Property troubles put extra stress on Arabtec Holding

Property sector downturn, suspended project hit profits

Arabtec Holding has posted a 40 per cent drop in second-quarter profits as Dubai's property sector continues to struggle and a Dh2 billion ($544.7 million) contract was suspended in Saudi Arabia. The UAE's largest construction company yesterday announced profits of Dh111.1m for the quarter, compared with Dh183.9m in the same period last year. Profits for the first half of the year fell 29 per cent to Dh245.6m, the company said.

While Arabtec has broadened its geographical reach in recent years, continuing stress in markets close to home was a driving factor for the fall in profits. The value of the company's contracts had shrunk from about Dh28bn at the start of the year to Dh22bn, mainly because of cancelled projects in Dubai. Profits were also dented by the cancellation of a major contract in Saudi Arabia, where Arabtec set up an office in March last year to capitalise on a huge pipeline of projects. It was awarded a Dh2bn deal to build Lamar Towers in Jeddah but the project was removed from its order book after work was suspended this year.

"There has been no progress on the project and we could not agree how to move forward, so we took it off the backlog," said Ziad Makhzoumi, the chief financial officer of Arabtec. Dubai's Cayan Investment and Development, which had formed a partnership with the Saudi company Zahran Real Estate to develop Lamar Towers, is also no longer involved in the project, said a spokesman for Cayan. In what could be the most challenging period in its history, Arabtec had a glimmer of good news last month when it said it received 40 per cent of what it was owed by the troubled Dubai World property developer Nakheel.

But work has yet to resume on Al Furjan, the 1,500-villa community Nakheel has said it will focus on finishing as it looks to a Dh38.56bn debt restructuring. A number of property buyers in longer-term projects by Nakheel, the company behind Dubai's Palm islands and The World archipelago, were allowed to switch their investments to Al Furjan. "We know it's one of the projects that will continue soon," Mr Makhzoumi said. Arabtec is also hoping a major project in Russia goes ahead soon.

The company has the main construction contract for St Petersburg's 400-metre-tall Okhta Centre tower, valued at Dh10bn when it was awarded in 2008. But the start of work was delayed after the UN Educational, Scientific and Cultural Organisation warned St Petersburg's historic centre could be struck off the World Heritage List if the tower were built. Even though Arabtec won three contracts in Abu Dhabi in June worth a combined Dh747bn, Chet Riley, an analyst at Nomura, warned the third quarter might also be challenging, "particularly with the summer and Ramadan".

In April, Arabtec abandoned a deal that would have seen Aabar Investments, based in Abu Dhabi, take a 70 per cent stake in it. Riad Kamal, the chief executive of Arabtec, said in May the two companies were still working towards a strategic partnership. Meanwhile, the company is seeking new work in Libya, Turkmenistan, Azerbaijan and Angola as it weathers the slowdown in the UAE. It has also been approached to build a 100,000-seat stadium on the outskirts of Baghdad.