- Title: Arabtec collapse shakes foundations of Gulf construction business
- Date: 7th October 2020
- Summary: DUBAI, UAE (OCTOBER 6, 2020) (REUTERS) VARIOUS EXTERIORS OF ARABTEC CONSTRUCTION HEADQUARTERS IN DUBAI WITH ARABTEC SIGN STREET VIEW EXTERIOR OF ARABTEC CONSTRUCTION HEADQUARTERS IN DUBAI WITH ARABTEC SIGN
- Embargoed: 21st October 2020 12:09
- Keywords: Abu Dhabi Arabtec Burj Khalifa Company Construction Dubai Economy Market Stock Market UAE
- Location: DUBAI, UAE / ABU DHABI, UAE
- City: DUBAI, UAE / ABU DHABI, UAE
- Country: UAE
- Topics: Company News Markets,Economic Events,Middle East
- Reuters ID: LVA001CZ4Q3KD
- Aspect Ratio: 16:9
- Story Text: Just over six years ago, Dubai-listed Arabtec Holding had investors eating out of its hands.
At a lavish shareholder meeting at Abu Dhabi's St. Regis Hotel, the contractor that helped build the world's tallest skyscraper, Dubai's Burj Khalifa, outlined plans for listings in London, Hong Kong and New York.
Those plans never materialised. After capital injections between 2013 and 2017, management changes, layoffs and rounds of restructurings, Arabtec's shareholders, which include Abu Dhabi state fund Mubadala, decided last week that the Gulf's largest listed contractor should file for insolvency.
Arabtec had around $2.75 billion in total liabilities at the end of June, including almost $500 million in bank borrowing.
The liquidation, likely to lead to further layoffs in a company which had a 40,000 strong workforce at the end of last year, marks the end of an era of plentiful construction for local contractors.
The coronavirus pandemic, low oil prices and production cuts have battered the Gulf economies this year, but the collapse of construction giants like Arabtec and engineering group Drake & Scull International in the United Arab Emirates has deeper roots.
Industry sources, analysts, and bankers point to an unsustainable business model used by some contracting firms in the region.
They undercut competitors on pricing and sometimes cost a project at a discount to win a tender in the hopes of making a profit through additional work when it starts running.
It's a model that works on the premise that supply from mostly state-backed clients will continue indefinitely, but that breaks down quickly when the money stops flowing.
Arabtec's decision to dissolve came after a first half loss of $216.18 million and total accumulated losses of nearly $400 million. The company said the pandemic hit projects and led to additional costs.
Frequent payment delays by clients in the region have often put pressure on contracting firms, already bruised by Dubai's 2008-2009 property market crash.
But cash flow issues were often overcome by running several projects at a time, assuming supply would continue indefinitely.
The collapse of Arabtec, which was hired to work on Dubai's Expo 2020 site, is poised to add further strain to the real estate sector and to local banks.
(Production: Tarek Fahmy) - Copyright Holder: REUTERS
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