Pre-IPO dealings land Damas in hot water

Pre-IPO dealings land Damas in hot water. (EB FILE)

Damas had agreed to a couple of unusual deals prior to its initial public offering (IPO), one of which resulted in the Dubai Financial Services Authority's (DFSA) recent punitive action while the other ended up in court, Emirates Business has learnt.

Public documents indicate that the UAE-based international jewellery retail chain agreed with at least two firms from the Gulf Co-operation Council (GCC) states to repurchase Damas International Limited (DIL) shares a few days after the company listed on Nasdaq Dubai (then DIFX) on July 8, 2008.

The first case involves the Abdullah brothers' withdrawing money from DIL to fund the purchase of shares from the IPO.

DIL got 100 million order of shares worth $100 million (Dh367m) on July 2, but right after Nasdaq Dubai was shown that the minimum free float was achieved, the money was returned to Dubai Group via the Abdullah Brothers' personal accounts.

In the second case – which is now in the news – Damas agreed to purchase back shares from a private equity firm from Saudi Arabia, two days after the listing. As per the share purchase agreement dated June 16, 2008, Amwal Al Khaleej agreed to sell the 22 million shares it owns in Damas to the Abdullah Brothers on July 10, 2008.

Amwal acquired a sizable minority stake in Damas and partnered with the company to form Saudi Damas, which operates several Damas branded stores throughout the kingdom. The value of the acquisition deal was $82.5m.

Amwal, which made the investment in June 2005, was slated to achieve a gross 32 per cent IRR (internal rate of return) upon its slated exit in June 2008.

Both Damas and Amwal agreed that the purchase price of the 22 million shares would be determined after two business days from the price determination date or the date of the listing, effectively pricing Amwal's shares at $22m.

It was also agreed that should the Abdullah Brothers fail to pay, they would be obliged to give back the shares to Amwal.

On or around July 1, 2008, Amwal executed all the documents necessary for the transfer of shares to Tawfique, Tawhid and Tamjid Abdullah. It turned out however that the brothers neither paid the amount nor sent back the shares.

It appears that over the next 16 months from the date of listing, the two parties tried to agree on an amicable settlement, as indicated in the Letter Agreement dated November 1, 2009.

Amwal argues that it was agreed in that letter that part payment of $9m would be made by Damas Investments; and to compensate some of the remaining payables, Damas would relinquish all its interest in the 9,750 shares it holds in the share capital of Amwal Alkhaleej.

It was also agreed that Damas would "unconditionally and irrevocably" appoint Amwal or its nominee as the attorney to exercise all rights attached to Amwal shares, a claim form filed by Amwal in DIFC courts said.

At the same time Damas would novate to Amwal all its rights and obligations in respect of the funds it had advanced to Amwal in connection with Amwal shares. Amwal claims the retailer "failed to perform" all the obligations set out in the Sales and Purchase Agreement (SPA) and Letter Agreement. "The claimant has suffered loss and damage as a result of breaches of contracts by the defendants," the company said.

Amwal is now asking the court to direct Damas to return them the shares or make the Abdullah Brothers pay the full sum of $22,042,696 plus interest at the rate of 12 per cent and pay damages, (which is the difference of $12.8m purchase price minus the value attributed to Amwal shares under the Letter Agreement) and the market value of the shares at the time of re-transfer.

Damages claim challenged

Aside from the order to transfer shares, Tawhid Abdullah denies that Amwal Al Khaleej is entitled to damages for any depreciation in the market value of the shares. "At no time has the claimant indicated a desire to sell the shares to realise their value and in the circumstances it is averred that any fluctuation in the market value is irrelevant," the defence said.

In addition, they said they signed the Draft Letter Agreement on November 1, 2009 out of good faith to resolve the matter amicably and only on the basis that ancillary matters would be resolved.

However, seeing that these matters were not resolved, the defendants did not return the signed draft letter agreement to the claimant. "The draft letter agreement was therefore never concluded and is not binding on the defendants."

DIFC jurisdiction contested

Damas Investments, one of the companies owned by the Abdullah Brothers, along with Damas Real Estate and Damas Hotels, is contesting the jurisdiction of the Dubai International Financial Centre (DIFC) Courts over this matter.

Although Damas International Limited (DIL) is incorporated in DIFC, Damas Investments is located outside DIFC.

Amwal maintains that as per clauses 8 and 9 of the SPA, parties submit to the jurisdiction of DIFC Courts over any dispute arising out of the Sales and Purchase Agreement. A hearing is set for April 21 in DIFC Courts to argue this matter. According to a DIFC Courts and Dubai Courts protocol, the DIFC Courts shall have exclusive jurisdiction over civil or commercial cases and disputes involving the DIFC or any company licensed to operate from the DIFC.

The DIFC Courts also have jurisdiction over any civil or commercial case and dispute arising from, or related to, a contract or financial transaction that has been performed in whole or in part within the DIFC. Under the protocol, cases that fall outside these criteria, including all criminal cases, are to be handled by the Dubai Courts.

 

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