Arabtec Holding, the country's largest general contractor, says it will not pay a dividend but instead issue bonus shares.
Arabtec holds cash as cushion
Arabtec Holding, the country's largest general contractor, says it will not pay a dividend but instead issue bonus shares in an effort to gird itself as the construction industry slows. Shareholders yesterday voted unanimously for the deal, which will have the effect of raising Arabtec's shareholder equity by Dh750 million (US$204m). The move will give the company a bigger cushion against losses and more room to manoeuvre in an industry that is rapidly slowing. Riad Kamal, the chairman of Arabtec Holding, said the move would keep the company in a strong financial position, reduce its dependence on bank loans and ensure it has the money to pay subcontractors and suppliers in the event of payment defaults by property developers.
"We issued the bonus shares to give us a more solid financial base for our current and future commitments, either for investments or if there are any delays in receiving payments then you can use your own cash to ensure you don't delay payments to subcontractors and suppliers," Mr Kamal said. The bonus shares will be accumulated from the company's profit for the first three quarters of this year, which stood at Dh761m.
Contractors have been particularly hard hit by the financial crisis as developers slow projects and contracts which were being negotiated fail to materialise. While delays in payment are common in the industry, some contractors worry that defaults and cancellations could become more common. Analysts predict the move will strengthen Arabtec's share price, which declined for the fourth consecutive trading session yesterday, ending down 9.93 per cent at Dh3.81, its lowest close in a month. So far this year, Arabtec's stock price has fallen 59.16 per cent. "This will help tickle the share price," said Ali Khan, the director of Arqaam Capital. "Bonus issues are generally well received in the marketplace and there is every reason to assume that tomorrow morning Arabtec will open firmer on this news." firstname.lastname@example.org