Phoenix Commodities now in liquidation was valued at more than $1bn in January

Rapid decline of the defunct company was caused by currency trading losses incurred in February and March, according to liquidators' report

A rice harvester operates in a paddy field. A financial markets desk trading currency derivatives at Dubai-based Phoenix Global, which claimed to be one of the largest rice distribution companies in the world, racked up about $400m in losses. BloombergShow less

Phoenix Commodities, the trading and distribution group that was placed into liquidation last month with debts of more than $400 million (Dh1.47 billion), was valued at $1.1bn-$1.24bn as recently as January, according to a document filed by its provisional liquidators.

The valuation, provided by Deloitte India based on the company's June 2019 accounts, show the speed at which currency trading losses incurred by the company's financial derivatives desk in Dubai led to its decline.

Phoenix Commodities, which was registered in the British Virgin Islands but had its main operating entity, Phoenix Global DMCC (PGD), in Dubai, was undone by "accrued losses incurred by its financial derivative trading desk" in February and March, according to the document seen by The National.

“As losses continued to accrue on PGD’s open trades so did the requirement for the company to post margin calls in the form of cash collateral which it was unable to meet,” the document said, adding the situation was exacerbated by counterparties who were unwilling to let the firm close its trades.

Phoenix Commodities began as a rice trading business in 2001. Its executive chairman, Gaurav Dhawan, became the majority shareholder in 2006 and expanded its activities.

The group grew turnover to $3.1bn and made a $43.5m profit last year, according to management accounts provided to the provisional liquidators. It had three main divisions - agrifoods, resources (coal and metals trading) and consumer brands.

A company brochure claimed the business was the second-biggest rice trader in the world, but its diversification saw more than 100 corporate entities set up employing over 2,500 people globally.

The company moved into packing and distribution for other firms and created its own consumer brands, including the Zarah pulses range and a line of biodegradable refuse sacks known as Enviro Care produced at its own plastics factory in Ajman.

The company engaged restructuring firm Quantuma in March to undertake a review of its finances as the scale of the trading desk's losses grew, and directors attempted “a last ditch financial restructure” of its balance sheet, which ultimately failed and led to the appointment of Quantuma and KRyS Global as provisional liquidators on April 20, according to a document filed by its provisional liquidators.

Their assessment of the company’s financial position indicated that creditors are facing a substantial shortfall, as the company has assets with a book value of $136m (most of which is inter-company debt) but liabilities of more than $416m, over $400m of which is related to foreign exchange losses.

A meeting of creditors in the British Virgin Islands on May 8 voted to appoint Matt Smith and Ryan Jarvis of Deloitte as the company's joint liquidators, a Quantuma employee told The National. A spokeswoman for Deloitte confirmed the appointment of Mr Smith and Mr Jarvis, but declined to comment further.

Dubai Multi Commodities Centre, the authority responsible for the free zone from which Phoenix Global traded, declined to comment.  Mr Dhawan did not respond to requests from The National to comment.

In an April 20 email to all staff, seen by The National, Mr Dhawan said the company was impacted by the Covid-19 outbreak which caused delays to goods and payment, and that "the situation got compounded many times through a massive payout required in the financial markets team, which completely shocked us and severely impacted the cash flow of the company".

Mr Dhawan's email said he had flown to London in mid-March in a bid to resolve the company's issues but that Covid-19 restrictions meant he remained there since.

Thus far, three banks in the UAE – First Abu Dhabi Bank, Emirates NBD and Mashreq –  have reported exposure to Phoenix Commodities and its subsidiaries totalling $108.6m. Last week, the Financial Times reported that UK-headquartered lenders HSBC Holdings and Standard Chartered were also owed millions by the company.