Arabtec's 15% fall in profits add to woes

Arabtec Holding compounded two straight days of huge stock market losses yesterday with a disappointing 15 per cent drop in annual profits, sending shares lower again.

Arabtec, the builder of the Burj Khalifa, has won four contracts this year. Jaime Puebla / The National
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Arabtec Holding, the biggest construction company in the UAE, compounded two straight days of huge stock market losses yesterday with a disappointing 15 per cent drop in annual profits, sending shares lower again.

Net income reached Dh260.5 million (US$70.9m), down from Dh307m in the previous year, the company said in a regulatory filing on the Dubai bourse yesterday.

Revenues fell to Dh5 billion last year from Dh5.46bn the year.

The results beat a consensus of analysts polled by Bloomberg, however, who had expected the builder to report a profit of just Dh133m.

But the bottom line was only improved by an accounting measure that removed Dh215m of provisions for bad debts from the balance sheet.

Arabtec proposed a cash dividend of 5 fils a share and said it would issue bonus shares equivalent to 5 per cent of current capital, or 74.75 million shares. The pay outs are subject to shareholder approval on April 5.

The company also said it would also pay Dh15bn in bonuses to junior and mid-ranking staff.

Arabtec's stock has risen 67.2 per cent so far this year, outperforming the Dubai Financial Market General Index, which is up 19 per cent in the same period, amid speculation that a strategic investor is accumulating shares in the company.

Aabar Investments, an Abu Dhabi sovereign investment company with stakes in Daimler, Virgin Galactic and UniCredit, on Tuesday emerged as the latest investor in the construction giant with a 5.28 per cent stake.

Aabar scrapped a Dh1.7bn deal for majority control of Arabtec two years ago. The recent purchase has fuelled speculation over Aabar's renewed interest in the contracting firm and whether it would seek more than its current stake.

"The results are not the topic of the day whether they are up or down," said a fund manager who spoke on condition of anonymity. "Rather, the real question is what does Aabar's recent purchase mean."

Shares of the construction giant slumped 9.9 per cent in early morning trading yesterday. Arabtec closed 8.8 per cent lower yesterday to Dh2.67, after falling 9.9 per cent on Wednesday and 7.1 per cent on Tuesday.

"There's a saying which states buy on the rumour, sell on the fact," said Sobhi Asim, a day trader on the Abu Dhabi Securities Exchange. "The market knew this for a long time, but now that it's all out in the open, [you] can see a fall on the stock price."

Arabtec, the builder of the world's tallest tower, Burj Khalifa, was awarded four contracts this year. In January, it was awarded a contract worth Dh561m to expand Dubai International Airport.

One of its subsidiaries, Target Engineering, has also won three contracts amounting to Dh256m in Abu Dhabi.

Arabtec has looked to other markets in the wake of the Dubai property crisis in 2008. In November, the company said it was awarded a $159m contract for a construction project in Jeddah and said it expected the value of that contract to rise to 1.5 billion Saudi riyals (Dh1.46bn) as negotiations were ongoing. The company did not name its client.

Arabtec was part of a consortium pegged as the frontrunner for the contract for Abu Dhabi's new multibillion-dollar Midfield Terminal airport project, which was expected to be awarded next quarter.

However, companies have been asked to re-tender their bids, which will delay the start of the project.