The shares of Dubai-based contractor Drake & Scull International soared by 30 percent on Wednesday as trading resumed on the Dubai Financial Market after a hiatus of over five years.
The stock, listed under the ticker “DSI”, was priced at AED 0.33 at 10:05 am UAE time, rising from its previous price of AED 0.25.
The subscription process for the company’s shares commenced on April 25 and concluded on May 10. The capital increase raised over AED 450M ($122.5M), enabling the company to meet its minimum capital target, it announced this week.
“This milestone will certainly aid in completing the restructuring process, as well as fostering the growth of Drake & Scull International’s business and its ability to commit to future business plans and financing new projects across all operating sectors,” said Eng Shafiq Abdelhamid, chairman of Drake & Scull.
“The company plans to utilise the net proceeds from the capital increase to enhance working capital and capital expenditures, support operations, and drive future growth and potential acquisitions.”
The company’s return to the DFM follows prolonged debt negotiations with lenders and trade creditors, numerous court cases, a complete managerial overhaul, and two complex capital restructurings over the past decade.
Drake & Scull’s Financial Struggles and Restructuring
Drake & Scull encountered difficulties during the three-year oil price slump from 2014, which significantly impacted the property and construction sector in the region.
During the severe liquidity crunch that ensued, numerous construction companies across the region laid off tens of thousands of workers as payments stalled.
Following its initial public offering, the company expanded operations aggressively and engaged in a series of acquisitions, including in Syria and Libya.
However, geopolitical instability and security concerns adversely affected business in Syria and Libya. The company’s failure to receive payments from government and private entities post-2014 also contributed to its severe financial distress at the time.
Trading of its shares was suspended in November 2018 after the company reported substantial financial losses.
In 2022, Drake & Scull completed its restructuring plan after securing the required voting percentage from its 600-plus creditors for a consensual agreement.
The company reported higher net losses in 2023 compared to the previous year, despite an increase in revenue.
Its total net loss for the year was AED 352.1M, up from AED 224.3M in the previous year, according to its recent financial statement.
Revenue for the period increased by approximately 16 percent to AED 93.8M. The company had AED 356M worth of assets at the end of last year.
In a recent filing, the company stated that accumulated losses stood at AED 5.5B as of March 31.
It anticipates that the benefits of restructuring will materialise in the second quarter of this year, leading to an overall equity improvement of about AED 4.6B.
Drake & Scull’s Path Forward Amid Challenges
Drake & Scull recorded a capital gain of AED 3.4B by writing off 90 percent of creditor claims, the company reported.
It also mentioned that accrued interest expenses and provisions for legal cases, totalling approximately AED 414M, were reversed, and mandatory convertible securities amounting to AED 365M were issued.
“Looking ahead, the company has a long road with significant challenges,” Vijay Valecha, chief investment officer of Century Financial, told The National.
“To begin with, the company is facing a severely damaged brand reputation. Although it has recently secured some contracts and increased order backlogs, its overall market reputation and credibility have suffered greatly.”
Since infrastructure projects require not only timely completion but also high-quality work, the company’s future business prospects will depend on its efforts to rebuild relationships with prominent developers and government entities, he noted.
Drake & Scull’s return to the stock market coincides with a construction boom in the UAE, the Arab world’s second-largest economy.
Dubai is developing a new terminal at Al Maktoum Airport with a total investment of AED 128B ($34.8B) to expand its capacity to 260M passengers.
Developers, including Emaar Properties, have announced projects in the area in anticipation of increased demand from buyers.
They have also launched new projects across the UAE as demand for property continues to rise amidst increasing prices.
