Indian engineering and construction giant Larsen & Toubro (L&T) has obtained shareholders’ approval to renew Parent Company Guarantees (PCGs) worth up to $1.5 billion for its Saudi Arabian subsidiary, Larsen & Toubro Arabia (LTA).

The renewal was obtained at the annual general meeting (AGM) held on 4 July.

LTA, a 75 percent owned subsidiary of L&T with a 25 percent local partner, has been actively bidding on major offshore projects in Saudi Arabia.

To secure these large value engineering, procurement, construction, and installation (EPCI) contracts, LTA requires PCGs from its parent company as a condition of the bids. These guarantees, equivalent to the full value of the in-kingdom portion of the contract, would be issued upfront and remain valid until project completion.

In its annual financial report for 2023/24, L&T said there is a significant increase in large-value contracts in the Middle East, especially from Saudi Arabia, which requires large banking facilities, primarily non-fund-based. 

The company is confident of tying up the required banking facilities during the year [2024] to address the upcoming requirements, it added.

The Middle East accounts for 35 percent of L&T’s total order book and 22 percent of its EPC revenue.

According to L&T, Middle Eastern countries are likely to continue investing in the energy transition journey as oil prices are expected to range between $80 and $90 per barrel.

After bagging record orders in the last fiscal year, the company expects positive momentum in the hydrocarbon and renewable segments in fiscal 2024-25.

The company said it is also exploring opportunities in urban transit, ports, and harbour sectors, adding that mega-development projects in the Middle East, especially Saudi Arabia, present new business horizons. 

L&T will collaborate with strategic partners to leverage opportunities that align with regional priorities and economic growth initiatives, it added.

(Editing by Anoop Menon) (anoop.menon@lseg.com)

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