|12 September, 2018

Dubai's DSI weighs on DFM on Wednesday, market closes lower

Loss-making DSI dropped its 10 percent daily limit, shareholders to decide whether to dissolve the company

Dubai's DSI weighs on DFM on Wednesday, market closes lower

Dubai’s Drake & Scull International (DSI) fell to its 10 percent daily limit in early trading on Wednesday and was the most traded stock on the exchange. Trading in the stock was responsible for more than a quarter of all trades on the exchange during the day.

The decline meant Dubai’s index closed 0.82 percent lower for the day.

The company announced to the exchange on Wednesday that it would convene shareholders for a general assembly meeting on Thursday, 27 September to “take Special Resolution to continue carrying out the activity of the Company or to take a Special Resolution to dissolve the Company prior the expiry of its term”. This is a measure that the company has to take under UAE laws once its accumulated losses reach half of its issued share capital.


The general assembly meeting’s agenda also includes informing the shareholders of the company on the current situation and the future plans “along with the developments in the investigation conducted by the new management with regards to the previous executive management.”

The 10 percent decline in its share price on Wednesday meant that its shares closed at 0.405 United Arab Emirates dirhams ($0.11), bringing the total decline in the stock's value for the year to date to over 82 percent. Concerns about the company’s financial position, business outlook and the announcement of an investigation by United Arab Emirates authorities into alleged financial violations by previous management have all contributed towards negative investor sentiment.

The company now has a market capitalisation of 433.75 million dirhams, which is less than the 500 million dirhams that main shareholder Tabarak Investment injected into the company last year as part of its attempted turnaround of the business.

“The stock is reacting to the disclosure made on DFM today where DSI plans to host a general assembly meeting on 27 September 2018 to discuss if it wants to carry on its activities or dissolve the company as accumulated losses exceeded 50 percent of its share capital,” Nishit Lakhotia, head of Research at SICO told Zawya by email.

Last month, the company announced a second quarter net loss attributable to shareholders in 2018 of 181.1 million dirhams compared to a loss of 182.7 million dirhams in the same period last year. It also announced second quarter contract revenue of 350 million dirhams, versus 660.3 million dirhams a year ago.

“Fundamentally, the company’s balance sheet is at a precarious level with short term liabilities significantly higher than its equity and cash balance. Accordingly, there is a real risk of the contractor defaulting on its obligations in the near term unless its principal shareholder, Tabarak Investments, can infuse more cash into the entity,” Lakhotia added.

Shares of DSI appear to be oversold, according to the Relative Strength Index (RSI 14). The index is a measurement between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. Data from Thomson Reuters’ Eikon shows that DSI has an RSI of 25.82.

Elsewhere in the region, Abu Dhabi’s index retreated 1.17 percent, Kuwait’s index lost 0.2 percent, Bahrain’s index was down 0.16 percent, Qatar’s index gained 0.6 percent and Oman’s index added 0.99 percent.

At 2:17 pm GST Saudi Arabia’s index was trading 0.31 percent lower and Egypt’s index dropped 0.58 percent.

(Writing by Gerard Aoun; Editing by Michael Fahy)


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© ZAWYA 2018

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