Egypt's Orascom Construction battles new order downturn

Orascom Construction, the top Egyptian contractor by market share, yesterday reported a 10.2 per cent loss for the second quarter of 2017 as revenues slumped amid slowing economic activity.

Net income for the three months to June 30 fell to US$23.7 million (Dh87m) from $26.4m recorded for the same period in 2016, the company said in a statement to Nasdaq Dubai, where its shares are traded. Second-quarter revenue shrunk to $947.2m, a 7.5 per cent drop from $1.02 billion reported a year-earlier.

Contracting firms in the wider Middle East and North Africa (Mena) have generally struggled to maintain profitability as slumping oil prices have forced governments to cut spending. Egypt, the home market for Orascom Construction, has been seeking to diversify its funding sources to further its fiscal reform agenda. The most populous Arab nation has also agreed a $12bn funding programme with the IMF, devalued its currency, tapped international debt market this year, resumed public sector spending and kick-started economic activity.

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Orascom signs US$100m Egyptian power plant contract

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Osama Bishai, chief executive of Orascom, said the company continues to expand its presence in Egypt and is signing additional power and infrastructure projects.

"Our significant involvement in all major segments of Egypt's construction market further strengthens our position to key areas of focus such as transportation and water treatment," he said.

The consolidated new orders, excluding Besix in which it owns a 50 per cent stake, however have declined 83 per cent to $359.9m in the second quarter compared to $2.22bn a year earlier. Its backlog as of the end of June was impacted by 20 per cent due to the devaluation of the Egyptian pound.

"We remain confident that our current backlog will continue to fully support our profitability targets," Mr Bishai said.

Infrastructure and industrial work continues to account for the majority of Orascom's consolidated backlog of projects, representing 86 per cent of total.

The firm said, its focus on "quality over size continues to translate into improved profitability" while allowing it to pursue other opportunities.

The net income for the first six months of the of this year has improved slightly to $51.7m from $49.4m in the corresponding period of 2016.

The company, which specialises in infrastructure, industrial and high-end commercial projects in the Mena region, the US, and the Pacific rim, said it is looking to bag a number of significant projects in these markets during the second half of 2017.In July, the firm signed a contract worth $100m to build a new steam turbine power plant in Egypt, which takes the total capacity of plants being built by the company to 11,000 megawatts (MW), including the two biggest combined cycle power plants in the world.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Egypt's Orascom Construction battles new order downturn

Profits fell 10.2 per cent in second quarter as revenues declined

Volvo ES90 Specs