Arabtec, the UAE's largest construction company by market value, yesterday revealed Dh16.8 million (US$4.5m) of losses for the final three months of last year after an increase in unpaid bills from developers. The results, Arabtec's first-ever quarterly loss as the company courts a major investment from Abu Dhabi's Aabar Investments, which offered in January to buy 70 per cent of Arabtec in a move that analysts said would help the Dubai company through the downturn.
Aabar and Arabtec this week extended a review of the sale by a month - a sign, some analysts said, that Aabar was waiting to gauge the health of Arabtec's balance sheet and perhaps reduce its offer price of Dh2.3 a share. Arabtec posted profits of Dh495m for all of last year, down 48 per cent from the previous year, largely due to provisions totalling Dh299m for receivables the company does not expect to recover.
In addition to the money owed to Arabtec by developers for work it has already completed, the company has its own growing pile of bills that are past due. Arabtec had Dh1.3 billion in overdue bills at the end of last year, up from Dh363.7m at the end of 2008, according to its financial statements. Total receivables stood at Dh4.7bn at the end of last year. "We all know that these are challenging times in construction, and a lot of the concerns about receivables have already been priced in," said Ali Khan, a director at the investment bank Arqaam Capital in Dubai. "All we're seeing right now is receivables being crystalised and coming through in the accounts."
Arabtec's stock price has declined from Dh2.89 on the day Aabar's intention to purchase was announced to Dh2.10 yesterday, meaning that Aabar's initially proposed purchase price of Dh2.30 per share would be at a premium to the market price. The price movement may spur Aabar to lower its offer, one analyst said, because the company would not want to enter its investment with a loss. But Mr Khan said there was "no reason to assume there'll be any other number, unless guidance is given from somebody relevant".
Arabtec, which built the Burj Khalifa in partnership with the construction firms Samsung Engineering and Besix, shaved about Dh8bn from its order book last year because of cancelled deals in Dubai. Meanwhile, the company and its joint venture partner, WCT Engineering, are seeking Dh1.6bn in compensation from the Meydan Group after a Dh4.77bn deal to build the recently opened Meydan racecourse was cancelled in January last year.
At the time, the partners had completed more than half of the racecourse's construction. Riad Kamal, the Arabtec chief executive, said last Thursday that arbitration was still proceeding. In January, the contractor also stopped work on Al Furjan, one of Nakheel's largest housing projects, because it said it had not been paid by the Dubai World-owned developer. It won a Dh2.99bn contract for the first 1,500 homes in June 2008, and has completed 550.
Al Furjan was the only project Arabtec was working on for Nakheel and it was not working on any projects for Limitless, Dubai World's other property unit. Arabtec is aggressively pursuing opportunities overseas as it tries to weather the downturn at home. Ziad Makhzoumi, the chief financial officer, confirmed yesterday that the company was bidding for the contract to build the Crescent, a development of five high-rise residential and commercial towers and a five-star hotel by the Caspian Sea in Azerbaijan.
The company is also awaiting the go-ahead on a $3.1bn contract to build the controversial Okhta tower in St Petersburg, Russia. email@example.com