Dubai construction firm benefits from Abu Dhabi investment

25 February 2013

Arabtec’s order book swells after Abu Dhabi investment vehicle Aabar Investments’ controlling stake in the company

In May 2012, Abu Dhabi government-controlled investment vehicle Aabar Investments became the largest shareholder in Dubai-based contractor Arabtec, which is listed on the Dubai Financial Market (DFM).

Aabar chairman Khadem al-Qubaisi became chairman of Arabtec and three other Aabar executives joined the board. The acquisition ended years of speculation that Aabar had been interested in buying more Arabtec stock. In 2010, it failed to acquire a 70 per cent stake.

As Aabar took control of one of Dubai’s largest contracting companies, many expected that Arabtec would slowly become an Abu Dhabi construction company, working on Aabar’s extensive portfolio of projects and other government-backed schemes in the UAE capital.

Abu Dhabi contract awards

The Abu Dhabi influence seemed to have an almost immediate effect. In late April, Aabar awarded Arabtec a AED222m ($60m) contract to build a residential tower in Abu Dubai.

More significantly, two months later in June, Arabtec, with its joint venture partners Turkey’s TAV and Athens-based Consolidated Contractors Company (CCC), secured the AED10.55bn contract for the construction of the Midfield Terminal building at Abu Dhabi International airport. The consortium had been selected for the contract before Aabar took the largest stake in Arabtec.

Then on 8 January 2013, the joint venture of Arabtec, Spain’s Constructora San Jose and Oger Abu Dhabi won the AED2.4bn contract to build the Louvre Abu Dhabi museum on Saadiyat Island. The two projects are widely regarded as indicators that Abu Dhabi’s construction market has started rebounding after two years of slowdown. The Louvre had been tendered three times before, and in 2011, two contractors were shortlisted for the construction contract. The Midfield Terminal contract had also been tendered several times.

If the awards had been made as scheduled in 2009 and 2010, it is unlikely that Arabtec would have been the successful bidder, especially for the Louvre deal, where the contractor was leading the consortium.

Before the Aabar acquisition, Arabtec was active in Abu Dhabi, but its success was limited. According to regional projects tracker MEED Projects, the company secured more than $1bn of work in Abu Dhabi between 2005 and 2011, but failed to pick up the big ticket contracts that it was able to win in Dubai. It came close on several occasions, however.

In 2007, it was part of a joint venture with South Korea’s Samsung C&T and Japan’s Taisei Corporation that was negotiating with the local Aldar Properties to build the $1.2bn redevelopment of Abu Dhabi’s central market. The talks broke down after the consortium’s price did not meet Aldar’s budget. Then in 2008, Arabtec was selected for the estimated AED7bn design and build contract for the Cleveland Clinic as part of a joint venture with Greece’s Aktor. But as the UAE’s construction market slowed, the agreement was cancelled and the contract was competitively tendered in 2009.

Bad timing

Arabtec’s disappointments were largely a result of bad timing. The central market negotiations broke down as Aldar was reassessing its procurement strategy. At the time, developers in Abu Dhabi were struggling to attract competitive bids, prompting Aldar to form partnerships with contractors such as the UK’s Laing O’Rourke and Belgium’s Besix to deliver projects, including Al-Raha Beach and Yas Mall and Ferrari World on Yas Island.

In 2008, the Cleveland Clinic negotiations broke down as that cycle was reversing. The construction market in Dubai had collapsed, and Abu Dhabi clients quickly moved back to competitive tendering.

Whether Arabtec would have been able to successfully conclude these negotiations if it had better connections in Abu Dhabi is debatable. However, firms that were competing with the contractor at the time said major clients were reluctant to award the company large contracts due to concerns about its exposure to Dubai’s real estate market. Like all contractors working in Dubai at the time, Arabtec faced payment issues as developers ran out of money.

As Arabtec’s fortunes in Abu Dhabi change, many working in the emirate expect the contractor to be a dominant force in the coming years. In February, it won the AED1bn deal to build the Fairmont Abu Dhabi hotel. “The big question in Abu Dhabi this year is whether Arabtec will win all the big government contracts now,” says a contractor in Abu Dhabi.

There should be plenty of opportunities for Arabtec to secure new deals. According to MEED Projects, Arabtec is bidding for $2.7bn of contracts expected to be awarded this year, including $572m-worth of projects being developed by Aabar.

Key fact

Aabar Investments raised its stake in Arabtec Holding to 20.93 per cent in May 2012

Source: MEED

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications