ABU DHABI: The construction company at the centre of Dubai’s stock market meltdown sought to calm investors yesterday by saying it still had the backing of a key government shareholder and would rein in lavish salaries to reduce costs.
Khadem Abdulla Al Qubaisi, Chairman of Arabtec, was holding the company’s first news conference since management turmoil last month shook investors’ faith in one of Dubai’s most prominent corporations.
The Arabtec saga exposed the dangers of investing in Gulf stock markets, which benefit from strong economic growth but can fall prey to wild speculation by local retail investors, weak corporate disclosure and a hands-off approach by regulators.
In early June, wealthy Abu Dhabi state fund Aabar
Investments cut its stake in Arabtec to 18.94 percent from 21.57 percent, raising doubts over its willingness to support the company. Then on June 18, chief executive Hasan Ismaik, who had built a 28.85 percent stake in Arabtec, abruptly resigned.
Arabtec shares plunged 70 percent from a record peak in mid-May to their intra-day low on Tuesday, erasing about $6.5bn of value, as the company’s silence on issues such as its relationship to Aabar fuelled panic selling by leveraged retail investors. This spread through Dubai’s market, causing the main stock index to tumble 31 percent from peak to trough.
Qubaisi insisted yesterday that his company had not been damaged. He said Aabar, which has declined to comment on its intentions towards Arabtec, still considered it a long-term investment and might even raise its stake in future.
“There will be no cancellation of any projects and operations are strong. The relations between Arabtec and Aabar are stronger than before,” Qubaisi said.
In particular, a $40bn, state-backed deal for Arabtec to build one million homes in Egypt over coming years will go ahead; it has almost reached the design phase, he said.
Arabtec has emerged as a tool of the UAE government’s economic diplomacy through the deal. The UAE wants to support the Egyptian government of former army chief Abdel Fattah Al Sisi in order to stop any resurgence of the Muslim Brotherhood.
However, there were signs yestersday that Qubaisi would moderate the breakneck pace of growth which Arabtec managed during Ismaik’s 16-month tenure.
Ismaik had the firm diversify in new sectors such as oil and gas work, real estate development, and mergers and acquisitions, and into new geographical areas such as Serbia. Qubaisi said Arabtec would now focus on its core construction business, which had current projects inside and outside the UAE worth about Dh26.2bn ($7.1bn).
He also said “a few people” had been let go as part of a cost-cutting drive since Ismaik left; he declined to give numbers. Earlier this year, Arabtec said its workforce totalled about 63,000.
“We are reviewing a lot of things. Yes, there were some people who were overpaid. We are trying to introduce the right policies for payment,” Qubaisi said.
Mohamed Al Fahim, a board member from Abu Dhabi’s state-owned International Petroleum Investment Co (IPIC), the parent of Aabar, was appointed acting CEO of Arabtec after Ismaik’s departure. Qubaisi said on Wednesday there was no deadline for announcing a new permanent CEO.