UAE projects suspended or cancelled hit $75bn

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UAE CONSTRUCTION: HSBC report claims $75bn worth of projects suspended or cancelled. (Getty Images)

A new report claims around $75bn (275bn dirhams) worth of construction projects in the UAE can be identified as having been either suspended or even cancelled.

The bulk of the report - an Arabtec Holding equity research note released by HSBC and reported by Emirates Business - said most were high-end residential and commercial projects.

"Since our company note on January 13, 2009, Arabtec's share price has dropped 44 percent on the back of continued negative news flow across Dubai's construction sector," says the report.

"Following the cancellation of its racecourse project by Meydan, the latest negative news to involve Arabtec is the reported suspension of the $654 million Atrium project in Dubai by Australia's Sunland Group. We surmise that the client may be looking to revisit the project's design costings.

‘’We estimate that Arabtec was due to start construction circa in second quarter of this year, but that this could now likely be pushed forward to early third quarter of 2009. We continue to exclude this project from Arabtec's backlog until a revised contract value is disclosed, a move which more firmly signals a client's intention to proceed."

The bank is maintaining its 12-month valuation of 2.40 dirhams but has upgraded its rating from 'neutral' to 'overweight'. It also adds that the magnitude of the sell-offs appear unjustified, the newspaper reported.

In the report's view, while macro and property news flow has led the market to take a negative view towards Arabtec, the current valuation is too compelling. "We believe our forecasts reflect the present situation and the magnitude of the sell-off appears unjustified." 

"On a 10 percent net margin, this translates into a revenue target that is 3.5 billion dirhams lower than our 2009 estimate of 8.1 billion dirhams," the report says.

The report gives the thumbs-up to management's decision to hold off on share buybacks and cash dividend distributions. It also adds that on a positive note, Arabtec's cash balance should be sufficient to fund continued operations, but that longer-than-expected delays in receivables will leave the company with no option, but to resort to debt financing.

"As we expect its cash burn rate to be aggressive over the coming six months on the back of the less favourable working capital cycle than that enjoyed during good industry times," it said.

"The average receivables days-on- hand for HSBC's global emerging markets construction and engineering coverage is currently 130 days, whereas we expect Arabtec to carry an average 193 days out until 2011,'' it added.

The report says the company will manage to secure debt financing, but only on a project-by-project basis, as opposed to at the corporate level.

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READERS' COMMENTS

Who listens to analysts?
Posted by Salah, Dubai, UAE on Sunday 1 February 2009 at 08:17 UAE time


They have already lost the publics respect. They are late to the game. HSBC said Arabtec was worth 20 dhs a few months ago, now when it is 1 dh they say oh, its worth 2.5 dhs. These analysts are scum, the same scum that missed every crash in history. Never have they ever helped investors make money and now that they have all lost the respect of the investor community, they will never be more than oise in the background.

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