An investment company based in Abu Dhabi is preparing to take the German industrial services giant Ferrostaal to arbitration court over an alleged violation of a local partnership agreement, it has emerged.
Sultan International Holding (SIH) plans to lodge the complaint within weeks, two informed sources say. The arbitration is expected to take place in Europe.
SIH, a private Emirati company, will make a case that Ferrostaal switched its local partner in the UAE to the International Petroleum Investment Company (Ipic) without going through appropriate legal steps, the sources said, thus violating an earlier agreement to set up a joint venture with SIH.
The venture was to be called Man Ferrostaal and was to be based in Abu Dhabi. It was to serve as a base for Ferrostaal's business in the UAE, which comprises services and management for energy and industry.
But after Ipic acquired 70 per cent of Ferrostaal from Man in March 2009, the two companies formed Ipic Ferrostaal, their own joint venture. Ipic is owned by the Government of Abu Dhabi.
Foreign companies outside the UAE's economic free zones must have local partners because of laws that forbid foreigners from owning locally incorporated businesses.
SIH's relationship with Man Ferrostaal dates to the late 1990s, when Man Ferrostaal discussed co-operating on investments in local businesses.
The ties grew in 2006 with the signing of a sponsorship agreement that set out broad co-operation on industrial projects in the UAE.
In 2008, the companies signed articles of association for Man Ferrostaal. The sources said the company was never officially registered.
SIH and Ferrostaal declined to comment.
Ferrostaal is fighting a number of arbitration cases in Europe stemming from allegations it used bribes to secure contracts in several countries. Ipic, which bought its stake in Ferrostaal in 2008 for €490 million (Dh2.53 billion), is also in a dispute with Man over the Ferrostaal acquisition. Man, the German truck maker that sold the stake to Ipic, exercised a "put" option to sell the remaining 30 per cent, but Ipic challenged it because of the bribery allegations.
That dispute is now in arbitration in Germany.
Ipic's battle over Ferrostaal is complicating Man's proposal to merge with Scania, its Swedish competitor. The concern is that lingering uncertainty over Man's attempt to sell its Ferrostaal stake would not sit well with Scania shareholders, who would need to approve the deal.