Arabtec might still be more reliant on Dubai than other contractors, analysts say.

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Arabtec Holding saw net profits fall 38% last year against 2009 as the biggest listed construction company in the UAE puts both its convertible bond sale and rights offer to shareholders on hold.

The Dubai-listed contractor said after-tax gains reached AED 307.1 million, down from AED 494.9 million the previous year, with revenues declining from AED 7.664 billion to AED 5.46 billion, or 28.7%.

The co-builder of the Burj Khalifa also said that it is to put on hold the sale of US $150 million in five-year convertible bonds, first announced in January, as well as the sale of 398.7 million shares to existing equity holders, which would have had a sale price of AED 1 per share.

The delay has come about “for the time being until the market conditions become more favourable,” the company stated.

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Arabtec has sought to diversify its contract work outside the UAE following a sharp fall in the real estate market in Dubai since 2009 has seen work dry up and payments from developers slow.

Egypt, Saudi Arabia and Syria are three particular markets the company is targeting, according to Thomas Barry, CEO of Arabtec Construction, at the ConstructionWeek annual conference in Abu Dhabi last November.

Despite the fall in net profits, the company has secured many contracts since the start of the year, chiefly through Arabtec Construction, a subsidiary. These include providing enabling, structural and MEP work as well as fit-out and landscaping for two residential towers in Abu Dhabi and a staff accommodation in Fujairah – projects worth a combined AED 623 million.

Bloomberg, the market data provider, highlighted that the full-year net profits missed the mean average of estimates by analysts covering the company, which predicted Arabtec would make AED 357 million. The company had seen falls in net profits throughout 2010 against the equivalent periods in 2009. Nine month net profits up to 30th September were down 80% – AED41 million, down from the AED209 million posted a year earlier.

Analysts say that the released results imply that the company has not provided sufficient provisions for work completed in the last three years which might not have collected payments.

“I was hoping the company would have a more aggressive stance in its provisions. For many projects that have been shelved there have been delayed payments and this has been carried forward,” said an analyst in Bahrain, who declined to be named. “Provisions that were only for three or four months have occasionally been extended to two years.

“Provisions will impact the future cash flow that you’re carrying forward. The problem is that Arabtec is not taking sufficient provisions – perhaps 50% for receivables in a worse-case scenario.

“To meet the cash requirement, the company wants to do a rights issue and convertible bond sale, though this would only dilute the [stake of] the existing shareholders. So the company did work for free and now it is diluting the shareholders. I would think this is why investors have dumped the stock since the announcement of the convertible bond issue.”

Arabtec shares have declined 39% since just after the announcement of the convertible bond sale in January to 3rd March.

The analyst compared Arabtec Holding to Drake Scull International, the MEP giant,by saying Arabtec is still probably more dependent on Dubai than DSI, which has also embarked on an aggressive regional expansion that includes strategic acquisitions in Saudi Arabia.

 

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