Provision for money owed weighs on Drake & Scull International first quarter
Contractor Drake & Scull International (DSI) posted a loss of Dh722.5 million in the first quarter as it made provisions against contract sums owed from customers.
The company wrote down Dh572m in amounts due from customers on contract balances. It also declared a 23 per cent decline in year-on-year revenue during the period to Dh796m.
The loss declared for the quarter “looks like a back-calculation” said Nishit Lakhotia, the head of research at Bahrain-based Securities & Investment Company, allowing it to meet its latest capital restructuring plan.
The company had initially planned to cut the amount of shares it has in circulation by half, which was equal to about 115 per cent of its accumulated losses of about Dh992m by the end of 2016. The deal also involved Tabarak Investment injecting Dh500m of equity into the company, allowing it to buy 1.16bn shares at a discounted price of 43 fils per share, giving it a majority stake.
However, this proposal was rejected initially by the regulator, the Securities and Commodities Authority, which forbade DSI from cancelling shares above the value of its accumulated losses.
Moreover, at its annual general meeting held this month, shareholders also voted down the plan to let Tabarak Investment subscribe at a discount.
A rejigged structure involves Tabarak Investment instead buying Dh500m worth of shares at par value following a much greater reduction in the company’s share base – it is proposed that more than 1.7 billion shares are cancelled, leaving 580 million in circulation before Tabarak’s investment (giving it a 47 per cent stake).
The Dh722m loss for the first quarter brings the firm’s accumulated losses to more than Dh1.71 billion – exactly the level of losses required to cancel 75 per cent of its shares.
“The regulator will only allow you to only reduce your capital up to your accumulated losses. So they have added another Dh722m to their losses so they can reduce shares by 75 per cent and totally wipe out their accumulated loss before they get the new strategic investor into the company,” Mr Lakhotia explained.
“There is a regular net loss of about Dh140m that they would have made without this extraordinary provision.”
DSI was unavailable for comment yesterday, but in a statement accompanying its first quarter trading figures the company’s chief executive, Wael Allan, said the firm was “confident that the completion of the capital restructuring programme will enable us to stabilise the business and help to resolve our financial challenges”.
“We are undertaking several strategic measures to improve our operations, control costs and eliminate inefficiencies affecting our business across all operating segments,” he said.
Although the recapitalisation would be dilutive for shareholders, it may be necessary.
The first quarter accounts for DSI were accompanied with a note from auditors PwC, which stated that its current liabilities exceed its assets by Dh856m and that it has a negative cash balance of Dh278m, indicating a “material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern”.
Mr Lakhotia said the Dh500m of new money from Tabarak “is positive but is not that significant” in terms of DSI’s turnaround.
“What is going to change the fortunes of the company is its ability to recover the amounts that is due to it.”
The company is owed as much as Dh2bn by Saudi Aramco for work at the King Abdullah Petroleum Studies and Research Centre, which it completed in 2012, Mr Allan had told The National last month.
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