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Arabtec Owners Up Stakes Ahead of MSCI Upgrade Implementation

The main shareholders of U.A.E. construction giant Arabtec Holding are consolidating their control over the company as the country’s stock markets prepare for the implementation of an upgrade to emerging-market status by stock-index provider MSCI.

Arabtec chief executive Hasan Ismaik raised his stake from 8.03% to 21.46% by buying shares on the market, the company said in an emailed statement Wednesday. This follows a move three years ago by Aabar Investments, a firm owned by an Abu Dhabi sovereign wealth fund, to up its stake to almost 22%.

The stake increases fit a narrative where Arabtec, the largest construction company in the U.A.E., is becoming more closely held by its management and by people connected to the Abu Dhabi government, analysts say. Abu Dhabi, in turn, is using the company to speed up the development of local projects and advance political interests abroad.

Since Aabar raised its stake, Arabtec staff have been moved to Abu Dhabi from neighboring Dubai, and the company has won numerous large construction contracts in Abu Dhabi.

Arabtec in March was hired by the Egyptian army to build a million housing units worth a combined $40 billion.  Worried about the spread of political Islam in the region, the U.A.E. has given billions of dollars in aid and projects to Egypt since the military ousted Muslim Brotherhood president Mohamed Morsi in a coup last July.

The stake increase this week by Mr. Ismaik may be partly an attempt to prop up the share price after highly leveraged investors who bought in on the MSCI upgrade started to unwind their positions, according to one analyst who asked not to be named because of the political sensitivities surrounding the company. The stock price more than tripled between the beginning of the year and early this month, but has since fallen by about 12%, according to figures from Zawya.com. The MSCI changes take effect from the end of this month.

“There was a correction post-MSCI (announcement),” the analyst said. “People have to sell. They [Arabtec] want to keep the price up.”

The U.A.E.’s markets are to be added to the MSCI’s widely followed emerging-market index later this month after getting the go-ahead last year. Investors piled in anticipation of the upgrade, helping make Dubai’s stock index one of the best performers in the world this year.

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(via WSJ Blogs)