supplying equipment for major projects we can often have a significantly extended trading cycle. With the invoice discounting facility, I can inform HSBC that I have a contract to supply a major customer in Oman, HSBC will then pay a proportion of the bill upfront which allows me to cover my liabilities.”

With trading facilities that allow the company to maintain strong relationships with its suppliers and manage the delayed payments associated with major projects, Al Fairuz is in a strong position to continue to grow both domestically and internationally, as it benefits from Oman’s projected infrastructure investment over the next five years.

[1] Intec Export Intelligence

[2] Saudi Railways Organisation

[3] Project Oman

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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