The entire blame for the financial mess at Drake & Scull International, whereby it reported losses of Dh5 billion for 2018, has been placed on the previous management and Board of Directors, by the company’s current management. In particular, the “deliberate” decision to deferr the announcement of losses incurred between the years 2009 and 2016.
In a strongly worded statement, the current management confirmed that “15 legal complaints” were pending with the Federal Public Prosecutor for offences committed by members of the previous management. These were filed after internal investigations conducted by a new team early last year.
It doesn’t stop there. In the statement issued on DFM, DSI stated that a report filed by the previous management to shareholders in May 2017 was based on “false information”. This related to the value of the company’s project backlog, and a misrepresentation of project profitability and even on the percentage of completion. The DSI statement even points the finger of accusation at a “reputed third-party financial adviser” who had helped prepare the report with the falsified facts.
“The statement provides an update of the past and what led to the current sorry situation,” said a shareholder in the company. “What the market will need to know is how the company will go about solving the problems. And whether the problems are indeed solvable.”
One of the problems that can’t be wished away is that current liabilities racked up by DSI, which exceed its assets by Dh4 billion plus.
The company has submitted an official complaint to the UAE Securities and Commodities Authority to pursue action against members of the previous executive management in “efforts to protect shareholders’ rights”.
Last year, there were media reports from Bloomberg that revealed DSI founder and former CEO Khaldoun Al Tabari owed the company as much as Dh1 billion. Those legal complaints are still under review by the public prosecutor, according to the statement.
It is highly unusual for a listed UAE company to go to these lengths to explain the consequences brought on by a previous management.
The May 2017 report had helped pull in a strategic investor, in the form of Tabarak Investment and which put in Dh500 million as part of the capital restructuring. The firm currently has a stake of just over 13 per cent in DSI.
That Dh500 million has since proved grossly inadequate.
“The true liquidity needs of the company which far exceeded the Dh500 million injected by the strategic shareholder based on recommendations presented in the report,” the statement to DFM asserts. “The report omitted material information, including the number and status of overwhelming legal cases against the company.”
All eyes are on what Tabarak Investment would do next — will it be willing to pump in more funds to shore up the business? Will DSI be able to compete aggressively in the construction sector when it is consumed with so many legacy issues?
“It also gives the new management an opportunity to bite the bullet and start afresh,” said Sandeep Ganediwalla, Managing Partner at RedSeer Consulting. “At this stage communication externally and internally would be critical.
“They need to clearly articulate what the real issues are to the stakeholders — unambiguously; demonstrate that they have put in checks and balances in place to ensure this does not repeat again; and changes to the turnaround plan that shows it can be successful in the new path.”
DSI was the pre-eminent player in the local MEP (mechanical, electrical and plumbing) services space. Through the years, it had been associated with some of the biggest projects in town, and in December won a Dh600 million contract for the Reem Mall project in Abu Dhabi.
Saving DSI for the future
Will more project wins and asset disposals end up saving Drake & Scull International? In the DFM statement, the company insists it will be trying.
“The current management stressed that it will fully perform its duties to protect shareholders’ rights, strive to prosecute previous management and take all necessary measures to transform Drake & Scull into a successful company with achievable returns to all shareholders.
“It also reiterated that, despite the many hurdles faced, that it will continue with the restructuring with confidence in the expertise of the advisers to negotiate with the banks and restore operations.”