Arabtec Holding unveiled a three-step recovery plan on Thursday as it seeks to win support from shareholders for its latest fund-raising.
The contracting group, which is seeking an injection of Dh1.5bn from investors through a rights issue, said that it intends to carry out each element of its plan every year for the next three years.
In a nutshell the three phases are: stabilise in 2017, prepare in 2018, grow in 2019 and beyond.
For this year Arabtec’s priority is to stabilise the loss-making business through the issue, which is part of a recapitalisation plan aimed at ridding itself of accumulated losses of Dh4.6bn. Arabtec also plans to introduce better risk-management, solve legacy issues and sell off ‘non-core’ assets.
Next year, its plan is to prepare the business for the future, which means keeping costs in check, delivering projects on time and to budget and ‘consistently’ securing a backlog of projects worth about Dh8-9bn.
The final phase, which is to begin in 2019, will focus on growth, most notably profit margins and cash generation, as well as boosting capabilities in: engineering procurement, construction and management; infrastructure; mechanical, electrical and plumbing work; and specialist construction. This would also be the first year in which it is targeting a potential dividend payment to shareholders.
Arabtec’s immediate priorities include a “strategic review” of all current investments and a disposal of any divisions it considers to be non-core.
It also has an “action plan on legacy claims, receivables, and WIP (work in progress) to enable the group to focus on the future growth of the business without being restricted by problems from the past,” according to a document that it filed on the Dubai Financial Market.
Arabtec will initially increase the size of its capital base from Dh4.6bn to Dh6.1bn under the rights issue, but it then plans to cancel 4.5bn shares to help extinguish its Dh4.6bn of accumulated losses.
The plan has effectively been underwritten by its biggest shareholder, Aabar Investments. Aabar owns 36.11 per cent of Arabtec, but its stake may increase if other shareholders decide against supporting the new rights issue. The price for this is to be set this month when the company files audited accounts for 2016.
Preliminary accounts filed last month show a net loss attributable to Arabtec of Dh3.4 billion — Dh2.8bn of which was due to impairment charges.
Allen Sandep, a director of research at Naeem Holding, welcomed Arabtec’s move to lay out its new strategy, but said “ execution is key”.
“How are they going to turnaround a business from a loss-making entity for years back to where they were?”.
He said that based on the last filed accounts, for the nine months to September 30, 2016, the company had net working capital of about Dh3bn, with Dh10bn of receivables due and Dh7bn of payables owed. However, given the heavy level of provisioning in the final quarter, when the company seems to have suffered a loss of Dh3bn, these “may have evened out”.
“But we’ll only know only know for sure once the results are out. As long as they don’t take a further haircut, well and good. If they have to write off more, and they are not able to pass this on to subcontractors, there may be more impairments.”
He said a write-off as sizeable as the one which its preliminary results indicate should mean that the company has got most of its bad news out of the way.
“Going forward, I don’t think things will be as bad for them,” said Mr Sandeep.
He argued that the level of support the company will receive from investors other than Aabar will probably depend on the price at which the rights issue is set.
“My view is that they would price it at a discount to the market price, so most of the shareholders should subscribe.”
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