Arabtec is in talks to hire Swiss bank UBS as a financial adviser to assist in its potential merger with Abu Dhabi's Trojan Holding, as the two contractors look to scale up operations amid tough market conditions.
Appointment of a financial adviser is the next step in Arabtec's plans to merge with the construction arm of Trojan Holding. UBS will help Arabtec in "preliminary evaluation" for the combination of the businesses, Arabtec said on Tuesday in a statement to the Dubai Financial Market, where its shares trade. Dubai investment bank, Shuaa Capital, is advising Trojan on the deal, according to a Reuters report last week. Shuaa declined to comment when approached by The National.
The two companies said last month they are reviewing the possibilities of a merger transaction.
"In the event an agreement is reached … following the technical, financial and legal reviews, it is intended that a contract will be signed for this purpose detailing the terms and applicable procedure for such combination which may lead to a merger between the two companies", Arabtec said in a September 10 bourse filing.
Construction companies in the UAE, one of the top projects market in the GCC, have faced headwinds as the property market slowed in the wake of a three-year oil price drop that began in 2014. Concerns about an oversupply of residential and commercial units added to the softness but analysts are forecasting a recovery on the back of a new immigration regime offering long-term visas for investors, the Dh50 billion Ghadan 21 initiative, Expo 2020 and changes to the freehold property law. The oil price has also rebounded and is currently hovering between $50 to $60 per barrel.
Arabtec is the UAE's largest-listed contracting company with a workforce of more than 45,000. In August, the company reported a 49 per cent decline in its first-half profit to Dh57.8 million as revenue fell 12 per cent to Dh4.2bn. The company said its backlog remained "strong" at Dh14bn, despite a fall in new contract awards during the reporting period.
Trojan Holding has several construction companies in its fold, including Trojan General Contracting and National Projects and Construction. It also owns subsidiaries that carry out mechanical electrical and plumbing contracting, cladding, steel and aluminium fabrication and pre-cast and ready-mix concrete. It is part of the Royal Group.
Trojan General Contracting has picked up large contracts for developers such as Aldar Properties, Emaar Properties and Nakheel.
In July, it won a Dh2bn contract from Aldar to expand the Al Falah housing community, an Abu Dhabi government scheme. It is building the Palm Tower Hotel and Residences on Dubai's Palm Jumeirah for Nakheel. The company is also carrying out work in Chechnya, Russia, Rabat in Morocco and in the Kurdistan region of Iraq.
The value of mergers and acquisitions in the Middle East and North African reached $120.6bn (Dh443bn) in the first nine months of the year, up 160 per cent on the same period last year, according to data by Refinitiv.