Drake and Scull shareholders to vote on company dissolution

Drake & Scull International, the loss-making Dubai contractor, said its shareholders would meet on September 27 to decide on whether to dissolve the company and receive an update on an internal investigation into the previous management.

The company, which has faced mounting losses since 2015, is calling the general assembly meeting in accordance with an article of UAE company law, DSI said in a statement on the Dubai Financial Market. Article 302 of the company law requires firms to vote on whether to continue operating once their losses reach half of their share capital.

The board meeting will update shareholders "on the current situation of the company and its future plans along with the developments in the investigation conducted by the new management with regards to the previous executive management", DSI said.

The company's shares plummeted 10 per cent at the start of the market trading yesterday. DSI, which reported a second-quarter loss of Dh181 million compared to a previous year's loss of Dh183m, has been hit by a slump in the region's construction industry in the past few years along with many regional contractors whose payments were delayed as oil prices fell to a three-year low.

In a second bourse filing later on Wednesday, the company said the meeting was a "mere legal requirement" in accordance with UAE company law and did not mean the company intends to halt operations.

The board and executive management would continue eto safeguard shareholders' interests and "ensure the seamless operation of the company and its continuity and financial results," DSI said.

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Last month, DSI attributed the second-quarter loss to cost overruns for non-performing subsidiaries in secondary markets, mainly in Oman, Qatar, and Jordan. An increase in finance costs also contributed to the quarterly loss. It also said it had a fresh restructuring plan that would focus on core markets and profitable business streams.

Analysts said dissolution of the company is not an inevitable outcome and alternative solutions could include taking the company private, recapitalising or taking on an strategic investor.

“If you go back in history, we haven’t seen any examples of dissolving a public company in the local market,” said Nabil Rantisi, managing director of capital markets at Daman Investments. “They have been working hard on turning around the company but this restructuring does take time.”

The company may consider the possibility of a capital increase. 

“They can’t go on like this, they have to raise money,” said Lina Hisham, a research analyst at Naeem Brokerage. “If they’re going to continue operations, one possible option is to recapitalise.”

Dissolving the company would be an “extreme option” and not in the best interest of shareholders, said Selima Mrabet, a financial analyst at AlphaMena.

“We cannot consider this to be a lost cause as there is a glimpse of hope that Drake & Scull’s critical financial position can be solved,” she said. “Management can take advantage of a possible recovery of the sector and regain market trust by sustaining a return to profitability.”

On August 14, the company said it would appoint Yousef Al Mulla as chief executive from August 26, replacing Fadi Feghali, who took the post in April. It did not provide a reason for hiring its second CEO in one year.

"They need to be more creative," Mr Rantisi said. "DSI should propose a plan to their shareholders. They need to admit any mistakes they've done, amend their strategy according to the facts and look for a strategic investor."

The company’s biggest shareholder is Ajman Bank with a 13.06 per cent share, according to the Dubai Financial Market. DSI listed on the stock exchange in 2009.

In July, the company said its former management was involved in "material" financial violations that are under investigation by UAE authorities. Former chief executive Khaldoun Al Tabari has denied allegations of financial misconduct.