Aabar Arabtec takeover

[GPIC]

[Cash King]

Dear Friends,

The National 10 January 2010:

Arabtec faces share inquiry The Dubai Financial Market (DFM) is reviewing what it considers abnormal share price movements in Arabtec Holding (ARTC) before Aabar Investments (AABAR) said last week it would acquire 70 per cent of the company. Rumours of the deal helped to send Arabtec’s stock more than 30 per cent higher in the two weeks before the planned acquisition was announced. But shares in the UAE’s largest construction company fell 6.9 per cent yesterday amid investor concerns that the company could be hurt by future losses on contracts as a result of the slowdown in the region’s building industry. Aabar announced on Friday that it would buy the Dh6.4 billion (US$1.74bn) stake using a convertible bond at Dh2.3 per share. That is a 20.4 per cent discount to Arabtec’s closing price on Thursday. The deal still needs the backing of 75 per cent of Arabtec’s shareholders and approval from government regulators before going through. As rumours of the acquisition spread near the end of last month, Arabtec said it was “unaware” of the reasons behind its rising stock price. Aabar issued a statement on January 3 denying the investment. That prompted the Dubai bourse to look into the share dealings. “It’s a normal review of trade and activity in stocks over the last 15 days to see if there are any irregular movements as per the rules of DFM,” said a spokesman at the exchange. Riad Kamal, the chief executive of Arabtec, said “the DFM has to do what it has to do”. “If they uncover anything wrong, then that’s perfect for everybody,” he added. Majed Azzam, a property analyst at Al Futtaim HC Securities, said the deal would dilute the value of Arabtec shareholders’ stake. “It is a positive deal in that Abu Dhabi is pumping money into a Dubai company, making sure they stay solvent, while the negative is the dilution to shareholders. But the question now is will Aabar bring enough big projects to the table to compensate for the dilution?” “The fact that the offer entails a discount … could be seen as an indicator of a larger than previously anticipated hit on Arabtec’s Dubai receivables,” said Shuaa Capital (SHUAA) analysts, who estimated that the Dh2.3 price implied additional impairments for Arabtec of Dh1.7bn. Arabtec, which has expanded into new markets including Russia, Qatar and Saudi Arabia, has said it would turn its main focus to other locations including Abu Dhabi, where it won contracts last year. “The size of the funds that Arabtec would receive would be useful to tide through any liquidity concerns that may worsen, which have already affected Arabtec in 2009,” said the investment bank EFG-Hermes. Arabtec will become part of a growing property division within Aabar, which bought two plots in Al Raha district near the Abu Dhabi International Airport in November 2008 for Dh500 million. The company plans to develop up to four residential towers there. It also acquired 12 towers to be developed on 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, a government energy investment fund, assumed majority ownership of Aabar in March last year. Aabar also has a major stake in the championship winning Brawn GP Formula One team. The company’s stock gained 4.6 per cent yesterday.

I love & like the DFM activeness.

Cheers

[Krazy Guy]

Totally correct CK.
Hurray, some one just woke up.
But I doubt anything will happen, it is just lip service.
Somethings will never change.

[fimah]

Fall of ARTC shares. Will the fall continue?

May be the year 2009 shall end with 60 fils or more earnings per share. Will they distribute it to the old shareholders? then it could make some sense to old shareholders. But they don't have cash as per reports...
It was ideal if they thought some compensation to old shareholders.

With the same profitability of say AED 800M per year Vs. the new capital, the earnings will become 1/3, ie., only 20 fils Vs. 60 fils earlier.

In other words the PE ratio become three times costly whereas book value remained the same. It does not make logic, if the new capital cannot bring similar size of 60 fils per share earnings. In other words, the new capital should bring the profitability of AED 2.4 billion Vs. the current profitability of say AED 800M (only rough numbers estimated here).

Therefore, deal seems to be strong dilution to old shareholders for short term in terms of reduced dividend yield / reduced earnings.

I am not sure, but dilution in earnings as above tell me to exit... Please correct me, If I am not thinking correctly...fimah

[bandakok]

If ARTC get more money to put up more shares in the market as i understand = split shares , otherwise the just keep throwing unlimited shares for anyone with money. Somethingys are still not clear about Abaar offer and the whole deal, ARTC does not own 70% of its shares thus any more shares thrown in the market have to be equaly distributed to current share holders or ARTC has to convince me and all other investors to sell at a loss for their benefit ( i dont know how they will do that )
If i am asked to sell my shares i would ask more money not less.
There is 2 ARTC, 1 construction 2, holding. which one is Abaar buying into ? i always avoided reading the small print on my insurance policy and i think there is too many small prints here. in my openion ARTC shares have to go up or this deal might not go through.ARTC is a profit making company and has nothing to do with Dw or other goverment entity so they are not D asstes and they cant swap or sell it as mentioned in one of the posts

[fayesloan]

Artc smalltime long term shareholders who are reluctant sellers should either buy more shares or wait for Aabar to spin it off several years into the future when it can find the private buyers for the contractor in better days. There is too much dilution now and i wonder if small shareholders have the capital to keep up. Regarding analysis, info is murky and hard to come by which strongly suggests even big stakeholders do not have a good idea of what they are doing. Nothing new there. See Tamlak fiasco. So I will go by my gut feeling, not "block theory", and say much better to sell Artc shares on any multiweek rallies. Yes this post is about the merger, SW, my other about Aabar shares after merger information. But nice try anyway!

