DUBAI, United Arab Emirates - Investors battered shares of Arabtec Holding on Sunday after the Dubai construction giant, which helped build the world's tallest tower, agreed to sell a controlling stake to a state-run investment fund in neighbouring Abu Dhabi.
Arabtec shares plunged 6.9 per cent on the first full trading day since details of the deal with Aabar Investments became public. Analysts say the investment's structure could cut the value of stakes held by existing shareholders.
Despite investors' doubts, Arabtec could benefit over the long term.
The deal, while distinct from the cash injections to Dubai's government last year, comes amid a push for closer economic integration between that struggling emirate and the oil-rich federal capital Abu Dhabi. Dubai state-linked companies are among Arabtec's customers.
"Being owned by the Abu Dhabi government does improve the odds of collecting your receivables in Dubai," said Roy Cherry, vice-president of research at Dubai-based investment bank Shuaa Capital.
Aabar's buy-in will give the Abu Dhabi-based fund a 70 per cent stake in the construction company. It will pay about US$1.74 billion for its investment. The deal must still be approved by existing shareholders.
Aabar is majority owned by the government of Abu Dhabi. It has become one of the sheikdom's most active investment funds over the past year, making big investments in Mercedes-Benz maker Daimler AG, Richard Branson's commercial space travel startup Virgin Galactic and Formula 1 champion team Brawn GP.
For Arabtec, the fresh funds will help shore up a balance sheet weakened by the global financial crisis and a severe property slump in its home market Dubai.
Arabtec's chief executive, Riad Kamal, told the Abu Dhabi government-owned daily the National that the additional cash also could be used to fund acquisitions and equity stakes in development projects. A spokesman for the builder said Kamal would not be available for further comment until the deal is completed.
Arabtec will issue about 2.8 million new shares in exchange for Aabar's funds. That means the value of shares held by existing investors will likely fall considerably, analysts said.
Deutsche Bank analyst Nabil Ahmed speculated that the deal could have been spurred by the Dubai government "as part of some assets reshuffling with Abu Dhabi." Banks based in Abu Dhabi and backed by that emirate's oil wealth have already pumped $25 billion in bailout funds into Dubai.
"While Dubai has no equity stake in Arabtec, it is the largest debtor" of the construction company, Ahmed said.
Arabtec is among Dubai's best-known construction companies. It was one of the main contractors on the record-breaking Burj Khalifa that opened last week. It employs 52,000 workers, according to its website.