DUBAI - Dubai-based Arabtec (ARTC) confirmed on Saturday that Abu Dhabi's Aabar Investments (AABAR) is looking to finalize a deal on January 13 to acquire a 70 percent stake in the company for $1.7 billion.
Deals
Aabar said on Friday it intended to buy the stake through convertible bonds, which would provide both cash and potential new contracts for the Dubai construction giant.
"Aabar Investments PJSC and Dubai's Arabtec Holdings PJSC have agreed for Aabar to acquire 70 percent of the shares in Arabtec by way of a convertible mandatory bond...," Arabtec said in an emailed statement.
Formal discussions between the firms began January 4, the company said. Finalizing the deal depends on completing legal diligence by January 13, the approval of Arabtec's shareholders and obtaining regulatory approvals, it added.
Arabtec said the acquisition will "further consolidate" its position in the market.
Credit Suisse, which has a target price of 3.33 dirhams for shares of Arabtec, said in a note that Aabar would give a welcome cash injection to Arabtec through the deal, and could help provide new contracts for it in Abu Dhabi.
Aabar, the non-energy investment arm of Abu Dhabi sovereign wealth fund IPIC, is German carmaker Daimler's largest shareholder.
There had been market rumors since late December regarding a possible investment by Aabar in Arabtec but both firms had denied there had been any deal.
Arabtec -- which has ventured into new markets such as Russia, Qatar and Saudi Arabia as the global downturn hit business at home in Dubai -- has said it will turn its main focus to other locations including Abu Dhabi where it won contracts last year.
The real estate and construction focus in the United Arab Emirates has been shifting to Abu Dhabi from Dubai and the latter emirate's debt crisis may intensify the move.
The crisis, sparked by Dubai's November 25 request to delay repayment on $26 billion in debt for six months, is expected to delay the recovery for the UAE's real estate sector.
In mid-December Abu Dhabi lent Dubai $10 billion to meet debt obligations and stave off a bond default by state-linked developer Nakheel.
so the above must mean that Arabtec's management holds a 70% stake? How can they sell it below market?
As far as I understand the deal, Arabtec will issue a mandatorily convertible bond. Meaning Aabar will lend Arabtec money, and at some point in the future the loan will be converted to shares instead of being repaid, at the rate of AED 2.30 per share. And Aabar won't have a choice about it once the agreement is signed ... in theory (it didn't quite work out like that for the Shuaa Dubai Banking Group deal last year).
So new shares will be issued meaning the current shareholders will see their stake in Arabtec diluted. But on the flipside, Arabtec is worth more because Aabar has given them money.
None of the current shares will be sold to Aabar, new ones will be issued.
How can they sell below market price? Well, Aabar and Arabtec can propose whatever they like. It's up to you as a shareholder to agree or not. If the majority of shareholders vote against the deal then it won't go ahead. Or shouldn't. Which means it's up to Arabtec and Aabar to convince us that it's a good deal. Unless there is a 51% stakeholder in Arabtec that has already decided to support the deal, then it won't matter what the rest of us think... _________________ UAE IPO list | posting guidelines
The official source of detailed information to be used as foundation for thinking:
The National 09 January 2010:
Arabtec Holding will use some of the cash from Aabar Investments’s stake in the firm to fund its own future acquisition spree, its chief executive said yesterday.
Aabar, the Abu Dhabi firm that last year took a major stake in the championship winning Brawn GP Formula One team, said on Friday it would acquire 70 per cent of Arabtec, the largest construction company in the UAE, in a deal worth Dh6.4 billion (US$1.74bn).
The acquisition would come through a bond issued by Arabtec to Aabar that will convert to new Arabtec shares at maturity.
The deal needs the backing of 75 per cent of Arabtec’s shareholders and approval from government regulators. If it gains both, the firm will consider any “attractive investments opportunities”, said Riad Kamal, the chief executive and founder.
“When you have so much under your belt, your appetite becomes much better,” Mr Kamal said. “[It could be] acquisitions, investments or taking equity in major developments where we feel we can then improve our chances of being involved in those projects.”
The move would also allow the company – which built the 828-metre Burj Khalifa in partnership with Samsung Engineering and Construction and Besix – to hedge itself against any shortfall in capital resulting from delays in payments from property developers, and improve its ability to raise funds for future projects, Mr Kamal said.
