Dubai: Analysts continued to echo a cautious sentiment on Arabtec Holding even after the construction company cleared the last hurdle it needed before launching a recapitalisation plan that aims to turn around years of loss-making.
On Tuesday, shareholders of Arabtec approved a plan for the company to launch a Dh1.5 billion rights issue and then reduce its capital. The approval came at the company’s annual general meeting, during which Arabtec said it will pursue legal actions against former senior executives for mishandling finances.
Arabtec also told shareholders it will announce profits for the first quarter of 2017, after reporting Dh3.4 billion in losses in 2016. The message Arabtec conveyed at its meeting sent share prices jumping 10.8 per cent on Wednesday, with shares accounting for nearly 30 per cent of the total value traded on Dubai’s bourse.
The rally proved to be short-lived, however, with share prices falling 4.4 per cent on Thursday to reach Dh0.89, still below the Dh1 price at which the rights issue will be set.
“I think share prices could reach Dh1.03 next week or sometime on the short term, but that’s not because of a change in fundamentals. I expect share prices to fall afterwards where they have a target of Dh0.81, and then Dh0.69,” said technical analyst Osama Al Ashry.
He added: “I think Arabtec’s shares are highly risky, and I wouldn’t recommend buying them. I’d actually recommend selling them because I believe prices will drop again.”
Al Ashry pointed that Arabtec’s capital reduction plan, which would cancel 4.6 billion shares off the market, would impact share prices.
The capital reduction would extinguish the company’s accumulated losses of Dh4.6 billion. It would follow the rights issue, which has been fully committed by Aabar Investments, Arabtec’s largest shareholder.
The two steps are part of a plan by Arabtec to return to profitability, and will see the company dispose of non-core investments to focus on core competencies and key geographies.
Mohammad Yasin, managing director at National Bank of Abu Dhabi Securities, said investors should wait till Arabtec is done with the second step of its recapitalisation plan (the capital reduction), and only invest when they can assess a fresh balance sheet.
“The right approach, in my mind, is to wait post capitalisation of the company and [to wait] for the share price to reflect the fundamental performance of the new company that has a capital of Dh1.5 billion, provided we’re seeing a clean balance sheet. To buy the share below Dh1, and subscribe, and take a loss of 75 per cent doesn’t make sense for a new investor,” he said.
Yasin added: “Maybe a current investor already holding Arabtec shares may want to be part of that (the rights issue), but I think any experienced investor would probably be waiting post recapitalisation to assess the company’s expected performance.”
During its general assembly meeting, Arabtec also approved a resolution authorising the board to use the company’s statutory reserve to offset against losses in 2017.
