Arabtec gets go-ahead for capital reduction

Shares to trade at new price after market’s Eid break.

The contractor Arabtec has announced that it has gained regulatory approval for the second phase of its share recapitalisation programme, which will see the number of shares in issue decline to 1.5 billion from 6.1 billion.

In a statement to the Dubai Financial Market, Arabtec said Thursdaywould be the last day of trading in its existing shares before the reduction takes place, which is being done on a pro-rata basis.

The lower number of shares will begin trading at a restated price once markets reopen on Wednesday, June 28.

The reduction in the company’s share capital will reduce its liabilities, allowing Arabtec to extinguish historic losses of about Dh4.6 billion that were racked up over a disastrous trading period that saw the firm post nine consecutive quarterly losses between 2014-2016, including a Dh3.4bn loss last year.

It also follows a rights issue which saw the company raise Dh1.5bn by issuing new shares to existing investors. Arabtec said on Tuesday that it would use the proceeds from this rights issue to finish existing projects, execute its turnaround plan and pursue new business.

The rights issue had been backed by Arabtec’s biggest shareholder, Aabar Investments, which effectively underwrote the process by offering to buy stakes that minority stakeholders declined to take up.

Speaking at the company’s AGM in April, when investors approved the recapitalisation programme, Arabtec’s chief executive Hamish Tyrwhitt said that it had considered several other methods of shoring up its balance sheet, including raising more debt or issuing convertible bonds, but had ruled them all unsuitable as the company was not in a position to borrow more.

Mr Tyrwhitt, a former head of CIMIC Group in Australia who was appointed as Arabtec’s chief executive in November last year, said the company had established a new approval process to better manage contract risk.

“The industry has not evolved for thousands of years. If you keep it simple, if you win work for which you have the ability to make a cashback profit, if you employ competent people and you empower them, the company will be successful,” he said.

“The company has an incredible past, it has an incredible list of projects. Going forward, we need to harness our track record, and [start] winning work that has the ability to make money.”

The company has embarked on a three-year turnaround programme, with the current year based on stabilising the business. Alongside the capital restructuring, Mr Tyrwhitt has also been reshaping Arabtec’s management team and has set out a strategy focused on its three core contracting businesses – Arabtec Construction, the oil & gas specialist Target and the mechanical and electrical contracting business Efeco. It is also planning to sell off non-core assets and improve recovery rates on money owed for outstanding work.

Sanyalak Manibhandu, the head of research at NBAD Securities, said contractors such as Arabtec continue to face tough macroeconomic conditions, with the recent agreement by Opec members to extend current production cuts into 2018 likely to impact negatively on the GDPs of the countries concerned.

“When you’re talking about production cuts moving into 2018, it means that the growth momentum for 2018 will be a little suspect as well,” he said.