ABU DHABI, United Arab Emirates – The chairman of Arabtec, the embattled Dubai construction firm that helped build the world’s tallest tower, moved to calm nervous investors Wednesday by promising to improve transparency at the firm and saying it retains the support of a major shareholder backed by the Abu Dhabi government.
Arabtec is Dubai’s largest construction company and played a key role in raising the skyscrapers, fancy villas and other buildings that have transformed the city into the Middle East’s commercial hub. Its operations extend beyond the Gulf, including an ambitious $40 billion housing initiative launched earlier this year in Egypt.
Investors’ confidence in the company has plunged in recent weeks following a series of setbacks, with shares tumbling by as much as 70 per cent from their peak in May.
The rout has dragged down the broader Dubai stock market, rekindling concerns about financial stability in the emirate following its 2009 financial crisis.
Multibillion-dollar aid packages from oil-rich Abu Dhabi helped the neighbouring emirate of Dubai get through that earlier crisis, and Dubai’s trade and transportation-dependent economy has since come roaring back as the global economy improved. Abu Dhabi is the capital of the seven-state United Arab Emirates federation.
At the company’s first press conference since the tumult began, Arabtec Chairman Khadem al-Qubaisi said Arabtec will remain a publicly traded company and is committed to greater openness.
“I can assure you that transparency will improve a lot in Arabtec over the next few months,” he said.
Arabtec shareholder Aabar Investments, a state-run fund backed by Abu Dhabi, last month cut its stake in the construction company from more than 21 per cent to just under 19 per cent, though a stock market error blamed on a technical glitch left traders puzzled when it initially suggested Aabar was reducing its holdings by a larger amount.
Weeks later, Arabtec CEO Hasan Ismaik abruptly resigned. He had built a nearly 29 per cent stake in the company — larger than Aabar’s own shareholding. Arabtec soon since announced a restructuring involving job cuts.
Al-Qubaisi, who is also chairman of Aabar, spoke not at Arabtec’s offices but at the Abu Dhabi headquarters of the government-run International Petroleum Investment Company, which owns nearly all of Aabar.
He said it is possible that Aabar might increase its stake in Arabtec in the near future.
Allen Sandeep, director of research at Cairo-based investment house Naeem Holding, said Aabar’s continuing support sends an important message.
“Aabar looks at Arabtec very seriously as an investment,” he said. “The worry is they were cutting their stake.”
Arabtec intends to move ahead with existing projects and in the future will focus on its core construction business rather than on other sectors such as oil and gas, he said.
Left unclear were the circumstances for Ismaik’s departure and what would happen to his stake, as well as how many jobs were being cut within the company. Arabtec last week denied suggestions the positions being cut numbered in the hundreds.
“We terminated a few people but there is no effect at all. Management is still capable of running the business, actually the productivity increased, efficiency increased,” al-Qubaisi said, though he suggested more cuts could yet come. “If there is any fat, I will remove it in the next few weeks.”
In a report issued to clients last week, HSBC analysts raised questions about Arabtec’s ability to carry out work it has agreed to on schedule and noted that a decision by Ismaik to sell his stake “would put significant pressure on the stock.”
Dubai’s main stock market lost more than a quarter of its value from its May peak through the end of June. Investors and analysts blame Arabtec for at least part of the slide, but al-Qubaisi pushed back at those suggestions Wednesday.
“This is not only Arabtec. …There (are) a lot of political things happening in the Middle East. I disagree with you that Arabtec is behind all this crash,” he said.
Arabtec shares surged sharply Wednesday in anticipation of the meeting, which took place after the stock market closed. They closed up 14.9 per cent at 3.31 dirhams (90 cents).
Schreck reported from Dubai.
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