Tuesday, Jul 17, 2012
(This story was originally published Monday.)
-- Aabar already has effective control of Arabtec board
-- Arabtec shares could fall another 15-20%
-- Abu Dhabi construction work unlikely to support shares
By Tahani Karrar-Lewsley
OF ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Abu Dhabi's Aabar Investments is unlikely to add to its declared 21.57% shareholding in Arabtec Holding (ARTC.DFM), having secured effective control of the Dubai-based construction firm with the board changes that followed its controversial purchase of a minority stake, according to analysts.
That suggests Arabtec shares are likely to drift lower for the foreseeable future, after more than doubling in the first few months of 2012 while Aabar was accumulating its holding, the analysts said.
"Aabar is practically controlling Arabtec now through its board and hence should have no problem in influencing the company's strategy. There seems no compelling reason for Aabar to further increase their stake," says Nishit Lakhotia, research analyst at the Securities Investment Company, or SICO, in Bahrain.
SICO analysts think that Arabtec shares could fall 15-20% from Sunday's closing level of AED2.86 ($0.78) in coming months, now that Aabar appears to have halted its purchases.
Despite only holding a minority stake in Arabtec, Aabar was able to secure effective management control of Arabtec in May, when Aabar's Khadem Abdulla Al Qubaisi was appointed Arabtec chairman and four other Aabar executives were given positions on the company's nine-person board.
Aabar paid a total of AED827.6 million for the 21.57% stake, according to a recent disclosure from Aabar's parent, the government-owned International Petroleum Investment Co.
Though Aabar has consistently declined to comment on its plans for Arabtec, analysts think it will use the company to execute construction projects in Aabar's home market of Abu Dhabi, where there are few domestic construction firms able to take on large-scale projects. Evidence for that theory came in in June, when Arabtec, in consortium with Turkey's TAV Construction and Consolidated Contractors International Co., was awarded a $3 billion contract to build a terminal building at Abu Dhabi International Airport.
In January, the Abu Dhabi Executive Council announced plans to press ahead with various housing, health, education and other infrastructure projects in the emirate.
But Omar Taha, research analyst at Beltone Financial, said although these projects bode well for Arabtec, they are unlikely to revive the Arabtec share price as margins on construction work in the United Arab Emirates are so low.
"The U.A.E. contactor market is not as profitable as other sectors with margins around 6-10% today compared to sectors like gas derivatives such as fertilisers and petchems that are operating at a 60-70% margin," Mr. Taha said.
If no more major construction awards materalize this year, it will add further downward pressure on the share price, says Ali Adou, portfolio manager at The National Investor, which owns Arabtec shares.
"Arabtec's share price has taken into account all the positive news so far and there are no more major awards this year so it is currently over-valued," Mr. Adou said.
Arabtec shares have already fallen about 20% from their peak at AED3.57 at the end of February, in the midst of Aabar's share buying, though they remain well above AED1.51 at the end of last year.
Volumes have also dwindled, suggesting Aabar is no longer active in the market as a buyer of Arabtec shares, analysts said. In recent sessions, about 1 million Arabtec shares have changed hands on a daily basis, compared with peak volumes approaching 100 million shares a day in early February, according to Zawya.com data.
In its stake purchases earlier this year, Aabar sidestepped market rules that require regular disclosure of any stake above 5% by acquiring its holding through a number of subsidiaries. This stirred controversy and served to further expose the absence of proper takeover and disclosure rules in the United Arab Emirates.
Arabtec has denied media reports that Aabar had already acquired a controlling 53% stake through various subsidiaries. However, suspicions remain in the market that Aabar's stake may in fact be higher than the declared 21.57%, due to the way it built up its declared holding via subsidiaries. Other Aabar entities may hold undeclared stakes of less than 5%, some believe.
Aabar also owns stakes in Germany's Daimler AG and Italy's Unicredit.
Arabtec chief financial officer Ziad Makhzoumi declined to comment on Aabar's holding in his company. Aabar Investments was unavailable for comment.
-By Tahani Karrar-Lewsley, Dow Jones Newswires; +9714 446-1698; tahani.karrar@dowjones.com
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
17-07-12 0339GMT
