Dubai: Analysts said on Wednesday they believe contractor Drake and Scull International (DSI) could end up dissolving its business soon even as the company sought to assure investors otherwise.
The Dubai-listed company invited shareholders to a meeting on September 27 to take a decision on whether to dissolve the business or to continue operating, a move that sent share prices plunging.
We believe there is a real chance that company could be dissolved. To maintain the current operation, they need to inject fresh capital, which we believe is highly unlikely ...”
- Sanat Sachar | Al Mal Capital
The vote on the company’s operations and its continuation is in accordance with UAE Companies Law, which requires listed companies to take a shareholder vote on the matter when accumulated losses exceed 50 per cent of share capital.
In the invitation posted to the Dubai Financial Market (DFM) website, DSI said the meeting will also inform shareholders of the company’s future plans as well as updates on the investigation conducted on the former management.
A few hours later as share prices dove, the contractor issued another statement assuring investors that it is “exerting all its efforts and will continue to do so” to protect the best interests of shareholders. It added that it is seeking to “ensure the seamless operation of the company and its continuity.”
DSI’s board of directors said that the inclusion of a meeting agenda item to discuss whether or not the company will continue operations was “a mere legal requirement,” and “a procedural step.”
The board said that this step “doesn’t mean that there is an intent to dissolve the company before the expiry of its term.”
But analysts and even traders were sceptical, with DSI share prices plunging 10 per cent to end the day at Dh0.405. The second statement issued by DSI to assure investors on operations did not result in any recovery in share prices, which are now about 82 per cent lower year-to-date.
“We believe there is a real chance that company could be dissolved. To maintain the current operation, they need to inject fresh capital, which we believe is highly unlikely given the chequered past of the company and failed last capital increase,” said Sanat Sachar, equity research analyst at Al Mal Capital’s asset management unit.
Even disregarding Wednesday’s price decline, DSI share prices would be over 70 per cent lower year-to-date on the back of mounting concerns over the company’s ability to extinguish its losses and turn around financial performance. DSI reported Dh183 million in losses in the first half of 2018, and Dh1.39 billion in losses in 2017.
Another analyst who asked to remain anonymous said that it was possible DSI would end up dissolving its business, but even if it continues operating, shareholders will take a hit. The analyst said that another possible scenario would be for DSI to be acquired by a bigger player that would buy the company at a low price.
Asked about DSI’s second statement on the procedural nature of the vote to dissolve the company, the analyst said it didn’t change much as it was a serious step to call for a meeting on whether or not to continue operations.