Sunday, May 9, 2010

Damas - Update on Enforceable Undertaking

From Nasdaq Dubai.

Damas International Limited (The Company) announced today that it is taking all reasonable steps to secure and recover the drawings amount owed to the Company by the Abdullah brothers.
The Company is working with the Abdulla brothers within the overall timeline, to recover the drawings amounts, as agreed in the Settlement Agreement and the Share Pledge Agreement (the "Agreements"). Given the complexity involved in transferring / selling the assets declared to the Company, it is taking more time to affect the recoveries as per the timeline mentioned in the previous announcement by the Company on 4 November  2009. The delay in payments does not constitute an event of default under the Agreements.   However, the amount of US$55 million to be paid by the Abdullah brothers to The Company on or before 30th April 2010 will be carried forward and settled in accordance with the terms and conditions of the Agreements. Active efforts are underway by the Company and the Abdulla brothers to repay the amounts either in cash or by transfer of assets.
The Company is constantly engaged with the Abdulla brothers to ensure expeditious realization from the sale of assets to settle their drawings. These efforts are on going and the Company will report to its shareholders and the market on a regular basis as to its efforts, and the effectiveness of its efforts in recovering all amounts due to the Company by the Abdullah brothers.

The Company, having clarified this matter and informed the market of the developments requests an immediate reinstatement of the trading on its shares.
 Some reactions.
  1. Sounds like the recovery isn't going particularly well.  Old hands in the banking business will tell you it's not a good sign when the obligor can't make the first scheduled payment on a deal he's recently negotiated with you.  I have good reason to believe that this rule applies pretty much around the world - even in Dubai. 
  2. The Brothers took cash and a "bit" of gold from Damas.  The company is unable to pay its lenders. 
  3. When I read comments about transfers of assets (even with a new presumably alert and scrupulous board), I worry about the transfer of illiquid and potentially duff assets.  If the Brothers can't liquidate the assets, why should Damas presume that it can?  And if the debt is extinguished at transfer and not upon realization, why should Damas bear the liquidity risk (that the price they actually get will be much less than the transfer value) and the costs of carrying the asset until realization.
  4. As noted above, the Brothers took cash and a "bit" of gold.  Their obligation is to return the company to the position before the "withdrawal".   The goal should be to avoid a BPPN "settlement" that lets the obligors skate away scot-free.

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