Damas, the largest gold and jewellery retailer in the region, has reached a standstill agreement on a portion of its estimated Dh3.2 billion (US$871.2 million) debt with the "majority of its bank lenders". The company did not disclose further details of the deal, but a source familiar with the matter said a standstill had been reached with six banks who are owed more than 50 per cent of Damas's total debt.
The agreement was signed with the banks on the informal steering committee of its lenders, which includes Standard Chartered, HSBC, Emirates NBD, Mashreqbank, Gulf International Bank and ABN AMRO, the source added. The deal comes a week after Dubai's financial regulator imposed a series of fines and sanctions on Damas, after executives made a series of "unauthorised transactions". It also comes about three months after the retailer said it needed to reach a standstill on its debts and restructure to stay in business.
The agreement will enable the Dubai-based company, which has more than 500 stores worldwide, to move forward with its restructuring plan after the standstill period, Damas said. "As we continue to move forward with the finalisation of our restructuring plan, Damas is grateful to all its creditors for their continuing support and confidence in the company's ability to overcome the current challenges and to deliver sustained growth in our business," a company spokesman said.
Damas had an informal standstill on principal payments on its loans involving more than 20 bank lenders since November, but had been pushing for months on a formal agreement, according to a source familiar with the matter. One proposed agreement was to defer all principal loan payments until May 31, but still accrue interest, the source said. However, negotiations dragged on as two investigations into unauthorised transactions by the three Abdullah brothers, who are members of the founding family, were carried out by the Dubai Financial Services Authority (DFSA) and PricewaterhouseCoopers.
A Damas spokesman declined to comment. Mala Pancholia, a senior analyst at Al Mal Capital in Dubai, said the formal standstill agreement "should provide some relief". "It is the first important step but more needs to be done to regain market confidence," she said. "A lot depends on how the new board is constituted and the strategy ahead to deal with the company's financial issues." Tawhid Abdullah, one of the three brothers, resigned from his post as Damas's chief executive last October after disclosing unauthorised transactions in the company.
The transactions, involving at least 50 property deals, included investments in the Angsana Hotel and Suites in Dubai, a hospital in London and a shopping mall in Turkey, a source said. Last year, Damas's basic retail business was profitable, with the company reporting gross income of Dh320m in the six months to September. But a loan to Dubai Ventures for Dh294m, which was later converted to an investment worth Dh73.5m, pushed the retailer into losses. Damas's cash balance was just Dh135m, according its latest financial statements.
A source familiar with the company said that given the working capital situation, Damas was likely to pare back its network of stores. And last week, the DFSA concluded that Tawhid and his two brothers, Tawfique and Tamjid, made unauthorised withdrawals from company accounts for personal use and investments without the proper approval from the board of directors or shareholders. Dubai's financial regulator dissolved the company's board of directors and imposed record fines on Damas as a company.
The Abdullah brothers were also hit with fines, and have been banned from executive or managerial positions in any Dubai International Financial Centre (DIFC) company for between five and 10 years. The three are also being sued by a Saudi private equity company for allegedly not paying for shares it acquired before Damas went public two years ago. Amwal AlKhaleej filed its claim against the Abdullah brothers at the DIFC, according to documents obtained by The National last week.
Damas shares rose 17.4 per cent yesterday, up 0.027 cents to 0.182 cents per share. This increase came after an 8 per cent price drop after March 23, when it resumed trading following the DFSA's announcement, until trading closed for the weekend on Friday The company's share price has fallen 50 per cent since details of the unauthorised transactions first came to light in October last year. firstname.lastname@example.org