How soon will Dubai developer Hussain Sajwani pick up another 17.785% in Damac?
Dubai: Hussain Sajwani will have one immediate priority – get to ‘90 per cent plus 1’ ownership of Damac at the earliest opportunity. Once he does that, it should all be smooth running in his plans to take the Dubai real estate developer back into full private ownership.
According to the rules, once the ownership touches 90 per
cent plus 1 share level, Sajwani through his operating company Maple Invest Co.
can exercise the right to acquire shares of even those who do not want to
accept the offer. Once that point is reached, it will only be a matter of time
before Damac Properties gets to be fully owned by Sajwani. (Maple is an
investment vehicle in which Sajwani has full ownership.)
And lead up its delisting from the Dubai stock market – and
making it the second biggest name to do so in the present. It’s interesting
that Sajwani made his intentions to go private during the week that Meraas
announced it would be informing Dubai Financial Market to de-list DXB
Entertainments, the theme park operator.
It won’t end there – Emaar Malls should be the next big one
to de-list as the parent company Emaar Properties takes its back into private
mode. "Companies going private is the strongest signal yet that their
managements believe the underlying assets are being undervalued by the
markets," said Sameer Lakhani, Managing Director at Global Capital
Partners.
Sajwani holds 72.215 per cent in Damac as of now, and the
offer through Maple will extend Dh2.18 billion to those shareholders holding
the 27.785 per cent. And they are being offered to sell their stakes at Dh1.3
apiece.
Damac’s shares dropped to Dh1.28 in heavy trades yesterday
(June 9) after the announcement of Sajwani’s intention. Clearly, some were not
interested by the value on Damac’s buy offer of Dh1.3 a share. Vijay Valecha,
Chief Investment Officer at Century Financial, is one of them.
“The deal doesn't seem fair - at Dh1.3, Damac will be taken
private at a valuation of Dh7.86 billion,” said Valecha. “The company has cash
and cash equivalents of Dh5.6 billion and total debt of Dh3.53 billion,
effectively giving it a takeover rate of Dh5.80 billion.
“That’s quite cheap for a company expected to have revenues
of Dh4.44 billion in 2021.” The question will a majority of Damac shareholders
– those who do not answer to the name of ‘Hussain Sajwani’ – share that view?
No cut-off date has been mentioned in the open offer from
Maple. The Damac Board of Directors’ members will have to evaluate the offer
formally.
This is where reaching the ‘90 per cent plus 1 share’ mark
is vital for Sajwani and Maple. The offer shall not become unconditional until
Maple has received “valid acceptances” adding up to at least 90 per cent of
Damac’s issued share capital. One that mark is reached, those shareholders not
willing to sell out can be ‘squeezed out’ using existing stock market
regulations.
Some market watchers reckon Maple may have to “sweeten” the
offer further. “A good number of investors would have misgivings,” one analyst
said. “They are aware that the offer is being made when Dubai real estate is
beginning to look up again.
“The Damac management is trying to take advantage of the
current scenario.
"Taking companies private implies punishing of
investors who had subscribed for the IPO and are now powerless to capitalize on
the undervaluation of the company. This acts as a further disincentive to
invest in capital markets - especially for smal investors. A more activist
approach may be needed to galvanize investor interest."
That Sajwani wanted to take Damac private was more or less
known in the investor community for more than a year now. Getting back full
ownership was seen as a better way of managing one of the region’s biggest
private sector developers at a time when the property market situation was
volatile.
Armed with the knowledge of Sajwani’s intentions, investors
boosted Damac’s shares by 45 per cent in the last 24 months – a period during
which the developer reported sizable losses as well.
Effect on Damac balance-sheet
In an update issued on Wednesday evening, the rating agency
S&P said: “We understand that delisting will not have any effect on Damac's
balance-sheet, since the consideration will be paid by the acquirer (Sajwani
through Maple). We also note that Damac cannot distribute dividends due to
restrictions under its bond indenture. Therefore, we expect Damac's credit
metrics will be unchanged, in line with the 'B' rating and negative outlook.”
But for Damac’s shareholders in the open market, this will
not have much bearing. They will have to decide whether the Dh1.3 they have
been offered is good enough… or not.
Then wait to see Maple’s next set of moves to try and reach
90 per cent of ownership in Sajwani’s favour. When that’s done, it will all be
plain sailing for Sajwani.
So, how soon will Sajwani pick up the next 17.785 per cent
in Damac?
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