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Fall of Arabtec highlights challenges facing UAE construction, says GlobalData’s MEED

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Shareholders recently voted to liquidate Arabtec, one of the biggest names in Middle East construction. The decision highlights the troubles facing the Gulf’s construction industry and how Arabtec’s market value has descended amid a series of management errors over the past decade, says GlobalData’s MEED.

At the time of the liquidation vote, Arabtec Construction had a portfolio of 22 projects under construction worth a combined US$5.2 billion. Arabtec’s MEP division Efeco had 15 projects under execution, while its EPC subsidiary Target Engineering has 13 projects under execution – worth a combined US$13 billion.

Colin Foreman, Deputy Editor Director of GlobalData’s MEED, comments: “Arabtec Construction was the unshakeable behemoth of UAE construction a decade ago, growing even amid the global economic meltdown that left Dubai’s developers unable to advance their capital spending plans.”

Arabtec Holding, of which Arabtec Construction is the largest subsidiary, was the first private construction firm to list on the Dubai Financial Market in 2005. Unaudited results in January 2008 showed a consolidated profit of AED494m for 2007 fiscal year, 127% higher than corresponding 2006 figures.

In 2010, in the aftermath of the global financial crisis, Arabtec shifted its focus on winning projects in new markets following the downturn in Dubai. While the contractor continued to win new work in the UAE, it struggled to diversify away from Dubai and find greater traction in Saudi Arabia.

In February 2013, Jordanian businessman Hasan Ismaik was made the CEO of Arabtec replacing Kamal, who resigned after 38 years as CEO. Ismaik’s replaced the company’s management and his ambitious plans to convert Arabtec into a national champion saw the company’s share price soar from less than AED2 a share to more than AED9 in early 2014. Investors lauded Arabtec’s multibillion-dollar contract signings, new joint ventures and expansion into new sectors.

In April 2014, Ismaik pledged that Arabtec would be one of the world’s 10 largest construction companies by 2018. That June, weeks after he became Arabtec’s largest official shareholder, Ismaik resigned as CEO. Much of Arabtec’s senior management was fired in the months that followed while share prices more than halved and major shareholders changed.

Foreman continues: “In the four years since Ismaik’s departure, the company has undergone additional changes in its senior leadership and further restructuring, but, in a declining regional construction market, none have been able to turn around the loss-making contractor. The six years since Ismaik departed highlight how even the most ambitious growth plans can fail in the price-sensitive contracting sector.

“Tens of thousands of employees, as well as subcontractors and creditors, now find themselves in a precarious financial position should Arabtec’s proposed liquidation proceed. Regardless of Arabtec’s future, recovering from its decline will be critical not only for the UAE’s construction sector, but its national economy as well.”

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