Shares in Tabreed declined yesterday as investors reacted negatively to a reverse stock split designed to boost the share price.
Tabreed, also known as National Central Cooling Company, received regulatory approval from the Ministry of Economy and the Emirates Securities and Commodities Authority (SCA) last week to reduce its share capital through the cancellation of 970 million shares. The company exchanged one new share for every five shares outstanding, raising the share price from Dh0.42 to Dh2.06 in the process.
Even though the move was designed to be "value-neutral" for shareholders, some were worried about its implications and sold off their holdings. The stock closed 4.8 per cent lower at Dh1.96 on the Dubai Financial Market yesterday.
"Some people were saying the price was too high at the open," said Sobhi Asim, a trader on the floor of the Abu Dhabi Securities Exchange.
The plan was approved by shareholders at a meeting in May. It was crucial for Tabreed to have its shares trade over par, or Dh1, because the UAE's exchanges forbid a company from raising new shares if it trades below that threshold. The SCA also has the right to suspend shares that trade below 40 fils.
Tabreed is facing Dh5 billion of near-term debt payments, which it is seeking to restructure. The company also said it planned to raise up to Dh4.2bn through a recapitalisation programme, either by issuing new shares or selling bonds.
Scott Darling, an analyst at the investment bank Nomura in Dubai, said it was not surprising that some small shareholders were alarmed by Tabreed's new structure, while others fear a dilution in the near-term.
But Mr Darling also sees promising signs for longer-term investors, since Tabreed is showing a commitment to becoming more transparent and proactive with its investors. "It is a gradual turnaround story," he said. "We're not out of the woods yet."