ARTC is in a cash crunch like many other entities, small or big, in Dubai.
2.30 is a good price. Who else will offer a better price to a Dubai construction company this much money at this time?
The dilution of existing shares argument is baseless when the existance is in question.
Whatif the company has to write off atleat 20% of its receivables and another 30% to face a 6-12 months standstill?
In the short term it's not a very good investment for AABAR, in my opinion. Remember the capital of the company was under 600 million shares before a 100% bonus shares issued last year. And the issue that led the shares to hit a bottom of 0.71 has not changed much. I would rate Dubai Real Estate sector is facing one of the worst challeges in the region.
Of course there are good positive points on ARTC. The biggest advantage is the goodwill as the "Contractor of the Tallest Tower in the World". You will see big or bigger towers coming in the region and ARTC will be a part of the works in the coming years.
AABAR could get another 46% as bonus shares in the next 5 years at 10% bonus shares for the next 4 years. They could sell it atleast 3 per share as they did with oil operations before finding oppertunities elsewhere. I will expect ARTC partnering another two such towers in the region in the next 5 years, though I admit it a wild guess.
If I were a shareholder, I will vote YES in the EGM. _________________ Take your own decision; and you decide your destiny
In the short term it's not a very good investment for AABAR, in my opinion. Remember the capital of the ...
Thanks for nice explaination Thaj. Really frustrated with ARTC shares going down. Last week it failed more than 50 Fills. I am holding 10000 shares of ARTC ...don't know if I should hold the same and the value will appreciate if the deal goes through.
Do you think the deal (ARTC & Abaar) will go through?
Absolutely! What are the alternatives?
ARTC have little choice but to take the “cash handout” with open arms.
What are the alternatives for the ARTC shareholders? Sit and hope that cash materialises from thin air! The supply chain in the construction/development is in need of cash injection.
I would love to see ARTC’s cashflow projections over the next 6-12months. There are so many “work in progress” developments far from being completed, and that’s a lot of “bags of cement!”.
Being a landlord in these challenging times, is hard...being a developer in these challenging times is painful...being a contractor in these challenging times needs deep pockets.
I mentioned it in a previous post. The “cement man” can only deliver more cement to the “Contractor”, if the “Contractor” can pay for it. If he can’t, the “Contractor” doesn’t get his cement...and everything grinds to a standstill.
If the “Contractor” can pay for his cement, the building can be built, and the “Contractor” gets paid...!
I for one, certainly wouldn’t want to consider the alternative!
Its nothing more simple than a "cash-flow" problem. No cash, no building materials. No building materials, no building!
1) Why AED 6.4 Billion?
2) Why 70% stake in ARTC ?
3) Why Not 51% stake in ARTC?
Please not ARTC is a prime construction company Not a investment company.
To my knowledge there are two segments for the construction one is real estate and one is infra structure.
Real Estate sector is the GCC will only prosper when they give residency permit , Low cost of business & easy mortgage finance. ( No chance right now).
The burst of Asset bubble in 2008 will be felt for decades only years.
So the left over is infrastructure which will move on only with the high crude oil price.( mean Govt spending like Railway projects, hospitals etc)
There are too many building to host UN head Quarter.
So think beyond building sweet & cute building.
I still think this matter is Fluid.
Finally I like to request the DFM, ADX and Esca to watch the share holding pattern of both the companies before & after the announcement of this so called DEAL.
In my previous post, replace "building", with "all construction projects, residential, infrastructure works, domestic and outside UAE", and replace "Cement Man", with "all suppliers, service contracts, sub-contractors, professionals, head office overheads, staff wages, even the tea and coffee"...!
Being the Contractor at a time like this, can sometimes feel like the "thankless task". He's the man in the middle. He isn’t the end-user, and he isn’t the one providing the product/service. But for sure, he is the one that everyone has their eyes on their ability to pay!
...and when there is a Cash flow problem, he is the one who is going to suffer the most.
As far as your question regarding Why AED 6.4 Billion? Why 70% stake in ARTC? Why Not 51% stake in ARTC?
This is what both parties obviously think is the value of the deal.
