Drake & Scull to cull civil contracting and Indian businesses

Drake & Scull International (DSI) will trim its civil contracting and Indian businesses as part of a restructuring plan aimed at returning the Dubai-listed contractor to profitability as it contends with cash flow issues caused by contracts in Saudi Arabia.

DSI will close its Gulf Technical Contracting Company (GTCC) arm in all markets outside the UAE, Wael Allan, the company’s new chief executive, said yesterday on the sidelines of the Excellence in Construction summit at The Big 5 trade show in Dubai.

GTCC is a contracting company DSI acquired before its initial public offering in 2008.

The company is also significantly scaling back its operations in India, where it is pulling out of general contracting, mechanical, electrical and plumbing (MEP) as well as rail, leaving only a division of its wastewater treatment business, Passavant Roediger.

“I think in times of distress and markets being tight, what we are looking at is focusing on our core competencies and core geography,” said Mr Allan.

The company posted a narrower quarterly loss attributable to its equity owners of Dh46.3 million in the three months to September as it continued to cut costs and focused on high-margin business. It also ended the period with a negative cash balance of Dh246m.

The company, which is suffering from a slowing construction market and payment delays, especially in Saudi Arabia, is reviewing its operations under a plan to return to profitability.

DSI is concentrating primarily on its MEP contracting arm, but would only target markets where it is one of the top three providers.

“Countries where we are not in the top three, we will withdraw,” said Mr Allan. “In MEP, we cannot be number one or number three in India. Therefore, we have made the decision to slow down and pull out from the MEP business in India.”

The company’s attempt to branch out into civil contracting into what was a booming market five years ago has been the source of much of its recent woes.

DSI was forced to declare a loss attributable to equity owners of Dh877.8m in the third quarter of last year after it took provisions for doubtful debts, including for projects in Saudi Arabia. One such project is the 2 billion Saudi riyal King Abdullah Petroleum Studies & Research Centre, according to market sources.

When asked whether the company needs to raise external finance, Mr Allan said that the company’s management is still working with third-party consultants to assess its position.

“I can’t say that at the moment because our evaluation has not been completed. That’s why we have the advisers. They are looking really thoroughly at our outgoings, what is predicted to come in, what is likely to collect and what is not,” said Mr Allan.

“Based on that evaluation, by the end of this year we will be in a position to state that clearly to the market.”

Contractors involved in projects in Saudi Arabia are facing delayed payments as the government cuts spending to deal with a fiscal deficit. Saudi Arabia had relied in the past on oil money to finance big projects but has been forced to curtail some plans in the low-oil price environment.

Speaking at a panel debate at the summit, Stephen Anderson, a partner at PwC, said that Saudi Arabia should use more debt to fund capital expenditure.

“The issue is if you’re not using debt to finance projects, as soon as you run out of cash you don’t have the means to finance those,” said Mr Anderson.

“What will necessarily happen in Saudi Arabia is that they will have to leverage up. They will have to get more private-sector participation into projects and therefore we may see a better environment for contractors. But that is not going to happen overnight.”


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