Few companies encapsulate the meteoric rise of the UAE better than Arabtec. It has climbed the ranks of construction contractors over the past three decades to become the sector leader, and is currently building Burj Dubai, the world’s tallest tower.
Riad Kamal, Arabtec’s CEO and its largest individual shareholder, has steered his company ably over the years. Arabtec’s profit more than doubled to Dh494 million in 2007, compared to Dh217m in 2006, and its shares have shot up threefold since March 2007, closing above Dh12.15 yesterday.
The stock is very popular among international investors, and is currently trading close to the 49 per cent foreign ownership limit.
Local and international brokerages are seemingly unanimous in support of the contractor’s future.
In the UAE, Arabtec’s impressive string of wins last year increased its backlog of orders to Dh9 billion, according to Morgan Stanley. Most of the construction contracts are for Dubai-based projects, but Kamal has been expanding across the region.
This year, Arabtec won a Dh277m contract to construct two buildings in the Abdali Development Project in Amman, Jordan, and the company also secured a Dh152m deal to build Emaar’s Eight Gate Development in Damascus, Syria.
There are plans for the firm to expand activities into India in the near future too. In the GCC, Arabtec continues to bid for more work and acquire portfolio companies. In January, it bought a 55 per cent stake in Gulf Steel Industries a Sharjah company specialised in the design, fabrication and erection of structural steel works.
With the rise in construction material costs, the acquisition will provide Arabtec with high-quality structural steel materials to the tune of 24,000 metric tonnes per year.
With a rising stock and promising growth potential, Kamal should be pleased with the performance of his company.
He has profited handsomely through Arabtec over the years, and is an investor in a number of ancillary companies, most notably in Dubai-based Depa United Group, one of the top five largest interior contracting companies in the world that is set to list in the UAE this year.
But even as the good times roll, and as the real estate and construction industries have been growing at a remarkable pace, there have been setbacks and the future challenges seem daunting.
The costs of material and labour have been rising, and unskilled workers are demanding better compensation and resorting to strikes to resolve their grievances. Kamal elaborated about the labour issues and his outlook for the industry in an interview with Emirates Business.
Construction workers seem to be increasingly vocal about their demands. Arabtec experienced this first hand last year with a two-week worker’s unrest at Burj Dubai. Do you think governments should pass new laws to deal with labour issues?
I don’t think there should be government reforms. The government has really advised the companies very well on what we need to do, and it is up to us to try to give the labour force what is due and try to maintain a level of wages that is compatible with the rise of the cost of living and with the currency issues. I think the last unrest was handled by the companies concerned very positively.
How exactly did you contain the crisis last time?
We sat together, we looked at the reasons behind it and we put forward to all the companies concerned, and all the construction companies in the UAE, proposals to help them address the unrest.
The rise in the labour wages was natural, and I can’t say that anyone was really against it. We are all sympathetic to the issues of wages, and I think it was treated very well. I think there will be more increases in the future and the market should be prepared for it.
Are you planning to hire workers from regions other than India in order to limit future unrest?
Although it is a good thing to diversify the source of labour so you don’t rely on one market for all your activity, I think that India will always be a major source of our labour.
The bulk of the labour source is Indian, and I think that India should be the place for establishing the parameters of compensation and wages. If you bring in labour from Korea or China or Vietnam, you are talking about a different structure of wages and therefore that is not going to solve the problem.
Arabtec is one of a handful of companies listed in the UAE that is continuously at its foreign investor limits.
Why are you such a popular stock for international investors?
This is a reflection of the confidence of the major financial institutions when they look at the way the company is operating, its management structure and the financial results, and the history of the company.
All this adds to the popularity of the company among foreign investors. The largest investor in Arabtec Holding today is HSBC, which holds in its funds around 20 per cent of the company for the past 12 months.
Of course, the bank represents investors all over the world (we have HSBC funds from the US, Ireland, and Germany), and are holding quite substantial amounts of shares. I am quite happy to see that, because it shows we are doing the right thing.
Some local investors characterise the increased participation of international investors as “hot money”. Do you think that foreign investors are looking for the quick flip?
The foreign institutions investing in Arabtec don’t trade their stock for the short-term they are in the market for the long-term. This gives the stock stability and keeps its price high because the fewer shares that are available for trading, the stronger the stock is in the market.
When the founders and the financial institutions keep on holding the stock, because of their confidence in the ability of the company to improve the value of their shares, it reflects well on the share price.
Do you plan to open up the share registry to more international investors, past the 49 per cent limit?
I have no problem opening it up to more foreign ownership because that keeps the stock in demand and gives it an additional boost because at the end of the day, it would be good for all shareholders.
With the relentless pace of construction over the past few years, your sector is experiencing some capacity constraints.
What is your outlook for the future?
I don’t think there is going to be any easing whatsoever. I think demand is going to be very strong and the difficulties will be maintained, and I think the individual companies will have to deal with this problem and do whatever they can do to increase their resources, whether labour or managerial and bring in these resources to cope with the demand.
They are not going to have it easy and are going to find it hard to get good companies to do the work because of the lack of resources.
But OK, if it doesn’t take two years to develop a project, let it take three years, or four years, why the rush?Well the Dubai way is biggest, best and fastest. Is that a bad thing?
I think that this rush has actually fuelled the rise in costs, and we should try to maintain this growth reasonably well without inflating the prices any further. We are running at full capacity, in fact we are continuously short of resources, but we are doing it to meet the expectations of the developers.
Riyad Burhan Kamal as Chief Executive Officer has led Arabtec to become one of the largest construction majors in the region.
Established in 1975 as Arabtec Construction Company (ATCC), the company has grown in stature by executing large projects and through acquisitions. In 2004 Arabtec went public, raising more than Dh16.4 billion in subscription. The IPO was over-subscribed 74.6 times.
Ever since it was opened to foreigners, the stock has been a star performer on the Dubai Financial Market (DFM).
The company has undertaken a substantial programme of construction, including but not limited to, high-rise developments, hotel interiors, residential complexes, office blocks, commercial and industrial projects, major airport developments and offshore oil and gas installations.
We’re open to higher foreign ownership