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Arabtec to Benefit from Heavy Infra Spending

To boost their economies, GCC goverments have awarded new contracts in the Middle East and North Africa region estimated at $9.8 billion in June this year, compared to $4.5 billion a month earlier. Planned and ongoing projects rose 8.9 per cent from a year ago to an estimated $1.98 trillion in June, according to the Middle East Economic Digest. Al Futtaim HC Securities, which recently resumed coverage of Arabtec with a “buy” rating, said the construction giant will likely take part in major planned projects in the GCC, which include more infrastructure and utilities works in 2009 and 2010. It said bagging these contracts will secure a revenue stream for Arabtec in the next three to four years.

“Even with the increasing effects of the financial turmoil, lower oil prices and tight credit conditions which curb project financing, the GCC remains more resilient compared to other parts of the world, and is expected to overcome the downturn as accumulated revenues provide the region with an exceptional capacity to practice counter cyclical expansionary fiscal policy,” HC Securities said in a note to clients.

It said government spending in GCC countries is expected to focus on the infrastructure and energy sectors, as these countries cope with a growing population and try to support their economies during the global slowdown. The International Monetary Fund estimates that the combined GDP of GCC nations and the Middle East and North Africa region will grow by about 2.5 per cent in 2009, compared to 5 per cent 
in 2008.

Growth is expected to come mainly from Qatar, Saudi Arabia, Abu Dhabi, and Kuwait which have the greatest amount of fiscal space to pursue heavy expenditure to make up for the slowdown. “This focus on infrastructure spending is essential for GCC countries given the increasing interest in the region, as more and more people are escaping the meltdown in the US and Europe to come to the GCC,” said HC Securities. Construction activity in the GCC is sustainable as the commercial viability of infrastructure and utility projects is determined by future demand, while demand for these services is emerging markets is essentially driven by demographic trends, it added. These activities will boost Arabtec’s portfolio. “Arabtec is taking solid moves to diversify its backlog away from Dubai through regional expansions, starting with its smooth penetration of the Saudi Arabian market through its joint venture with Saudi Bin Laden Group. The company is seeking other partners in neighboring countries to further expand 
its exposure.”

The company recently bagged a contract to build a luxury tower in the Kingdom City project worth Dh2 billion or $533 million.

rocel@khaleejtimes.com