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John Defterios: UAE stock market a work in progress

By John Defterios, CNN
July 2, 2014 -- Updated 1855 GMT (0255 HKT)
Photographer Daniel Cheong spent the past six months photographing the record-breaking skyline of Dubai, UAE, at just the right moments. Burj Khalifa, the world's tallest building at 2,722 feet, is seen here from the 79th floor of the Index Tower. Photographer Daniel Cheong spent the past six months photographing the record-breaking skyline of Dubai, UAE, at just the right moments. Burj Khalifa, the world's tallest building at 2,722 feet, is seen here from the 79th floor of the Index Tower.
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Stunning photos of Dubai's skyline
Stunning photos of Dubai's skyline
Stunning photos of Dubai's skyline
Stunning photos of Dubai's skyline
Stunning photos of Dubai's skyline
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STORY HIGHLIGHTS
  • Arabtec and Dubai's stock exchange have been in the spotlight for the past month
  • CNN's John Defterios looks at the controversy surrounding the construction firm
  • Arabtec's CEO was forced to resign after accumulating 28% of its stock
  • But its chairman tells Defterios Arabtec is working to improve the transparency

Editor's note: John Defterios is CNN's Emerging Markets Editor and anchor of Global Exchange, CNN's business show focused on the emerging and BRIC markets. Follow John on Twitter.

(CNN) -- Call it Abu Dhabi's ivory tower.

The 35-story white skyscraper stands tall overlooking the mangroves of this oil rich emirate which is the capital of the United Arab Emirates.

It was the venue for what was arguably the most important corporate press conference this year in the UAE. The subject at hand was the construction firm Arabtec.

At the front of the room, board members who represent the "who's who" of Abu Dhabi trading families: Qubaisi, Fahim, Suwaidi and Mehari.

John Defterios
John Defterios

The major backer of Arabtec is the state run investment group Aabar, which is one of the many funds controlled by Sheikh Mansour bin Zayed Al Nahyan, Deputy Prime Minister, the Minister of Presidential Affairs, and the owner of, amongst other trophy assets, Manchester City Football Club.

Until a month ago, this company was not on anybody's global radar, even though the Dubai-based group is well known around these parts.

It has built the new global landmarks like the Burj Khalifa, the world's tallest tower, and the world's most expensive hotel to be constructed, the Emirates Palace.

It is also busy putting up the Louvre Abu Dhabi, part of a $25 billion cultural district in the city.

We are only putting the system right now, but there is an auditor there, compliance system, everything there, but our job is to improve it.
Khadem Al Qubaisi, Arabtec Chairman

Interest inside and outside the country has been swirling around Arabtec and Dubai's stock exchange for the past month, especially after the market achieved an upgrade to MSCI's emerging market index in June.

But with a global upgrade comes international scrutiny for a company and stock market that many fund managers say are falling short on both transparency and corporate governance.

The press event was somewhat surreal.

Players representing billions of dollars of investment trying to clear up how a former CEO Hasan Ismaik accumulated 28% of the stock without either the company or the Dubai Financial Market raising any red flags.

An Arabic reporter I know was told before the press conference that we could all take our TV cameras in, but not have any audio.

That idea was quickly dropped.

Six board members were present, but Arabtec Chairman Khadem Al Qubaisi did all the talking during this hour long affair.

What emerged was a man out to clear the air. He said Arabtec has not seen one project cancellation and that Arabtec will in future do what it does best and that is construction -- and not venture into oil and gas as the previous leadership had planned.

World Expo could transform Dubai
Inside the tallest building in the world
World Expo could transform Dubai

The chairman told me, during a chat we had after the conference, that the former CEO used a handful of company vehicles to become the biggest shareholder to date.

"This guy decided to gather all the shares, because they are linked to Mr. Hassan," Qubaisi said.

"This is what I understood. But to be frank with you to speak about the details, I don't know."

That is not a big confidence builder for an MSCI listed company. We still don't know, despite it being probed, where Ismaik got the money to buy so much stock.

But when I asked Qubaisi about whether he has unearthed any impropriety, he told me: "There is nothing. We are only putting the system right now, but there is an auditor there, compliance system, everything there, but our job is to improve it."

Improving transparency to global standards will be a challenge, but Arabtec's order book seems to be healthy according to an analyst report put out today.

There is a backlog of some $16 billion according to HSBC and the construction group has been anointed by Abu Dhabi to build $40 billion of low income housing in Egypt to support the new government there.

That as they say is good business by any global standard.

Read more from John Defterios:
Iraq's 'new reality' shakes global oil markets
In Dubai, 'casino-like culture' has set in

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