Damas values gold borrowed by Abdullahs at Dh250m

Tonnes of gold controversially borrowed from the jewellery retailer by members of its founding family are valued, as the deadline for repayment of hundreds of millions of dirhams is extended.

Damas International in August reported a large loss for the previous financial year because of a Dh1.9 billion write-off.

Tonnes of gold controversially borrowed from the jewellery retailer Damas International by members of its founding Abdullah family were yesterday valued at more than Dh250 million (US$68m).

And the deadline for the Abdullah brothers Tawhid, Tawfique and Tamjid to pay back hundreds of millions of dirhams more to the company was extended.

The company agreed with the three men, members of the family that founded Damas, to set the price of the almost 2 tonnes of gold they had withdrawn from the company at Dh256m, or about $1,117 per troy ounce.

The gold price offered to the brothers is much lower than the current price, which has hit record highs this year. Gold was trading at $1,331.52 in New York last night, which would value the quantity of gold borrowed by the brothers at more than Dh305m.

But the fixed amount was agreed to “after evaluation of several factors including the price of gold prevailing at the time of withdrawal and certain benchmark transactions that have taken place in the records of Damas”, the company said.

Damas also extended the deadline for the Abdullah brothers to sign a “cascade agreement”, outlining the details of the repayment of more than Dh600m owed to the company, until next January 31.

“Given the complexity of signing the cascade agreement, which involves multiple stakeholders, Damas has prudently sought to extend the repayment deadline for the Abdullah brothers,” said Anan Fakhreddin, the chief executive officer of Damas.

“The company has taken this action to ensure the full support and approval of all stakeholders involved in this important and complex process, which will ultimately help ensure the long-term stability and growth of Damas.”

This is the latest in a long line of hurdles faced by Damas since October last year when then chief executive Tawhid Abdullah stepped down from his post after disclosing “unauthorised transactions”.

The Dubai Financial Services Authority has since conducted an investigation and found the Abdullah brothers made “unauthorised” transactions such as investments in property and the withdrawal of almost 2 tonnes of gold.

The brothers have since been banned from holding an executive post at any Dubai International Financial Centre company for between five and 10 years.

In August, Damas revealed a Dh1.9bn loss for the previous financial year, one of largest ever for a public company in the UAE.

While its underlying retail business continued to be profitable in the 12 months to March 31 this year, the losses stemmed from lower sales and Dh1.9bn in one-time write-offs.

Yesterday’s valuation of the withdrawn gold now brings the total amount owed by the brothers to Dh614m, up from Dh606m.

But the extra time given to sign the cascade agreement complicates the signing of a much-needed debt restructuring deal for more than Dh3bn.

In March, Damas reached a standstill agreement on a portion of its estimated Dh3.2bn debt with the “majority of its bank lenders”, which it needed to secure to remain in business.

Damas had aimed to sign a debt restructuring deal with the banks by November 31, alongside the cascade agreement with the Abdullah brothers as co-creditor with the other parties to which the brothers also owe money.

This new agreement would replace a settlement deal signed in November, in which the brothers agreed to pay back the money over 18 months.

Yesterday, Damas said it agreed with the Abdullah brothers that if the cascade agreement was not signed on or before January 31, they would revert to the original settlement agreement timetable, with Dh400m due immediately.

“Damas notes that, while it expects the cascade agreement will be signed before 31 January 2011, there is no certainty that any such agreement will be signed on or before such date or at all,” it said in a statement on NASDAQ Dubai.

“If the cascade agreement is signed, the terms of any final signed agreement will be reported to shareholders in more detail pursuant to Damas’s obligations.”