Arabtec will increase its stake in the oil and gas construction specialist Target Engineering Construction to 98 per cent as the company attempts to expand in the region's lucrative energy sector.
The UAE’s largest listed contractor announced yesterday that it had agreed to pay Dh270 million to increase from 60 per cent its stake in the Abu Dhabi-based engineering, procurement and construction company.
Target’s senior management will retain the remaining 2 per cent.
Arabtec said it planned to use Target as its preferred contractor for medium-sized contracts. It intends to expand the firm in the Middle East, where it has operations in the UAE, Saudi Arabia and Qatar.
In a statement to the Dubai Financial Market, Arabtec said that the deal would be financed with proceeds from its Dh2.4 billion rights issue that the group undertook in June.
Target's order book includes major contracts for work on the Abu Dhabi gas company Gasco and Petrofac's pipelines in Ruwais, a subcontract to work on nitrogen gas injection for Gasco in the oilfields of Habshan and an order to provide carbon mechanical installation at the Emirates Aluminium (Emal) plant in Taweelah.
Last year, Target generated revenues of Dh1.4bn.
In April, the company formed a joint venture with the engineering arm of the South Korean conglomerate Samsung to expand into complex engineering and “big ticket” infrastructure works in the Middle East and North Africa. And this month Arabtec signed an agreement to set up a joint-venture with another South Korean engineering and construction company, GS Engineering & Construction, to pursue heavy infrastructure engineering projects across the region.
“We look forward to growing Target Engineering’s existing offering and capabilities while expanding the company’s geographical reach to the rest of the Middle East and North Africa region,” said Shohidul Ahad-Choudhury, the head of mergers and acquisitions at Arabtec.
“Target will remain focused on medium-sized contracts, which will complement the new joint venture, ensuring that Arabtec is uniquely placed as a full service engineering procurement and construction player, addressing the medium to large-scale projects market,” he added.
The move was welcomed yesterday by investors with Arabtec shares rising nearly 2 per cent to Dh2.6.
"The plan for Arabtec to expand its revenue mix and increase its gross margins is a good one," said Tariq Qaqish, the head of asset management at Al Mal Capital. "Part of that plan is to acquire businesses with higher gross margins. Target's margins are around 20 per cent while at the moment Arabtec's are around half that amount. Moreover, Arabtec's connections with state-owned Aabar means it makes sense for the company to expand more into the oil and gas sector.
lbarnard@thenational.ae
