A leading economist has warned the reported demise of UAE construction giant Arabtec could be the tip of the iceberg and forecast increased concerns for the industry amid the continuing coronavirus crisis.
It was announced on Wednesday that the shareholders of Arabtec Holding had voted to place the company into administration.
Concerns over the future viability of the company, which has combined losses of almost AED1.5 billion, have been circulating for some time, with matters coming to a head at this week’s delayed annual general meeting.
The latest hammer blow to the industry comes after Drake & Scull International recently revealed it had appointed a new CEO and CFO, the latest in a string of senior job announcements as the company proceeds with finalising an organisational and financial reorganisation plan.
According to a statement to the Dubai Financial Market earlier this month, an application for its financial reorganisation process to be conducted under the supervision of the Financial Reorganisation Committee (FRC) – a body set up in 2018 under the UAE’s bankruptcy law – was accepted in May.
While creditors have started to enforce claims against Abu Dhabi-based Al Jaber Group, in a dispute triggered by a construction downturn in the UAE more than a decade ago.
And Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics, told Arabian Business, he believed more trouble could be on the way.
He said: “The coronavirus crisis is reducing the likelihood of an orderly rebalancing of the real estate sector. The problem of excess supply has been long known and this is only being exacerbated by the expat exodus triggered by the coronavirus pandemic, and banks seem now to be calling time on support for the sector.
“With the coronavirus pandemic likely to be an issue for some time yet, it would be surprising if other construction firms didn’t follow and find themselves in severe financial difficulties as a quick and significant pickup in demand is unlikely.”
According to GlobalData, the UAE construction sector recorded growth of 3.3 percent in 2019. Pre-Covid, this figure was expected to increase to 4.3 percent in 2020, predominantly driven by a range of government initiatives.
However, Livermore said: “We expect construction activity in the UAE to decline by 4% in 2020 with the risks skewed to the downside.”
.jpg?6fwwo86t)
Scott Livermore, ICAEW economic advisor and chief economist at Oxford Economics
Arabtec were not responding to calls on Thursday, while the company’s shares on Dubai Financial Market remained suspended.
Follow us on
