Arabtec Holding has plenty of sizable projects in the pipeline, but the question is whether they are likely to pay off on schedule.
Bank of America Merrill Lynch's research team yesterday initiated coverage of Arabtec, the Dubai contractor, with a neutral rating and a price target of Dh2.20. The bank cited the company's slow progress towards diversifying away from Dubai along with delays in collecting receivables.
"Overall we view the progress to date as positive though far from ideal," said Karim Khalil, a Bank of America analyst in Dubai.
"We expect the pace of new awards to be slow, with the exception of a few government-sponsored major awards." Moreover, the risk of project cancellation or delays is still real, he said. On top of that the "order pipeline" remains centred on Dubai and largely dominated by private clients.
Excluding the Okhta Centre project in Russia, projects in Dubai represent 44 per cent of Arabtec's reported "order pipeline". Only 10 per cent is from government and quasi-government entities, generally considered the most reliable clients.
The contractor has had some success in the US$385 billion Saudi construction market by partnering with CPC, a subsidiary of the giant Saudi Binladin Group. Arabtec has secured two major awards worth Dh2.5bn this year, including Dh1.1bn for the Princess Nora bint Abdulrahman University project in Riyadh.
But the second project, Lamar Towers, has been suspended due to the client's inability to meet payment obligations. The Dubai contractor also withdrew from the $15bn Mile High Tower project in Jeddah because of concerns on margins. A successful and timely issuance of a Nakheel sukuk would be a positive catalyst for Arabtec.
Arabtec recently received a cash payment from Nakheel, accounting for about 40 per cent of the amount owed and expects to receive the balance in the form of a tradeable sukuk as outlined in the Nakheel restructuring plan.
Nakheel is in preliminary talks to list its bond on NASDAQ Dubai, according to its chairman Ali Rashid Lootah. Arabtec shares gained 0.5 per cent to close at Dh2.03 yesterday.
halsayegh@thenational.ae
