x Abu Dhabi, UAESaturday 20 January 2018

Damas nears Dh3bn debt restructuring deal

Plan agreed with creditors puts payment agreement on track for region's biggest jeweller. .

People walk past a Damas jewellery store in the Gold Souk area of Dubai.
People walk past a Damas jewellery store in the Gold Souk area of Dubai.

Damas International, the largest gold and jewellery retailer in the Middle East, says it is close to finalising a restructuring agreement on debt worth more than Dh3 billion (US$816.7 million).

The deal would allow the company to repay Dh1bn over six years and use the rest as working capital, said Anan Fakhreddin, the company's chief executive.

The company, based in Dubai, is days away from signing the deal ahead of a January 31 deadline, Mr Fakhreddin said.

"The scenario we're reaching now is an all-win scenario, where the banks are getting money paid back with interest, with no haircut," he said. "Damas will be able to pay back excess indebtedness from its position of income, with no need to liquidate anything. We've been offered a very fair deal from the banks, and that only reflects the amount of confidence the banks have in our business model."

Mr Fakhreddin said the agreement would divide the company's debt into two parts: Dh1bn of "excess indebtedness" to be paid back over six years; and a revolving capital facility to be paid in quarterly instalments.

The publicly listed retailer has been negotiating with its creditors to restructure more than Dh3bn worth of debt, a move Damas needs to complete to remain in business. It has had an official standstill on payments with its more than 20 lenders since March last year.

The retailer is one of several regional companies to be faced with debt issues and forced to restructure finances in the past 12 to 18 months.

Damas has struggled to recover since October 2009, when its then chief executive, Tawhid Abdullah, stepped down from his post after disclosing unauthorised transactions. What amounted to Dh614m in deals included property investments such as a shopping mall in Turkey and about two tonnes of borrowed gold - transactions conducted without proper shareholder approval.

These transactions weighed heavily on Damas's books, forcing the company into losses. Although Damas's underlying retail business remained profitable, the company reported Dh1.9bn of losses in the 12 months to March 31 last year because of one-time write-offs. The regulator of the Dubai International Financial Centre (DIFC) banned Mr Abdullah and his two brothers, the former Damas executives Tawfique and Tamjid Abdullah, from executive roles with any DIFC company for between five and 10 years.

The Abdullah brothers, members of Damas's founding family, have also been negotiating with the company and their creditors to sign a "cascade agreement" detailing how they intend to repay the Dh614m back to the company.

Mr Fakhreddin said he expected this to be finalised as well, alongside the debt restructuring deal. The recovery of the money from the Abdullah brothers would also help the company repay its debts, he added.

"We will be in a position to pay back the banks from our position of income, we will still have the ability to rely on the recovery that we will have, whether its from the brothers and the cascade agreement or from other recoveries that we will make from other fronts," Mr Fakhreddin said.

Damas has recently swung back into the black. The jeweller made a net profit of Dh4.2m for the six months ending on September 30.

Damas has also been streamlining its retail network, closing more than 25 under-performing stores in the past six to eight months, Mr Fakhreddin said. It now has 420 shops across the region but plans to open additional branches in Dubai, Abu Dhabi and Saudi Arabia.

"Whether it is next week or next month, we will be in a position where we will have signed an agreement with the banks that will allow us to keep our working capital, do business, and do what we do best," Mr Fakhreddin said.