By CL Jose
Accumulated losses at 45.7% of share capital; plans share buyback
DUBAI/March 23-2021: The auditors of Union Properties (UP) have yet again qualified the company’s accounts for 2020 for ‘departing from IFRS 13’ requirement that deals with Fair Value Measurement of the land owned by the company in Dubai Motorcity, one of its prestigious projects.
In fact, the former auditors, Ernst & Young, have qualified the FY19 accounts too on the same ground, and had stated that the company may have understated the loss for 2019 by AED351 million, when it has actually posted a loss of AED224.3 million.
Yet, the company is hopeful of solving its financial problems and has gone ahead with a 3.5 per cent bonus issue for its shareholders for 2020 financial year.
This, according to market experts, this could, to an extent, ease the pressure on the company whose accumulated losses at Rs1.96 billion have reached 45.7 per cent of the its paid-up capital, which is at AED4.29 billion as of December 31, 2021.
Threat of Article 302 looming large
Union Properties’ accumulated losses have already reached critical levels, at 45.7 per cent of the paid-up capital at a time when the profit announced by the company in 2019 has raised question marks.
Article (302) of Commercial Companies Law seeks that “if a joint-stock company sustains loss amounting to one half of the issued capital, the Board of Directors shall, within thirty days, call the General Meeting and to adopt a special resolution to dissolve the company before the specified date or to maintain the company to practise its activities.”
Basis of Qualified Opinion by Mazars
The company had attempted a review of the Masterplan for Dubai Motorcity in the previous year 2019 and had submitted it for approval to the regulatory authorities concerned, a formal request for the issuance of revised affection plans with amended gross floor areas (GFA’s). The Group had expected to receive the regulatory approval on the revised affection plans and accordingly had assumed such approval in the inclusion of the GFAs in the valuation of Motorcity land bank.
“These treatments are departure from IFRS 13 – Fair Value Measurement. Consequently, the investment properties and equity were overstated by an amount of AED 351 million as at January 1, 2020. The Group has recorded a fair value gain of AED1.25 billion, which has resulted in the overstatement of income during the year amounting to AED1.25 billion and corresponding overstatement in the equity and the carrying value of investment properties as at December 31, 2020,” the auditors explained.
FY20 profit at AED201 mn
The company has recorded a ‘valuation gain’ of AED743.55 million for 2020 against AED3.29 million last year. The profit reported by the company for the year under review is AED200.99 million against a loss of AED224.28 million for the year before. With the proposed bonus issue, the share capital will increase to AED4.44 billion bringing the accumulated losses marginally down to 44.14 per cent of the paid-up capital.
The UP Group said it is seriously addressing its accumulated losses issue through different measures like restructuring of its outstanding debt, recovering its outstanding receivables (notably through court and arbitration), and continued reduction of its operating costs, etc.
The board has also recommended share buyback at a rate not exceeding 10 per cent of the issued capital upon obtaining the necessary approvals. The board has also confirmed the appointment of Abdulla Abdul-Rahman Al-Rustumani as the general manager of Union Properties.