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1 million homes: Gulf builder scores massive deal

Egyptian  Field Marshal Abdel-Fattah el-Sisi, right, looks at plans of the new housing initiative with Arabtec CEO Hasan Abdullah Ismaik during the signing ceremony in Cairo on Sunday.
Source: Egypt's Army Spokesperson | Facebook
Egyptian Field Marshal Abdel-Fattah el-Sisi, right, looks at plans of the new housing initiative with Arabtec CEO Hasan Abdullah Ismaik during the signing ceremony in Cairo on Sunday.

Dubai-listed construction firm Arabtec Holding signed a $40-billion agreement with the Egyptian army to build 1 million affordable housing units, not only inking the largest deal in the company's history, but also deepening political ties at a critical time in Egypt.

According to an Arabtec statement, the project will begin this year, with a targeted completion date before 2020. Funding for the massive development is to be provided by local and foreign banks, though no further details were given in Sunday's deal. Arabtec stock closed 1.7 percent higher Monday and is up more than 65 percent this year.

"The size and nature of the project was a surprise," Saleem Khokhar, head of equities at the National Bank of Abu Dhabi, told CNBC. "It's a stretch for Arabtec and Egypt; doubtless there will be issues and delays."

The contract is the latest addition to billions of dollars in work secured by Arabtec in recent months.

In February, the firm won $6.1 billion from Aabar Properties to build 37 towers in Dubai and Abu Dhabi. In January, it scored a $1.55 billion deal for an amusement park in Jordan.

Political and financial support amounting to at least $12 billion from oil-rich Gulf countries including Saudi Arabia, Kuwait and the UAE have kept Egypt's economy and investor confidence afloat.

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"Arabtec will need to push very hard to achieve the timeline, but with governmental backing from the UAE and Egypt, obstacles can be overcome," Khokhar said. "It's a game-changer on many levels."

The United Arab Emirates has in fact been one of the largest providers of aid to Egypt since the ouster, by the military, of then-President Mohammed Morsi last summer. Analysts have told CNBC that more UAE-based companies may be allocated lucrative projects in the Arab World's most populous country in return for that aid.

"Arabtec will need to push very hard to achieve the timeline but with governmental backing from the UAE and Egypt, obstacles can be overcome. It's a game-changer on many levels." -Saleem Khokhar, Head of Equities at the National Bank of Abu Dhabi

Presidential elections are widely expected to be held in April, and Egypt's army chief, Field Marshal Abdel-Fattah el-Sissi, has strongly hinted he will be running for the post himself.

The massive housing initiative seems likely to boost the popularity of el-Sissi at a time when the country's economy has been slow to recover since the uprising in 2011 and as Egypt faces an increasingly violent Muslim Brotherhood, the Islamist political party of Morsi. Some areas of the country lend support to the brotherhood, and sidelining or pacifying that segment of the population is a priority for Egypt's military-backed interim government.

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Arabtec has been involved in several of Dubai's most iconic projects, including the world's tallest tower, the Burj Khalifa. It was hit hard in the wake of Dubai's debt crisis in 2009 and has since moved rapidly to diversify toward other parts of the region.

The company's backlog picked up substantially after Aabar Investments, majority-owned by Abu Dhabi sovereign wealth fund IPIC, bought a 21.6 percent stake in the company in 2012.

Investors are likely still wrapping their heads around the new deal with Egypt, Mohammad Kamal, an analyst with Dubai-based Arqaam Capital, told CNBC.

"The market will likely take time to digest the news interms of impact. Investors and analysts are looking forward to further disclosure, which may be released along with the company's first quarter financials," he said.

Aabar Investments also has stakes in Italy's UniCredit, Glencore Xstrata and Virgin Galactic.

By CNBC's Yousef Gamal El-Din. Follow him on Twitter @youseftv.

Contact World Economy

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