Arabtec Holding Co.’s ambition to become one of the world’s largest construction companies is in doubt after managers behind the plans were said to have quit or been dismissed.
The resignation of Chief Executive Officer Hasan Ismaik last week was followed by the termination and resignation of hundreds of employees, according to people with knowledge of the situation. They include Chief Operating Officer Mark Andrews, Chief Information Officer Gordon Jack and Chief Risk Officer David Doyle, said the people, who asked not to be named because they’re not authorized to discuss the matter. Arabtec denied it let go of hundreds of staff, adding that it dismissed a “limited” number of people, according to a statement to Dubai’s bourse today.
“It seems the company’s aspirations to be one of the top 10 construction firms in the world by 2018 has now been discarded as part of the strategy,” Sanyalaksna Manibhandu, an analyst at NBAD Securities in Abu Dhabi, said by phone. “Arabtec will probably go back to what it was before Mr. Ismaik, a regional construction company.”
Under Ismaik’s 15-month leadership, Arabtec announced plans to expand into areas including oil and gas, infrastructure and power. The biggest publicly traded builder in the United Arab Emirates formed a joint venture with Samsung Engineering Co. to provide engineering, procurement and construction services to “large-scale multi-billion” projects in the Middle East and Africa.
The company’s shares tumbled 9.8 percent to 3.12 dirhams, the lowest close since Jan 30. The builder, which has the fifth-biggest weighting on Dubai’s main index, has plunged 52 percent this month. The DFM General Index fell 6.7 percent today, the most since August amid speculation Arabtec’s retreat prompted leveraged traders to liquidate positions.
Nabil Al Kindi, COO for the Gulf region and Shohidul Ahad-Choudhury, head of mergers and acquisitions, also left, Arabtec, the people said. Arabtec and its acting CEO, Mohamed Al Fahim, hasn’t said whether the contractor will carry out some or all of Ismaik’s plans. The company dismissed staff to cut costs and improve productivity, according to its statement. The measures taken were aimed at preserving the rights of shareholders, it said.
Ahad-Choudhury, who worked at Deutsche Bank AG for 12 years, was central to Arabtec’s growth plans. Ismaik was appointed CEO in February 2013 and hired Ahad-Choudhury and COO Andrews a month later.
“The shakeup suggests there are too many things that are being reconsidered internally,” said Taher Safieddine, an equity analyst at Shuaa Capital PSC. “Investors should be made aware of the new management’s action plan and strategy.” Shuaa and NBAD both suspended their coverage of Arabtec.
Ismaik’s tenure at the helm began to unravel after the stock exchange said on June 5 that he had become Arabtec’s largest shareholder, with 28.8 percent. Abu Dhabi’s state-owned Aabar Investments PJSC on June 11 confirmed that it reduced its stake to 18.85 percent from 21.57 percent. The stock fell 30 percent in the intervening four trading days.
Ismaik has received three offers for his stake in the company, he said in a telephone interview yesterday. The ex-CEO, who no longer holds any job at Arabtec, said the offers include government entities and private investors without being more specific. Arabtec has a market value of about 15.2 billion dirhams ($4.1 billion).
Arabtec more than quadrupled from the time of Ismaik’s appointment until the stock peaked at 7.40 dirhams on March 14. During that time, he announced plans including raising 6.4 billion dirhams through a rights issue and a convertible bond and building about 1 million homes in Egypt. Net income climbed to 378 million dirhams in 2013 from 139 million dirhams a year earlier, the company reported in March.
“I don’t know if the terminations are happening to the detriment of the company and its ability to execute its backlog, but it’s happening too quickly and it concerns me,” Manibhandu said.