UAE's largest construction company, Arabtec, has stopped work on one of Nakheel's biggest housing projects because it has not been paid by the developer.
Arabtec has suspended work at Dubai World-owned Nakheel's Al Furjan, a development in Dubai that was planned to include 4,000 homes, in the beginning of the year.
Arabtec won the US $816 million contract for the first 1,500 homes in June 2008 and had constructed 550 villas at the development. "We haven’t been paid, so it’s not ongoing," Arabtec Chairman Riad Kamal said. Kamal said the firm is yet to see any payments come through from Nakheel despite the $10 billion cash injection from Abu Dhabi in December.
Nakheel which managed to sell 2,000 units at the development still struggles to pay its suppliers due to the real estate meltdown in the emirate.
February 26, 2010
Analysis and Forecast: Increasing Risk
The move by Arabtec is a very daring one, particularly that it comes as a direct affront to Dubai government. Arabtec has very much been at the heart of Dubai’s boom and despite reports of occasional tensions between the contractor and members of Dubai’s ruling family. The latest move can mean one of the following possibilities:
- Arabtec has given up hope of a revival of the construction and development boom in Dubai, despite the fact that much of the plans for Dubai’s development are yet to be realized. This is because the move against Nakheel drastically undermines Arabtec’s position of winning work from Dubai government-related sources;
- The move was in coordination with Dubai government as Nakheel prepares for bankruptcy.
Both possibilities are open, particularly that Arabtec hopes to be sell up to 70 percent of its shares to Abu Dhabi-based investment fund Aabar Investments.
In either case, the news that one of the pillars of Dubai’s recent boom are severing relations with Nakheel, is further indication that Dubai’s recovery is remote and that Nakheel’s chances of paying back its debt for its sukuk’s and contractors’ work are slim. This further undermines whatever is left for Dubai’s reputation and chances of recovery.