The UAE stock markets corrected sharply from early Monday (December 21), with DFM index down 3.85 per cent and ADX by 0.80 per cent.
On DFM, real estate and financial stocks led overall losses followed by transportation and consumer staples. The decline follows overall risk corrections being seen elewhere on the back of new - and more stringent - lockdown measures imposed in the UK.
A number of countries, including Saudi Arabia and India, have temporarily suspended flights to the UK. This comes after UK reported a new strain of COVID-19 that is apparently 70 per cent more dangerous than previously known strains. One of the major concerns for the market happens to be the fact that so far no other country has reported this new variation.
A scenario where this actually happens will negate the entire optimism created based on the current vaccine rollout.
Meraas Holdings announced a capital restructuring of its DFM listed subsidiary company Dubai Entertainments (DXBE) by purchasing 100 pe cent of the company shares and making it private. The proposed transaction aims to provide a more sustainable debt structure.
The company set a tentative tender price offer of Dh0.08 a share and is a 33 per cent discount over last week’s closing price. The news caused the stock to decline by 5 per cent Monday. DXBE has seen its share price reduce by half over the two-year period.
Comparing its peak share price of Dh1.77 see in early 2016, it has declined by more than 90 per cent with today’s close.
DXBE was formed in 2014 with aim to capitalize on Dubai’s booming tourism sector. Even before the pandemic hit, the company’s aggressive targets meant it missing out on the numbers. DXBE hasn’t made a single yearly profit since listing.
The IPO was valued at Dh5.75 billion, roughly 9 times more than Meraas’s own estimates. It initially attracted big bids by wealthy Gulf families as well as from sovereign funds. The company is expected to close this year with Dh160 million in revenue, a sharp drop over last year’s Dh491 million.
In March, the company went through a debt restructuring round, with Emirates NBD and DIB acquiring the company’s debt from non-UAE based lenders. This was done in order to provide more leeway and leverage to Meraas for doing additional capital restructuring rounds in the company.
Meraas currently holds around 52.39per cent of DXBE. It will also acquire DXBE’s senior bank debt, which is estimated at Dh4.25 billion, and convert balance of existing convertible debt instruments into new DXBE shares.
This will amount to about Dh1.147 billion (principal + interest) in new shares with conversion price estimates at Dh1.04 a share (default conversion price as per the existing convertible bond offer). Post this and the bank debt conversion, DXBE ordinary shares in circulation will increase from approximately 8,000 million to 62,822 million, resulting in additional stake gain of 41.63 per cent for Meraas and its associated group companies.
Post the new share issue, Meraas Holding is expected to hold 93.92 per cent of the total ordinary shares in circulation. As a final step, Meraas plans to delist DXBE and make it private.
- Vijay Valecha is Chief Investment Officer at Century Financial.