Arabtec Plans $408 Million Rights Offer as 2016 Loss Widens

  • Share drop is biggest contributor to decline in Dubai’s index
  • Co. says ‘adverse market conditions’ are reflected in results

Arabtec Holding PJSC plans to raise 1.5 billion dirhams ($408 million) from a rights issue after the United Arab Emirates’ biggest listed construction company posted its second yearly loss. The shares slumped, being the biggest contributor to drop of Dubai’s main index.

The loss for the year widened to 3.41 billion dirhams from 2.35 billion dirhams a year earlier, the company said in a statement to the Dubai bourse on Monday. The mean estimate of eight analysts was for a loss of 580 million dirhams, according to data compiled by Bloomberg. Revenue climbed 5.5 percent to 7.7 billion dirhams.

Arabtec cited “impairment charges on high-risk items, recurring, non-recurring and operational expenses” for the loss and said the results reflect “adverse market conditions, which are having a negative impact on the construction industry” across the six-nation Gulf Cooperation Council.

Prices for oil, the main source of revenue in the Gulf Arab region, dropped about 50 percent since June 2014, forcing governments to cut spending. Economic growth in the U.A.E., the second-biggest Arab economy, probably slowed to 2.3 percent in 2016, the lowest in six years, according to the median estimate of 10 economists compiled by Bloomberg.

Arabtec will also reduce share capital through a pro-rata cancellation of shares to wipe out accumulated losses to help the raising of new equity, according to the statement. The company’s largest shareholder, Aabar Investments, has committed to fully subscribe to its portion of the rights issue and any unsubscribed shares up to 1.5 billion dirhams.

The company’s stock fell 9.9 percent to 1.19 dirhams as of 1:28 p.m. local time, set for the worst performance in a single session since November 2015. Arabtec was the biggest contributor to losses for Dubai’s DFM General Index, which fell 2.1 percent on Monday -- the worst performance among 96 gauges tracked by Bloomberg. The slump was a combination of the loss itself plus the rights offer, said Sanyalak Manibhandu, head of research at Abu Dhabi’s NBAD Securities.

“The depth of the loss is a negative surprise,” Manibhandu said. “But given the equity turns negative because of the size of the loss, a capital reduction and a capital increase is inevitable. Moreover, 1.5 billion dirhams is not going to be enough. So there is need to raise additional capital increase following the 1.5 billion.”

Money raised from the rights issue will be used to “fund the completion of ongoing projects, support management’s business plan and provide financial flexibility to pursue growth opportunities.” Arabtec said it had an order backlog of 18.1 billion dirhams.

— With assistance by Filipe Pacheco

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