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Abu Dhabi, UAEWednesday 24 October 2018

Tabarak raises stake in Drake and Scull to 13.73% 

Dubai private equity firm raises its share in loss-making contractor after DSI shares plunged 

Drake & Scull says Tabarak Investment increases its shareholding in the Dubai based contractor. Rich-Joseph Facun / The National
Drake & Scull says Tabarak Investment increases its shareholding in the Dubai based contractor. Rich-Joseph Facun / The National

Private equity firm Tabarak Investment has increased its shareholding in Drake and Scull International, despite a drop in the Dubai contracting company's shares and ahead of a shareholder meeting later this month, that may decide the company's fate.

Tabarak Investment raised its share to 13.73 per cent from 13.26 per cent, DSI said in a statement to the Dubai Financial Market on Sunday.

"Some of these shares are held in the name of Ajman Bank as a collateral against financial facilities," DSI said. "Tabarak Investment retains its actual ownership rights as the beneficiary owner of the shares."

Drake and Scull, which has faced mounting losses since 2015, said on Wednesday it is calling a shareholder meeting on September 27 in accordance with UAE companies law. The law states that shareholders must decide on whether to dissolve a company if its losses amount to half of their issued share capital.

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After the statement on the Dubai bourse, DSI shares plunged the maximum daily limit of 10 per cent to Dh0.405, leaving them down 82 per cent since the end of 2017.

The building company, which posted a second-quarter net loss of Dh181.1 million, issued a second statement hours later on Wednesday emphasising that its board is exerting all its effort to safeguard shareholders’ interests and "ensure the seamless operation of the company and its continuity".

The shareholders meeting to vote is a "mere legal requirement" in accordance with UAE company law and does not mean that it intends to dissolve the company before its expiry term, DSI said.

Tabarak Investment's incremental stake increase in Drake and Scull conveys its commitment to the construction company, analysts said.

"Tabarak increasing its stake in DSI marginally is symbolically positive, particularly, after the recent speculation on whether the company will get dissolved or not," Nishit Lakhotia, head of research at Bahrain-based Sico, said.

Tabarak Investment's move will have a "neutral" impact on Drake and Scull, Lina Hisham, research analyst at Naeem Brokerage said.

"Symbolically, it shows Tabarak Investment’s commitment to Drake and Scull, that everything is fine and that the company will not necessarily dissolve,” Ms Hisham said.

Tabarak Investment was being strategic when it raised its share in Drake and Scull, Nabil Al Rantisi, managing director of capital markets at Daman Investments, said.

"They see value in investing at these prices and it probably helps boost confidence," Mr Al Rantisi said.

Drake and Scull must focus on its near-term liquidity problems, given its "huge" short term liabilities, Mr Lakhotia said.

"What DSI currently needs is more cash inflow through either equity infusion from Tabarak or raising debt," Mr Lakhotia said. "Probability of both options looks low currently."

Analysts said dissolution of the company is not an inevitable outcome and alternative solutions could include taking the company private, recapitalising or taking on an strategic investor.

On August 14, the company said it would appoint Yousef Al Mulla as chief executive from August 26, replacing Fadi Feghali, who took the post in April. It did not provide a reason for hiring its second CEO in a year.

The company’s biggest shareholder is Ajman Bank with a 13.06 per cent share, according to the DFM.