Investors are fearing that Arabtec’s share plunge will continue in the run up to Ramadan, and that the price could fall to below AED2 ($0.54) – 35 percent below its Tuesday closing value of AED3.12.
Arabtec shares have already lost over 50 percent of their value in the past month, following a decision by major shareholder Aabar Investments to reduce its stake in Arabtec earlier this month, the resignation of the CEO and top shareholder Hasan Ismaik last week and news of wide scale job cuts.
The plunge in the company’s shares, the most heavily traded in Dubai, has dragged down the entire market. The benchmark closed down 6.7 percent on Tuesday after tumbling as much as 8.7 percent at one stage. Six stocks fell the daily limit of 10 percent.
Shares on Wednesday were up as much
as four percent before dropping about eight percent. As at
12.25pm they were up 1.92 percent to AED3.18.
However, sources close to the company – including investors – told Arabian Business that there are growing fears “worse is to come.”
“We are looking at this going on into next week and the price going below two dirhams. The biggest problem is that there is no clear message from the management, either on the exact scale of the job cuts or the strategy going forward. That makes people think there is more bad news to come,” said a source.
He added: “The feeling internally is that the new CEO Mohammed Al Fahim is an excellent choice, but unfortunately the market doesn’t know that and needs more information.”
Meanwhile, Arabtec chairman Khadem Abdulla Al Qubaisi has sought to hose down panic, saying on Wednesday that the company’s restructuring will not damage its ability to proceed with its expansion plans.
In his statement to the Dubai bourse on Wednesday, Qubaisi said Arabtec's financial position remained solid and that it was committed to growing and maximising returns to shareholders. He repeated that the company had no intention of delisting its shares from the market, contrary to rumours.
"We have implemented a limited restructuring process, aimed at controlling resources, without compromising the needs of projects in progress and the established expansionist plans,” he said.
Qubaisi did not, however, comment on the future of specific projects, including billions of dollars of contracts given to it by Aabar in the United Arab Emirates, and a $40bn deal to build one million homes in Egypt over coming years.
He said Arabtec was "keen to retain" the managerial and technical teams in its various departments to handle projects. But he did not discuss the make-up of Arabtec's future management team, Arabtec's relationship with Aabar, or what might happen to Ismaik's 28.85 percent stake in Arabtec.
Tuesday’s slump was the biggest daily loss on Dubai Financial Market (DFM) since August, 2013. That fall was related to an escalation in violence in Syria and comment from US president Barrack Obama that suggested he may consider military intervention.
Traders said the plunge was not due to any negative news about the Dubai economy or geopolitical tensions related to Iraq. Instead, the market was vulnerable to heavy selling after retail buyers sent it soaring earlier this year.
However, Sebastien Henin, head of asset management at Abu Dhabi-based advisory and management firm The National Investor, said he believed the market drop was due to a combination of elements, which also included an 18-month rally on the back of Expo2020, the UAE’s elevation to emerging market status, the normal pre-Ramadan quiet phase and recent events in Iraq.
“The Arabtec story is not something new, it started two weeks back, which was only one element,” he told Arabian Business.
“This is a market that tripled in the past 18 months and at some point in time it had to come (down).”
Henin said he did not believe foreign investors would be spooked by the drop, saying as an emerging market they were used to high volatility.
He also believed a lot of active investors were not confident about the valuations that had emerged for some stocks. “We think generally the premium of the UAE market is justified, but maybe not to this extent,” he said. “What is happening is very healthy for the market and I will not be surprised if some foreign money looking at the market and they invest in the market if the market goes further down… maybe 15 to 20 percent from where we are now.”
Asked how much further the market can drop, he says: “In the current environment we should see it lose another 10 to 15 percent… in the coming weeks.”
One analyst told Arabian Business he predicted the market could drop about 3,830 points “on a technical support level”.
Al Mal Capital’s head of asset management Tariq Qaqish said while it was difficult to predict how far the market would drop he expected the downside to be minimal.
“I do see opportunities on those levels at a fundamental base where stocks are definitely looking more attractive for investors,” he said.
The concern was not only Arabtec, he said, but on how brokerage companies and banks were selling clients to offload their margins.
“Yes, it started with Arabtec bad news, but it’s not ending because we don’t see any complete decisions from the strategic investors, so we still see the ex-CEOs coming back into the media. What we would like to see is the existing strategic investors to come and talk about the company’s strategy, talk about who’s going to be taking over the share of the ex-CEO.”
Nishit Lakhotia, head of research at the Securities & Investment Company in Bahrain, said while it is “anybody’s guess” how long the sell-off will continue, noting there is normally a bit of volatility ahead of Ramadan, he believes in will stabilise leading to July.
Lakhotia added that while the last week’s activity on the Dubai bourse made it look volatile, he noted this was seen before and after its upgrade by the MSCI Emerging Markets Index to emerging markets status, which was announced last but took effect just this month.
Henin said companies eyeing stock market listings may for the time being not be deterred. “But, for sure, if the down trend continues in September maybe some IPOs might be postponed due to adverse market conditions,” he said. “So far I think we haven’t reached those levels. If the market goes down another 10-15 percent it could be true, but for the time being I don’t think so.”