Resuscitating Arabtec may prove to be a tall challenge

Company already in negative networth: Crucial shareholders’meeting today

DUBAI/November 30-2020: Can the new twist to the Arabtec ‘liquidation story’ turn the tables on the construction major’s fate, and give the company a new lease of life?

In a surprise move, as a crucial meeting to discuss the way forward for the company’s liquidation process has been scheduled for today (Monday), a group of shareholders representing more than 5 per cent of the capital, has requested for the cancellation of the September 30 shareholders’ decision green-signalling liquidation.

The market has viewed the move with shock and curiosity as Arabtec’s problems have been brewing for some time and the financial damages of the company have come to a head and now seem irreversible unless large funds and support from financial institutions are ensured.

Deloitte & Touche’s Adverse Conclusion

In fact, the auditors of the company, Deloitte & Touche (ME), had picked several holes in the 2020 June-end financials of the company and had gone to the extent of expressing ‘Adverse Conclusion’ on the company’s financials on account of several shortcomings, including breach of covenants signed with financiers.

The new move by the group of shareholders wants the continuity and restructuring of the company to be approved through a special resolution.

According to sources close to banks, the problems with Burj Khalifa builder are much more than meet the (ordinary shareholders’) eye.

The shareholders have also sought the authorisation of the Board of Directors for filing a request to the court to declare bankruptcy and liquidation to be repealed.

Large accumulated losses, negative net-worth

The move to liquidate the company has been triggered by the Article 302 of the Federal Law No (2) of 2015 that requires the company with accumulated losses exceeding 50 per cent of the paid up capital to get shareholders’ go-ahead to either dissolve the company or continue its activity with an appropriate restructuring plan within 30 days of the issue of the condensed consolidated interim financial information.

For Arabtec, its accumulated losses at AED1.459 billion, have reached 96.4 per cent of the share capital as of June 30, 2020. (Financials beyond June 30 not available)

Moreover, the current liabilities at AED9.12 billion had surpassed the current assets at AED7.38 billion by a gaping AED1.74 billion as of June 30.

And more seriously, the company’s net-worth as on June 30, 2020, was in ‘Negative’ by as large as AED350.78 million, which simply means that in the event of the management elects to sell off the whole assets of the company at prices estimated as in the balance sheet, the company will find a deficit of AED351 million to settle its liabilities.

Shareholders hold key

That said, the key lies in the ability of the shareholders to cough up fresh funds and strike fresh deals with financial institutions with which the company is already in breach of several covenants.

The stand taken by the major shareholders will be critical to a meaningful convergence of developments. The promoter shareholders of the company are Aabar Investments with 26.06 per cent stake, Aabar Petroleum Investment Company (4.33 per cent), Aabar Real Estate Company (3.67 per cent) and Aabar energy Company (3.62 per cent).

Deloitte & Touche observed in connection with the June 2020 financials that Arabtec Holding has a number of secured financing facilities amounting to AED1.40b billion, which, inter alia, contain covenants requiring the Group to maintain specified financial ratios at specified reporting dates.

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 had noted that the timing and realisation of a number of key assumptions within the forecasts are not wholly within management’s control and require securing additional financing to fund its operations for the next 12 months.

“Arabtec also needs funds for restructuring and obtaining covenant waivers on its existing financing facilities, the settlement and outcome of on-going contractual and legal disputes,” the auditors had noted in connection with the review of June 2020 accounts.

 

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