“We will have quite a strong financial position … and we believe Aabar can give us stronger access to the considerable major projects in Abu Dhabi.”
Saud Masud, the head of research and senior property analyst at UBS bank, said there were major benefits for both sides in the deal.
“For Aabar, Arabtec is as good as it gets in the region, so they get a crown jewel and significant leverage in terms of the long-term development of the UAE,” Mr Masud said.
“When there’s development, particularly in Abu Dhabi, this will be one way of monetising the strongest contracting asset in the Middle East for their use.”
Mr Masud said the deal also reflected the severity of payment issues between developers and contractors in Dubai, despite a $25bn bond programme financed by the Government of Abu Dhabi, Abu Dhabi banks and the Central Bank.
“If a blue chip like Arabtec has to dilute its earnings to gain financing at this point, that tells me whatever controls and policies they put in place in the year haven’t really worked,” he said, in a reference to earnings per share.
“It tells me there’s a systemic issue in terms of paying the real estate food chain. It seems that the federal support that has been given to mitigate that risk is not enough yet.”
The construction boom spurred Arabtec to start an acquisition spree in 2007, a strategy it hoped would help plug gaps in the construction supply chain.
Within a year, the firm took a 60 per cent stake in Target Engineering, an Abu Dhabi company that specialises in civil, electrical and marine contracting; a 33 per cent stake in House of Equipment, a rental firm for construction equipment; and a 55 per cent stake in Gulf Steel Industries.
But the drive was abandoned by October 2008, when the global financial crisis hit the country’s property sector, resulting in cancelled projects. Mr Kamal would not say if a revival of the acquisition plan had yet led to any specific investments. But he said: “This opportunity is in front of us now … [it could be] anything that will reinforce our operation and give it strength and diversification.”
Not only will Aabar’s stake give it access to the biggest builder in the country, it will also give the investment firm a foothold in Saudi Arabia, where Arabtec set up a subsidiary early last year, and Russia, where it has begun foundation tests at the site of Okhta tower in St Petersburg, the proposed tallest tower in Europe.
Arabtec, which has a project backlog of Dh19bn, is also negotiating two large projects in Libya and others in Qatar.
The construction firm will become part of a growing property division in Aabar, which bought two plots in the Al Raha district near the Abu Dhabi International Airport in November 2008 for Dh500m. The company plans to develop up to four residential towers there.
It also acquired 12 towers in six lots on Reem Island in Abu Dhabi for Dh5bn last February, and 14 more plots in Abu Dhabi last year for Dh2.7bn.
The International Petroleum Investment Company (IPIC), a Government energy investment fund, assumed majority ownership of Aabar in March last year.
Before the takeover was announced on Thursday, Arabtec’s shares closed 6.3 per cent higher at Dh2.89, while Aabar rose 5.2 per cent to Dh2.47.
It looks like all together Aabar owns aprox. 50 plots for development, most of which are suitable for high rise construction, for which Arabtec is well known.
So, it seems to me as Aabar is going to position it's self as a real estate developer of the rank of Al Dar (repeating my own conclusions).
Naturally, in the near future they will look to develop property sales divisions and mortgages financing structure - plenty of job opportunities for the industry professionals. Here worth to mention that in Abu Dhabi there is no RERA with silly regulations and real estate agents registration rules, which is very suitable for gold diggers and speculators.
If and when this enormous real estate development will materialize are completely separate questions, but the real estate industry is in a negative cycle that will continue for a decade or so...
The National 09 January 2010:
Arabtec Holding will use some of the cash from Aabar Investments’s stake in the firm to fund its own future acquisition spree
Estimating the size and type of Arabtec's already mentioned acquisitions, my conclusion is that this statement is merely a coverup for Arabtec's financial weakness and "fair" way for the major shareholders to get rid of the sinking ship.
sharewadi wrote:
How can they sell below market price? Well, Aabar and Arabtec can propose whatever they like. It's up to you as a shareholder to agree or not. If the majority of shareholders vote against the deal then it won't go ahead. Or shouldn't. Which means it's up to Arabtec and Aabar to convince us that it's a good deal. Unless there is a 51% stakeholder in Arabtec that has already decided to support the deal, then it won't matter what the rest of us think...
