Abu Dhabi bails out yet another local firm
Posted on 09 March 2010 with no comments from readers
The list of companies seeking emergency financial help from Abu Dhabi continues to grow in the UAE. The district cooling company Tabreed is the latest to turn to the government cap-in-hand.
Yesterday the firm said it had secured a $353 million loan from Mubadala, the state investment fund, to help with its operating expenses for the year after posting a loss of $299 million for 2009.
Market reaction
The local stock market was appalled by the unexpected announcement and shares dropped by close to the daily limit to AED0.57. Also known as the National Central Cooling Company, it would appear that the company had exhausted all other debt raising capacity, said analysts.
Investors hate these sudden surprises and fear that the new loan will eventually be converted into shares and therefore dilute the value of their stock.
Similar financial rescues have been engineered recently by Abu Dhabi for Aldar Properties through the acquisition of Yas Island, and for Arabtec through a big share issue. Investors might react with disapproval but would they really prefer these companies to end up in the hands of liquidators?
Abu Dhabi clearly sees them as national champions and also good long-term investments. It is understandable that investors are outraged at what they see as buying shares on the cheap but better to end up owning some stock worth less than worthless stock.
Tabreed, for example, looks to be a victim of the classic cash-squeeze of a recession, while the long-term business plan is that of a stable utility, and what can be more basic than supplying cool air for air-conditioning in a place as hot as the UAE?
Chilling growth story
The firm owns and operates 62 district chilling plants in five Gulf countries and Jordan, either directly or through partly owned subsidiaries. It plans to bring another 13 plants online by the end of the year and therein no doubt lies the reason for the cash shortfall.
This is surely a worthwhile use of Abu Dhabi’s immense oil wealth. The emirate is not propping up lame ducks but healthy ducks that should be allowed to get fatter.
It is an application of the same conservative principles that have built the emirate’s international investment portfolios to prodigious proportions, and they are now being applied closer to home to offset the slump in some sections of the local economy.
no Comments posted by readers:
i never understood the business model or value proposition for either tabreed or PDC- Palm district cooling. whats the use of district cooling when most buildings when constructed have independant built in air conditioning put in place that runs on electricity provided by DEWA?. this idea would have been worthwile if they started in the 70’s-80’s, but at this stage in Dubai’s growth, I do not see a bright future for either of these companies.