Tabreed cancels 970 million shares in bid to lift stock

Shareholders approve plan to cancel 970 million shares as an effort to lift share price high enough so that company can raise more cash.

Tabreed is cancelling 970 million shares in an effort to lift its share price high enough so it can eventually raise more money, the company said yesterday.

Tabreed, also known as National Central Cooling Company, will convert every five shares to one new share as a part of its ongoing restructuring. Most shareholders will not see a significant difference in the value of their holdings even as the share price quintuples.

However, the company will not issue fractional shares. This means only blocks of shares divisible by five can be exchanged.

For example, an investor holding nine shares will get only one new share. If he owns 10 shares, he will get two new shares under the reverse share split.

The plan, which was approved by shareholders at a meeting in May, was announced on the Dubai Financial Market (DFM) after the close of trading. The stock lost 0.4 per cent yesterday to close at 42 fils.

Based on that price, it will open for trading on Sunday at Dh2.10.

The share price is significant because DFM regulations forbid a company from issuing new shares if it trades beneath Dh1. By raising the price, the company now has the option of selling more shares.

Scott Darling, an analyst with Nomura Securities, said the capital reduction was "not a big deal" on its own.

But he said it was possible that yesterday's capital reduction was setting the stage for a dilution of existing shareholders in the near future.

The company is facing short-term debt obligations of almost Dh5bn, which it is seeking to restructure. It has also said it plans to raise as much as Dh4.2 billion (US$1.14bn) through a recapitalisation programme, either by issuing new shares or selling bonds.

A spokesman declined to comment yesterday on when the company would seek to raise more capital, or how, but said discussions between the involved parties were ongoing.

Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, owns a stake in Tabreed of almost 17 per cent. Mubadala provided Dh1.3bn in bridge financing last year to help the company meet its obligations.

Tabreed last month posted third-quarter profits of Dh36.3 million. The company, which chills water at large plants and pumps it to buildings for air conditioning, was badly hurt by the property slump and its share price has been hovering around 40 fils for much of the year.

The DFM's regulator, the Securities and Commodities Authority, has the authority to suspend shares of companies that trade beneath 40 fils.