x Abu Dhabi, UAEMonday 24 July 2017

Construction firm close to sealing Malaysia tie-up

The construction firm Arabtec Holding is close to finalising a partnership with Pembinaan Kien Sinar.

A construction project in Abu Dhabi. Arabtec plans to tap into key areas of supply in the industry by a partnership with Pembinaan Kien Sinar.
A construction project in Abu Dhabi. Arabtec plans to tap into key areas of supply in the industry by a partnership with Pembinaan Kien Sinar.

Arabtec Holding, the UAE's largest construction company by market value, is close to finalising a partnership with the Malaysian construction firm, Pembinaan Kien Sinar, to create a piling and foundations company. The move is part of Arabtec's plan to tap into key areas of the construction supply chain, and follows up on a series of acquisitions that began last November. These include a 60 per cent stake in Target Engineering, an Abu Dhabi company that specialises in civil, electrical and marine contracting, as well as a 33 per cent stake in House of Equipment, a rental firm for construction equipment. Earlier this year, Arabtec also acquired a 55 per cent stake in Gulf Steel Industries.

The details of the venture with Pembinaan are yet to be disclosed. "Discussions are still ongoing, [and] once they are finished there will be an announcement," said a spokesman at Arabtec, who asked not to be named. The venture would bring the number of subsidiaries owned by Arabtec to 12. In a similar move, Egypt's Orascom Construction Industries (OCI) earlier this month announced the creation of Emirates Foundation, a joint venture with Abu Dhabi's Hydra Commercial Investments and Sorouh Real Estate, both property firms, and Capital Investment, a private institutional investor.

Both piling companies would help to fill a gap in the UAE's piling and foundation sector, where developers only have about 25 firms to choose from. The shortage has been hampering the progress of many large-scale projects, as piling and foundation contractors turn down work and developers face delays in getting construction jobs started. Established companies in the region have reported workloads of up to 70 jobs a year.

A recent report on Arabtec by Al Mal Capital found the potential deal with Pembinaan would add value to the company's existing business and its shareholders. "Arabtec's strategy of securing its supply chain in a market with material shortages and high inflation is a positive step, and we feel this would offer additional upside to our target price," said Katherine Lynn, a research analyst at Al Mal Capital and author of the report. "An acquisition of a contractor would also benefit Arabtec by increasing its labour capacity and backlog, as well as potentially gaining expertise in a new area of construction."

The report also predicts that Arabtec's profits will hit Dh7.4 billion (US$2.1bn) this year. The company has contracts in hand worth Dh36bn. In the past month, it signed a Dh410 million deal with Dubai Municipality for irrigation and sewage works, as well as a Dh559m contract to build 550 villas at Emaar Properties's Warsan development in Dubai. But its largest ever contract win came from abroad, with the signing of a Dh10bn contract in May for the construction of the Okhata Centre in St Petersburg, Russia.

On Wednesday, it received a Dh638m building contract from Dubai's Cayan Investment and Development. Under the deal, Arabtec would build two residential towers at Dubai Marina, the firm said. Arabtec, which is the only UAE construction firm that is publicly listed, is also building the Burj Dubai, the tallest tower in the world, with Besix and Samsung. @Email:agiuffrida@thenational.ae