Dubai-based Depa, the global interior solutions group which worked on the Burj Khalifa, said on Monday that it is owed AED82 million ($22.3 million) from troubled construction giant Arabtec.
In a statement to Nasdaq Dubai, Depa said it awaits clarity on the outcome of Arabtec’s discussions and any liquidation application that may be submitted to the competent courts so as to determine the likely impact on the company.
Construction industry expert says repercussions will be felt on a much wider scale than simply those who are directly involved with the company
“To the extent that Arabtec or member(s) of its group enter liquidation, this would likely have a material impact on Depa’s financial performance and financial position,” it said.
“Depa continues to pursue its pipeline of opportunities and deliver on its secured projects. Management is implementing Depa’s group-wide transformation and restructuring programme and continues to take action to reduce Depa’s cost base to protect its financial position, in addition to the continuation of its non-core asset disposal programme,” it added.
Depa said further announcements will be made to the market “as and when appropriate”.
Arabtec is Depa’s second largest shareholder, owning 24.18 percent, but the majority of Depa’s shares are held by individuals, funds and institutions not connected with Arabtec, the company said in a statement.
Arabtec also has a minority representation on the board of directors of Depa.
In a statement issued to the Dubai Financial Market on Monday, Arabtec said it would be holding a meeting on Wednesday to discuss its next steps.
Last week, Arabtec confirmed that shareholders had voted to discontinue with the company and dissolve it due to its untenable financial situation.
Dubai based construction giant Arabtec voted on Wednesday to file for an insolvent liquidation following a net loss of $216m for the first six months of the year.
The resolution of the shareholders grants the Arabtec board a maximum period of two months to allow for discussions with the main stakeholders before a liquidation application may be submitted to the competent courts.
Experts said the impact of the liquidation of the UAE construction giant will send “reverberations” throughout the industry, with the repercussions felt on a much wider scale than simply those who are directly involved with the company and its current pipeline of projects.
Mark Raymont, partner, construction advisory disputes at Pinsent Masons, explained that the twin shocks of the current coronavirus pandemic and depressed oil prices, has increased the stress on what was already a struggling industry.
Raymont told Arabian Business: “Arabtec is a big name among contractors, one of the largest in the UAE. This is going to send reverberations through the market. There’s the obvious immediate impact. I’m sure all the projects they’re currently involved with, there’s going to be a long, hard look at the contracts taken by the owners and developers. Where there is an insolvency event, that can trigger certain contractual steps to be taken, sanctions to be taken.
“I would certainly think that would be of immediate concern and the supply chain is obviously going to be very concerned as well, not just about whether they’re going to get paid, but the status of their own bonds and performance guarantees etc.”
Arabtec Holding was valued at about AED30bn ($8.17bn) at its peak in 2014 and is now worth AED795m, with the stock down 60 percent this year alone.
Construction firms in the region have struggled for years with project delays and thin profit margins.