Where did it all go wrong for Arabtec?

The departure of CEO Hasan Ismaik leaves more questions than answers for the contractor’s shareholders.
Where did it all go wrong for Arabtec?
By Ed Attwood
Thu 19 Jun 2014 01:13 PM

The fact that Arabtec’s share price immediately started trending back upwards after investors heard that chief executive Hasan Abdullah Ismaik was leaving the company said it all. We didn’t know a great deal about him before he took on the top job, and we still don’t know a great deal about him now.

After spending a year in charge of the UAE’s most important construction firm, Ismaik’s tenure was characterised by plenty of bombast and plenty of grandiose announcements.

There were also a couple of awkward moments, such as a television interview where Ismaik claimed that the company was looking for a merger with two major Gulf construction firms, only for a press statement to be released a day later denying that any talks had taken place. 

There’s no doubt that Arabtec’s backlog has grown substantially, but it remains unclear how the company will be able to take on the massive amount of work it has won. There also doesn’t seem to be any movement on two joint ventures the company 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).

Not that any of this will bother Ismaik now. The last 12 months have made him an extremely rich man, mostly due to recent decisions to boost his stake in Arabtec to just over a quarter of the company. According to reports, he is already touting out that stake to “government entities”. 

But the last couple of weeks have been nothing short of a shambles. If there is ever a case study to determine the best way for a company to toss hundreds of millions of dirhams of shareholder value into the dustbin in the shortest time possible, then Arabtec’s recent performance would surely make it a contender. Over just six weeks, the firm’s stock has collapsed by as much as 50 percent at times, with the last nine days of trading — prompted by an extraordinary set of circumstances — proving especially damaging. 

Rumours that Arabtec was planning to delist, or that Aabar was divesting its stake in the company set the slide in motion, and despite an increasingly desperate series of statements on the Dubai bourse claiming that there was no rift between the contractor and its most important shareholder, investors weren’t convinced.

Making matters worse was a “temporary system glitch” (in the words of the Dubai Financial Market) last Sunday, which purported to show that Aabar had cut its stake in Arabtec from 18.85 percent to 14.32 percent. Given the huge focus on Arabtec — and particularly Arabtec’s ownership — the error did absolutely nothing to raise the profile of the bourse in the eyes of the international institutional investors the UAE has been struggling so hard to attract. 

With the stock still heading south, Ismaik announced last Wednesday — via the unusual medium of a newspaper interview, rather than a bourse statement — that he was quitting Arabtec.

But there are still plenty of questions unanswered. The source of funding for Ismaik’s stake purchase and a timeline of events leading to his departure may now never be established.

And why did Arabtec allow this saga to continue for so long, given that there was clearly a problem at boardroom level?

Of far more interest to shareholders right now would be a clear and concise statement, explaining how Arabtec plans to deliver on its ambitious plans, and clarifying the ownership situation.

The statement released last Thursday, which expressed “positive aspirations for a bright future and continuing to make more achievements, which aim to protect the rights of shareholders” doesn’t really cut it. Better communication, at the very least, must be a watchword in the future.

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