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Aabar Eyes Majority Stakes in Arabtec

“The board of Aabar has resolved to make an offer to Arabtec to acquire 70 per cent of the share capital of Arabtec by way of a mandatory convertible bond to be issued by Arabtec Holding PJSC to Aabar Investments PJSC at a conversion price of Dh2.3 per share,” Aabar said in a statement on its website.

The statement said that the decision of the investment was made in a meeting of its board of directors held on Thursday.

“We make investments in several sectors including real estate. Our analyses have shown that an investment in Arabtec would be beneficial to both of us at this point of time,” Mohamed Badawy Al Husseiny, Chief Executive Officer of Aabar Investments Company, told Khaleej Times in a telephone interview after the announcement.

He said that the proposed investment deal will now be placed before an extraordinary general body meeting of the shareholders of the Aabar and Arabtec. “If the shareholders approve the proposal it will be placed for approval of the government and other regulatory bodies,’’ he said.

Shares in Arabtec and Aabar Investments surged on Thursday ahead of after-hours board meetings in both the companies, lifting the Dubai and Abu Dhabi stock indexes. Arabtec and Aabar climbed 6.3 per cent and 5.2 per cent, respectively. There were market rumours in late December regarding a possible investment by Aabar in the construction heavyweight, but both firms had denied there has been a deal.

“We don’t divulge anything which cannot be disclosed to the market at a particular point of time. Earlier reports of Aabar investments were only market speculations. Only now we have decided to make proposal for such an investment,” Al Husseiny said.

Arabtec, which was one of the contractors that built the world’s tallest tower, Burj Khalifa, has made no announcement regarding the deal and officials of the company were not contactable for comments.

Credit Suisse analyst Sofia Rehman, in a client note on Friday, said that the conversion price for the convertible bond would mean a 20 per cent discount to the closing price of Arabtec on January 7 of Dh2.89 per share. Rehman said that given Arabtec’s free float was 81.5 per cent; the company was likely to issue 2,791 million new shares to bring the total outstanding shares to 3,987 million shares in order for Aabar to own 70 per cent.

“We believe the deal sounds very dilative to EPS (earnings per share). The acquisition price is at a 31 per cent discount to our target price of Dh3.33 per share, which implies a P/E 2010E of 4.6x on our numbers, a wide discount to EMEA average of 11.8x.”

Rehman said to compensate for the discount, the deal with Aabar would bring Arabtec a cash injection of Dh6.4 billion which could hedge the company against any shortfall in working capital resulting from potential defaults on payments from Dubai clients. She said the company will have a net cash position of Dh5.4 billion which is 1.5 times current market cap and compared to outstanding receivables of Dh4.5 billion as of third-quarter 2009. In May last year Arabtec said it was owed nearly $1 billion in outstanding payments, 80 per cent of which were due from Dubai-based entities.

“This would also allow the company to easily secure bonding from Banks for new projects,” Rehman said. “Aabar is an investment company which is 71 per cent owned by the UAE Federal Government in Abu Dhabi and we believe can potentially give Arabtec access to a considerable pipeline of projects in Abu Dhabi, thus securing backlog growth.”

· ramavarman@khaleejtimes.com