UAE construction year in review: difficult period amid oil slump

If 2015 was greeted with a sense of cautious optimism by many contractors, the worsening conditions over the course of the year mean that 2016 is being awaited with much more trepidation.

As 2015 draws to a close, the prolonged slump in oil prices has led to decisions by governments around the region to reassess their capital spending plans, delay the award of some projects and push back the time frames of others.

For some companies in the construction sector, 2015 has been an unmitigated disaster but, as in every market, there have been winners and losers, and there have been a number of announcements offering contractors the prospect of big orders for the year ahead. We present five of the biggest stories that made headlines in the sector this year:


1. Arabtec

After a tumultuous year in 2014, Arabtec was looking forward to a more sedate 2015, and to nailing down its Dh40 billion housing deal with the Egypt government.

If anything, though, things have got worse. The Egyptian deal is still unsigned, the company announced on November 24 that its interim chief executive had resigned and it has posted five quarterly losses in a row – its last one a whopping Dh944.7 million for the three months to September 30.

Arabtec had previously stated its intention to return to profit by the end of this year. Much of the costs of several recent restructuring rounds must now have been factored in. But as seen from the outside, the company looks adrift. It has largely stopped communicating with the media and with analysts, and having undergone a management merry-go-round, it needs greater stability as market conditions worsen.

Still, the company’s board could be consoling themselves with the thought that 2016 can’t be as bad as 2015. Can it?

2. Saudi Binladin Group

If 2015 was a bad year for Arabtec, it was an annus horribilis for Saudi Arabia’s biggest builder, Saudi Binladin Group (SBG). The contracting group, which employs about 200,000, had been the go-to builder for Saudi Arabia’s royal family for decades. SBG was entrusted with the kingdom’s most important infrastructure schemes, such as the expansion of Mecca’s Grand Mosque. However, on September 11, a crane collapsed at the site amid high winds leading to the death of 111 pilgrims.

SBG has since been suspended from bidding for new work, and that at a time where government budgets are under pressure and contractors are reportedly facing delays on payments for existing projects. Even before the crane collapse, there were murmurings that the company was no longer assured of its role as the ruling family’s favoured builder following a shake-up in the royal court after the death of King Abdullah on January 23. Bakr Bin Laden, who had been head of the business since his brother Salem’s death in a plane crash in 1988, stood down in May this year, handing control to his brother Saleh Mohammed Bin Laden.

3. Orascom Construction

In a field of few runners, Orascom Construction has been one of the year’s bright sparks for the contracting sector (Al Futtaim Carillion has been another, with more than Dh1.5bn of Dubai contract awards).

Orascom completed a demerger from its former Dutch-listed parent, OCI, in March, listing on Nasdaq Dubai just weeks before the massive investment summit that drew attention to the potential in its home market of Egypt. Although its share price has more than halved to US$6.22 since listing at $14.75, the company has delivered a series of decent results. In the nine months to September 30, it moved from having a net debt of $97.1m to having net cash of $152.6m. Its backlog of projects was also up, by 20 per cent year on year to $6.7bn.

4. Nakheel

Given the experience that many contractors had with Nakheel during the global financial crisis and the subsequent restructuring of its parent company Dubai World, it is understandable if there are firms with whom Nakheel has burnt its bridges – many are still receiving payments as trade creditors for projects they worked on almost a decade ago.

Money talks, though, and in 2015, perhaps for the first time since the crisis, the developer has spent significant chunks on awarding new contracts. Among the biggest were Dh550m of deals at Deira Islands, a Dh819m contract to build the The Palm Tower on Palm Jumeirah, Dh2.4bn for up to 1,500 homes at Nad Al Sheba and Dh2.3bn on three retail projects – the Night Souk and Boardwalk at Deira Islands, the Warsan Souk near International City and the Circle Mall at Jumeirah Village Circle.

5. Meydan One

Massive project launches in Dubai are not as frequent as they used to be and tend to take longer to get off the ground, suggesting a more considered approach (MBR City and Mall of the World are perhaps two examples). However, the mega-project announced this year on which work will need to begin quickly is Meydan One. Unveiled in August, the project is to feature the world’s tallest residential tower, at 711 metres, the world’s largest indoor ski slope, an 8,000 capacity arena, a 100-berth marina and a civic plaza capable of hosting 60,000 people. Meydan said the first phase – including the tower, a huge mall, the civic plaza and the marina – will be complete before 2020.

Look ahead

So what’s in store for 2016? Well, contractors are generally not too optimistic, but there are infrastructure projects in Dubai that will need to be started soon to be ready for Expo 2020, including the Metro extension and the exhibition centre site itself. Contractors who have been lining up to work on the expansion of Al Maktoum International Airport are hopeful that some packages will start to be awarded next year.

And while it is unlikely that all of the countries will deliver on the obligations required for the GCC rail project to be completed by the end of 2018, it is expected that awards could finally be made for phase two of Etihad Rail to put the project back on track.

mfahy@thenational.ae

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