Arabtec has pledged to pay a 10 per cent dividend as it attempts to sweeten its forthcoming rights issue to investors.
The news sent the stock 3.3 per cent higher in Dubai trading yesterday.
The Dubai-listed contractor, which is 21 per cent owned by the Abu Dhabi investment fund Aabar, said yesterday that the strategy, which would continue indefinitely, would remain subject to shareholder approval at the company's next annual meeting.
Arabtec did not pay a dividend to shareholders last year and paid a 5 per cent dividend for 2011.
"Our dividend policy, aims to provide our shareholders with a regular return on their investment as they participate in our growth," said Hasan Abdullah Ismaik, the managing director and chief executive of Arabtec. "We are now starting work on several major projects, so the company should see a positive impact on earnings towards the end of the year."
"The company is in a very strong position to leverage an extended period of increased activity across the region. With an enhanced senior leadership team, armed with solid financial and risk management capabilities, we are forging ahead with our growth strategy aimed at maintaining the development of existing businesses and expansion into higher-margin areas of construction," he added.
The news came just days after Arabtec began subscriptions for a Dh2.38 billion rights issue aimed at growing its oil and gas and affordable housing capabilities.
"It is very rare to hear this sort of comment from a company chief executive. It is very brave to announce that you will pay a 10 per cent dividend yield of your total share capital and by doing so you are taking a big risk, especially in the volatile construction market," said Sebastien Henin, the frontier markets portfolio manager at The National Investor. "Shares in Dubai have risen by about 50 per cent so far this year while for Arabtec they have only risen by 12 per cent so the company is one of the worst performing blue chip firms in the country. This is an attempt to increase the share price and make Arabtec a more attractive stock in which to invest."
Analysts said the unusual dividend commitment reflected a predicted cash pile from a year of bumper contract awards.
"It looks like they are trying to send a message to the shareholders that there will be a return for their investment and another that they will have a cash surplus at the end of the year," said Wadah Al Taha, the chief investment officer at Dubai-based Al Zarooni Group. "The main challenge for Arabtec is to reduce their cost to revenue percentage which was more than 80 per cent in 2012."