Damas says it must restructure, delay debt payments to survive

Damas, the region's largest retailer of gold and jewellery, says it must secure a debt standstill and restructuring to remain in business. The Dubai-based company will also seek to recoup almost Dh300 million (US$81.6m) from an investment unit of the Dubai Government-owned conglomerate Dubai Holding. After investing Dh294 million into the unit, Damas later discovered that its investment consisted entirely of Damas shares, which by then had a value of less than Dh75 million.

"Additional funding is required to ensure that the company can continue its operations and meet its financial obligations as they fall due," Damas said in its results statement yesterday. Shares in the company, which had been suspended from trading on the NASDAQ Dubai since the end of last month, yesterday fell 36 per cent to close at 16 US cents after trading was reinstated following the results announcement. "We feel the management has reached a point of inflection whereby financial re-engineering is required to carry on as a going concern," Al Mal Capital said in a research note yesterday.

"We suspend target price and rating on the stock until the company undergoes restructuring and redefines its strategy for the future." As the price of gold rose over the last year, sales at Damas declined. The decline, combined with a number of lenders requesting early repayment of gold loans, led to a serious liquidity challenge. The group has also made heavy losses on a number of investments. In six-month results announced yesterday, Damas reported a loss of Dh714.9m for the period ending in September. Its underlying retail business remained profitable, with the company reporting gross income of Dh320m. But large write-downs of underperforming loans and investments pushed the company to a heavy net loss.

Tawhid Abdullah resigned as Damas chief executive on October 12 after disclosing that the company had made unauthorised transactions. The transactions involved at least 50 deals, including investments in the Angsana Hotel and Suites, twin 49-storey towers on Sheikh Zayed Road in Dubai. The investments also covered a shopping mall in Turkey and a stake in the Bupa Cromwell hospital in London, said a person familiar with the matter.

The Abdullah brothers, who are the majority shareholders in the company, have signed an agreement to repay in full, and in cash, the value of the transactions under review within 18 months. The company has also written down the value of a large investment into Dubai Ventures Group, a unit of Dubai Holding. Damas had lent Dh294m to Dubai Ventures, which was to be repaid by last August with an interest rate of 6 per cent. But on August 18, Damas signed an agreement with Dubai Ventures to convert the loan into an investment in the fund.

However, when Damas contacted Dubai Ventures to learn the value of the investment it was revealed that it was worth Dh73.5m and comprised only shares of Damas. "Although discretion had been given to Dubai Ventures in respect of investment choice, the Board of Directors of Damas International Limited had not authorised Dubai Ventures to invest in shares of the Company," the Damas financial statement said. "The Board intends to dispute Dubai Ventures actions in this regard and will seek to recover the full amount due under the original loan facility agreement."

Dubai Group declined to comment yesterday. Dubai Ventures issued a brief statement. "Dubai Ventures Group will not comment on the details of the interim report," it said. "We may, however, consider taking legal advice." Dubai Ventures had been part of Dubai Group, an investment fund owned by the Dubai Holding, but it was merged into another division earlier this year as part of a wider restructuring of Dubai Group, it said in October. .

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