Dubai contractor Drake & Scull International (DSI) expects to have nearly 1 billion dirhams ($272 million) of cash flow available over the next four years to partly repay its debt, banking sources told Reuters. The loss-making builder sent non-disclosure agreements to its lenders in April, ahead of planned meetings to discuss the rescheduling of payments on existing debt and to seek support for its 2017-2021 business plan.
DSI been battling a depressed Gulf construction market, as governments rein in spending on infrastructure schemes after oil prices declined. DSI estimates it will have 956 million dirhams of cash flow available for debt service (CFADS) over the next four years, which will be used to partly repay 2.6 billion dirhams of funded debt and 699 million dirhams of interest costs, according to the sources who saw the business plan and spoke on conditions of anonymity as the matter is not public.
Funded debt can usually be bonds, long-term notes payables or debentures that will mature in more than one year. DSI did not respond to Reuters queries for comment. One of the creditors, who is familiar with DSI's plan, told Reuters that the company should have shed more light on how it will reduce its debt.
"There was very little comfort for lenders," said the creditor. "It would have been nice to have some information on its debt repayment plan and its debt reduction plan. "With a five year-plan it's very difficult to be accurate as a lot of it is dependent on economic conditions." DSI also forecasts earnings before interest, taxes, depreciation and amortization this year of 64 million dirhams, from a negative figure of 566 million dirhams last year, the sources said.
The company expects revenues of 17.48 billion dirhams over the next four years, mostly from current backlog, expected project wins in 2017 and improved market conditions driven by Dubai's Expo 2020 and the 2022 FIFA World Cup in Qatar, the sources said. A second creditor said the revenue forecast was quite bullish compared to general market expectations.
In February DSI announced a turnaround and capital restructuring plan which included a number of cost-cutting measures, capital raising initiatives and divesting non-performing or distressed subsidiaries. Drake & Scull also said that as part of its turnaround and capital restructuring plan, it was considering proposing a rights issue of 500 million dirhams in equity to a strategic investor, and that it had secured a binding offer from United Arab Emirates-based Tabarak Investment. Shareholders this month approved a 75 percent reduction of Drake & Scull's paid-up share capital. A 50 percent reduction was one of the conditions for investment from Tabarak.
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