Arabtec shares plunged 8.9 per cent to Dh1.84 yesterday after HSBC slashed its fair value for the construction firm's stock and downgraded its recommendation from 'overweight' to 'neutral'.
HSBC's move is another blow to Arabtec, which is still reeling the cancellation of a $1.3 billion (Dh4.7bn) deal to build Dubai's Meydan racecourse.
Arabtec's backlog hit Dh49bn in late October, but HSBC is just one of many analysts to foresee more project cancellations as the credit crunch bites.
"Dubai appears to be prioritising expenditure even, to our surprise, on close-to-completed projects. We shave $8.6 billion (Dh32bn) off Arabtec's backlog to pre-empt further developer cost-cutting news," HSBC wrote in a confidential client note, Dow Jones reports.
HSBC has reduced its fair value for Arabtec from Dh7.50 to Dh2.40.
On Sunday, EFG-Hermes removed Arabtec from its Mena Focus List. This comprises EFG's top investment picks from across the Middle East and North Africa region. "The recent cancellation of Arabtec's [Meydan] project is likely to weigh negatively on investor sentiment," an EFG note states.
"We believe the cancellation, which amounts to five per cent of backlog, reflects difficulties related to the client." However, EFG expects Arabtec's forthcoming full year results to be 'robust'.
"Nevertheless, under the current negative environment, we expect the cancellation of a government-related contract to result in a short-term negative reaction," EFG adds. "We remain long-term buyers and will look to revisit the shares at a later date."
Arabtec has been among the most volatile stocks on the Dubai Financial Market over the past year. It doubled in value in the first seven months of 2008, peaking at Dh19.90 in late July as foreign funds eagerly invested amid a wave of new project announcements.
But overseas investors then started selling UAE stocks in huge numbers to cover losses in their home markets as the Western financial crisis saw equity markets crash around the globe. With this support removed, local investors sold up to reduce their own exposure to all UAE sectors, which sent local shares tumbling.
This saw Arabtec hit a two-year low of Dh1.95 in mid-November as Dubai's construction and real estate boom came to a savage halt. For much of 2008, foreign ownership in Arabtec was at the maximum 49 per cent, but yesterday it stood at just 29 per cent, having fallen from 32 per cent just a week earlier. Arabtec shares rallied late last year after the firm announced a one-for-one bonus share issue.