Arabtec contract a timely windfall

What's up Arabtec. Investors were dangled a taste of what's to come if they vote to allow Aabar to obtain 70 per cent of the company on Sunday.

On the surface, the contract that Arabtec Construction received on Sunday to build an 80-storey tower in Dubai was a modest victory for the region's largest construction firm. However, in the context of a proposed deal to sell control of Arabtec to Aabar Investments, it could be a sign of good things to come.

The contract, for Dh710 million (US$193.2m), calls for Arabtec to build the tower, featuring a five-star hotel on Sheikh Zayed Road in Dubai, on behalf of a little-known Abu Dhabi company, Tasameem Real Estate. What makes this deal significant is that Tasameem is controlled by Sheikh Mansour bin Zayed, Minister of Presidential Affairs. Sheikh Mansour is also the chairman of the International Petroleum Investment Company, which in turn owns 71 per cent of Aabar Investments.

Aabar announced early last month that it would acquire 70 per cent of Arabtec shares in a deal worth Dh6.4bn, pending approval from shareholders and regulators. A disincentive for investors was that the deal would be highly dilutive. The purchase would come in the form of a mandatory convertible bond that values the Arabtec shares at Dh2.30 each. Nomura Securities estimated the deal would dilute earnings per share by between 40 and 70 per cent.

The deal will be viewed more favourably by investors now if more deals of this type are in the pipeline. Tasameem and Aabar's land holdings are sizeable and could provide a lifeline to Arabtec at a time when it is having trouble collecting debts from some Dubai property companies. Sheikh Mansour is not the only link between Tasameem and Aabar. Khadem al Qubaisi is also the managing director of both companies.

Many investors seem to recognise the significance. Arabtec's shares rose 2.6 per cent to Dh2.31 yesterday, while Aabar's shares jumped 4 per cent after it announced a 9 per cent increase in net profit for the fourth quarter.