Arabtec accounts attract ‘Adverse Conclusion’ from auditors

Company reports AED 794 mn H1 loss:  networth turns negative

DUBAI: The auditors of the Dubai Financial Market (DFM)- listed Arabtec Holding have made Adverse  Conclusion on the company’s accounts for the six months ending June 30, 2020, citing numerous serious shortcomings in its financial statements.

The International Standards on Auditing require auditors to express an Adverse Opinion if there are material misstatements that significantly affect the whole financial statements.

The construction major that is present in international markets including India, Pakistan, Egypt, Syrian, Jordan, Mauritius and Palestine through subsidiaries and associates, and runs about two dozen subsidiaries and associates in the UAE, has incurred a loss during the six-month period ended June 30, 2020 of AED794 million and sits on net current liabilities of AED1.74 billion as of Q2 end.

Arabtec Holding’s major shareholder is Aabar Investment whose parent company is Mubadala Investment Company.  Arabtec Holding and its subsidiaries are primarily engaged in construction of high-rise towers, buildings and residential villas, in addition to the execution of related services such as drainage, electrical and mechanical works, provision of ready mix concrete and construction equipment supply and rental.

Though the company has prepared the interim financial information on a going concern basis, the auditors maintain that the action does not conform to International Financial Reporting Standards (IFRS), thanks to the substantial erosion in networth..

As of June 30, 2020, the company’s networth has turned AED350.78 million negative compared with AED443.918 million (positive) in December, 2019.  As at 30 June 2020, the Group’s losses exceeded 50 per cent of its issued share capital of AED1.5 billion.

Article 302 of Federal Law No 2 (2015)

The auditors state that once the losses cross this threshold, the Article 302 of the Federal Law No (2) of 2015, requires the company to call a General Meeting for the shareholders to vote on either dissolving the company or to continue its activity with an appropriate restructuring plan within 30 days of the issue of the condensed consolidated interim financial information.

Further, the Group has a number of secured financing facilities amounting to AED1.395 billion, which, inter alia, contain covenants requiring the Group to maintain specified financial ratios at specified reporting dates.

Covenants breached

“These covenants were breached as at December 31, 2019, which had the effect of the Group’s bank borrowings being repayable on demand,” the auditors noted, adding that the Group has not been able to refinance these facilities nor could it obtain waivers for the covenant breaches to date.

Due to the significance of such matters, management has been unable to conclude on the appropriateness of the going concern basis of preparation of this interim financial information.

The auditors substantiated their stand with more details. There are investment properties with a carrying amount of AED568 million, which exhibit indicators of impairment.

“The management has not determined if the recoverable amount of the aforementioned investment properties exceeds their carrying amount, which we believe does not conform to International Financial Reporting Standards (IFRSs),” the auditors added.

 

 

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