Arabtec gains regulatory approval for capital restructuring plan

Company plans to use use cash raised to wipe accumulated losses of Dh4.6bn, Dh3.5bn of which have been racked up in the last 12 months

Arabtec Holding’s chairman, Mohamed Al Rumaithi, has said that its proposed recapitalisation programme “will provide the foundation for building a successful and sustainable future for the group”.

The company has gained approval in principle from regulators for the recapitalisation, under which it will undertake its second rights issue in four years, tapping shareholders for a further Dh1.5 billion in a bid to wipe out losses accumulated over the past two years, including a Dh3.5bn net loss in 2016 alone.

In a statement to the Dubai Financial Market on Wednesday, the contractor said that it has not yet set an offer price for the latest rights issue, which would initially increase the size of its capital base from Dh4.6bn to Dh6.1bn.

Following the fundraising it intends to then cancel Dh4.5bn worth of shares to wipe out accumulated losses of Dh4.6bn. Shares will be cancelled on a pro-rata basis.

Arabtec said it expects to fin­alise the terms of this recapitalisation by the end of March, when it also plans to release its fully audited accounts for 2016.

The company confirmed that all shareholders are being invited to take part in the rights issue but that the principal shareholder, Aabar Investments, which holds a 36.11 per cent stake, has agreed to take up its full entitlement and would also pick up additional shares should current shareholders opt not to take part in the issue.

“The full commitment of our largest shareholder, Aabar Investments, to the recapitalisation programme represents a huge vote of confidence in the board and in the continuing strength of our business,” Mr Al Rumaithi said.

The Dh1.5bn capital-raising is its second in four years.

In 2013, the former chief executive Hasan Ismaik doubled the size of its share base at the time by raising Dh2.4bn as part of an expansionary push into new areas where it was meant to concentrate on higher-margin work in oil and gas and construction-related disciplines, such as MEP contracting and facilities management.

This plan was abandoned following his departure in 2014 and the company began a series of restructurings under different personnel.

During this period, it has endured nine successive quarterly losses. In June last year, the company also announced that it was using Dh1bn of company reserves to reduce earlier ­losses.

Nishit Lakhotia, the head of research at Bahrain-based Sec­urities & Investment Company, expects Aabar Investments’ stake to rise following the recapitalisation as it mops up shares that other investors decide not to take up.

“In the current environment for the contracting segment, and with the recent difficulty that contractors have gone through, conducting a rights issue would be extremely difficult. Here this is going to be guaranteed by Aabar, so Aabar’s stake is very likely to increase.”

He said that Aabar’s increasing involvement would possibly be a good thing for Arabtec, providing an “opportunity to grow its business” with Aabar, which is part of the huge Mubadala-Ipic entity currently undergoing a merger.

“The future will be much better for Arabtec but it needs to focus on better margin contracts and it is still in the process of restructuring.

“Very likely, 2017 will be a much better year for contractors than 2016 but in terms of valuations you need to be brave to have a conviction on these companies at current levels. It’s very difficult to make a valuation call on contractors right now given the transient environment they are in.”

Arabtec’s shares closed 15 per cent higher at Dh0.97 on Wednesday.

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