Lets say ARTC has a debt of AED5.0 billion and couldn’t pay a fils, what would be the alternative? Someone comes along as says, "I'll take away all your debt problems, now, and in the future but i want 99% stake in your company!"...what would you do?...let it fold?...Don’t think so.
Sure, AED6.4 Billion for "5% stake" would be a deal for ARTC, but at the moment (as will all know) Cash is King...!
The bit that is a shame is the way that ARTC shares ramped up before the proposed deal was announced only to see it fall just as quick.
Guess this is the benefit of knowledge.
Cash is King...and knowledge is the edge.
Lets hope that this is the end, and not the start of something more deeper.
Dhs 2.3 is Not a distress sales ... Not too low for that size of investment at the current market conditions. Aabar is a smart investor looking for very attractive returns (not the typical -8-10% IRR)
Also, Dhs 6.4B is too much of a bail out.
Riad Kamal said the total delayed payments is only Dhs 2B.. Considering that ARTC kept the whole Dhs 900m profit of 2008 and kept also the Dhs 650m profit of 2009...I would imagine that can be short of Dhs 500-1000m
Conclusion
1) ARTC seems to need the cash for some big expansion or project...Not only for bail out
2) This seems to be cooking for a long time. You may recall some of my posts when I was saying that Aabar got $1.6B loan, so they are planing some investment or acquisition
Watch out the share price before the EGM. 2.96 price at the moment is a speculative peak for the stock under the circumstances. Even EMAAR did a lesser rebound from 2.32 to 4.26, 83.6% while ARTC did 90% from 1.56 to 2.96. EMAAR had two hypes to reach 4.26, merger cancellation and Burj Khalifa.
With that I will assume ARTC prices may fall below 2.30 and rebound above 2.30 around or after EGM.
In Dubai, cash is the best asset at the moment. If you get 6.4 billion cash 'free' while your capital is less than a fifth of it the one who injects the cash is more at risk.
Considering AABAR could have taken a controlling stake with much lesser cash injection, I will call it a bail out rather than a take over, if not a combination the two. So the term "Win-Win" is more appropriate. _________________ Take your own decision; and you decide your destiny
75/25 %
That means the major share holders of ARTC will sell all their shares to ensure that the deal might go throuh, saying that how many shares in return Abaar will give them back after the deal is made.
Management (shares) will not be affected as they will get it back + some profit at the small share holders expence, NICE DEAL . Big guys are happy and small ones suffer. Sure in the long run its for the benefit of all but now its only for the benefit of ARTC management share holders and if small guys like us can sustain until the price goes back up again then good.But B4 that happens the price will in my openion go below 2.00 so Abaar can dominate and slowly erase ARTC and offer shares in Abaar for those left.
Just 3 months ago i was buying furniture for my office when other guys were also doing and after small chit chat they were buying furniture for a new company that ARTC just opened. Very confusing whats happening .
A tip for DFM’s Arabtec sleuths: follow the volume
Share-trading analysis is a complex thing. The London Stock Exchange used to publish a monthly record of share dealings called the Official Gazette (though I’m sure it’s all available online now) over which I spent many hours of tedious labour trying to identify suspect share deals in quoted companies.
The OG was like a huge telephone directory, but without the names. Just column after column of numbers, giving dates, times, amounts and prices but no clue as to the identity of traders. In order to protect market confidentiality, trader IDs were all coded, and only the LSE had the code. This financial Enigma machine would have enabled me to crack some of the biggest insider-dealing stories of the 1980s and 1990s, but I never managed to obtain it.
But all the hours spent sifting OG statistics taught me one valuable thing: follow the volume.
An obvious sign of a suspicious share transaction is a sharp rise in price ahead of the deal, but if there is also a large number of shares traded, it is a more accurate indicator of something dodgy. Insider dealing, by its nature, is a conspiratorial affair, involving groups of people rather than individuals. Their combined deals will usually show up as a spike in the volume figures.
Dubai Financial Market (DFM) analysts currently “reviewing” dealings in Arabtec in the run-up to its US$1.7 billion (Dh6.24bn) takeover by Aabar should remember this as they pore over the spreadsheets.
