The Dubai builder Arabtec has nominated the chief executive and three other directors of Abu Dhabi's Aabar Investments to join its board.
Aabar directors set for Arabtec board
The candidates are Mohamed Al Husseiny, Aabar's chief executive, and fellow board members Khadem Al Qubaisi, Mohamed Al Fahim and Mohamed Al Mehairi.
Aabar, an Abu Dhabi Government investment vehicle, has just increased its stake in Arabtec.
Aabar has built up a 10.45 per cent stake in Arabtec via purchases by two of its units. Aabar Petroleum Investments Company has taken its stake in Arabtec to 5.32 per cent, and Aabar Real Estate owns 5.13 per cent of the country's biggest builder by market value.
The move to put some Aabar directors on Arabtec's board could indicate that Aabar is looking at an even closer relationship between Arabtec and Aabar's property arm.
Rumours that Aabar is seeking to take over Arabtec have helped to send shares in the construction company up almost 117 per cent so far this year. Investors were unmoved by the news of the proposed board reshuffle. Arabtec shares closed up 0.88 per cent at Dh3.45.
Matthew Green, the head of research and consultancy at the property firm CB Richard Ellis, said the impact of Aabar directors on Arabtec's board would depend on whether Aabar decided to take an even bigger stake in the builder.
"It will depend on how much they increase their stake. There is no transparency on that," he said. "With only 10 per cent, there is limited scope for change."
Nick Smith, a partner at EC Harris, a consultancy for built assets, said investors were unlikely to be surprised by the board developments at Arabtec, given Aabar's interest in the company.
"Arabtec strengthening their ties to Aabar seems to be a sensible move," he said. "Aabar has development funds and Arabtec is a builder, at the other end of the supply chain. There is good expertise at Aabar, and bringing that into effect at board level is quite positive. Its the next natural step."
Analysts have said the sharp rise in Arabtec's share price this year is partly due to investor expectations that any takeover will mean the builder gets preferential treatment when Aabar awards government contracts.
But that was unlikely, said Mr Smith. " I don't think government contracts will be affected one way or the other."
Takeover talks between the two companies broke down in 2010 after Arabtec pulled out. Ziad Makhzoumi, the chief financial officerat Arabtec, has said the company has no plans to resume buyout discussions.
A spokesman for Arabtec said the company was unable to comment on the proposed board members ahead of the company's annual general meeting on April 28, when shareholders will be asked to vote on whom they want to join the team of directors, including Riad Kamal, the current chairman of the Arabtec board.
Arabtec reported it had a buoyant fourth quarter last year. Net profit of Dh165 million (US$44.9m) beat consensus expectations and those of several separate analysts by a significant margin.
The bottom line for the quarter showed substantial growth compared with the two previous quarters. A 16.1 per cent margin on fourth-quarter, pre-tax earnings was the highest since the same period in 2009 and the second-highest in the company's history as a listed entity.
However, NBK Capital of Kuwait said the results were flattered by variation orders - changes made by architects in the construction of buildings - and lower provisioning for bad debts and should not be seen as a good harbinger for coming quarters.