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 SPECIAL UPDATE: 02/06/07, Trevor Hoey
As outlined in ‘Australian companies cash in on Gulf spending spree’ on 26th May (see full article below), Worley Parsons is but one of several companies poised to take advantage of $US1 trillion in infrastructure spending over the next ten years.
Already involved in the construction of a $US8 billion petrochemicals plant in Saudi Arabia, on Thursday Worley was awarded an $US80 million contract to provide engineering, procurement and construction management for the first phase of the $US6 billion Taweelah aluminium smelter in Abu Dhabi, the capital of the United Arab Emirates (UAE).
On completion of the second phase, the plant will be the largest aluminium smelter in the world, consistent with the region’s ‘we can do it bigger and better mindset.’ Worley management commented that the win represents more than just a kick in earnings, but an opportunity to significantly expand and diversify its Middle East operations.
You can read more on other companies that have been successful in the region in our special report below – they include Transfield, Coffey International, VDM Group, Cardno, Sunland Group and Hastie.
Companies
Australian companies cash in on Gulf spending spree
Trevor Hoey - 26th May 2007
The United Arab Emirates (UAE), Saudi Arabia, Bahrain and Qatar are regions that are growing quickly, but tend to receive scant attention despite the intense activity that is being funded by public and private sector spending. Large infrastructure and commercial projects that cater for a fast growing business sector and a buoyant tourist environment are creating a huge demand for construction and engineering companies.
In April 2007, the government of Riyadh, the largest city of the Kingdom of Saudi Arabia launched $US31 billion of development and infrastructure projects aimed at improving health and education along with public services such as water, telecommunications and power.
The Riyadh projects will include the construction of the $7.5 billion King Abdullah Financial District, a business centre that will include the Saudi Stock Exchange - when completed it will be the largest financial centre in the Middle East. But this is the tip of the iceberg; the Saudi construction market is expected to embark on more than $US1 trillion worth of infrastructure projects in the next ten years.
In November 2006 WorleyParsons was awarded a project management contract in relation to Saudi International Petrochemicals’ (Sipchem) $US8 billion polyolefins complex. Polyolefins is the collective name for polyethylene and polypropylene. Transfield has more than 400 representatives in the Gulf region providing maintenance and capital works services to the oil, gas and power industries.
But there are a number of smaller companies that have recently been awarded important contracts and are poised to embark on large projects in the region. While these developments are significant in their own right, the potential value of follow-up business could be substantial.
A number of Australian companies are poised to cash in on the surge in construction activity. Some of these are already active in the area, particularly in nearby markets such as Dubai, one of the seven emirates that form the United Arab Emirates in the Eastern Arabian Peninsula.
Dubai is proving to be the launching pad for many new Australian entrants. Multi-disciplined engineering company, Coffey International has been expanding its operations particularly in the UAE region. Coffey got a foot in the door when it was brought in to resolve disputes regarding the construction of a 17 storey tower in the prestigious Dubai Marina. The owners, Star Group Global, hired Coffey to see the project through to completion and subsequently awarded the company a contract to manage the construction of a 37 storey luxury apartment complex in the Dubai Marina.
In the last three years consultancy engineering and construction company VDM Group has expanded its operations in the Gulf region, using Dubai as its base. In March the company’s subsidiary Van Der Meer Consulting was awarded an engineering consultancy contract to assist in the design of the Tall Tower project on the Dubai waterfront.
VDM’s participation in this high profile project has lifted its standing in the region and not surprisingly more contracts have followed including consultancy work in relation to the $US500 million Villamar at the Harbour, an exclusive residential development in neighbouring Bahrain.
Arguably the most stunning projects being undertaken in the Gulf region is the Palm Jebel Ali, one of the largest man made islands in the world. Shaped like a palm tree, the fronds form the base for the construction of business districts, hotels, 2000 villas and 1300 waterhouses that are accessible via jetties at the tip of each frond.
The Palm project will include the world’s largest marina with up to 4000 berths. Nakheel, a Dubai property developer with projects worth more than US$30 billion underway, commissioned Cardo (CDD) to masterplan the marina. International projects now account for more than 30 per cent of Cardno’s revenues.
Palm Jebel Ali will house a population of 250,000. Queensland based property developer Sunland Group (SDG) will play a prominent part in providing residential and hotel facilities within the Palms complex. Sunland has developed some strong alliances with large local enterprises, including the Emirates Investment Group.
The Sunland Emirates joint venture will develop the Palazzo Versace Dubai and D1 projects – these have a combined value of $1.2 billion. The sales program was launched in December 2006 and more than $500 million in pre-sales have been received.
Australia’s leading air conditioning, refrigeration and electrical systems business, Hastie Group (HST), has also used Dubai as a stepping stone to other areas in the Gulf region. In the last 12 months Hastie has won two contracts valued at about $100 million.
Hastie’s first contract involved the installation of air conditioning systems and associated electrical and hydraulics work in twin 50 storey towers. The second contract involved the supply of similar services in a 190,000 square metre shopping mall in Abu Dhabi, the largest and purportedly the richest of the seven emirates.
All of the companies reviewed are involved in long term projects. Consequently the earnings impact will not be evident in 2006-07, but the projects should provide substantial earnings growth in 2007-08 and 2008-09.
In most cases the potential upside is not being factored in to the companies share prices, so it may pay to get in early before investors begin to focus on medium term earnings outlooks. These companies also have a first mover advantage and there is a significant possibility that new projects will trigger share price re-ratings.
Whatever your views, you can discuss this article - or any of Trevor's articles - on our message board Your 2 Cents.
Trevor Hoey is one of Australia's leading finance journalists, having written for Shares, Personal Investor and BRW magazines. Trevor's broad contact base enables him to find out - and report on - the real story behind what's happening at Australian listed companies. Trevor writes for the Australian Financial Review and AFR Smart Investor magazine.
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