FAL Oil Co., a United Arab Emirates-based energy trader that’s under U.S. financial restrictions for links to Iran, suspended debt restructuring talks with lenders on Dec. 10, a company official said.
The trader of marine fuel and other refined products is working on a business plan that would allow it to resume talks with lenders later this month, said the official who is involved in the financing process and asked not to be identified by name because of company policy.
FAL Oil is seeking to revive fuel supply agreements with regional state refiners to show lenders it would be able to generate income and allow it to reach a debt repayment agreement, the official said. Companies that FAL is approaching include refiners in Sri Lanka, India and Bangladesh as well as in the Horn of Africa, the official said.
Energy-trading companies faced additional cash-flow difficulties since the global financial crisis began in 2008 because banks restricted lending amid rising commodity prices. FAL, once one of the largest ship-fuel suppliers in the U.A.E., is trying to extend maturity of about $700 million of loans that are already in default.
Debt restructuring talks with 14 lenders foundered last month as the company needs to raise about $300 million to $400 million in working capital from the creditors to continue operations, the FAL official said.
FAL’s financing challenges mounted last year, eroding its share of the bunker-fuel market in Fujairah, the main U.A.E. port for oil products. The company is in a legal dispute with Sharjah, another of the U.A.E.’s seven emirates, over billing for about $600 million in oil products sold to the local government. FAL alleges it didn’t receive full payment.
The U.S. government imposed financial restrictions on FAL a year ago because it sold products to companies linked to Iran, the target of U.S. economic sanctions. Pakistan State Oil Co. censured FAL in 2011 for non-delivery of fuel oil, according to a notice on the Pakistani company’s website. FAL’s owners, the Al Sari family, took over management of the company in July after dismissing general manager Mohammed Osman.