This is a very naive view based on theory that has nothing to do with reality in this region of the world. If it works somewhere else, which I strongly doubt, shareholders will be monarchs...but can they be ... there will be too many of them...
Last edited by Rashid on Sat 09 Jan 2010 22:16; edited 1 time in total
Before we know it, you might as well dump all your shares and just own Aabar!
I like this deal. Though i think it will need a little more understanding as to where the cash is coming from! I like it!
dhs6.4 million... cash! You dont have this lying under the matress for a rainy day. I take it this will increase Aabar's debt obligation!
So lets look at some of the positives:
1. It takes away any cash concerns for ARTC
2. It suddenly gives Aabar a "ready-made" construction company
3. It extends Aabar's diversified portfolio (once more)
4. It allows ARTC to expand and develop themselves without further cashflow concerns.
So lets look at the negatives:
1. Depending on where the cash is coming from, it increases Aabars debt obligation.
2. Dilutes ARTC shares
...cant think of anymore!
...my gutt feeling is this is a "cash hand-out" that ARTC has little choice but to consider it positively. What are the alternatives, wait until you have been paid the dhs4billion in outstanding payments, and hope that your creditors dont give you a tough time!
Personally i think its a win win win situation that both Aabar and ARTC's shareholders are just going to have to get used too.
I also think that this may just be the start! ...debt stand-stills...cash injections to contractors!
There is no doubt in my mind, Abu Dhabi is the "new best friend" everyone wants to have.
Aabar's debt obligation...it seems to me that company is cash careless and debt free
Rashid
Back to your post.
The comment you made "cash careless and debt free". Can you please let me know where/how you know that Aabar is debt free? My understanding is that they are leveraged!
Personally i think its a win win win situation that both Aabar and ARTC's shareholders are just going to have to get used too.
It depends on the price. At a conversion price of AED 0.10 dirham per share, that's a poor deal for Arabtec shareholders (much higher dilution). At AED 100 dirham per share, it's the Aabar shareholders who would have something to say about it.
At AED 2.30 per share? It seems like a solid win for Aabar but not for Arabtec shareholders given that market price is higher than that. Then again, if the alternative is that Arabtec goes bust then the Aabar bailout ... er ... deal is a good one.
Cash King wrote:
70% holding means 840,000,000 so it works out to be Tag price of AED 7.62.
Not quite. Yes, 70% of current outstanding shares of 1.2 billion is 840 million but as this deal results in new shares to be issued, the calculation is different.
AED 6.4 billion / AED 2.30 per share conversion price = 2.78 billion new shares.
Total shares outstanding after conversion = 2.78 + 1.2 billion = 3.98 billion shares.
2.78 billion / 3.98 billion = 70% of Arabtec.
The dilutive effect for current shareholders is that their shareholding is effectively divided by about 3. For example, if you owned 10% of Arabtec before the deal, or 120 million shares, then after the share conversion you will only have 3% ownership of Arabtec. Still 120 million shares but 120m out of 3.98 billion shares total instead of 1.2 billion total. _________________ UAE IPO list | posting guidelines
Hi, I am new to this forum. but following it for the last 1 year. Kudos to Sharewadi for maintaining a wonderful website & giving opportunity to all investors to share their thoughts.
My post is regarding the Aabar take over of Arabtec. I believe that the conversion price of 2.3 Dirhams /Share is very good as it is not to be mis-construed that it is below the current market price and not good !
Note that the price of 2.3 Dirhams is the price they are paying at the time of conversion when the equity is diluting to almost 4 Billion Dirhams. This means the price of 2.3 Dirhams at the time of conversion is almost 200 % premium to the current price ( since 2.3 Dirhams with approx 4 Billion Dirhams equity is equivalent to almost 6+ Dirhams current market price at an equity of 1.2 Billion). This means after dilution of equity Aabar would like to see a minimum Arabtec share price of 2.3 Dirhams so that Aabar don't end up in loss on their invesment. To see a price of 2.3 Dirhams post conversion means Aabar must be very confident that Arabtec will utilise the cash injection & perform extremely well!
I am not sure if I am missing anything but this is my point of view and I am sure Aabar must have done their homework to make sure they generate significant profit from this deal.
