Arabtec rights-issue investors left with 33% loss in one week

Analyst says many investors were caught out after bidding for the contracts without understanding what they were buying
Arabtec rights-issue investors left with 33% loss in one week
(Getty Images)
By Bloomberg
Mon 22 May 2017 02:11 PM

Investors who bought contracts that entitle them to participate in Dubai construction company Arabtec Holding’s rights issue were left with a 33 percent loss at the end of the security’s single week of trading.

The contracts surged on their first day, the only session when no limits were placed on the price, carried on a wave of speculative buying, said Majd Dola, senior research analyst at Al Ramz Capital in Dubai. The securities rose as high as 21 fils (US 6 cents) on May 15, from an opening price of 1 fil, and settled at 9 fils. They ended at six fils on Sunday, their final session, having lost a third of their value from the close on the initial day of trade.

Many investors bid for the contracts without necessarily understanding what they were buying, and were caught out when liquidity evaporated in the remaining sessions, Dola said. Holders will be able to subscribe for new shares at one dirham, plus the cost of the contract, while Arabtec stock traded on Dubai’s Financial Market closed at 79.2 fils on Sunday.

“Naive investors fell into the speculation trap,” said Dola. “People followed the liquidity on day one of trading and then got stuck as liquidity disappeared. That’s why it makes no economic sense.”

The construction company, whose shares have slumped 85 percent in the past three years, intends to use the proceeds of the issue to fund the completion of projects and to implement a turnaround business plan. At the end of March, Arabtec posted its first quarterly profit since September 2014.

Arabtec’s largest shareholder, Aabar Investments, has committed to subscribing for its full entitlement under the rights offer, and for any unsold shares up to 1.5 billion dirhams. The new shares are expected to start trading on the bourse on June 8.

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