However, they said, it could take another month to close the Dh6.4 billion deal as shareholders’ meeting of Arabtec is expected not before early next month where three quarters of shareholders must still approve the sale to Aabar.Abu Dhabi-based investment fund Aabar last week offered to buy a 70 per cent stake in Dubai’s construction giant Arabtec via a mandatory convertible bond for a fixed purchase price of Dh2.3 per share — a 20.4 per cent discount to the closing share price on January 7 of Dh2.89 per share.
The deal, which requires Arabtec to issue new shares and in the process dilute earnings for existing shareholders, was received with a selling-spree at the stock market with Arabtec shares losing over 15 per cent of their value this week. Still, some analysts have said that shareholders should understand that the cash injection from Aabar was probably the only way out of a massive pile of outstanding receivables, estimated at Dh4.5 billion as of third-quarter 2009. It is estimated that out of these receivables as much as Dh2 billion could be overdue, or potential defaults, against which the company might have to take impairment charges
Tie up with an Abu Dhabi entity might also add a new pipeline of contracts for Arabtec. However, Al Mal Capital estimates that the contractor would have to win Dh27 billion of new orders to make up for the shareholder dilution.
Arabtec management has shown enthusiasm about the benefits of the deal but has revealed little about the company’s financial state.
“Arabtec extraordinary general meeting, or EGM, will be held within the next 30 days and silence will be maintained until the EGM takes place,” Riad Kamal, chief executive officer of Arabtec Holding, told a Dubai-based TV channel this week.
“The proposed Aabar bid for 70 per cent of Arabtec is undoubtedly great for Aabar and Arabtec but whether it is for minority shareholders is far from clear. The dilutive effect of the transaction should it be approved will need to be made up for elsewhere in order to preserve earnings per share value for existing shareholders,” said said Matthew Wakeman, managing director at cash-and-equity-linked trading at EFG-Hermes.
“The Arabtec management will be keen to highlight the positives to shareholders ahead of any EGM in order to have a yes vote for the convertible bond,” he said.
The company had said last Saturday that closing of the transaction was subject to completion of legal diligence by January 13, and consent of Arabtec shareholder through an extraordinary general meeting and after obtaining the necessary regulatory approvals.
The share capital will be increased from Dh1.196 billion to Dh3.986 billion (representing conversion of the mandatory bond so that Aabar will own over 2.79 billion shares or 70 per cent of Arabtec Holding PJSC total shares after conversion of the bond) for a total investment consideration of over Dh6.418 billion. —abdulbasit@khaleejtimes.com — muzaffarrizvi@khaleejtimes.com
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