Different geographies and different sectors have allowed the Gulf region’s biggest construction company to build on the Dubai boom.
Arabtec is in many ways synonymous with Dubai; as the emirate plotted a path to stardom, the Gulf’s largest construction and engineering firm built many of its most eye-catching projects. A correction in the local economy and the fall in demand for real estate might have left Arabtec scratching around for business, but for redoubtable CEO Riad Kamal, the company’s diversification — both geographically and by sector — has left its order book in fine fettle. In fact, business in other parts of the MENA region is now booming in the same way that Dubai once was.
“Saudi Arabia is in a situation that we [Dubai] were in a couple of years ago. They have work coming out of their ears and they don’t have enough resources to manage it all,” Kamal says. “I guess the major contractors in Saudi like us — we were very greedy and trying to get as much work as we could with our backlog. At the same time, they are taking on more work than they can cope with, and they need to have firms like us come in and work with them either in joint ventures or as subcontractors; we are in a position to provide that extra capacity.”
And it’s not just in Saudi Arabia where Arabtec’s experience is paying dividends. Aside from the firm’s traditional heartlands of Dubai, Abu Dhabi and Doha, Arabtec has spread its wings to garner work in virtually every nation in the MENA region. Even more recently, Kamal says the company has bid for contracts in Azerbaijan, Turkmenistan and Angola, where he says work might come through in the very near future.
For Dubai, naturally, the story has been different, although the fact that very few projects at an advanced stage were cancelled means that the momentum of work has still been strong both in 2009 and this year.
“As a result, a lot of the new property completed — around 40,000 units this year — will take time to be absorbed. It’s back to the basics of supply and demand, and there will certainly be more projects next year,” Kamal says. “I feel that Dubai will need a minimum of four to five years before it can absorb that supply.”
Given the long-term cyclical nature of the building industry, then, the stretch between the signing on a project and the receipt of payment can often be lengthy. When the Dubai property sector sank, in many respects, Arabtec — like hundreds of other contractors — was left carrying the can due to exposure from developers, in particular Dubai World giant Nakheel. With Nakheel receivables amounting to as much as $500m, according to the biggest estimates, the recent Dubai World restructuring has cleared the way for rescue funds to be handed over to the conglomerate. But when does Kamal expect to be paid the initial 40 percent of that debt?
“Why did I know I was going to get asked that question,” Kamal sighs. “I called the CEO of Nakheel this morning… and Marwan assured me that the money would be coming this week or next week. I hope they will deliver on their promise of 40 percent — it would be good for Arabtec, but also for Dubai in terms of local confidence. I don’t doubt they will deliver on that promise.”
As part of the repayment terms, Nakheel will pay its trade creditors the initial 40 percent in cash, with the rest via sukuk, which has a ten percent annual return. So far, Kamal says, around 65 percent of creditors have agreed to those terms, with 95 percent needed to approve the deal.
“We expect the other 60 percent to be paid in three months. We were told that maybe that figure could be revised if they don’t reach the full 90 percent so they could issue the bonds. I expect that over the next three months, they will be chasing the rest.”
Another key concern that has been uppermost in investors’ minds was the on-off deal with Aabar Investments, an Abu Dhabi outfit with close links to the government. In April, a mooted plan by Aabar to take a 70 percent stake in Arabtec — worth an estimated $1.7bn — was suddenly shelved by the Abu Dhabi firm in circumstances that surprised the market. When asked what happened to the deal, the Arabtec CEO has some fairly stern words for the local press pack.
“There was too much speculation in the media not related to the facts whatsoever. This was a strategic partnership between two entities for good business results,” he says. “The partnership was first proposed because Aabar saw a strategic interest in gaining a stake in a construction company, and they couldn’t find anyone better than Arabtec in this field. The deal would have been a good link with the Abu Dhabi government and a great replacement for our resources, right next door [to Dubai].”
Although Kamal says that a proposed deal is still on the cards — which should be able to achieve the intention of the original agreement, he is clearly unhappy in his belief that the press played its part.
“The next thing I read in the paper is that the Abu Dhabi government is buying companies to save them from Dubai. Where did that come from? We didn’t want to be saved — we weren’t drowning. I used to sit down and laugh reading these reports.”
If there is a specific trend that the Arabtec CEO has witnessed as a result of this downturn, it’s that the bread-and-butter work will now in large part emanate from the government instead of the private sector.
“So there has been a shift in the type of work we normally target — we’ve been looking at new infrastructure, such as public utilities, airports, marine works, oil and gas projects, railways through the various subsidiaries of our holding company,” Kamal says. “The banks are holding back in financing private projects; but as long as the oil price remains above $70 there will be an abundance of liquidity in the coffers of the oil-producing countries to deliver on these vital national infrastructure projects.”For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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