The impact of the liquidation of UAE construction giant Arabtec 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.

That’s the view of Mark Raymont, partner, construction advisory disputes at Pinsent Masons, who revealed the twin shocks of the current coronavirus pandemic and depressed oil prices, has increased the stress on what was already a struggling industry.

His comments came as Arabtec belatedly confirmed that shareholders had voted to discontinue with the company and dissolve it due to its untenable financial situation. 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.

In the meantime, Arabtec’s primary objective is to provide stability for staff, subsidiaries, sub-contractors, suppliers, and other stakeholders, the company said in a statement.

Waleed Al Mokarrab Al Muhairi, chairman of Arabtec, said: “In recent years, limited liquidity in the construction sector has impacted the progress of Arabtec’s projects and this has been exacerbated by the effects of Covid-19. Despite efforts to pursue legal and commercial entitlements and a restructuring of the Company’s finances and operations, the situation in which Arabtec finds itself today is untenable.

“Shareholders have therefore voted to move forward with a plan of liquidation to maximize value for stakeholders through a controlled and efficient program. Over the coming weeks, the Company’s board and management will work closely with regulators and stakeholders to maximize value for all stakeholders. Our current priority is to ensure that everyone directly affected by this decision, is treated fairly during this challenging time.”

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.

Harshjit Oza, an equity analyst and head of research at Shuaa Securities, said Arabtec has about 5 billion dirhams in receivables, dues and advances and 1.8 billion dirhams in outstanding debt, and warned that banks and creditors would find it difficult to recover losses from liquidation.

“Undoubtedly, this will have a negative impact on the economy and jobs aside from the exposure of the banks,” he said.

Construction firms in the region have struggled for years with project delays and thin profit margins - in January, Australia’s CIMIC Group took a $1.23bn write off on its 45 percent stake in BIC Contracting and exited the Middle East.

Drake & Scull International recently revealed it had appointed a new CEO and CFO, the latest in a string of senior job announcements as the company proceeds with finalising an organisational and financial reorganisation plan.

According to a statement to the Dubai Financial Market earlier this month, an application for its financial reorganisation process to be conducted under the supervision of the Financial Reorganisation Committee (FRC) – a body set up in 2018 under the UAE’s bankruptcy law – was accepted in May.

While creditors have started to enforce claims against Abu Dhabi-based Al Jaber Group, in a dispute triggered by a construction downturn in the UAE more than a decade ago.

Raymont admitted there has been a noticeable uptick in UAE-based work since the start of the year.

He said: “Since probably March/April, my team have certainly never been busier.”

And he sees no let-up. He said: “All around, cash is king, and it’s all about, if you’re owed money, or you think you’re owed money, or there’s a risk that you’re not going to be paid, you want to be at the front of the queue with the biggest stick shouting the loudest so that, if push comes to shove, you’re the first voice that’s going to be recognised in that long queue.

“I think it’s just going to make people, CEOs, all the project directors even more wary, concerned, looking very carefully about what their options might be.”

However, even among the turmoil and uncertainty, there remains opportunities.

Hesham Elsamra, senior Associate, litigation department, Abdulla Alawadi & Associates, told Arabian Business: “The situation of suppliers not dealing with Arabtec or willing to enter the market in UAE at the moment is more promising and there's a good chance to expand and grow, since the competition will ease up a little bit.”

The impact on jobs would be “substantial” since the company has about 40,000 employees, Jaap Meijer, head of equity research at Arqaam Capital, said in an interview with Bloomberg Television.

Established in 1975, the company has played a role in building some of the country’s best-known landmarks such as the Louvre in Abu Dhabi and the Burj Khalifa, the world’s tallest building, in Dubai.