Aabar wants 70 per cent of Dubai's Arabtec

Aabar's board "has resolved to make an offer to Arabtec to acquire 70 per cent of the share capital of Arabtec by way of a mandatory convertible bond to be issued by Arabtec Holding to Aabar Investments at a conversion price of Dh2.3 ($0.626) per share", Aabar said in a statement on its website.

The proposed price is a 20.4 per cent discount to Arabtec's closing price of Dh2.89 on Thursday, when the construction company and Aabar Investments surged 6.3 per cent and 5.2 per cent respectively ahead of board meetings, adding to earlier gains.

Credit Suisse, which has a target price of Dh3.33 for shares of Arabtec, said in a note that Aabar would give a welcome cash injection to Arabtec through the deal, and could help provide new contracts for it in Abu Dhabi.

Aabar, the non-energy investment arm of Abu Dhabi sovereign wealth fund IPIC, is German carmaker Daimler's largest shareholder.

"Arabtec gets a cash injection of Dh6.4 billion ($1.74 billion) which hedges the company against any shortfall in working capital resulting from potential default on payments from clients," analyst Ahmed Badr said in the note.

"This would also allow the company to easily secure bonding from banks for new projects."    

Through its ties to the Abu Dhabi government, "we believe (Aabar) can potentially give Arabtec access to a considerable pipeline of projects in Abu Dhabi, thus securing backlog growth", Badr said.

There had been market rumours since late December regarding a possible investment by Aabar in Arabtec but both firms had denied there had been any deal.  Arabtec -- which has ventured into new markets such as Russia, Qatar and Saudi Arabia as the global downturn hit business at home in Dubai -- has said it will turn its main focus to other locations including Abu Dhabi where it won contracts last year.

The real estate and construction focus in the United Arab Emirates has been shifting to Abu Dhabi from Dubai. The crisis is expected to delay the recovery for the UAE's real estate sector.

 In mid-December Abu Dhabi lent Dubai $10 billion to meet debt obligations by state-linked developer Nakheel.