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When will Dubai developer Hussain Sajwani raise another 17.785% at Damac?


Focused as always on the bigger picture … Hussain Sajwani of Damac had been telegraphing his intentions to take the private company for some time now. On June 9, he made everything formal.
Image credit: Gulf News

Dubai: Hussain Sajwani will have an immediate priority: get to ’90 percent plus 1 ‘owned by Damac at the earliest opportunity. Once that is done, it should all go smoothly in his plans to bring the Dubai real estate developer back into full private ownership.

According to the rules, once ownership becomes 90% plus 1 level of shares, Sajwani through its operating company Maple Invest Co. can exercise the right to acquire shares even of 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 becomes wholly owned by Sajwani. (Maple is an investment vehicle that Sajwani has full ownership of.)

And take its delisting from the Dubai stock market – and make it the second biggest name to do so in the present. Interestingly, Sajwani expressed his intentions to go private during the week that Meraas announced that it would inform the Dubai financial market to remove DXB Entertainments, the theme park operator, from the list.

It won’t end there: Emaar Malls is expected to be the next major mall to be struck off the list as parent company Emaar Properties returns to private mode. “Companies that go private are the strongest sign that their executives believe the underlying assets are undervalued by the markets,” said Sameer Lakhani, CEO of Global Capital Partners.

The Damac Towers on Shaikh Zayed Road

Due Outstanding … Damac has created a portfolio of towers and communities in some of Dubai’s most chosen locations.
Image credit: Clint Egbert / Gulf News

Will Damac’s other investors cash out?

Sajwani currently holds 72.215% of Damac and the offer through Maple will extend Dh2.18 billion to those shareholders who hold 27.785%. And they are offered to sell their shares at Dh1.3 each.

Yesterday (June 9) Damac shares fell to 1.28 Dh in heavy trading after the announcement of Sajwani’s intention. Clearly, some were not interested in the value of Damac’s bid of 1.3 Dh per share. Vijay Valecha, Century Financial’s Chief Investment Officer, is one of them.

“The deal does not seem fair: at Dh1.3, Damac will be private with a valuation of Dh7.86 billion,” Valecha said. “The company has cash and cash equivalents of Dh 5.6 billion and a total debt of Dh 3.53 billion, which gives it an acquisition rate of Dh 5.80 billion.

“This is quite cheap for a company that is expected to have a turnover of AED 4.44 billion in 2021.” The question: will the majority of Damac’s shareholders – those who do not answer the name of ‘Hussain Sajwani’ – share this view?

No cut-off date was mentioned in Maple’s open offer. The members of Damac’s Board of Directors will have to formally evaluate the offer. (Sajwani refused the decision due to his role on Maple.)

Emaar’s moves

It was in March that Emaar Properties confirmed its intention to make its retail subsidiary Emaar Malls private.

“The merger is subject to a number of conditions, including approval of the merger by vote of shareholders who own at least 75% of the shares of Emaar Properties and Emaar Malls,” said Century Financial’s Vijay Valecha. “The Securities and Commodities Authority (SCA) must approve the merger. For now, the process is not complete.”

Dates to be defined

This is where hitting the 90 percent plus 1 share mark is vital for Sajwani and Maple. The offer will not become unconditional until Maple has received “valid acceptances” equal to at least 90% of Damac’s issued share capital. Once the milestone is reached, those shareholders who are unwilling to sell out can be “squeezed” using existing stock market regulations.

Some market observers believe Maple may need to sweeten the offer further. “A good number of investors would have doubts,” said one analyst. “They are aware that the offer is being made when the Dubai real estate sector is starting to search again.

“Damac management is trying to exploit the current scenario.

“Taking private companies implies punishing investors who signed the IPO and are now powerless to capitalize on the undervaluation of the company. This acts as an additional disincentive to invest in capital markets, especially for small investors. Necessary to galvanize the company. investor interest “.

I expected more

That Sajwani wanted to make Damac private had been more or less known in the investment community for more than a year. Regaining full ownership was seen as a better way to manage one of the region’s largest private sector developers at a time when the housing market was unstable.

Armed with knowledge of Sajwani’s intentions, investors have increased Damac’s shares by 45% over the past 24 months, a period during which the developer has also reported substantial losses.

Effect on Damac’s balance sheet

In an update released Wednesday evening, the S&P rating agency said: “We understand that the delisting will have no effect on Damac’s balance sheet, as the consideration will be paid by the buyer (Sajwani via Maple). We also note that Damac cannot distribute dividends due to restrictions under its bond agreement. Therefore, we expect Damac’s credit metrics to remain unchanged, in line with the ‘B’ rating and negative outlook ”.

But for Damac’s shareholders in the open market, this won’t have much weight. They will have to decide if the Dh1.3 they have been offered is good enough … or not.

So wait until you see Maple’s next round of moves to try and get 90% ownership in Sajwani’s favor. When this is done, everything will be fine for Sajwani.

So how soon will Sajwani pick up the next 17.785% in Damac?

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