Tabreed, the debt-saddled district cooling company, delivered some short-term good news to investors yesterday, announcing robust profits from sales across the Emirates. But that may not be enough to improve the company's fortunes, with the rapid downturn in the property industry depriving it of the new buildings needed to sustain its business model of cooling large-scale developments.
Today its current liabilities exceed its current assets by some Dh5.2 billion (US$1.41bn), and its accumulated losses now stand at more than Dh1bn. That was enough for its auditors to warn of a "significant doubt about the company's ability to continue as a going concern". Current liabilities in accounting terms are broadly described as liabilities that are to be settled in cash within the fiscal year, while current assets typically include cash, cash equivalents or accounts receivables.
The current ratio is calculated by dividing current assets by current liabilities. It is often used as an indicator of a company's liquidity, and its ability to meet short-term obligations. Tabreed, the National Central Cooling Company, had current liabilities of Dh6.32bn at the end of the first half of the year, with current assets worth Dh1.1bn. "That's the reason why Tabreed is in the process of capital restructuring," said Fadi al Said, a senior fund manager at ING Investment in Dubai.
Tabreed shareholders in May gave the board approval to raise Dh4.2bn from bonds and restructure two sukuk as part of the company's recapitalisation programme. The company had already delayed payments on a Dh1.7bn Islamic bond that was due on May 19. Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, and ACWA Holdings, the infrastructure investment company, hold most of the sukuk.
Mubadala, which lent Tabreed Dh1.3bn this year, is also the largest strategic shareholder with a 10.9 per cent stake in the company, which is 75 per cent held by the public. Tabreed is one of many companies within the property industry that relied heavily on loan financing to fund rapid growth during the boom years and are now being forced to refinance or restructure their debts. The company is raising fresh liquidity to bridge the gap between short-term financing liabilities and long-term receivables from projects it has already executed.
Tabreed said shareholders had also approved a reduction in the number of outstanding shares in the market by cancelling up to 970 million shares of Dh1 each to bring the company's capital down from Dh1.2bn to Dh234 million. Tabreed shares have fallen more than 67 per cent since their 12-month peak in October last year. The shares closed with modest gains yesterday, adding 0.5 per cent to 37 fils. Tabreed yesterday reported a more than 67 per cent increase in the company's second-quarter net profit to Dh42.9m, 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 same period last year, which the company attributed to improved revenues and cost management. Tabreed designs, finances, constructs and operates district cooling facilities, which supply chilled water to industrial, commercial and residential airconditioning systems. It benefited from the property boom in the region but its profitability has suffered recently. Projects worth hundreds of billions of dollars have either been cancelled or delayed since the autumn of 2008.
skhan@thenational.ae
