Arabtec drops bond sale plans

Arabtec, the UAE's largest construction company, says it will withdraw plans for a rights offer and bond issue.

The contractor has been trying to raise capital since January last year, when it announced a deal to sell a stake to Aabar.

Shares in Arabtec, one of the UAE's largest construction companies, jumped by the most in three months after it said it would shelve plans to raise funds through a rights issue and bond sales.

Net profit declined to Dh307 million (US$83.5m) for last year, a 38 per cent drop from 2009, the company said in a statement on the Dubai Financial Market's website. Revenue for the year was Dh5.4 billion, a 29 per cent drop from 2009, missing the consensus analysts' forecast of Dh5.68 bn.

But the stock gained 7.9 per cent to Dh1.36 yesterday on news the company would not follow through on the rights issue, announced in January, which would have offered 398 million shares to existing shareholders at Dh1 a share. Arabtec also said it would shelve plans to issue $150m in bonds until "the market conditions become more favourable".

"The fact that they are putting off the capital issue is a positive," said Majed Azzam, an analyst with Alembic HC Securities.

The rights issue would have diluted shares and the company would have had to pay a high interest rate on bonds in the current market, analysts say.

The company's decision indicates raising capital is not "immediately urgent and the company is still in good shape", Mr Azzam said.

In its statement, the company also announced plans to issue existing shareholders a bonus of one share for each four shares already owned.

Arabtec executives could not be reached for comment. More detail would be available at a later date, the company said in the statement.

Arabtec shares fell 3.8 per cent on January 10 when the company announced plans for the rights issue and the bond sale.

Market conditions are not good for a Middle East construction company to raise funds, analysts say.

"It makes sense" to withdraw the deal, said Chet Riley, an analyst with Nomura Securities. "It was going to be too expensive."

When Arabtec first announced the Dh1 a share offer, its share price was close to Dh2; on Tuesday it was trading at Dh1.26, decreasing the discount available to existing shareholders.

The construction company would also have had to pay a premium to sell its bonds in the current market.

"The appetite is not there" for the bond issue, Mr Azzam said. "The bond market is very difficult right now."

Arabtec has been trying to raise capital since January last year, when it announced a deal to sell a 70 per cent stake to Aabar Investments for Dh6.4 billion. That deal collapsed a few months later.

Arabtec and other construction companies around the region are struggling in the wake of the building slowdown in Dubai. Sixty-five per cent of the projects in development in Dubai have either been delayed or cancelled, according to industry estimates.

The competition for the remaining projects is compressing margins and raising costs, analysts say.

"All contractors are in the same boat," Mr Azzam said. "Everybody is chasing the same market."

Arabtec's Dh307m in net profit last year is 67 per cent down from the Dh958m the company reported in 2008.

Most construction companies in the region are still suffering from delays in getting paid for projects, Mr Riley said.

"It is taking longer to get paid and you have to absorb start-up costs," he said. "It's just a tough business."

Shares in Arabtec dropped 34 per cent from January 1 to March 1 amid concerns the rights issue would dilute shares and unrest in parts of the Mena region would affect its projects.

The company has been expanding into Egypt, Saudi Arabia and Kuwait in recent years. In past statements executives said new capital would fund the expansion plans.

But new markets also mean new expenses, Mr Riley said.