Dubai: Arabtec’s proposal to reduce its capital and launch a Dh1.5 billion rights issue could be the first step in finally turning around the company’s financial performance in the long term after nine consecutive quarters of losses, analysts said.
Arabtec on Monday said it will convene a general assembly meeting to get shareholder approval for a capital reduction plan and a Dh1.5 billion rights issue.
This came as the Dubai-listed construction company reported Dh3.4 billion in net losses in 2016, widening from the Dh2.35 billion losses recorded a year earlier. Losses for the fourth quarter of 2016 alone were Dh2.95 billion compared to Dh403,740 in losses recorded in the same quarter of 2015.
“Nobody in their most pessimistic expectations expected a number like this. If they announce these numbers without announcing any plans for refinancing or rebuilding the capital, that would have been worse for a public company. I think shareholders will have to take some more pains going forward as part of the restructuring of the capital,” said Mohammad Yasin, managing director at National Bank of Abu Dhabi Securities.
He added that the company may start seeing improved performance in 2018 but not in the short term.
“I think Arabtec can be a good turnaround story, but we’re not sure where from because we’re not sure how much of a loss the current shareholder will absorb before capital restructuring happens, and until that happens, we don’t know where the share price will bottom out,” Yasin said.
Meanwhile, Hamish Tyrwhitt, group chief executive officer of Arabtec, said the board’s decision to reduce capital follows an assessment of the company’s financial and operational position, as well as the appointment of new leadership.
He added that a capital reduction programme would allow the bank to keep its “existing arrangements with lending banks, avoiding the cost of additional interest payments and maintaining the group’s required ratio of debt to capital.”
In a separate statement, Arabtec said its other proposal to raise Dh1.5 billion via a rights offering will allow the company to fund the completion of ongoing projects, and provide financial flexibility to pursue growth. The company said its backlog of existing and committed future projects stands at Dh18.1 billion.
