Auditors raise concerns over Drake & Scull as losses mount

Unsplash/Daniel Zacatenco

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Auditors reviewing the finances of Drake & Scull International have issued a heavily qualified disclaimer in which they appear to distance themselves from the UAE construction contractor.

A filing on Dubai Financial Market for Drake & Scull revealed revenues of AED94 million ($26 million) for the year to December 31 2023, up from AED81 million the previous year.

However, net losses increased 64 percent year on year to AED368 million.

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The accompanying report from the Dubai-based auditor Mazars revealed that accumulated losses for the year amounted to almost AED5.5 billion. Current liabilities exceeded current assets by more than AED4.5 billion and Drake & Scull had a negative cash flow from operations of AED67 million.

Auditors were also “unable to obtain direct bank confirmations for certain bank balances, bank borrowings, provision for bank liabilities of subsidiaries and commitments and contingencies” with a combined value of almost AED4 billion, according to the report.

Shareholders are due to meet on Monday to discuss the company’s future, including its long-running financial restructuring plan and proposed capital increase up to AED600 million, which would lead to a return to trading on the Dubai stock market.

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Trading in Drake & Scull shares has been suspended since November 2018, after the company announced losses that exceeded 75 percent of its capital.

Last November Dubai’s Court of Appeal approved the restructuring plan for the business.

During a lengthy legal battle, a lower court had ruled that the company should be placed into liquidation. This was overturned and Drake & Scull was given one year to turn things around.

Mazars said that questions over the impact of the plan has created “a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern and, therefore, it may not be able to realise its assets and discharge its liabilities in the normal course of business”.

The restructuring was backed by creditors and shareholders in April last year under UAE bankruptcy law. They agreed to write off 90 percent of the company’s debts, while the remaining 10 percent will be changed into the sukuk.

Sukuk are sharia-compliant bonds that were developed as an alternative to conventional bonds, which are not considered permissible by many Muslims as they pay interest and may finance businesses involved in activities not allowed under Islamic law.

In a separate filing on Friday, Drake & Scull’s sustainability report said that once the restructuring plan was complete, the company would “kick-start the implementation of an ambitious business plan” that would “return the company to a market-leading position within its area of focus”.

This includes projects in mechanical, electrical and plumbing, water and environment, and energy (oil and gas).

In August, the company revealed that it had filed lawsuits with claims equivalent to more than AED10 billion, including civil cases filed against the former management of the company and against advisory firms.

It has also filed criminal cases with claims of more than AED2.3 billion in Abu Dhabi and Dubai.