DUBAI—Dubai stocks closed sharply lower Tuesday, weighed by growing concerns about the financial health of one of its main construction companies.
The main DFM index finished nearly 6.7% lower at 4,009.01 on Tuesday, after being down more than 8% intraday, and has now lost 25% in a little over six weeks. Property stocks topped the losers list, with Arabtec Holding PJSC, a Dubai-listed construction company, falling nearly 10%, extending a string of losses since the end of May.
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Dubai Stocks Tumble: Bear Market or Correction?
Arabtec is one of the Middle East's largest construction firms. It employs around 60,000 people, according to a company spokesman, and has been involved in many of the region's biggest building projects, including Dubai's Burj Khalifa, the tallest building in the world.
However, concern has been mounting about the group's growth strategy and ownership structure after Hasan Ismaik stepped down as chief executive last Wednesday after building up a 28.85% holding in just over a year. He said on Tuesday that he was entertaining offers to unload the stake, but was waiting for the right price.
Investors are concerned that the company will pursue a more conservative strategy after Mr. Ismaik's abrupt resignation. They have also been spooked by a recent reduction in holdings by Aabar Investments, an Abu Dhabi government-owned investment vehicle that currently owns 18.94% of Arabtec.
While Arabtec started as a Dubai-centric company, it shifted focus to neighboring Abu Dhabi after Abu Dhabi government-linked investors began ramping up their stakes about two years ago. Mr. Ismaik presided over a titanic shift in the company's business focus toward higher-margin, more complex construction work, including oil and gas construction and infrastructure.
Arabtec's order book also grew by leaps and bounds during Mr. Ismaik's tenure as it aggressively built a business in Abu Dhabi and around the Persian Gulf. One of its biggest-ever contracts was a deal to build 37 towers in Abu Dhabi, awarded by Aabar in February and assigned a value of $6.1 billion.
That said, while the losses on the Dubai stock market are hefty, it is important to point out that the emirate's stock market has been among the top risers globally since early 2013, hitting a multiyear high early last month. The index has been buoyed by a Dubai economy rebounding on the back of strengthening trade and tourism and a sharp recovery in its property prices, which had crashed some 50% in the wake of the global financial crisis. The market received another boost in May when Dubai was promoted to emerging-market status by index compiler MSCI in May.
"I think a correction was overdue. Valuations were already very overextended and let's not forget that historically markets tend to underperform in the 12 months subsequent to being upgraded by MSCI," said Fahd Iqbal, head of Middle East research for private banking at Credit Suisse. CSGN.VX -0.56%