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Arabtec seeks to keep $40bn Egypt housing contract on track

Arabtec Construction is reportedly working to thrash out differences with Egypt’s housing ministry over plans to build 1 million low-cost homes in the North African country amid reports that the government is set to scrap the agreement.

It is understood that top Arabtec executives plan to fly to Egypt this week in an attempt to breathe new life into the memorandum of understanding (MOU) that it signed in March last year to develop the US$40 billion project across 13 sites.

Negotiations surrounding the contract have dragged on for the past 18 months.

Egypt’s ministry of housing, utilities and urban development could not be reached for a comment yesterday.

An Arabtec spokesman referred requests for information to the company’s announcement on August 20 in which it denied reports that it was pulling out of the project. He said the situation had not changed since then.

The UAE builder this month said it swung to a second-quarter loss of Dh996.4 million from a profit of Dh113.5m in the year-earlier period. It blamed the result on “a number of poorly performing projects”.

Arabtec said it was “taking corrective action in response to these legacy issues”, with the benefits likely to be evident in its fourth-quarter results.

“It’s a critical situation. Given its recent financial performance, Arabtec can’t afford to make a loss from this [Egypt] project. For it to go ahead there has to be some margin,” said one analyst.

Al Shorouk newspaper in Egypt said Arabtec had called for a meeting with the ministry this week to reach a final resolution on the project following reports that it might annul the MOU and that other companies in the UAE and Egypt might take over.

Analysts in Cairo said the target of 1 million units would be difficult to achieve, and if the deal does proceed with Arabtec, it would most likely be for a maximum of between 100,000 and 120,000 homes.

The financing terms and sourcing of raw materials are among the sticking points in Arabtec’s negotiations with Egypt’s government, according to the analysts.

Egypt wants Arabtec to use local raw materials for the project, while Arabtec would rather import cheaper material from abroad, analysts say.

Equally, Egypt wants the project’s financing to come from overseas so as not to strain Egypt’s economy or its banks.

Since the MOU was signed, Arabtec’s management has changed significantly, with the then managing director, Hasan Ismaik, and the then chairman, Khadem Al Qubaisi, leaving the company.

Arabtec shares closed flat at Dh2 in Dubai yesterday.

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