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Arabtec sees huge growth in the region

By

Sona Nambiar on Sunday, December 14, 2008

There is still tremendous growth potential in Abu Dhabi, Qatar and Saudi Arabia despite the global slowdown, said the CFO of Arabtec Holding. “We definitely want to become a big player in Abu Dhabi, Qatar and Saudi Arabia. These markets still hold potential and we do not see any problem despite the global slowdown. Meanwhile, we will try to maintain our position in Dubai among the leaders in the industry,” said Ziad Makhzoumi.

And contrary to market rumours, the company is concluding negotiations over the project details of the Okhta Centre project in Russia by this month end. Arabtec is the UAE’s largest and only public listed construction company and it won Dh10 billion contract for the project in April, its largest this year. Its order book stood at Dh50bn as of September 2008.

Makhzoumi spoke to Emirates Business about the group’s strategy for the coming years, how rumours are negatively impacting the industry and how the market is maturing.

Are the rumours true that the Gazprom project might be in trouble given the current international economic scenario?

The project is going ahead and we are still aiming to start work on mobilisation in the first quarter of 2009 and major works in the second quarter of 2009. Our team is in the final stages of negotiations and we are aiming for Christmas to finalise the details with the client. We want them to be more specific in terms of the project details. The final design details are yet to be agreed upon and it could be rescheduled where a part of the project will be phased to follow the first two parts and so on. But we do not envisage any technical problems and hopefully can come to an agreement soon. From the client’s point of view, we know they have the budget and they want us to sign an agreement as soon as possible.

Which are the potential growth markets in the GCC?

Abu Dhabi is an immediate market. Qatar is doing very well and we have some potential projects such as the Cleveland project in Abu Dhabi. In Qatar, we have work around $300 million (Dh11m) to $400m and we expect it to grow substantially. In Pakistan, we are building the new financial centre. We have also been asked to do some consulting for a phase that involves a new university and we have been asked to do the first pre-planning phase of the project. We might get the second phase.

As for Saudi Arabia, we expect potential work in the King Abdullah Economic City as well as Aramco. We are pursuing work in the latter and hope that by next year we will be awarded some major projects. We hope to get some more work in other countries.

What are the major challenges in Okhta project in Russia?

The major challenge is the physical structure of the project given the location – building on water and in the famed city of St Petersburg. It is a challenge but when we were asked to do Burj Dubai that too was a challenge.

Why did the order book figures change from Dh50bn to Dh47bn?

For the last quarter until September, we delivered a chunk of work. So Dh50bn came down to Dh47bn since we did not get any new orders. Besides, there were some local projects that were suspended – some, which we had started but the bigger part was projects that we had not yet started. So to be prudent, we just took them off our backlog.

What about the rumours that you are axing staff?

These rumours are affecting the market. But we do not plan any immediate reduction in staff. As you know, some projects have been delayed and some projects have been suspended. But that has not materially affected the workload we have. This year, we are carrying out construction worth more than Dh7bn and the Arabtec Group as a whole is carrying out around projects worth Dh8.2bn as we had forecast and we are on target.

Next year, we will increase that figure and will still need the same level of staffing. Only in some cases, where the projects have finished, we might have specialised staff that are not needed anymore. So you might have 100 plus people that might not be needed from the 70,000 staff that we have.

Our human resource department is still advertising for projects that we expect to carry out. This could be applicable for the next year and 2010. We hope that things will pickup again, if not in Dubai but definitely in Abu Dhabi and Qatar – so we can probably move staff or project managers around.

How do you see the current market?

People should not talk the market down. Instead of seeing the positive and start planning, they tend to see situations as either boom or bust. What we went through in the last few years was extremely lucky but not necessarily normal market conditions. The market is adjusting and becoming more realistic. We should be positive yet prudent. We should know that mega-billion projects are not going to happen every week but there are projects in billions that are substantial and have to be completed and there is enough work for a lot of people to stay.

The market is becoming more competitive, which is a good thing. Companies will become leaner and meaner and plan for the next phase. In our case, though it was a bumpy year we achieved extremely good profits. That is because we started major projects previously and will be continuing them but we decided to capitalise the profits in getting our balance sheets stronger and planning for the next phase of our growth.

We are aware that the market has changed but people have to become more focused, most cash-aware.

How did your investments fare so far and what are your future plans?

All our investments in terms of acquisitions have turned out to be prudent and profitable (see table). Our joint ventures in Jordan, Syria and Pakistan are doing well and we are expecting some work to come out and then decide on what kind of legal entity we would like to form – like our own subsidiary. Dutch Foundation did not go through because the company decided that it did not want to sell.

We are making some minor investments in acquiring more engineering and project design capabilities in areas that we are very good at but not specialised such as oil and gas and infrastructure. We are also looking at investing in areas that will speed up our process of construction – such as assembly plants for bathroom units and so on.

What is your strategy for the coming years?

We usually plan well and succeed. We will be busy in the coming three to four years. We will still do more than Dh9bn next year and Dh11bn in 2010. We still believe in the market. We are excited over the prospects of Qatar, Saudi Arabia and Abu Dhabi along with Dubai.

PROFILE: Ziad Makhzoumi, CFO

A strategist and restructuring specialist, Makhzoumi has managed many operations, acquisitions, joint ventures and turnarounds, including a $1.1 billion (Dh4bn) fund, based in London that specialised in emerging markets. His first assignment in the UAE was in 1981 with Booz Allen and Hamilton, the international management consultants, followed by major assignments in Saudi Arabia and Europe. From 1985 until 2000, Makhzoumi was the CFO of a successful private investment company that had major operations in Europe and Mena.

From 2001 until his appointment as the CFO of Arabtec in September this year, Makhzoumi was involved in strategic consultancy and private equity buyout and restructuring in Europe, the Middle East and North America. He holds a BSc (Honours) in Electronics and Electrical Engineering, and an MBA in Banking and International Finance, from Manchester Business School.

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