HLG appoints new management team and embarks on strategic review

The review is aimed at boosting operational efficiencies and tackling legacy debts as the company's Australian partner pumps in more working capital.

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HLG Contracting (HLG), the Dubai-based construction group with more than 21,000 employees, has replaced both its chief executive and finance head while embarking on a wide-ranging strategic review.

The review follows a recent shareholder restructuring in November during which Dubai businessman Khalaf Al Habtoor exited the business.

The company’s joint venture partner, Australian construction company Cimic (formerly Leighton Contractors), revealed that HLG has begun a review of both operations and strategy that is “seeking to improve efficiencies within the business”.

The review will also attempt to tackle legacy issues, with the amount of money HLG owes to Cimic growing to more than A$1 billion (Dh2.8bn). Abdul Rahman Jarrah, who was until recently a member of Cimic subsidiary Thiess' executive leadership team, has been appointed as acting chief executive, replacing the former chief executive Jose Lopez-Monis, who was arrested in Dubai last August and subsequently released without charge.

Mr Lopez-Monis is understood to have returned to his former company Dragados, which is part of Spanish construction giant Grupo ACS.

Grupo ACS, through its majority stake in German company Hochtief, is also the controlling stakeholder of Cimic.

Khalil Muhammad has been promoted to chief financial officer of HLG. He has been with the company since 2010.

Cimic’s annual report revealed that the new shareholding structure put in place in November 2016 following Mr Al Habtoor’s departure resulted in the size of its stake remaining unchanged at 45 per cent.

However, it has acquired a A$37.8 million loan from Mr Al Habtoor’s company and injected a further A$114.9m of working capital. It also secured a call option to buy out the 55 per cent of the business currently owned by HLG’s long-standing chairman, Riad Al Sadik.

Cimic originally paid Dh2.6bn for its 45 per cent stake in HLG Contracting in 2007, but its investment proved to be troublesome following the collapse in the Dubai property market after the 2008 global financial crisis, which led to the Australian firm extending loans and guarantees to keep HLG afloat.

Accounts filed by Cimic on Wednesday show that HLG now owes more than A$1.04bn in loans and other receivables to Cimic compared with A$842.7m in 2015. Cimic has also written down the carrying value of its investment in HLG to A$366.5m from A$444.7m in 2015.

According to Cimic’s accounts, HLG recorded a profit before tax of A$29.4m in 2016, although this was after a gain in finance income of A$35.9m. It declared a loss before interest and tax of $6.5m, despite revenue increasing by 6 per cent to A$1.23bn.

Following a previous review, Cimic had set a goal of preparing HLG for a stock market flotation. In its latest annual report, Cimic said: “HLG Contracting’s new shareholder structure is a step towards reaching its long-term strategic objectives in the region. This will allow HLG Contracting to continue to deliver leading projects for clients. A strategic review of the HLG Contracting business has commenced and is ongoing.”

A spokeswoman for Cimic said that it cannot comment on the strategic review while it is under way, nor could it comment on whether its plan for HLG is to continue to prepare the company to be “IPO-ready”. Questions regarding HLG’s new management team and its financial performance were referred to HLG. It did not reply to requests for comment.

Although Dubai’s construction market remains busy, the prospects across the region remain fairly gloomy as more firms chase fewer projects. HLG has operations in Qatar and Saudi Arabia, and the value of its work-in-hand declined by 25 per cent to A$1.9bn by the end of 2016, down from A$2.4bn a year earlier.

A report published by Colliers last month stated that although there had been a slight uplift in the cost of construction materials owing to higher commodity prices, contractors have been unable to lift their own margins.

“There are projects happening, but it is very concentrated in Dubai. I don’t see much inflation in construction prices due to competition this year,” said Bob Flanagan, the company’s UAE-based managing director for project management and cost consultancy services.


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