The ambitious plans by Damas to open 100 stores in India are hanging in the balance, as unauthorised transactions by the three Abdullah brothers, members of the company's founding family, have cut into the jeweller's finances. The Indian retailer Gitanjali Group planned to start opening the first 30 Damas-branded stores in its next financial year, which begins at the start of next month, but it has not yet received the initial investment of US$32.9 million (Dh120.8m) from Damas.
"Basically, they should send some investment and we'll start the joint venture," said Mehul Choksi, the chief executive of Gitanjali. Mr Choksi said that when he spoke to Damas executives about two months ago, they still planned to roll out 100 stores over three years across India, the world's biggest buyer of gold. But Damas's cash balance was just Dh135m, according to the company's latest financial statement for the six months to September last year.
And with the jeweller still in talks to reach a formal standstill on the Dh4 billion it owes to more than 20 banks, plus the Dh367,000 fine imposed by the Dubai Financial Services Authority (DFSA) on Sunday, affording the push into India is looking increasingly unlikely. Damas declined to comment yesterday. The joint venture with Gitanjali, in which Damas has a 51 per cent stake, was to be its first big push into the lucrative Indian market, and the new stores would have represented about 20 per cent of its business.
"India as a territory is the largest consumer in the world," Tawhid Abdullah, then the chief executive of Damas, said in June last year. "Where better than this to be?" This is the latest setback for Damas, the biggest gold and jewellery retailer in the region, since Tawhid Abdullah disclosed that he made Dh600m worth of unauthorised transactions and stepped down from his post at the publicly listed company.
Tawhid and his two brothers, Tawfique and Tamjid, later entered into a formal agreement to repay the company over 18 months, and pledged to return 350 million of their shares if they failed to meet their obligations. But in December, Damas said it needed to restructure the company and reach a debt standstill to remain in business. Although Damas's underlying retail business was profitable, with gross income of Dh320m in the six months to September 30 last year, a non-performing loan to Dubai Ventures pushed the company into losses of Dh714.9m.
In January, sources close to the company said Damas had an informal standstill in place and was close to a formal agreement to defer its principal loan payments. No agreement has yet been announced. A source familiar with the company said it was likely to pare back its network of more than 450 stores globally. "Given the working capital situation, I'm expecting them to significantly reduce the business," the source said.
On Sunday, the DFSA levied record fines on Damas and the Abdullah brothers, and dissolved the company's board of directors after a five-month investigation into the unauthorised transactions. Tawhid and Tamjid were also banned from holding a director's or officer's position at any Dubai International Financial Centre company, including Damas, for five years. A similar ban imposed on Tawfique, the former chairman of Damas, was for 10 years.
The company was fined Dh2.57m and is required to pay Dh367,000 within 30 days. The remaining fine has been suspended, provided Damas meets the DFSA's requirements. The DFSA concluded that the Abdullah brothers had used the bank accounts of Damas for personal use. These included a withdrawal by Tawhid Abdullah of nearly two tonnes of gold to repay a personal debt, and a Dh294m loan to Dubai Ventures, a unit of Dubai Holding.
That loan was later converted into an investment in the unit, which Damas later discovered was worth only Dh73.5m. The loss weighed heavily on the retailer's books, forcing the company to restructure and delay its debt payments. The company's share price has also almost halved since details of these transactions first came to light. When Tawhid stepped down from the company in October last year, the shares were worth 0.37 cents.
When Damas's shares were suspended on Sunday, ahead of the DFSA's announcement, they were worth 0.17 cents each. * additional reporting by Bradley Hope firstname.lastname@example.org