Arabtec led yesterday's movements on the Dubai Financial Market as investor sentiment remained cautious prior to the announcement of the 2009 results.
The general index lost 22.81 points, or 1.24 per cent, and closed at 1,814.33 points. Arabtec, the most active stock from the start of the session, accounted for 51 per cent of trade values and was also the biggest loser as it declined 6.92 per cent to Dh2.69.
The stock faced selling pressure from a range of investors, in particular those from abroad, as the market responded negatively to Aabar Investments' plan to acquire a 70 per cent stake in the company through convertible bonds.
Investors regarded the deal as very dilutive for existing shareholders. If the agreement proceeds as announced the stake in Arabtec held by foreign investors will drop sharply from more than 30 per cent to below 10 per cent.
Credit Suisse said in a research report that the proposed deal would be very dilutive while the acquisition prices of Dh2.3 per share represented a 20 per cent discount on the January 7 price and a 31 per cent discount on Arabtec's targeted price of Dh3.33 per share. It also noted that 75 per cent of Arabtec's shareholders would have to approve the deal at an extraordinary general meeting before it could go ahead. Almost 50 million Arabtec shares changed hands on the DFM during the first 30 minutes of the session compared with around four million shares in bellwether Emaar. Arabtec retreated from the first deal and went down sharply to Dh2.72 before reducing its losses as it tried to rebound.
Two conflicting forces were affecting the stock. Majority of investors reacted negatively to the plan because Aabar would be buying Arabtec shares at a considerable discount.
However, some investors were bullish as the deal would give Arabtec access to large infrastructure and construction projects in Abu Dhabi. They also expected it would provide Arabtec with liquidity of $1.74 billion (Dh6.38bn), which would enable the company to proceed with its expansion plans in other GCC countries, in particular Saudi Arabia and Qatar. However, the positive investors failed to push up Arabtec's price.
"The proposed agreement between Arabtec and Aabar was very controversial on the market yesterday," said Fadi Al Said, Head of Mena Equities at ING Investment. "There were clear denials of such a deal last month, and then Aabar and Arabtec announced the deal with surprising details, especially the plan to issue shares to Aabar at a considerable discount to market prices. Minority shareholders would clearly be diluted by the agreement, though it looks positive in the long term."
Ehab Rashad, Trading Manager Direct Broker for Financial Services, said: "The market's reaction was very negative to such positive news. Investors were selling the stock even though the proposed deal would give the company a positive outlook in the long term, especially in terms of access to new projects."
The DFM saw cautious movements by other stocks and the turnover remained low with 310 million shares worth Dh672.9m changing hands, with deep concentration on Arabtec. The market opened on a positive note and advanced slightly after heavyweight stocks surged.
Emaar tried to maintain its previous close of Dh4.05 at the beginning of the session but retreated quickly and dragged the index down. The stock fluctuated in negative territory throughout the session. The market witnessed a strong downwards movement during the last 30 minutes of trading with all active stocks facing strong selling pressure as they all hit new intraday lows. Emaar fell 2.47 per cent to Dh3.95, while DFM stock retreated slightly to close at Dh1.87.
Al Said said: "There were cautious movements on the market. Investors are waiting for the Q4 and full-year results, which will be the main movers in the market during the coming weeks. They need these results to get indicators for the trend throughout 2010.
"However, the market is consolidating at the current level and is facing resistance near 1,850 points in the short term. Results and earnings for 2009 will determine the DFM's ability to break through this level."
Rashad said the index was currently stable as a result of cautious movements by investors who bought recently and were holding on to their shares in anticipation of possible surprises in earnings, which might lead to rallies in some stocks.
"Investors who are out of the market are also waiting for the results, which may hit some stocks and mean they can buy at lower prices. This situation is resulting in calm trading in general."
A day of rumours
New rumours started to spread in the market yesterday, with Drake & Scull International (DSI) the target this time.
The rumours suggested that Arabtec would use some of the new cash it may obtain from Aabar to acquire a stake in DSI. There were significant transactions in the stock compared with other active stocks during the session as buying interest increased. It ended up by 1.1 per cent at Dh0.91 after fluctuating during the session.
Analysts say these new rumours are very unlikely to prove well-founded as DSI has its own agenda for expansion and acquisitions.
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