Drake & Scull looks to finalise Dh600m capital raise this month, says chief executive

Dubai-based contractor Drake & Scull International aims to fin­alise by the end of this month a capital-raising exercise that will result in Dh600 million invested into the business.

Wael Allan, the company’s chief executive, told The National that alongside a binding offer from Tabarak Investment to inject Dh500m into the business, it plans to raise a further Dh100m from shareholders through a rights issue that will take place as part of a capital restructuring.

“This offer is subject to approval by [the regulator] Esca, and also subject to shareholder approval,” said Mr Allan.

“We are expecting Esca’s response very soon and we are scheduling our annual general meeting for some time in April. So hopefully we will have an outcome by the end of this month.”

Drake & Scull last week filed audited accounts showing a Dh732.9m loss for 2016 and a negative cash balance of Dh305m.

Mr Allan said that with the Dh300m it is set to receive from its former joint venture partner Omniyat for its stake in the One Palm Jumeirah project, the business will have about Dh900m to plug its deficit and restart some stalled projects, which will in turn generate additional cash.

“Looking at our 2017 cash flow and beyond, we should be cash-neutral hopefully this year and start moving into cash-positive in the subsequent years,” Mr Allan said.

The company also hopes to bring in more cash through the sale of other assets, such as some land holdings and business units that have been deemed non-core, such as its Indian operations.

A restructuring of its management team is also currently under way.

Mr Allan, who was appointed last October, said that he was confident of being able to achieve a turnaround based primarily on its core competence of winning major MEP (mechanical, electrical and plumbing) projects across the Gulf.

“Many people have said ‘Why did you go to Drake & Scull? It’s got a lot of problems’. Honestly, it’s a very exciting company to work for, has great entrepreneurial spirit and a great history. As an MEP provider, I truly believe it is No 1 in the region. If I count MEP contractors who could do Dh500m jobs, I could probably count them on one hand.” He said that its panel of banks were being “extremely supportive”, and the investment by Tabarak Investment was a sign of the strength of the company’s brand.

Aymen Soufi, an analyst with the Tunisian equity research company Alpha Mena, said that the company also needs to turn around its declining profit margins. Accounts filed last week showed that Drake & Scull remained unprofitable even at a gross margin level, with contract costs outweighing revenues by Dh364m.

“In fact, since its IPO, Drake & Scull has been suffering from a declining gross margin which resulted in a negative gross profit for the past two years,” said Mr Soufi.

He also said that most of its funding is of a short-term nature. Its audited accounts show that it is in breach of banking covenants, and a conditional waiver regarding its bank debt has expired. This means that more than 91 per cent of its current debt is short term.

“You just can’t fund long term projects with short-term debts,” said Mr Soufi.

Drake & Scull’s share price has fallen 8.5 per cent in the past three months to 46 fils on the DFM.