Arabtec has sent a strong signal to the market that it is ramping up operations in Saudi Arabia despite revealing that it is selling off four of its subsidiaries in the kingdom.
The UAE’s largest listed contractor reported on Tuesday that it had won a Dh1.04 billion contract from Saudi Aramco to build 380 villas in Al Dhahran, eastern Saudi Arabia, where the national oil company’s staff compound is located.
Arabtec said that the contract had been awarded to its Saudi Arabtec Construction subsidiary, which will spend 28 months building a total of 166,200 square metres of new homes on a 454,500 sq metres plot.
“The Saudi market is one of the biggest and important environments in the region for Arabtec, as it implements many housing and multipurpose projects,” the company said in a statement to the Dubai Financial Market.
The news comes just days after Arabtec announced that it had approved a plan to dispose of its equity interest in four of its Saudi Arabian subsidiaries – Arabtec Saudi Arabia, Arabtec Construction Machinery, Saudi Austrian Arabian Ready Mix and Efeco Saudi.
In an analyst conference on Monday, Arabtec said that all of the subsidiaries were held as joint ventures with Saudi Binladin Group, a company considered to be the largest construction firm in the world.
Arabtec set up Arabtec Saudi Arabia as a joint venture with CPC Services, a member of the Saudi Binladin Group and Prime International Group Services back in March 2009 in an attempt to compensate for a slowdown in the construction industry in the UAE. At the time Arabtec took a 45 per cent stake in the partnership.
Since then Arabtec has grown its Saudi operations significantly. Plans to grow the company’s oil and gas operations and its affordable housing arm took centre stage in an ambitious expansion strategy announced by former chief executive Hasan Ismaik in 2013.
However, with new Saudi labour laws biting deep into construction margins and Mr Ismaik suddenly parting company with Arabtec last summer, Arabtec’s Saudi operations, along with the rest of the company, were subject to a sudden restructuring at the end of last year.
In its accounts the company said that profits from the Saudi Binladin operations had more than halved last year to Dh120.3 million from Dh256.7m the previous year.
At the same time the company, which is 36.11 per cent owned by the Abu Dhabi fund Aabar, has signed a number of major deals with Saudi Aramco. In February Arabtec’s wholly owned Target Engineering subsidiary won seven contracts from Saudi Aramco for seven oil and gas construction contracts.
“Arabtec exercises its best endeavours to win strategic projects in the specialised construction areas in the diverse business sectors in the kingdom,” Arabtec said in its statement. “Restructuring the technical and administrative aspects, during the second half of 2014 at the subsidiaries level had fruitful results.”
Despite the contract win Arabtec shares fell 1.22 per cent as investors continued to smart from the company’s shock Dh94.4m fourth quarter loss announced on Sunday.
“This contract win is good news, but it is not really meaningful in the wider scheme of things given the poor results announced earlier this week,” said Sebastien Henin, the head of asset management at The National Investor.
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