x Abu Dhabi, UAESunday 23 July 2017

Arabtec to weigh up its options for funding

The UAE-based contractor says it is investigating new funding options including issuing convertible bonds to help it grow in markets like Saudi Arabia and Egypt.

Arabtec says it is considering either a rights issue or a convertible bond issue in order to achieve its 'expansion objectives'. (Silvia Razgova / The National)
Arabtec says it is considering either a rights issue or a convertible bond issue in order to achieve its 'expansion objectives'. (Silvia Razgova / The National)

Arabtec says it is investigating new funding options including issuing convertible bonds to fund future expansion. The UAE's largest listed contractor also yesterday posted a 10.5 per cent fall in third-quarter profits.

In an announcement published on the Dubai Financial Market, Arabtec announced it was considering either a rights issue or issuing convertible bonds to achieve the group's "expansion objectives".

"The board considered the company's plans, expansion strategies and restructuring so as to serve the company's best interests and strategic plans," said a statement from the company's board meeting that was posted on the DFM. "Therefore the board considered the funding options available to the group."

The company, in which Abu Dhabi-based Aabar holds a 21.5 per cent stake, made profits of Dh35 million (US$9.5m) for the three months to the end of September, compared with Dh39.1m for the same period the previous year.

The company also said in its results statement that it had been forced to sell a portion of its sukuk holding in Nakheel for Dh19m. Arabtec received the Islamic bond as part of Nakheel's restructuring agreement with creditors.

However, profits for the first nine months of the year showed a 9.1 per cent increase at Dh107.5m, as sales for the period rose from Dh3.5bn to Dh4bn. Analysts pointed out that despite the fall in third-quarter profits, Arabtec's results had in fact beaten expectations for the company, which surprised the market in its second-quarter results by announcing a Dh11.5m loss.

"This is a strong set of numbers despite seasonality factors," said Saleem Khokhar, the head of equities at National Bank of Abu Dhabi. "The improvements in revenues and gross profit margins on both a year-by-year and quarter-by-quarter basis came as a surprise despite the fact that Q3 is historically a slow quarter and the company posted higher selling general and administrative expenses.

"Additional funding should help Arabtec to bid for large projects and expand its operations further into international markets such as Saudi, Egypt and Qatar," he added.

The fall in profits also came despite revenue increases for the third quarter of 21.4 per cent compared with the previous year at Dh1.4bn. Much of this was wiped out, however, by an increase in costs. Contract costs during the period rose 18.9 per cent to Dh1.2bn, while administrative expenses rose from Dh87.8m a year earlier to Dh1.2bn.

"During the coming period the company needs to prove to shareholders that it has its costs under control. The ratio of costs compared with revenue is far too high at around 89 per cent. A normal ratio for this sort of company is more like 65-70 per cent. A high ratio of this sort is very challenging," said Wadah Al Taha, a senior market analyst at Al Zarooni Group.

Over the past few years Arabtec has shifted much of its business from the UAE to Saudi Arabia and other parts of the Arab peninsula. The company said it had 27 subsidiaries based in locations as far-flung as Italy, Syria and Pakistan.

In September, the company announced it had won a Dh453m contract to help to build Europe's highest tower, the future headquarters of the Russian gas producer Gazprom, in St Petersburg.

lbarnard@thenational.ae