The Abdullah brothers owe Dh1.8bn to banks and Damas International, the Middle East's largest jewellery company founded by their grandfather more than a century ago.
Damas brothers owe Dh1.8bn to banks and company
The brothers behind Damas International, the Middle East's biggest jeweller, owe a previously undisclosed Dh1.2 billion (US$326.7 million) to banks, it has emerged.
The disclosure comes as the company's restructuring appproaches its climax.
The debt, owed to more than 20 banks, comes in addition to Dh600m drawn from Damas International, according to a company spokesman.
The Abdullah brothers - Tawfique, Tawhid and Tamjid - were the subject of the strictest regulatory action in the history of the Dubai International Financial Centre (DIFC) in March last year for improperly withdrawing Dh365m of cash and nearly two tonnes of gold worth Dh250m from Damas without shareholder approval.
The brothers were accused by the Dubai Financial Services Authority (DFSA) of using the company as their personal bank. They invested far and wide in property, equities and direct stakes in companies.
Most of the investments were within the UAE, but there were also stakes in projects and companies in Turkey and Kuwait.
The total Dh1.8bn the brothers owe the banks and Damas has been at the centre of painstaking negotiations over the past year between more than 20 institutions, including Credit Agricole and Standard Chartered.
The Abdullah brothers are expected to sign an asset sale and repayment agreement "within a month".
The negotiations are extremely complex because of criss-crossing of guarantees, varying ownership structures and a mix of secured and unsecured debt arrangements, according to informed sources.
The complex agreement is expected to last three years to increase the potential value of any assets sold should market conditions improve.
"Every single lender wants to maximise its recovery," said a Damas official.
The Abdullah's stake in Damas and other assets have not yet been given a market value by creditor banks.
Without full support for the agreement, Damas would be put in a difficult situation because its own restructuring of Dh3bn of corporate debt is contingent on the agreement being signed.
The DFSA has the power to enforce a liquidation of the brothers' assets if a deal is not agreed to, but observers said that would be the final option because it would lead to a heavily discounted sale of assets.
Analysts say the underlying jewellery business, which has 500 shops in the region, is in good shape after the retailer reported a net profit of Dh4.2m for the six months that ended last September 30.
"Overall, Damas has got a good business model. If they can sort out the financial management of the company, they will be a force to be reckoned with in the years to come," said Richard Adams, a retail analyst at Datamonitor based in Dubai.
The Abdullah brothers have maintained that they did not seek to defraud the company with their withdrawals. They could not be reached for comment through their lawyers yesterday.
Damas International issued shares publicly in 2008. Between July 1 2008, and October 27 2009, the brothers made about 2,200 debit transactions from the company, according to the DFSA.
"The drawings were made by the Abdullah Brothers to pay for minor items, such as fuel, to large investments in real estate, equities and commercial business enterprises," said the DFSA.
Many of their deals involved taking out short-term debt with banks such as Mashreq and United Arab Bank, and having Damas settle the debts.
The DFSA levied strong penalties on the Abdullah brothers and Damas. It banned the brothers from holding executive positions in companies in the DIFC for between five and 10 years, including the 100-year-old jewellery business founded by their grandfather.
They have since returned as consultants to the company, mostly to help recover debts from gold traders with whom they have personal relationships, according to Damas.
The brothers were also fined a total of Dh11.01m for their violations of the centre's laws, with 90 per cent of that amount suspended pending their co-operation with the DFSA. No criminal charges have been announced by the Dubai Public Prosecution.
Damas was fined and the entire board of directors was asked to voluntarily resign for failing to detect problems at the company in advance. New corporate governance procedures were required for the company.