Dubai builder calls off deal with fund

Arabtec Holding, the Dubai construction giant that helped build the world’s tallest tower, is backing out of a deal that would have given an Abu Dhabi state-run fund a controlling stake.

Arabtec and Aabar Investments each announced they were scrapping the proposed US$1.74 billion deal in brief statements yesterday on local stock exchanges. No reason was given for calling off the tie-up, which would have given Aabar a 70 per cent stake in the builder. They left the door open to partnering in the future.

‘The parties have agreed they will work together in good faith toward further cooperation and forming a strategic partnership in Abu Dhabi in the future,’ the companies said.

Representatives for the two companies could not be reached for comment.

Arabtec’s balance sheet has been weakened by the global financial crisis and a severe property slump in its home market Dubai, where property values have plunged by half from their peak in 2008.

Plans for the deal with Aabar were floated in January amid a push for closer economic integration between struggling Dubai and the oil-rich federal capital Abu Dhabi.

Several Dubai state-linked companies that are laden with billions of dollars of debt and have scrambled to pay their bills are among Arabtec’s customers.

Although Arabtec is not owned by Dubai’s government, analysts say the indebted sheikdom is the company’s largest debtor. Some saw the deal with Aabar as a backdoor way for Abu Dhabi to aid Dubai by shoring up one of its biggest contractors.

Dubai’s government last month outlined details of a long-awaited restructuring plan for its struggling conglomerate Dubai World. That plan calls for a cash injection of up to US$9.5 billion and provisions for further payments to contractors such as Arabtec.

Roy Cherry, an analyst at Shuaa Capital in Dubai, said that gave Arabtec more options because it provided a framework for the company to be repaid.

‘The visibility of future cash flows increased and uncertainty has declined substantially,’ he said. ‘Dubai’s move raised Arabtec’s bargaining power, (and) the management realised this was no longer a good offer.’

Aabar is majority owned by the government of Abu Dhabi. It has become one of the sheikdom’s most active investment funds over the past year, making big investments in Mercedes-Benz maker Daimler, Richard Branson’s commercial space travel startup Virgin Galactic and Formula One champion team Brawn GP.

Arabtec is among Dubai’s best-known construction companies. It was one of the main contractors on the record-breaking Burj Khalifa, the world’s tallest skyscraper. It employs 52,000 workers, according to its website.

Source: Business Times, 15 Apr 2010