Arabtec's 2009 net income could be halved - Beltone

MEYDAN PLAN: Beltone Financial says Arabtec's 2009 net income could be halved after its cancelled contract for Dubai's new racecourse.

Arabtec’s net income in 2009 could be halved to 505 million dirhams ($137 million) following the termination of its contract to build Dubai’s new racecourse, investment bank Beltone Financial said on Wednesday.

In a worst case scenario, Arabtec could lose up to 502 million dirhams from the cancellation of the contractor’s 2.4 billion dirham deal with Meydan to construct Nad Al Sheba racecourse, the Egyptian bank said in a research note.

Government-owned Meydan terminated a joint contract with Dubai-based Arabtec and Malaysia’s WCT Bhd last week, blaming delays to delivery of the scheme.

Although the deal only accounted for around five percent of the contractor’s backlog, up to a further 130 million dirhams will be incurred by Arabtec over potential demobilisation costs and unpaid completed works, according to the bank.

In addition, Beltone said rumours pointed to the cashing out of a 230.5 million dirham performance bond. Drawn up between contractors and developers at the commencement of a project, the bond guarantees a developer compensation if the project contract is breached.

In this scenario it could bring its net income forecast for Arabtec in 2009 down from 1 billion dirhams to 505 million dirhams, Beltone added.

Generally, the bank said Arabtec’s exposure to project cancellation in Dubai was “risky”, given that over 40 percent of its estimated 42.8 billion dirhams order backlog was in the emirate involving upscale residential projects, apart from Mohamed Bin Rashid Housing Programme, the DIFC Central Park and Al Maktoum International Airport.

But Arabtec’s strong liquidity position will cushion the contractor against any lost cash, with a strong balance sheet enabling it to withstand the current crisis, the note added.

Shares in Arabtec, building the Burj Dubai, the world's tallest tower, have fallen 26.5 percent since the start of the year.

No one was available to comment from Arabtec.

SHUAA Capital said in a research note last week the termination of the Meydan contract chipped around 1.2 billion dirhams off Arabtec’s order backlog and could end the contractor’s hopes for achieving growth next year,

Meydan chairman Saeed H Al-Tayer told Arabian Business last week the racecourse will be open in time for the Dubai World Cup horse race in 2010.

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