Aabar hands Arabtec Dh222m tower construction contract

Aabar Investments granted a Dh222 million contract to Arabtec Holding to build a residential tower, which investors hope will be the start of several contract awards for the Dubai-based contractor in Abu Dhabi this year.

Aabar Investments is the largest shareholder in Arabtec Holding. Silvia Razgova / The National

Aabar Investments awarded a Dh222 million (US$60.4m) contract to Arabtec Holding yesterday, only weeks after it became the largest shareholder in the Dubai contractor.

Arabtec's construction unit will build a 23-storey residential tower in Najmat, Abu Dhabi, it said in a filing posted on the Dubai Financial Market (DFM) website.

"The contract in itself is quite small, but what it signals to the market is a confirmation that Arabtec is going to benefit from a lot of spending on infrastructure in Abu Dhabi," said Haissam Arabi, the chief executive of the asset manager Gulfmena Investments in Abu Dhabi. "This is why people were excited and bought the stock earlier this year."

Shares in Arabtec have risen 118 per cent so far this year. The DFM General Index, in contrast, has risen 21 per cent over the same period. Aabar, which owns stakes in Daimler and Glencore, delisted from the Abu Dhabi Securities Exchange in 2010.

Aabar accumulated a 10.45 per cent stake in the contracting company via purchases by two of its units, according to data revealed on the DFM website over the past two months.

Aabar Petroleum Investments owns 5.32 per cent of Arabtec, while Aabar's property unit owns 5.13 per cent. Arabtec walked away from a planned $1.74 billion takeover by Aabar nearly two years ago. At the time, the two companies said they would instead pursue a "strategic partnership".

The recent change in Arabtec's ownership, however, triggered a board reshuffle this month, a sign that the sovereign fund could be considering an even closer relationship.

Khadem Al Qubaisi, Aabar's chairman, Mohamed Al Husseiny, the chief executive, and the directors Mohamed Al Fahim and Mohamed Al Mehairi, were nominated to join Arabtec's board.

Arabtec, for which fourth-quarter profit rose by three times last month compared with the same period the previous year, was recently awarded a $153m contract to expand Dubai International Airport and three other contracts in Abu Dhabi for Dh256m.

But Arabtec's rich valuation is largely unjustified by its current order book, said Tariq Qaqish, a fund manager at Al Mal Capital in Dubai. Arabtec is trading at 30 times earnings, compared with an average of nine to 12 times for UAE companies.

"We need to see more backlog from the company to justify its price, there also needs to be more clarity on what the margins will look like from those contracts," Mr Qaqish said.

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