Monday, 6 July 2009

Dubai construction industry "getting back the trust"

From Emirates Business 6 July 09
The construction industry in the UAE is seeing some signs of recovery according to the industry players. Meanwhile, there is some positivity from one of the leading contracting companies in the business.
"Dubai has reached a stable position. We expect to see some growth signs and some new opportunities by the end of the year," David Savage, Managing Director at the Al Habtoor Leighton Group told Emirates Business. "We have been through the storm. We have been working through it and will stabilise soon," he said.
Ziad Makhzoumi, Chief Financial Officer at Arabtec Holdings said that the UAE market is seeing a situation where "there seems to be some appetite to reconsider some projects that were earlier on hold".
The same sentiment was echoed by Saleh Muradweij, Executive Director at GTCC and board member of Drake & Scull who said that he is seeing the UAE sector "being more active."
Atif Naweed, Managing Partner of Axis-Markizz, a design and construction group, added that "things are slowly coming back on the track" according to his discussions with players in the construction sector.
Diversifying into the regional markets is the name of the game within the industry, which seems to be tapping the opportunities in the Middle East.
Payments have also resumed albeit slowly and the situation seems to be looking up since June. The market is getting back the trust, said Naweed.
Have you seen signs of a market recovery in the UAE construction sector?
Ziad Makhzoumi: There is a change of mood in the market. There seems to be some appetite to reconsider some projects that were earlier put on hold though we have not seen any major projects being awarded yet. There is hope but we haven't seen the fruits yet.
Saleh Muradweij: As far as the UAE is concerned, there is a recovery in terms of jobs.It has been witnessed that the construction sector is more active than before and this is mostly due to the fact that banks have eased up on the credit facility. Six months ago, they had no interest to finance any of the developers or contractors. Now things are changing, the appetite has come back and that will make the real turn around.
However, things have picked up dramatically in Abu Dhabi. During the past six months, we have seen big developers there waiting to monitor the market before they went ahead with their projects. Though they had the money to build, they did not want to invest in a volatile market. Now things have almost stabilised and Abu Dhabi is moving forward whereas, it is still a slow progress in Dubai.
As far as GCC is concerned, Saudi has huge potential and the government is heavily investing in infrastructure. There are a lot of jobs opportunities that are going to come up. Saudi is the most active market.
Atif Naweed: There are definitely signs of recovery. It is not just our company that's feeling that sentiment. I have been talking to a lot of our subcontractors and friends within the industry and they all feel the same.Things are slowly coming back on track. It will not be like before and will take time.
Abu Dhabi is improving at a better rate compared to Dubai. A lot of developers and contractors are moving to Abu Dhabi. I know people who have closed down in Dubai in order to move to Abu Dhabi.
Across the GCC, we see Qatar and Saudi Arabia doing well due to various projects being launched in those countries.
David Savage: There has been a levelling off in Abu Dhabi and Qatar. They have found a position and are continuing along. Dubai has also levelled off but there is very little opportunity in Dubai at the moment. No, we have not seen anything on hold reviving in Dubai.
What is the current situation with banks in terms of finance?
ZM: We did not have any issues with banks in the past and it is still the same situation.Everything is on target. But remember that there are no new projects that require new funding. So when it comes to existing funding, we still enjoy the same relations that we have had with them.
SM: We are in a different situation compared to the rest.With very strong balance sheet and strong position, the banks look at us a little differently compared to the market.As I mentioned, the appetite has started to come back. Banks have started to at least look at projects and consider them. It is dependent on who are the pay masters. The interest rates have increased compared to a year or eight months back. Otherwise the conditions remain the same.
AN: It still continues to be tough, especially, when banks are dealing with contractors.Right now, they are operating with 110 per cent margin and asking for 100 per cent bank guarantee. They are charging 3.5 per cent extra. Right now, it is only secured lending, which I would not need as a contractor. Whereas, it is not so much of a problem for our own design section.
DS: We have very strong relationships with banks and they have been very supportive.
Is there any situation with developers calling on performance bonds?
ZM: No, they are not, especially after the Meydan situation.
