By Megha Merani
27 April 2017
Dubai-based building company Drake & Scull International PJSC (DSI) plans to sell more ‘non-core’ assets in 2017, helping to fund a cash injection of approximately 900 million UAE dirhams ($245 million) in equity this year, the company’s chief executive told Thomson Reuters Projects on Wednesday.
The engineering contractor reported an annual loss 815.3 million UAE dirhams last year as low oil prices and an economic slowdown hit the Gulf construction sector, the company reported in its consolidated financial results last month
In February this year it announced a turnaround and capital restructuring plan which included a number of cost-cutting measures and capital raising initiatives.
As part of this plan it announced to the Dubai Financial Market it had secured a binding offer from Dubai-based Tabarak Investment for a capital injection of 500 million UAE dirhams.
Its strategy also involves divestment from non-performing or distressed subsidiaries. In March, DSI announced it had sold its stake in the One Palm residential development on Palm Jumeirah to Omniyat Properties, its joint venture partner in the project. It said it hoped to generate 300 million UAE dirhams from the sale, according to a press statement.
CEO Wael Allan, who replaced Khaldoun Tabari in October 2016, said the sale of non-core assets like the One Palm stake, along with the injection from Tabarak, would help “remedy” the firm’s financial distress.
“There will be other lands and other small investments that we will dispose off, but Omniyat is the largest one we have done,” Allan said ahead of the firm’s Annual General Meeting (AGM), due to take place today (Thursday, April 27).
“And of course we have Tabarak Investment coming in with an equity of 500 million. So hopefully this year overall we should generate about 900 million of cash injection equity, excluding what comes from the projects,” he added.
He did not comment on which specific assets the company was considering divesting, but said the financial outcome would be “really healthy”.
Allan, brought in to help turn around the Gulf contractor’s fortunes, said more asset sales are on the cards for the remainder of 2017.
“Wherever we have any non-core assets or non-core businesses, we will be divesting from. It’s on-going,” he said.
DSI’s auditor PricewaterhouseCoopers (PwC) issued a “going concern” warning last month after the contractor reported its losses and breached bank covenants. A going concern warning means that without a major capital injection, the company will go bankrupt. The contractor said in March it had breached covenants on a syndicated sukuk and other bank loan facilities after making a loss last year.
Commenting on the PwC warning, Allan said: “I think the cash injection from the Omniyat sale, and the equity, go a long way towards remedying that issue.”
He added that the injection would also help restart some of its stalled projects.
DSI was already in breach of financial covenants on a number of bank facilities in 2015. It then reached an agreement for a conditional waiver of the breach up until December 2016, but was not able to comply with reporting requirements requested by lenders and therefore had breached the covenants again, the firm said.
“I think we have to understand in the context, the construction industry is generally in distress,” Allan said, adding that ventures in the Saudi market have suffered.
“I think in the model and the people we are working with, we have been fortunate enough to have good supportive banks and very good supportive clients.”
© Zawya Projects News 2017