Based on the gulf news report of 10/01/09 that there will be capital increase. I went to the Q3 2009 of Arabtech (DFM website) and arrived at the following. Yes, it is based on their book value:
Total Equity Q3-2009 : AED 2.7 billion
new cash from Aabar : AED 6.4 billion
total equity after new cash : AED 9.1 billion
Total No. shares before buyout : 1.19 billion shares @ AED 1/-
Total No. shares after buyout : 3.98 billion shares @ AED 1/-
Book value per share before buyout: AED 2.7 billion / 1.19 shares = 2.27 per share.
Book value per share after buyout : AED 9.1 billion / 3.98 billion = AED 2.29 per share (after cash is received).
Book value per share: AED 2.29 per share. No dilution at all when looked at the book value perspective. It seems good for the future as AED 6.4 billion cash added to their balance sheet showing more powers to go for big ticket contracts.
Having said, if they have to declare a cash dividend of 20% in the future, they should have cash profit of AED 800 million, huge capital servicing cost
...fimah
Last edited by fimah on Sun 10 Jan 2010 08:55; edited 1 time in total
One issue which baffles me is why both Aabar & Arabtec not coming out openly with the conversion timing ? They seem to skirt this issue blatantly in all the interviews they have given to the press ! Isn't it important for Sharholders to know when this will happen and ultimately the Share Equity dilution which is going to affect the Share price! How do they expect the Shareholders to give the approval in the EGM without proper details.
I have never seen elsewhere such information black out which is very important for decisions !
Based on the gulf news report of 10/01/09 that there will be capital increase. I went to the Q3 2009 of Arabtech (DFM website) and arrived at the following. Yes, it is based on their book value:
Total Equity Q3-2009 : AED 2.7 billion
new cash from Aabar : AED 6.4 billion
total equity after new cash : AED 9.1 billion
Total No. shares before buyout : 1.19 billion shares @ AED 1/-
Total No. shares after buyout : 3.98 billion shares @ AED 1/-
Book value per share before buyout: AED 2.7 billion / 1.19 shares = 2.27 per share.
Book value per share after buyout : AED 9.1 billion / 3.98 billion = AED 2.29 per share (after cash is received).
Book value per share: AED 2.29 per share. It is immediate dilution for Arabtech shareholders for today. But seems good for the future as AED 6.4 billion cash added to their balance sheet showing more powers to go for big ticket contracts.
Having said, if they have to declare a cash dividend of 20% in the future, they should have cash profit of AED 800 million, huge capital servicing cost
...fimah
That was one of most clear posts about this event.
Thanks Fimah at least you tried to explain 2.3 based on facts and figures.
Could this open the door for others also to bid for ARTC.
Anyway still i think a solid profit making company will not sell at below market value, what is the CATCH ? since they are still getting many projects in and out of the UAE.
If anyone has noticed although Emaar was shooting up ARTC was kept at bay. It could be very well be a takeover and keeping the share value as low as possible .
In my openion there is a takeover happening which will increase share value close to 5 .last 3 week of DEC can anyone find the n# of shares traded? There is no smoke without fire .
It is a mad mad world. They want us to get mad and sell.
Today ARTC performance confirms that there will be more discussions on price and how ARTC will be bailet out.
So it is not mad at all.
I have learned during my time in UAE market that local big guys always have very very complecated and well designed way of making speculation in markets and they always find a way to use it for their own benefit.
Arabtec (ARTC) shares fell 6.9% to AED 2.69 from AED 342m of trading today (and were the most actively traded shares for a change).
Aabar (AABAR) shares rose 4.6% to AED 2.52 from AED 74m worth of trading (and they were the top traded stock by value in Abu Dhabi).
So the market seems to think good for Aabar shareholders, not for Arabtec shareholders.
Arabtec press release below. No timeframe given for handover of cash, share conversion, or date of EGM that I can see. I guess it will be announced after 13 January 2009? Unless it's supposed to be held before that date?
DFM 10 January 2010:
(ARTC) Arabtec: Press release regarding the investment agreement of Aabar Investments
Arabtec disclosure 10 January 2010:
Strategic Investment between Aabar Investments & Arabtec Holding
Aabar Investments PJSC ("Aabar") and Dubai’s Arabtec Holdings PJSC (“Arabtec”) have agreed for Aabar to acquire 70% of the shares (post-conversion) in Arabtec Holdings PJSC (“Arabtec”) by way of a convertible mandatory bond for a fixed purchase price of AED 2.3 per share, accordingly, the share capital will be increased from AED 1,196,000,000 to AED 3,986,666,667 (representing conversion of the mandatory bond so that Aabar Investments PJSC will own 2,790,666,667 shares or 70% of Arabtec Holding PJSC total shares after conversion of the bond) for a total investment consideration of AED 6,418,533,333.