DS: No. We have not had any situation until now.Are you receiving payments on time?
If there are delays, how do you resolve the issues?
ZM: From February onwards, the payments became better and we are still experiencing the same rate of collection.
It is not as good as the last year, but it is much better than it was at the beginning of 2009. Payments take more than 90 days but the schedule varies from one client to another. We manage by being persistently polite and nice. When they can, they respond.
SM: To tell the truth, there were a lot of delays during the beginning of the year. Sometimes, the period exceeded 100 days. But starting June, payments have resumed within the market.Even payments for March are being made and the situation has gone back to a payment period timeframe of about 60 to 90 days.
It all depends on the client and we have been very selective with them. We are flexible as a company and are willing to help the client to keep the jobs moving.
AN: The situation was bad during the last six months.There have been cases where some developers have run away with the money. There were also some cases of bouncing cheques. However, it is improving now. Especially, since the past few weeks starting in May. The market is getting back the trust.
DS: We have a variety of payments modes and some clients have been paying 'more on time' than the others. But nothing too dramatic for us. No, I cannot commit to a time period.
Could you describe the first half of 2009 for your company? What is the strategy for the second half of the year?
DS: The first half of 2009 has been a period for consolidation. We have seen the market slowdown in Dubai but there has been a flow of activity in Abu Dhabi, Qatar and other areas. In the second half, we will see that things will have leveled off. We see good opportunities for in markets such as Qatar and Saudi Arabia. Dubai has reached a stable position. We expect that we will see some growth signs and some new opportunities by the end of the year. We have been through the storm and have been working through it and will stabilise soon. We are looking at opportunities in North Africa on a case by case basis. We will look at any project that we can add some value and vice versa.We are looking at some design-build projects at the moment, such as the airport project in Kuwait.
ZM: No one could predict what the first half would be like. Our results were good.The top line was slightly below expectations. But that was because lots of projects stopped at the beginning of the year.Now they are beginning to move again and the bottomline in the first quarter was above our forecast of eight per cent net.Now we have to work on the top and bottom line. We seem to be going in the right direction though we are not back at a level that we were a year ago.In Dubai, we have a substantial backlog that we are going ahead with and in various stages of completion. The work backlog here is in excess of Dh10 billion. Abu Dhabi is picking up again and we expect some more work to come.In Qatar, we have a Dh4bn backlog and we are bidding for other work. There is demand for our quotations from the market and we are hoping that more projects will come on line. In Saudi, we have won two contracts based on our new partnership. It is a very interesting market for us and will compensate for any slowdown in the UAE market. We are talking to many groups in Libya. But nothing concrete as yet.
SM: During the first half of the year, we were shocked just like many other contractors. We expected several jobs to come our way. But suddenly we saw many jobs being stalled or cancelled. Most of our expectations for this year have come true. However, since then, we have changed our strategy. Our previous plans to diversify have benefitted us.
We expect that our plans to move to Saudi Arabia, Libya and Jordan will bring us a lot of work during the second half of 2009.
AN: As far as we are concerned, things have been going well. What we are doing is buying all the materials in advance so that we can beat the fluctuation of materials and will not be affected by the changes in the market. We are focusing our strategy in such a way that 2009 is going to be better than 2008. We are in discussion with another developer for another contract worth around Dh500 million. We are also reducing the construction cost for developers. Compared to prices of six months ago, the cost has reduced by almost 40 to 50 per cent. The prices will not remain the same. We expect that by the last quarter of 2009, the prices would have definitely moved up.
Have you had any disputes on your projects? Any cases of arbitration yet?
SM: As a company, we have not entered into any disputes. However, when there have been issues we have been able to resolve it without any arbitration.
AN: So far we do not have any dispute with any developers.
ZM: We have had no situation after Meydan.
DS: No, we have not gone into arbitration. But when we have issues, we make the effort to settle things amicably.

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