Arabtec Holding, the UAE's largest construction company, posted a 17 per cent drop in first-quarter profit after its order book shrank by about Dh6 billion (US$1.63bn). Arabtec, which last month abandoned a deal that would have seen a 70 per cent stake in the Dubai company taken up by Abu Dhabi's Aabar Investments, recorded a profit of Dh134.5 million for the quarter, compared with Dh161.2m in the same period last year.
While the company was buoyed by winning four new projects in the quarter, its order book, which was worth Dh28bn at the start of last year, is now valued at about Dh22bn. The decrease is mainly the result of cancelled deals in Dubai. "The quarter one results aren't really that important. What is really important is the backlog mix," said Saud Masud, the head of research at UBS bank in Dubai. "The question is if they can actually monetise the backlog without Aabar's support. You need working capital to win backlog ? The overall opportunity is declining and they need cash."
Arabtec, which built the Burj Khalifa with the construction companies Samsung Engineering and Besix, is owed about Dh2.5bn in late payments from developers, Ziad Makhzoum, its chief financial officer, said in March. Last month, Riad Kamal, the chief executive of Arabtec, said the company would accept an offer from Nakheel, the indebted Dubai World-owned property unit, to pay 40 per cent of the money owed in cash and 60 per cent in the form of a publicly tradable security with a 10 per cent annual return.
Mr Kamal said the company would resume work on a Dh2.99bn contract for 1,500 villas at Nakheel's Al Furjan development once it had been paid. Arabtec stopped work in January after building 550 homes. The contractor and its joint-venture partner, WCT Engineering, are still seeking Dh1.6bn in compensation from the Meydan Group after a Dh4.77bn deal to build the recently opened Meydan racecourse in Dubai was cancelled in January last year.
The anticipated cash boost from Nakheel is what is believed to have led to the deal with Aabar being called off, although Chet Riley, an analyst at Nomura International, believes Arabtec will still seek a strategic partner. "Despite the Dubai restructuring deal, there is still limited internal resources to 'bond' new contract wins, with bank financing still limited," Mr Riley said in a research note.
"We regard Arabtec at the operational level as a quality company at an attractive valuation currently with additional catalysts probably not priced in." Arabtec's subsidiaries, Arabtec Construction and Target Engineering Construction, secured four projects in the first quarter of this year. Arabtec Construction picked up a Dh440m contract to build a five-star hotel in Syria and a Dh500m contract to build Damac Heights in Dubai Marina. Target Engineering won two contracts worth Dh835m in Abu Dhabi.
agiuffrida@thenational.ae
