x Abu Dhabi, UAEMonday 24 July 2017

Arabtec's shares rise on news of merger talk

Arabtec shares rose to their highest in more than a year after the company's chief executive said it was in talks to merge with big builders in Kuwait and Saudi Arabia.

Arabtec shares finished the day's trading at Dh2.65, up from Dh2.55 the previous day as speculation about the mergers mounted. Antonie Robertson / The National
Arabtec shares finished the day's trading at Dh2.65, up from Dh2.55 the previous day as speculation about the mergers mounted. Antonie Robertson / The National

Arabtec shares rose to their highest in more than a year after the company's chief executive said it was in talks to merge with big builders in Kuwait and Saudi Arabia. The UAE's largest construction company closed 3.9 per cent higher.

Hasan Abdulla Ismaik made the disclosure in a television interview with CNBC Arabia.

He said it would help the company move "towards bigger profits that will be felt by shareholders and the market as a whole".

Mr Ismaik did not name any potential takeover targets but Kuwait's Al Qabas newspaper reported that the Burj Khalifa contractor was set to merge with the Kuwait listed contractor Combined Group Contracting and the Saudi Arabian-based builder Saudi Oger.

In a telephone call with analysts, Arabtec said that the Al Qabas report was incorrect. Combined Group Contracting also denied the report, Reuters reported.

Al Qabas, citing unnamed sources, said Arabtec was in merger talks with Combined Group and Saudi Arabia's Saudi Oger.

However, a Combined Group executive, speaking on condition of anonymity, told Reuters, "We are not related to this issue at all … We did not approach anyone and no one from Arabtec offered anything … There is not even an intention in this regard".

Saudi Oger officials were not available for comment.

Arabtec yesterday evening issued a statement saying there were no discussions with either of the two companies.

"The company continues to review opportunities in Saudi Arabia and Kuwait and will disclose any developments in line with the regulations of the Dubai Financial Market," it said.

Arabtec shares finished the day's trading at Dh2.65, up from Dh2.55 the previous day as speculation mounted. The company is 21 per cent owned by the Abu Dhabi state investment firm Aabar.

Analysts welcomed the prospect of a regional merger for Arabtec.

"Arabtec now has a strong shareholder and a lot of ambition to expand in the Gulf. The company's backlog is growing fast and in order to grow quickly it could make sense to merge with these sorts of companies," said Sebastien Henin, frontier markets portfolio manager at The National Investor.

"After five years of crisis, valuations across the sector are fairly low so it makes sense to be active and to diversify operations away from the UAE," Mr Henin added.

"Despite issues with the new labour laws, the Saudi market has a lot more visibility than the UAE market, which has tended to be driven by expatriates who can leave when the market falls. And also Kuwait could be used by Arabtec as a base to tap the Iraqi market."

The equity and economic research firm Naeem Holding issued a note in response to the speculation with a "hold" recommendation.

The speculation comes less than a month after Arabtec completed a Dh2.4 billion rights issue aimed at expanding and diversifying the company.

The cash call was part of a wider capital raising for Arabtec, which aims to raise a total of up to Dh4.7bn over the next five years in an attempt to diversify the company into areas such as oil and gas construction and delivering affordable housing in Saudi Arabia.

Arabtec is already active in both Saudi Arabia and Kuwait.

In Saudi Arabia, it set up Arabtec Saudi Arabia, a joint venture with CPC Services Company, a member of the Saudi bin Laden Group and Al Mawarid Holding, another company in the kingdom, in 2009.

Last week Arabtec reported second-quarter profits of Dh92.4 million, compared to a loss of Dh11.6m for the same period the previous year, led in part by a strong performance in its Saudi Arabian operations.

Arabtec is currently working alongside Saudi Oger in the consortium building the Louvre museum on Abu Dhabi's Saadiyat Island. The Riyadh-headquartered company is owned by the family of the late Lebanese prime minister Rafik Al Hariri, who was assassinated in 2005. It is now chaired by his son, Saad Hariri.

Combined Group Contracting, which is listed on the Kuwait bourse, has a market cap of 131.8 million Kuwaiti dinars (Dh1.7 billion). The company has also worked with Arabtec on projects in Kuwait.

Last year, Arabtec bought a 24 per cent stake in the interiors specialist Depa and this year a number of Arabtec directors took seats on the Depa board alongside Khaldoun Tabari, the chief executive of the mechanical electrical and plumbing specialist Drake & Scull International, prompting speculation of a potential merger between the three firms.

 

lbarnard@thenational.ae