Damas International may have taken a significant step this week towards returning to its core business, but investors are understandably cautious about its future. So cautious, in fact, that not a single share of the region's largest jewellery company changed hands yesterday after the suspension of trading of its stock was lifted. The company was at the centre of unprecedented fines and corporate governance changes ordered by the Dubai Financial Services Authority (DFSA) this week.
The DFSA action came after an investigation found that the Abdullah brothers had conducted unauthorised transactions with the company's money and failed to appropriately disclose them to shareholders. The investigation had cast a shadow over the company since October, when Tawhid Abdullah resigned as the chief executive after divulging the unauthorised activity to the company's board. The DFSA announcement of sanctions on Sunday cleared the air, and Damas executives are now busy trying to secure a debt standstill with about 20 banks that the company owes Dh3.2 billion.
But there are significant hurdles to be overcome before Damas regains the rosy prognosis it enjoyed just 18 months ago. There is leadership uncertainty at the company. The Abdullah brothers, Tawhid, Tawfique and Tamjid, have been banned from executive positions at any DIFC company, including Damas, for between five and 10 years. The DFSA has also asked the entire Damas board of directors to resign, and the members have accepted. Within 30 days of last Sunday, these vacancies need to be filled. And while a proposed debt standstill agreement has been passed out to the creditor banks for approval, the company will remain in a precarious position until it figures out a restructuring plan.
Even before the revelations, Damas was planning to pare back the number of stores it operates and put growth plans on hold. Those plans are more critical now because of a lack of cash at the company, which has led to margin calls on gold loans. What is clear is that despite the DFSA sanctions, the regionally prominent brand remains trusted when it comes to buying jewellery. With clarity in the months to come, Damas may even be considered a valuable investment opportunity.