ABU DHABI // Two high-rise towers in downtown Dubai are at the heart of an investigation into US$165 million (Dh606m) of "unauthorised transactions" at Damas International, the largest jewellery store chain in the Middle East. The two 49-storey buildings, known as the Angsana Hotel and Suites, were developed by Damas Hotels, a company owned by the Abdullah family, who together own about half of the NASDAQ Dubai-listed Damas International.
The project was billed in early press releases as the family's first major foray into property development. Banyan Tree Hotels and Resorts, the luxury resort operator, had struck a deal to manage the two buildings. But now Damas Hotels is trying to sell the development, which is expected to be converted into flats. "In view of the challenging operating environment brought on by the global economic recession, Damas Hotels LLC found it necessary and decided to proceed with the sale of the building. The building will be converted to residential use and is expected to be sold on a vacant possession basis," Banyan Tree said in a statement.
Tawhid Abdullah, the chief executive of Damas International, resigned from the company last Monday after disclosing unauthorised transactions. The company did not reveal the nature of the deals. Former employees of the hotel, most of whom transferred to Banyan Tree Al Wadi in Ras al Khaimah, said the Damas Hotels decision came without prior warning in the middle of last month. Construction on the two towers, which had been known as Damas Towers, commenced in 2004. The tower that became the suites section of the hotel was opened last year, while the second building, with 364 hotel rooms, has not yet opened, despite being scheduled for completion late last year.
Gaetano Cavalieri, a member of the board of directors at Damas International, told The National last week that the "unauthorised transactions" at the company involved investments in a property company. He said that the issue had been settled at the beginning of this month. The Banyan Tree management contract was terminated as of September 30. A Damas International spokesman declined to comment yesterday.
Since the disclosure of the situation by the company, Damas has appointed Hisham Ashour, a recently hired deputy chief executive at the company, as chief executive and pulled in PricewaterhouseCoopers (PWC) to conduct a full investigative audit of the company. A committee consisting of the chairman Tawfique Abdullah, the brother of Tawhid, and two non-executive board members will oversee the audit.
"The appointment of PWC demonstrates the board's commitment to corporate governance and how seriously we take the disclosure from Tawhid to the board, regarding these transactions," said Tawfique Abdullah in a statement. "The focus now is on co-operating with PWC so they can report their findings to the regulators, bringing clarity and reassurance to all of our stakeholders through the independent audit."
The year-long property downturn is forcing many companies to retreat from investments in the sector, which has been hard hit by the credit crisis and economic slowdown. Blair Hagkull, the regional director of the property consultancy Jones Lang LaSalle, said rapidly escalating prices tempted many companies to get involved in buying and selling property even though it was outside of their core business activities.
"The organisations that are into too many assets, especially real estate, are pulling back," he said. "People are going back into their core business." He said that the period of time when developers could build a tower and sell it off-plan were over, meaning companies without expertise in the sector were suffering most from the downturn. "Real estate in the last 10 years had become commoditised," he said. "It almost became a financial instrument - Now you need to take a long-term view and realise the market has become much more competitive."
Damas International has not given any details about the "unauthorised transactions", but analysts have pointed to loans taken out by Damas directors as the possible origin of the issue. The directors owed more than Dh259.5m to the company, according to its latest financial statements, but that represents less than half of the more than Dh600m of transactions under review by the company. Damas announced on Thursday that it had appointed PWC to fully examine the transactions and report their findings to the regulators.
The Abdullah brothers have committed to "repaying, in cash, all of the transactions", the company said last week, adding that they had "more than enough assets to achieve this". The management shake-up at Damas comes more than a year after it became a publicly traded company. In July last year, it sold about 29 per cent of the firm to investors, with the remainder being held by members of the Abdullah family, the Al Fahim Group and the private equity company Amwal Al Khaleej.
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