Atique Naqvi, Dubai
The bloodbath at the UAE stock markets, especially in Dubai, took another twist last evening when Arabtec’s former CEO, Hassan Abdulla Mohammed Ismaik, said he is looking to sell his stake in one of the largest listed construction firms in the region.
According to the DFM website, Ismaik owns a 28.85 per cent stake in Arabtec – about 1.26 billion shares out of a total 4.395 bn.
Ismaik told a news agency yesterday that he’d sell his stake if he gets AED6 to AED7 per share. At the closing on Wednesday, Arabtec shares were trading at AED3.28.
If the former CEO sells his stake on yesterday’s market price, he will gain AED4.2 bn ($1.14bn), but if he gets the quoted price, he’ll end up generating approximately AED7.6bn.
In stock markets, if an entity books profits, the other incurs losses. The Dubai Financial Market index, where Arabtec is listed, fell by 10.2 per cent from June 16 until this afternoon, while the Abu Dhabi index was down by 4.8 per cent during the same period.
Every year, before Ramadan, the regional stock markets witness a sell-off drive because traders and shareholders want to make a quick buck before the quiet period when volumes are quite low. However, internal developments at Arabtec triggered last week’s onslaught on the UAE bourses.
The CEO of Arabtec resigned, or was asked to leave the firm, last week, according to industry insiders. He is accused of expanding his control over Arabtec by increasing his equity share in the company and making tall claims about the projects under the firm’s portfolio, says a UAE stock market analyst under the condition of anonymity.
Ismaik raised his stake in the construction firm from 8.03 per cent to 28.85 per cent recently. After his exit, the shareholders were nervous and started selling Arabtec shares right, left and centre.
From AED9 per share a few weeks back, the Arabtec scrip has been reduced to AED3.28 per share – a loss of 65.3 per cent. Approximately $6bn has been wiped off Arabtec shares in the past few weeks.
Taher Safieddine, an analyst with Shuaa Capital, says that while retail investors have been looking to liquidate some of their securities assets, the Arabtec episode has certainly affected the UAE stock markets because the company was very slow in clearing up the rumors.
“Reports in media, such as the delisting of Arabtec from DFM and Aabar selling its stake off in Arabtec, have contributed in increasing the anxiety among share holders. Better communication from both the company and the bourse regulator would have limited the downslide seen in the past few days,” adds Safieddine.
Following the Arabtec debacle, traders and shareholders, who were already planning a pre-Ramadan sell-off, became nervous and started selling not only Arabtec shares, but also other stocks related with the construction sector.
According to reports from the bourse, share values of Aman, Deyaar and Dubai Investment, National Cement and Gulf General Investments were down.
Panic selling on both UAE’s bourses has led to margin calls. As a shareholder of a company, you would receive a margin call from a broker if one or more of the stocks you had bought (with borrowed money) decreased in value past a certain point.
A shareholder would be forced either to deposit more money into the account or to sell off some of his assets.
Speaking on behalf of a stock brokerage firm based in Dubai International Finance Centre, an analyst, who did not wish to be named, says there is no need to panic as Arabtec, along with the market regulator, has increased communication between the construction firm and investors. “The negative sentiment is cooling down and stability will return to the UAE stock markets next week,” they add.