Arabtec Holding will be responsible for raising the cash needed to pay for its US$40 billion social housing project in Egypt.
The Egyptian prime minister Ibrahim Mahlab said late on Tuesday that his government had reached an agreement with Arabtec that all of the funding for the ambitious project would “come from abroad” and would be Arabtec’s responsibility.
Khadem Al Qubaisi, managing director of the Abu Dhabi investment fund Ipic and chairman of major Arabtec shareholder Aabar, met housing ministry officials on Tuesday in an attempt to thrash out an agreement regarding funding for the highly political project, which was first announced by the UAE and Egyptian governments back in March.
The project, to build a million affordable homes for mid-income Egyptians on 13 plots of land across the country which are currently owned by the Egyptian armed forces, has been viewed as part of a political move by the UAE government to help stabilise the region.
Ever since the Islamist president Mohammed Morsi was removed last year, the UAE has upped its aid to the country, providing billions of dollars of funds to Cairo.
However Arabtec, which has sacked hundreds of senior managerial staff and shied away from ambitious development plans since it parted company with its outspoken chief executive Hasan Ismaik in a shock move in June, has never explained how it plans to come up with the cash to fund the low-margin project.
Although off-plan sales and bank financing could provide some of the required capital, analysts suggest that the company would also need to rely on funding from Aabar.
Arabtec declined to comment on the issue when contacted.
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 start this quarter.
Analysts point out that to build a million homes to the five-year time frame Arabtec originally proposed, the company would need to build 16,666 homes a month, or 555 homes a day.
“Even if they shipped in flat-pack homes and used advanced building techniques, Arabtec would be very unlikely to build that number of homes in five years,” said Sanyalak Manibhandu, the research manager at NBAD Securities.
"People often talk about the upside of a company like Arabtec having Abu Dhabi government backing through its association with Aabar because it makes it possible for them in theory to win higher margin oil and gas and marine contracts which the company would otherwise not be able to win," said Mr Manibhandu. "However, the downside of the agreement is that the company may also have to get involved in very low-margin affordable housing work when there is a political will to do so. And if this is such a large proportion of the company's backlog then it could have a significant impact on the way the company is valued."
Arabtec shares fell 1.74 per cent in trading yesterday to close at Dh5.52.
Last year the company’s total turnover stood at Dh7.37bn, up from Dh5.66bn the previous year. And the company’s total market capitalisation currently stands at Dh19.8bn.
Earlier this week Arabtec's group general counsel Wassel Al Fakhoury reported to the Dubai Financial Market that the company had "nearly completed" the planning and design stages for the high-profile project, denying press reports that it was looking to change the terms of the deal.
“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 said.
In March Arabtec had said that it would build the homes on land provided free of charge by the Egyptian armed forces. However, insiders say that since Adbel Fattah El Sisi was elected president in June things have changed and the government is demanding payment for the plots.
Instead Arabtec is being offered two choices — to pay for the land in cash or to strike a deal with government and military leaders providing a number of units for free in return for the land. A third option to form a joint venture company with the government or private investors to build the homes is thought to have been discounted in the discussions.
lbarnard@thenational.ae
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