DUBAI/October 3: The third quarter financial results of the UAE’s listed companies are round the corner and several companies are feared would end up posting losses, thanks to the COVID-induced economic downturn.
The recent news of the bellwether Arabtec Holding’s decision to move ahead with liquidation process though didn’t surprise anyone in the know of things, would certainly unnerve several companies listed on the UAE stock markets.
(By the way, Arabtec Holding is yet to report the market about the shareholders’ decision on liquidation of the company)
The proverbial ‘Damocles Sword’ is hanging over many of these companies that have piled up huge accumulated losses, as the Q3 results could further exasperate their already vulnerable financial position.
The Article 302 of Federal Law of 2015 mandates the companies with accumulated losses exceeding 50 per cent of their share capital to obtain green signal from their shareholders in order to remain as a ‘going concern’.
While Dubai Financial Market (DFM) has about 12 companies with accumulated losses surpassing their respective share capital, including the majors like Union Properties, Amlak Finance, Drake & Scull, Marka, etc, Abu Dhabi Securities Market (ADX) has enlisted only one such company, Al Khazna Insurance that falls in that category.
The ADX-listed Sharjah-headquartered Invest Bank has reached very close the threshold with an accumulated loss at AED1.45 billion that works out 45.6 per cent of its share capital at AED3.18 billion as of June 30, 2020.
There are other eight ‘candidates’ staying on the sidelines, like Deyaar Development, Dubai Islamic Insurance, Islamic Arab Insurance and Takaful Emarat – all listed on DFM, and have accumulated losses more than 20 per cent, but below 50 per cent of their share capital.
Many of these reputed companies have multiple problems. For example, even as Arabtec’s accumulated losses had reached 97 per cent of its share capital, more seriously, its auditors, Deloitte & Touche, had expressed an Adverse Conclusion on the company’s first half financials (FY20) for various reasons.
Drake & Scull
Again, in the case of Drake & Scull too, more than the group’s accumulated losses as of December 31, 2019 crossing AED 5 billion, and the current liabilities exceeding its current assets by AED 4.183 billion for the said period, the auditors had expressed ‘Adverse Conclusion’ on its 2019 accounts.
The trading in Drake & Scull remains suspended for about two years now. “We were unable to obtain direct bank confirmations for bank balances and bank liabilities included in the consolidated statement of financial position of AED 43 million and AED 842 million as of 31 December 2019, respectively,” the auditors had noted.
As of June end, 2020, Amlak Finance’s accumulated losses at AED1.84 billion had far exceeded its share capital at AED1.5 billion, by 123 per cent. With that, the total equity has declined to as low as AED721.49 million, less than half of its share capital, as of June end, 2020.
Amlak explained that the build-up of accumulated losses were mainly due to fair value loss on investment properties recorded in 2014. “During the period from 2009 to 2013 the group held certain investment properties amounting to AED2.94 billion, which have been carried at cost since acquisition. These investment properties were fair valued as of December 31, 2014 and a fair value loss on these properties of AED 1.76 billion was recorded during 2014,” it explained.
Accumulated losses on Union Property’s books as on June 30, 2020 end were at AED2.302 billion, which was 53.67 per cent of its share capital, just crossing the threshold.
Here too, the losses had emerged from the fair value loss of AED2.076 billion related to investment properties recorded in the fiscal year 2017 (correction of gross floor area and declines in the fair value of real estate portfolios).
Impairment of AED503 million was recorded on the fiscal year 2017, according to UP. The company said it was seriously addressing its accumulated losses issue through different measures, restructuring of its outstanding debt being the main route.