Dubai's Drake & Scull unveils turnaround plan as losses continue

Builder takes action after being hit hard by tough competition and an economic slowdown caused by low oil prices

Wael Allan, CEO, Drake & Scull international. (ITP Images)

Wael Allan, CEO, Drake & Scull international. (ITP Images)

Dubai-based building company Drake & Scull (DSI) announced a turnaround and capital restructuring plan on Tuesday as it reported another quarterly loss, the latest sign of how a slowdown in the Gulf's construction industry is hurting contractors.

Its shares rallied on news of the capital restructuring, after initially falling when the company reported a fourth-quarter 2016 net loss of 490 million dirhams ($133 million).

Like its peers in the region, Drake & Scull (DSI) has been hit hard by tough competition in the sector and an economic slowdown caused by low oil prices.

The company said the turnaround plan included among other measures capital raising, divesting non-performing or distressed subsidiaries and the disposal of non-core assets as well as cost-cutting measures.

The loss reversed a 14.7 million dirham net profit for the same quarter of 2015 and the company has now been in the red since the first quarter of last year.

It said its performance throughout 2016 was hurt by problems related to projects in Saudi Arabia that led to cost overruns and a hit to its revenue, and these were mostly reflected in its fourth quarter results.

The company appointed a new CEO in October, Wael Allan, and asked advisers last year for proposals to review its business and find strategic investors.

As part of its capital restructuring plan, DSI said it was considering proposing a rights issue of 500 million dirhams in equity to a strategic investor, and that it had secured a binding offer from United Arab Emirates-based Tabarak Investment. The offer was subject to the approval of DSI's shareholders and the Emirates Securities and Commodities Authority (ESCA).

According to its website, Tabarak offers investment and advisory services among other areas. Tabarak could not be reached for comment.

DSI also said it was seeking approval from the ESCA for a 50 percent capital reduction. That would involve the cancellation of shares and will be on a pro-rata basis at a ratio of 2:1 and will apply to all shareholders, it said.

Shareholders will vote at the company's annual general meeting in April on whether to approve the capital restructuring plan, it said.

Fellow Dubai contractor Arabtec said on Monday that it was seeking shareholder approval for a 1.5 billion dirhams rights issue to recapitalise the company. Arabtec reported a wider fourth-quarter loss than a year earlier.

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