Investors are warm to Tabreed despite alert

District cooler rises as much as 9% after auditors sound alarm

On a day when auditors cast doubt on the ability of the district cooling company Tabreed to continue as a business, investors bought the shares anyway. The stock climbed as much as 9 per cent in trade yesterday before drifting to close up 0.5 per cent at 37 fils. Tabreed was buoyed up by a more than 67 per cent increase in the company's second-quarter net profit to Dh42.9 million, up from Dh25.7m for the same quarter last year.

The profit for the first half of this year jumped more than 80 per cent to Dh86.8m from Dh47.4m in the first half of last year, which the company said was due to improved revenues and cost management. Tabreed shares were the most traded equity on the Dubai bourse, accounting for more than 38 per cent of yesterday's trade. "Investors have hope that the company can meet the liabilities and find its way out of trouble," said Fadi al Said, a senior fund manager at ING Investment Management in Dubai.

Tabreed has hit several lows this year but the shares have risen more than 10 per cent so far from their 52-week low of 34 fils in June. In a statement posted on the Dubai Financial Market website, the company's auditors said Tabreed's liabilities exceed its assets by Dh5.2 billion, which may cast "significant doubt about the company's ability to continue as a going concern". Investors largely ignored the statement and pinned their hopes on a continuing capital restructuring and the company's ability to raise cash to meet its liabilities.

Khalid al Qubaisi, the company's managing director, said the robust results showed the company's focus on business fundamentals and the recapitalisation programme were repositioning Tabreed for growth. Scott Darling, an analyst with the Japanese investment bank Nomura, said with Tabreed's recapitalisation plan approved and under way, the focus for investors would be the "rate of progress on delivering its plan". Tabreed beat Nomura's profit estimates of Dh19m for the second quarter.

"We continue to remain cautious on Tabreed until recapitalisation plans are complete and there is clarity on the outlook for the business in the medium term," said Mr Darling. [e-mail]