Jul 16 2012
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Abu Dhabi Aabar Not Seen Raising Arabtec Stake, Weakening Shares
Monday, Jul 16, 2012
-- Arabtec shares could fall another 15-20%
-- Abu Dhabi construction work unlikely to support shares
OF ZAWYA DOW JONES
DUBAI (Zawya Dow Jones)--Abu Dhabi's Aabar Investments is unlikely to add to its declared 21.57% shareholding in Arabtec Holding (ARTC.DFM), having secured effective control of the Dubai-based construction firm with the board changes that followed its controversial purchase of a minority stake, according to analysts.
" Aabar is practically controlling Arabtec now through its board and hence should have no problem in influencing the company's strategy. There seems no compelling reason for Aabar to further increase their stake," says Nishit Lakhotia, research analyst at the Securities Investment Company, or SICO, in Bahrain.
Despite only holding a minority stake in Arabtec , Aabar was able to secure effective management control of Arabtec in May, when Aabar 's Khadem Abdulla Al Qubaisi was appointed Arabtec chairman and four other Aabar executives were given positions on the company's nine-person board.
Though Aabar has consistently declined to comment on its plans for Arabtec , analysts think it will use the company to execute construction projects in Aabar 's home market of Abu Dhabi, where there are few domestic construction firms able to take on large-scale projects. Evidence for that theory came in in June, when Arabtec , in consortium with Turkey's TAV Construction and Consolidated Contractors International Co., was awarded a $3 billion contract to build a terminal building at Abu Dhabi International Airport.
In January, the Abu Dhabi Executive Council announced plans to press ahead with various housing, health, education and other infrastructure projects in the emirate.
But Omar Taha, research analyst at Beltone Financial, said although these projects bode well for Arabtec , they are unlikely to revive the Arabtec share price as margins on construction work in the United Arab Emirates are so low.
"The U.A.E. contactor market is not as profitable as other sectors with margins around 6-10% today compared to sectors like gas derivatives such as fertilisers and petchems that are operating at a 60-70% margin," Mr. Taha said.
If no more major construction awards materalize this year, it will add further downward pressure on the share price, says Ali Adou, portfolio manager at The National Investor, which owns Arabtec shares.
" Arabtec 's share price has taken into account all the positive news so far and there are no more major awards this year so it is currently over-valued," Mr. Adou said.
Volumes have also dwindled, suggesting Aabar is no longer active in the market as a buyer of Arabtec shares, analysts said. In recent sessions, about 1 million Arabtec shares have changed hands on a daily basis, compared with peak volumes approaching 100 million shares a day in early February, according to Zawya.com data.
In its stake purchases earlier this year, Aabar sidestepped market rules that require regular disclosure of any stake above 5% by acquiring its holding through a number of subsidiaries. This stirred controversy and served to further expose the absence of proper takeover and disclosure rules in the United Arab Emirates.
Arabtec has denied media reports that Aabar had already acquired a controlling 53% stake through various subsidiaries. However, suspicions remain in the market that Aabar 's stake may in fact be higher than the declared 21.57%, due to the way it built up its declared holding via subsidiaries. Other Aabar entities may hold undeclared stakes of less than 5%, some believe.
Aabar also owns stakes in Germany's Daimler AG and Italy's Unicredit.
-By Tahani Karrar-Lewsley, Dow Jones Newswires; +9714 446-1698; email@example.com
Copyright (c) 2012 Dow Jones & Co.
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