Construction financing in Saudi Arabia.

Abstract

This thesis studied the construction financial system in Saudi Arabia. This system has changed drastically in the last five years due to a volatile construction market industry, characterized by low margins, intense competition, and liquidity problems. Contractor's financing system (source and requirements) is examined in this study. This financial system was studied from three sources: literature review, meeting with five Saudi commercial banks, and from conducting a survey of twenty contractors, with different classifications and with an average annual volume of work of more than SR 30 million. It was found that commercial banks are the main source of contractor financing externally. Internal financing is mainly from paid-in capital, retained earnings, and contract proceeds. The following financial facilities from commercial banks are discussed: credit facilities (short loans, line of credits, progress payment financing, medium and long term loans), contract bonds, leasing facilities, documentary letter of credit facilities, hedging facilities, and financing by syndicate facilities. All types of commercial bank required information and securities were examined. Owners (government and semi-government) requirements from contractors to release financial payments/retention monies were also examined. Penalties and major financial problems were identified. Moreover, two case studies were presented to describe the way in which commercial banks evaluate contractors for the purpose of credit approvals.