* Arabtec to build 37 towers in Dubai, Abu Dhabi
* Sign of recovering confidence, more active Aabar stance
* Aabar will assign all its construction work to Arabtec
* Shares in Arabtec, cement companies rise sharply
* Big expansion may pose challenges for company
By Olzhas Auyezov and Praveen Menon
DUBAI, Feb 2 Dubai construction firm Arabtec
clinched a $6.1 billion contract on Sunday, its biggest ever by
value, as its relationship with Abu Dhabi state fund Aabar, a
key shareholder, promised to make the firm one of the region's
Arabtec said it had signed a memorandum of
understanding to build 37 mixed-use, residential and hotel
towers for Aabar in Abu Dhabi and Dubai.
The announcement pushed up stock markets, especially cement
shares, in Abu Dhabi and Dubai because it was a fresh sign that
their real estate markets are recovering strongly after prices
halved during the global financial crisis.
The news also suggested that after a few years of caution
following the crisis, Abu Dhabi's state funds, backed by the
emirate's oil wealth, are again ready to spend actively to
develop the economy.
The fortunes of Arabtec, already a major player in the
region with a workforce of about 63,000 people, may be
transformed by its relationship with Aabar, which is
Arabtec's largest shareholder with a 22 percent stake.
Early last year, in a move supported by the Abu Dhabi fund,
Arabtec replaced its founder and chief executive Riad Kamal with
Abu Dhabi-based private investor Hasan Abdullah Ismaik and
embarked on an ambitious growth strategy.
The new $6.1 billion contract dwarfs Arabtec's 2012 revenues
of $1.5 billion. In addition, Aabar said on Sunday
that it would assign all future construction work in its $20
billion real estate portfolio around the world to the Dubai
That portfolio includes projects in the United Arab
Emirates, the United States, Morocco, Jordan, Serbia and other
countries. Coping with this expansion of its business may pose a
challenge to the company.
"This is uncharted territory for Arabtec, to do such giant
projects across the region with a backlog in excess of 60
billion dirhams ($16.3 billion)," said Nishit Lakhotia, head of
research at Securities & Investment Co (SICO) in Bahrain.
"Obviously, in countries where Arabtec does not have a
presence yet, it can be a bit more risky to execute projects.
That cannot be ruled out."
But he added, "They have been preparing for this. The recent
strategic partnerships, acquisitions, rights issue and
management changes are all part of this preparation."
Shares in Arabtec closed 2.8 percent higher on the Dubai
bourse, though they came well off their highs, having risen 8.2
percent at one stage. The stock has climbed more than 50 percent
so far this year after a 54 percent gain in 2013.
Arabtec said it would start work this year on the new
buildings for Aabar and that all the projects would be completed
by 2020, when Dubai is due to host the World Expo.
It did not say what profit margins it expected. "Margins in
the UAE are still very competitive and it's likely that margins
are tight on such a major project," said Lakhotia.
Arabtec has won a series of contracts in Abu Dhabi,
including high-profile projects such as development of Abu
Dhabi's main airport and the Louvre museum there, since Aabar
began building a major stake in the firm in 2012.
The firm also secured a $1.55 billion contract to build a
resort in the Aqaba area of southern Jordan last month.
The UAE's real estate market has been recovering since 2012,
partly because of a tourism and trade boom in Dubai, which has
attracted foreign money.
"Our growing backlog has now become a major benchmark of the
speedy recovery of the sector. We expect to see good results
with efforts to diversify into higher-margin sectors in
association with international partners," Arabtec's Ismaik said
in a statement.
Aabar owns stakes in a range of high-profile companies
within the UAE and abroad, including commodities trader Glencore
and Italian bank UniCredit.