Why the Arabtec story is only just getting started

Last week’s $40bn project win may have been massive, but there are plenty more deals on the way for the UAE’s largest contractor, says Ed Attwood
By Ed Attwood
Sat 15 Mar 2014 10:38 AM

At almost exactly this time last year, Arabtec shares had hit a 12-month low of AED2.1. The Dubai-based contractor had just announced that it was planning to raise $1.8bn through a rights issue and convertible bond, the reasons for which were — at the time — not entirely clear. Perhaps understandably, investors had a few concerns about the direction the company was taking.

Arabtec’s previous management team had been shunted to one side, following a 21 percent stake purchase in the firm by Aabar Investments, which effectively gave the Abu Dhabi-owned investment vehicle control. The new leadership spoke about aggressive expansion plans, without giving much of a hint as to what those plans were. Information was so scarce that NBK Capital suspended its recommendation on Arabtec stock citing a lack of clarity. Rumours were rife that Aabar would take the contractor private.

One year on, and at the time of going to press last week, Arabtec’s share price was AED4.7, a more than healthy 170 percent increase over the course of the last 12 months. So what’s changed? Well, the company’s backlog has gone stratospheric, for a start. At the end of the first quarter, Arabtec had a backlog of work worth about $5.6bn. In the year since then, it has picked up an astonishing amount of work, including a deal to build 37 towers in Dubai and Abu Dhabi ($6.1bn), a $1.55bn Jordan resort contract, a $705m deal on Abu Dhabi’s Reem Island and a $653m contract to build the Louvre Abu Dhabi on Saadiyat Island. Those wins, plus a slew of other smaller deals, took the backlog to well over double what it had been just 12 months previously.

Then came the monster announcement last week that Arabtec had struck a deal with the Egyptian army to build a million homes in the country for a cool $40bn. The company billed it as the biggest ever contract award in the region, and it’s probably right. I may well be wrong, but the largest regional construction deal I can remember being handed out to a single entity was for the UAE’s first nuclear plants, which was won by a Korean consortium who bid $20bn. The Arabtec contract dwarfs that. The size of the Egypt award is unlikely to be repeated, but I wouldn’t be surprised if a few more major deals were added to Arabtec’s backlog in the near future. Already this year, the firm has opened offices in Serbia and Iraq. The former is particularly interesting, given Etihad Airways’ investment in Air Serbia. According to a report from Bloomberg last week, Aleksandar Vucic, the favourite to become the country’s prime minister in elections this month,  is backing the UAE to invest $4bn in Serbia’s biggest ever real estate development, known as Belgrade on Water.

That project will be developed and financed by Eagle Hills, a new company being set up by Emaar chairman Mohamed Alabbar. Mubadala is also thinking about building a semiconductors plant in the country. There are no prizes for guessing who will win the construction contract for those plans. Last December, Abu Dhabi signed a deal to built a luxury resort, one of several new projects, on the coast of Montenegro. Again, Arabtec will be the clear favourite.

If you then add the two joint ventures that Arabtec signed last year with Samsung Engineering (to bid for energy, utility and infrastructure work) and GS Engineering and Construction Corp (for rail, bridges, ports and tunnels) — neither of which appear to have won any work as yet — then the future project pipeline looks stronger than ever. Yes, there are questions as to how the company will be able to manage this colossal pile of work — it has kept its cards pretty close to its chest on that — but there’s no doubt Arabtec has an interesting few years ahead.

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