While most of the commentary has centred on the 33 per cent jump in Arabtec (ARTC) shares in the two weeks before the deal was announced on January 7, volume analysis shows a much more interesting situation a little earlier. On December 10, some 178 million Arabtec shares were traded as the share price began the steep rise that culminated in the Aabar (AABAR) deal.
Even for a well-traded stock like Arabtec, this is a huge number, more than three times the average daily volume for the year. A couple of days later, the Dubai property and construction sector received a boost when the merger between Emaar (EMAAR) and Dubai Holding (DH) was shelved, but the significant jump in Arabtec price and volume happened before that.
Other volume spikes occurred later on. On December 29, some 119 million shares were traded. On January 10, the figure reached 124 million, although given the slump the stock has suffered since the Aabar deal was announced, most of those must have been sellers.
So the significant date remains December 10. My advice to the DFM’s number crunchers is to find out who were the shrewd market operators who bought Arabtec that day.
ARTC has always been a very fluctuating, if not manipulating, stock historically. But if the deal is done it might be a history.
It fell from 19.90 to 0.71 in few months then from there it rose over 500% in few months.
Due to the small capital base, all was possible.
It woun't be difficult to find out who is behind all the violent fluctuations. These are out of the radar of DFM Market Control for technical/specific reasons.
Let's say it's part of a budding stock market. Market control is the root of the market which should spread over and deep to help the market to branch out and grow. If the the root is in a small container, it will grow "Bonsai".
My strategy in this market is forget about everything and 'follow the volume' in critical junctures. _________________ Take your own decision; and you decide your destiny
Trade creditors and contractors will be offered 40 per cent of their outstanding payments in cash and the remaining 60 per cent in tradable debt securities paying commercial rates.
This is positive news for contractors as depressed valuations suggested that the market was pricing in almost no recovery for receivables from Nakheel and other government-related entities.
The ARTC & Abbar deal was just an illusion the day it was announce but many friend of this forum ...
After Abu Dhabi pumped more cash in Dubai, that made it easy for developers to pay contractors, so now the contractors cash position should be better and thus no need for immediate cash generation which ARTC was trying to do by the joint venture with Abaar.
We should see also other developers & contractors stock go up in the next few days.
sorry guys but i couldnt help to say the news came and stock tanked and now this news came just after CFO of Artc called the people who opposed this deal as "narrow minded".
One can only imagine some big entity has made around 50% easily by selling first at peak before announcement of deal and then buying at lows again and then again selling today after the news of cancelled deal.
I wonder if these kind of so called deals can help any investor sentiment and add any transparency.
you are right,this has become now new pattern to make money.
first they announced the merger of Emaar/dubai propperties,market tanks
then they decide its not worth it when the market has hit its lowest point.
In next few days,someone has made cool 100%.
now again same with aabar/arabtec.
But why aabar share are not going up?they saved themselves from fundin a bankrupt business or which wont have given any decent profit for atleast next 3-4 years.
aerojack - The reason why ARTC have gone up, at least in part, is due the fact that there is no longer a threat of sever dilution of their shares. While for AABAR dilution of that magnitude was never really an issue and while it is debatable whether or not their investment in ARTC would have yielded a solid return or not losing out on an investment doesn't really give a stock impetus to move in either direction if the stock price had not already priced in the deal which in my opinion given the stagnant nature of AABAR throughout this whole deal (contrasting ARTC roller coaster) does not appear to me to be the case.
Epilogue
I think movement of AABAR will largely depend on what the company decides to do next, particularly with regard to their convertible loan to IPIC which should strengthen their balance sheet and poise them ready for further acquisitions... lets just hope that they are more of the DAIMLER nature and less of the Virigin Galactic...
With regard to ARTC there seems to be a split amongst the analysis as to what to expect in the future. Some (like AL MAL) are bullish on its prospects while others like (HSBC) appear to be more neutral/negative. There is still a cash flow problem there which will linger until the DW world problem has been fully resolved (promised money is not the same as money in the bank). I think they will struggle to remain competitive in the short run but they have been known to surprise.
Disclosure - I currently own AABAR Shares and have no ARTC
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