DXB Entertainments board recommends Meraas offer as 2020 loss widens

DXB Entertainments (DXBE), the operator of Dubai Parks and Resorts, is recommending shareholders accept a takeover offer from its parent company, Meraas Leisure and Entertainment after its losses for 2020 widened.

The theme park company needs new funding and without further support its current available liquidity is likely to be exhausted in the second quarter of 2021, DXBE said in a statement to the Dubai Financial Market, where its shares trade. Its available cash balance at the end of 2020 stood at Dh400m, the company said.

DXBE's board “unanimously recommended” shareholders accept the offer made by Meraas in December at the company’s general assembly meeting on March 9.

"The board believes that the offer safeguards the interests of DXBE and is the only viable route for DXBE shareholders to recover value from their investment while also seeking to protect the interests of other stakeholders, including employees, suppliers and customers," the board said in a separate statement to the DFM.

Meraas Leisure and Entertainment and its parent Meraas Holding have a 52.29 per cent stake in DXBE.

Meraas has already issued a notice to DXB Entertainment that it will convert a Dh1.48 billion ($403 million) bond and has offered to acquire the company's Dh4.26bn debt in return for newly-issued shares in the business. The capital restructuring will increase Meraas' shareholding in the indebted company to 93.92 per cent.

Following this, it will look to buy out minority shareholders and take the company private.

Under the terms of the proposed deal, DXBE's shareholders will receive Dh0.08 in cash for each share held through participation in a tender offer which, subject to certain conditions, is expected to be launched in January 2021, DXBE said in a December 20 statement.

DXBE’s net asset value per share was Dh0.0277 as at December 31, 2020 and the offer price of Dh0.08 represents a premium of 189 per cent, the company said on Wednesday.

“The board, having evaluated the inputs received from its independent financial and legal advisers as to the terms of the offer, in conjunction with DXBE’s current cash position and liabilities and near-term general economic conditions, considers the terms of the offer to be fair and reasonable.”

With the company’s accumulated losses now standing at Dh7.8bn, or 98 per cent of its issued share capital, the alternative to the Meraas offer is potential dissolution and liquidation of the company, the board said.

Dubai Parks and Resorts, first opened in October 2016, features a Legoland Dubai, Bollywood Parks Dubai and a Motiongate theme park. The theme parks have incurred losses as visitors numbers have been below projections. A phase two expansion of the park, to add a Six Flags Dubai theme park, was cancelled in 2019. Despite a reorganisation of park assets and a cost-cutting exercise, it continues to lose money.

DXBE’s 2020 net loss widened to Dh2.66bn, from Dh855 million in 2019. The loss for the year includes Dh1.7bn of impairment losses on property and equipment and Dh346m of non-cash depreciation. The number of visits in 2020 plunged 69 per cent to 802,121 as the park closed for several months due to coronavirus restrictions.

“2020 was a tremendously challenging year with major disruptions in travel and tourism as a consequence of the Covid-19 pandemic. The closure of the destination for a period of approximately six months had a significant impact on our operational and financial performance,” Remi Ishak, acting chief executive of DXBE, said.

“In 2021, while material uncertainty around near term general economic conditions remains, we continue to focus on identifying and implementing further operating efficiencies … [and] preparing for a potential recovery in visitation.”

The company said its net financing costs for the year came in at Dh410m, of which Dh117m was non-cash interest on the company’s convertible instrument. Estimated interest repayments of Dh250m are due over the course of 2021.

Its “moratorium period on principal repayments and covenant testing” also ends in the first quarter of this year, with Dh213m of principal repayments due over the course of 2021, DXBE said in its earnings statement.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”