Wednesday, May 16, 2012
(This story was originally published Tuesday.)
--Aabar Built Up 21% Holding Via Subsidiaries
--No Legislation Governing Takeovers
--Speculation Aabar Has Larger Stake
By Tahani Karrar-Lewsley
OF ZAYWA DOW JONES
DUBAI (Zawya Dow Jones)--Recent share purchases in the Dubai construction company Arabtec Holding (ARTC.DFM) by Abu Dhabi's Aabar Investments highlight the need for an overhaul of the rules surrounding takeovers and stake building in the United Arab Emirates, according to local fund managers and analysts.
Market participants are unhappy at the way Aabar has accumulated a substantial stake in Arabtec via a number of subsidiaries, and without clarifying whether it intends to acquire a majority stake in the company.
"Everyone is unhappy from the point of view that information to the investment community and the public could have been shared with a bit more transparency," said Allen Sandeep, an analyst at the investment bank Beltone Financial.
On Monday, Arabtec said that Aabar and its subsidiaries hold nearly 21% of the shares in the company, up from a previously disclosed 10% stake, but denied media reports that Aabar had already acquired a controlling 53% stake. Speculation that Aabar already controlled Arabtec had also been fuelled by its use of several subsidiaries to acquire the shareholding, sidestepping rules that require regular disclosure of any stake above 5%, and by the recent appointment of Aabar's Khadem Abdulla Al Qubaisi as Arabtec chairman and of other Aabar executives to the company's board.
The stake building and speculation about Aabar's intentions has caused wild swings in Arabtec's share price, which soared during the initial purchases earlier this year and then plunged in recent sessions amid talk that Aabar had already acquired control and might now move to de-list the shares. Arabtec shares jumped again on Monday, closing 4.7% higher at 2.91 U.A.E. dirhams ($0.79) on the Dubai Financial Market, after the denial that Aabar already held a majority stake.
The roller-coaster moves in Arabtec shares underline the need for tighter regulation of takeovers and stake building in the U.A.E, according to Nasser Saidi, executive director at Dubai-based Hawkamah Institute for Corporate Governance, a group which promotes transparency in Middle East markets.
"Part of the reason for this lack of transparency is that there have been very few takeovers or hostile takeovers and we have not had very active markets and as a result there has never been an expressed need to develop such legislation. This case should be a call for such legislation to be enacted," Saidi said.
Aabar's new interest in Arabtec was first confirmed in March, after Arabtec shares had already soared 70% on speculation about stake-building in the company, when a DFM filing showed an Aabar subsidiary holding a 5.28% stake. In April, the company said the stake had risen to just over 10%, held via two subsidiaries. Monday's announcement showed four Aaabar subsidiaries each owning just over 5% of Arabtec.
All along there has been a suspicion that the Aabar stake has been much higher than disclosed because local rules don't require companies to disclose stakes until they reach 5%, even when the stake-building takes place through fully-owned subsidiaries or other companies acting in concert with the buyer, traders said. If Aabar had bought the entire holding in its own name, any significant increase in the stake beyond 5% would have been disclosed on a weekly basis.
Instead, Aabar was able to double its stake from 10% to 20%, and only had to reveal the substantial increase when the two new subsidiaries active in the market had each raised their stake above 5%.
Gary Watts, a partner at the U.A.E. law firm Al Tamimi & Co, said there's no comprehensive legislation in the U.A.E. governing takeovers. "There are 'concert party' regulations which require buyers to disclose and bring to account stakes bought by 'allied' companies, but they are untested and there are differences between media claims as to the size of Aabar's total stake and Aabar's own announcements," Watts added. "It may be very hard to establish legally that particular companies are allied," he said.
Markets in the U.A.E. are regulated by the Emirates Securities & Commodities Authority, or ESCA, with the invidual bourses in Dubai and Abu Dhabi monitoring activities such as stake disclosure and compliance for the companies they list.
The DFM stressed that Aabar's stakebuilding doesn't breach its rules. ""Dubai Financial Market periodically discloses the shareholdings of 5% and above on its website according to the regulations," a DFM spokesman said.
Officials at ESCA, Aabar and Arabtec were unavailable for comment.
On the other hand, analysts said that many minority shareholders in Arabtec remain happy about the Aabar stakebuilding because of the sharp rise in the share prices since the end of last year. Arabtec shares are up 93% since late December, when they traded at AED1.51.
But this could change if Aabar decides to buy further shares and delist the company, triggering another big drop in the price. In 2010, Aabar was forced to call off an attempt to buy 70% of Arabtec's shares, for a total AED6.4 billion, amid complaints that the deal was unfair to minority shareholders.
In early Tuesday trading on the DFM, Arabtec shares were down 0.7% at AED2.89.
-By Tahani Karrar-Lewsley, Dow Jones Newswires; +9714 446-1698; tahani.karrar@dowjones.com
Copyright (c) 2012 Dow Jones & Co.
(END) Dow Jones Newswires
16-05-12 0533GMT
