Monday, Jan 11, 2016

Abu Dhabi: Aldar Properties, the Abu Dhabi-based real estate developer, announced on Monday it has awarded a Dh2 billion contract to Arabtec Construction, a subsidiary of Arabtec Holding, the Dubai-based contractor.

The contract is for the construction of 1,017 villas at West Yas, Aldar’s residential development on Yas Island. The contract is the final package to be awarded for West Yas following the infrastructure, school, clubhouse, retail, and mosque packages.

Despite the value of the deal with Aldar, analysts said that it was not enough to tip the scales for Arabtec, which reported Dh2.34 billion in losses in the first nine months of 2015 — Dh1.02 billion of which were made in the third quarter alone.

The announcement of the deal comes almost three weeks after rumours surfaced about a potential contract award from Aldar to Arabtec. The rumours sent Arabtec’s share prices up 14.1 per cent — the most in a year — on the Dubai Financial Market (DFM) to reach Dh1.21. The price rally only lasted for a day, however.

On Monday, Arabtec’s share prices were up 6.03 per cent to reach Dh1.23, with the company accounting for 25 per cent of the Dh587 million traded on DFM.

Sebastien Henin, head of asset management at The National Investor, said that the deal was a good start to 2016 for Arabtec considering the challenges the company faced in last year, but that it was “not a game-changer.”

“Frankly, the deal will not change the profitability of the company but you have to look forward; this deal is a vote of favour and it will have an impact - not a very meaningful impact but it’s positive news.

It’s a kind of indirect support for Arabtec, so it’s not just the financial figures, but it’s the fact they have been able to get a large order from a prominent company [Aldar],” he said.

Henin pointed that both Aldar and Arabtec are owned by Abu Dhabi entities, so it was logical to find some synergy between them.

Arabtec’s largest shareholder is Abu Dhabi state fund, Aabar, while Aldar is owned by various institutional investors from the emirate.

“For Aldar, at the end of the day, they want to know that [Arabtec] can build these villas so it’s not about how Arabtec is performing financially. If they are confident that Arabtec can build at a good cost, they will pick them. If Arabtec ends up losing money — as most construction companies are these days — that’s not something Aldar will focus on,” Henin said.

He added that he expected the outlook to remain challenging for Arabtec and other construction companies this year, pointing that it will take some time for the latest Dh2 billion deal to be seen on the company’s books.

Another fund manager agreed, saying that profit margins in villa projects are generally not attractive, but expected the deal to have a meaningful impact on the bottomline.

“The news was also a sentiment booster as it came at a time when there is dearth of positive news flows. Outlook for the construction sector in general is likely to be challenging this year. Sharp drop in crude prices, escalation in geopolitical situation, and restrictive monetary and fiscal policies are not very conducive for a meaningful growth this year,” said Vijay Harpalani, fund manager at Dubai’s Al Mal Capital.

Construction of the villas, totalling a built up area of around 440,000 square metres, is scheduled to commence immediately, and to be completed on a 24-month period, Arabtec said in a statement.

West Yas features 1,017 four- and five-bedroom villas, with prices starting at Dh4 million. Villas are expected to be handed over at the end of 2017. Aldar described demand for West Yas as “very strong.”

By Sarah Diaa Staff Reporter

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