Arabtec eyes Saudi deals worth $800mn

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BUILDING WORK: Arabtec is poised to win deals worth $800 million in Saud Arabia. (Getty Images)

Dubai's Arabtec Holding is looking to expand into Saudi Arabia as it looks to mitigate any potential slowdown in the United Arab Emirates real estate sector.

The UAE's larget construction firm by market value has been looking to diversify from its core business and expand into new markets over the last year and Chief Executive Riad Kamal said in an interview on Monday it was now turning to Saudi Arabia.

The firm expects to win three contracts in the kingdom next year worth in total as much as 3 billion riyals ($800 million), Kamal told newswire Reuters.

"Saudi Arabia has a very big and solid market and there are a limited number of contractors there but huge projects being developed," he said.

Fuelled by a more than fivefold rise in oil prices since 2002, the world's largest oil exporter has been developing multibillion dollar projects to attract foreign investment and fill a shortage of housing units for the local market.

King Abdullah Economic City, being developed by an affiliate of Dubai-based Emaar Properties, hopes to attract investments worth about $28 billion.

"This move into Saudi is a perfect move because it is one of the biggest markets in the Middle East and has huge potential for growth," said Mostafa El-Maghraby, construction analyst at Prime Group.

Arabtec, with almost 50 billion dirhams worth of contracts, has won deals in Russia, Qatar, Jordan, Syria and Pakistan over the last year.

Kamal sees Dubai's real estate project market slowing down due to liquidity shortages as lending in the financial and construction hub becomes more difficult.

New project launches in the UAE could slow as "there is a shortage of liquidity for buyers and developers", Kamal said.

"We have to see the beginning of next year which direction the market will take," he said.

But Kamal expects any downturn in the property sector to be short-lived and mainly a reaction to financial turmoil on global markets.

Ongoing economic growth in the high single digits in the world's fifth-largest oil exporter would work to sustain the property boom, Kamal said.

"There is no bubble here that has burst," he said. "The growth in the economy, the expansion of the population and the fact that the government is supporting this growth will sustain demand for accommodation, schools, hospitals, etc," he said.

GDP growth in the UAE has averaged just under 10 percent since 2003. A Reuters poll in July showed economists expecting UAE GDP growth of 7.9 percent this year.

"If the credit crunch is here to stay, then it would affect the business environment and real estate and construction is no exception to that as there might be a shortage of projects," Prime Group's Maghraby said.

The group in November bought a 60 percent stake in Abu Dhabi-based Target Engineering Construction Co., which focuses primarily on the energy sector. Kamal said Target is competing for contracts in the UAE and Qatar worth millions of dirhams.

Its infrastructure subsidiary Arab Engineering Services is also bidding for an excavation contract on the Arabian Canal in Dubai, which will rival in size the Panama Canal.

"Moving away from reliance solely on residential property projects as well as geographical diversification protects the company from the risk of a potential slowdown in the UAE and most specifically Dubai," Maghraby said.

Kamal said revenues in the third quarter could reach 2 billion dirhams and 8 billion dirhams for the year.

Arabtec also expects to win two to three projects in the UAE after the Muslim Eid Al-Fitr holidays, which begin this week, Kamal said.

The company's shares closed almost 2 percent lower, but are up 36.7 percent this year to Sunday's close, outperforming the main index, which is down 31.55 percent. (Reuters)

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