Emirates Steel Arkan, the largest public steel and building materials business in the UAE, said it continuously evaluates options to expand its business after a media report earlier this week said the Abu Dhabi state-backed group is pursuing a potential investment in Germany’s Thyssenkrupp’s steel unit.
Emirates Steel Arkan is emerging as the most serious contender to buy a stake in the Thyssenkrupp business and could make a formal bid in the coming months, Bloomberg reported on Wednesday, citing sources.
“We are aware of the media reports that have been published in the last 48 hours,” Saeed Al Remeithi, group chief executive of Emirates Steel Arkan, said in a statement on Friday to the Abu Dhabi Securities Exchange, where its shares are traded.
“However, the relevant discussions are at a very preliminary stage and no terms in respect of any potential transaction have been reached. Any material information relating to a transaction will be announced in compliance with applicable regulations and disclosure requirements.”
The UAE created Emirates Steel Arkan in 2021 when sovereign wealth fund ADQ combined Emirates Steel Industries with Arkan Building Materials.
The company has supplied construction projects including Dubai’s Burj Khalifa and Emirates Palace, according to its website.
Global steel demand is expected to grow 2.3 per cent this year and 1.7 per cent in 2024, according to a forecast by the World Steel Association. Manufacturing is expected to lead the recovery, but high interest rates will continue to weigh on steel demand, the report said.
Emirates Steel Arkan could take a minority stake in Thyssenkrupp Steel as part of a business partnership, the Bloomberg report said, citing sources.
The Middle Eastern company would produce energy-intensive products in the UAE using renewable power before shipping them to Germany, where Thyssenkrupp could shape them into finished products for the automotive industry, according to those sources.
“We have an ambitious growth strategy to capture the emerging opportunities in sustainable, low-emission steel products over the next five to 10 years, which we will explore with various partners for the benefit of our current and future customers around the world,” Emirates Steel Arkan said in the statement to the ADX.
India’s JSW Steel and buyout firm CVC Capital Partners have also expressed interest in the Thyssenkrupp steel unit in recent months, though discussions with those suitors aren’t currently as active, according to Bloomberg.
Thyssenkrupp’s European steel unit reported revenue of about $13 billion last year — roughly a quarter of the company’s overall sales, the report said.
The German conglomerate’s incoming chief executive Miguel Borrego will be tasked with offloading the steel business when he starts on June 1.
Mr Borrego is currently head of German industrial supplier Norma Group.
Earlier this year, the German-born Spaniard spurned takeover bids from private equity company Carlyle Group, which offered to buy Norma at a substantial premium, Bloomberg said.
Established in 1998, Emirates Steel Arkan supplies domestic and international markets with products such as wire rods, rebar, heavy sections and sheet piles.
The company reported a significant rise in its fourth-quarter net profit to Dh125 million ($34 million) as cost efficiencies and higher sales drove income. Revenue stood at Dh2.3 billion.
Full-year net profit for 2022 rose to Dh508.45 million. Revenue for the 12 months ended December rose 10 per cent to Dh9.5 billion in 2022, from Dh8.6 billion in the previous year.
The company attributed the turnaround in profit to strong international demand and the steps taken by the group to enhance operational efficiencies following the merger.
The group grew its international export footprint by 25 per cent to 70 countries last year, from 56 in 2021.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Your rights as an employee
The government has taken an increasingly tough line against companies that fail to pay employees on time. Three years ago, the Cabinet passed a decree allowing the government to halt the granting of work permits to companies with wage backlogs.
The new measures passed by the Cabinet in 2016 were an update to the Wage Protection System, which is in place to track whether a company pays its employees on time or not.
If wages are 10 days late, the new measures kick in and the company is alerted it is in breach of labour rules. If wages remain unpaid for a total of 16 days, the authorities can cancel work permits, effectively shutting off operations. Fines of up to Dh5,000 per unpaid employee follow after 60 days.
Despite those measures, late payments remain an issue, particularly in the construction sector. Smaller contractors, such as electrical, plumbing and fit-out businesses, often blame the bigger companies that hire them for wages being late.
The authorities have urged employees to report their companies at the labour ministry or Tawafuq service centres — there are 15 in Abu Dhabi.
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