Formal discussions between the two parties commenced the 4th of January, 2010, culminating in an agreed position on Thursday the 7th of January. Closing of the transaction is only subject to completion of legal diligence by January 13, 2010, and Arabtec shareholder consents through an EGM and obtaining the necessary regulatory approvals. The transaction will further consolidate Arabtec’s market leading position in its industry and marks Aabar’s industry leading position as a diversified investment group.
I think the market is misinterpreting the acquisition of Aabar. At face it seems that it is diluting the value of Arabtec, but there are other factors that should be obvious such as:
1- The fact that Aabar is willing to convert at 2.30 means that they see value in this conversion price (i.e. we can reasonably expect that the bottom has been set). This means the downside for Arabtec stock isn't much, there is an imaginary safety net.
2- Investors are failing to realize that Arabtec has aligned itself with Abu Dhabi with this move, which probably means they will be more protected against defaults by Dubai and will have greater access to contracts in Abu Dhabi as so many have already referred to.
3- Not all points have to come in threes. I think the above two points are more than satisfactory and we should see Arabtec easily in the upper AED 3 bracket by the end of Q1-10.
2- Investors are failing to realize that Arabtec has aligned itself with Abu Dhabi with this move, which ...
If this is true, that means uncollected debt owe from DUBAI to ARTC might be cancelled off. Taking the fact that AUH (the BIG boss) now own 70% of ARTC, will "HE" take $$ from his left pocket and put into his right pocket? Will this affect the company health?
True, it seems like there's going to be only one real pocket in the UAE, but on paper ARTC will look good even if it might be just a vessel to funnel back the money to AUH...
Aabar, did not acquire ARTC to have a poor performer on its books and as a consequence shareholders should indirectly benefit on the mid to long term from this consolidation of ARTC's position...
Anyway still i think a solid profit making company will not sell at below market value, what is the CATCH ...
The CATCH: (imaginary conversation between two characters, one is called D, the other called AD - totally fictional and any resemblance to real events is a pure coincidence)
D: Hey AD, I need some cash
AD: What for?
D: Well I have to pay some lenders
AD: What do I get in return?
D: Your money back plus some interest at just about inflation rate or a little less
AD: Hmmm...no. How about giving me a stake in some of your companies?
D: Ok but controlling share stays with me, and you can't talk about this deal
AD: Ok ... done, deal!
D: Errrm ... did I mention I also have to pay these builders from the money you will give me, please discount that amount from the share allocation you will get in my companies.
AD: No! You can use my money to save your skin only ... don't care about helping others.
D: But these guys are related to you and me
AD: Of course we will help our relatives. We will make them an offer they can't refuse in Mario Puzo's "Godfather" style. You stay out of this
D: Ok ... you are a star
AD: That is ok, you can show your gratitude by exercising your naming rights ... that is free and doesn't cost you much, does it?
D: Roger!
(Disclaimer: feel free to delete the post SW, as it is slightly off-topic and dangerously close to violating forum rules though I think it actually doesn't)
First thank to all for valuable & interesting comments.
So Jan 13,2010 is Important ?
Reuters 09 January 2010:
Finalizing the deal depends on completing legal diligence by January 13, the approval of Arabtec's shareholders and obtaining regulatory approvals, it added.
How much important ?
Looks that ARTC & Abbar story is LOVE at sight.
Before Jan 04,2010 total ignorance.
First Look on Jan 04, 2010
Engagement on Jan 07, 2010
Wedding on Jan 13,2010
has put everything in right prespective,but i believe as long it protects all the shareholders interest,everyone should be happy.
it would have been much worse for shareholders,if arabtec had gone bankrupt and bcoms first company to use the bankruptcy law
overall,arabtec has solid reputation in market,but i was surprised that Aabar has got price to book value of 3.97 Dhs,so the share price is almost
at 40% dicount right now.
lets hope for the best and i hope aabar raises its offer price for arabtec to 3dhs
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