Arabtec Holding (Arabtec) has announced its preliminary financial results for 2016. Revenue came in at AED7.66bn (+5.6% Y-o-Y), implying AED1.57bn for 4Q16 (-23.9% Y-o-Y, -21.5% Q-o-Q, EFGe: -25.2%), likely on project cancellations, as well as persistent execution issues on legacy projects. Net loss for the year totalled AED3.41bn (2015: AED2.35bn, also in losses), which implies AED2.95bn for 4Q16 (4Q15: AED403.7mn, 3Q16: AED225.5mn, EFGe: AED272.8mn, all in losses). Management attributed the deep reported losses to a “combination of impairment charges on high-risk items,” amounting to AED2.8bn and to operational expenses, which are of recurring and non-recurring nature. Excluding the impairment charges, the company’s bottom-line would have still been in the red in both 2016 and 4Q16. We note that the company’s shareholders equity balance turned to the red, with AED251mn (2015: AED3.20bn), as a result of the announced losses. Backlog, as of end of December 2016, was maintained at AED18.1bn. The company’s full financial statements are expected to be released in March.                            Arabtec announced it will adopt a “recapitalization programme,” comprising i) a rights offering, amounting to AED1.5bn, which is fully committed by its largest shareholder, Aabar Investments (with 36.1%); and ii) a capital reduction, whereby Arabtec’s share capital will be reduced via cancellation on a pro-rata basis to shares to extinguish the accumulated losses on the balance sheet and facilitate the raising of new capital. The programme is subject to the approval of the regulator and the shareholders (AGM planned for April). The proceeds of the offering will be used to fund the completion of ongoing projects and support the company’s future growth plans. We note that Aabar has also committed to subscribing to any unsubscribed shares remaining up to AED1.5bn, in addition to its share, which we view positively, adding viability to what seems to be a difficult offering to complete. (Company disclosure, Mai Attia, Sara Boutros)   Arabtec (DU): AED1.32 as of 12 Feb. 2017, Rating: Sell, TP: AED0.83/share, MCap: USD1,660mn, ARTC UH/ARTC.DU