DUBAI: Abu Dhabi-based Aabar Investments wants to acquire 70 per cent of Arabtec through convertible bonds, Aabar said, in a $1.7 billion deal which would provide both cash and potential new contracts for the Dubai builder.
Aabar's board "has resolved to make an offer to Arabtec to acquire 70pc of the share capital of Arabtec by way of a mandatory convertible bond to be issued by Arabtec Holding to Aabar Investments at a conversion price of 2.3 UAE dirhams ($0.626) per share", Aabar said.
The proposed price is a 20.4pc discount to Arabtec's closing price of 2.89 dirhams on Thursday, when the construction company and Aabar Investments surged 6.3pc and 5.2pc respectively ahead of board meetings, adding to earlier gains.
Credit Suisse, which has a target price of 3.33 dirhams for shares of Arabtec, said in a note that Aabar would give a welcome cash injection to Arabtec through the deal, and could help provide new contracts for it in Abu Dhabi.
Aabar, the non-energy investment arm of Abu Dhabi sovereign wealth fund IPIC, is German carmaker Daimler's largest shareholder.
"Arabtec gets a cash injection of 6.4bn dirhams ($1.74bn) which hedges the company against any shortfall in working capital resulting from potential default on payments from Dubai clients," analyst Ahmed Badr said. "This would also allow the company to easily secure bonding from banks for new projects."
Through its ties to the Abu Dhabi government, "we believe (Aabar) can potentially give Arabtec access to a considerable pipeline of projects in Abu Dhabi, thus securing backlog growth", Badr said.
There had been market rumours since late December regarding a possible investment by Aabar in Arabtec but both firms had denied there had been any deal.