Damas waits on Abdullahs

The Abdullah brothers failed to meet the first deadline for repaying Damas International for 'unauthorised transactions' from the company.

The Damas jewellery store chain is owned by the Abdullah brothers.

ABU DHABI // The Abdullah brothers have failed to meet the first deadline for an instalment to Damas International to repay money and almost two tonnes of gold they improperly withdrew from the company's coffers, a Damas disclosure on NASDAQ Dubai says. The brothers had committed on November 4 to repay US$165 million (Dh606.03m) over 18 months, with the first $55m to be paid within six months. That deadline would have been last Tuesday.

"Given the complexity involved in transferring/selling the assets declared to the company, it is taking more time to effect the recoveries as per the timeline mentioned in the previous announcement by the company on 4 November, 2009," the disclosure from Damas, posted yesterday, said. "The delay in payments does not constitute an event of default under the agreements." The missed payment comes more than a month after the company and the brothers were the subject of unprecedented actions by the Dubai Financial Services Authority (DFSA) in response to the improper transactions and corporate governance failures.

The "unauthorised" withdrawals were used for a range of purposes including property investments and paying for petrol in their personal cars, the DFSA investigation found. The Abdullah brothers were fined more than Dh2.5m, but only had to pay Dh367,000 within 30 days as long as they complied with the terms of the DFSA agreement. They were also banned from executive positions at companies in the Dubai International Financial Centre for between five and 10 years. Damas was required to make several new corporate governance improvements and elect a new board, which it did last month.

Most of the more than 50 transactions that were made with Damas funds were investments in property projects, including a shopping mall in Turkey and a hospital in Kuwait. The brothers - Tawfique, Tamjid and Tawhid - also used some of the funds to develop twin towers on Sheikh Zayed Road, which were previously known as the Angsana Hotel & Suites. One of those towers was sold in October last year, just a month before Tawhid Abdullah resigned as the chief executive of Damas after revealing "unauthorised transactions" to the board of directors. The building was converted to the Emirates Vacation Club, a timeshare property.

Ashraf el Zarqa, the chief operating officer of Emirates Vacation Club, said the building was sold for "hundreds of millions of dirhams" to private investors, but would not disclose the buyers' names. The Abdullah brothers declined to comment yesterday about the sale and their progress on selling assets to pay back the company. Damas said the amount of the initial payment will be "carried forward and settled in accordance with the terms and conditions of the agreements".

Under the terms the brothers entered into in November, all payments would be in "cash and/or unencumbered assets", according to its disclosure at the time. The brothers registered 350 million Damas shares in the event that they were not able to repay the money. Sources familiar with the agreement between the brothers and Damas yesterday said the Abdullahs' failure to make the payment did not constitute a breach of the agreement, which remain confidential.

"The company is constantly engaged with the Abdullah brothers to ensure expeditious realisation from the sale of assets to settle their drawings," Damas said in the disclosure. "These efforts are ongoing and the company will report to its shareholders and the market on a regular basis as to its efforts, and the effectiveness of its efforts in recovering all amounts due to the company by the Abdullah brothers."

NASDAQ Dubai suspended the shares of Damas yesterday morning, citing Listing Rule 38, which relates to an issuer's delay in releasing information. It then reinstated the shares at 1.45pm. The shares fell 3.9 per cent to 17.3 US cents each yesterday. [e-mail]