[Novice_investor]

[fimah]

Yes Novice,
what you said make sense if they convert the shares after say 2 or 3 years. But look, even the bond interest will be eating their profits, that will leave less to shareholders. Short term - again could be negative?.

But, borrowing is better than capital. Your bond calculations at 5%p.a. is fair terms. For sure, they are going to collect their receivables in medium term, and will bring cash back to them. They could do a buy back of shares then?

The story is very clear, ARTC needs money to survive to meet commitments, that is a negative. It seems that they cannot think of aborting the deal. If its financial position is not good, it will reflect in its share price gradually for short term. ...fimah

[OnlineTrader]

[spin]

[sam111sam]

[Novice_investor]

[bandakok]

80% this deal will not go through at this price unless ARTC has won some big projects and need cash injection to put up garantee bonds. but 6.4B is big for any project if there is still any of those here.
Something in that whole deal is smelling but what is it.
i am holding my ARTC and buying more.

[Cash King]

Hi bandakok ,

I 100% agree with u and 110% sure this is not going to happen. It is a part of Game.

Some smart investor either from ARTC or Aabar wants to take advantage before some really Excited news.

This is only my opinion may be other differ with it.

Lets wait n watch carefully.

Cheers

[spin]

... that this is not a good deal for Arabtec shareholders from an equity point of view. Before we jump the gun and ask Artc to demand more, let us look at it from Aabar's point of view. Here is a crude attempt at doing that.

Aabar pumps in AED6.4 billion for 70% stake. Let us take one approach following from my previous post, i.e. assume Artc sustains a net profit of AED1.2 billion going forward from year 2010 onwards. Aabar's share of this is 70% or AED840 million; i.e. 13% return on AED6.4 billion with a 7 year payout period, not bad. Aabar's has 3.128 billion outstanding shares. So contribution from Artc profits translates to 27 fils EPS to Aabar. Now Aabar has AED990 million liquid cash and AED28 billion in investments they can liquidate. Assuming they wouldn't want to borrow or touch the AED8.9 billion reserves they carry (all numbers as per Q3 statements) then they will have to liquidate some investments to come up with the money. Also note that Aabar has AED8.1 billion loans to service and pay up, half of which are short term.

So, if I were an Aabar shareholder right now I would also be somewhat nervous, asking myself questions like:
"What will happen to my book value if Aabar touches the reserves and given it is an investment company book value matters?"
"If we borrow more, how much of future profits and at what point in the future will I see?"
"If we sell some of our investments, then which one will go? Daimler? To buy Artc? Where is the logic?"
"Can we sell something else? like what? I thought Virgin Galactic, Falcon, Tesla and Atlantia were all strategic investments, no?"

Ok then it looks to me they will probably access the reserves, which will dilute the book value for the Aabar investor. Aah but then surely the 70% of Artc will be captured under investments? Right. But didn't we say Artc is in a tight corner and needs this money initially to survive, why else accept such a poor deal? Right. So Aabar can carry its stake under investments in its books, but when will I, the hypothetical Aabar investor, see a return on my investment? One year? How clear is that?

So I am not sure Aabar can offer much more than what it already has.

[Novice_investor]

[spin]

[Novice_investor]

[spin]

[Novice_investor]

thanks spin... its clear now

i guess to begin with aabar investor can atleast count on the 70% stake in the profits... at aed 560 mn its a return of around 8.75%... not bad to start with...

rgds

[sam111sam]

[spin]

[Cash King]

Hi SW,

Is it possible that a survey or Poll can be conducted by SW on this issue. Do all the forum members agree that this arrangement will go through or not.

It is just a suggestion . I guess i have not done wrong against forum guide line.

In my opinion this will not go through.

We all have learn a lot form Emaar & Dubai Holding Fantacy Story.

Thanks & Kind Regards

[sharewadi]

[OnlineTrader]

Gyus,
Besides all this P/E anad other financial ratios calculations, who is still buying ARTC?
Just within last 6 months we had two crisis, DP world merger and DW debt.
And market crashed after those two with some limit downs, but now although ARTC price declined from it's tripple top at 2.96 to 2.6 today (only 10% down) while it has started it's move from 2.33.

So considering price movement and big orders executed don't you think a consolidation taking place?
only close to 190 m shares traded withing two days with no limit down!