Drake & Scull shares slump as shareholders vote to increase capital reduction

Shares in Dubai-based contractor Drake and Scull International (DSI) fell to their lowest level in 15 months on Sunday after the shareholders voted to further increase the company’s planned capital reduction and refused to subscribe to a capital raising.

Drake and Scull shares fell by 9.93 per cent during trading on Sunday, almost the maximum drop allowed on the Dubai Financial Market (DFM), to 39.9 fils, their lowest level since 22 February last year.

In a statement to the Dubai bourse, DSI said that shareholders had “unanimously” expressed no interest in subscribing to a proposed Dh500 million share capital increase but that they had agreed plans to cancel more company shares.

Last month, DSI announced plans for a recapitalisation which would have involved cancelling 50 per cent of its 2.28 billion shares to cut its liabilities by Dh1.14 billion – the equivalent of 115 per cent of the company’s accumulated losses. Following this the company then planned to issue more than 1.16 billion new shares with a par value of Dh1 each to strategic investor Dubai-based Tabarak Investments.

Instead, DSI said on Sunday that shareholders had agreed to a plan to reduce company shares, this time by 75 per cent to wipe out all of the company’s existing losses of Dh991.5 million.

The company then added that shareholders had also agreed to a second round of capital reduction which would wipe out up to another Dh722m of debts, subject to agreement from market regulator, the Securities & Commodities Authority.

DSI said that Tabarak had agreed to press ahead with its Dh500m investment to buy 500 million new shares on the provision that the company increase the planned capital reduction by up to Dh722m.

DSI said that the extra Dh722m capital reduction was needed to cover “potentially unrecoverable receivables,” which will be converted into losses for the company.

“For existing shareholders, this [new capital-reduction deal] will mean an equity dilution as the new subscription will be at a discounted price but it appears that DSI needs the cash from recapitalisation to survive and grow in the current challenging environment and hence they are willing to go ahead with the proposal,” said Nishit Lakhotia, the head of research at Bahrain-based investment bank Securities & Investment Company.

“Under this new proposal, the new shareholder Tabarak will end up holding around 47 per cent of the company rather than more than 50 per cent which would have been the case under the previous proposal.”

DSI initially announced in February that it had secured the funding from Tabarak Investment when it revealed preliminary results which showed a loss of Dh732.9m for last year, and a negative cash balance of Dh305m. Audited accounts filed at the end of March showed that a waiver agreement that had been put in place following a breach of its bank loans meant that the bulk of its bank debts were now repayable on demand.

Last month, all nine DSI board members resigned their posts. The company said on Sunday that shareholders had approved a plan to reduce the size of the board from nine to seven members but had voted to delay approval for the remaining members of the board to resign.


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