DUBAI: Dubai construction firm Arabtec clinched a $6.1bn contract yesterday, its biggest ever by value, as its relationship with Abu Dhabi state fund Aabar, a key shareholder, promised to make the firm one of the region’s top builders.
Arabtec said it had signed a memorandum of understanding to build 37 mixed-use, residential and hotel towers for Aabar in Abu Dhabi and Dubai.
The announcement pushed up stock markets, especially cement shares, in Abu Dhabi and Dubai because it was a fresh sign that their real estate markets are recovering strongly after prices halved during the global financial crisis.
The news also suggested that after a few years of caution following the crisis, Abu Dhabi’s state funds, backed by the emirate’s oil wealth, are again ready to spend actively to develop the economy.
The fortunes of Arabtec, already a major player in the region with a workforce of about 63,000 people, may be transformed by its relationship with Aabar, which is Arabtec’s largest shareholder with a 22 percent stake.
Early last year, in a move supported by the Abu Dhabi fund, Arabtec replaced its founder and chief executive Riad Kamal with Abu Dhabi-based private investor Hasan Abdullah Ismaik and embarked on an ambitious growth strategy.
The new $6.1bn contract dwarfs Arabtec’s 2012 revenues of $1.5bn. In addition, Aabar said yesterday that it would assign all future construction work in its $20bn real estate portfolio around the world to the Dubai firm.
That portfolio includes projects in the United Arab Emirates, the United States, Morocco, Jordan, Serbia and other countries. Coping with this expansion of its business may pose a challenge to the company.
“This is uncharted territory for Arabtec, to do such giant projects across the region with a backlog in excess of Dh60bn ($16.3bn),” said Nishit Lakhotia, head of research at Securities & Investment Co (SICO) in Bahrain.
“Obviously, in countries where Arabtec does not have a presence yet, it can be a bit more risky to execute projects. That cannot be ruled out.”
But he added, “They have been preparing for this. The recent strategic partnerships, acquisitions, rights issue and management changes are all part of this preparation.”
Shares in Arabtec closed 2.8 percent higher on the Dubai bourse, though they came well off their highs, having risen 8.2 percent at one stage. The stock has climbed more than 50 percent so far this year after a 54 percent gain in 2013. Arabtec said it would start work this year on the new buildings for Aabar and that all the projects would be completed by 2020, when Dubai is due to host the World Expo.
Reuters
