Arabtec in Dh1.5bn rights issue as full year losses widen amid weak construction market in Gulf

Arabtec Holding has announced a Dh1.5 billion rights issue in an attempt to pull the Burj Khalifa builder out of the red after the company yesterday surprised the market with a bigger-than-expected loss last year.
In a statement to the Dubai Fin­ancial Market (DFM), Arabtec said it was planning its second rights issue in three years alongside a capital reduction programme that would reduce the company’s share capital to lower balance sheet losses.
Arabtec said the move, which has been fully underwritten by its biggest shareholder, Abu Dhabi-owned fund Aabar Investments, was "to secure the group’s sustainable and successful future".
The news sent the company’s shares tumbling to their lowest level in three months. Arabtec shares fell by 9.9 per cent, closing at Dh1.19 yesterday.
The company plans to hold an annual general assembly of shareholders in April to provide details of the proposal and win approval for it.
Arabtec’s net loss attributable to the shareholders of the parent last year widened to Dh3.4bn compared with Dh2.3bn in 2015. The company said that the losses came as a result of "impairment charges on high risk items as well as recurring, non-recurring and operational expenses".
The losses were above analysts’ expectations. According to Bloomberg, a poll of six analysts had forecast that full-year losses would come in at an average of Dh579 million.
According to Bloomberg calculations, losses for the final quarter of last year widened to Dh3bn, dwarfing losses for the same period a year earlier of Dh403.7m. The analysts forecast that losses for the final quarter of 2016 would stand at a median figure of Dh118m.
Arabtec did not release official fourth-quarter figures but said it would announce its audited fin­ancial statements next month. The company also did not say what had specifically caused the surprisingly large losses in the final quarter of the year.
The company said its financial performance was a "reflection of the adverse market conditions which are having a negative impact on the construction industry throughout the GCC.
"Following the rights issue, the accumulated losses will be extinguished. We are confident that the recapitalisation programme will enable the company to reap the benefits of its strong revenue and backlog of existing and future projects," Hamish Tyrwhitt, the group chief executive, told The National yesterday when asked what had caused the losses.
The company reported a 5.6 per cent increase in full-year revenues to Dh7.7bn from Dh7.3bn a year earlier.
"Unlike the previous rights issue in 2014, this time the company doesn’t have a choice," said Allen Sandeep, a director of research at Naeem Brokerage. "With the additional capital Arabtec will then be able to borrow more from the banks."
In 2014, the company completed a Dh2.4bn rights issue to raise money for its rapid expansion.
"Arabtec is doing the right thing by writing down all of these impairments," Mr Sandeep said. "The only speculation has to be when will these writedowns stop? My opinion is that after this there can’t be much more to write off."
But not all analysts believe this is the company’s last rights ­issue.
In a note published yesterday, Sanyalak Manibhandu, the head of research at NBAD Securities, said: "Based on the level of equity capital Arabtec has supported in prior years, we believe the company would raise additional equity following the Dh1.5bn capital being proposed in order to continue to operate and to complete work in hand and subsequently expand."
EFG Hermes put out a statement in the afternoon following the results, saying that it had suspended its coverage of Arabtec’s stock with immediate effect.
"Our current rating and target price should no longer be relied upon," the investment bank said.

Source: The National