Arabtec Holding, the largest construction group in the region, will file for bankruptcy following a shareholder vote held during yesterday’s general assembly meeting (GAM), several media outlets have reported.

Reuters (which last week reported that the firm that built the world’s tallest building had hired advisory firm AlixPartners to help restructure its debt) claimed that it had seen an email sent by the firm which stated: “Unfortunately, against a backdrop of adverse market conditions, we regret to inform you that Arabtec shareholders voted to adopt a plan of liquidation and dissolution due to the company’s untenable financial situation.”

If the reports are accurate, it highlights the vulnerability of the construction sector to the economic stress caused by a number of factors, including the Coronavirus pandemic and continuingly low oil prices.

It will also raise concerns among subcontractors and other organisations currently tied to a firm that remains the dominant force within the UAE’s real estate and infrastructure construction sectors.

Arabtec’s performance has been of concern for a number of years with the firm implementing a series of strategies to recover losses in its construction business – Arabtec Construction.

The struggles of the contracting arm contributed to Arabtec reporting a net loss of $216 million (AED 794 million) in the first half of 2020.

Entering Q4 2020, Arabtec Holding has already passed the $211 million in losses it registered in 2019, although it is worth highlighting that beyond Arabtec Construction, core businesses including Target (Industrial), Arabtec Engineering Services (Infrastructure) and EFECO (MEP) have traded profitably and ‘remain well-positioned’ within their respective sectors.

Nevertheless, Arabtec Holding has also seen its share price struggle; with its value down by more than a half since the turn of the year.

Its FY2019 financial statement previously published in February had stated that it was positive about its 2020 outlook after handing over six legacy projects during Q3 FY 2019 and with nine legacy projects due to finish by year end.

“This will significantly reduce the group’s risk around costs and will allow Arabtec Holding to fully focus on pursuing its contractual entitlements with clients,” it said at the time.

The recent August update suggested that the firm remained challenged by limited settlement and recoverability of contractual claims. It also said COVID 19 had resulted in reduced progress on projects and raised additional costs.

A slow down in the real estate sector had also resulted in limited new awards, Arabtec Holding told shareholders.

It further blamed its trading losses on ‘limited liquidity’ in the real estate and construction sector which had impacted “progress and forecast costs on projects”.

Arabtec disclosed to the Dubai Financial Market (DFM) earlier this week that the scheduled General Assembly for shareholders had to be delayed until 30 September, adding that: “It is decided that the General Assembly will discuss all the options available to the company, whether in continuity, dissolution or otherwise in light of the current situation, and according to the provisions of the Commercial Companies Law and its amendments, and the laws, decisions and regulations in force in the country, and authorizing the Board of Directors to implement the option that is approved in the meeting and presenting to the competent authorities Requests required by the laws in force in the state.”

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