United Arab Emirates-based Arabtec Holding has begun to make progress with its plan to sell off non-core assets in a bid to focus on key markets and return cash to shareholders, its chief executive has said.
"We're divesting of two smaller, non-core investments," chief executive Hamish Tyrwhitt told Zawya in a phone interview following publication of its second quarter results on Wednesday.
Tyrwhitt said that the divestments would largely be confined to businesses conducting peripheral activities.
Arabtec Holding reported a profit attributable to its parent company of 39.8 million UAE dirhams ($10.83 million) in the three months to June, compared with a 186.4 million UAE dirham loss in the same period last year, although revenue declined by 6 percent in the same period to 2.06 billion UAE dirhams.
Tyrwhitt said that the 1.5 billion UAE dirham rights issue the company undertook during the period has had a huge impact on Arabtec Holding, improving its ability to land new contracts and collect more of the money it is owed.
He said the company has already settled some legacy disputes and was "making progress" with others, although cases going through formal legal channels, such as its long-running dispute with Meydan, would take longer to resolve.
But its strengthened balance sheet (net equity at June 30 stood at 1.28 billion UAE dirhams, compared with a deficit of 250.7 million UAE dirhams at the end of last year) means that in terms of its debtors, "people realise we are not going to disappear. I, and others, now have a lot more time to focus on the resolution of legacy issues".
Similarly, the greater certainty over its future has also "clearly sent a message to our clients, who realise that we are around and we are able to deliver on the jobs that we are awarded".
Major project wins
Arabtec Holding's project backlog declined to 17.4 billion UAE dirhams at June 30, compared with 22.6 billion UAE dirhams one year earlier, but it picked up a number of major projects during the period, including the 1.46 billion UAE dirham Wasl Tower project and the UAE Pavilion at Dubai's Expo 2020 site. It also said it has a strong pipeline of opportunities.
Tyrwhitt said that all of the new projects won have been more robustly risk-assessed.
"Why would we take on work that's destined for failure?" he asked. "We're deliberately selecting jobs that have the most likelihood of being delivered efficiently and productively."
Arabtec used 400 million of the 1.5 billion dirhams raised to pay off a loan that had been provided by Aabar Investments - the Abu Dhabi government-owned company that has a 37.3 percent stake and is it's single biggest shareholder.
Mahmoud Rebai, an analyst with Tunisian equities research firm Alphamena, said in a note that Arabtec's shares have increased in value by 18.5 percent since July 3 following a series of announcements about contract wins.
"We believe that the ongoing restructuring plan, along with clear government endeavors to rescue its long-lived contractor through its majority stakes in different UAE-based companies, represent a growth catalyst to Arabtec in order to regain its position as a leading contractor in the region."
A Construction Intelligence Report issued earlier this week by Faithful + Gould stated that although it expects contract awards in the UAE to increase by 5 percent to $45 billion in 2017, contractors still face tough trading conditions.
"Tender price pressure is still being exerted in the UAE even though the market for awards has improved compared to 2016," the report said. "We’ve already seen this year that major international players have withdrawn from the market and others have been caught out financially. "
United Kingdom-based Balfour Beatty is one of the contractors to announce its withdrawal from the UAE, selling its stake in a joint venture to former partner Dutco in February. Competitor Carillion, meanwhile, has said that it will limit its involvement to work that is funded through UK Export Finance agreements
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