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Dubai: The volatility of the Arabtec scrip, and more so after the CEO’s resignation late last week, has now engulfed sentiments — and share prices — on the Dubai Financial Market. But there could be other dynamics in play that could be stoking negative investor sentiments on the local bourses.
“It’s not just Arabtec — investors seem to be turning extremely negative over the Iraq conflagration and what it means for the region and its economy as a whole,” said an analyst with a regional brokerage firm. “This is also the last trading week before Ramadan and that’s historically been a period of profit-taking and low volumes. The same is happening to an extent this year too, but with the market catching fire that’s gone unnoticed.”
Another factor could be that the key stocks on DFM were seen as having exuberant valuations, and that would have led the big investors to cash in before any sharp corrections happened.
But other investors lay the blame squarely on Arabtec for not coming out with “stronger intervention” to calm the markets. There has been some talk in broker circles about a share buy-back programme.
The company had a bank balance of Dh1.64 billion as of March 31, enough to intervene in the market at the current price level of Dh3.12 a share. (For a buy-back, the company will have to call a shareholders meeting and seek formal approval.)
The unravelling of the Arabtec scrip has led to jittery retail investors. They may have been caught off-guard by the rapidity with which the scrip shed 48 per cent from its peak in a matter of weeks. Many of them may have started to sell off in the days leading up to the exit last week of former CEO Hassan Ismaik. After rising the day after the announcement, the scrip this week has been mired in negative territory, and retail investors have been left exposed to the slide.
The company did issue a statement on June 23 on the DFM, but that was limited to stating that job losses at the company would be restricted “to a limited number of staff” and not “hundreds of staff” as was being reported in sections of the media.
But market sources contend that the pulling down of Arabtec’s share price — it was well over Dh9 as recently as last month — has less to do with how investors feel about the company’s operations. Instead, the stock’s unchecked decline relates to what the board has failed to do so far — make a forceful intervention in calming sentiments.
Two matters are at the top of investor concerns — what does Aaabar, the Abu Dhabi-based developer and major stakeholder in Arabtec, intend to do with its stake, currently at 18 per cent plus. It had reduced it from a high of 21.57 per cent in a tit-for-tat move after the former CEO, Hassan Ismaik, raised his personal stake to 21.47 per cent from 8.03 per cent in late May.
“If Aabar gives an indication of what it plans to do next with the stake, [it] can have an immeasurable impact on the scrip and the market,” said a trader. “Or the board of directors could issue a strong statement of intent by announcing a buy-back. That, more than anything, else would have a soothing effect.”
Another possible move could be guidance on what Ismaik plans to do with his stake. So far, he has not done so.
“Unless the two main shareholders give an indication, it is unlikely smaller investors would repose confidence in Arabtec,” said a broker.
“But if the scrip continues to fall and slip below Dh4,” the broker added, it could be hard “to find buying support.”