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Tue 10 Aug 2010 10:58 AM

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Tabreed Q2 profit doubles but concerns remain

Air conditioning firm's current liabilities exceed current assets by $1.42bn on June 30.

Tabreed Q2 profit doubles but concerns remain
COOLING COMPANY: Tabreed is among a number of companies in the Gulf to restructure debt after an economic boom. (Getty Images)

District cooling firm Tabreed's recapitalisation plan and support from its largest shareholder will ensure continued operations, analysts said, after an auditors report on Tuesday cast doubt over the company's future.

Accountants of the Dubai-listed firm, which is restructuring 5.4 billion dirhams ($1.47bn) in debt, on Tuesday raised concerns about Tabreed's ability to continue as a going concern, even as its second-quarter net profit doubled.

In financial statements released on Tuesday, its auditors noted that as of June 30 the firm's current liabilities exceeded current assets by AED5.2bn and accumulated losses amounted to 1.05 billion.

"These conditions ... indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern," Ernst & Young said in the statement.

Analysts downplayed those concerns.

"I don't think there is a concern over the firm continuing operations," said Abid Riaz, director of research at EFG-Hermes in Dubai.

"Management has taken a number of steps to resolve issues. They have a recapitalisation programme and the fact that Mubadala has stepped in goes to show that they are confident in the business," he said.

In March, Abu Dhabi investment vehicle Mubadala, which owns a 16.7 percent stake in Tabreed, stepped in to offer bridge financing after Tabreed reported a loss in 2009.

Future Tabreed projects would also be "strongly related" to Abu Dhabi developers Aldar Properties and Sorouh, the emirate's largest developers by market value, which would help the firm, Riaz added.

"The utility will remain a going concern in the short term while the restructuring and recapitalisation plan takes place," said Kareem Murad, senior vice president, research, at Shuaa Capital.

"If successful the recapitalisation plan will ensure the injection of some long-term capital thus the continuity of the company with a slightly different shareholder structure," he added.

Tabreed, also known as the National Cooling Co, earlier on is among a number of companies in the Gulf to restructure debt after an economic boom, fuelled by record-high oil prices and easy credit, came to an abrupt end and caused a property market crash.

In May, shareholders approved a recapitalisation plan to restructure 5.4 billion dirhams in debt and raise up to 4.2 billion in fresh capital.

Tabreed's shares were up 0.3 percent at 0920 GMT on the Dubai bourse. They had risen more than 5 percent earlier on the results. Dubai's index DFM edged higher by 0.02 percent. ($1 = AED3.673) (Reuters)

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