Arabtec shares lost more than 7 per cent of their value yesterday as investors fled the Dubai developer, slamming the brakes on a rally that has more than doubled the company's market value since the start of the year.
The share price fell after Aabar Investments, a sovereign investment company owned by the Abu Dhabi Government, revealed it had increased its stake in the builder to 5.8 per cent.
Arabtec shares soared from Dh1.56 on January 2 to open at Dh3.53 yesterday, a leap of 122 per cent. By comparison, the benchmark Dubai index was up 28.87 per cent during the same period.
The builder's stock tumbled throughout the day to close down 7.9 per cent at Dh3.25 a share, as shareholders who had watched the value of their holdings rise on rumours of a planned takeover, sold on the Aabar disclosure to lock in their profits. The last time Arabtec shares lost so much in one day was in February last year, amid panic selling caused by the Arab Spring. Arabtec's market share dropped by Dh3.78 million (US$1m) after yesterday's sell-off.
Monday's announcement by Arabtec followed months of speculation that a buyer was preparing to purchase the company. Aabar said in 2010 that it would acquire 70 per cent of Arabtec for Dh6.4 billion, but the deal fell apart.
Mohammed Ali Yasin, an independent analyst, said Aabar's purchase showed its interest in the builder had never faded.
A spokesman for Arabtec said the company did not know Aabar's long-term plans.
"It's not a surprise, we knew they [Aabar] were increasing their stake and were monitoring it closely, but it was done on the open market. They did not approach us. We have no understanding of what their grander scale interest is," the spokesman told Dow Jones.
Analysts were split over whether investors could expect to see further rises in Arabtec's share price. The stock is still up 104 per cent since the start of the year despite yesterday's drop, a rise experts have said is not linked to the underlying value of the company.
Loic Pelichet, the assistant vice president of research at NBK, who had a "sell" rating on Arabtec in the run-up to Monday's announcement, criticised Aabar's handling of the purchase.
In a valuation based on predicted profit for the year ahead, Arabtec looks expensive, Mr Yasin said.
"Arabtec is trading at a price-to-earnings ratio of 30 times plus, while the sector average is about 12 times. It needs to justify those prices with better earnings," he said.
Before the Aabar announcement, Emirates Materials Construction Company was the largest shareholder in Arabtec, with a 5.03 per cent stake.
Mr Yasin said the Aabar purchase could lead to the investment company taking a further interest in Arabtec, and raised the prospect of Aabar providing the builder with a slew of lucrative government projects.
"If the expectations are right and Aabar becomes an active participant on the Arabtec board and channels business [to the company], that will give an indication that it is there for the long-term, which would be beneficial for Arabtec's shareholders," he said.
Arabtec was part of a consortium pegged as the frontrunner for the contract for Abu Dhabi's new multibillion-dollar Midfield Terminal airport project, which was expected to be awarded next quarter. However, companies have been asked to re-tender their bids, which will delay the start of the project.