Move intended to elevate company’s share price above Dh1 and help raise new equity capital

National Central Cooling Company PJSC (Tabreed), the Abu Dhabi-based utility company, has announced that it has received regulatory approval from the Ministry of Economy and the Emirates Securities and Commodities Authority to reduce the company’s share capital through the cancellation of 970,000,000 (970 million) shares. The cancellation of shares would be on a pro-rata and equal basis among shareholders at a ratio of 5:1 – in effect a ‘reverse share-split’– and would apply to all Tabreed shareholders, the announcement said. Each shareholder would, in effect, retain one share for every five original shares they held. The remaining shares would be cancelled.

Tabreed clarified that the percentage holding in the company of each shareholder would be the same after the capital reduction as before, subject only to minor adjustments as fractional shares would not be issued. For example, if a shareholder owned 102 shares, then they would be entitled to 20 shares post-capital reduction, and the remaining fractional interest of .4 post capital reduction shares would be combined with other fractional shares and returned to the company’s treasury account. The maximum value foregone by any shareholder as a result of this process would always be less than the value of 1 share (post capital reduction), Tabreed explained. The number of treasury shares would depend on the combined fractional interests.

The capital reduction would take effect on the opening of business on December 12. In effect, the new shares would start trading on the day on the Dubai Financial Market, it added.

According to the announcement, the cancellation of shares through a capital reduction was a key component of Tabreed’s recapitalisation programme that was approved by shareholders at the Company’s EGA on May 30.

In a Q&A session, Tabreed explained the reason for implementing the capital reduction programme by saying that a company was not permitted to issue shares at below par value, ie, Dh1. As the company’s share price was currently trading below Dh1, the company’s ability to raise new equity was limited. The capital reduction was, therefore, designed to raise the share trading price above Dh1, which would facilitate the company’s objective of raising new capital.

Answering the question about how shareholders would be financially affected by this move, Tabreed reiterated that theoretically, the capital reduction would be value neutral, as the shareholders would each own the same percentage of the company, both before and immediately after the capital reduction. No money would leave the company as a result of the capital reduction, but only a reduction in the outstanding number of shares, it clarified.

Subject to usual market fluctuations, the reduced number of new shares being held should be compensated for by an increase in the share price, so that the aggregate value of the holding would remain the same after capital reduction, Tabreed added.

To the question, if trading in the company’s shares would be suspended during the capital reduction, Tabreed responded by saying that it was expected that the capital reduction would be executed by the Dubai Financial Market, following close of trading on the date that final approvals were received from the regulatory authorities. Accordingly, Tabreed said that it did not expect a suspension of trading of the company’s shares.

Throwing light on the impact on the balance sheet, Tabreed elucidated that the new issued share capital figure would be Dh243,380,000 and a reserve arising from the capital reduction would be created with a value of Dh970,000,000.

Allaying the anxiety of shareholders about the course of action, if any, they needed to take in the present scenario, Tabreed assured the shareholders that no action was required on their part.

Tabreed currently owns and operates 49 district cooling plants, joint ventures and subsidiaries, with operations in Bahrain, Qatar, Oman and Saudi Arabia.

The following key points emerged in a Q&A session on capital reduction:

• The total issued share capital will be reduced from 1,213,380,000 to 243,380,000 shares following completion of the capital reduction.
• Taking a pre-capital reduction share price of Dh0.40, a 5:1 reduction would theoretically increase the share price to Dh2, however the share price would be subject to the usual market fluctuations and might trade either above or below this level after the capital reduction takes effect.
• Regarding the Tabreed 08 Financing Corporation (Sukuk 08 convertible) conversion price and number of shares issued, currently, the minimum exchange price is Dh2.52 and the maximum exchange price being Dh2.7468, with a corresponding number of shares to be delivered on exchange of between Dh619 million and Dh675 million shares. Following the capital reduction and completion of the relevant adjustment procedures, the minimum exchange price would be Dh12.6 and the maximum exchange price, Dh13.734, with a corresponding number of shares to be delivered on exchange of between Dh124 million and Dh135 million shares. This was without taking into account any restructuring in relation to the non-payment of the annual distribution amount.