Dubai World's debt restructuring reinforces trend among building contractors towards greater selectivity in the jobs they choose.
Contractors more selective in jobs they take
Dubai World's debt restructuring has reinforced a trend among building contractors in the Emirates towards greater selectivity in the jobs they choose and an emphasis on infrastructure and overseas work. While contractors were already suffering from payment delays and a slowdown in new business since the property sector fell victim to the global financial crisis last year, the surprise reorganisation has sharpened their shift in focus.
Arabtec Construction, the largest UAE builder by market value, is spreading out from its Dubai base by seeking work in Abu Dhabi, Libya, Algeria, Egypt and Lebanon. "We've always been selective with the nature of the projects we go for, and clients," said Riad Kamal, the chief executive of Arabtec Holding, which owns Arabtec Construction. "But we need to find a place where we can channel our resources, which are gradually being freed from Dubai."
The company is currently bidding to build hospitals and museums in the capital. Arabtec Holding's share price fell in line with the property and banking sectors after the Dubai World decision, losing 17 per cent of its value in the two trading days this week. Depa, the interior decoration company, shed 18 per cent while Drake and Scull, the contractor, lost 12 per cent. Markets reopen on Sunday. While fewer projects are being tendered since the economic downturn began last year, builders are becoming pickier in their choice of clients, with financial stability and an ability to pay on time taking more of a priority.
"We like to think the jobs we go for are real jobs, you've got to be selective," said Nigel Harvey, the general manager of Murray and Roberts, a South African contractor. The firm was "looking more at social infrastructure work rather than residential", he said. Rizwan Shah, the director of capital projects at the consultancy firm Deloitte, said there was greater demand from contractors for due diligence of their clients.
"If they do take on work, they need to question if the client will make money on their investment and be able to pay them," he said. "Previously there was certainly an oversupply of projects. Developers, some of which hadn't developed before, got carried away." The main challenge now is maintaining resources capacity and keeping staff busy, said Kez Taylor, the managing director of Al Jaber Engineering and Contracting. "You've got to pick the right type of job.
"The market has changed compared to two years ago. It has got a lot more competitive. So we've got to look at other markets to maintain our level of resources." Regional governments are continuing to spend heavily on infrastructure development as they diversify their economies, bringing more opportunities for contractors in the fields of transport infrastructure, as well as the construction of schools and hospitals.
Abu Dhabi said last month it would spend Dh3.67 trillion (US$1tn) on major infrastructure, property and manufacturing projects. Saudi Arabia, which announced plans this year to spend Dh1.4tn on infrastructure projects, is also an important market for UAE contractors. Arabtec formed a subsidiary there last March and estimated turnover in its first year to be more than Dh1.47bn. The Saudi government is also supporting the development of housing as it tries to ease a shortage.
"In Saudi, there are still massive projects and a massive demand for housing," said Mr Shah. @Email:firstname.lastname@example.org