Can the company that built the Middle East make a comeback?
They say cats have 9 lives and always land on their feet.
With 8 lives already spent, Contracting and Trading Group C.A.T., is back from the dead, having once dominated the Middle East and GCC projects between the 1950s and 1970s.
It is now on the prowl.
It is lifting itself from the rubble in an attempt at regaining its former prominent position as a leading developer, yet this comes with a big question mark: can it do it in today’s market?
Forbes Middle East reports that C.A.T.’s revenues in 2017 stood at $747 million—down 9.5% from 2016. Still, they were sizable enough to secure the number 23 spot on the site’s ranking of the 50 biggest private companies in the Arab World for 2018.
Forbes juxtaposed this fall in sales with its competitor Arabtec, which recorded $2.5 billion in revenue last year and had a project backlog of $4.7 billion in work. On the other hand, C.A.T. currently has $1.2 billion worth of projects.
In an effort to modernize their corporate structure, and to bring the old-fashioned management into the 21st century, they hired Georges Hage in 2013, snagging him away from the Saudi Oger contractor.
Conditions in the construction market aren’t helping
Hage’s work was cut out for him, since soon after he had joined the oil crash occurred, leaving him in a precarious position.
Furthermore, if you look at the current economic atmosphere, it doesn’t seem very comforting. According to a report by real estate services firm Colliers International, between the first quarters of 2017 and 2018, the average cost of construction materials in the UAE increased by 3.1%, while overall construction costs increased in the range of 1.8% to 2.3%.
Bob Flanagan, Colliers International’s managing director for project management and cost consultancy services, told Thomson Reuters Projects that he attributed the less than proportionate increase in construction cost in relation to the material cost to the competitive pressures within the contracting market.
“In a competitive market, it is common for contractors to absorb short up-swings in material prices by reducing their expected profit margin,” he said.
With the market being saturated by an abundance of contractors, it makes sense why C.A.T. isn’t having the best of times.
How is C.A.T. attempting to stay afloat?
“C.A.T.’s strategy in recent years has been to strengthen its position in its existing markets and to develop the right capabilities to expand opportunistically to new markets,” Hage told Forbes.
The group’s core business area is still oil and gas projects, and it counts Saudi Aramco as a major source of contracts. Last year, C.A.T. completed four projects valued at more than $1.5 billion for the oil giant, including laying 1,500 kilometers of pipelines, according to Forbes. Following the oil price crash, contractors were among those most affected.
“Clients tightened their budgets, which led to a scarcity in projects that in turn led to fierce and unreasonable competition amongst contractors, reflected in suicidal prices,” says Hage.
Even with C.A.T.’s shrinking in size, Hage is looking to plant the company’s roots in less competitive markets and sectors, and perhaps re-establish the company as the pioneer of a new market. Currently, they are pursuing a solar project in Ukraine, both a ripe sector and a new market for the Group.
Renewable energy projects will become part and parcel in the region in the coming decades, and by establishing themselves as a household name in this new sector early on, they could potentially see a subdued return to their glory days. The Saudi government announced earlier this year that they are investing $7 billion into 7 solar projects and a wind farm, with plans for building the world’s largest solar power plant.
The recovery of the oil market should have an alleviating effect on C.A.T.’s figures, but the company is pinning its hopes on projects beyond the oil sector. With legislation and developments in accordance with Saudi’s Vision 2030 coming into light, the firm could find new opportunities for work.
C.A.T. will have to look beyond its iconic history with the oil industry, and look for greener pastures in different sectors if it hopes to make a return to form.
Initially founded in 1937 by Lebanese politician Emile Bustani, C.A.T. is considered one of the construction pioneers in the region of the Middle East since the oil discovery era.
The company’s first contract granted C.A.T. the rights to build the Haifa oil refinery. Soon, in 1942, the firm was registered in Lebanon by partners Emile Bustani, Shukri Shammas, and Abdallah Khoury. It was during this year that C.A.T. built a strong relationship with the British Army, for whom they undertook several projects.
They went on to work on several ventures all across the world, from Houston to Nigeria to Saudi Arabia.
After the death of the founders, the partners reshaped the structure of the company in 1993. C.A.T. Holding S.A. was registered in Luxembourg and took oversight of all contracting activities.
By that time, C.A.T. had lost their place in the market and were being crowded by other similar companies who had arrived on the block from nearby shores and from across the oceans.