DUBAI: Dubai-based Arabtec Holdings is considering a merger with the largest contractors in Saudi Arabia and Kuwait to create a pan-Gulf construction firm, the company’s chief executive said.
Arabtec, which raised $653 million from a rights issue in July, is embarking on an ambitious expansion plan under chief executive Hasan Abdullah Ismaik who was appointed after Abu Dhabi state fund Aabar bought a 22 percent stake last year.
“We are now looking for a merger with two of the biggest construction companies in the Gulf, one in Saudi Arabia and the other in Kuwait,” Ismaik told CNBC’s Arabic news channel in an interview, without naming either of the companies.
Kuwaiti newspaper Al-Qabas, citing unidentified sources, reported that Arabtec was in talks with Kuwait’s Combined Group Contracting Co. and Saudi Arabia’s Saudi Oger.
But in a brief statement issued later, Arabtec denied that either of the firms cited by Al-Qabas was being considered: “There are no discussions to merge with either of the two companies and there are no current plans to do so.”
It said it was reviewing “opportunities in Saudi Arabia and Kuwait” and would disclose any developments in line with Dubai stock exchange rules.
CGCC also denied the newspaper report. “We are not related to this issue at all. We did not approach anyone and no one from Arabtec offered anything. There is not even an intention in this regard,” an executive at the CGCC, declining to be identified, told Reuters.
Saudi Oger, owned by the family of late Lebanese Prime Minister Rafik Hariri, is one of the largest construction firms in the kingdom.
Arabtec has worked closely with Oger on several contracts in the kingdom and outside. A consortium which includes Arabtec and Oger won a $653 million contract to build the Louvre museum in Abu Dhabi.
One Dubai-based banking source said a deal to create a regional construction firm might not be easy because of differences in real-estate regulations and the politics involved in a cross-border deal.
“It’s a good idea and this region does need to consolidate a lot of its businesses across sectors but it is going to be a very difficult one to get through the line,” the banker said, speaking on condition of anonymity due to the sensitivity of the matter.
Arabtec shares ended 3.9 percent higher on the Dubai bourse Wednesday.
Other factors also buoyed Arabtec. The firm, which raised over $650 million in a rights issue in July, swung to a second-quarter profit and beat analysts’ forecasts, helped by growth in its key markets and expense reductions.
It lagged the Dubai stock market significantly in recent months because of worries about dilution from the rights issue, but has picked up since the new shares were issued.
“You might be sitting at an inflection point of opinion change on Arabtec – these valuations are playing up for growth that will come next year and later,” said Amer Khan, fund manager at Shuaa Asset Management. “From a retail [investor] perspective, they’re looking for laggards and Arabtec is something that has room to pick up.”
He added: “Construction is going to continue to be a tough business to be in. Margins are pressured and competition is extremely intense. But with economic conditions improving in the UAE, there might be better clarity on project growth compared to a year or two ago.”
The firm won a series of contracts this year, especially in oil-rich Abu Dhabi where its top shareholder, state investment firm Aabar, is based.
Arqaam Capital upgraded Arabtec Tuesday to a “buy” recommendation with a price target of 3.40 dirhams. Other analysts have mixed outlooks; EFG-Hermes has a “sell” recommendation with a 1.90 dirham target, while Naeem Holding has a “hold” at 2.37 dirhams, Thomson Reuters data shows.
Arabtec is up 42.5 percent year-to-date, which compares with blue chip Emaar Properties’ 65.6 percent gain over the same period.
Dubai’s market index climbed 0.2 percent to close at 2,670 points, less than 10 points away from Aug. 6’s near five-year high.
Elsewhere in the region, speculative trading dominated most Gulf markets because of a lack of fresh corporate news.
Abu Dhabi’s measure climbed 0.5 percent, extending 2013 gains to 49 percent. Trading volume jumped to a two-week high.
In Qatar, Al-Khaliji Bank surged 5.4 percent to a 29-month high, seeing its biggest daily volume in more than a year. The stock, up 13.2 percent year-to-date, has underperformed the wider market’s 20.4 percent gain.
“Khaliji is lagging the banking sector and the index as a whole,” said Ahmed Shehada, head of trading at Qatar National Bank Financial Services.
The lender posted a first-half net profit of 290.5 million riyals ($79.77 million), up 10.9 percent from the year-earlier period, according to a bourse statement.
Doha’s main market index rose 0.2 percent to reach a fresh 59-month high.