Ambition, investor greed fuel rise and fall of Dubai's Arabtec

Tue Jul 8, 2014 5:05am EDT
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By Stanley Carvalho, Nadia Saleem and Andrew Torchia

ABU DHABI/DUBAI (Reuters) - From a 59-storey tower in Abu Dhabi, the offices of Arabtec look out over the Gulf towards Middle Eastern and Asian nations where the construction firm hopes to expand. It is a symbol of the company's ambitions - and the way in which they have run into hard reality.

Arabtec agreed last year to lease the entire tower, which was to serve as a base for it to diversify into the oil, power, infrastructure and real estate sectors, providing capacity for thousands of future employees as well as joint venture partners.

Much of that expansion is now in doubt. After a souring of ties between Arabtec's chief executive and a big state investor led to his sudden resignation and a collapse of the company's shares last month, Arabtec has launched a review of its plans.

The Dubai-listed firm's troubles have hit the wider stock market, helping to trigger a crash that erased about $30 billion of value in eight weeks, and raised questions over corporate regulation and disclosure in the United Arab Emirates.

The meteoric rise and fall of Arabtec and former CEO Hasan Ismaik reveal some of the perils of business in the Gulf: secretive state shareholders, management authority which relies partly on personal connections, and hands-off regulation.

"The Arabtec mess points to structural weaknesses in the business environment in the UAE and in the region more generally," said Jim Krane, a Gulf expert at Rice University's Baker Institute for Public Policy in the United States.

Business in the UAE is competitive and vibrant, but driven by opaque personal ties and political clout, he said. At the same time, regulation of companies is often tolerated only if it does not get in the way of traditional business methods.

"Companies are expected to adhere to the wider policy choices of the government and ruling family, and these dictates are not generally made public. There is a lot that happens beyond the public eye."   Continued...

People walk past the Arabtec headquarters in Abu Dhabi June 25, 2014.   REUTERS/Stringer