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Kamal says the transactions were made in 2009 and were not profitable; nevertheless the affair has caused a scandal in a climate that is growing more attuned to the need for better corporate governance.
Twelve months ago, Arabtec was reeling from the severe downturn in the UAE's property market, where some $350bn worth of projects have been cancelled or put on hold. Its answer was to broker a $1.4bn deal with Aabar Investments, whereby the Abu Dhabi-based investment company would take a 70% stake in Arabtec, the UAE's largest listed contractor.
Stock price tumbles
That January 2010 announcement saw another marked slump in Arabtec's share price, on the same dilution fears that shareholders are running from today. But while the Aabar deal was eventually scrapped last April, experts say the new plan is likely to be passed by shareholders at an Extraordinary General Meeting scheduled for January 16th. So what has changed, and what is Arabtec likely to spend its cash on in 2011 and beyond?
"The company definitely needs the money," says Ahmed Badr, a Dubai-based analyst for Credit Suisse Group. "Arabtec has been writing down a lot of receivables since the beginning of last year, and we expect them to continue writing off receivables this year.
"They are getting squeezed because they are not getting paid by developers or clients," he continues. "And as a contractor, if you have very stretched working capital you can't really go on with new projects."
Arabtec reported a 96% slump in profit for Q3 2010, as net income dropped to $1.9m from $45.4m a year earlier, while revenue declined 23% to $350m from $450m in the same period 2009. The company had $1.3bn of receivables at the end of the September, while it had set aside close to $11m in provisions over the nine months.
"Arabtec has been having issues with collections and provisioning over the past year, which has been straining the company's working capital position," says Jad Abbas, a construction analyst at investment bank EFG-Hermes.
"They haven't been able to comfortably fund their international operations under this strain, and the Dhs950m ($259m) they're expecting to raise would also serve as a cushion for any further write-downs of receivables."
Abbas expects that while the company insists it has provisioned for the bulk of receivables, any future provisions will be specifically related to individual clients - if one developer can't pay its bills, then Arabtec will provision for that particular case, rather than continue with ongoing general provisions.
"They have agreements in place with most of the developers," he notes. "The troubled part is obviously with Dubai receivables, but even there they do have agreements in place. It's just that collection has been slower than expected."
Focus on international market
If Arabtec does secure its cash injection, then the company is expected to direct investment towards its international operations, in a bid to further diversify its revenue streams away from stricken Dubai, where just last month the head of the emirate's real estate watchdog warned that 2011 would see a wave of new project cancellations.
"We have seen a lot of Arabtec's international operations developing at a slower-than-expected pace," says Abbas.
Staff
