Tabarak to become majority owner of Drake & Scull

Dubai-based contractor Drake & Scull International (DSI) has revealed the terms of its recapitalisation and set a date for shareholders to decide on whether to approve the deal that will help it wipe out accumulated losses of about Dh1 billion and make Tabarak Investment its biggest shareholder.

The company is proposing to cancel 50 per cent of its existing share base of over 2.28 billion shares, the number of shares in circulation, by 1.14 billion. This cuts its liabilities by over Dh1.14bn, which is equivalent to 115 per cent of the firm’s accumulated losses. This means the firm can basically extinguish its existing losses and build a capital cushion of just over Dh150 million.

Following this, the company will issue more than 1.16 billion new shares with a par value of Dh1 each to “strategic investor” Tabarak Investment, which, as a result, will become the company’s majority shareholder in return for its Dh500m investment.

Dubai-based Tabarak is paying 43 fils per share, which was a discount of 3 fils to the closing price of 46 fils on Tuesday before the deal was announced. The 57 per cent difference in value between the price paid by Tabarak and the Dh1 par value creates a residual amount of almost Dh662.8m, which will be offset through retained earnings generated by future profit. Following the announcement, DSI’s shares finished up 2 per cent esterday at 47 fils per share.

Nishit Lakhotia, the head of research at Bahrain-based investment bank Securities & Investment Company, explained that ordinary shareholders were likely to lose out as a result of the proposed deal.

“The discount at which the rights issue is being proposed post-capital reduction will be dilutive to minority shareholders,” he said. “However, it appears that the need for cash and change of ownership is more important for DSI to undertake a rights issue under such terms.”

DSI initially announced that it had secured the funding from Tabarak Investment in February 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 last month 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.

DSI also announced yesterday that its current nine board members have resigned their posts, and that nominations have opened for positions on a reduced board of seven directors. Nominations need to be submitted over the next 10 days, and shareholders will vote on both the new board composition and whether or not to approve the capital restructuring at its annual general meeting, which will be held at the Westin Hotel, Jumeirah, on April 27.

Wael Allan, the chief executive brought into Drake & Scull in to implement a turnaround strategy, said that recapitalisation, coupled with the sale of non-core assets like the company’s recently-divested Dh300m stake in the One Palm project, would bring in almost Dh1bn to the business this year.

“The truth is we are creating liquidity, we are streamlining the operations and the banks have been extremely supportive. The proof of the brand name and its value is through the Tabarak investment.”

He added that Tabarak Investment is “well versed in investing in companies with liquidity issues”.

“They have good experience [and] they have good knowledge of the local market,” he said.

“We are moving in the right direction – 2017 for us will be a year to stabilise, resolve all of the legacy issues and be ready for 2018 to start showing profitability to our shareholders.”

Follow The National’s Business section on Twitter