Dubai's biggest contractor Arabtec Holding plans to pump half the cash from a planned Dh4.7 billion (US$1.28bn) rights issue into building its oil and gas contracting business.
The company yesterday said that shareholders and the Securities and Commodities Authority regulator had approved plans announced at the end of last month to raise an initial Dh2.38bn by the end of June. And it plans to spend a large chunk of that cash on forming a new joint venture specialising in the sector.
The contractor behind the Burj Khalifa said it had come up with a detailed growth strategy for the coming five years focused on expanding the company into "new high margin sectors and markets with significant growth opportunities" because it was facing intensifying competition in its traditional construction markets.
The Abu Dhabi investment fund Aabar, which owns a 21 per cent stake in Arabtec, is in turn owned by International Petroleum Investment Company, a major oil and gas investor.
The move follows in the footsteps of its rival contractor Drake & Scull International, which has also recently attempted to focus more of its business on the lucrative oil and gas construction sector rather than traditional property construction.
Arabtec added that a second phase of the rights issue to raise an extra Dh2.4bn would take place if necessary next year. A Dh1.6bn non-convertible bond issue would take place if needed at the end of this year or next.
Arabtec plans to spend half of the proceeds of the rights issue - a sum that could reach as much as Dh2.35bn - on its oil and gas infrastructure building business. It said that it was already in advanced discussions to form a joint venture with a leading engineering, procurement and construction firm specialising in the sector.
A further 25 per cent of the money raised would go on Arabtec's affordable housing division, which is building 1,500 homes in Dubai and 5,000 villas in Saudi Arabia using new cheaper technology.
The rest of the money will be spent on strengthening existing business and systems restructuring.
"The capital raisings are essential in helping us to achieve our strategy," said Hasan Abdullah Ismaik, managing director and chief executive.
Analysts broadly welcomed the news. "Arabtec needs to significantly grow its top-line in order to grow its bottom line and we think this is a positive sign," said Tariq Qaqish, the deputy head of asset management at Al Mal Capital. "The focus on improving margins is especially welcome and the market will appreciate the company coming out with its full strategy."
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