Arabtec dispels doubts on $40bn Egyptian housing project

Dubai developer's Egyptian project was announced in March with construction due to start in the third quarter of this year.

Arabtec has provided an update on its housing project in Egypt. Silvia Razgova / The National

Arabtec said it was set to start construction work on a million low- cost houses in Egypt and denied press reports that it was looking to change the terms of the US$40 billion deal it struck with the Egyptian government in March.

The Dubai-listed contractor said that it had “nearly completed” the planning and design stages for the homes, which will be built on 13 plots across the country providing much-needed affordable housing to the Egyptian masses.

“[We are] committed to the project related to the one million housing units in the Arab Republic of Egypt,” Arabtec’s group general council Wassel Al Fakhoury said in a statement to the Dubai Financial Market yesterday.

“The company will commence the project immediately after the finalisation of the planning and design stages, which have been nearly completed after achieving significant progress in this regard,” he added.

Shares in Arabtec, which is 27.9 per cent owned by its former chief executive Hasan Ismaik and 18.9 per cent owned by the Abu Dhabi state fund Aabar, fell 3.3 per cent during trading on Sunday to close at Dh4.42.

The announcement comes after the Egyptian newspaper Al Shorouk quoted an unnamed source in the Egyptian ministry of housing last Wednesday as saying that Arabtec was refusing to pay for the 13 plots of land earmarked for the housing.

Instead, the paper said that Arabtec was offering the Egyptian government three choices: for Arabtec to partner with the Egyptian government to build the homes by providing the land for free; for Arabtec to coordinate a consortium of other investors to build the homes and share the profits; or for Arabtec to offer the government completed units as payment in kind for the land.

The Egyptian president Abdel Fattah El Sisi announced the project in March.

Construction of a first phase, which will include homes in Cairo’s industrial districts of Al Aboor and Badr City along with the Upper Egyptian governorate of Minya, was slated to be started by the third quarter of 2014.

At the time Arabtec said that the homes would be built on land provided for free by the Egyptian armed forces.

The UAE has provided billions of dollars of aid to Cairo since the Islamist president Mohammed Morsi was removed last year.

Back in the summer Arabtec had said that it planned to invest as much as $60bn in Egypt over the coming three years in sectors such as real estate development, infrastructure, trains, airports and oil and gas. The company had even planned to float half of its Egyptian subsidiary on the Cairo stock market to raise funds.

However, in the six months since the deal was struck, Arabtec appears to have made little concrete progress with the housing scheme and has revealed few details about how the vast project will be paid for, managed and sold.

At the same time the company has undergone a major change to its management, prompted by the shock departure in June of its chief executive Hasan Ismaik.

Mr Ismaik had been spearheading the company’s expansion into dozens of new countries and new areas of business to diversify away from the UAE’s cyclical construction industry.

Since then Arabtec has reportedly parted company with hundreds of employees from newer parts of the business including its head of mergers and acquisitions, head of risk and chief information officer as it sought to focus on its core construction business.

Analysts have questioned whether the firm even has the capacity to implement the low-margin, large- scale housing project without access to further resources from its major shareholder Aabar. Last year the firm’s full year revenues stood at Dh7.4bn.

According to an HSBC study published in July, Arabtec would need to hire an additional 17,500 white collar staff just to meet its backlog to 2017 – of which the Egyptian project comprises a large chunk.

“There is the political will to do this project and if Arabtec did not proceed with the project as planned then it would be a poor signal to the market,” said Sebastien Henin, the head of asset management at Abu Dhabi-based The National Investor.

“But it is not an easy thing to do,” he added. “It is a very sizeable project and in a foreign country and low-margin affordable housing is not something that Arabtec has done before. It is not easy to make a profit from these sorts of developments.

“At the end of the day Arabtec can go online and say whatever they want, but this is a very complicated project and we need more details to understand how it will work, who will provide the land, whether Arabtec will develop the homes itself and, with social housing, what sort of mechanism will be put in place to support buyers and keep homes affordable. At the moment we don’t have any of these details.”

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