Meltdown at Arabtec hits Dubai markets

UPDATE: Arabtec confirms 'limited number of staff laid off, stock falls in early Tuesday trading

DUBAI // A shares meltdown on Monday at the Arabian Gulf’s largest construction company threatened to drag the entire Dubai stock market with it.

Arabtec, the Dubai company that built the Burj Khalifa and has a stake in high-profile projects worldwide, has lost more than Dh16 billion in market value in the past three weeks. Its share price has fallen by nearly two thirds, and plunged by almost 10 per cent in the first 30 minutes of trading on Monday.

In turn, the Dubai Financial Market has fallen by 20.5 per cent since May and dropped another 4.3 per cent on Monday. The main victims have been small investors who own the bulk of Arabtec shares.

The construction giant is thought to have fired its chief operating officer, chief information officer, chief risk officer and head of mergers and acquisitions since the resignation last week of Hasan Ismaik, its chief executive.

It has made no public statement but is expected to do so before trading opens on Tuesday.

“From here, it will be very difficult for Arabtec to regain the confidence of investors,” said Akhilesh Baveja, a portfolio manager in London with Charlemagne Capital, previously a minority shareholder in Arabtec.

“It’s not the norm in international markets, to make such a large management change without communicating this to investors.”

The exit of senior management could affect the company’s ability to finish its backlog of projects, Mr Baveja said. “Execution is the most critical part of the contracting business – if these job cuts are hurting this, that will affect the price.”

Arabtec’s share price began to fall shortly after Mr Ismaik more than tripled his stake in the company, with a purchase of shares worth billions of dollars between May and June.

The acquisition made him the largest shareholder in the company, with 28.8 per cent of shares – more than the other major shareholder, Aabar Investments, which is owned by IPIC, the International Petroleum Investment Corporation.

Aabar reduced its stake in the company from 21.57 per cent to 18.85 per cent on June 14.

On June 17, Arabtec announced that Mr Ismaik had resigned as chief executive because of “his personal work and investment preoccupations”. He was replaced by Mohamed Al Fahim, formerly head of finance at IPIC.

Mr Ismaik said last week he would sell his stake “if approached by any government entity”, but said later he would keep the shares. Yesterday he said he had received three offers for his stake.

* Additional reporting by Bloomberg News

UPDATE: Arabtec confirms 'limited number of staff laid off, stock falls in early Tuesday trading