Crash and burn

High flying Arabtec hurtles back to Earth, leading markets downwards

Dubai skyline
Arabtec was one of the main contractors for Dubai's record smashing Burj Khalifa (Credit: Nepenthes | Wikimedia Commons | CC BY-SA 2.5)

A rather spectacular governance lesson came this past week from Dubai-listed construction and development group Arabtec Holding. The company, presumably driven by a mixture of its own daring ambitions and the resurgent construction business in the United Arab Emirates and other Gulf countries, had seen its share price double in roughly two months between mid-January and mid-April. The share opened above AED 5 ($1.36) on April 20 and rallied another 47 percent to AED 7.40 on May 14, its highest close ever.

Amid a wave of surprising news, however, the Arabtec share price fell just as precipitously in the five weeks since and closed last week at AED 4.26 — levels last seen in early April. What makes this slide stand out was that the company started to dominate the trading activity on the DFM with high volumes of share sales around June 8, ahead of a series of surprising disclosures. On June 11, the company posted a press release among its official company disclosures on the DFM, in which chief executive Hasan Ismaik dismissed “rumors” about the company’s share price in the two preceding days as well as rumors about its future plans, without refuting any allegation or even specifying what either rumor might be.

On June 12, the company added another disclosure — posted only in Arabic — denying that it planned any new listing of a unit on the DFM and on June 15, it announced a board meeting for June 18 to discuss projects and “other business.” In the meanwhile, the selloff of Arabtec shares continued as the market was treated to news that Ismaik had expanded his personally held stake from 8 percent earlier in the year to 21.5 percent by late May and then to almost 29 percent by June 15.

At the same time, the largest institutional investor in Arabtec, a unit of Abu Dhabi state owned International Petroleum Investment Company (IPIC) that goes by the name of Aabar Investments, caused nervousness among investors by reducing its stake in Arabtec to around 19 percent from 21.6 percent in share sales between June 8 and 10. Subsequent news that Aabar had divested of another 4.6 percent were based on information on the DFM website that the market operator described on June 15 as “temporary system glitch” in the last trading hour.

All this was topped on June 19, however, when Arabtec announced the results of its June 18 board meeting, revealing that the “other business” discussed by the board constituted the resignation of the company’s CEO and since quite recently, largest shareholder, Ismaik. The stock predictably tanked again when this bombshell hit. By time of this writing on June 23, Bloomberg and Reuters news services cited “sources” saying that a key executive and an unspecified number of employees had been dismissed.

However, there was no DFM market statement by Arabtec to this extent and the corporate website only reflected the revision of board membership announced in the June 19 DFM disclosure. The website also did not any provide information on the Arabtec viewpoint of the developments since the beginning of June. However, those looking for insights into the company’s business approach could gain incisive flashes of enlightenment on what Arabtec (or its public relations writers) called “our commitment.”

“Arabtec Holding is a Publicly Listed Company and therefore we must be publicly open and transparent,” the page explained. The company claims to be bursting with integrity and ethical behavior via a code of conduct for executive on all levels. It also affirms that disclosure of “all material matters concerning the company’s activities should be timely and balanced”. However, the most recent minutes of a board meeting that can be accessed on the site date from August 7, 2012 and the most recent disclosure shown is dated July 7, 2013.

Markets down

Led by Arabtec’s continued slide — and with the holy month of Ramadan fast approaching — index readings and trading activities across Arab securities markets retreated in the year’s 25th week. Meanwhile, the top indices in the United States were shooting up to new records as the Federal Reserve was reassuring investors about the strength of and outlook for the American economy.

The region’s major markets fell noticeably in what was plainly one of the year’s most underperforming weeks for Arab equities. Benchmark indices for the Qatari, Kuwaiti, Egyptian and Dubai bourses dropped between 4 and 5 percent. Markets in Amman, Casablanca, Manama, Riyadh and Abu Dhabi lost between 1 and 3 percent. Muscat and Beirut could hardly be called gainers as each advanced by less than a tenth of a percent. A small green arrow signaling a one percent gain in the Tunindex was the best that the MENA had to offer.

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.