Abu Dhabi: Analysts questioned whether Arabtec would be able to break even this year after the company held a general assembly on Wednesday to get shareholder approval to pull Dh1 billion out of its statutory reserve.

The company’s chairman said in late April that he expected Arabtec to make profits next year, and that it “might break even” this year though that will be tough.

However, Wednesday’s move to pull money out of the reserve will extinguish less than half (44 per cent, to be more specific) of Arabtec’s accumulated losses, leaving just Dh148 million in the legal reserve.

“When you start to use your reserve, that means you’re running out of other options or you don’t think you’ll be able to create enough revenue in the coming few quarters to offset your losses. That’s the signal we get …. This is not a happy choice; it is a have-to choice,” said Mohammed Yasin, managing director of the National Bank of Abu Dhabi Securities.

Arabtec reported Dh2.3 billion in net losses for the full-year 2015 period, which is a significant plunge from the Dh214.5 million in net profit recorded in 2014.

In the first quarter of 2016, while losses continued to pile up, Arabtec managed to narrow these losses. It reported Dh46.4 million in net loss for the quarter — an improvement from the Dh140.5 million in losses recorded in Q1 2015.

NBAD’s Yasin pointed that things could be worse for Arabtec. Many companies that incur significant losses resort to reducing their capital, and this results in bigger losses on shareholders.

He said that having such massive losses also makes banks more reluctant to give out loans, which leaves the statutory reserve as the only resort for immediate liquidity.

“The challenge I see in front of Arabtec is not the projects; it’s actually to manage its cash flow in execution and collection when we hear that payment cycles are taking longer than before. Based on that, I think if the payment cycle goes longer or if we continue to see a slower cycle of the economy, I would not be surprised if that [break even] wait was extended to 2017,” he said.

Yasin said he did not expect to see selling activity on the stock despite the news, but pointed that from a fundamental perspective, the value of the shares is lower.

Similarly, Sebastien Henin, head of asset management at The National Investor, said he expected the coming quarters to continue to be challenging for Arabtec on the back of lower profit margins and delays in payments from real estate developers.

On Wednesday, Mohammed Al Muhairi, vice-chairman of Arabtec, said at the general assembly that he hoped the restructuring process the company is undertaking will help improve the financial performance. Arabtec had hired Alix Partners as its adviser, and expects to receive a finalised restructuring plan soon.

During the general assembly, shareholders also approved two new members, Tariq Al Masoud and Ghannam Al Mazroui, to Arabtec’s board of directors.

Trading of Arabtec’s shares was suspended as the company held its general assembly, but gained 1.46 per cent in early trade before the suspension.