Drake & Scull to cut debts, close subsidiaries in turnaround plan

Dubai: Negotiate with banks to reduce debts and close non-performing subsidiaries represent parts of the restructuring plan that Drake & Scull International has put to its shareholders. But there is nothing so far about a new capital infusion from its main shareholder or some other way to inject funds to oversee operations.

All that DSI said in a new statement about the restructure was that “these negotiations aim ultimately to support the continuity of the company and protect the right of shareholders”.

Early this week, DSI confirmed that a committee involving its lender banks is looking at all possible solutions.

In the statement to Dubai Financial Market, where its shares still remain suspended, the company did provide more details on the ongoing investigations against DSI. Late last week, the stock market regulator announced the setting up of an independent committee to go through all the past records of DSI to see why it ended up reporting losses of Dh5 billion plus in 2018.

On the move by ESCA, (Emirates Securities and Commodities Authority), the statement said: “The company has handed over some files related to questionable projects for the period 2009-2017 and they are currently under review.

“The company will continue to provide additional documents and files related to the business as per ESCA’s audit committee’s requirements.”

DSI also threw some light on the status of the legal action it has taken against former board of directors and management. These follow internal investigations it carried out on decisions and investments made during 2009-2016. Based on these investigations, 15 “legal complaints” were filed with the UAE federal prosecutor’s office.

“These filed complaints are still under review,” DSI said in its Wednesday statement. (The complaints relate to how the previous management did not report the true nature of losses sustained during 2009-17, and even on investments made by DSI in businesses where members of the board had interests.) Market sources say that under the circumstances DSI would have thought it best not to tap more debt finance, especially with an investigation hanging over its head. “It would have been a difficult sell even if there were no investigations,” said an investor. “But now, any debt issue that it had planned would have carried a heavy interest – say 12-13 per cent – as against the typical 8-9 per cent in UAE’s corporate lending activity right now.

“Any bank wanting to underwrite such an issue would find it difficult to sell.”

Which again raises the question on whether DSI can hope to bring in new funds from Tabarak Investment, which is its main shareholder and who came on board in 2017 as a “strategic investor”. It had then put in Dh500 million as part of the capital restructuring efforts.

But by end 2018, those funds are looking puny compared with the scale of the losses. DSI has seen its current liabilities outweigh assets by Dh4 billion plus.

According to Vikram Venkataraman, a former banker and Managing Director at the consultancy Vianta, “Drake & Scull has had serious issues for as long as one can remember. And it needs a complete strategic and operational overhaul.”

So, much depends on whether the banks and the committee will be able to find ways to reduce debts. Closure of “branches and subsidiaries” is likely to help only to an extent in cutting down costs.

DSI needs to score some big project wins in the coming months to convince investors that it can still try and turnaround things. In the first four months of the year, the actual budget for MEP (mechanical, electrical and plumbing) contract awards in the UAE was about $8 billion, according to ProTenders. Out of this only $5.56 billion were awarded, and the remaining postponed to this quarter and the next, the tracking platform adds.

If DSI can secure a couple of high-profile wins, it would be some relief for the management and all other stakeholders. This is the script that Arabtec, the construction industry giant, followed after racking up major losses before managing to turn things around in 2017. It helped that key shareholders stuck with it and channelled funds.

DSI could well be hoping to do the same.

Changes made to DSI’s director board

Two new members were added to the board to replace two who resigned, including the chairman Obeid Bin Touq. Fahem Alshehhi and Salem Alshamsi are the new entrants. Shareholders also voted to increase the number of board members to nine from seven.

An executive committee is overseeing operations at Drake & Scull International, after loss of its CEO, chief financial officer and chief legal officer in the last fortnight.