Monday, June 25, 2018 2:12 PM

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Drake & Scull gets Dh500 mn lifeline

Tabarak Investment, an Abu Dhabi-based private equity investor, announced Dh500 million cash injection in Drake and Scull International (DSI), an engineering and contracting conglomerate, as part of a capital restructuring programme, after acquiring the 10.39 per cent shares of Khaldoun Rashid Tabari, the company’s former Vice-Chairman and CEO.  The deal will help the troubled regional mechanical, electrical and plumbing (MEP) contractor to overcome the current cash flow crisis due to a large non-payment issue by a Saudi Arabian client – that pushed Drake and Scull International to venture into a cost-cutting and restructuring programme last year.

 Tabarak Investments’ plan of Dh500 million investment through a capital restructuring is conditional – subject to a 75 per cent of the company’s shares being written off to extinguish accumulated losses of Dh1.71 billion. Following the restructuring, which is awaiting regulatory approval and is now taking place in the third quarter of the year, Tabarak is likely to own about 40 per cent of the company, the company’s newly appointed acting chief financial officer Firas Kalthoum told Gulf Property on the side-line of a press conference.

 DSI, which has an order backlog of Dh8 billion, reduced its headcount by more than 40 per cent to 18,000 people from April 2016. Further cost-cutting measures might be in the offing as capital restructuring might look into creating a much leaner organisation.

 “The transaction reaffirms the commitment of Tabarak Investment to the DSI brand and the promising outlook of the Company upon completion of the capital restructuring program which was approved by the shareholders at the Annual General Assembly Meeting held on 4th of May 2017,” a joint statement said. “The company continues to review and optimise its organisational structure by merging and integrating core functions across operating segments to reduce overheads, streamline costs and to improve the bottom line performance.”

The company concluded a series of key management appointments at both corporate and subsidiary levels and the new management team has been recently complemented with the appointment of Feras Kalthoum as Acting Chief Financial officer of the Group.

 The company advanced with the capital restructuring programme and received further instructions from the Securities and Commodities Authority (SCA) to proceed with the final regulatory preparations in order to fulfil the approval requirements and to initiate the 75 per cent capital reduction.

 Phase 1 (capital reduction) of the capital restructuring programme is expected to be completed within six to seven weeks. Upon completion of phase 1, the company will instigate the execution of phase 2 (Capital increase) of the programme which includes the Dh500 million capital increase to accelerate the entry of Tabarak Investment LLC as a major strategic investor in the company.

 The initial projected timeline of the capital restructuring programme has been deferred by a period of one month and the company now expects to complete the programme by the end of Q3 2017.

 Wael Allan, CEO, Drake & Scull International PJSC, commented: “We are pleased to see Tabarak Investment reaffirm their unwavering commitment to the Company. With their unyielding support, we will aggressively continue to execute our turnaround strategy and undertake key business transformations and strategic initiatives in collaboration with all our stakeholders.”

 “I would like to reassure all our shareholders that the new management team is fully dedicated and geared to prepare a new phase of financial & operational recovery. Despite the short-term challenges, the company is well positioned to benefit from its leadership position in the MEP sector and to secure profitable projects in the UAE market in the near future.”

 Feras Kalthoun, Acting CFO, Drake & Scull International PJSC, added: “I look forward to being part of the new management team assigned to stabilise the business and resolve the Group’s financial challenges. The completion of the capital restructuring program is essential to resolving the liquidity challenges of the Company and to rebalance the Capital structure of the Group.”

 “Our immediate priority is to plug-in our working capital deficit; improve collection to shore-up liquidity. Our short-term goals are to streamline our business, bolster liquidity, optimize governance and transparency, and secure high-potential projects. The UAE market remains buoyant and we expect to progress steadily with our turnaround strategy throughout the second half of the year.”

 Ahmed Kilani, CEO, Tabarak Investment LLC, concluded: “The acquisition of Tabari’s shares is a voice of confidence in the DSI brand and the longstanding track record of the Company particularly in the MEP sector in the UAE. The strategic synergies between DSI and Tabarak will be pivotal to the success of the turnaround strategy set forth by the Company earlier this year. We are optimistic about the prospects of the Company in the long term and we are keen on the completion of the Capital restructuring program to assist the Company during this challenging time, yet promising outlook.”

 DSI will look to restructure its debt pile, which stood at Dh2.44 billion at the end of March, through the issue of a new sukuk or a syndicated loan, Firas Kalthoum said.

 Kalthoum said that he had already met three of the firm’s top six banks and said that he was ‘very optimistic’ about restructuring the company’s bank debt. A further Dh3.4 billion is owed in trade debt and other receivables.

 "In terms of restructuring the debts, we can definitely [do] either syndication or sukuk. That’s what we are considering. We have tested the waters with some of the banks and they are willing to consider it, but there is nothing concrete yet," he said.

 "It will take us two months to formulate a solid plan that [banks] are willing to accept and then we will go to the banks again, like a mini-local roadshow and then close the restructuring."